Chatham Lodging Trust Results

Chatham Lodging Trust Announces First Quarter 2019 Results

Company Beats AFFO Guidance, RevPAR In-Line, Raises 2019 Guidance

Chatham Lodging Trust

Chatham Lodging Trust (NYSE: CLDT), a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels and owns 137 hotels wholly or through joint ventures, today announced results for the first quarter ended March 31, 2019. The company also updated its full-year guidance for 2019 and provided 2019 second quarter guidance.

First Quarter 2019 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Declined 1.0 percent to $121, compared to the 2018 first quarter, for Chatham’s 40, comparable wholly owned hotels (excludes the Residence Inn Charleston Summerville which opened in August 2018 and the Courtyard Dallas Downtown which opened in September 2018). Average daily rate (ADR) declined 1.5 percent to $159, and occupancy rose 0.5 percent to 76 percent.
  • Net Income - Declined $1.3 million to $1.6 million, compared to the 2018 first quarter. Net income per diluted share was $0.03 versus $0.06 for the same period a year earlier.
  • Adjusted EBITDA - Advanced $0.6 million, or 2.6 percent higher than the 2018 first quarter, to $27.0 million, exceeding the upper end of the company’s guidance of $26.4 million.
  • Adjusted FFO - Lessened $0.3 million, to $16.2 million, versus $16.5 million in the 2018 first quarter. Adjusted FFO per diluted share was $0.34, above guidance of $0.30-$0.33 per share.
  • Operating Margins -For its 40 comparable hotels, gross operating profit margins declined 50 basis points to 43.7 percent. Comparable Hotel EBITDA margins were 60 basis points lower at 35.5 percent.

Consolidated Financial Results

The following chart summarizes the consolidated financial results for the three months ended March 31, 2019. RevPAR, ADR and occupancy for 2019 and 2018 are based on the 42 hotels owned as of March 31, 2019 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

    Three Months Ended
    March 31,
    2019   2018
Net income   $1.6   $2.9
Diluted net income per common share   $0.03   $0.06
RevPAR   $120   $122
ADR   $159   $162
Occupancy   76%   76%
GOP Margin   43.6%   44.4%
Hotel EBITDA Margin   35.3%   36.3%
Adjusted EBITDA   $27.0   $26.4
AFFO   $16.2   $16.5
AFFO per diluted share   $0.34   $0.36
Dividends per share   $0.33   $0.33

Operating Results

“Overall, we are pleased with our first quarter results, delivering RevPAR in line with our guidance, while beating our adjusted EBITDA, AFFO and AFFO per share guidance, driven by higher than forecast operating margins,” Fisher highlighted. “We had strong RevPAR growth in some of our top markets during the quarter, especially our California markets, where corporate investment and employment growth remains healthy.”

Chatham’s six largest markets comprise approximately 60 percent of its hotel EBITDA. First quarter 2019 RevPAR performance for these key markets include:

  • Silicon Valley RevPAR improved 3.6 percent to $183 at its four hotels, despite renovations occurring at one of its Sunnyvale hotels.
  • RevPAR at its two San Diego hotels increased 12.6 percent with its Downtown Gaslamp hotel producing RevPAR growth of 1.8 percent and its Mission Valley hotel benefitting from an easy comparison as the hotel was under renovation in the 2018 first quarter.
  • Washington, D.C. RevPAR declined 5.3 percent as its three hotels were adversely impacted by the effects of the government shutdown, as well as the renovation at its Tysons, Va., hotel where RevPAR was down 8.0 percent.
  • RevPAR at its three coastal hotels in Maine and New Hampshire advanced 3.9 percent, driven by strong leisure demand.
  • At its four Houston hotels, RevPAR dropped 3.9 percent due to difficult comparisons to the prior year attributable to demand from Hurricane Harvey at its two West University hotels.
  • The two Los Angeles-area hotels experienced a 2.0 percent RevPAR increase.

Gross operating profit margins at its 40 comparable hotels, which excludes two hotels opened in 2018, declined 50 basis points to 43.7 percent.

“Given the RevPAR decline of 1.0 percent, we are encouraged that we were able to minimize margin erosion to only 50 basis points at our 40 comparable hotels,” said Dennis Craven, Chatham’s chief operating officer. “Our initiatives with our hotel management company, Island Hospitality, to enhance other revenue and closely manage our payroll and benefits costs, which remains the line item with the highest exposure to increase due to the strong economy and historically low unemployment, are working well.”

On a per occupied room basis at its 40 comparable Island-managed hotels, payroll and benefits costs increased 2.7 percent in the 2019 first quarter.

“Continuing a positive trend since midway through 2018, on a per occupied room basis, the rate of increase in payroll and benefits has been declining. In fact, this is the first quarter in a very long time that our year-over-year increase was below 3 percent,” Craven stated.

Strategic Capital Recycling Program and Hotel Investments

During the first quarter, the company substantially completed the renovations of the Homewood Suites Farmington, Conn., the Residence Inn Sunnyvale, Calif., (#1), and Residence Inn Tysons Corner, Va. Also during the quarter, the company commenced renovations of the Residence Inn Dedham, Mass. and expects to complete the Dedham renovation in the 2019 second quarter.

Capital Markets & Capital Structure

As of March 31, 2019, the company had net debt of $588.0 million (total consolidated debt less unrestricted cash). Total debt outstanding was $599.2 million at an average interest rate of 4.6 percent, comprised of $502.2 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $97.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.6 percent interest rate.

Chatham’s leverage ratio was approximately 35.1 percent on March 31, 2019, based on the ratio of the company’s net debt to hotel investments at cost. The weighted average maturity date for Chatham’s fixed-rate debt is February 2024, with the earliest maturity in 2021. As of March 31, 2019, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $2.7 million, respectively. At Chatham’s current leverage level, the borrowing cost under its credit facility is LIBOR plus 1.65 percent.

On March 31, 2019, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint venture portfolios with Colony NorthStar, was 3.3 times, and total net debt to trailing 12-month corporate EBITDA was 5.7 times. Excluding its interest in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.6 times, and net debt to trailing 12-month corporate EBITDA was 5.1 times.

Joint Venture Investments

During the 2019 first quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.2 million and $0.7 million, respectively, compared to the 2018 first quarter Adjusted EBITDA and FFO of approximately $3.1 million and $0.9 million, respectively. Adjusted EBITDA and Adjusted FFO were $0.1 million and $0.2 million, respectively, above the company’s previous guidance for the quarter. Adjusted EBITDA increased slightly due to improved hotel operating results, and the year-over-year decrease in adjusted FFO is primarily attributable to increased interest expense attributable to higher LIBOR borrowing rates.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s estimated 2019 dividend per share of $1.32 represents approximately 71 percent of adjusted FFO per share based upon the midpoint of its 2019 guidance.

2019 Guidance

The company provides guidance, but does not undertake to update it for any developments in its business. Achievement of the results is subject to the risks disclosed in the company’s filings with the Securities and Exchange Commission.

The company’s 2019 guidance reflects the following assumptions:

  • Industrywide RevPAR growth of 1 to 2.5 percent in 2019
    • Marriott International forecast North American RevPAR growth of 1 to 3 percent; Hilton Hotels & Resorts estimated systemwide RevPAR growth of 1 to 3 percent
    • STR projected industry RevPAR growth of 2.3 percent
  • RevPAR range is adversely impacted by approximately 65 basis points due to non-recurring demand related to the Boston area gas explosions in the 2018 fourth quarter
  • Renovations commencing at the following hotels:
    • Residence Inn Dedham, Mass. in the first quarter
    • Residence Inn San Mateo, Calif., Residence Inn Houston and Hampton Inn and Suites Houston, Texas, during the second quarter
    • Residence Inn Fort Lauderdale, Fla., during the third quarter
    • Residence Inn Sunnyvale, Calif., #2, in the fourth quarter
  • No additional acquisitions, dispositions, debt or equity issuance
        Q2 2019       2019 Forecast
RevPAR       $144 to $145       $132 to $135
RevPAR growth (40 comparable hotels)       0.5% to 1.5%       -1.5% to 0.5%
Total hotel revenue       $88.0 to $89.0 M       $326.5 to $332.5 M
Net income       $12.2 to $13.6 M       $25.3 to $29.6 M
Net income per diluted share       $0.26 to $0.29       $0.53 to $0.63
Adjusted EBITDA       $38.6 to $40.0 M       $130.2 to $134.7 M
Adjusted FFO       $27.3 to $28.7 M       $85.4 to $89.7 M
Adjusted FFO per diluted share       $0.58 to $0.61       $1.80 to $1.90
Hotel EBITDA margins       41.1% to 41.9%       37.9% to 38.3%
Corporate cash administrative expenses       $2.4 M       $9.6 M
Corporate non-cash administrative expenses       $1.3 M       $4.8 M
Interest expense (excluding fee amortization)       $7.1 M       $28.3 M
Non-cash amortization of deferred fees       $0.3 M       $1.2 M
Chatham’s share of JV EBITDA       $4.8 to $5.2 M       $15.9 to $16.7 M
Chatham’s share of JV FFO       $2.2 to $2.6 M       $5.5 to $6.3 M
Weighted average shares/units outstanding       47.3 M       47.3 M
    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA, Adjusted EBITDA and Hotel EBITDA margins are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

About Chatham Lodging Trust

Chatham Lodging Trust is a self-advised, publicly-traded real estate investment trust focused primarily on investing in upscale, extended-stay hotels and premium-branded, select-service hotels. The company owns interests in 137 hotels totaling 18,783 rooms/suites, comprised of 42 properties it wholly owns with an aggregate of 6,283 rooms/suites in 15 states and the District of Columbia and a minority investment in two joint ventures that own 95 hotels with an aggregate of 12,500 rooms/suites.

CHATHAM LODGING TRUST
Consolidated Balance Sheets
(In thousands, except share and per share data)
         
    March 31,   December 31,
    2019   2018
    (unaudited)    
Assets:        
Investment in hotel properties, net   $ 1,372,077     $ 1,373,773  
Cash and cash equivalents   11,199     7,192  
Restricted cash   21,342     25,145  
Investment in unconsolidated real estate entities   20,857     21,545  
Right of use asset, net   22,936      
Hotel receivables (net of allowance for doubtful accounts of $281 and $264, respectively)   5,221     4,495  
Deferred costs, net   4,917     5,070  
Prepaid expenses and other assets   5,504     2,431  
Deferred tax asset, net   58     58  
Total assets   $ 1,464,111     $ 1,439,709  
Liabilities and Equity:        
Mortgage debt, net   $ 500,568     $ 506,316  
Revolving credit facility   97,000     32,000  
Accounts payable and accrued expenses   30,184     31,692  
Distributions and losses in excess of investments of unconsolidated real estate entities   10,086     6,582  
Lease liability, net   25,623      
Distributions payable   5,733     5,846  

Total liabilities

  669,194     582,436  
Commitments and contingencies        
Equity:        
Shareholders’ Equity:        
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at December 31, 2018 and 2017        
Common shares, $0.01 par value, 500,000,000 shares authorized; 46,571,005 and 46,525,652 shares issued and outstanding at March 31, 2019 and 2018, respectively   466     465  
Additional paid-in capital   897,161     896,286  
Retained earnings (distributions in excess of retained earnings)   (113,039 )   (99,285 )
Total shareholders’ equity   784,588     797,466  
Noncontrolling interests:        
Noncontrolling interest in Operating Partnership   10,329     9,952  
Total equity   794,917     807,418  
Total liabilities and equity   $ 1,464,111     $ 1,389,854  
CHATHAM LODGING TRUST
Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)
     
    For the three months ended
    March 31,
    2019   2018
Revenue:        
Room   $ 68,085     $ 66,251  
Food and beverage   2,427     2,098  
Other   3,676     3,027  
Cost reimbursements from unconsolidated real estate entities   1,491     1,539  
Total revenue   75,679     72,915  
Expenses:        
Hotel operating expenses:        
Room   15,570     14,553  
Food and beverage   2,009     1,740  
Telephone   433     459  
Other hotel operating   939     721  
General and administrative   6,167     6,033  
Franchise and marketing fees   5,932     5,525  
Advertising and promotions   1,533     1,565  
Utilities   2,750     2,699  
Repairs and maintenance   3,611     3,624  
Management fees   2,544     2,437  
Insurance   338     333  
Total hotel operating expenses   41,826     39,689  
Depreciation and amortization   12,772     12,036  
Property taxes, ground rent and insurance   6,166     5,775  
General and administrative   3,514     3,622  
Other charges   17     (14 )
Reimbursed costs from unconsolidated real estate entities   1,491     1,539  
Total operating expenses   65,786     62,647  
Operating income before gain (loss) on sale of hotel property   9,893     10,268  
Gain (loss) on sale of hotel property       (17 )
Operating income   9,893     10,251  
Interest and other income   55     2  
Interest expense, including amortization of deferred fees   (7,197 )   (6,631 )
Loss from unconsolidated real estate entities   (1,123 )   (754 )
Income before income tax expense   1,628     2,868  
Income tax expense        
Net income   1,628     2,868  
Net income attributable to noncontrolling interests   (15 )   (20 )
Net income attributable to common shareholders   $ 1,613     $ 2,848  
         
Income per Common Share - Basic:        
Net income attributable to common shareholders   $ 0.03     $ 0.06  
Income per Common Share - Diluted:        
Net income attributable to common shareholders   $ 0.03     0.06  
Weighted average number of common shares outstanding:        
Basic   46,556,710     45,753,792  
Diluted   46,734,958     46,022,690  
Distributions paid per common share:   $ 0.33     $ 0.33  
CHATHAM LODGING TRUST
FFO and EBITDA
(In thousands, except share and per share data)
     
    For the three months ended
    March 31,
    2019   2018
Funds From Operations (“FFO”):        
Net income   $ 1,628     $ 2,868  
Loss on sale of hotel property       17  
Depreciation   12,710     11,978  
Adjustments for unconsolidated real estate entity items   1,818     1,678  
FFO attributable to common share and unit holders   16,156     16,541  
Other charges   17     (14 )
Adjustments for unconsolidated real estate entity items       12  
Adjusted FFO attributable to common share and unit holders   $ 16,173     $ 16,539  
Weighted average number of common shares and units        
Basic   46,966,901     46,085,461  
Diluted   47,145,149     46,354,359  
     
     
    For the three months ended
    March 31,
    2019   2018
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):        
Net income   $ 1,628     $ 2,868  
Interest expense   7,197     6,631  
Depreciation and amortization   12,772     12,036  
Adjustments for unconsolidated real estate entity items   4,355     3,908  
EBITDA   25,952     25,443  
Loss on sale of hotel property       17  
EBITDAre   25,952     25,460  
Other charges   17     (14 )
Adjustments for unconsolidated real estate entity items       (11 )
Share based compensation   1,059     918  
Adjusted EBITDA   $ 27,028     $ 26,353  
CHATHAM LODGING TRUST
ADJUSTED HOTEL EBITDA
(In thousands, except share and per share data)
         
        For the three months ended
        March 31,
        2019   2018
             
Net Income   $ 1,628     $ 2,868  
Add:   Interest expense   7,197     6,631  
    Depreciation and amortization   12,772     12,036  
    Corporate general and administrative   3,514     3,622  
    Other charges   17      
    Loss from unconsolidated real estate entities   1,123     754  
    Loss on sale of hotel property       17  
Less:   Interest and other income   (55 )   (2 )
    Other charges       (14 )
    Adjusted Hotel EBITDA   $ 26,196     $ 25,912  



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