Chatham Lodging Trust Results

Chatham Lodging Trust Announces Second Quarter 2019 Results

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 135 hotels wholly or through joint ventures, today announced results for the second quarter ended June 30, 2019. The company also updated its full-year guidance for 2019 and provided 2019 third quarter guidance.

Second Quarter 2019 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Declined 0.3 percent to $145, compared to the 2018 second quarter, for Chatham’s 38, 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 0.7 percent to $173, and occupancy rose 0.4 percent to 83.7 percent.
  • Net Income - Declined $4.0 million to $9.5 million, compared to the 2018 second quarter, driven by the loss on the sale of two hotels of $3.3 million. Net income per diluted share was $0.20 versus $0.29 for the same period a year earlier.
  • Adjusted EBITDA - Rose $1.0 million, or 2.8 percent higher than the 2018 second quarter, to $38.7 million, within the company’s guidance of $38.6-$40.0 million.
  • Adjusted FFO - Improved $0.3 million, to $27.7 million, versus $27.4 million in the 2018 second quarter. Adjusted FFO per diluted share was $0.58, within the company’s guidance of $0.58-$0.61 per share and down only $0.01 from the 2018 second quarter. The sale of the two western Pennsylvania hotels reduced Adjusted FFO per share by $0.01 in the quarter.
  • Operating Margins - For its 38 comparable hotels, hotel EBITDA margins were unchanged at 42.3 percent. Comparable gross operating profit margins only declined 20 basis points to 49.3 percent.

Consolidated Financial Results

The following chart summarizes the consolidated financial results for the three and six months ended June 30, 2019. RevPAR, ADR and occupancy for 2019 and 2018 are based on the 40 hotels owned as of June 30, 2019 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

Net income

$9.5

 

$13.5

 

$11.2

 

$16.4

Diluted net income per common share

$0.20

 

$0.29

 

$0.23

 

$0.35

RevPAR

$143

 

$145

 

$133

 

$135

ADR

$172

 

$174

 

$167

 

$169

Occupancy

83%

 

83%

 

79%

 

80%

Adjusted EBITDA

$38.7

 

$37.6

 

$65.7

 

$64.0

GOP Margin

48.9%

 

48.9%

 

46.5%

 

46.8%

Hotel EBITDA Margin

41.7%

 

41.5%

 

38.8%

 

39.1%

AFFO

$27.7

 

$27.4

 

$43.8

 

$43.9

AFFO per diluted share

$0.58

 

$0.59

 

$0.93

 

$0.95

Dividends per share

$0.33

 

$0.33

 

$0.66

 

$0.66

Operating Results

“Second quarter RevPAR finished below our guidance range as demand softened over the last half of the quarter, and business travel waned. June’s decline was exacerbated by the shift in demand related to July 4th,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “As a result, our RevPAR ended the quarter slightly down compared to our expectation that RevPAR would rise 0.5 to 1.5 percent. Within the quarter at our 38 comparable hotels, RevPAR was down 0.2 percent in April, up 2.3 percent in May and down 2.8 percent in June.”

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

  • Silicon Valley RevPAR improved 1.9 percent to $194 at its four hotels.
  • RevPAR at its two San Diego properties increased 4.0 percent to $169.
  • Washington, D.C. RevPAR rose 2.3 percent to $185 at its three hotels.
  • RevPAR at its three coastal hotels in Maine and New Hampshire advanced 5.3 percent, driven by strong leisure demand.
  • At its four Houston hotels, RevPAR dropped 11.1 percent as two hotels were under renovation for part of the quarter, as well as weak demand and new supply at the Medical Center.
  • The two Los Angeles-area hotels experienced a 2.7 percent RevPAR decline.

“Given the uncertain operating environment, as evidenced by the number of hotels where RevPAR declined in the quarter, we cautiously have reduced our RevPAR guidance, and combined with the sale of two hotels, reduced our FFO guidance for the second half of 2019,” Fisher concluded.

Second quarter gross operating profit margins at its 38 comparable hotels, which excludes two hotels opened in 2018, declined 20 basis points to 49.3 percent.

“Collaborating with Island Hospitality, we are rolling out initiatives to increase revenue and further reduce operating expenses, or at least minimize any increase as best possible,” said Dennis Craven, Chatham’s chief operating officer. “At our 38 comparable hotels, compared to the 2018 second quarter, other revenue was up $243 thousand or approximately seven percent. On the operating expense side, we implemented additional programs focused on reducing repairs and maintenance, and those costs were down $260 thousand in the quarter.

“With RevPAR declining in the quarter, the fact that we were able to minimize gross operating profit margin erosion to only 20 basis points at our 38 comparable hotels is noteworthy and reinforces the belief that we have a ‘best-in-class platform.’ Our margins remain the highest of all lodging REITs,” Craven noted.

On a per occupied room basis at its 38 comparable Island-managed hotels, payroll and benefits costs increased 3.6 percent in the 2019 second quarter.

“With unemployment at historical low levels and new supply poaching our trained employees, staffing remains the biggest headwind in our cost structure. On a per occupied room basis, the rate of increase in payroll and benefits rose above three percent this quarter. We must continue to find ways to reduce hours, with or without the help of our brands,” Craven stated.

Strategic Capital Recycling Program and Hotel Investments

During the second quarter, continuing its selective recycling strategy, the company sold the 105-room Courtyard by Marriott Altoona, Pa., as well as the 86-suite SpringHill Suites by Marriott Washington, Pa., for approximately $10 million. Inclusive of brand required improvements of over $4 million, Chatham sold the hotels at an approximate six percent net operating income capitalization rate (after an assumed annual capital reserve of four percent of total hotel revenues).

Also in the quarter, the company substantially completed the renovation of the Residence Inn Dedham, Mass., and commenced the renovations of the Residence Inn San Mateo, Calif., Courtyard by Marriott Houston, Texas (West University) and the Hampton Inn and Suites Houston, Texas (Medical Center).

Hotel under Development

Chatham is developing and has begun construction on a hotel in the Warner Center submarket of Los Angeles, Calif., on a parcel of land owned by the company. The company expects the total development costs to be approximately $65 million, inclusive of land of $6.6 million. Including land, the company has incurred costs to date of $10.8 million. The hotel will be well located within Warner Center, an urban community consisting of more than 10 million square feet of office space, approximately eight million square feet of retail space and 20,000 residents. The surrounding area employs more than 50,000 people. Under the Warner Center 2035 plan, it is expected to more than double these metrics.

“This is our first ground-up development since our inception, and we believe this development will provide incremental long-term returns for our shareholders,” Fisher emphasized. “For a couple of years, we have espoused development as part of our overall growth strategy. With that in mind, we reduced leverage since 2017 from 40 percent to our current level of 34 percent. Over that period, we have raised $225 million through asset sales and equity issuance, invested those proceeds into acquisitions of $201 million and provided ourselves the financial flexibility to execute on this component of our strategy.”

Capital Markets & Capital Structure

As of June 30, 2019, the company had net debt of $571.1 million (total consolidated debt less unrestricted cash). Total debt outstanding was $580.0 million at an average interest rate of 4.6 percent, comprised of $501.0 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $79.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.1 percent interest rate.

Chatham’s leverage ratio was approximately 34.2 percent on June 30, 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 June 30, 2019, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $3.5 million, respectively. At Chatham’s current leverage level, the borrowing cost under its credit facility is LIBOR plus 1.65 percent.

On June 30, 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 Capital, was 3.2 times, and total net debt to trailing 12-month corporate EBITDA was 5.5 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 4.9 times.

Joint Venture Investments

During the 2019 second quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $4.9 million and $2.3 million, respectively, compared to the 2018 second quarter Adjusted EBITDA and FFO of approximately $5.1 million and $2.8 million, respectively. Adjusted EBITDA and Adjusted FFO were within the company’s previous guidance for the quarter. Adjusted EBITDA decreased slightly due to lower hotel operating results as RevPAR declined 0.2 percent, and the incremental year-over-year decrease in adjusted FFO is due 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 73 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 current 2019 guidance reflects the following assumptions:

  • Industrywide RevPAR growth of 1 to 2 percent in 2019
    • Marriott International forecast North American RevPAR growth of 1 to 3 percent; Hilton Hotels & Resorts estimated global RevPAR growth of 1 to 2 percent
    • STR projected industry RevPAR growth of 2.0 percent
  • Full-year RevPAR is expected to be adversely impacted by approximately 65 basis points due to non-recurring demand related to the Boston area gas explosions in the 2018 fourth quarter
  • The loss in hotel operating income from the sale of the Courtyard by Marriott Altoona, Pa., and the SpringHill Suites by Marriott Washington, Pa.
  • Renovations commencing at the following hotels:
    • 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

The following bridges the company’s current midpoint of its 2019 Adjusted FFO per share to the guidance provided previously:

 

 

 

 

Previous 2019 Adjusted FFO per share

 

 

$1.85

Same store EBITDA decline

 

 

 

 

<0.04>

EBITDA from sale of assets

 

 

 

 

<0.02>

Reduced financing costs (including JVs)

 

 

 

 

0.02

Current 2019 Adjusted FFO per share

 

 

 

 

$1.81

 

 

 

 

Q3 2019

 

 

 

2019 Forecast

RevPAR

 

 

 

$146 to $148

 

 

 

$133 to $134

RevPAR growth (40 comparable hotels)

 

 

 

-1.5% to 0.0%

 

 

 

-2.0% to -1.0%

Total hotel revenue

 

 

 

$87.7 to $88.9 M

 

 

 

$320 to $324 M

Net income

 

 

 

$11.0 to $13.0 M

 

 

 

$21.1 to $24.4 M

Net income per diluted share

 

 

 

$0.23 to $0.27

 

 

 

$0.44 to $0.51

Adjusted EBITDA

 

 

 

$37.1 to $39.1 M

 

 

 

$127.7 to $131.0 M

Adjusted FFO

 

 

 

$26.1 to $28.1 M

 

 

 

$84.0 to $87.3 M

Adjusted FFO per diluted share

 

 

 

$0.55 to $0.59

 

 

 

$1.77 to $1.84

Hotel EBITDA margins

 

 

 

39.7% to 40.7%

 

 

 

37.9% to 38.2%

Corporate cash administrative expenses

 

 

 

$2.3 M

 

 

 

$9.5 M

Corporate non-cash administrative expenses

 

 

 

$1.2 M

 

 

 

$4.8 M

Interest expense (excluding fee amortization)

 

 

 

$6.9 M

 

 

 

$27.5 M

Non-cash amortization of deferred fees

 

 

 

$0.3 M

 

 

 

$1.2 M

Chatham’s share of JV EBITDA

 

 

 

$4.5 to $5.1 M

 

 

 

$15.9 to $16.5 M

Chatham’s share of JV FFO

 

 

 

$2.0 to $2.6 M

 

 

 

$5.9 to $6.5 M

Weighted average shares/units outstanding

 

 

 

47.6 M

 

 

 

47.5 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 135 hotels totaling 18,592 rooms/suites, comprised of 40 properties it wholly owns with an aggregate of 6,092 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)

       

 

June 30,

2019

 

December 31,

2018

 

(unaudited)

 

 

Assets:

 

 

 

Investment in hotel properties, net

$

1,347,891

 

 

$

1,373,773

 

Investment in hotel properties under development

10,776

 

 

 

Cash and cash equivalents

8,847

 

 

7,192

 

Restricted cash

18,065

 

 

25,145

 

Investment in unconsolidated real estate entities

20,915

 

 

21,545

 

Right of use asset, net

21,576

 

 

 

Hotel receivables (net of allowance for doubtful accounts of $296 and $264, respectively)

7,475

 

 

4,495

 

Deferred costs, net

4,672

 

 

5,070

 

Prepaid expenses and other assets

4,482

 

 

2,431

 

Deferred tax asset, net

58

 

 

58

 

Total assets

$

1,444,757

 

 

$

1,439,709

 

Liabilities and Equity:

 

 

 

Mortgage debt, net

$

499,403

 

 

$

506,316

 

Revolving credit facility

79,000

 

 

32,000

 

Accounts payable and accrued expenses

29,843

 

 

31,692

 

Distributions and losses in excess of investments of unconsolidated real estate entities

10,097

 

 

6,582

 

Lease liability, net

23,922

 

 

 

Distributions payable

5,895

 

 

5,846

 

Total liabilities

648,160

 

 

582,436

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Shareholders’ Equity:

 

 

 

Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at June 30, 2019 and December 31, 2018

 

 

 

Common shares, $0.01 par value, 500,000,000 shares authorized; 46,918,383 and 46,525,652 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

469

 

 

465

 

Additional paid-in capital

904,069

 

 

896,286

 

Retained earnings (distributions in excess of retained earnings)

(119,049

)

 

(99,285

)

Total shareholders’ equity

785,489

 

 

797,466

 

Noncontrolling interests:

 

 

 

Noncontrolling interest in Operating Partnership

11,108

 

 

9,952

 

Total equity

796,597

 

 

807,418

 

Total liabilities and equity

$

1,444,757

 

 

$

1,389,854

 

CHATHAM LODGING TRUST

Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)

       

 

For the three months ended

 

For the six months ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

Room

$

79,970

 

 

$

78,274

 

 

$

148,055

 

 

$

144,525

 

Food and beverage

2,535

 

 

2,212

 

 

4,962

 

 

4,310

 

Other

3,934

 

 

3,527

 

 

7,610

 

 

6,554

 

Cost reimbursements from unconsolidated real estate entities

1,435

 

 

1,361

 

 

2,926

 

 

2,900

 

Total revenue

87,874

 

 

85,374

 

 

163,553

 

 

158,289

 

Expenses:

 

 

 

 

 

 

 

Hotel operating expenses:

 

 

 

 

 

 

 

Room

16,372

 

 

15,945

 

 

31,942

 

 

30,499

 

Food and beverage

2,120

 

 

1,739

 

 

4,129

 

 

3,479

 

Telephone

410

 

 

415

 

 

843

 

 

874

 

Other hotel operating

971

 

 

796

 

 

1,910

 

 

1,517

 

General and administrative

6,574

 

 

6,783

 

 

12,741

 

 

12,814

 

Franchise and marketing fees

6,984

 

 

6,575

 

 

12,916

 

 

12,100

 

Advertising and promotions

1,485

 

 

1,485

 

 

3,018

 

 

3,050

 

Utilities

2,525

 

 

2,446

 

 

5,275

 

 

5,146

 

Repairs and maintenance

3,431

 

 

3,637

 

 

7,042

 

 

7,261

 

Management fees

2,892

 

 

2,807

 

 

5,436

 

 

5,243

 

Insurance

365

 

 

339

 

 

702

 

 

672

 

Total hotel operating expenses

44,129

 

 

42,967

 

 

85,954

 

 

82,655

 

Depreciation and amortization

12,999

 

 

11,921

 

 

25,771

 

 

23,958

 

Property taxes, ground rent and insurance

6,242

 

 

6,180

 

 

12,409

 

 

11,955

 

General and administrative

3,611

 

 

3,547

 

 

7,125

 

 

7,169

 

Other charges

25

 

 

264

 

 

42

 

 

250

 

Reimbursed costs from unconsolidated real estate entities

1,435

 

 

1,361

 

 

2,926

 

 

2,900

 

Total operating expenses

68,441

 

 

66,240

 

 

134,227

 

 

128,887

 

Operating income before gain (loss) on sale of hotel property

19,433

 

 

19,134

 

 

29,326

 

 

29,402

 

Loss on sale of hotel property

(3,300

)

 

(1

)

 

(3,300

)

 

(18

)

Operating income

16,133

 

 

19,133

 

 

26,026

 

 

29,384

 

Interest and other income

66

 

 

15

 

 

121

 

 

17

 

Interest expense, including amortization of deferred fees

(7,131

)

 

(6,667

)

 

(14,328

)

 

(13,298

)

Income (loss) from unconsolidated real estate entities

457

 

 

1,004

 

 

(666

)

 

250

 

Income before income tax expense

9,525

 

 

13,485

 

 

11,153

 

 

16,353

 

Income tax expense

 

 

 

 

 

 

 

Net income

9,525

 

 

13,485

 

 

11,153

 

 

16,353

 

Net income attributable to noncontrolling interests

(88

)

 

(100

)

 

(103

)

 

(120

)

Net income attributable to common shareholders

$

9,437

 

 

$

13,385

 

 

$

11,050

 

 

$

16,233

 

 

 

 

 

 

 

 

 

Income per Common Share - Basic:

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

0.20

 

 

$

0.29

 

 

0.23

 

 

$

0.35

 

Income per Common Share - Diluted:

 

 

 

 

 

 

 

Net income attributable to common shareholders

$

0.20

 

 

0.29

 

 

$

0.23

 

 

0.35

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

46,760,016

 

 

45,867,625

 

 

46,658,973

 

 

45,811,023

 

Diluted

46,976,999

 

 

46,084,688

 

 

46,855,916

 

 

46,006,561

 

Distributions paid per common share:

$

0.33

 

 

$

0.33

 

 

$

0.66

 

 

$

0.66

 

CHATHAM LODGING TRUST

FFO and EBITDA

(In thousands, except share and per share data)

       

 

For the three months ended

 

For the six months ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

Funds From Operations (“FFO”):

 

 

 

 

 

 

 

Net income

$

9,525

 

 

$

13,485

 

 

$

11,153

 

 

$

16,353

 

Loss on sale of hotel property

3,300

 

 

1

 

 

3,300

 

 

18

 

Depreciation

12,937

 

 

11,863

 

 

25,647

 

 

23,841

 

Adjustments for unconsolidated real estate entity items

1,881

 

 

1,757

 

 

3,700

 

 

3,434

 

FFO attributable to common share and unit holders

27,643

 

 

27,106

 

 

43,800

 

 

43,646

 

Other charges

25

 

 

264

 

 

42

 

 

250

 

Adjustments for unconsolidated real estate entity items

5

 

 

3

 

 

5

 

 

15

 

Adjusted FFO attributable to common share and unit holders

$

27,673

 

 

$

27,373

 

 

$

43,847

 

 

$

43,911

 

Weighted average number of common shares and units

 

 

 

 

 

 

 

Basic

47,222,414

 

 

46,230,092

 

 

47,095,412

 

 

46,158,176

 

Diluted

47,439,397

 

 

46,447,156

 

 

47,292,355

 

 

46,353,714

 

       

 

For the three months ended

 

For the six months ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):

 

 

 

 

 

 

 

Net income

$

9,525

 

 

$

13,485

 

 

$

11,153

 

 

$

16,353

 

Interest expense

7,131

 

 

6,667

 

 

14,328

 

 

13,298

 

Depreciation and amortization

12,999

 

 

11,921

 

 

25,771

 

 

23,958

 

Adjustments for unconsolidated real estate entity items

4,418

 

 

4,052

 

 

8,773

 

 

7,962

 

EBITDA

34,073

 

 

36,125

 

 

60,025

 

 

61,571

 

Loss on sale of hotel property

3,300

 

 

1

 

 

3,300

 

 

18

 

EBITDAre

37,373

 

 

36,126

 

 

63,325

 

 

61,589

 

Other charges

25

 

 

264

 

 

42

 

 

250

 

Adjustments for unconsolidated real estate entity items

18

 

 

25

 

 

20

 

 

14

 

Share based compensation

1,238

 

 

1,196

 

 

2,297

 

 

2,114

 

Adjusted EBITDA

$

38,654

 

 

$

37,611

 

 

$

65,684

 

 

$

63,967

 

CHATHAM LODGING TRUST

ADJUSTED HOTEL EBITDA

(In thousands, except share and per share data)

         

 

 

For the three months ended

 

For the six months ended

 

 

June 30,

 

June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net Income

$

9,525

 

 

$

13,485

 

 

$

11,153

 

 

$

16,353

 

Add:

Interest expense

7,131

 

 

6,667

 

 

14,328

 

 

13,298

 

 

Depreciation and amortization

12,999

 

 

11,921

 

 

25,771

 

 

23,958

 

 

Corporate general and administrative

3,611

 

 

3,547

 

 

7,125

 

 

7,169

 

 

Other charges

25

 

 

264

 

 

42

 

 

250

 

 

Loss from unconsolidated real estate entities

 

 

 

 

666

 

 

 

 

Loss on sale of hotel property

3,300

 

 

1

 

 

3,300

 

 

18

 

Less:

Interest and other income

(66

)

 

(15

)

 

(121

)

 

(17

)

 

Income from unconsolidated real estate entities

(457

)

 

(1,004

)

 

 

 

(250

)

 

Adjusted Hotel EBITDA

$

36,068

 

 

$

34,866

 

 

$

62,264

 

 

$

60,779

 



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