Chatham Lodging Trust Results

Chatham Lodging Trust Announces Fourth Quarter 2017 Results

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 135 hotels wholly or through joint ventures, today announced results for the fourth quarter ended December 31, 2017. The company also provided its initial guidance for 2018.

Fourth Quarter 2017 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Increased 1.1 percent, slightly above guidance, to $120, compared to the 2016 fourth quarter, for Chatham’s 40, wholly owned hotels. Average daily rate (ADR) improved 0.8 percent to $159, and occupancy grew 0.4 percent to 75.3 percent.
    • Portfolio RevPAR declined 0.5 percent, excluding four Houston hotels where RevPAR rose 23.5 percent, benefiting from demand attributable to Hurricane Harvey.
  • Net Income - Rose $2.8 million to $5.5 million. Net income per diluted share was $0.12 versus $0.07 in the 2016 fourth quarter.
  • Adjusted EBITDA - Equaled last year’s $26.3 million.
  • Adjusted FFO - Decreased $1.0 million, or 5.7 percent, to $16.0 million versus $17.0 million in the 2016 fourth quarter. Adjusted FFO per diluted share was $0.36 versus $0.44 in the 2016 fourth quarter, compared to guidance of $0.35-$0.38 per share.
    • Excluding the impact of the fourth quarter equity offering, two hotel acquisitions and one sold hotel, pro-forma Adjusted FFO per share would be $0.38, above consensus and at the upper end of its guidance.
  • Operating Margins - Declined 260 basis points to 43.3 percent. Hotel EBITDA margins were off 80 basis points to 35.9 percent.

Consolidated Financial Results

The following is a summary of the consolidated financial results for the three months and year ended December 31, 2017. RevPAR, ADR and occupancy for 2017 and 2016 are based on hotels owned as of December 31, 2017 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

         
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Net income   $5.5   $2.7   $29.7   $31.7
Diluted net income per common share   $0.12   $0.07   $0.73   $0.81
RevPAR   $120   $118   $133   $132
ADR   $159   $158   $167   $164
Occupancy   75%   75%   80%   81%
Adjusted EBITDA   $26.3   $26.3   $126.7   $128.0
GOP Margin   43.3%   45.9%   47.4%   48.6%
Hotel EBITDA Margin   35.9%   36.7%   40.3%   41.2%
AFFO   $16.0   $17.0   $86.3   $89.0
AFFO per diluted share   $0.36   $0.44   $2.14   $2.30
Dividends per share   $0.33   $0.33   $1.32   $1.38
                 

2017 Highlights

“We had a very productive fourth quarter from a strategic and operations perspective, achieving RevPAR growth at the upper end of our range, generating pro-forma FFO per share above consensus and importantly executing on our strategic directive to recycle capital and position Chatham to take advantage of future growth opportunities,” stated Jeffrey H. Fisher, Chatham’s president and chief executive officer. “2017 was a very successful year for Chatham. We raised $151 million of equity at a weighted average price of $21.59 per share, acquired three, high-quality hotels for $132 million, entered into an agreement to acquire an under-development hotel in the 2018 second quarter for $21 million and sold one hotel for $33 million. We produced RevPAR growth of 0.7 percent and adjusted FFO per share of $2.14, above the midpoint of our original 2017 guidance while reducing our leverage to 34 percent from 40 percent one year ago.

“We are pursuing ways to deliver incremental value through opportunistic capital activities, along with asset sales, and investing those proceeds into hotel acquisitions or developments in higher growth markets with higher cash-on-cash returns,” Fisher highlighted. “Our adjusted EBITDA is projected to increase approximately 2 percent in 2018 and we expect these transactions will be accretive to our net asset value and FFO per share on a fully-invested basis.”

Operating Results

“Our fourth quarter operating results were strengthened by strong performance at our Houston and Florida hotels attributable to increased demand following Hurricanes Harvey and Irma,” stated Dennis Craven, Chatham’s chief operating officer. “At this time, most hurricane-related business has ended as displaced residents and hurricane-related professionals have either finished their work or found alternative housing. I commend our operations team at Island Hospitality who did a fantastic job managing our inventory, maximizing performance and taking care of our guests during a difficult time.

Fourth quarter RevPAR performance for certain key markets:

  • Silicon Valley RevPAR rose 1.1 percent to $164 as demand continues to outpace new supply.
  • Four Houston hotels experienced a 23.5 percent RevPAR gain due to increased demand related to Hurricane Harvey.
  • Two Florida hotels saw RevPAR rise 17.0 percent due to hurricane-related demand, as well as increased inbound travelers favoring south Florida.
  • RevPAR at the company’s three Washington D.C. hotels rose 5.2 percent.
  • Hotels acquired in 2017 produced a 2.6 percent RevPAR gain.
  • Two Los Angeles-area hotels experienced a RevPAR increase of 2.8 percent.
  • RevPAR at the company’s three Boston hotels decreased 0.5 percent.
  • RevPAR at Chatham’s two San Diego hotels declined 11.6 percent as one hotel was under renovation during the quarter.

“The quarter was a bit noisy with two acquisitions and one disposition,” Craven commented. “Looking specifically at our 36 comparable hotels which exclude the hotels acquired and sold in the fourth quarter, operating margins were down 220 basis points, but hotel EBITDA margins only decreased 50 basis points as we benefited from some favorable property-tax settlements that will benefit us moving forward.”

Strategic Recycling Program and Hotel Investments

Chatham continuously evaluates its hotel portfolio to enhance returns and cash flow. Chatham is actively pursuing acquisitions and intends to use the proceeds from any asset sales to acquire hotels. In September, the company acquired the 131-room Hilton Garden Inn Portsmouth Downtown in N.H., for $43.5 million, or approximately $332,000 per room.

In December, Chatham sold the 145-suite Homewood Suites by Hilton Carlsbad, Calif., for $33 million, or approximately $228,000 per suite. Chatham sold the hotel at an approximate 6.5 percent net operating income capitalization rate (after an assumed annual capital reserve of 4.0 percent of total hotel revenues) based on trailing 12 month performance. In connection with the sale, the buyer assumed a $20 million CMBS loan that carried an interest rate of 4.3 percent.

Also in December, Chatham acquired the 219-suite Embassy Suites by Hilton in Springfield, Va., for $68 million, or approximately $310,000 per suite, at a year one net operating income capitalization rate of approximately 7.5 percent. The superior-quality hotel has been ranked as the top hotel within the Embassy Suites brand each of the last three years.

In November, the company acquired the 96-room Courtyard by Marriott Charleston Summerville, S.C., for $20.2 million, or approximately $210,000 per room, and contracted to acquire an adjacent hotel under construction, the 96-room Residence Inn, for $21 million. Chatham estimates it acquired the Courtyard at a year one net operating income capitalization rate of approximately 8.0 percent. These hotels are located in Nexton, an emerging mixed-use community in the heart of a rapidly expanding area just outside of Charleston. The hotels will be the highest quality and closest hotels to Volvo’s first American factory which is expected to open in 2018. Volvo has already announced plans for a second factory on its nearby campus.

“The Carlsbad hotel sale was the first under our capital recycling initiative announced earlier this year,” Fisher remarked. “Our goal is to opportunistically sell assets when we believe we can re-deploy those proceeds into high-quality hotel investments that earn greater yields in higher growth markets, thus enhancing our net asset value. Our fourth quarter activity reflects our strategy, and we intend to continue in 2018.”

During the fourth quarter, the company substantially completed the renovations of the Homewood Suites hotels in Bloomington, Minn., and Brentwood, Tenn. The company commenced the renovation of the Residence Inn San Diego Mission Valley, Calif., and expects to complete its renovation during the 2018 first quarter. The company invested approximately $30.2 million in hotel upgrades in 2017.

Capital Markets & Capital Structure

As of December 31, 2017, the company had net debt of $531.1 million (total consolidated debt less unrestricted cash). Total debt outstanding was $540.5 million at an average interest rate of 4.6 percent, comprised of $508.5 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent and $32.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.2 percent interest rate.

Chatham’s leverage ratio was approximately 34.0 percent at December 31, 2017, 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 December 31, 2017, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $2.9 million, respectively.

On December 31, 2017, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint ventures with Colony NorthStar, 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 3.5 times, and net debt to trailing 12-month corporate EBITDA was 4.8 times.

During the fourth quarter, Chatham issued five million common shares at a price of $21.90 per share. The company also sold 0.5 million shares under its at-the-market (“ATM”) and direct stock purchase (“DSPP”) programs at a weighted average price of $21.38 per share.

Joint Venture Investments

During the 2017 fourth quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.4 million and $1.3 million, respectively, compared to 2016 fourth quarter Adjusted EBITDA and FFO of approximately $3.4 million and $1.5 million, respectively. Both Adjusted EBITDA and Adjusted FFO were $0.1 million above the company’s previous guidance for the quarter.

Chatham received distributions from its joint venture investments of $1.2 million during the 2017 fourth quarter.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s 2017 dividend per share of $1.32 represented approximately 62 percent of its 2017 adjusted FFO per share. Based on the midpoint of its guidance for 2018, an annual dividend of $1.32 per share represents an adjusted FFO per share payout ratio of 71 percent.

2018 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 2018 guidance reflects the following assumptions:

  • Industrywide RevPAR growth of 0 to 3 percent in 2017
    • Marriott International forecast North American RevPAR growth of 1 to 2 percent; Hilton Hotels & Resorts provided systemwide RevPAR growth of 1 to 3 percent
    • STR projected industry RevPAR growth of 2.7 percent.
  • Acquisition of the 96-room Residence Inn by Marriott Charleston Summerville, S.C., on July 1, 2018 for $21.0 million
  • Renovations commencing at the following hotels:
    • Homewood Suites Billerica, Mass., and Hyatt Place Pittsburgh in the first quarter
    • Residence Inn Mountain View, Calif., and Residence Inn Tysons Corner, Va., during the second quarter
    • Homewood Suites Dallas, Texas during the third quarter
    • Residence Inn Sunnyvale, Calif., #1, and the Homewood Suites Farmington, Conn., in the fourth quarter
  • No additional acquisitions, dispositions, debt or equity issuance

Fisher concluded, “our guidance does not reflect any future acquisitions, developments or reinvestment of any asset sale proceeds or additional leverage capacity. We have an active acquisition pipeline and we fully intend on growing our portfolio and adding FFO per share. We will add earnings in 2019 from the ramp-up of the Residence Inn Charleston Summerville. Our hotels are in excellent condition as we have been investing in our hotels throughout the cycle. The impact of new supply on our results is lessening and if new tax policy spurs incremental economic growth and lodging demand, we are in a great position to outperform and get back to growing margins.”

                 
        Q1 2018       2018 Forecast
RevPAR       $121 to $123       $131 to $134
RevPAR growth       -3.5% to -2.0%       -1.5% to 0.5%
Total hotel revenue       $70.4 to $71.4 M       $310.0 to $315.9 M
Net income       $1.5 to $2.6 M       $25.8 to $32.2 M
Net income per diluted share       $0.03 to $0.06       $0.56 to $0.70
Adjusted EBITDA       $25.2 to $26.3 M       $125.7 to $132.1 M
Adjusted FFO       $15.3 to $16.4 M       $84.1 to $90.5 M
Adjusted FFO per diluted share       $0.33 to $0.35       $1.80 to $1.94
Hotel EBITDA margins       35.4% to 36.0%       38.7% to 39.7%
Corporate cash administrative expenses       $2.5 M       $9.6 M
Corporate non-cash administrative expenses       $0.9 M       $4.3 M
Interest expense (excluding fee amortization)       $6.4 M       $26.5 M
Non-cash amortization of deferred fees       $0.3 M       $1.4M
Income taxes       $0.0 M       $0.0 M
Chatham’s share of JV EBITDA       $2.8 to $3.1 M       $15.3 to $16.3 M
Chatham’s share of JV FFO       $0.6 to $0.9 M       $5.9 to $6.9 M
Weighted average shares/units outstanding       46.6 M       46.6 M
                 
    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA and Adjusted EBITDA 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.

The following bridges 2017 Adjusted FFO per share to the midpoint of the company’s 2018 guidance:

           
          2018 Forecast
2017 Adjusted FFO per share         $2.14
Same store EBITDA margin erosion         <0.09>
Equity and sale proceeds to be used for future growth         <0.10>
Decline in JV FFO due primarily to financing costs         <0.04>
Other (interest rate, corporate expenses, taxes)         <0.04>
2018 Adjusted FFO per share at guidance midpoint         $1.87
           

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 18,516 rooms/suites, comprised of 40 properties it wholly owns with an aggregate of 6,018 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 12,498 rooms/suites. 

         

CHATHAM LODGING TRUST

Consolidated Balance Sheets

(In thousands, except share and per share data)

         
    December 31,

2017

 

December 31,

2016

         
Assets:        
Investment in hotel properties, net   $ 1,320,082     $ 1,233,094  
Cash and cash equivalents   9,333     12,118  
Restricted cash   27,166     25,083  
Investment in unconsolidated real estate entities   24,389     20,424  
Hotel receivables (net of allowance for doubtful accounts of $200 and $155, respectively)   4,047     4,389  
Deferred costs, net   4,646     4,642  
Prepaid expenses and other assets   2,523     2,778  
Deferred tax asset, net   30     426  
Total assets   $ 1,392,216     $ 1,302,954  
Liabilities and Equity:        
Mortgage debt, net   $ 506,316     $ 530,323  
Revolving credit facility   32,000     52,500  
Accounts payable and accrued expenses   31,692     27,782  
Distributions and losses in excess of investments of unconsolidated real estate entities   6,582     6,017  
Distributions payable   5,846     4,742  
Total liabilities   582,436     621,364  
Commitments and contingencies        
Equity:        
Shareholders’ Equity:        
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at December 31, 2017 and December 31, 2016        
Common shares, $0.01 par value, 500,000,000 shares authorized; 45,375,266 and 38,367,014 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively   450     380  
Additional paid-in capital   871,730     722,019  
Retained earnings (distributions in excess of retained earnings)   (69,018 )   (45,657 )
Total shareholders’ equity   803,162     676,742  
Noncontrolling interests:        
Noncontrolling interest in Operating Partnership   6,618     4,848  
Total equity   809,780     681,590  
Total liabilities and equity   $ 1,392,216     $ 1,302,954  
                 
         

CHATHAM LODGING TRUST

Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)

         
    For the three months ended   For the years ended
    December 31,   December 31,
    2017   2016   2017   2016
Revenue:                
Room   $ 65,051     $ 61,907     $ 278,466     $ 273,345  
Food and beverage   1,902     1,493     6,255     6,221  
Other   2,750     2,424     11,215     10,115  
Cost reimbursements from unconsolidated real estate entities   618     411     2,920     4,139  
Total revenue   70,321     66,235     298,856     293,820  
Expenses:                
Hotel operating expenses:                
Room   15,004     13,758     59,151     57,209  
Food and beverage   1,572     1,225     5,342     4,928  
Telephone   442     412     1,647     1,712  
Other hotel operating   839     569     2,886     2,358  
General and administrative   6,105     5,424     23,639     22,274  
Franchise and marketing fees   5,490     5,119     23,247     22,412  
Advertising and promotions   1,425     1,248     5,380     5,147  
Utilities   2,514     2,244     9,944     9,545  
Repairs and maintenance   3,419     3,001     13,317     12,444  
Management fees   2,387     2,217     9,898     9,389  
Insurance   303     366     1,228     1,359  

Total hotel operating expenses

  39,500     35,583     155,679     148,777  
Depreciation and amortization   11,631     12,022     46,292     48,775  
Impairment loss           6,663      
Property taxes, ground rent and insurance   5,205     6,109     20,916     21,564  
General and administrative   3,120     2,043     12,825     11,119  
Other charges   523     151     523     510  
Reimbursed costs from unconsolidated real estate entities   618     411     2,920     4,139  
Total operating expenses   60,597     56,319     245,818     234,884  
Operating income   9,724     9,916     53,038     58,936  
Interest and other income   3     9     30     51  
Interest expense, including amortization of deferred fees   (7,071 )   (7,086 )   (27,901 )   (28,297 )
Loss on early extinguishment of debt               (4 )
Gain on sale of hotel property   3,327         3,327      
Income (loss) from unconsolidated real estate entities   (448 )   (628 )   1,582     718  
Loss on sale from unconsolidated real estate entities       (2 )       (10 )
Income before income tax benefit (expense)   5,535     2,209     30,076     31,394  
Income tax benefit (expense)   (79 )   468     (396 )   301  
Net income   5,456     2,677     29,680     31,695  
Net income attributable to noncontrolling interests   (35 )   (18 )   (202 )   (212 )
Net income attributable to common shareholders   $ 5,421     $ 2,659     $ 29,478     $ 31,483  
                 
Income per Common Share - Basic:                
Net income attributable to common shareholders   $ 0.12     $ 0.07     0.73     $ 0.82  
Income per Common Share - Diluted:                
Net income attributable to common shareholders   $ 0.12     0.07     $ 0.73     0.81  
Weighted average number of common shares outstanding:                
Basic   43,205,683     38,135,040     39,859,143     38,299,067  
Diluted   43,522,022     38,345,598     40,112,266     38,482,875  
Distributions paid per common share:   $ 0.33     $ 0.33     $ 1.32     $ 1.38  
                                 
         

CHATHAM LODGING TRUST

FFO and EBITDA

(In thousands, except share and per share data)

         
    For the three months ended   For the years ended
    December 31,   December 31,
    2017   2016   2017   2016
Funds From Operations (“FFO”):                
Net income   $ 5,456     $ 2,677     $ 29,680     $ 31,695
Gain on sale of hotel property   (3,327 )       (3,327 )  
Loss on sale from unconsolidated real estate entities       2         10
Depreciation   11,559     11,969     46,060     48,562
Impairment loss           6,663    
Adjustments for unconsolidated real estate entity items   1,698     2,158     6,600     8,186
FFO attributable to common share and unit holders   15,386     16,806     85,676     88,453
Other charges   523     151     523     510
Loss on early extinguishment of debt               4
Adjustments for unconsolidated real estate entity items   80         96     25
Adjusted FFO attributable to common share and unit holders   $ 15,989     $ 16,957     $ 86,295     $ 88,992
Weighted average number of common shares and units                
Basic   43,500,875     38,572,815     40,138,856     38,556,842
Diluted   43,817,214     38,783,373     40,391,978     38,740,650
                       
         
    For the three months ended   For the years ended
    December 31,   December 31,
    2017   2016   2017   2016
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):                
Net income   $ 5,456     $ 2,677     $ 29,680     $ 31,695  
Interest expense   7,071     7,086     27,901     28,297  
Income tax (benefit) expense   79     (468 )   396     (301 )
Depreciation and amortization   11,631     12,022     46,292     48,775  
Adjustments for unconsolidated real estate entity items   3,805     4,023     14,650     15,908  
EBITDA   28,042     25,340     118,919     124,374  
Other charges   523     151     523     510  
Impairment loss           6,663      
Loss on early extinguishment of debt               4  
Adjustments for unconsolidated real estate entity items   82     20     136     62  
Gain on sale of hotel property   (3,327 )       (3,327 )    
Loss on sale from unconsolidated real estate entities       2         10  
Share based compensation   999     759     3,784     3,013  
Adjusted EBITDA   $ 26,319     $ 26,272     $ 126,698     $ 127,973  
                                 
             

CHATHAM LODGING TRUST

ADJUSTED HOTEL EBITDA

(In thousands, except share and per share data)

             
        For the three months ended   For the years ended
        December 31,   December 31,
        2017   2016   2017   2016
                     
Net Income       $ 5,456     $ 2,677     $ 29,680     $ 31,695  
Add:   Interest expense   7,071     7,086     27,901     28,297  
    Income tax expense   79         396      
    Depreciation and amortization   11,631     12,022     46,292     48,775  
    Corporate general and administrative   3,120     2,043     12,825     11,119  
    Others charges   523     151     523     510  
    Impairment loss           6,663      
    Loss from unconsolidated real estate entities   448     628          
    Loss on early extinguishment of debt               4  
    Loss on sale from unconsolidated real estate entities       2         10  
Less:   Interest and other income   (3 )   (9 )   (30 )   (51 )
    Gain on sale of hotel property   (3,327 )       (3,327 )    
    Income from unconsolidated real estate entities           (1,582 )   (718 )
    Income tax benefit       (468 )       (301 )
    Adjusted Hotel EBITDA   $ 24,998     $ 24,132     $ 119,341     $ 119,340  



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