Chatham Lodging Trust Results

Chatham Lodging Trust Announces First Quarter 2018 Results

Delivers RevPAR at Upper End of Guidance Range, Beats Consensus FFO Per Share

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 first quarter ended March 31, 2018. The company also provided updated guidance for 2018.

First Quarter 2018 Key Metrics

  • Portfolio Revenue per Available Room (RevPAR) - Decreased 2.4 percent to $122, compared to the 2017 first quarter, for Chatham’s 40, wholly owned hotels. Average daily rate (ADR) lessened 1.2 percent to $162, and occupancy declined 1.2 percent to 76 percent.
  • Net Income - Declined $1.7 million to $2.9 million. Net income per diluted share was $0.06 versus $0.12 in the 2017 first quarter.
  • Adjusted EBITDA - Decreased $1.7 million to $26.4 million, slightly above the upper end its guidance.
  • Adjusted FFO - Lessened $1.6 million, to $16.5 million versus $18.1 million in the 2017 first quarter. Adjusted FFO per diluted share was $0.36, above consensus and compared to guidance of $0.33-$0.35 per share.
  • Operating Margins - Gross operating profit margins declined 260 basis points to 44.4 percent. Hotel EBITDA margins were off 360 basis points to 36.3 percent, 30 basis points better than the upper end of its guidance.
  • Balance Sheet - Solidified the balance sheet, successfully refinancing its unsecured revolving credit facility, extending the maturity to 2023 and reducing its borrowing costs.

Consolidated Financial Results

The following is a summary of the consolidated financial results for the three months ended March 31, 2018. RevPAR, ADR and occupancy for 2018 and 2017 are based on hotels owned as of March 31, 2018 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):

 

  Three Months Ended

March 31,

2018   2017
Net income

$2.9

$4.6
Diluted net income per common share

$0.06

$0.12
RevPAR

$122

$125
ADR

$162

$164
Occupancy

76%

77%
Adjusted EBITDA

$26.4

$28.1
GOP Margin

44.4%

47.0%
Hotel EBITDA Margin

36.3%

39.9%
AFFO

$16.5

$18.1
AFFO per diluted share

$0.36

$0.47
Dividends per share

$0.33

$0.33

 

Operating Results

“We were facing tough RevPAR comparisons in several of our key markets versus last year, and our guidance reflected that,” stated Jeffrey H. Fisher, Chatham’s president and chief executive officer. “In the 2017 first quarter, our four Houston hotels excelled from hosting the Super Bowl, our three Washington D.C. hotels benefitted from the inauguration and related events and were hurt this year due to the temporary government shutdown, and our four Silicon Valley hotels had some large corporate business that shifted from the first quarter last year into the second quarter this year. Our portfolio RevPAR is forecast to increase approximately 3 percent in April.”

First quarter RevPAR performance for certain key markets:

  • Florida hotels saw RevPAR rise 6.6 percent, benefitting from a combination of hurricane-related demand and increased inbound travelers favoring Florida.
  • Silicon Valley RevPAR declined 5.1 percent to $177.
  • Two Los Angeles-area hotels experienced a RevPAR increase of 4.3 percent.
  • RevPAR declined 7.0 percent at its four Houston hotels (2017 Super Bowl).
  • RevPAR at the company’s three Washington D.C. hotels decreased 3.5 percent (2017 inauguration).

“Unlike prior cycles, new supply this cycle has been focused in directly competitive brands in harder-to-build locations in the top-25 markets, where many of our hotels are located, but as we have previously commented, demand growth also been strong, minimizing the impact,” Fisher commented. “As we fully absorb this new supply in the near future, our hotels are poised to perform well. In markets where the impact of new supply is waning, such as Westchester County, N.Y. where we have two hotels, Brentwood, Tenn., and downtown San Diego, RevPAR grew in a range of 7-22 percent. Other strong markets for us where RevPAR grew more than 5 percent during the quarter were Exeter, N.H., Marina Del Rey, Calif., Farmington, Conn., Bloomington, Minn., Dedham, Mass., and Washington, Pa.”

Gross operating profit margins were down 260 basis points compared to the 2017 first quarter. Key measures impacting margins at our 36 comparable hotels were:

  • Payroll and benefit costs increased 7.4 percent and reduced margins by 170 basis points.
  • Weather related increases for utilities, snow removal and maintenance costs reduced margins by 60 basis points.

“We outperformed our EBITDA and FFO expectations as same-store hotel EBITDA margins beat the upper-end of our guidance range by 30 basis points,” stated Dennis Craven, Chatham’s chief operating officer. “Rising labor costs remain the primary contributing factor to our margin erosion. We are collaborating with Island Hospitality to gain even more operating efficiencies and sourcing new or enhanced revenue opportunities. Additionally, we are working with the brands to get creative with respect to the labor model and provide alternatives that will benefit owners over the long-term.”

Strategic Capital Recycling Program and Hotel Investments

In November 2017, the company contracted to acquire the under construction, 96-room Residence Inn Charleston Summerville, S.C., for $21 million. The hotel sits adjacent to the 96-room Courtyard by Marriott that Chatham acquired in the same month. 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 later this year. Volvo already announced plans for a second factory on its nearby campus. Chatham expects to close on the acquisition by July 1, 2018. RevPAR at our Courtyard by Marriott Charleston Summerville, S.C. in the 2018 first quarter was up more than two percent.

During the first quarter, the company substantially completed the renovations of the Residence Inn San Diego Mission Valley, Calif. The company commenced the renovations of the Homewood Suites Billerica, Mass., and Hyatt Place Pittsburgh in the first quarter and expects to complete those renovations during the 2018 second quarter. The company intends to invest approximately $25 million renovating and upgrading its hotels in 2018.

Capital Markets & Capital Structure

As of March 31, 2018, the company had net debt of $527.8 million (total consolidated debt less unrestricted cash). Total debt outstanding was $541.2 million at an average interest rate of 4.6 percent, comprised of $507.2 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $34.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.8 percent interest rate.

Chatham’s leverage ratio was approximately 33.6 percent on March 31, 2018, 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, 2018, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $2.9 million, respectively.

On March 31, 2018, 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 4.9 times.

Chatham successfully refinanced its $250 million senior unsecured revolving credit facility. The new unsecured revolving credit facility matures in March 2023 and replaces Chatham’s previous $250 million senior unsecured credit facility that was scheduled to mature in 2020. Borrowing costs have been reduced by 0 to 15 basis points from comparable leverage-based pricing levels in Chatham’s previous credit facility. At Chatham’s current leverage level, the borrowing cost under the new facility is LIBOR plus 1.65 percent.

“This refinancing improves our earnings through reduced borrowing costs, provides us with incremental capacity and flexibility to pursue accretive growth opportunities and adds security to our balance sheet since we now have only $13.6 million of debt maturing between now and 2023,” remarked Jeremy Wegner, Chatham’s chief financial officer. “Furthermore, with 94 percent of our debt carrying a fixed interest rate, if interest rates continue to rise as expected, our FFO will not be impacted nearly as much as our peers.”

During the first quarter, Chatham sold 0.5 million shares under its at-the-market (“ATM”) and direct stock purchase (“DSPP”) programs at a weighted average price of $22.60 per share.

Joint Venture Investments

During the 2018 first quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.1 million and $0.9 million, respectively, compared to 2016 first quarter Adjusted EBITDA and FFO of approximately $3.2 million and $1.4 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 $1.0 million during the 2018 first quarter.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s 2018 dividend per share of $1.32 represents approximately 71 percent of its 2018 adjusted FFO per share, based on the midpoint of its guidance for 2018.

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 2018
    • Marriott International forecast North American RevPAR growth of 1 to 2 percent; Hilton Hotels & Resorts estimated North American 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:
    • 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 has been updated to account for our outperformance in the first quarter and does not reflect any future acquisitions, developments or reinvestment of any asset sale proceeds or additional leverage capacity. Although sourcing attractive acquisitions is difficult, we expect to be a net acquirer of assets in 2018. GDP growth remains strong which should boost lodging demand and as the impact of new supply across our portfolio lessens, we should outperform on both the top and bottom lines.”

    Q2 2018     2018 Forecast
RevPAR

$142 to $144

$131 to $134
RevPAR growth

0.0% to 1.5%

-1.5% to 0.5%
Total hotel revenue

$83.1 to $84.2 M

$310.8 to $316.6 M
Net income

$11.9 to $13.3 M

$26.5 to $32.5 M
Net income per diluted share

$0.26 to $0.29

$0.57 to $0.70
Adjusted EBITDA

$36.6 to $38.0 M

$126.3 to $132.3 M
Adjusted FFO

$26.3 to $27.7 M

$84.7 to $90.7 M
Adjusted FFO per diluted share

$0.56 to $0.59

$1.82 to $1.95
Hotel EBITDA margins

41.4% to 42.1%

38.7% to 39.7%
Corporate cash administrative expenses

$2.4 M

$9.8 M
Corporate non-cash administrative expenses

$1.1 M

$4.3 M
Interest expense (excluding fee amortization)

$6.5 M

$26.3 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

$4.6 to $4.9 M

$15.8 to $16.4 M
Chatham’s share of JV FFO

$2.2 to $2.5 M

$6.2 to $6.8 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.

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 18,518 rooms/suites, comprised of 40 properties it wholly owns with an aggregate of 6,020 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)

 

 

March 31,

December 31,

2018

2017

(unaudited)

Assets:

Investment in hotel properties, net

$ 1,314,504

$ 1,320,082

Cash and cash equivalents

13,403

9,333

Restricted cash

25,398

27,166

Investment in unconsolidated real estate entities

23,491

24,389

Hotel receivables (net of allowance for doubtful accounts of $215 and $200, respectively)

5,293

4,047

Deferred costs, net

5,486

4,646

Prepaid expenses and other assets

5,555

2,523

Deferred tax asset, net

30  

30  
Total assets

$ 1,393,160  

$ 1,392,216  
Liabilities and Equity:

Mortgage debt, net

$ 505,179

$ 506,316

Revolving credit facility

34,000

32,000

Accounts payable and accrued expenses

31,775

31,692

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

7,458

6,582

Distributions payable

5,950  

5,846  
Total liabilities

584,362  

582,436  
Commitments and contingencies

Equity:

Shareholders’ Equity:

Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at March 31, 2018 and December 31, 2017

Common shares, $0.01 par value, 500,000,000 shares authorized; 45,869,600 and 45,375,266 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

459

450

Additional paid-in capital

882,586

871,730

Retained earnings (distributions in excess of retained earnings)

(81,311 )

(69,018 )
Total shareholders’ equity

801,734  

803,162  
Noncontrolling interests:

Noncontrolling interest in Operating Partnership

7,064  

6,618  
Total equity

808,798  

809,780  
Total liabilities and equity

$ 1,393,160  

$ 1,392,216  

 

CHATHAM LODGING TRUST
Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)

 

For the three months ended

March 31,

2018   2017
Revenue:

Room

$ 66,251

$ 64,393

Food and beverage

2,098

1,502

Other

3,027

2,446

Cost reimbursements from unconsolidated real estate entities

2,657  

2,494  
Total revenue

74,033  

70,835  
Expenses:

Hotel operating expenses:

Room

14,553

13,505

Food and beverage

1,740

1,252

Telephone

459

409

Other hotel operating

721

599

General and administrative

6,033

5,654

Franchise and marketing fees

5,525

5,302

Advertising and promotions

1,565

1,331

Utilities

2,699

2,370

Repairs and maintenance

3,624

3,252

Management fees

2,437

2,247

Insurance

333     333  
Total hotel operating expenses

39,689

36,254

Depreciation and amortization

12,036

12,004

Property taxes, ground rent and insurance

5,775

4,788

General and administrative

3,622

3,268

Other charges

(14 )

Reimbursed costs from unconsolidated real estate entities

2,657  

2,494  
Total operating expenses

63,765  

58,808  
Operating income

10,268

12,027

Interest and other income

2

12

Interest expense, including amortization of deferred fees

(6,631 )

(6,993 )
Loss on sale of hotel property

(17 )

Loss from unconsolidated real estate entities

(754 )

(85 )
Income before income tax expense

2,868

4,961

Income tax expense

 

(317 )
Net income

2,868

4,644

Net income attributable to noncontrolling interests

(20 )

(31 )
Net income attributable to common shareholders

$ 2,848  

$ 4,613  

 
Income per Common Share - Basic:

Net income attributable to common shareholders

$ 0.06  

$ 0.12  
Income per Common Share - Diluted:

Net income attributable to common shareholders

$ 0.06  

0.12  
Weighted average number of common shares outstanding:

Basic

45,753,792

38,361,113

Diluted

46,022,690

38,573,928

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,

2018

2017
Funds From Operations (“FFO”):

Net income

$ 2,868

$ 4,644
Loss on sale of hotel property

17

Depreciation

11,978

11,950
Adjustments for unconsolidated real estate entity items

1,678  

1,471
FFO attributable to common share and unit holders

16,541

18,065
Other charges

(14 )

Adjustments for unconsolidated real estate entity items

12  

7
Adjusted FFO attributable to common share and unit holders

$ 16,539  

$ 18,072
Weighted average number of common shares and units

Basic

46,085,461

38,618,888
Diluted

46,354,359

38,813,703

 

For the three months ended

March 31,

2018

2017
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”):

Net income

$ 2,868

$ 4,644
Interest expense

6,631

6,993
Income tax expense

317
Depreciation and amortization

12,036

12,004
Adjustments for unconsolidated real estate entity items

3,908  

3,313
EBITDA

25,443

27,271
Other charges

(14 )

Adjustments for unconsolidated real estate entity items

(11 )

15
Loss on sale of hotel property

17

Share based compensation

918  

787
Adjusted EBITDA

$ 26,353  

$ 28,073

 

CHATHAM LODGING TRUST
ADJUSTED HOTEL EBITDA
(In thousands, except share and per share data)

 

For the three months ended

March 31,

2018   2017

 
Net Income

$ 2,868

$ 4,644

Add: Interest expense

6,631

6,993

Income tax expense

317

Depreciation and amortization

12,036

12,004

Corporate general and administrative

3,622

3,268

Loss from unconsolidated real estate entities

754

85

Loss on sale of hotel property

17

Less: Interest and other income

(2 )

(12 )

Other charges

(14 )

 

Adjusted Hotel EBITDA

$ 25,912  

$ 27,299  

 



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