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 134 hotels wholly or through joint ventures, today announced results for the third quarter ended September 30, 2017. The company also provided its initial guidance for the 2017 fourth quarter and updated its full-year guidance.
Third Quarter 2017 Key Metrics
- Portfolio Revenue per Available Room (RevPAR) – Increased 1.0 percent, at the upper end of guidance, to $146, compared to the 2016 third quarter, for Chatham’s 39, wholly owned hotels. Average daily rate (ADR) improved 0.5 percent to $173 and occupancy grew 0.5 percent to 85 percent.
- RevPAR improved 0.2 percent excluding four hotels in Houston where RevPAR rose 13.0 percent.
- Net Income – Rose to $14.5 million versus $13.4 million in the 2016 third quarter. Net income per diluted share improved to $0.36 versus $0.35 in the 2016 third quarter.
- Adjusted EBITDA – Was off marginally, $0.1 million, or 0.1 percent, to $37.2 million.
- Adjusted FFO – Decreased $0.5 million or 1.7 percent to $27.0 million versus $27.5 million in the 2016 third quarter. Adjusted FFO per diluted share was $0.68 versus $0.71 in the 2016 third quarter, compared to the company’s guidance of $0.63-$0.67 per share.
- Operating Margins – Slipped 130 basis points, but remained a strong 49.3 percent. Comparable hotel EBITDA margins were off 100 basis points to 42.7 percent.
“Our third quarter results performed well and were bolstered further by the additional demand created by the devastating hurricanes, Harvey and Irma. Four hotels in Houston and our hotels in Fort Lauderdale and Orlando, Fla., had strong improvements,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Even though we had to evacuate our Residence Inn Fort Lauderdale and our SpringHill Suites Savannah for a few days, these hotels held up very well due to their high-quality construction, as well as the extraordinary efforts of our staff on the ground. Thankfully, our hotels suffered little damage.”
Third quarter RevPAR performance for certain key markets:
Silicon Valley RevPAR rose 0.5 percent to $202 driven primarily by an increase in occupancy.
RevPAR at Chatham’s three San Diego hotels advanced 2.6 percent.
Four Houston hotels experienced a RevPAR gain of 13.0 percent due to increased demand related to Hurricane Harvey.
Two Los Angeles area hotels experienced a RevPAR decline of 2.1 percent.
RevPAR at the company’s three Boston hotels decreased 0.9 percent.
Our two Denver hotels saw RevPAR grow 0.6 percent.
“We outperformed our EBITDA and FFO expectations as same-store hotel EBITDA margins beat the upper-end of our guidance range by 20 basis points and, although down year-over-year, remain the highest in the industry at a very strong 42.7 percent. We are dedicating resources to ensure we remain hyper-focused on expense controls which helps us minimize margin declines while RevPAR growth is close to zero and operating expenses, primarily labor related, are rising.
“We expect our Houston area hotels to generate strong RevPAR growth for the remainder of 2017, and, combined with better than expected margin performance, we are confident in raising our outlook for the remainder of the year,” Fisher concluded.
Strategic Recycling Program and Hotel Investments
Chatham previously indicated that it had entered into separate agreements to sell two of its hotels for gross proceeds of approximately $80 million. The sales agreements called for both hotels’ mortgages to be assumed by the buyers. The $47 million sale of one hotel was terminated recently as the servicer did not approve the loan assumption. The remaining $33 million sale of a hotel is still active and pending. Closing of the sale is subject to many conditions.
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. This property is located in the absolute center of downtown Portsmouth, a beautiful, historic, waterfront community. The hotel enjoys the best location within downtown Portsmouth and benefits from strong, diversified demand, including leisure and corporate, as well as government business related to a thriving naval yard. Opened in June 2006, the Hilton Garden Inn Portsmouth Downtown was fully renovated within the past two years and will require no major capital investment until 2022. The hotel was constructed with a timeless design that adheres to strict local requirements and aligns well with the city’s historic charm.
“As Jeff stated earlier this year, we continue to seek ways to deliver incremental value through opportunistic capital recycling and the reinvestment of those proceeds into hotels in higher growth markets with higher cash-on-cash returns and limited CAPEX requirements,” highlighted Dennis Craven, Chatham’s chief operating officer. “Although one of the sales fell through, we continue to pursue further asset sales, as well as other acquisitions and ground-up developments, including the Silicon Valley redevelopments. We expect these transactions will be accretive to our net asset value and FFO per share.”
During the third quarter, the company completed the renovation of the Homewood Suites Maitland, Fla. and commenced the extensive renovations of the Homewood Suites hotels in Bloomington, Minn. and Brentwood, Tenn. The company expects to complete those renovations during the fourth quarter. The company invested approximately $21.4 million in hotel upgrades year-to-date.
Capital Markets & Capital Structure
As of September 30, 2017, the company had net debt of $593.2 million (total consolidated debt less unrestricted cash). Total debt outstanding was $604.5 million at an average interest rate of 4.6 percent, comprised of $529.5 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent and $75.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.0 percent interest rate.
Chatham’s leverage ratio was approximately 39.5 percent at September 30, 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 September 30, 2017, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.4 million and $3.1 million, respectively.
On September 30, 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 3.3 times, and total net debt to trailing 12-month corporate EBITDA was 6.0 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 5.4 times.
During the third quarter, Chatham sold 0.6 million shares under its at-the-market (“ATM”) and direct stock purchase (“DSPP”) programs at a weighted average price of $20.92 per share.
Joint Venture Investments
During the quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $4.9 million and $2.9 million, respectively. Adjusted EBITDA was within the company’s guidance range and adjusted FFO from the joint ventures finished $0.1 million above guidance for the quarter. Year-over-year, Adjusted EBITDA and Adjusted FFO contributed by the joint ventures was down $0.1 million and $0.2 million, respectively.
Chatham received distributions from its joint venture investments of $1.3 million during the 2017 third quarter.
Chatham currently pays a monthly dividend of $0.11 per common share.
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 134 hotels totaling 18,341 rooms/suites, comprised of 39 properties it wholly owns with an aggregate of 5,843 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. Additional information about Chatham may be found at chathamlodgingtrust.com.