Chatham Lodging Trust Announces Third Quarter 2021 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, today announced results for the third quarter ended September 30, 2021.

Third Quarter 2021 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 92 percent to $107 compared to the 2020 third quarter. Average daily rate (ADR) accelerated 39 percent to $150, and occupancy jumped 38 percent to 71 percent for the 40 comparable hotels owned as of September 30, 2021 (excludes one Austin hotel acquired in August 2021 that opened in June 2021).

• Net loss – Lessened $16.9 million to a net loss of $1.4 million from a net loss of $18.3 million in the 2020 third quarter. Net loss per diluted common share was $(0.07) versus net loss per diluted common share of $(0.38) for the same period last year.

• GOP Margin – Grew margins a significant 25 percent to a portfolio-wide GOP margin of 45 percent in the 2021 third quarter compared to 36 percent in the 2020 third quarter.

• Adjusted EBITDA – Nearly quadrupled Adjusted EBITDA, finishing the quarter at $19.6 million compared to Adjusted EBITDA of $5.1 million in the 2020 third quarter.

• Adjusted FFO – Jumped $14.7 million to $10.5 million in the 2021 third quarter, compared to a loss of $4.2 million in the 2020 third quarter. Adjusted FFO per diluted share was $0.21, compared to an FFO loss of $(0.09) in the 2020 third quarter.

• Cash Flow/Burn Before Capital Expenditures – Generated third quarter 2021 cash flow before capital expenditures of $10.0 million, up 150 percent over 2021 second quarter flow of $4.0 million and compared to cash burn of $7.6 million in the 2021 first quarter. Cash flow/burn includes $2.2 million of principal amortization per quarter.

• Enhanced Portfolio with Acquisition of Two High-Quality Extended-Stay Hotels in Austin, Texas at the Domain – Acquired in August the Residence Inn and TownePlace Suites (TPS) hotels for $71 million. The TPS opened in June 2021. September ADR, Occupancy and RevPAR for the two hotels was $122, 81 percent and $98.

• Amends and Extends Revolving Credit Facility – Amended successfully and extended its credit facility subsequent to the end of the quarter, extending the maturity date to March 2024 including extension options and waived key financial covenants through June 30, 2022.

Jeffrey H. Fisher, Chatham’s president and chief executive officer, highlighted, “Our best-in-class portfolio continued its strong top- and bottom-line performance during the third quarter, generating cash flow before CAPEX of $10 million, up 150 percent over the second quarter and making us cash flow positive before CAPEX year-to-date. We will finish the year positive, a huge milestone for us and our investors. Chatham was the second fastest hotel REIT to become cash flow positive at the corporate level, a testament to the quality of our portfolio and strength of our operations team who is driving strong operating margins comparable to 2019 levels on much lower RevPAR levels. As a result, we have minimized dilution and have been able to emerge from the pandemic healthier than most of our peers. Additionally, with the recent completion of our $120 million preferred offering in late June, we used a portion of those proceeds to acquire two excellent hotels in Austin, Texas, that already are outperforming our underwriting projections, and we have more capacity to make acquisitions. With these acquisitions, as well as the upcoming opening of our extended-stay Home2 Suites in Los Angeles in the near future, these hotels will increase further our exposure to high-quality, premium-branded, extended-stay hotels and importantly grow our FFO per share.”

The following chart summarizes the consolidated financial results for the three and nine months ended September 30, 2021, and 2020, based on all properties owned during those periods ($ in millions, except margin percentages and per share data):

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 40 comparable hotels owned as of September 30, 2021, compared to the 2021 second quarter and the 2021 first quarter:

The below chart summarizes RevPAR statistics by month for the company’s 40 comparable hotels:

“After a robust July which was our best month since the beginning of the pandemic, we expected to see a bit of a falloff as students returned to in-class learning, adults returned to offices and the adverse impact on travel attributable to the COVID-19 Delta variant. Relative to July, our portfolio performance in August and September fared much better than the lodging industry, as we continued to see strong operating fundamentals, maintaining occupancy levels of approximately 70 percent and ADRs of almost $150. In a typical year, October is one of the strongest months for the lodging industry, and we saw that come to fruition this year as October RevPAR for us will be our second highest monthly such measure in 2021,” Fisher commented.

Fisher continued, “Third quarter RevPAR at our 40 comparable hotels was $107, up 92 percent over the same period of 2020 and down 26 percent over the 2019 third quarter. Compared to 2019, July, August and September RevPAR were down 26, 29 and 25 percent. Our third quarter performance was driven by very strong leisure travel and the steady return of the business traveler and other non-leisure guests despite office re-openings in certain locations being pushed back to 2022. Demand remains strongest on the weekend with weekend occupancy ranging from 73 to 86 percent during the quarter versus weekday occupancy that ranged from 63 to 76 percent.

“Our performance has been outstanding since the start of the pandemic, but one key thing to take away is that we have done so well despite our largest market, Silicon Valley, and other technology dependent markets, underperforming our overall portfolio. With the return of the international traveler and the expansion of technology related travel, including the vital intern programs, product launches, enhanced training and the new business traveler who moved away and is now having to come back to the office, we expect our tech driven markets such as Silicon Valley and Bellevue, Washington, to experience meaningful rebounds in 2022 and 2023 which, again, should contribute to outsized earnings growth,” Fisher concluded.

RevPAR performance for Chatham’s six largest markets based on hotel EBITDA contribution over the last twelve months is presented below:

“Two of our top three markets produced significant sequential gains in the third quarter, with our three Coastal Northeastern hotels in Maine and New Hampshire leading the way for the second consecutive quarter as they benefited from strong leisure demand,” stated Dennis Craven, Chatham’s chief operating officer. “Greater New York is comprised of three Residence Inns and has been the beneficiary of a diverse set of demand drivers. In Dallas and San Diego, we are beginning to experience the return of smaller events at the convention centers which is positive to see. Both San Diego and Dallas are projecting meaningfully large conventions in 2022, and Silicon Valley is poised to take off next year.

“Our strong performance is driven broadly across our portfolio as nineteen of our comparable forty hotels had third quarter occupancy exceeding 75 percent in the quarter, and 14 of our hotels drove ADR’s higher than the 2019 third quarter,” Craven noted.

Approximately 60 percent of Chatham’s hotel EBITDA over the last twelve months was generated from its Residence Inn and Homewood Suites hotels. Chatham has the highest concentration of extended-stay rooms of any public lodging REIT at 60 percent. Third quarter 2021 occupancy, ADR and RevPAR for each of the company’s major brands, based on the 40 comparable hotels, is presented below (number of hotels in parentheses):

Hotel Operations Performance

The below chart summarizes key hotel operating performance measures per month during the 2021 third quarter and for the three months ended June 30, 2021, and March 31, 2021. RevPAR is based on the 40 comparable hotels. Gross operating profit is calculated as Hotel EBITDA plus property taxes, ground rent and insurance (in millions, except for RevPAR and margin percentages):

“Our best-in-class platform working alongside Island Hospitality continues to deliver outstanding results. We generated third quarter GOP margins of 45 percent on RevPAR of $107, which compares very favorably to our 2019 operating margins of 46 percent on RevPAR of $132,” commented Dennis Craven, Chatham’s chief operating officer. “We expect that our same store operating margins will be higher than 2019 levels as RevPAR continues its recovery and we generate strong flow-through. Compared to the 2020 third quarter, we created meaningful flow-through of 55 percent which is notable when you take into account the ramp-up in staffing necessary to match rising occupancy, as well as the return of the complimentary breakfast at most of our hotels. On a per occupied room basis, our wage and benefit costs were $30 in the quarter, below 2019 per occupied room costs of $35, a great result achieved by our stringent oversight of labor related expenses and more efficient housekeeping programs.”

Corporate Update

The below chart summarizes key financial performance measures during the third quarter and for the three months ended June 30, 2021, and March 31, 2021. Corporate EBITDA is calculated as hotel EBITDA minus cash corporate general and administrative expenses and is before debt service and capital expenditures. Debt service includes interest expense and principal amortization on its secured debt (approximately $2.2 million per quarter). Cash flow/(burn) before CAPEX is calculated as Corporate EBITDA less debt service. Amounts are in millions, except RevPAR.

Chatham has estimated liquidity of $199 million, including cash of approximately of $19 million, as of September 30, 2021, and remaining borrowing capacity on the credit facility of $180 million.

Hotel Acquisitions

During the third quarter in an off-market transaction, Chatham acquired two hotels comprising 269 rooms at The Domain in Austin, Texas, for an aggregate purchase price of approximately $71.2 million (the “Austin Acquisitions”). The two hotels include the 132-room Residence Inn by Marriott, which opened in 2016, and the 137-room TownePlace Suites, which opened in the 2021 third quarter.

“We have been looking for the right opportunity to expand our footprint into Austin, one of the strongest, fastest growing markets in the country. The Domain is a rapidly growing mixed-use development known as Austin’s ‘second downtown’ with over 4.2 million square feet of office space and 1.8 million square feet of retail space, plus another 2.8 million additional square feet of office space expected to be delivered over the next two years and an extra 3.8 million square feet planned thereafter,” Fisher accentuated. “These two hotels further increase the extended-stay composition of our portfolio, which is one of our long-term strategic initiatives. We believe these hotels will be great additions to our portfolio, and their performance to-date has been fantastic with the two hotels averaging September occupancy of 81 percent and October occupancy of approximately 90 percent.”

Hotel Investments

During the 2021 third quarter, the company incurred capital expenditures of $1.2 million. Chatham’s 2021 capital expenditure budget is approximately $6.3 million, excluding any spending related to the Warner Center development.

Hotel Under Development

Chatham is developing 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 $70 million, inclusive of land of $6.6 million. Including land, the company has incurred costs to-date of approximately $64.2 million. Construction is ahead of the previously announced schedule, and the hotel is expected to open during the 2021 fourth quarter.

Capital Markets & Capital Structure

On June 30, 2021, Chatham issued 4.8 million of its 6.625% Series A Cumulative Redeemable Preferred Shares at a public offering price of $25.00 per share, for net proceeds of approximately $116.2 million, after deducting the underwriting discount and offering-related expenses. On July 1, 2021, the operating partnership used the net proceeds to repay indebtedness under the company’s revolving credit facility and subsequently borrowed funds under its revolving credit facility to fund the $71.2 million purchase price for the Austin Acquisitions.

As of September 30, 2021, the company had net debt of $525.8 million (total consolidated debt less unrestricted cash), down $62.8 million from December 31, 2020. Total debt outstanding as of September 30, 2021, was $544.4 million at an average interest rate of 4.7 percent, comprised of $442.1 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent, $70.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.0 percent interest rate and $32.3 million outstanding on the Warner Center construction loan, which carries a 7.75 percent interest rate.

On April 30, 2021, Chatham repaid in full the $12.5 million mortgage secured by the Residence Inn New Rochelle, N.Y., that carried a 5.75 percent interest rate and was set to mature later this year.

Based on the ratio of the company’s net debt to hotel investments at cost, Chatham’s leverage ratio was approximately 30.6 percent on September 30, 2021, down from 37.7 percent on September 30, 2020. The weighted average maturity date for Chatham’s fixed-rate debt is April 2024.

Subsequent to the end of the quarter, Chatham completed a successful amendment and extension of its credit facility, which extends the final maturity date to March 2024 including extension options and provides for the waiver of key financial covenants until June 30, 2022. There was no change in pricing relative to prior levels. Participating lenders in the credit facility include Barclays Bank PLC, Regions Bank, Citibank N.A., US Bank National Association, Wells Fargo Bank National Association, Bank of America N.A., Citizens Bank N.A. and BMO Harris Bank N.A.

“We very much appreciate the efforts of our participating lenders who worked with us to execute this extension which further strengthens our financial position,” stated Jeremy Wegner, Chatham’s chief financial officer. “With the extension of this credit facility, we have no debt maturities in 2021 or 2022 and only $115 million of debt maturing in 2023. Our balance sheet is in great shape coming out of the pandemic, and we have the flexibility to invest meaningful dollars and grow earnings.”

Dividend

Although not expected, any dividend required for Chatham to maintain its REIT status for 2021 will be declared in the 2021 fourth quarter and paid in January 2022. Pursuant to its amended credit facility, any dividends paid would include a cash component no greater than the minimum percentage allowed under the Internal Revenue Code.

2021 Guidance

Due to uncertainty surrounding the impact of the pandemic on the hotel industry, the company is not providing guidance at this time.

About Chatham Lodging Trust

Chatham Lodging Trust is a self-advised, publicly traded real estate investment trust (REIT) focused primarily on investing in upscale, extended-stay hotels and premium-branded, select-service hotels. As of September 30, 2021, the company owns 41 hotels totaling 6,169 rooms/suites in 15 states and the District of Columbia.