Chatham Lodging Trust Announces Fourth 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 fourth quarter ended December 31, 2021.

Fourth Quarter 2021 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 93 percent to $92 compared to the 2020 fourth quarter. Average daily rate (ADR) accelerated 36 percent to $141, and occupancy jumped 43 percent to 65 percent for the 40 comparable hotels owned as of December 31, 2021 (excludes one Austin hotel acquired in August 2021 that opened in June 2021).
• Net loss – Incurred a $11.4 million net loss compared to a net loss of $3.4 million in the 2020 fourth quarter. Net loss per diluted common share was $(0.27) versus net loss per diluted common share of $(0.07) for the same period last year.
• GOP Margin – Grew margins a significant 64 percent to a portfolio-wide GOP margin of 41 percent in the 2021 fourth quarter compared to 25 percent in the 2020 fourth quarter.
• Adjusted EBITDA – Jumped to $15.2 million from $0.2 million in the 2020 fourth quarter.
• Adjusted FFO – Swung significantly from negative FFO of $8.7 million in the 2020 fourth quarter to positive adjusted FFO of $6.1 million this year. Adjusted FFO per diluted share was $0.12, compared to an FFO loss of $(0.18) in the 2020 fourth quarter.
• Cash Flow/Burn Before Capital Expenditures – Generated fourth quarter 2021 cash flow before capital expenditures of $5.1 million which compares to $10.0 million in the 2021 third quarter, $4.0 million in the 2021 second quarter and cash burn of $7.6 million in the 2021 first quarter. Cash flow/burn includes $2.2 million of principal amortization per quarter.
• Amended and Extended Revolving Credit Facility – Amended and extended its credit facility successfully, extending the maturity date to March 2024, including extension options, and waived key financial covenants through June 30, 2022.

The following chart summarizes the consolidated financial results for the three months and year ended December 31, 2021, and 2020, based on all properties owned during those periods ($ in millions, except margin percentages and per share data):

Jeffrey H. Fisher, Chatham’s president and chief executive officer, highlighted, “Prior to the adverse impact on travel as a result of fears related to the COVID-19 Omicron variant, we were starting to see the return of the business traveler. Although that is going to impact our first quarter, we are starting to see trends rebound and believe we will experience a meaningful recovery in the business traveler starting in the spring and accelerating throughout 2022. Silicon Valley, our most significant market, is coming back to life in February, and we know some of our top clients there are resuming travel, opening offices and bringing back in-person internships this summer.

“Despite the recent sluggish RevPAR trend owing to the Omicron variant, I am really pleased with our operating margin performance and what that means for our best-in-class operating model moving forward. Our fourth quarter GOP margins were a strong 41 percent on RevPAR of $92, which is only down 100 basis points compared to our 2019 fourth quarter when RevPAR was 22 percent higher at $118. In December, our GOP margins were 330 basis points higher than our December 2019 GOP margins even though RevPAR was $17 lower. As we move forward, we certainly believe same store operating margins will be higher compared to pre-pandemic levels,” Fisher pointed out.

Post-Pandemic Balance Sheet Strength

Chatham is emerging from the pandemic with an even stronger balance sheet, more buying capacity and an even higher quality portfolio by executing numerous, meaningful transactions.

The company minimized cash burn throughout the pandemic by generating impressive operating results. Chatham was the second fastest hotel REIT to become corporate cash flow positive. In 2021, Chatham generated positive cash flow before capital expenditures of $12 million, and, excluding principal amortization, cash flow was $20 million. Since April 2020, essentially the start of the pandemic for Chatham’s portfolio, cumulative cash burn before capital expenditures was $16 million, but when excluding principal amortization, cash burn was zero, a remarkable achievement given the significant challenges faced during the worst era in the history of the lodging industry.

Chatham preserved its capital structure and enhanced its liquidity by generating increased liquidity of $185 million since the start of the pandemic through the issuance of $120 million of preferred equity in June 2021, the issuance of $25 million of common equity, the issuance of a $40 million loan on the Warner Center Development and getting multiple amendments to its credit facility that maintained its ability to opportunistically sell and buy hotels.

Since April 2020, Chatham has repaid a $13 million mortgage, paid principal amortization of almost $16 million and paid down borrowings on its credit facility by $103 million.

During 2021, the company acquired two high-quality, premium branded, extended-stay hotels in Austin, Texas, for $71 million. Additionally, Chatham completed and recently opened the Home2 Suites Woodland Hills Los Angeles. These three hotels are expected to generate a yield over eight percent in the first year of stabilized results. With these acquisitions, as well as the now opened extended-stay Home2 Suites, these hotels increase further Chatham’s exposure to high-quality, premium-branded, extended-stay hotels.

“It’s been an uncertain and tumultuous time in the lodging industry since early 2020. As we turn the page to 2022 healthier than most of our peers, I am thankful for the remarkable efforts of our teams at Chatham and Island, as well as their significant accomplishments that placed us in a great position moving forward with an outstanding portfolio. I am more energized than ever to deliver great results and meaningfully enhance shareholder value,” emphasized Fisher.

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 40 comparable hotels owned as of December 31, 2021, compared to the 2021 third, second and first quarters:

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

Fisher continued, “Fourth quarter RevPAR at our 40 comparable hotels was $92, up 93 percent over the same period of 2020 and down 23 percent over the 2019 fourth quarter. Compared to 2019, October, November and December RevPAR were down 26, 24 and 16 percent, respectively. Reflecting the adverse impact from the COVID-19 Omicron variant, January RevPAR of $67 trended down to a decline of 36 percent compared to 2019, but encouragingly, through February 21st, RevPAR has rebounded significantly to $87, up 30 percent versus January.

“Our portfolio did significantly better than the industry with October and fourth quarter occupancy of 72 percent and 65 percent compared to industry-wide occupancy of 63 percent and 58 percent, respectively. Weekday occupancy reached 69 percent in October, higher than third quarter weekday occupancy of 68 percent before easing to 63 percent in November and 57 percent in December. Weekend occupancy was 71 percent during the fourth quarter, continuing the pandemic trend where leisure driven demand is highest,” Fisher stated.

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

“Since the start of the pandemic, our Coastal Northeastern and Greater New York hotels have produced some of the best results in our portfolio. Our Coastal Northeastern markets have benefited from strong leisure demand, while our Greater New York hotels have been the beneficiary of a multitude of demand generators,” commented Dennis Craven, Chatham’s chief operating officer.

“As we head into 2022, our largest market, Silicon Valley, and other technology dependent markets, such as Bellevue, Washington, are poised to significantly outperform and deliver outsized earnings growth as the business traveler returns, international travel opens up, technology related training and product development resumes and, importantly, the intern programs return. Like the surge in leisure travel in 2021, we believe business travel will return with a vengeance,” Craven noted.

Approximately 60 percent of Chatham’s hotel EBITDA over the last twelve months was generated from its extended-stay hotels. Chatham has the highest concentration of extended-stay rooms of any public lodging REIT at 60 percent. Fourth 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 fourth quarter and for the three months ended September 30, 2021, 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):

Craven added, “compared to the 2020 fourth quarter, we created meaningful flow-through of 58 percent, which is particularly impressive given the quick pivot required to adjust our operating standards to stay ahead of the RevPAR decline caused by the reduction in travel due to the onset of the Omicron variant of COVID-19. On a per occupied room basis, our wage and benefit costs were $32 in the quarter, down from $33 in the 2020 fourth quarter and approximately 14 percent below fourth quarter 2019 per occupied room costs of $37.”

Corporate Update

The below chart summarizes key financial performance measures during the fourth quarter and for the three months ended September 30, 2021, 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), as well as dividends on its preferred shares of $2.0 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 December 31, 2021, and remaining borrowing capacity on the credit facility of $180 million.

Opening of Home2 Suites in California

In January 2022, Chatham announced the opening of the 170-suite Home2 Suites by Hilton Woodland Hills Warner Center. The opening adds another high-quality, extended-stay hotel to the portfolio. The hotel was constructed to the highest building standards in the country. The hotel will generate one of the highest RevPARs in Chatham’s portfolio. The hotel is the only premium-branded, extended-stay room product within an 11-mile radius of the hotel and will appeal to any traveler coming to the area for business, leisure or both.

Warner Center is located within the highly desirable San Fernando Valley submarket of Los Angeles. The San Fernando Valley encompasses some of the most coveted and affluent communities in southern California. Warner Center currently generates significant standalone demand with 10 million square feet (SF) of office space with approximately 50,000 employees, almost 8 million SF of retail space and is home to over 20,000 local residents. The city of Los Angeles introduced the Warner Center 2035 Plan, a development blueprint that emphasizes mixed-use and transit-oriented development, walkability and sustainability with a goal of further urbanizing the zoning district. The Warner Center 2035 Plan facilitates the creation of a Regional Center where people can live, work and play. The plan encompasses approximately 1,100 acres and allows for a net increase of 12.5 million SF of office, 2.3 million SF of retail and 23.5 million SF of new residential apartments (across 20,000 units).

“This beautiful asset is an ideal addition to our industry leading portfolio of premium-branded, extended stay hotels. We know that this hotel provides the best all-around lodging experience in the market with an awesome public space that includes a full-service, indoor/outdoor bar and restaurant along with large rooms equipped with kitchens,” Fisher highlighted. “The Warner Center market is poised to boom over the next decade, and components of the Warner Center 2035 Plan already are underway, including the massive Westfield Mall redevelopment and new retail space, as well as several, new residential communities. The future prospects for this hotel are great.”

Hotel Recycling

The opening of Home2 Suites Woodland Hills concludes the successful recycling of the proceeds from the sale of an older hotel in San Diego for $67 million into the Woodland Hills hotel with an investment of $70 million, and Chatham expects the reinvestment will contribute incremental, stabilized EBITDA of more than $1 million compared to the sold hotel.

“In 2022, we will continue to recycle capital out of older assets into newer hotels with higher growth prospects. We have emerged from the pandemic with a stronger balance sheet and have the capacity to make value-enhancing acquisitions and generate incremental cash flow,” Craven commented.

Hotel Investments

During the 2021 fourth quarter, the company incurred capital expenditures of $4.3 million, excluding any spending related to the Warner Center development. Chatham’s 2022 capital expenditure budget is approximately $23.7 million, which includes renovations at five hotels and excludes any spending related to the Warner Center development.

Capital Markets & Capital Structure

As of December 31, 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 December 31, 2021, was $544.9 million at an average interest rate of 4.7 percent, comprised of $439.9 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 $35.0 million outstanding on the Warner Center construction loan, which carries a 7.75 percent interest rate.

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 December 31, 2021, down from 35.8 percent on December 31, 2020. The weighted average maturity date for Chatham’s fixed-rate debt is April 2024.

During the fourth 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.

“With this amendment, our balance sheet remains strong and provides us the flexibility to invest meaningful dollars to acquire assets. We have no debt maturities in 2022 and only $114 million of debt maturing in 2023,” stated Jeremy Wegner, Chatham’s chief financial officer.

Dividend

No common dividend was necessary for Chatham to maintain its REIT status for 2021. The Board of Trustees will regularly evaluate its common dividend moving forward. 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.

During the fourth quarter, the Board of Trustees declared a preferred share dividend of $0.41406 per share, payable on January 18, 2022, to shareholders of record as of December 31, 2021.

2022 Guidance

Due to uncertainty surrounding 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. The company owns 42 hotels totaling 6,340 rooms/suites in 16 states and the District of Columbia.