Chatham Lodging Trust Announces Strong First Quarter 2022 Results

Chatham Lodging Trust (NYSE: CLDT) yesterday announced results for the first quarter ended March 31, 2022.

First Quarter 2022 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 56 percent to $88 compared to the 2021 first quarter. Average daily rate (ADR) accelerated 36 percent to $146, and occupancy jumped 15 percent to 60 percent for the 41 comparable hotels owned as of March 31, 2022 (excludes one Austin hotel that opened in June 2021 and the Woodland Hills hotel that opened in January 2022).
• Net loss – Incurred a $9.7 million net loss compared to net income of $2.7 million in the 2021 first quarter (2021 first quarter net loss would have been $21.1 million excluding a $23.8 million gain on sale of investment related to a joint venture). Net loss per diluted common share was $(0.23) versus net income per diluted common share of $0.06 for the same period last year.
• GOP Margin – Grew margins a significant 27 percent to a portfolio-wide GOP margin of 38 percent in the 2022 first quarter compared to 30 percent in the 2021 first quarter. GOP flow-through, measured as the increase in GOP compared to the increase in room revenue, was 55 percent.
• Adjusted EBITDA – Jumped to $13.3 million from $1.2 million in the 2021 first quarter.
• Adjusted FFO – Swung significantly from negative FFO of $7.1 million in the 2021 first quarter to positive adjusted FFO of $3.5 million this year. Adjusted FFO per diluted share was $0.07, compared to an FFO loss of $(0.15) in the 2021 first quarter.
• Cash Flow/Burn Before Capital Expenditures – Generated first quarter 2022 cash flow before capital expenditures of $2.8 million in the 2022 first quarter compared to $5.1 million in the 2021 fourth quarter and cash burn of $7.6 million in the 2021 first quarter. Cash flow/burn includes $2.3 million of principal amortization per quarter.
• Opened First Ground-up Hotel Development and Acquired Beachside Hotel –Opened the much-anticipated $71 million Home2 Suites by Hilton Woodland Hills Warner Center in January 2022, and the company acquired the Hilton Garden Inn Destin Miramar Beach for $31 million.

The following chart summarizes the consolidated financial results for the three months ended March 31, 2022, and 2021, 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, “Since getting past the impact from the COVID-19 Omicron variant midway through the first quarter, we have seen an acceleration in travel, especially business travel, across many of our key markets. The outlook for business travel continued to strengthen in April and early May, and we are positioned to outperform our peers as the business traveler returns. Occupancy is accelerating, and we are emphasizing the importance of pushing rates to our operating team. As we mentioned on our last earnings call, our technology markets are re-opened, and this summer’s intern business will be our biggest intern program yet.

“Weekday occupancy is the best indicator of business travel, and it rose significantly through the first four months of the year. Weekday occupancy was 48 percent in January before jumping to 60 percent in February, 68 percent in March and 72 percent in April. In fact, April weekday and full-month occupancy of 73 percent was the second-best performance since the start of the pandemic,” Fisher stated.

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 41 comparable hotels owned as of March 31, 2022, compared to the 2021 fourth, first and 2019 first quarter:

The below chart summarizes RevPAR statistics by month for the company’s 41 comparable hotels:

Fisher continued, “First quarter RevPAR at our 41 comparable hotels was $88, up 56 percent over the same period of 2021 and down 27 percent over the 2019 first quarter. Relative to 2019, our trend is gaining momentum, and we expect this trend to continue. Compared to 2019, January, February, March and April RevPAR were down 36, 27, 22 and 13 percent, respectively.”

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 largest market, Silicon Valley, and other technology dependent markets, such as Bellevue, Washington, have been laggards with little business travel. However, trends are improving quickly and 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,” commented Dennis Craven, Chatham’s chief operating officer.

“April RevPAR at our four Silicon Valley hotels accelerated to $103, a significant gain of 45 percent above its first quarter RevPAR. At our Bellevue Residence Inn, April RevPAR was $92, a strong improvement of 44 percent over first quarter RevPAR of $64. Demand is accelerating quickly in these tech driven markets with April occupancy at these five hotels jumping from 53 percent in the first quarter to 68 percent in April,” Craven noted.

Approximately 59 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. First quarter 2022 occupancy, ADR and RevPAR for each of the company’s major brands, based on the 41 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 2022 first quarter, compared to the 2021 fourth, first and 2019 first quarter. RevPAR is based on the 41 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):

“Though the results within the quarter were erratic due to the Omicron effect in January and February, March was a stable month. A key takeaway is that we delivered an operating margin of 44 percent on RevPAR of $109, the same margin as the 2019 first quarter when RevPAR was $12 or 11 percent higher.

“On a per occupied room basis, our wage and benefit costs were $36 in the quarter, down from $37 during the 2019 first quarter, which is particularly impressive when you consider how much wages have increased over the past three years, as well as how quickly we had to pivot to account for the Omicron impact on lower-than-expected labor needs. Our operating model is going to produce meaningful margin gains above pre-pandemic levels as we continue to drive occupancy and ADR gains. This bodes well for our ability to generate distributable cash flow,” Craven concluded.

Corporate Update

The below chart summarizes key financial performance measures during the first quarter, compared to the 2021 fourth, first and 2019 first quarter. 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 $2.3 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.

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 RevPAR’s 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.

“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 emphasized. “The Warner Center market is poised to boom over the next decade, and we are delivering a quick ramp-up with April occupancy of 63 percent, ADR of $184 and over 90 percent on some nights.”

Hotel Acquisitions

During the first quarter in an off-market transaction, Chatham acquired the beachside 111-room Hilton Garden Inn Destin Miramar Beach, Fl., for $31 million or approximately $279,000 per room. Recently opened in 2020, the hotel is within walking distance of the pristine white sands of the Gulf of Mexico.

Fisher commented, “This hotel represents our third youngest hotel and will generate a significant RevPAR premium over our current portfolio. Additionally, the hotel diversifies further Chatham’s portfolio by adding a predominantly leisure hotel and should benefit from the Sunbelt population growth that we expect will continue. Three out of every four travelers to the Destin area come from the Sunbelt, and many of Destin’s feeder markets, such as Atlanta, Dallas, Nashville and Houston, are experiencing strong population growth.”

Hotel Recycling and Pending Asset Sales

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 $71 million, and Chatham expects the reinvestment will contribute incremental stabilized EBITDA of over $1 million compared to the sold hotel.

Additionally, Chatham expects to close on the sale of four hotels comprising 537 rooms for aggregate proceeds of approximately $80 million within the next week. Including near term capital expenditure requirements, the aggregate sales proceeds would equate to an approximate two and six percent capitalization rate on net operating income for 2021 and 2019, respectively. Chatham cannot assure that these transactions will be complete on the terms described above or at all.

Three of the hotels are among Chatham’s six lowest RevPAR hotels, and all four hotels are among the fifteen lowest RevPAR hotels in the portfolio (based on 2019 RevPAR). Additionally, the four hotels generated 2021 Hotel EBITDA of $2.2 million. The recently acquired Destin hotel is the third youngest hotel in the portfolio, generated 2021 Hotel EBITDA of $2.3 million and is expected to be in the top 10 in RevPAR for 2022.

Hotel Investments

During the 2022 first quarter, the company incurred capital expenditures of $4.1 million, excluding any spending related to the Warner Center development. Chatham’s 2022 capital expenditure budget was approximately $23.7 million, but after the sale of the four hotels, total budgeted spend will be reduced to approximately $19.1 million, which includes renovations at five hotels and excludes any spending related to the Warner Center development.

Capital Markets & Capital Structure

As of March 31, 2022, the company had net debt of $567.9 million (total consolidated debt less unrestricted cash). Total debt outstanding as of March 31, 2022, was $586.1 million at an average interest rate of 4.6 percent, comprised of $437.6 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent, $110.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.3 percent interest rate, and $38.5 million outstanding on the Warner Center construction loan, which carries a 7.95 percent interest rate.

Based on the ratio of the company’s net debt to hotel investments at cost, Chatham’s leverage ratio was approximately 32.4 percent on March 31, 2022. The weighted average maturity date for Chatham’s fixed-rate debt is April 2024. Chatham has $34.8 million maturing in the 2023 first quarter, $16.6 million in the 2023 second quarter, $20.4 million in the 2023 third quarter and $41.8 million maturing in the 2023 fourth quarter.

Chatham expects to exit the waiver period on its credit facility after reporting 2022 second quarter results. After using proceeds from the pending hotel sales to reduce borrowings on its credit facility, Chatham will have $30 million outstanding on its $250 million credit facility.

“Our balance sheet is strong. We have no debt maturities in 2022, and 2023 maturities aggregating $114 million are very manageable. Once we exit the waiver period, we will only have encumbrances on 15 of our 43 hotels which provides us the flexibility to appropriately address our maturities at the right time and also invest meaningful dollars to acquire assets,” stated Jeremy Wegner, Chatham’s chief financial officer.

Dividend

The Board of Trustees will regularly evaluate its common dividend moving forward.

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

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 43 hotels totaling 6,451 rooms/suites in 16 states and the District of Columbia.