Chatham Lodging Trust Announces Second Quarter 2022 Results

Top Markets Post Significant Gains, GOP Margins Higher than 2019

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 second quarter ended June 30, 2022.

Second Quarter 2022 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 50 percent to $138 compared to the 2021 second quarter. Average daily rate (ADR) accelerated 36 percent to $179, and occupancy grew 10 percent to 77 percent for the 37 comparable hotels owned as of June 30, 2022 (excludes one Austin hotel that opened in June 2021 and the Woodland Hills hotel that opened in January 2022).
  • Second quarter 2022 RevPAR of $138 compares to $146 in the 2019 second quarter.
• Net income – Swung from a $8.7 million loss in the 2021 second quarter to net income of $9.3 million in the 2022 second quarter. Net income per diluted common share was $0.15 versus a net loss per diluted common share of $(0.18) for the same period last year.
• GOP Margin – Generated margins for all hotels owned during the quarter of 49.2 percent, up significantly from margins of 43.1 percent in the 2021 second quarter.
  • For the 36 comparable hotels (also excludes the Destin hotel that was not open in 2019), GOP margins rose 60 basis points to 50.1 percent compared to 49.5 percent for the 2019 second quarter despite 2022 RevPAR being $8 lower.
• Adjusted EBITDA – Jumped to $31.1 million from $12.5 million in the 2021 second quarter.
• Adjusted FFO – Increased significantly from FFO of $4.9 million in the 2021 second quarter to positive adjusted FFO of $20.7 million this year. Adjusted FFO per diluted share was $0.41, more than four times higher than 2021 FFO per share of $0.10.
• Cash Flow Before Capital Expenditures – Generated second quarter 2022 cash flow before capital expenditures of $20.3 million in the 2022 second quarter compared to $2.8 million in the 2022 first quarter and cash flow of $4.0 million in the 2021 second quarter. Cash flow/burn includes $2.2 million of principal amortization per quarter.
• Recycling of Hotels Enhances Portfolio Value - Sold four hotels comprising 537 rooms for aggregate proceeds of approximately $80 million. Including near term capital expenditure requirements, the aggregate sales proceeds equated to an approximate 2 and 6 percent capitalization rate on net operating income for 2021 and 2019, respectively.

The following chart summarizes the consolidated financial results for the three and six months ended June 30, 2022, and 2021, based on all properties owned during those periods ($ in millions, except margin percentages and per share data):

“The second quarter was fantastic, hitting on all cylinders as RevPAR jumped significantly coinciding with the continued return of our business traveler, operating margins surpassing 2019 levels and the successful sale of four, non-core assets at a cap rate that highlights the underlying value of our premium-quality portfolio,” highlighted Jeffrey H. Fisher, Chatham’s president and chief executive officer. “The stellar operating performance generated by our best-in-class platform enabled us to more than quadruple adjusted funds from operations over the 2021 second quarter and, importantly, generate positive cash flow before CAPEX of $20.3 million which is up significantly from $2.8 million last quarter and more than five times higher than the 2021 second quarter. Excellent operating results combined with very successful hotel recycling has greatly enhanced our financial position, and we have the available liquidity and flexibility to build shareholder value.”

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 37 comparable hotels owned as of June 30, 2022, compared to the 2022 first, 2021 second and 2019 second quarter:

The below chart summarizes RevPAR statistics by month for the company’s 37 comparable hotels:

Fisher continued, “June 2022 RevPAR of $158 was up 19 percent over May and exceeded June 2019’s $157, marking the first month we have surpassed pre-pandemic RevPAR levels. Additionally, second quarter ADR of $179 exceeded 2019 second quarter ADR of $174. Portfolio RevPAR is strengthening, and we have significantly more upside in our largest market, Silicon Valley, that will further boost performance. Compared to 2019, April, May and June RevPAR were down 12, 6 and then up 2 percent, respectively. While our hotels build occupancy as business travel demand rises, we expect to continue growing ADR.

“Business travel demand has continued to rise, and weekday occupancy is the appropriate indicator to track this trend, as occupancy rose from approximately 60 percent in the first quarter to over 70 percent in April and May and now surpassed 80 percent in June, the first time since the start of the pandemic that weekday occupancy was that high,” Fisher stated.

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

“In comparing our top six markets from the 2019 second quarter with the 2022 second quarter, it is something of a return to normal with five of the same markets appearing in both. The only difference is that the 2022 top six markets substitute the lower RevPAR market of Houston with the higher RevPAR market of Greater New York,” commented Dennis Craven, Chatham’s chief operating officer. “The only other two markets that comprise more than five percent of our trailing twelve-month hotel EBITDA are Austin and Dallas, and combined with our top six markets, the eight markets comprise 61 percent of our trailing twelve-month hotel EBITDA. Second quarter 2022 RevPAR exceeded 2019 RevPAR in six of our top eight markets. RevPAR in our Washington D.C. market jumped 120 percent over the same quarter last year as the return to office has been slower than in other parts of the country.

“Our largest market, Silicon Valley, has experienced the slowest recovery of our top markets, but with the return of a robust intern program this summer, is rebounding sharply with RevPAR basically doubling from the same quarter last year as well as the 2022 first quarter. With return to office and international travel to Silicon Valley slowly but steadily coming back, we decided to take more intern business than previously which was the right decision and proven out by gaining market share over 2019. Given that 2022 second quarter RevPAR in Silicon Valley is 27 percent below 2019, the market has a tremendous amount of upside that will further propel our portfolio RevPAR to levels well above pre-pandemic levels,” Craven added.

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 61 percent. Second quarter 2022 occupancy, ADR and RevPAR for each of the company’s major brands, based on the 37 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 second quarter, compared to the 2022 first, 2021 second and 2019 second quarter. RevPAR is based on the 37 comparable hotels. All other metrics are based on the as reported consolidated financial statements. Gross operating profit is calculated as Hotel EBITDA plus property taxes, ground rent and insurance (in millions, except for RevPAR and margin percentages):

“As RevPAR rose throughout the quarter, we delivered significantly higher operating margins and are thrilled to report that comparable margins at our 36 comparable hotels surpassed 2019 margins, up 60 basis points to 50.1 percent,” Fisher remarked. “We were able to grow margins despite RevPAR being $8 lower than 2019, a testament to the efficacy of our platform with Island and a harbinger of future earnings power resulting from higher margins as RevPAR surpasses pre-pandemic levels.

“In the several years prior to the pandemic, rising hourly wages and increasing brand requirements drove margin erosion, but as we emerge from the pandemic, our operating model is more profitable given the reduced amount of labor required for housekeeping services, as well as the elimination of brand requirements such as the evening social hour or reduced breakfast offerings. Labor is by far our most significant cost, and despite hourly wages rising significantly since 2019, on a per occupied room basis, our wage and benefit costs have declined from $34 in the 2019 second quarter to $32 this year, a remarkable achievement,” Craven concluded.

Corporate Update

The below chart summarizes key financial performance measures during the second quarter, compared to the 2022 first, 2021 fourth and 2019 second quarter (adjusted to remove the impact of the joint ventures). 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.

Home2 Suites in California

In January 2022, Chatham opened the 170-suite Home2 Suites by Hilton Woodland Hills Warner Center. The hotel is the only premium-branded, extended-stay room product within an 11-mile radius and will appeal to any traveler coming to the area for business, leisure or both.

After opening in January, the hotel has ramped up quickly with second quarter occupancy of 71 percent, ADR of $191 and RevPAR of $135, which would rank in the top half of Chatham’s hotels, impressive given that the hotel has only been open for five full months.

Destin Acquisition

During the first quarter in an off-market transaction, Chatham acquired the beachside, 111-room Hilton Garden Inn Destin Miramar Beach, Fla., for $30 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. During the second quarter, the hotel achieved RevPAR of $167, which would rank 10^th in the portfolio during the quarter.

Asset Sales & Value Enhancing Recycling

During the second quarter, Chatham closed on the sale of four hotels comprising 537 rooms for aggregate proceeds of approximately $80 million. 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. The four hotels comprise the following:

• 180-room Hilton Garden Inn, Burlington, Massachusetts
• 100-room Courtyard by Marriott Houston West University
• 120-room Residence Inn by Marriott Houston West University
• 137-room Homewood Suites by Hilton Dallas Market Center

Three of the hotels were among Chatham’s six lowest RevPAR hotels, and all four hotels were 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 of Chatham’s portfolio in RevPAR for 2022.

“We want to recycle capital out of older assets into newer hotels with higher growth prospects. Combining the acquisition of the beachside Destin hotel with the sale of these four hotels is a giant step towards reducing the average age of our portfolio and providing ample liquidity for future growth,” emphasized Fisher.

Hotel Investments

During the 2022 second quarter, the company incurred capital expenditures of $5.3 million ($4.1 million in the first quarter), excluding any spending related to the Warner Center development. Chatham’s 2022 capital expenditure budget is approximately $19 million after the sale of the hotels, which includes renovations at five hotels and excludes any spending related to the Warner Center development.

Capital Markets & Capital Structure

As of June 30, 2022, the company had net debt of $471.8 million (total consolidated debt less unrestricted cash), down from $525.7 million at year-end. Total debt outstanding as of June 30, 2022, was $489.6 million at an average interest rate of 4.9 percent, comprised of $435.5 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent, $15.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 4.0 percent interest rate, and $39.1 million outstanding on the Warner Center construction loan, which currently carries an 8.6 percent interest rate.

Based on the ratio of the company’s net debt to hotel investments at cost, Chatham’s leverage ratio was approximately 28.4 percent on June 30, 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 also can repay the Warner Center construction loan after the 2023 first quarter without incurring any prepayment costs.

“Our balance sheet is in fantastic shape, the strongest it has been in the last decade. We have very manageable maturities aggregating $114 million in 2023. We are exiting our credit facility covenant waiver period this month, will have $235 million of credit facility availability and have encumbrances on only 15 of our 39 hotels, which provides us flexibility to appropriately address our maturities and capacity to acquire assets at the right time,” 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 July 15, 2022, to shareholders of record as of June 30, 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 39 hotels totaling 5,914 rooms/suites in 16 states and the District of Columbia.