Chatham Lodging Trust Announces Third Quarter 2022 Results

Third Quarter RevPAR Surpasses 2019, Margin Growth Accelerates

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, 2022.

Third Quarter 2022 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 34 percent to $150 compared to the 2021 third quarter. Average daily rate (ADR) increased 22 percent to $187, and occupancy grew 10 percent to 80 percent for the 38 comparable hotels owned as of September 30, 2022 (excludes the Woodland Hills hotel that opened in January 2022).
  • Third quarter 2022 RevPAR of $150 compares to $149 in the 2019 third quarter.
• Net Income – Swung from a $1.4 million loss in the 2021 third quarter to income of $12.4 million in the 2022 third quarter. Net income per diluted common share was $0.21 versus a net loss per diluted common share of $(0.07) for the same period last year.
• GOP Margin – Generated margins for all hotels owned during the quarter of 50.1 percent, up significantly from margins of 44.7 percent in the 2021 third quarter.
  • For the comparable hotels, GOP margins rose a very strong 160 basis points to 50.5 percent compared to 48.9 percent for the 2019 third quarter.
• Adjusted EBITDA – Experienced a massive jump to $35.1 million from $19.6 million in the 2021 third quarter.
• Adjusted FFO – Increased significantly from FFO of $10.5 million in the 2021 third quarter to adjusted FFO of $25.2 million this year, the highest quarterly FFO since the pandemic. Adjusted FFO per diluted share was $0.50, more than two times higher than 2021 FFO per share of $0.21.
• Cash Flow Before Capital Expenditures – Generated third quarter 2022 cash flow before capital expenditures of $24.6 million in the 2022 third quarter compared to $20.3 million in the 2022 second quarter and cash flow of $10.0 million in the 2021 third quarter. Cash flow/burn includes $2.2 million of principal amortization per quarter.

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

“Building on a great second quarter, our third quarter results were outstanding, with corporate EBITDA and adjusted FFO up 13 percent and 22 percent, respectively, over the 2022 second quarter," commented Jeffrey H. Fisher, Chatham's president and chief executive officer. "The third quarter was far and away our best quarter since 2019, and the impressive results were driven by strong RevPAR growth combined with effective cost containment via our best-in-class platform that allowed us to produce GOP margins over 50 percent, nicely above our 2019 third quarter operating margins. The stellar operating performance enabled us to more than double adjusted funds from operations (AFFO) over the 2021 third quarter and, importantly, generate positive cash flow before CAPEX of $24.6 million which is up approximately 21 percent over the 2022 second quarter."

Fisher highlighted, "Our portfolio is in excellent position to continue to benefit from the resurgence of the business traveler, and recent trends have been very encouraging on that front. We are in great financial condition with full capacity under our new credit agreement and access to $90 million of proceeds from our new term loan that we will draw down over the next six months. We have the available liquidity and flexibility to enhance shareholder value by executing acquisitions or refinancings at the right time."

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 38 comparable hotels owned as of September 30, 2022, compared to the 2022 second, 2021 third and 2019 third quarter:

The below chart summarizes RevPAR statistics by month for the company’s 38 comparable hotels:

Fisher continued, "Quarterly portfolio occupancy reached 80 percent for the first time since 2019, still approximately five percent below pre-pandemic levels. However, this was more than offset by much higher ADR, coming in $11, or six percent higher than the 2019 third quarter. Relative to 2019, September RevPAR had the largest growth. Historically, September trends down from August, but once we got past Labor Day, driven by the transient business traveler, we saw weekday travel demand accelerate."

Compared to 2019, July, August and September RevPAR were down 0.1, down 2.7 and then up 6.2 percent, respectively. October RevPAR of approximately $144 is down 1.5 percent compared to 2019.

“Business travel demand continues its improvement from earlier this year, and we have seen weekday occupancies rise from approximately 60 percent in the first quarter, 75 percent in the second quarter, rising further to 79 percent in the third quarter and now over 80 percent in October. Importantly, since the week of Labor Day, Tuesday/Wednesday occupancy jumped to 87 percent, surpassing Friday/Saturday occupancy of 82 percent over that same period, marking the first time since before the pandemic where prime weekday occupancy has consistently outperformed the weekend,” Fisher emphasized.

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

“As proven by our strong performance during the quarter, our top business travel markets are experiencing the most year-over-year growth, and the largest growth among our major markets was in Silicon Valley, by far our largest and most important market," stated Dennis Craven, Chatham's chief operating officer. "Strengthened by our robust intern program this summer, Silicon Valley RevPAR was up $102 over the third quarter last year and up $40 or 28 percent over the second quarter. Despite these attractive growth numbers, Silicon Valley RevPAR was still $23 or 11 percent below the 2019 third quarter results and ultimately will provide tremendous upside which should contribute to higher portfolio growth as international and business travel continues to recover in that market."

Craven commented further, "Our coastal northeast market remains on fire, as evidenced by our three hotels in Maine and New Hampshire where RevPAR far outpaced any other market. Additionally, our Hampton Inn Portland produced the highest RevPAR of any of our hotels during the third quarter at $343, and our Portsmouth Hilton Garden Inn produced the second highest at $238. Demand remains robust heading into the fall. Austin, Dallas and Bellevue are our other markets which comprise more than five percent of our trailing twelve-month hotel EBITDA. Combined with our top six markets, the nine markets comprise 68 percent of our trailing twelve-month hotel EBITDA and of our top nine markets, six of them had RevPAR growth over 2019."

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. Third quarter 2022 occupancy, ADR and RevPAR for each of the company’s major brands, based on the 38 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 third quarter, compared to the 2022 second, 2021 third and 2019 third quarter. RevPAR is based on the 38 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):

“Driven by strong operating controls, for the first time since 2020, all hotel operating financial metrics surpassed 2019 levels, and if you look at our 38 comparable hotels, operating margins were up a meaningful 160 basis points to 50.5% on a $1 increase in RevPAR,” Craven remarked. “Our hotel EBITDA margins of 44 percent are the highest of all lodging REITs that have reported to date, evidence that our platform with Island Hospitality is best at generating the best flow-through to the bottom line, which translates to incremental cash flow, earnings power and ultimately distributable cash to our shareholders. Despite continued wage pressure that has persisted for years, we have been able to adjust our operating model and become much more efficient and this has allowed us to reduce our costs per occupied room."

Corporate Update

The below chart summarizes key financial performance measures during the third quarter, compared to the 2022 second, 2021 third and 2019 third 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 $2.2 million per quarter). Dividends on its preferred shares are approximately $2.0 million per quarter. Cash flow before CAPEX is calculated as Corporate EBITDA less debt service and preferred dividends. 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 third quarter occupancy of 86 percent, ADR of $189 and RevPAR of $162, up 20 percent over second quarter RevPAR of $135. Third quarter RevPAR of $162 would rank 15^th of Chatham’s hotels.

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 third quarter, the hotel achieved RevPAR of $196, up 17 percent from second quarter RevPAR of $167. Third quarter RevPAR of $196 would rank 6^th in the portfolio during the quarter.

Hotel Investments

During the 2022 third quarter, the company incurred capital expenditures of $3.0 million ($4.1 million in the first quarter and $5.3 million in the second 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 four hotels, which includes renovations at five hotels and excludes any spending related to the Warner Center development.

Chatham will commence renovations on three hotels in the fourth quarter, including the Residence Inns in Holtsville and White Plains, New York, and the Residence Inn Washington D.C.

Capital Markets & Capital Structure

As of September 30, 2022, the company had net debt of $452.6 million (total consolidated debt less unrestricted cash), down from $525.7 million at year-end. Total debt outstanding as of September 30, 2022, was $472.6 million at an average interest rate of 5.0 percent, comprised of $433.2 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent, $0 outstanding on the company’s $250 million senior unsecured revolving credit facility, which carries a 3.4 percent interest rate, and $39.3 million outstanding on the Warner Center construction loan, which 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 27.2 percent on September 30, 2022. The weighted average maturity date for Chatham’s fixed-rate debt is April 2024. Chatham has $34.3 million maturing in the 2023 first quarter, $16.3 million maturing in the 2023 second quarter, $20.1 million maturing in the 2023 third quarter, and $41.4 million maturing in the 2023 fourth quarter. Chatham also can repay the Warner Center construction loan during the 2023 first quarter without incurring any prepayment costs.

“We exited our credit facility covenant waiver period this quarter and are at our lowest leverage levels in the last decade. Our balance sheet is in fantastic shape and we have very manageable maturities aggregating $112 million in 2023. We have full borrowing capacity under our credit facility 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.

Subsequent to the end of the third quarter, Chatham closed on a new $215 million revolving credit facility as well as a $90 million delayed-draw term loan, which allows Chatham to draw down over the first six months of the loan. Including extension options, both facilities mature in October 2027. At Chatham’s current leverage level, the borrowing cost under the credit facility is SOFR plus 1.65 percent, and the borrowing cost under the term loan is SOFR plus 1.60 percent. There are currently no outstanding borrowings on the unsecured credit facility or term loan.

"We greatly appreciate the support of our bank group during a tumultuous time in the credit markets and given that we now have access to $305 million of borrowing capacity versus $250 million prior to these new agreements is indicative of our excellent financial condition. In the future, we can increase capacity by up to $145 million through an accordion feature," Wegner iterated.

Dividend

The Board of Trustees will regularly evaluate its common dividend moving forward on a quarterly basis.

During the quarter, the Board of Trustees declared a preferred share dividend of $0.41406 per share, payable on October 17, 2022, to shareholders of record as of September 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.