Chatham Lodging Trust Announces Fourth Quarter 2022 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, 2022.

Fourth Quarter 2022 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 24 percent to $117 compared to the 2021 fourth quarter. Average daily rate (ADR) accelerated 20 percent to $171, and occupancy jumped 3 percent to 69 percent for the 38 comparable hotels owned as of December 31, 2022 (excludes the Woodland Hills hotel that opened in January 2022).
  • Fourth quarter 2022 RevPAR of $117 compares to $122 in the 2019 fourth quarter.
  • Excluding Silicon Valley and three hotels not open in 2019, RevPAR was up 3 percent.
• Net Loss – Incurred a $4.0 million net loss applicable to common shareholders compared to a net loss of $13.2 million in the 2021 fourth quarter. Net loss per diluted common share was $(0.08) versus net loss per diluted common share of $(0.27) for the same period last year.
• Hotel EBITDA Margin – Raised margins to 33 percent in the 2022 fourth quarter compared to 2021 fourth quarter margins of 31 percent.
  • For the comparable hotels, hotel EBITDA margins were flat compared to the 2019 fourth quarter at approximately 34 percent.
• Adjusted EBITDA – Jumped 34 percent to $20.4 million from $15.2 million in the 2021 fourth quarter.
• Adjusted FFO – Advanced 68 percent from $6.1 million in the 2021 fourth quarter to adjusted FFO of $10.2 million this year. Adjusted FFO per diluted share was $0.20, compared to $0.12 in the 2021 fourth quarter.
• Cash Flow/Burn Before Capital Expenditures – Generated fourth quarter 2022 cash flow before capital expenditures of $10.0 million which compares to $5.1 million in the 2021 fourth quarter. Cash flow/burn includes $2.3 million of principal amortization per quarter.
• Refinanced Credit Facility and Issued New Term Loan – Closed on a new $260 million revolving credit facility as well as a $90 million delayed-draw term loan during the fourth quarter, allowing Chatham to draw down over the first six months of the loan. Including extension options, both facilities mature in October 2027.

The following chart summarizes the consolidated financial results for the three months and year ended December 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, “I am pleased with our portfolio’s overall operating performance in the fourth quarter with RevPAR growth of 24 percent driving adjusted EBITDA and FFO per share growth of 34 percent and 68 percent, respectively. Hotel EBITDA margins were up meaningfully over the 2021 fourth quarter and flat to 2019 as we benefited from lower real estate taxes in the quarter.

“We were thrilled to reinstate a common dividend for the first time since the 2020 first quarter, and we closed the fourth quarter in excellent financial condition after refinancing our $250 million revolving credit facility with $350 million of availability under a $260 million revolving credit facility and a new $90 million term loan."

Fisher emphasized, "As we turn the corner to 2023, we should produce higher RevPAR growth than most given our exposure to the steady recovery of the business traveler, especially in our tech driven markets. We have the best operating platform to maximize flow-through of those incremental dollars which is going to be vital in an operating environment with gradual cost pressures in many areas of our hotel operations.

"We are excited for what 2023 will bring us and our shareholders. We have the financial flexibility to enhance shareholder value by executing acquisitions and refinancing upcoming manageable maturities at the right time. We will continue to opportunistically evaluate further asset recycling and developments on a limited basis. We are confident in the trajectory we are headed as evidenced by the common dividend reinstatement, and we look forward to increased dividends in the coming years, especially as we utilize all pandemic related net operating loss deductions," Fisher added.

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the 38 comparable hotels owned as of December 31, 2022, compared to the 2021 and 2019 fourth quarters:

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

Fisher continued, “Our fourth quarter RevPAR growth of 24 percent significantly outperformed the industry's 16 percent. Relative to 2019, fourth quarter ADR was up 7 percent which bodes well as we move ahead in 2023 and business travel demand accelerates. Excluding our four Silicon Valley hotels, relative to 2019, RevPAR was up 3 percent.

"Weekday occupancy in the fourth quarter was down approximately 11 percent versus 2019, representing a decline from down approximately 6 percent in the third quarter. On the flip side, weekday ADR was up versus 2019 each of the last seven months in 2022 which bodes well as the business traveler continues its recovery in 2023. Weekend RevPAR remained strong as it was up approximately 9 percent in the quarter versus 2019."

RevPAR performance for Chatham’s largest markets (markets that account for five percent of hotel EBITDA contribution over the last twelve months) is presented below:

“'Our top markets, most of which are reliant on business travel, produced strong RevPAR growth," stated Dennis Craven, Chatham's chief operating officer. "As we look forward, four of our top markets still have significant upside relative to 2019, and we expect those markets to eventually reach 2019 levels. Our largest market, Silicon Valley, was up $34 over the fourth quarter last year, but remains below 2019 levels. International deplanements at the surrounding San Francisco and San Jose airports are still well below 2019 levels, off 22 percent and 37 percent, respectively. With COVID travel restrictions easing, we expect international travel to pick up steam as we move through 2023. We are confident that performance at our tech driven hotels in Silicon Valley and Seattle ultimately will recover to at least 2019 levels."

Craven commented further, "Our coastal northeast market continue to generate premium RevPAR growth. Austin, Dallas and Bellevue are our other markets, comprising more than five percent of our trailing twelve-month hotel EBITDA. Performance at our two Austin hotels remains strong as a result of strong leisure and business travel demand. Combined, the nine markets comprise 67 percent of our trailing twelve-month hotel EBITDA."

Approximately 63 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. Fourth 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 for the three months ended December 31, 2022, 2021 and 2019. RevPAR is based on the 38 comparable hotels, and all other data is based on all properties owned during that period. Gross operating profit is calculated as Hotel EBITDA plus property taxes, ground rent and insurance (in millions, except for RevPAR and margin percentages):

Craven concluded, "Our hotel EBITDA margins rose as they benefited from lower property taxes in the quarter and more than offset the decline in gross operating profit margins. Increased payroll and casual labor costs adversely impacted GOP margins by approximately 80 basis points in the quarter, but the biggest impact was a reduction in other department profit margins by approximately 170 basis points due to one-time items that either increased 2021 revenue or increased 2022 expenses.”

Corporate Update

The below chart summarizes key financial performance measures for the three months ended December 31, 2022, 2021 and 2019. 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 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, achieving third quarter occupancy of 86 percent. Fourth quarter occupancy remained strong at 80 percent, and with ADR of $190, generated RevPAR of $152, which would rank 8^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 $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. During the fourth quarter, the hotel achieved RevPAR of $80, down slightly compared to RevPAR of $83 in the 2021 fourth quarter.

Hotel Investments

During the 2022 fourth quarter, the company incurred capital expenditures of $3.3 million ($4.1 million in the first quarter, $5.3 million in the second quarter and $3.0 million in the third quarter), excluding any spending related to the Warner Center development.

Chatham commenced renovations on three hotels in the fourth quarter that will be completed in the 2023 first quarter, including the Residence Inns in Holtsville and White Plains, N.Y., and the Residence Inn Washington, D.C.

Chatham’s 2023 capital expenditure budget is approximately $30.6 million, which includes renovations at five hotels that will occur in the third and fourth quarters so that revenue displacement is minimized.

Capital Markets & Capital Structure

During the fourth quarter, Chatham closed on a new $260 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.

As of December 31, 2022, the company had net debt of $444.0 million (total consolidated debt less unrestricted cash), down $81.8 million from December 31, 2021. Total debt outstanding as of December 31, 2022, was $470.3 million at an average interest rate of 5.0 percent, comprised of $430.9 million of fixed-rate mortgage debt at an average interest rate of 4.6 percent, $39.3 million outstanding on the Warner Center construction loan, which carried a 9.2 percent interest rate and nothing outstanding on the company's $260 million senior unsecured revolving credit facility or $90 million term loan. During 2022, the company's net debt was reduced by a meaningful $82 million.

Based on the ratio of the company’s net debt to hotel investments at cost, Chatham’s leverage ratio was approximately 26.6 percent on December 31, 2022, down meaningfully from 30.6 percent on December 31, 2021. The weighted average maturity date for Chatham’s fixed-rate debt is April 2024.

Subsequent to the end of the fourth quarter, the company announced that it repaid in full three mortgages with outstanding principal of $73.3 million and a weighted average interest rate of 8.0 percent with proceeds from its newly issued term loan, currently carrying an interest rate of 6.1 percent.

“We greatly appreciate the support of our bank group, and with our recently completed unsecured revolving credit facility and term loan, we have the ability to smartly manage our maturing debt,” highlighted Jeremy Wegner, Chatham’s chief financial officer. “We are especially pleased to be able to refinance our high-rated Woodland Hills mortgage, further solidify our balance sheet and reduce our interest costs.”

Dividend

During the quarter, the Board of Trustees declared a preferred share dividend of $0.41406 per share, payable on January 17, 2023, to shareholders of record as of December 30, 2022.

Additionally, for the first time since the start of the pandemic, the Board of Trustees declared a common share dividend of $0.07 per share, payable on January 17, 2023, to shareholders of record as of December 30, 2022.

“We felt it was appropriate to reinstate a dividend given our belief in the continued recovery of business travel in 2023, as well as the strength of our balance sheet and confidence that we will be able to refinance our reasonable debt maturities in 2023 and 2024. We intend to pay a regular quarterly dividend for the first three quarters of 2023 and a higher 2023 fourth quarter dividend sufficient to distribute approximately 100 percent of taxable income,” Fisher concluded.

2023 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.