Executive Summary / Key Takeaways

• Strategic Repositioning Complete: Chatham Lodging Trust has successfully deleveraged its balance sheet, reducing net debt by $55 million over two years and lowering its leverage ratio to a decade-low of 21% by Q2 2025, providing substantial financial flexibility.
• Active Capital Recycling: The company has divested five older, lower-RevPAR hotels for $83 million at an approximate 6% cap rate, with two more listed, aiming to reinvest proceeds into higher-yielding assets, development, and share repurchases.
• Tech-Driven Demand Catalyst: CLDT's concentrated exposure to major U.S. tech markets, particularly Silicon Valley, positions it to benefit significantly from massive investments in AI, chip processing, and R&D, offering a unique internal growth runway.
• Disciplined Capital Allocation: A new $25 million share repurchase program and a 29% dividend increase underscore management's confidence in valuation and commitment to shareholder returns, complemented by opportunistic acquisitions and a planned Portland, Maine development.
• Resilient Operations Amidst Headwinds: Despite broader industry slowdowns and specific market challenges (e.g., convention-driven weakness), CLDT has consistently outperformed industry RevPAR for 14 consecutive quarters, demonstrating strong operational execution and expense control.

CLDT's Foundation: A Niche in Upscale Lodging

Chatham Lodging Trust, established in 2009, operates as a self-advised real estate investment trust (REIT) with a focused strategy: investing in upscale extended-stay and premium-branded select-service hotels. This niche allows CLDT to cater to a specific segment of travelers, primarily business professionals seeking longer-term accommodations or those valuing brand consistency and select amenities. As of June 30, 2025, CLDT's portfolio comprised 34 hotels with 5,166 rooms across 15 states and the District of Columbia. The company maintains its REIT status by leasing its hotels to taxable REIT subsidiary (TRS) lessees, with all properties expertly managed by Island Hospitality Management, LLC, an entity wholly owned by CLDT's Chairman, President, and CEO, Jeffrey H. Fisher.

CLDT's strategic differentiation isn't rooted in proprietary product technology, but rather in its astute market positioning and operational model. The company has cultivated a high concentration of assets in dynamic, tech-driven markets such as Silicon Valley, Bellevue, and Austin. This strategic focus allows CLDT to directly tap into the robust demand generated by the broader technology sector's innovation and growth. For instance, Silicon Valley, recognized as a global epicenter of innovation, is witnessing massive investments in AI, chip processing, and next-gen technologies. This includes Apple (AAPL)'s announced $500 billion U.S. investment, Applied Materials (AMAT)' $4 billion R&D facility and recent $100 million site acquisition near CLDT's Sunnyvale hotels, and General Motors (GM)' new technical center in Mountain View. These external technological advancements serve as powerful demand generators for CLDT's properties, providing a unique and substantial internal growth runway.

The operational model, leveraging Island Hospitality Management, further enhances CLDT's competitive stance. This affiliated management structure facilitates agile sales efforts and stringent expense control, enabling rapid adjustments to market shifts and optimizing property-level performance. This integrated approach allows for deep market insights and efficient underwriting of potential acquisitions, a distinct advantage over competitors.

Competitive Landscape: Niche Strength Against Giants

CLDT operates within a competitive hotel REIT landscape, facing off against larger, more diversified players like Marriott International (MAR), Hilton Worldwide (HLT), and Hyatt Hotels Corporation (H), as well as more value-focused brands like Wyndham Hotels & Resorts (WH). CLDT's strength lies in its specialized focus on upscale extended-stay properties, which often exhibit more stable occupancy rates, particularly in business-heavy regions. This contrasts with Marriott and Hilton's expansive global footprints and broader brand portfolios, which offer greater scale and diversified revenue streams but can also entail higher operational complexity.

CLDT's self-advised management model provides direct control over property operations, potentially leading to more efficient decision-making and better cost management compared to the franchise-heavy models of Hilton and Wyndham. While CLDT may not match the global reach or sheer cash flow generation of its larger rivals, its targeted approach allows it to capture specific market segments effectively. For example, CLDT has consistently beaten industry RevPAR growth for 14 consecutive quarters, a testament to its operational acumen and strategic market selection. Its RevPAR is also notably higher than most select-service lodging REITs, indicating a high-quality portfolio.

However, CLDT's smaller scale and relatively concentrated geographic exposure, particularly its reliance on tech markets, present vulnerabilities. While this tech exposure is a strength, it also ties CLDT's fortunes more closely to the cyclicality of that sector. Larger competitors benefit from greater diversification, extensive loyalty programs, and more robust digital platforms, which can enhance market share and adaptability. CLDT's financial metrics, such as its TTM Net Profit Margin of 3.01% and EBITDA Margin of 15.41%, while solid for its niche, generally trail those of larger, asset-light operators like Marriott (TTM Net Profit Margin 9%, EBITDA Multiple 21.70x) or Hilton (TTM Net Profit Margin 14%, EBITDA Multiple 28.77x), which benefit from different business models and scale efficiencies. CLDT's Price/Book ratio of 0.48 also suggests a market valuation below its book value, contrasting with some peers.

A Decade of Deleveraging and Strategic Asset Recycling

CLDT has undergone a significant financial transformation, particularly over the past two years. The company successfully addressed approximately $500 million of maturing debt in 2023 and 2024, a period characterized by a "slew of maturing debt." This multi-year balance sheet repositioning involved a strategic mix of equity issuance, debt refinancing, and targeted asset sales. By the end of 2024, CLDT had repaid $297 million of maturing debt and reduced its net debt by $29 million, following a $26 million reduction in 2023. This culminated in the repayment of a $16 million mortgage loan on the Hampton Inn Houston in January 2025, effectively addressing all near-term CMBS maturities.

This disciplined approach has dramatically improved CLDT's financial health, lowering its overall leverage ratio from nearly 35% in 2019 to 23% by year-end 2024, and further to a decade-low of 21% by June 30, 2025. This robust balance sheet provides CLDT with significant financial flexibility, including $180 million in aggregate maximum remaining borrowing availability under its credit facilities as of Q2 2025.

Concurrent with its deleveraging, CLDT has actively engaged in asset recycling. The company completed the sale of five older hotels, averaging 25 years of age and among its lowest RevPAR properties, for $83 million. These assets were sold at an approximate 6% capitalization rate on 2024 NOI, below CLDT's cost of debt, and were in need of significant renovations. Two additional hotels are currently listed for sale, including one older, lower-RevPAR asset and another opportunistic sale aimed at minimizing future capital requirements. The strategic rationale behind these divestitures is clear: to prune the portfolio of lower-growth, capital-intensive assets and redeploy proceeds into higher-yielding, higher-margin, and higher-growth investments, thereby enhancing overall portfolio quality and reducing its average age.

Operational Performance: Resilience Amidst Shifting Tides

CLDT's operational performance in the first half of 2025 reflects a mixed but resilient picture, demonstrating management's ability to navigate a dynamic market. For the three months ended June 30, 2025, total hotel property level revenue was $80.045 million, a 7.15% decrease from the prior year, primarily due to the divestiture of five hotels and a 0.4% decrease in same-property RevPAR. Adjusted Hotel EBITDA for the quarter stood at $30.891 million, down 8.21% year-over-year. For the six months ended June 30, 2025, total revenue was $148.403 million (down 3.86% YoY), and Adjusted Hotel EBITDA was $51.726 million (down 5.39% YoY).

Despite these top-line pressures, CLDT's operational efficiency shines through. Gross operating profit (GOP) margins increased by 30 basis points to 46.3% in Q2 2025, driven by strong expense control, moderating inflationary pressures, and a $1.3 million benefit from workers' compensation and tax refunds. Even excluding these nonrecurring items, margins would have declined less than 1%. Labor and benefits costs, a significant operational expense, decreased 7% on a per occupied room basis in Q2 2025. This trend of moderating wage pressures, with 2025 premiums for medical, workers' compensation, and property insurance expected to be flat or even down, positions CLDT favorably compared to full-service peers who often face greater union labor pressures.

Market-specific performance highlights CLDT's strategic positioning:

• Silicon Valley: RevPAR for CLDT's four Silicon Valley hotels increased 3% in Q2 2025, with hotel EBITDA up 3% to almost $5 million. Occupancy across these hotels reached 80%, a critical hurdle.
• Home2 Suites Phoenix Downtown: This acquired asset saw RevPAR surge over 60% in Q2 2025, outperforming budget by 12% on the top line and 25% on EBITDA in Q1 2025, demonstrating the value of new product in a growing market.
• Pittsburgh: The Hyatt Place Pittsburgh delivered exceptional performance, with RevPAR growth of 23% to $161 in Q2 2025, its highest second quarter in history, fueled by special events. The upcoming NFL draft in Q2 next year is expected to further boost performance.

However, certain markets faced headwinds. Austin and Dallas experienced adverse impacts from convention center closures or expansions, with Austin's market RevPAR down 14% in Q2 and 6% year-to-date. The Seattle market, including Bellevue, was soft, with RevPAR down 4% in Q2 and 2% year-to-date, largely due to a 47% decline in Canadian automobile border crossings.

Capital Allocation and Future Growth Initiatives

With a fortified balance sheet, CLDT is now actively pursuing a multi-pronged capital allocation strategy aimed at enhancing shareholder value. In May 2025, the Board of Trustees approved the company's first-ever $25 million share repurchase program. CLDT has already begun utilizing this, repurchasing approximately 20,000 common shares at a weighted-average price of $7.02 during Q2 2025, with an intent to be more active in Q3 given current share price levels. This program signals management's belief that the stock is undervalued, trading at approximately $150,000 per key and a 9.5% cap rate on forecasted 2025 NOI, a historically low multiple.

In Q1 2025, CLDT also increased its quarterly common dividend by 29% to $0.09 per share, equating to an annualized yield of over 5%. This increase, the first since the dividend's reinstatement, underscores the company's commitment to returning capital to shareholders, consistent with its policy of distributing approximately 100% of its annual taxable income.

Proceeds from asset sales are strategically earmarked for future growth. CLDT plans to fund its Home2 Portland development, acquire new hotels, and continue share repurchases. The Home2 Portland project, located in a market with a hotel moratorium (where CLDT is grandfathered), is expected to commence construction within the next six months, with a 21-24 month timeline. Management anticipates a 150-200 basis points premium over an 8-cap acquisition yield for this development.

The acquisition strategy focuses on high-quality, premium-branded targets that offer diversification away from CLDT's current tech-heavy portfolio, aiming for markets with strong future economic growth and yields over 9%. The internal management structure, through Island Hospitality, provides a unique advantage in underwriting value-add opportunities. Additionally, CLDT has been adding rooms to its existing portfolio by converting meeting and other spaces, adding an estimated $3-4 million in value at a fraction of new construction costs. Two major renovations are scheduled for Q4 2025 at the Residence Inn Austin and Residence Inn Mountain View.

Outlook, Guidance, and Risk Factors

CLDT's guidance for the remainder of 2025 reflects a cautious yet optimistic outlook. For Q3 2025, the company projects RevPAR between -1.5% and +0.5%, adjusted EBITDA of $24.7 million to $26.8 million, and adjusted FFO per share of $0.29 to $0.33. The full-year 2025 guidance anticipates RevPAR growth of flat to +1%, adjusted EBITDA of $89 million to $93 million, and adjusted FFO per share of $0.95 to $1.03. These figures assume no further asset sales, capital markets activity, or changes in floating interest rates.

The guidance is underpinned by encouraging business travel demand across much of the portfolio, though this is partially offset by persistent weakness in convention-dependent markets and a decline in international leisure travel from Canada and Europe. Government travel, a smaller segment, showed signs of rebounding after an April dip. Looking beyond 2025, management expresses strong optimism, citing encouraging GDP growth rates and massive U.S. investments in technology, AI, and foreign capital. Historically, GDP growth correlates strongly with RevPAR growth, and the expectation of muted new supply due to high construction costs provides a favorable industry backdrop. CLDT's significant internal growth potential, particularly from the continued recovery of its Silicon Valley hotels, remains a key driver.

However, investors should be mindful of several risks. Economic uncertainty could limit RevPAR growth, as seen in the slowdown in March and April 2025. Market-specific weaknesses in convention-heavy areas like Austin, Dallas, and San Diego, or those affected by reduced international travel like Seattle, could persist. Inflationary cost pressures, particularly for food and beverage and utilities, could impact margins, although CLDT has demonstrated strong expense control. Development cost uncertainty, especially regarding potential tariffs on materials like steel, could affect the profitability and timeline of projects like Home2 Portland. Finally, the REIT structure's taxation of TRS Lessees could reduce cash available for dividends, and the inherent seasonality of the lodging industry can lead to quarterly fluctuations in cash flow.

Conclusion

Chatham Lodging Trust stands at a pivotal juncture, having successfully executed a multi-year financial repositioning that has significantly strengthened its balance sheet. The company's strategic focus on upscale extended-stay and premium-branded select-service hotels, particularly its concentrated exposure to high-growth tech markets, provides a unique demand profile and substantial internal growth opportunities. This tech-centric positioning, coupled with an agile operational model, has enabled CLDT to consistently outperform industry RevPAR trends.

With a robust balance sheet, a newly initiated share repurchase program, an increased dividend, and a clear capital recycling strategy, CLDT is well-positioned for accretive growth. While near-term RevPAR guidance reflects a cautious stance amidst broader economic uncertainties and specific market challenges, the long-term outlook is bolstered by favorable industry supply-demand dynamics and macro-economic tailwinds, particularly from massive investments in technology. For discerning investors, CLDT represents a compelling opportunity to participate in a financially disciplined hotel REIT with a clear strategy to enhance shareholder value through focused investments, operational excellence, and a commitment to capital returns.