Chatham Lodging Trust (CLDT) is a real estate investment trust (REIT) that specializes in acquiring and managing upscale, extended-stay hotels and premium-branded, select-service hotels across the United States. The company’s strategic approach to asset management and its commitment to portfolio optimization have positioned it as a key player in the dynamic lodging industry.
Business Overview and History
Chatham Lodging Trust was formed as a Maryland real estate investment trust in October 2009 and commenced operations in April 2010. The company’s investment strategy has focused on acquiring high-quality hotel properties in markets with strong demand drivers and high barriers to entry. By the end of 2012, Chatham had rapidly expanded its portfolio to 29 hotels across 11 states. However, the company faced challenges in 2013, resulting in a net loss due to write-downs on several underperforming properties.
In the following years, Chatham continued to grow its portfolio while actively managing its assets to improve performance. A significant milestone was reached in 2017 when the company issued $115.9 million in Series A Cumulative Redeemable Preferred Shares, strengthening its balance sheet and providing greater financial flexibility. Despite this progress, Chatham reported another net loss in 2018 due to impairment charges on several properties.
The company demonstrated resilience during the COVID-19 pandemic in 2020, implementing cost-cutting measures and leveraging government relief programs to navigate the severe downturn in travel demand. As the lodging industry began recovering in 2021 and 2022, Chatham returned to profitability, although some of its hotel markets continued to face lingering impacts from the pandemic.
Today, Chatham’s portfolio consists of 39 hotels, comprising 5,880 rooms across 17 states and the District of Columbia. The company’s focus on upscale extended-stay and premium-branded select-service hotels, including brands such as Homewood Suites by Hilton, Residence Inn by Marriott, Hyatt Place, and Hilton Garden Inn, has allowed it to capitalize on the growing demand for these types of accommodations.
Financials
As of the most recent quarter ended September 30, 2024, Chatham Lodging Trust reported total revenue of $87.18 million, up 0.5% compared to $86.74 million in the prior year period. This increase was primarily driven by a 1.3% increase in same-property RevPAR (revenue per available room). For the nine months ended September 30, 2024, total revenue was $242.10 million, compared to $238.83 million in the same period a year prior, representing a 1.4% year-over-year increase.
The company’s net income for the three months ended September 30, 2024, was $4.34 million, compared to $7.50 million in the prior year period. The decrease was primarily due to higher interest expense and operating costs, partially offset by improvements in hotel revenue. For the nine months ended September 30, 2024, net income was $5.89 million, compared to $11.82 million in the same period of 2023.
Hotel operating expenses increased 1.2% to $48.24 million for the three months ended September 30, 2024, compared to $47.67 million in the prior year period. The increase was primarily related to higher insurance costs, utilities costs, and other hotel operating expenses.
Funds from Operations (FFO) was $17.17 million for the three months ended September 30, 2024, compared to $20.14 million in the prior year period. Adjusted FFO, which excludes certain non-recurring items, was $17.60 million, compared to $20.16 million in the prior year period.
EBITDA was $27.89 million for the three months ended September 30, 2024, compared to $29.04 million in the prior year period. Adjusted EBITDA, which excludes certain non-recurring items, was $29.55 million, compared to $30.60 million in the prior year period.
For the fiscal year 2023, Chatham reported revenue of $311.11 million, net income of $2.64 million, and operating cash flow of $76.44 million.
Liquidity
Chatham’s balance sheet remains healthy, with total assets of $1.29 billion as of September 30, 2024. The company’s liquidity position is strong, with $19.35 million in cash and cash equivalents and $135 million in available capacity under its $260 million unsecured revolving credit facility.
The REIT’s debt-to-equity ratio stood at 0.5697 as of September 30, 2024. The current ratio and quick ratio were both 0.8275 as of the same date. Notably, the company’s net debt to LTM EBITDA ratio was 4.2x as of September 30, 2024, significantly below its pre-pandemic leverage levels, which were generally in the 5.5x to 6x range.
Strategic Asset Recycling
One of the key pillars of Chatham’s strategy is its focus on actively managing its portfolio through strategic asset recycling. In the third quarter of 2024, the company announced that it had entered into separate contracts to sell five hotels, which are expected to generate approximately $80 million in proceeds. These hotels, which are on average 23 years old and among the lowest RevPAR performers in Chatham’s portfolio, will be used to repay debt and fund future accretive investments.
The company’s ability to identify and divest older, underperforming assets while reinvesting the proceeds into newer, higher-quality properties aligns with its goal of enhancing the overall quality and growth profile of its portfolio. This strategic approach to asset management has enabled Chatham to maintain a prudent leverage position while positioning the company for sustainable long-term growth.
Operational Highlights
Chatham’s portfolio has demonstrated strong operational performance, with the company reporting same-property RevPAR growth of 2.1% in the third quarter of 2024, outpacing the industry average of 0.9%. This growth was driven by a 1.3% increase in average daily rate (ADR) and flat occupancy levels.
Notably, the company’s five hotels in the technology-driven markets of Silicon Valley and Bellevue have shown a significant recovery, with RevPAR growth of 8% in the third quarter and an impressive 14% in October. This rebound, coupled with the continued strength in the company’s broader portfolio, underscores Chatham’s ability to navigate the evolving lodging landscape.
Outlook and Guidance
For the fourth quarter of 2024, Chatham Lodging Trust expects RevPAR growth of 1% to 3%, with adjusted EBITDA in the range of $19 million to $21 million and adjusted FFO per share of $0.15 to $0.18. This guidance reflects the impact of ongoing renovations at three of the company’s hotels during the quarter and does not reflect any acquisitions, dispositions, or other capital markets activity.
The company’s Q3 2024 EBITDA and FFO were near the top of their previous guidance range, with operating expenses at the lower end of expectations. Chatham expects its leverage ratios to continue improving with the continued performance recovery of its Silicon Valley hotels.
Risks and Challenges
While Chatham Lodging Trust has demonstrated its resilience and adaptability, the company faces several industry-wide challenges, including ongoing labor and supply chain pressures, as well as the potential impact of economic uncertainties on travel demand. Additionally, the company’s reliance on extended-stay and select-service hotel segments exposes it to shifts in consumer preferences and changes in competitive dynamics within those sectors.
Conclusion
Chatham Lodging Trust’s strategic focus on asset management, portfolio optimization, and disciplined capital allocation has positioned the company as a key player in the dynamic lodging industry. The company’s ability to recycle capital, invest in higher-quality assets, and navigate the evolving market conditions underscores its commitment to delivering long-term value for its shareholders. As Chatham continues to execute on its strategic initiatives, investors will closely monitor the REIT’s ability to maintain its competitive edge and capitalize on the recovery in the lodging sector, particularly in high-growth markets like Silicon Valley. With a strong balance sheet, improving operational performance, and a clear strategic vision, Chatham Lodging Trust appears well-positioned to navigate the challenges and opportunities in the evolving lodging landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.