Business Overview and History
Chatham Lodging Trust (CLDT) is a real estate investment trust (REIT) that focuses on acquiring, owning, and asset managing upscale, extended-stay hotels and premium-branded, select-service hotels. The company has strategically positioned itself in the lodging sector, leveraging its expertise to deliver consistent growth and returns for its shareholders.
Chatham Lodging Trust was formed as a Maryland REIT on October 26, 2009, and elected to be taxed as a REIT for federal income tax purposes commencing with its 2010 taxable year. The company is an internally-managed REIT that invests primarily in upscale extended-stay and premium-branded select-service hotels. Chatham had no operations prior to the consummation of its initial public offering (IPO) in April 2010, which raised $172.5 million in net proceeds.
The net proceeds from Chatham's share offerings are contributed to Chatham Lodging, L.P., the company's operating partnership, in exchange for partnership interests. Substantially all of Chatham's assets are held by, and all operations are conducted through, the operating partnership.
Chatham leases its wholly owned hotels to taxable REIT subsidiary lessees, which are wholly owned by Chatham's taxable REIT subsidiary holding company. Each hotel is leased to a taxable REIT subsidiary lessee under a percentage lease. As of December 31, 2024, Island Hospitality Management, LLC, which is 100% owned by Chatham's Chairman, President and Chief Executive Officer, managed all of Chatham's hotels.
Over the years, Chatham has faced various challenges, including the need to rely on third-party management companies to operate its hotels in order to qualify as a REIT, the concentration of its hotel management in one company, and the potential for conflicts of interest with affiliated entities. The company has also navigated industry cycles and macroeconomic events that have impacted the performance of its hotel portfolio.
Since its inception, Chatham has grown its portfolio to 37 hotels with 5,600 rooms located across 16 states and the District of Columbia as of December 31, 2024. The company's portfolio is primarily comprised of upscale extended-stay hotels operating under brands such as Residence Inn by Marriott, Homewood Suites by Hilton, and Home2 Suites by Hilton, as well as premium-branded select-service hotels under the Courtyard by Marriott, Hampton Inn, and Hilton Garden Inn brands. Other brands in Chatham's portfolio include TownePlace Suites by Marriott, Hampton Inn and Suites by Hilton, Hyatt Place, and Embassy Suites.
Chatham's strategy has focused on acquiring well-located hotels in major metropolitan markets with strong demand drivers, such as technology hubs, business centers, and markets with high barriers to new supply. The company has demonstrated success in identifying and executing value-add opportunities, including renovations, rebranding, and operational improvements to drive enhanced performance and returns.
Financial Performance and Ratios
Chatham Lodging Trust has exhibited solid financial performance over the past few years, despite the challenges faced by the hospitality industry during the COVID-19 pandemic. For the fiscal year ended December 31, 2024, the company reported total revenue of $317.2 million, a 2.0% increase from the prior year. Net income for the year was $4.0 million, compared to $2.5 million in 2023.
Room revenue, which accounted for 91.5% of total revenue, grew 1.9% to $290.3 million in 2024. This increase was primarily driven by a 2.8% improvement in same-property RevPAR (revenue per available room), reflecting a 2.4% increase in occupancy and a 0.4% increase in average daily rate (ADR).
Total hotel operating expenses increased 3.3% to $181.2 million in 2024. This rise was attributable to the increase in revenues and occupancy, as well as higher staffing levels, wage and benefit costs, insurance costs, and inflationary pressures. The most significant component, room expenses, increased 5.7% to $65.3 million.
The company's financial ratios also paint a positive picture. As of December 31, 2024, Chatham's debt-to-equity ratio stood at 0.56, down from 0.65 in the previous year, indicating a strengthening of its balance sheet. The company's current ratio and quick ratio, measures of liquidity, were both 0.23, slightly lower than the industry average, but well within acceptable levels. Chatham's return on assets (ROA) and return on equity (ROE) for 2024 were 0.33% and 0.54%, respectively, demonstrating the company's ability to generate solid returns on its investments.
For the most recent quarter (Q4 2024), Chatham reported revenue of $75.1 million, representing a 2.0% year-over-year growth. However, the company recorded a net loss of $1.7 million for the quarter. This growth was primarily driven by a 3.9% increase in RevPAR, which exceeded industry performance.
In terms of cash flow, Chatham generated $73.8 million in operating cash flow and $73.1 million in free cash flow for the fiscal year 2024, demonstrating strong cash generation capabilities.
Operational Highlights and Guidance
Chatham Lodging Trust has consistently outperformed the broader lodging industry in terms of revenue per available room (RevPAR) growth. In 2024, the company's RevPAR increased by 3.0%, exceeding the industry's average growth of 1.8%. This strong performance was driven by a combination of occupancy and average daily rate (ADR) improvements across Chatham's portfolio.
The company's operating margins have also remained healthy, with a GOP (Gross Operating Profit) margin of 43.0% in 2024, a slight decline of 70 basis points from the previous year. Chatham has demonstrated its ability to effectively manage expenses, with a 3.3% increase in total hotel operating expenses in 2024, outpacing the 2.0% rise in total revenue. Notably, the company closed out 2024 with 150 basis points of margin expansion in the fourth quarter.
Looking ahead, Chatham Lodging Trust has provided guidance for the first quarter and full-year 2025. For Q1 2025, the company expects RevPAR growth of 3% to 4%, adjusted EBITDA of $16.7 million to $18.3 million, and adjusted FFO per share of $0.12 to $0.15.
For the full-year 2025, Chatham projects RevPAR growth of 1.0% to 3.5%, adjusted EBITDA of $92 million to $97 million, and adjusted FFO per share of $1.01 to $1.11. The company's outlook reflects its confidence in the continued recovery of the lodging industry and its ability to capitalize on favorable market conditions.
It's important to note that Chatham's guidance reflects the recent sales of 5 hotels, with a combined sale price of $101 million. The net impact of these asset sales on expected 2025 EBITDA versus reported 2024 EBITDA is approximately $6.8 million, with an impact on expected 2025 FFO per share versus actual 2024 FFO per share of approximately $0.05 per share. Chatham plans to reinvest the sale proceeds into accretive acquisitions, which they expect will fully offset the lost FFO from the asset sales.
Risks and Challenges
While Chatham Lodging Trust has navigated the challenges of the pandemic and demonstrated resilience, the company faces several risks and challenges that investors should be aware of:
1. Concentration risk: Chatham's portfolio is heavily concentrated in upscale extended-stay and premium-branded select-service hotels, which could make the company more vulnerable to changes in consumer preferences or industry trends.
2. Reliance on third-party management: As a REIT, Chatham is required to lease its hotels to taxable REIT subsidiaries, which in turn engage third-party management companies to operate the properties. This structure limits the company's direct control over hotel operations.
3. Exposure to the technology sector: A significant portion of Chatham's portfolio is located in technology-driven markets, such as Silicon Valley and Bellevue, Washington. This makes the company susceptible to fluctuations in the technology industry and its impact on business travel demand.
4. Competitive landscape: The hotel industry is highly competitive, with Chatham facing competition from other REITs, institutional investors, and hotel companies for acquisitions and market share.
5. Regulatory and legislative changes: As a REIT, Chatham is subject to various laws and regulations, and changes in the regulatory environment could impact the company's operations and financial performance.
Liquidity
Chatham Lodging Trust maintains a strong liquidity position to support its operations and growth initiatives. As of December 31, 2024, the company had $20.2 million in cash and cash equivalents, providing a solid foundation for its financial stability. Additionally, Chatham has access to a $260 million senior unsecured revolving credit facility, with $150 million of available borrowing capacity, which offers further flexibility in managing its capital needs and pursuing strategic opportunities.
The company also has a $140 million unsecured term loan outstanding, contributing to its overall capital structure. Chatham's net debt to investment in hotels at cost ratio stood at approximately 23.1% as of December 31, 2024, down from 24.8% a year earlier, indicating a conservative approach to leverage.
Industry Trends
The US lodging industry has shown signs of recovery and growth in recent years. RevPAR increased by 1.8% in 2024 and 4.9% in 2023, compared to the prior years. Industry experts anticipate modest continued RevPAR growth in 2025, aligning with Chatham's own projections for its portfolio performance.
Conclusion
Chatham Lodging Trust has solidified its position as a leading player in the upscale extended-stay and premium-branded select-service hotel segment. The company's strategic focus on high-growth markets, value-add opportunities, and disciplined capital allocation have enabled it to deliver consistent growth and returns for its shareholders.
With a portfolio of 37 hotels comprising 5,600 rooms across 16 states and the District of Columbia, Chatham has demonstrated its ability to outperform industry benchmarks in key metrics such as RevPAR growth. The company's focus on operational efficiency, as evidenced by its strong GOP margins and effective expense management, positions it well to capitalize on the ongoing recovery in the lodging sector.
While the company faces a range of risks and challenges, including concentration risk and reliance on third-party management, Chatham's experienced management team, strong balance sheet, and proven track record of operational excellence position it well to navigate the evolving hospitality landscape. As the industry continues to recover from the pandemic's impact, Chatham Lodging Trust remains poised to capitalize on opportunities and drive long-term value for its investors.
The company's guidance for 2025, which projects continued RevPAR growth and solid financial performance, reflects management's confidence in Chatham's strategy and market positioning. With a focus on reinvesting proceeds from recent asset sales into accretive acquisitions, Chatham is actively working to optimize its portfolio and drive future growth.
As the lodging industry continues to evolve, Chatham Lodging Trust's disciplined approach to capital allocation, focus on premium brands and strategic markets, and strong liquidity position should enable the company to weather potential challenges and capitalize on emerging opportunities in the dynamic hospitality sector.