Chatham Lodging Trust Announces Second Quarter 2023 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 second quarter ended June 30, 2023.

Second Quarter 2023 Operating Results

• Portfolio Revenue Per Available Room (RevPAR) – Increased 5 percent to $144 compared to 2022 second quarter RevPAR of $138. Average daily rate (ADR) accelerated 2 percent to $182, and occupancy rose 2 percent to 79 percent for the 39 hotels owned as of June 30, 2023.
  • RevPAR of $144 compares to $146 in 2019. ADR was up 3 percent to 2019.
  • Excluding the five tech-driven hotels in Silicon Valley and Seattle, Wash., RevPAR was up 5 percent versus the 2019 second quarter. ADR was up 10 percent.
• Net Income – Earned net income of $9.4 million compared to net income of $9.3 million in the 2022 second quarter. Net income per diluted common share was $0.15 versus $0.15 during the 2022 second quarter.
• Hotel EBITDA Margin – Generated margins of 41.3 percent in the 2023 second quarter compared to 2022 second quarter margins of 41.9 percent.
• Adjusted EBITDA – Advanced 2 percent to $31.9 million from $31.1 million in the 2022 second quarter.
• Adjusted FFO – Jumped 5 percent from $20.7 million in the 2022 second quarter to adjusted FFO of $21.8 million this year. Adjusted FFO per diluted share was $0.43, compared to $0.41 in the 2022 second quarter.
• Debt Repayments – Repaid in full a $16.0 million mortgage on the Courtyard by Marriott Houston, Texas. During July, Chatham repaid a separate $19.7 million maturing mortgage.

The following chart summarizes the consolidated financial results for the three and six-months ended June 30, 2023, and 2022, 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, “It was a really good quarter with RevPAR, Adjusted EBITDA, FFO and FFO per share growing over last year and producing free cash flow that enabled us to repay a maturing loan in early July. With only $70 million of mortgages maturing through June 30, 2024, and having full availability on our $260 million credit facility, our balance sheet is in great shape, and we are in a strong position to address all maturities through the end of 2024.

“Our second quarter year-over-year RevPAR growth of five percent was strong given the loss of most intern business in Silicon Valley and Bellevue, Wash. Versus 2019, second quarter RevPAR was down less than two percent, and the trend to 2019 improved each month of 2023 through June,” Fisher continued. “Those five hotels adversely impacted RevPAR performance versus 2019 by approximately 700 basis points in the quarter. Excluding those five tech-driven hotels, second quarter RevPAR growth was up five percent versus the 2019 second quarter.”

Hotel RevPAR Performance

The below chart summarizes key hotel financial statistics for the hotels owned as of June 30, 2023, compared to the 2022 and 2019 second quarter:

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

Fisher emphasized, "As we have pointed out previously, we knew our portfolio would recover after some of our peers due to our stronger reliance on the business traveler, and that pattern is proving true. For the fifth consecutive quarter, our RevPAR growth has outperformed industry RevPAR growth, and given the lack of intern business in all of our tech driven hotels, which includes two additional hotels in Austin, Texas, that were meaningfully impacted, our results have been particularly impressive and prove that business travel is picking up momentum across the country.

"Continuing the same trend from the first quarter, versus 2019, weekday occupancy in the second quarter improved each month of 2023 and was 78 percent for the entire second quarter. This is up approximately three percent over last year, again impressive given the adverse impact from the loss of most intern business year-over-year. Weekday ADR was up approximately three percent versus last year and, importantly, up slightly versus 2019. Weekend RevPAR remained strong as it was up approximately 15 percent in the quarter versus 2019, the highest quarterly levels since 2019," Fisher concluded.

RevPAR performance for Chatham’s largest markets comprise 68 percent of trailing twelve-month hotel EBITDA (based on EBITDA contribution over the last twelve months) is presented below:

“Our Silicon Valley, Austin and Seattle markets were hit by the significant reduction in intern programs, while most of our other top markets produced solid RevPAR growth, and six of our top nine markets produced RevPAR higher than 2019," noted Dennis Craven, Chatham's chief operating officer. "On our first quarter earnings call, we estimated that demand was sufficient to make up 50 to 75 percent of the lost intern business in Silicon Valley and Seattle, and, in fact, we made up 63 percent of the lost revenue. As we look ahead to 2024, results at these hotels should outpace portfolio performance.

Craven added, "Traditional demand in Silicon Valley and Seattle continues to grow, driven by the steady return to office and increased demand from international travelers. International deplanements into San Francisco/San Jose, as well as Seattle, keep improving to their highest levels since the pandemic. Deplanements were off approximately 11 percent versus 2019 into San Francisco/San Jose and were up three percent versus 2019 into Seattle. Weekday occupancy at the four Silicon Valley hotels was approximately 77 percent in the second quarter, not far off our portfolio average of 78 percent.”

Approximately 62 percent of Chatham’s hotel EBITDA over the last twelve months was generated from its extended-stay hotels, the highest concentration of extended-stay rooms of any public lodging REIT. Second quarter 2023 occupancy, ADR and RevPAR for each of the company’s major brands 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 June 30, 2023, 2022 and 2019. 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, "We have absorbed hourly pay increases of approximately 24 percent since 2019 and despite that, our second quarter margins operating profit margins were essentially flat and hotel EBITDA margins were slightly down. Versus last year, hourly wages were also essentially flat. We continue to benefit from lower headcounts versus pre-pandemic levels. Compared to the 2019 second quarter, headcount is down approximately 17 percent. Against the 2022 second quarter, headcount is up approximately 10 percent as we added employees to our tech-driven hotels as housekeeping services are more frequent without the interns, and filled open positions, especially in our maintenance department.”

Corporate Update

The below chart summarizes key financial performance measures for the three months ended June 30, 2023, 2022 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 and common dividends is calculated as Corporate EBITDA less debt service and preferred share dividends. Amounts are in millions, except RevPAR.

Hotel Investments

During the 2023 second quarter, the company incurred capital expenditures of $7.5 million. Chatham’s 2023 capital expenditure budget is approximately $30.6 million. Only one renovation is planned for the 2023 third quarter, the Courtyard by Marriott Charleston Summerville, S.C.

Capital Markets & Capital Structure

During the second quarter, Chatham repaid maturing debt of approximately $16.0 million using available cash and proceeds under its term loan and repaid a separate $19.7 million maturing mortgage during July 2023. Chatham currently has $41 million of debt maturing in the next six months and $70 million maturing through June 30, 2024.

As of June 30, 2023, the company had net debt of $433.8 million (total consolidated debt less unrestricted cash). Total debt outstanding as of June 30, 2023, was $466.7 million at an average interest rate of 5.0 percent, comprised of $376.7 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent, $90 million outstanding on its term loan at a rate of 6.4% and nothing outstanding on the company's $260 million senior unsecured revolving credit facility. Based on the ratio of the company’s net debt to hotel investments at cost, Chatham’s leverage ratio was approximately 26 percent on June 30, 2023, down from 27 percent as of December 31, 2022.

"We have reduced our net debt by approximately $10 million in 2023 and have manageable maturing debt for the balance of the year. We funded the maturing July mortgage as well as the second quarter common dividends from second quarter cash flow of $22 million. Our forecast corporate cash flow and well capitalized balance sheet provide us the flexibility to acquire hotels and refinance upcoming maturities," commented Jeremy Wegner, Chatham's chief financial officer.

Dividend

During the quarter, the Board of Trustees declared a preferred share dividend of $0.41406 per share, as well as a common share dividend of $0.07 per share, payable on July 17, 2023, to shareholders of record as of June 30, 2023.

2023 Guidance

Due to uncertainty surrounding the hotel industry, the company is not providing guidance at this time.

Earnings Call

The company will hold its second quarter 2023 conference call later today at 10:00 a.m. Eastern Time. Shareholders and other interested parties may listen to a simultaneous webcast of the conference call on the Internet by logging onto Chatham’s Web site, www.chathamlodgingtrust.com or may participate in the conference call by dialing 1-844-826-3035 or 1-412-317-5195 and referencing Chatham Lodging Trust. A recording of the call will be available by telephone until Wednesday, August 09, 2023, at 11:59 PM ET, by dialing 1-844-512-2921 or 1-412-317-6671, access number 10179996. A replay of the conference call will be posted on Chatham’s website.

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 5,915 rooms/suites in 16 states and the District of Columbia. Additional information about Chatham may be found at chathamlodgingtrust.com.

Non-GAAP Financial Measures

Included in this press release are certain “non-GAAP financial measures,” within the meaning of Securities and Exchange Commission (SEC) rules and regulations, that are different from measures calculated and presented in accordance with GAAP (generally accepted accounting principles). The company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (5) EBITDAre (6) Adjusted EBITDA and (7) Adjusted Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as prescribed by GAAP as a measure of its operating performance.

FFO As Defined by Nareit and Adjusted FFO

The company calculates FFO in accordance with standards established by the Nareit, which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment write-downs, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures following the same approach. The company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it measures its performance without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that the company believes are not indicative of the property level performance of its hotel properties. The company believes that these items reflect historical cost of its asset base and its acquisition and disposition activities and are less reflective of its ongoing operations, and that by adjusting to exclude the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that also report using the Nareit definition.

The company calculates Adjusted FFO by further adjusting FFO for certain additional items that are not addressed in Nareit’s definition of FFO, including other charges, losses on the early extinguishment of debt and similar items related to its unconsolidated real estate entities that it believes do not represent costs related to hotel operations. The company believes that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO.

EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA

The company calculates EBITDA for purposes of the credit facility debt as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and amortization; and (4) unconsolidated real estate entity items including interest, depreciation and amortization excluding gains and losses from sales of real estate. The company believes EBITDA is useful to investors in evaluating and facilitating comparisons of its operating performance because it helps investors compare the company’s operating performance between periods and between REITs by removing the impact of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results. In addition, the company uses EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

The company calculates EBITDAre in accordance with Nareit guidelines, which defines EBITDAre as net income or loss excluding interest expense, income tax expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated joint ventures. We believe that the presentation of EBITDAre provides useful information to investors regarding the Company's operating performance and can facilitate comparisons of operating performance between periods and between REITs.

The company calculates Adjusted EBITDA by further adjusting EBITDA for certain additional items, including other charges, losses on the early extinguishment of debt, amortization of non-cash share-based compensation and similar items related to its unconsolidated real estate entities, which it believes are not indicative of the performance of its underlying hotel properties entities. The company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that report similar measures.

Adjusted Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization, corporate general and administrative, impairment loss, loss on early extinguishment of debt, interest and other income and income or loss from unconsolidated real estate entities. The Company presents Adjusted Hotel EBITDA because the Company believes it is useful to investors in comparing its hotel operating performance between periods and comparing its Adjusted Hotel EBITDA margins to those of our peer companies. Adjusted Hotel EBITDA represents the results of operations for its wholly owned hotels only.

Although the company presents FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA because it believes they are useful to investors in comparing the company’s operating performance between periods and between REITs that report similar measures, these measures have limitations as analytical tools. Some of these limitations are:

• FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the company’s cash expenditures, or future requirements, for capital expenditures or contractual commitments;
• FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect changes in, or cash requirements for, the company’s working capital needs;
• FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect funds available to make cash distributions;
• EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the company’s debts;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA do not reflect any cash requirements for such replacements;
• Non-cash compensation is and will remain a key element of the company’s overall long-term incentive compensation package, although the company excludes it as an expense whe