Business Context and Reporting Period
Company: Chatham Lodging Trust (REIT)
Reporting Period: Quarter ended March 31, 2011
Portfolio: 13 hotels (1,650 rooms) across 9 states, primarily upscale extended-stay and select-service brands.
Operations: Internally managed; hotels leased to Taxable REIT Subsidiaries (TRS) which engage third-party managers (Island Hospitality, Hilton, Concord).
Key Financial Metrics
| Metric | Q1 2011 | Q4 2010 (Balance Sheet) |
|---|---|---|
| Total Revenue | $12.5 million | N/A |
| Net Loss (GAAP) | $(19) thousand | N/A |
| Funds From Operations (FFO) | $1.4 million | N/A |
| Adjusted EBITDA | $2.7 million | N/A |
| Cash and Equivalents | $30.9 million | $4.8 million |
| Total Debt | $12.3 million | $50.1 million |
| Operating Cash Flow | $0.9 million | N/A |
| Dividend Declared | $0.175 per share | N/A |
Hotel Performance (Q1 2011): RevPAR $81.75; ADR $114.45; Occupancy 71.4%.
Material Changes vs. Prior Period
- Equity Capitalization: Completed a public offering on February 8, 2011, selling 4.6 million shares at $16.00/share. Net proceeds were approximately $69.4 million. Outstanding shares increased from 9.2 million to 13.8 million.
- Debt Reduction: Total debt decreased significantly from $50.1 million to $12.3 million. The company used $42.8 million of the equity proceeds to pay down borrowings on its revolving credit facility.
- Liquidity: Cash and cash equivalents surged from $4.8 million to $30.9 million due to the equity offering and debt paydown.
- Operating Results: The company reported a GAAP net loss of $19,000, driven by interest expense ($773,000) and depreciation ($1.4 million), despite positive operating cash flow. This is not comparable to Q1 2010 as the company had no operations prior to its April 2010 IPO.
Outlook, Risks, and Subsequent Events
- Acquisition Strategy: Management targets a leverage ratio of less than 35% long-term but approved a temporary increase to less than 55% in Q2 2011 to capitalize on market opportunities. A pipeline of over $200 million in potential acquisitions exists.
- Subsequent Events (May 2011):
- Joint Venture: Selected as winning bidder (with Cerberus Capital) to acquire 64 hotels from Innkeepers USA Trust for approx. $1.125 billion.
- Direct Acquisition: Selected as winning bidder to acquire 5 additional hotels for $195 million ($255k/room), funded by assuming $134.2 million in debt and using credit facility borrowings.
- Credit Facility Amendment: Amended $85 million revolving credit facility to increase allowable leverage to 60% through 2012 and lower fixed charge coverage requirements.
- Risks: Dependence on economic recovery, ability to close pending acquisitions, and interest rate fluctuations (though current debt is fixed-rate).
Investor Verification Checklist
- Acquisition Closing: Verify the status of the $1.125 billion joint venture and $195 million direct acquisition, as both are contingent on Bankruptcy Court confirmation orders.
- Leverage Impact: Assess the impact of the new debt assumptions ($134.2 million) on the company's leverage ratio relative to the newly amended 60% covenant limit.
- Capital Expenditures: Confirm the $13 million capital improvement plan for 2011, noting that five hotels were undergoing significant renovations during Q1, impacting RevPAR.
- Dividend Sustainability: Review FFO and Adjusted EBITDA trends to ensure coverage of the $0.175 quarterly dividend as the portfolio expands.