Chatham Lodging Trust — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are to the corresponding 2022 periods. Chatham owned 39 upscale extended-stay and select-service hotels with 5,915 rooms. Unless noted, dollar amounts below are in millions.
Financial and operating performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $84.5 | $81.8 | $152.1 | $136.6 |
| Operating income | $15.5 | $16.3 | $17.5 | $12.9 |
| Net income (loss) | $9.4 | $9.3 | $4.3 | $(0.4) |
| Net income (loss) attributable to common shareholders | $7.2 | $7.2 | $0.3 | $(4.3) |
| Diluted earnings (loss) per common share | $0.15 | $0.15 | $0.01 | $(0.09) |
| Adjusted EBITDA | $31.9 | $31.1 | $49.6 | $44.4 |
| Adjusted Hotel EBITDA | $34.7 | $34.1 | $55.4 | $50.0 |
Q2 revenue rose 3.3%; operating income was lower, partly reflecting $2.0 million of prior-year hotel-sale gains versus $0.1 million in 2023. Six-month revenue increased 11.3%, and the period moved from a net loss to net income. Q2 room revenue was 91.7% of total revenue.
Same-property RevPAR increased 4.6% in Q2, with occupancy up 2.1% and average daily rate (ADR) up 2.4%. For the first half, same-property RevPAR rose 13.9%, occupancy 6.8%, and ADR 6.6%. The filing attributes improved hotel performance mainly to continued recovery in travel demand.
Six-month operating cash flow was $32.7 million, versus $21.7 million a year earlier. Investing used $15.6 million, primarily for hotel improvements; financing used $14.6 million. Cash, cash equivalents and restricted cash totaled $47.7 million at June 30, including $32.9 million unrestricted and $14.8 million restricted. The company spent $15.6 million on hotel improvements in the first half and expects approximately $15.0 million of additional renovations and other expenditures in the remainder of 2023.
Debt, liquidity and distributions
- Total debt before unamortized financing costs was $466.7 million; weighted average interest rate was approximately 5.0%. The company reported a 25.8% net-debt-to-hotel-investments-at-cost leverage ratio.
- The $260 million revolving facility had no borrowings at June 30. The unsecured term loan had $90 million outstanding at a 6.40% variable rate. A hypothetical 100-basis-point increase in SOFR was estimated to add approximately $0.9 million of annual interest expense.
- At June 30, scheduled principal and interest obligations totaled $491.7 million, including $114.4 million due within 12 months; $89.0 million of near-term principal was associated with specified mortgage maturities. The June debt schedule included $297.0 million of principal due in 2024. The company repaid a $19.7 million mortgage on July 6, 2023, after quarter-end.
- Four mortgage lenders had enforced cash-trap provisions, restricting $5.6 million. Management said it did not expect these traps to impair short-term liquidity. The company was in compliance with financial covenants at June 30.
- Common dividends had resumed in Q4 2022. Chatham declared $0.07 per common share per quarter in Q2 and $0.14 per share for the first half; Series A preferred dividends were $0.82812 per share for the first half.
Changes, outlook and notable items
- Management expects U.S. lodging RevPAR to increase modestly over the remainder of 2023; this is industry commentary, not quantified company-specific financial guidance. It said continued improvement depends on leisure travel strength and business-travel recovery.
- Hotel operating expenses rose 4.8% in Q2 and 11.7% in the first half, with management citing higher occupancy and revenue as well as inflation. Property taxes, ground rent and insurance also increased, primarily due to property tax assessments.
- Debt refinancing and repayment activity included a $90 million term-loan draw used to repay the $39.3 million construction loan and maturing mortgages. The first half included a $0.7 million loss on early extinguishment of debt. A partial office-lease termination generated a $0.2 million gain.
- Management believes existing cash and available credit are sufficient for short-term operating needs, interest and dividends. Longer-term needs, including acquisitions and debt maturities, may be met through borrowing, equity or debt issuance, or asset sales. The filing identifies inflation, interest rates, recession risk, travel demand, operating costs and access to financing among relevant risks.
- All 39 hotels were managed by Island Hospitality Management, which is wholly owned by Chatham’s CEO. Management fees were $5.1 million for the first half. The company reports routine litigation but does not expect an aggregate material adverse effect; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- How the large 2024 mortgage maturities will be refinanced or repaid, including the effect of the July 2023 mortgage repayment and any further developments after the filing date.
- Hotel-level performance and cash generation as RevPAR growth moderated during Q2, including the reported June same-property RevPAR decline of 1.4% year over year.
- Exposure to variable rates, cash-trapped balances, and the availability and covenant terms of the revolving facility and term loan.
- Whether inflation-driven expense growth and planned capital spending affect hotel margins, liquidity or the common dividend.
- The related-party management arrangement with the CEO-owned manager, including fee terms, oversight and potential conflicts of interest.