Chatham Lodging Trust — 2023 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report. Chatham is a self-managed lodging REIT focused on upscale extended-stay and premium-branded select-service hotels. At year-end it owned 39 hotels with 5,915 rooms across 16 states and the District of Columbia. All 39 hotels were managed by Island Hospitality Management (IHM), a company wholly owned by CEO Jeffrey Fisher.
Financial and operating performance
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Total revenue | $311.1 million | $294.9 million | Up 5.5% |
| Same-property occupancy | 74.3% | 71.9% | Up 2.4 percentage points |
| Same-property ADR | $177.60 | $173.01 | Up 2.7% |
| Same-property RevPAR | $132.01 | $124.43 | Up 6.1% |
| Operating income | $28.6 million | $36.5 million | Down from prior year |
| Net income | $2.5 million | $9.9 million | Lower year over year |
| Net income (loss) attributable to common shareholders | $(5.3) million; $(0.11) per share | $1.9 million; $0.04 per share | 2023 includes $8.0 million in preferred dividends |
| Adjusted EBITDA | $101.1 million | $99.8 million | Up modestly |
| Adjusted Hotel EBITDA | $110.9 million | $111.6 million | Down slightly |
| Net cash from operating activities | $76.4 million | $71.5 million | Up $4.9 million |
Hotel operating expenses rose 9.1% to $175.4 million, outpacing revenue growth, with management citing higher occupancy, staffing and inflation. Depreciation and amortization was $58.3 million. The company recorded a $4.3 million impairment on Hilton Garden Inn Denver Tech, which was under contract for sale. Adjusted FFO attributable to common shareholders and units was $59.7 million, versus $59.6 million in 2022; these non-GAAP measures are not substitutes for GAAP results or cash flow.
Liquidity, debt and cash flow
- Year-end cash, cash equivalents and restricted cash totaled $85.7 million, including $68.1 million unrestricted cash and $17.6 million restricted cash. Operating cash flow was $76.4 million; capital improvements used $28.1 million.
- Total debt before financing costs was $486.1 million, at an average rate of approximately 5.5%. The company reported a 24.8% net-debt-to-hotel-investment-at-cost leverage ratio, down from 26.6% in 2022.
- Debt included $396.1 million of mortgage loans and a $90.0 million unsecured term loan; there were no revolver borrowings, with $260 million of revolving capacity available. The company reported compliance with financial covenants.
- Scheduled 2024 debt principal is $297.2 million. Total debt principal and interest obligations are $550.5 million, of which $312.1 million is payable within 12 months of year-end. Several mortgage maturities are concentrated in 2024.
- Four mortgage lenders had imposed cash traps, resulting in $5.6 million of restricted cash. Management said these were not expected to impair short-term liquidity.
- Common distributions declared were $0.28 per share in 2023, versus $0.07 in 2022; Series A preferred distributions remained $1.65624 per share. The filing notes that distributions are subject to board discretion, debt covenants and cash needs.
Changes, outlook and material items
- Revenue and same-property RevPAR improved as lodging demand continued to recover, with higher occupancy and ADR. Revenue comparisons also reflect the opening ramp-up of Home2 Suites Woodland Hills, a 2022 hotel acquisition, and four hotel sales in 2022.
- Management expects modest lodging-industry RevPAR growth in 2024 and says continued improvement depends on leisure demand remaining strong and business travel recovering. It expects approximately $36.8 million of 2024 hotel renovations and other capital expenditures, including brand-required work. No specific company earnings or full-year financial guidance is provided in the filing text.
- In 2023 the company wrote off $2.2 million of costs for a California hotel development it abandoned, recorded a $0.7 million debt-extinguishment loss after repaying the Woodland Hills construction loan, and recognized a $0.2 million gain from partially terminating its office lease.
- After year-end, on January 9, 2024, the company sold Hilton Garden Inn Denver Tech for approximately $18.0 million.
- Key risks include the lodging cycle and competition, inflation and operating costs, interest rates and refinancing needs, major 2024 mortgage maturities, ongoing property capital requirements, and dependence on one manager. IHM is controlled by the CEO, creating related-party and potential conflict-of-interest considerations. Franchise renewals and brand-required upgrades, severe weather, cyber incidents and continued REIT qualification are additional risks.
- The company reported routine litigation and stated that it did not expect the aggregate identifiable liabilities, if any, to materially affect its financial condition or results. The auditor issued an unqualified opinion on the financial statements and internal controls; impairment evaluation was identified as a critical audit matter.
Important facts for investors to verify
- How the company plans to refinance, repay or otherwise address the significant 2024 mortgage maturities, and the cost and availability of replacement financing.
- Whether 2024 RevPAR and hotel cash flows meet management’s modest-growth outlook as business and group travel recover.
- The sale proceeds and final accounting for Hilton Garden Inn Denver Tech, including how proceeds are used.
- Whether the planned $36.8 million capital program, brand requirements and inflation pressure distributions and free cash flow.
- The terms, oversight and performance of IHM’s related-party management agreements, given its management of the entire portfolio and CEO ownership.
- How cash traps, restricted cash and debt covenants affect available liquidity and the company’s ability to sustain common distributions.