Chatham Lodging Trust — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Chatham owns upscale extended-stay and premium-branded select-service hotels; it reported 39 hotels with 5,914 rooms at quarter-end.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $81.8 million | $50.2 million | $136.6 million | $82.4 million |
| Operating income (loss) | $16.3 million | $(2.4) million | $12.9 million | $(15.9) million |
| Net income (loss) | $9.3 million | $(8.7) million | $(0.4) million | $(6.0) million |
| Net income (loss) attributable to common shareholders | $7.2 million | $(8.6) million | $(4.3) million | $(5.9) million |
| Diluted earnings (loss) per common share | $0.15 | $(0.18) | $(0.09) | $(0.12) |
| Net cash from (used in) operating activities | Not stated separately | Not stated separately | $21.7 million | $(2.2) million |
- Q2 revenue rose 62.7% year over year; room revenue, the primary source, increased 62.9%. Same-property RevPAR rose 50.2%, with occupancy up 10.3% to 77.2% and ADR up 36.1% to $178.62.
- For the first half, revenue increased 65.9% and same-property RevPAR increased 52.8%. Hotel operating expenses rose 49.0% to $75.0 million, largely alongside higher occupancy and revenue.
- Q2 Adjusted EBITDA was $31.1 million versus $12.5 million; first-half Adjusted EBITDA was $44.4 million versus $13.7 million. These are non-GAAP measures, not substitutes for GAAP earnings or cash flow.
- Interest expense was $6.9 million in Q2 and $13.3 million in the first half. First-half common-share distributions were suspended; preferred dividends declared were $0.82812 per share.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $17.8 million and restricted cash was $10.0 million. Total debt before deferred financing costs was $489.6 million, compared with $544.9 million at year-end 2021. Equity totaled $812.7 million.
- Management reported a 28.4% leverage ratio and an approximately 4.9% average interest rate on debt. The $250 million revolving facility had $15 million drawn; the $40 million Home2 Woodland Hills construction loan had $39.1 million drawn.
- Six-month cash from operations was $21.7 million; investing activities provided $35.9 million, including $79.6 million net hotel-sale proceeds, partly offset by a $31.0 million acquisition and capital spending. Financing activities used $59.7 million, primarily from revolving-credit repayments and preferred dividends.
- Debt principal and interest obligations totaled $532.0 million, with $97.2 million due within 12 months of June 30. The credit facility’s initial maturity is March 8, 2023; lenders representing $227.5 million of commitments provided two six-month extension options. The filing lists $132.9 million of principal due in 2023 and $336.0 million in 2024.
- The company exited its credit-facility covenant waiver at the end of Q2 and reported compliance with covenants. Cash-trap thresholds could be enforced on seven mortgage loans; one lender had enforced a cash trap. Management said it did not expect this to impair short-term liquidity.
Material changes and unusual items
- Chatham acquired the Hilton Garden Inn Destin Miramar Beach for $31.0 million in March and opened the $71.4 million Home2 Suites Woodland Hills in January.
- It sold four hotels in May for a combined $80.2 million and recognized $2.0 million in gains. Sale proceeds were used to repay the revolving credit facility.
- The first-half 2021 comparison included a $23.8 million gain from selling the NewINK joint-venture interest; no such gain occurred in 2022. This one-time item affects year-over-year comparisons.
- Q2 results also reflect recovery in hotel demand and changes in the portfolio from acquisitions, the hotel opening and dispositions.
Outlook, commentary and risks
- Management expected strong lodging-industry growth in 2022 versus 2021 and anticipated further RevPAR increases for the remainder of the year. It noted that some markets might exceed 2019 levels; this is a forward-looking expectation, not a guarantee.
- Management expected approximately $10.2 million of hotel renovations and other discretionary or emergency spending during the remainder of 2022. It said existing cash and credit-facility availability should meet short-term liquidity needs.
- Common dividends remained suspended after the March 2020 payment; the board determines future distributions. Preferred shares carry a 6.625% annual rate.
- Risks highlighted include continuing COVID-19 effects and travel demand, economic conditions, inflation and rising operating costs, competition, interest rates and access to capital. Hotel demand is seasonal, generally weaker in Q1 and Q4. A 100-basis-point increase in LIBOR was estimated to add about $0.5 million of annual interest at the reported debt balances.
- A Chatham subsidiary is a defendant in litigation related to the sale of the Residence Inn Mission Valley to the City of San Diego. The city seeks return of acquisition funds and a declaration voiding the purchase agreement. Chatham disputes the case; management said potential future costs were not then probable and estimable. Legal costs incurred in the first half were $143,000.
Key facts for investors to verify
- Whether RevPAR and occupancy recovery continued, and how rate growth compared with rising hotel operating expenses.
- Liquidity and refinancing plans for 2023–2024 maturities, including whether the credit-facility extensions are exercised and whether covenant compliance is maintained.
- Progress on cash traps, the San Diego litigation, and the planned $10.2 million of remaining-2022 capital spending.
- Any board decision to resume common dividends, and the cash-flow capacity to support distributions after preferred dividends and debt service.
- The effect of portfolio changes and the prior-year NewINK gain when comparing future results; the filing cautions that interim results may not indicate full-year performance.