Chatham Lodging Trust — Q1 2020 Form 10-Q
Business context and reporting period: The filing covers the three months ended March 31, 2020, compared with Q1 2019. Chatham is a hotel REIT focused on upscale extended-stay and premium-branded select-service properties. At quarter-end it wholly owned 40 hotels with 6,092 rooms and held noncontrolling interests in two hotel joint ventures. COVID-19 materially disrupted lodging demand, particularly late in the quarter.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $60.2 million | $75.7 million |
| Operating income (loss) | $(17.7) million | $9.9 million |
| Net income (loss) | $(28.1) million | $1.6 million |
| Net income (loss) per common share | $(0.59) | $0.03 |
| Cash from (used in) operations | $(2.9) million | $13.3 million |
| Adjusted EBITDA | $16.5 million | $27.0 million |
| Adjusted Hotel EBITDA | $16.2 million | $26.2 million |
| Adjusted FFO attributable to common shareholders and units | $6.3 million | $16.2 million |
- Revenue declined 20.4%; room revenue fell 22.1%. Same-property RevPAR decreased 21.8%, as occupancy fell 17.5% and ADR fell 5.1%. The quarter captured only part of the pandemic’s operating impact: same-property RevPAR fell 55.6% in March and 82.7% in April.
- Hotel operating expenses declined 13.1% to $36.3 million, as lower activity and cost-reduction measures partly offset lost revenue.
- Reported results included a $15.3 million impairment of the Inland JV investment, which was written down to zero, and $2.8 million of other charges, primarily severance and accelerated vesting related to the departure of the former Chief Investment Officer. Chatham also reported a $3.7 million loss from unconsolidated real estate entities.
- Investing cash outflow was $12.3 million, including $6.1 million for hotel improvements and $6.2 million for the Los Angeles development. Financing provided $64.6 million, largely from net revolving-credit borrowings.
- At March 31, cash and cash equivalents were $58.0 million and restricted cash was $11.6 million. Debt totaled $667.6 million before unamortized financing costs, including $173.0 million drawn on the $250 million revolving facility. The company reported an average debt rate of about 4.4% and a leverage ratio of 35.6% under its stated measure.
- Total equity was $738.3 million, down from $775.0 million at year-end 2019. Scheduled debt principal included $295.6 million due in 2024; the revolving facility was scheduled to mature in 2022 before the subsequent amendment.
Material changes, outlook, and risks
- COVID-19 and outlook: Management said the pandemic’s full effects were uncertain and expected a more significant operating impact in Q2 2020 than in Q1. No quantitative earnings or RevPAR guidance was provided.
- Liquidity actions: Chatham reduced operating costs and planned capital spending, temporarily reduced executive compensation, borrowed under its credit facility, and suspended dividends after the March 2020 payment. It reduced planned 2020 capital expenditures by about $10 million and expected an additional $6.8 million of hotel expenditures for the remainder of the year.
- Credit amendment after quarter-end: On May 6, 2020, the company amended its credit facility, waiving certain financial covenants through March 31, 2021 and permitting access to the full $250 million facility, subject to a $25 million minimum-liquidity requirement and other restrictions. The amendment added six hotels to the borrowing base and restricted, among other things, debt incurrence, dividends, and capital expenditures. Management stated it believed liquidity was sufficient for obligations over the next 12 months.
- Joint venture loan defaults: After quarter-end, both the NewINK JV and Inland JV missed debt-service payments in April and May. Each JV was seeking forbearance; foreclosure was possible, and no assurance of an agreement was given. The loans are non-recourse to Chatham except for customary carve-out obligations, and the filing said these defaults did not trigger cross-defaults on Chatham’s debt.
- Other exposures: The company disclosed estimated exposure of $0.1 million for settled California wage-and-hour cases and $0.6 million for related cases awaiting court approval. It also disclosed potential JV capital calls and limited guarantees for customary non-recourse carve-outs. Management reported that disclosure controls were effective and that no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Whether hotel demand, occupancy, ADR, and RevPAR recovered or remained depressed after the sharp March and April declines.
- Cash burn, unrestricted liquidity, facility availability, and compliance with the amended facility’s minimum-liquidity and other conditions.
- Developments in the NewINK and Inland JV defaults, lender forbearance or foreclosure actions, and any resulting capital or guarantee exposure to Chatham.
- The sustainability of reduced operating costs and the timing and amount of any dividend reinstatement.
- Funding, remaining costs, and completion plans for the Los Angeles hotel development, alongside permitted capital expenditures.