Chatham Lodging Trust — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Chatham is a hotel REIT focused on upscale extended-stay and premium-branded select-service properties. It owned 43 hotels with 6,451 rooms at quarter-end. Results reflect the ongoing recovery from COVID-19, hotel acquisitions, and the opening of a newly developed hotel.
Key financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $54.9 million | $32.1 million |
| Operating loss | $3.3 million | $13.5 million |
| Net income (loss) | $(9.7) million | $2.7 million |
| Net income (loss) attributable to common shareholders | $(11.4) million; $(0.23) per share | $2.7 million; $0.06 per share |
| Net cash used in operating activities | $4.2 million | $12.1 million |
| Net cash used in investing activities | $38.1 million | $7.2 million |
| Net cash provided by financing activities | $38.8 million | $11.2 million |
Same-property results for 41 hotels: occupancy was 60.4% versus 52.7%, ADR was $146.36 versus $107.28, and RevPAR was $88.33 versus $56.57. Same-property RevPAR increased 56.1% year over year. Adjusted Hotel EBITDA was $15.9 million, compared with $3.5 million; the filing presents this as a non-GAAP measure, not a substitute for GAAP earnings or cash flow. GAAP operating expenses totaled $58.2 million, exceeding revenue; the filing does not present a GAAP operating margin.
At March 31, 2022, cash and cash equivalents were $18.1 million and restricted cash was $8.3 million. Total debt before unamortized costs was $586.1 million, including $110.0 million drawn on a $250.0 million revolving facility and $38.5 million on a construction loan. Management reported a 32.4% leverage ratio and approximately 4.6% average interest rate. Total liabilities were $633.6 million and total equity was $804.1 million.
Material changes versus Q1 2021
- Revenue increased 70.9%, principally from lodging recovery and four additional hotels in the 2022 comparison. The quarter included the March acquisition of Hilton Garden Inn Destin Miramar Beach for $31.0 million and the January opening of Home2 Suites Woodland Hills.
- Hotel operating expenses rose 53.3% to $33.7 million, below the rate of revenue growth. The increase reflected higher occupancy and revenue, as well as the additional hotels.
- Net results shifted from income to loss. Q1 2021 included a $23.8 million gain on the sale of the NewINK joint-venture investment; Q1 2022 had no comparable gain. Q1 2021 also included a $1.2 million loss from unconsolidated real estate entities.
- Operating cash outflow improved by $7.9 million, while investing outflows increased with the hotel acquisition and capital spending. Financing included $40.0 million of revolving-credit borrowings.
- Debt increased from $544.9 million to $586.1 million before unamortized costs, while revolving-facility borrowings rose from $70.0 million to $110.0 million.
Outlook, liquidity, and risks
- Management expects industry and company RevPAR to continue improving in 2022 versus 2021 and 2020, but to remain below 2019 levels. This is an expectation, not quantified company earnings guidance.
- Management expects to spend approximately $19.6 million on hotel renovations and other property expenditures during the remainder of 2022. It expects short-term liquidity needs to be met with cash and credit-facility availability, while identifying borrowings, equity issuance, and asset sales as potential longer-term funding sources.
- The revolving facility’s initial maturity is March 8, 2023. Lenders representing $227.5 million of commitments provided two six-month extension options, potentially extending maturity through March 2024. Financial-covenant waivers run through June 30, 2022; the facility amendment limits debt, dividends, and capital expenditures during the waiver period. The company reported compliance with modified covenants at quarter-end.
- Eight mortgage loans were below specified cash-trap thresholds, and one lender had enforced a cash trap. Management said it did not expect the cash traps to impair short-term liquidity. The filing lists $179.3 million of principal and interest due within 12 months, including the $110.0 million revolving-facility balance.
- Common dividends remained suspended; no common dividends were declared for the quarter. A $0.41406-per-share preferred dividend was declared and paid on April 18, 2022. Common-dividend resumption is not specified.
- Key risks include continued COVID-19 effects and travel demand, economic and lodging-market conditions, inflation and operating costs, interest-rate exposure, access to financing, and debt maturities. A hypothetical 100-basis-point increase in LIBOR was estimated to add about $1.4 million in annual interest at quarter-end floating-debt balances.
- A subsidiary is a defendant in litigation related to the sale of Residence Inn Mission Valley. The city plaintiffs seek a return of acquisition funds and a declaration that the purchase agreement is void. Chatham says it believes the suit is without merit; it had incurred $114,000 in related legal costs and said potential future costs were not then probable and estimable.
Important facts for investors to verify
- Whether hotel demand and RevPAR continue recovering, and how results compare with the company’s expectation of remaining below 2019 levels.
- The timing and sources of repayment or extension for the revolving facility and other near-term debt obligations, and the status of covenant waivers and cash traps.
- Actual renovation spending, liquidity after acquisition and investment outflows, and availability of credit or capital-market funding.
- Any change in the suspended common-dividend policy, while accounting for preferred dividend obligations.
- Developments in the San Diego litigation and any resulting costs or liabilities.