Chatham Lodging Trust — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet figures compared with December 31, 2013. Chatham is a self-advised lodging REIT focused on premium-branded extended-stay and select-service hotels. At quarter-end it owned 25 hotels with 3,591 rooms and held noncontrolling interests in two joint ventures.
Financial and operating results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $36.9 million | $25.8 million |
| Operating income | $2.5 million | $2.8 million |
| Net loss | $1.7 million | $1.6 million |
| GAAP loss per share | $0.07 | $0.10 |
| FFO | $5.8 million | $3.4 million |
| Adjusted FFO | $7.4 million | $4.5 million |
| Adjusted EBITDA | $13.2 million | $9.4 million |
| Cash from operating activities | $5.0 million | $4.7 million |
- Revenue increased 43.0%; $7.9 million of the increase came from five hotels not owned in Q1 2013. At the 20 comparable hotels, room revenue rose 11.6%, principally reflecting RevPAR growth.
- Across the 25 hotels, occupancy was 77.3% versus 74.0%, ADR was $135.84 versus $131.67, and RevPAR was $105.01 versus $97.37, up 7.8%. Excluding the Washington, D.C. hotel, RevPAR grew 6.5%.
- Operating expenses grew 49.5% to $34.4 million, faster than revenue, and operating income fell. The filing attributes much of the cost increase to the additional hotels, along with higher occupancy-related and compensation costs.
- Q1 included $1.5 million of hotel acquisition costs and other charges, including $1.2 million related to an unsolicited offer and a proxy settlement agreement. Interest expense rose to $3.7 million from $2.8 million; a $0.2 million early debt-extinguishment loss was recorded, compared with $0.9 million in Q1 2013.
- Investing cash outflow was $3.4 million, including $3.2 million of hotel improvements. Financing cash flow was nearly flat; distributions to shareholders and units were $5.6 million. The quarterly distribution was $0.21 per common share.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $5.8 million, restricted cash was $5.3 million, and total assets were $674.4 million.
- Total debt was $278.2 million: $223.2 million of mortgage debt and $55.0 million drawn on the revolving credit facility. Debt was $272.1 million at year-end 2013.
- The $175 million revolving facility had $120 million of borrowing availability. Its maturity is November 2016, with a one-year extension option. The company reported compliance with financial covenants and a 2.82x fixed-charge coverage ratio.
- Management reported leverage of 37%, up from 36% at year-end, against a long-term target below 35%. A one-percentage-point increase in variable rates was estimated to add about $0.6 million of annual interest expense.
- Capital improvements were expected to total a further $12.3 million for the remainder of 2014. The filing says management expected operating cash, existing cash and available borrowing capacity to meet near-term needs.
Changes, outlook and material items
- Management expected lodging demand to outpace supply and projected 2014 industry RevPAR growth of 5%–6%; Chatham also projected 5%–6% growth at its hotels, mostly from ADR. These are forward-looking expectations, not results.
- Management anticipated lower revenue, operating income and cash flow in the first and fourth quarters due to seasonality. It cited economic conditions, competition, costs, interest rates, financing access and acquisition execution among risks to results.
- In April 2014, the board raised the monthly dividend target from $0.07 to $0.08 per common share and LTIP unit.
- After quarter-end, the Innkeepers JV agreed to a transaction involving its 51-hotel portfolio: a Northstar–Chatham venture was to acquire 47 hotels, while Chatham was to acquire four Silicon Valley hotels for a stated net cash price of $272.6 million. Chatham reported a $7.9 million non-refundable deposit in escrow; closing and final transaction amounts were not assured.
- Chatham reported no material litigation, no material changes to the prior year’s risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether the announced Innkeepers transactions closed, at what final prices, and how they were financed.
- Comparable-hotel operating trends, especially whether RevPAR growth and the expected ADR contribution continued beyond this seasonally weaker quarter.
- Debt maturities, covenant headroom, variable-rate exposure and leverage as acquisitions and capital spending proceed.
- The sustainability of distributions relative to operating cash flow, capital needs and REIT distribution requirements; non-GAAP FFO and EBITDA are not measures of cash available for distributions.
- The extent and recurrence of acquisition, unsolicited-offer and proxy-related costs, and the implications of the related-party management relationship with IHM, which is 90% owned by the CEO and manages 23 wholly owned hotels.