Chatham Lodging Trust: 2010 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: Chatham Lodging Trust (CLDT)
Reporting Period: Fiscal year ended December 31, 2010
Business Model: Maryland REIT focused on acquiring premium-branded upscale extended-stay and select-service hotels. The company operates through an Operating Partnership and leases properties to Taxable REIT Subsidiaries (TRS) to maintain REIT qualification.
Portfolio: As of December 31, 2010, the company owned 13 hotels with 1,650 rooms across 9 states. Brands include Homewood Suites by Hilton, Residence Inn by Marriott, Courtyard by Marriott, Hampton Inn & Suites, and SpringHill Suites by Marriott.
Key Events: Completed IPO on April 21, 2010 (raising $172.5 million gross). Acquired 13 hotels throughout 2010. Completed a follow-on public offering on February 8, 2011 (raising $73.6 million gross).
Key Financial Metrics
| Metric | Value (in thousands) |
|---|---|
| Total Revenue | $25,470 |
| Net Loss (GAAP) | $(1,217) |
| Loss Per Share (Basic & Diluted) | $(0.20) |
| Funds From Operations (FFO) | $1,320 |
| Adjusted FFO | $4,854 |
| EBITDA | $2,296 |
| Adjusted EBITDA | $6,900 |
| Cash from Operating Activities | $5,274 |
| Total Debt | $50,133 |
| Cash and Cash Equivalents | $4,768 |
| Total Assets | $222,202 |
Operating Performance (Portfolio Average):
- Average Daily Rate (ADR): $109.15
- Occupancy: 74.5%
- Revenue Per Available Room (RevPAR): $81.35
Material Changes vs. Prior Period
The company had no operations prior to its IPO on April 21, 2010. Consequently, there is no comparable prior period for operating results. The 2010 results reflect the ramp-up of 13 hotel acquisitions made throughout the year. The company reported a GAAP net loss of $1.2 million, primarily driven by non-cash expenses including $2.6 million in depreciation/amortization and $1.2 million in share-based compensation, as well as $3.2 million in hotel property acquisition costs.
Guidance, Outlook, and Risks
Outlook: Management expects the lodging industry to rebound as the U.S. economy improves, citing limited new hotel supply and improving GDP growth. The company intends to continue acquiring hotels in the 25 largest U.S. metropolitan markets.
Capital Resources: The company maintains an $85 million senior secured revolving credit facility (with an option to increase to $110 million). As of December 31, 2010, $37.8 million was outstanding. The company intends to limit consolidated indebtedness, net of cash, to no more than 35% of the investment in hotel properties at cost.
Risks and Contingencies:
- REIT Qualification: Failure to qualify as a REIT would subject the company to corporate income tax. This depends on meeting distribution requirements (90% of taxable income) and asset tests.
- Related Party Transactions: The CEO, Jeffrey H. Fisher, owns 90% of Island Hospitality Management (IHM), which manages 5 of the company's hotels. Management agreements with IHM were not negotiated at arm's length.
- Market Risk: Exposure to interest rate fluctuations on variable-rate debt (floating rate debt averaged 4.5% at year-end).
- Acquisition Risk: A contract to purchase a hotel in Pittsburgh, PA for $24.9 million was signed in January 2011, subject to closing conditions.
Investor Verification Checklist
- REIT Status: Verify the company's ability to meet the 90% distribution requirement to maintain tax-exempt status.
- Related Party Fees: Review the terms of management agreements with IHM (CEO-owned) to ensure fees are competitive with market rates.
- Debt Covenants: Confirm compliance with the minimum debt service coverage ratios (1.5x for Altoona, 1.65x for Washington) and the leverage ratio on the revolving credit facility.
- Capital Expenditures: Assess the funding requirements for Property Improvement Plans (PIPs) required by franchisors, which may strain cash flow.
- Acquisition Pipeline: Monitor the closing of the Pittsburgh hotel acquisition and the deployment of proceeds from the February 2011 offering.