Chatham Lodging Trust — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Chatham is a lodging REIT focused on upscale extended-stay and premium-branded select-service hotels. At year-end it owned 39 hotels with 5,914 rooms across 16 states and Washington, D.C.
Financial and operating performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $294.9 million | $204.0 million |
| Net income (loss) | $9.9 million | $(18.8) million |
| Net income (loss) attributable to common shareholders | $1.9 million | $(22.4) million |
| Diluted earnings (loss) per common share | $0.04 | $(0.46) |
| Net cash from operating activities | $71.5 million | $28.8 million |
| FFO attributable to common shareholders and units | $58.8 million | $13.6 million |
| Adjusted FFO attributable to common shareholders and units | $59.6 million | $14.3 million |
Revenue increased 44.6%, driven mainly by lodging recovery. Same-property RevPAR rose 38.8% to $124.21, as occupancy increased to 72.0% from 65.8% and ADR rose to $172.59 from $135.91. GAAP operating margin was approximately 12.3%, compared with approximately negative 8.4% in 2021; net margin was approximately 3.3%, versus negative 9.2%. These margins are calculated from reported revenue and operating or net income.
Hotel operating expenses increased 34.8% to $160.8 million, reflecting higher occupancy, revenue and inflation. Depreciation and amortization was $59.4 million; interest expense was $26.5 million. No hotel impairment loss was recorded in 2022, versus $5.6 million in 2021.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $26.3 million; restricted cash was $18.9 million. Combined cash and restricted cash totaled $45.2 million, up $15.3 million year over year. Restricted cash includes lender cash traps and other reserves.
- Debt principal outstanding was $470.3 million before unamortized financing costs ($469.9 million net on the balance sheet). The company reported a 5.0% average debt rate and a 26.6% net-debt-to-hotel-investment-at-cost leverage ratio, down from 30.6%.
- The company had no revolving-credit borrowings at year-end and reported $350 million of available commitments under its new $260 million revolver and $90 million delayed-draw term loan. The facilities carry variable SOFR-based pricing and financial covenants; Chatham reported compliance at year-end.
- Five mortgage lenders were enforcing cash-trap provisions, resulting in $8.0 million of restricted cash. Management said these were not expected to impair short-term liquidity.
- Operating cash flow was $71.5 million. Investing activities provided $30.0 million, including $79.6 million of net hotel-sale proceeds, offset partly by hotel acquisition and capital spending. Financing activities used $86.2 million, including $70.0 million of net revolver repayments and $8.0 million of preferred distributions.
- Common distributions resumed: $0.07 per share for 2022, compared with none in 2021. Series A preferred distributions were $1.65624 per share for 2022. The preferred shares carry a 6.625% annual rate and rank senior to common shares for distributions.
Material changes and unusual items
- Chatham acquired the Hilton Garden Inn Destin Miramar Beach for $31.0 million, opened the Home2 Suites Woodland Hills development, and sold four hotels for $80.2 million in aggregate gross sale proceeds. The sales produced a $2.3 million gain; sale proceeds were used to repay the revolver.
- The company entered new unsecured credit facilities in October 2022, replacing a revolver scheduled to mature in March 2023; commitments were increased in December to $350 million in total.
- After year-end, Chatham repaid the $39.3 million Woodland Hills construction loan on February 1, 2023, and $34.1 million of mortgage loans on February 6, 2023, using delayed-draw term-loan borrowings.
- Results benefited from the recovery in hotel demand and a $2.3 million hotel-sale gain. The prior year included a $23.8 million gain from selling the NewINK joint-venture investment, which did not recur in 2022.
Outlook, commentary and risks
Management expected RevPAR to continue increasing in 2023, with some markets potentially exceeding 2019 levels. It said operating improvement would depend on continued leisure-travel strength and recovery in corporate and group demand, as well as further easing of pandemic concerns, geopolitical stability and moderating inflation. The filing provides no numerical 2023 earnings or revenue guidance. Chatham expected to spend approximately $30.6 million on existing-hotel renovations and discretionary or emergency work in 2023, including brand-required improvements.
Key risks include lodging cyclicality and demand weakness; inflation and higher interest rates; debt refinancing and maturity concentration; ongoing property capital needs; natural disasters, climate and insurance exposure; and dependence on third-party hotel operators. All 39 hotels were managed by Island Hospitality Management, which is wholly owned by CEO Jeffrey Fisher, creating related-party and concentration risks. The company also disclosed open IRS and New Hampshire tax examinations; it recorded no liability for them but said an unfavorable outcome could affect results, financial position or cash flows. Routine litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- Confirm the status, terms and remaining availability of the delayed-draw term loan and revolver after the February 2023 repayments, and the handling of upcoming mortgage maturities.
- Assess whether RevPAR recovery and cost trends support the outlook, particularly as inflation, interest rates and corporate/group travel evolve.
- Review the planned $30.6 million 2023 capital program, brand-mandated upgrades and the effect of lender cash traps on usable liquidity.
- Evaluate common-dividend sustainability alongside debt covenants, preferred distributions and REIT distribution requirements.
- Review the related-party management relationship with IHM, the open tax examinations and the assumptions behind property impairment testing. PwC identified hotel-property impairment evaluation as a critical audit matter; no impairment was recorded for 2022.