Chatham Lodging Trust — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Chatham is a lodging REIT focused on upscale extended-stay and premium-branded select-service hotels. At quarter-end it wholly owned 39 hotels with 5,900 rooms and held a 10% interest in the Inland JV. The company sold its NewINK JV interest in March 2021.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 |
|---|---|---|
| Total revenue | $50.2 million | $20.2 million |
| Operating loss | $2.4 million | $18.6 million |
| Net loss | $8.7 million | $27.2 million |
| Net loss per common share | $0.18 | $0.57 |
| Adjusted Hotel EBITDA | $15.6 million | $(2.3) million |
Q2 revenue increased 149% year over year, principally reflecting recovery from pandemic-related travel declines. Same-property RevPAR rose 170.3% to $86.63, as occupancy increased to 68.2% from 33.2% and ADR rose 31.6% to $127.06. Adjusted Hotel EBITDA was approximately 31% of revenue in Q2 2021, versus negative 11% in Q2 2020 (calculated from reported figures).
For the six months, revenue was $82.4 million, up 2.5%; net loss was $6.0 million versus $55.3 million in 2020. The 2021 result included a $23.8 million gain on sale of the NewINK JV investment. Same-property RevPAR increased 12.0% to $71.08, as occupancy improved but ADR declined 11.1%. Adjusted FFO attributable to common shareholders and unit holders was negative $2.3 million for the six months, compared with negative $6.2 million.
Cash flow from operations was negative $2.2 million for the six months; investing cash flow was negative $16.6 million and financing cash flow was positive $129.6 million. Cash, cash equivalents and restricted cash totaled $142.3 million at June 30, including $131.4 million of unrestricted cash. Gross debt was $599.8 million, at an average rate of approximately 4.5%; reported leverage was 28.6%. Total equity was $829.1 million.
Material changes and capital allocation
- The company issued 4.8 million Series A preferred shares on June 30, generating approximately $116.2 million net proceeds. The shares carry a 6.625% annual distribution rate on a $25 liquidation preference. On July 1, Chatham used $116.0 million of the proceeds to repay revolving-credit borrowings.
- Common dividends remained suspended; no common dividends were declared in the first half of 2021. The suspension began after the March 2020 payment.
- Chatham raised approximately $24.6 million of common equity proceeds in the first half through its ATM and dividend reinvestment plans.
- Development spending on the Warner Center, Los Angeles hotel reached $58.9 million; estimated total project cost is approximately $70 million.
Outlook, risks and contingencies
Management expects U.S. lodging RevPAR to increase significantly in the remainder of 2021 versus 2020, but remain below 2019 levels. This is an industry expectation, not company-specific earnings guidance. Management emphasizes that pandemic effects remain uncertain, including travel demand, variants, government actions and the pace of economic recovery.
- Credit-facility financial covenant waivers run through December 31, 2021. The company must maintain at least $25 million of liquidity, including unrestricted cash and facility availability, and reported compliance with modified covenants at June 30. The waiver amendment also restricts debt, dividends and capital expenditures.
- All mortgage loans were below thresholds that could permit lenders to impose cash traps; none had been enforced at June 30. The company said it did not expect these provisions to impair short-term liquidity.
- The Inland JV’s $780 million non-recourse loan has been in default since April 2020, and its hotels are in receivership. Chatham’s recorded investment is zero; customary carve-out guarantees and environmental indemnities may create exposure in specified circumstances.
- A proposed acquisition of two Austin hotels for approximately $71.2 million was subject to customary closing conditions, with closing expected in Q3 2021. Planned remaining 2021 hotel renovations were approximately $2.1 million, in addition to estimated $11.1 million remaining Warner Center development costs.
- Management cited potential impacts from pandemic disruption, competition, operating costs, interest rates, financing access and seasonal demand. No material off-balance-sheet arrangements were reported other than Inland JV-related exposure.
Important facts for investors to verify
- Whether hotel demand and RevPAR recovery continued after Q2, particularly relative to 2019, and whether occupancy or rate is driving performance.
- Post-quarter liquidity and debt balances after the $116.0 million revolver repayment, including available facility capacity and compliance with the $25 million minimum liquidity requirement.
- Progress, total costs and financing for the Warner Center development and the proposed Austin acquisition.
- Potential funding, guarantee or other obligations connected with the defaulted Inland JV loan and receivership.
- Preferred-share distribution obligations and the timing and conditions for any resumption of common dividends.