Business context and reporting period
Chatham Lodging Trust’s Form 10-K covers the fiscal year ended December 31, 2021. The company is a REIT focused on upscale extended-stay and premium-branded select-service hotels. At year-end it owned 41 hotels with 6,169 rooms in 16 states and Washington, D.C.; all 41 were managed by Island Hospitality Management (IHM), which is wholly owned by CEO Jeffrey Fisher.
Results reflect a recovery from the pandemic-disrupted 2020 period, two Austin hotel acquisitions in August 2021, sales of the company’s interests in the NewINK and Inland joint ventures, and the 2020 sale of a San Diego hotel. The filing provides annual results, not a separate clear set of company fourth-quarter financial results.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $204.0 million | $144.9 million |
| Net loss | $18.8 million | $77.0 million |
| Net loss attributable to common shareholders | $22.4 million; $0.46 per share | $76.0 million; $1.62 per share |
| Net cash from (used in) operating activities | $28.8 million | $(20.0) million |
| FFO attributable to common shareholders and units | $13.6 million | $(23.4) million |
| Adjusted FFO attributable to common shareholders and units | $14.3 million | $(19.0) million |
| Adjusted Hotel EBITDA | $59.1 million | $22.3 million |
Revenue increased 40.8%, principally due to the lodging recovery and, to a lesser extent, the Austin acquisitions. Same-property results for 40 hotels showed occupancy of 64.6% versus 48.1%, ADR of $132.68 versus $119.39, and RevPAR of $85.71 versus $57.45. Same-property RevPAR rose 49.2%. U.S. industry RevPAR rose 58.2% for 2021; in the fourth quarter it increased 96.4% year over year.
Total hotel operating expenses rose 24.9% to $119.3 million. Depreciation and amortization was $54.2 million, and interest expense was $24.5 million, down 13.0%. The reported net loss narrowed substantially, aided by higher hotel activity and a $23.8 million gain on the NewINK investment sale. Adjusted Hotel EBITDA and FFO are non-GAAP measures and should not be treated as cash flow or liquidity measures.
Debt, liquidity and capital
Year-end total debt before deferred financing costs was $544.9 million, at an average rate of approximately 4.7%; the company reported a leverage ratio of 30.6%, down from 35.8% in 2020. Debt included $439.9 million of mortgage loans, $70.0 million drawn on the $250 million revolving facility, and $35.0 million on the Warner Center construction loan. Cash and cash equivalents were $19.2 million, with an additional $10.7 million of restricted cash.
The October 2021 credit-facility amendment extended the facility maturity to March 2023 and provided two six-month extension options for $227.5 million of lender commitments. Covenant waivers run through June 30, 2022; the amendment also restricts debt incurrence, dividends and capital expenditures during the waiver period. The company reported compliance with modified covenants at year-end. Eight mortgage loans had cash-trap thresholds that could be enforced, though no lender had enforced them. The filing reports $34.7 million of debt principal and interest due within 12 months of year-end.
Operating cash flow was $28.8 million; investing activities used $101.9 million, including $71.3 million for the Austin hotels and $23.9 million for Warner Center development; financing activities provided $71.6 million. The company raised $115.9 million net from Series A preferred shares and $22.5 million from common-share ATM sales. No common dividends were declared in 2021; preferred dividends declared were $0.89713 per share.
Outlook, risks and unusual items
- Management expected continued significant RevPAR improvement in 2022 versus 2021 and 2020, while still below 2019 levels. It forecast approximately $23.7 million of 2022 hotel renovation, discretionary and emergency spending, plus $2.4 million for Warner Center. The Warner Center Home2 Suites opened January 24, 2022; total development cost was estimated at about $70 million.
- COVID-19 remained a material uncertainty affecting travel demand, hotel operations, financing access and potential covenant compliance. The company cited ongoing uncertainty about the pandemic, variants and economic recovery.
- A $5.6 million impairment was recorded on a hotel under contract for sale; the property was not classified as held for sale because closing remained uncertain. The NewINK JV sale generated a $23.8 million gain; the Inland JV interest sale generated no gain or loss.
- A City of San Diego lawsuit related to the 2020 Residence Inn Mission Valley sale seeks return of acquisition funds and a declaration that the purchase agreement is void. The company says the claim is without merit; $40,000 of legal costs were accrued, and potential future costs were not considered probable and estimable.
- Tax examinations of the TRS by the IRS for 2016 and of related entities by New Hampshire for 2018–2019 remained open. Management recorded no related liability but noted an unfavorable outcome could affect results, financial position or cash flows.
- Key risks include reliance on a single hotel manager affiliated with the CEO, lodging-market cyclicality, required hotel capital spending, floating-rate debt and refinancing needs, franchise requirements, natural-disaster and climate exposure, and maintaining REIT qualification. The company disclosed no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether 2022 hotel demand and RevPAR recovery met management’s stated outlook, particularly relative to 2019.
- Updated liquidity, covenant-waiver terms, facility extensions, debt maturities and status of mortgage cash traps.
- Actual common-dividend resumption, preferred-dividend obligations and capital spending needs.
- Closing and proceeds from the hotel sale associated with the $5.6 million impairment, and completion costs or operating contribution from Warner Center.
- Developments in the San Diego litigation and the open tax examinations.
- Related-party governance and management arrangements with IHM, including fees and the CEO’s ownership and control.