Chatham Lodging Trust — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; selected fourth-quarter results are also noted below. Chatham owned 39 hotels with 5,900 rooms across 15 states and Washington, D.C., and held minority interests in two hotel joint ventures. Its portfolio focuses on upscale extended-stay and premium-branded select-service hotels.
Financial performance and key metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $144.9 million | $328.3 million |
| Operating income (loss), before hotel-sale gain or loss | $(62.8) million | $56.7 million |
| Net income (loss) | $(77.0) million | $18.9 million |
| Net income (loss) attributable to common shareholders | $(76.0) million; $(1.62) per share | $18.7 million; $0.39 per share |
| Net cash from (used in) operating activities | $(20.0) million | $86.2 million |
| Adjusted Hotel EBITDA | $22.3 million | $123.7 million |
| Dividends declared per common share | $0.22 | $1.32 |
Revenue fell 55.9% year over year, primarily due to COVID-19’s effect on hotel demand. Same-property occupancy was 48.2% versus 80.0%, ADR was $119.89 versus $165.45, and RevPAR was $57.74 versus $132.00. Same-property RevPAR declined 56.3%. Hotel operating expenses decreased 45.2%, less than the decline in revenue; adjusted Hotel EBITDA was down about 82% year over year.
Fourth-quarter 2020 revenue was $29.6 million, compared with $74.7 million in Q4 2019. Net loss attributable to common shareholders was $3.4 million, or $0.07 per share, versus a $2.3 million loss, or $0.05 per share, in Q4 2019.
At year-end, total assets were $1.37 billion and total liabilities were $677.8 million. Total debt before unamortized financing costs was $609.7 million, at an average rate of approximately 4.4%; reported leverage was 35.8%, up from 34.1% a year earlier. Cash and cash equivalents were $21.1 million, with an additional $10.3 million of restricted cash. The company reported $114.7 million of availability under its $250 million revolving credit facility.
Cash flow from investing activities was $26.8 million, including $64.4 million of net proceeds from the San Diego hotel sale, offset in part by $14.5 million of hotel improvements and $23.2 million of development spending. Financing activities provided $4.4 million, including net revolving-credit borrowings of $45.3 million and construction-loan borrowings of $13.3 million, offset by mortgage principal payments and distributions.
Material changes versus the prior comparable period
- COVID-19 drove a sharp deterioration in hotel operating results: revenue dropped by $183.4 million, and the company moved from net income to a substantial net loss.
- Operating cash flow turned negative, from $86.2 million provided in 2019 to $20.0 million used in 2020.
- The company recorded a $15.3 million impairment that reduced the carrying value of its Inland JV investment to zero. The Inland JV defaulted on debt service and its hotels entered receivership.
- Chatham sold its Residence Inn Mission Valley in San Diego for $67.0 million, recognizing a $21.1 million gain. It also repaid the hotel’s $26.7 million mortgage and used additional proceeds to reduce revolving-credit borrowings.
- Debt rose from $586.9 million to $609.7 million, including higher revolving-credit borrowings and a new construction loan. Mortgage debt declined.
- Cash distributions fell from $1.32 to $0.22 per common share. The 2020 distributions were classified as return of capital; the company suspended monthly dividends after the first two monthly payments.
Outlook, liquidity, risks, and unusual items
- Outlook: Management expected depressed lodging RevPAR to persist until effective vaccines were widely deployed, while noting that the pandemic’s duration and financial effects remained uncertain. The filing provides no specific company revenue or earnings guidance.
- Liquidity and credit terms: A December 2020 credit amendment waived certain financial covenants through December 31, 2021 and allowed borrowing up to the facility limit, subject to minimum liquidity of $25 million, defined to include unrestricted cash and facility availability. The amendment also added restrictions on debt, dividends, and capital expenditures and pledged equity interests in 24 borrowing-base hotels. The company reported compliance with its modified covenants at year-end.
- Debt and cash traps: All mortgage loans were below specified debt-service coverage or debt-yield thresholds that could permit lenders to enforce cash traps; none had done so by year-end. The filing identifies $144.5 million of scheduled debt principal payments in 2022, including the revolving facility maturity, subject to extension options and other terms.
- Development and spending: The Los Angeles-area Warner Center hotel was under development, with estimated total cost of $70.0 million and $43.7 million incurred through year-end. Management expected $26.3 million of remaining development costs and approximately $6.3 million of 2021 renovations and other spending on existing hotels.
- Joint ventures: The NewINK JV missed debt-service payments in April and May 2020 but was reported current on senior and mezzanine payments at year-end after partner funding. Chatham agreed to sell its NewINK interest for $2.8 million, conditional on the broader portfolio transaction closing and other conditions. The Inland JV remained in receivership. The operating partnership has limited non-recourse carve-out and environmental guarantees associated with JV debt.
- Other items and risks: The company recognized $4.4 million of other charges, primarily severance related to the former Chief Investment Officer’s departure and insurance deductibles. IHM, which is 52.5% owned by CEO Jeffrey Fisher, managed all 39 wholly owned hotels and all NewINK JV hotels, creating management concentration and related-party conflict risks. IHM also faced California wage-and-hour class actions; settlements were paid in 2020, with the company’s stated exposure totaling approximately $0.7 million.
- Capital returns and financing: The board controls the timing and amount of future distributions, and credit-facility restrictions may limit them. The company filed a new $100 million at-the-market offering registration in January 2021; future share issuance could dilute existing holders.
Important facts for investors to verify
- How hotel occupancy, ADR, and RevPAR recover, and whether operating cash flow returns to positive territory.
- Available liquidity relative to the $25 million minimum, covenant-waiver conditions, and the facility’s 2022 maturity and extension options.
- Actual costs, schedule, and financing needs for the Warner Center development and 2021 property spending.
- Whether the proposed NewINK JV sale closes, what proceeds Chatham receives, and any related debt or guarantee exposure; also developments in Inland JV receivership.
- Timing and terms of any dividend resumption, subject to cash needs, covenants, and REIT distribution requirements.
- Potential effects of related-party management arrangements, IHM litigation, and any material changes in management or franchise costs.