Chatham Lodging Trust — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. Chatham is a REIT focused on upscale extended-stay and premium-branded select-service hotels. At quarter-end it owned 38 hotels with 5,735 rooms. Its CEO-owned Island Hospitality Management managed all 38 hotels.
Financial performance and condition
- Revenue: $68.4 million, up 1.2% from $67.6 million. Room revenue was $62.5 million, up 1.3%.
- Hotel operating performance: Same-property RevPAR rose 1.5% to $119.63, reflecting 0.4% higher ADR and 1.2% higher occupancy (70.1%).
- Profitability: Operating income was $1.0 million, down from $2.1 million; operating margin was approximately 1.4%, versus 3.1%. Net loss was $5.5 million, compared with $5.0 million. Net loss attributable to common shareholders was $7.2 million, or $0.15 per diluted share, versus $6.8 million, or $0.14.
- Supplemental measures: Adjusted Hotel EBITDA was $21.0 million, versus $20.7 million; Adjusted FFO was $7.9 million, versus $7.9 million. These non-GAAP measures are not substitutes for GAAP results or cash flow.
- Cash flow: Operating cash flow was $6.9 million, up from $4.8 million. Investing activities provided $6.3 million, including $17.2 million in net hotel-sale proceeds and $10.3 million of hotel improvements. Financing used $7.5 million, including $5.6 million of common and preferred distributions.
- Liquidity: Cash and cash equivalents were $72.3 million and restricted cash was $19.2 million at quarter-end; combined cash, cash equivalents and restricted cash totaled $91.5 million. The $260 million revolving facility had no borrowings; $90 million was outstanding under the unsecured term loan.
- Debt: Total debt before deferred financing costs was $484.5 million, with a reported weighted-average interest rate of approximately 5.5%. Net debt-to-hotel-investments-at-cost leverage was 24.8%. Four lenders had enforced cash traps, resulting in $6.7 million of restricted cash.
- Margins and costs: Hotel operating expenses increased 3.4% to $41.8 million, faster than revenue growth, mainly due to staffing and inflation. Interest expense rose 13.5% to $7.3 million. Property taxes, ground rent and insurance fell $0.8 million to $5.3 million, primarily due to property-tax appeals.
Material changes and unusual items
- Chatham sold the Hilton Garden Inn Denver Tech Center on January 9, 2024 for $18.0 million and recognized a $0.2 million loss. The property contributed $0.1 million of Q1 2024 room revenue, compared with $1.0 million in Q1 2023.
- Interest and other income increased to $0.8 million from $0.02 million, attributed to higher cash balances and interest rates.
- Depreciation and amortization increased to $15.3 million from $14.3 million. There was $0.05 million of other charges; Q1 2023 included a $0.7 million loss on early extinguishment of debt.
- On April 5, 2024, Chatham repaid the $29.3 million mortgage on Residence Inn Garden Grove. On May 3, 2024, it amended its unsecured term loan, increasing it from $90 million to $140 million.
Outlook, risks and contingencies
- Management cited continued business-travel recovery and inflationary cost pressures. It expects U.S. lodging-industry RevPAR to increase modestly for the remainder of 2024; this is an industry outlook, not company-specific earnings guidance.
- Chatham expects to spend approximately $26.5 million on renovations and other hotel expenditures during the remainder of 2024.
- Debt principal and interest obligations total $548.5 million, of which $329.1 million is payable within 12 months of March 31, 2024. The filing identifies $309.2 million of near-term principal maturities; multiple hotel mortgages mature in 2024 and early 2025. The company stated it expects available cash and credit availability to meet short-term liquidity needs.
- A 100-basis-point increase in SOFR would add an estimated $0.9 million in annual interest expense, assuming the $90 million variable-rate term-loan balance remains unchanged.
- Management reported compliance with financial covenants. It said cash traps are not expected to affect short-term liquidity. The company also noted seasonal patterns, with generally lower revenue, operating income and cash flow in the first and fourth quarters.
- Routine litigation is ongoing; management does not expect identified liabilities, if any, to materially adversely affect financial condition or results. No material changes to previously disclosed risk factors were reported.
- The CEO owns Island Hospitality Management, which manages all company hotels. Management fees were $2.3 million in the quarter; review the related-party arrangements and disclosures.
Important facts for investors to verify
- How the company will refinance or repay the substantial 2024 and early-2025 mortgage maturities, including the effect of the May 2024 term-loan increase.
- Whether RevPAR growth can outpace labor, insurance, franchise and other operating-cost increases, and how performance evolves through seasonal quarters.
- The availability and use of cash, revolving-credit capacity and restricted funds, including the status of lender cash traps.
- Actual renovation spending versus the $26.5 million remainder-of-2024 estimate and its impact on liquidity and distributions.
- The performance and oversight of the CEO-owned hotel manager and the terms and economics of related-party management agreements.