Chatham Lodging Trust — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; the filing also reports fourth-quarter results. Chatham is a Maryland REIT focused on premium-branded upscale extended-stay and select-service hotels. At year-end, it owned 19 hotels with 2,536 rooms and held a 10.3% interest in a Cerberus joint venture owning 55 hotels.
Financial performance and position
- Revenue: $100.5 million in 2012, up 37.4% from $73.1 million in 2011. Room revenue was $94.6 million. Growth reflected the five hotels acquired in 2011 being owned for more of 2012, the Portland acquisition, and improved comparable-hotel performance.
- Hotel operating metrics: Portfolio RevPAR rose 8.0% to $106.95; occupancy increased to 81.8% from 78.5%, and ADR rose 3.6% to $130.73.
- Profitability: Operating income was $14.7 million versus $0.1 million in 2011 (14.6% and 0.2% of revenue, respectively). Net loss narrowed to $1.45 million from $9.11 million; loss per share was $0.12 versus $0.69. Interest expense increased to $14.6 million from $8.2 million, more than operating income.
- Cash flow: Operating cash flow was $14.9 million, compared with $8.9 million. Investing used $13.0 million, including hotel improvements and the Portland purchase, partly offset by $21.2 million of joint-venture distributions. Financing used $2.0 million; shareholder distributions were $10.6 million.
- Supplemental measures: FFO was $17.8 million versus $3.7 million; Adjusted FFO was $18.1 million versus $11.9 million; Adjusted EBITDA was $40.9 million versus $22.6 million. These are non-GAAP measures and do not represent cash available for distributions.
- Debt and liquidity: Year-end debt totaled $239.2 million: $159.7 million of property mortgages and $79.5 million drawn on the revolving facility. Cash was $4.5 million and reported remaining facility availability was $15.5 million. Management reported a 51% leverage ratio, above its stated long-term target of less than 35%, and compliance with debt covenants; fixed-charge coverage was 2.03x.
- Distributions: 2012 declared distributions were $0.775 per share, versus $0.70 in 2011. The filing characterizes 47.1% of 2012 distributions as return of capital. The Board later authorized monthly dividends of $0.07 per share.
Material changes versus 2011
- Revenue and hotel operating performance improved; hotel operating expenses fell to 55% of revenue from 58% as higher ADR and revenue supported operating leverage.
- Net loss decreased substantially, while interest expense rose by $6.4 million, primarily due to increased revolving-facility borrowings and mortgage debt associated with the 2011 acquisitions.
- Acquisition costs fell to $0.2 million from $7.7 million, which also supported the year-over-year improvement in reported results.
- Cash from operations increased, while investing outflows declined significantly from 2011, when the company acquired five hotels and made its initial joint-venture investment.
Outlook, risks and notable items
- Management projected 2013 portfolio RevPAR growth of 4.5%, with most growth expected from ADR. It cited industry forecasts of 5%–6% RevPAR growth, but noted expectations were moderating from 2011–2012 levels. These are forecasts, not guarantees.
- Management expected to spend approximately $4.5 million on existing-hotel improvements in 2013 and $4.4 million to rebrand the Washington, D.C. hotel as a Residence Inn.
- After year-end, the company issued 3,592,677 shares, raising approximately $50.4 million net, and used proceeds in part to repay revolving debt. It also acquired a Houston Courtyard hotel for approximately $34.8 million, funded with revolving-facility borrowings, and refinanced several mortgages.
- Key risks include lodging-cycle and demand weakness, competition and new supply, capital needs, floating-rate debt, refinancing and covenant exposure, and reliance on joint-venture distributions. The company warned that seasonal cash-flow weakness may require cash on hand or facility borrowings to fund distributions.
- Related-party risk is significant: CEO Jeffrey Fisher owns 90% of Island Hospitality Management (IHM), which managed 17 wholly owned hotels and all but one joint-venture hotel at year-end. Management fees and potential conflicts merit review.
- The company reported no material litigation, and management and its auditor concluded internal control over financial reporting was effective. No specific material contingency was reported in the filing text provided.
Important facts for investors to verify
- Reconcile the reported 51% leverage ratio and $15.5 million of facility availability with the credit agreement, collateral base and post-year-end debt repayments and borrowings.
- Review debt maturities, interest-rate exposure and refinancing terms; management estimated a 1-percentage-point rate increase would add approximately $0.8 million of annual interest expense at the year-end floating-debt balance.
- Assess whether operating cash flow and recurring joint-venture cash distributions support dividends and planned capital expenditures; distinguish cash distributions from REIT taxable income and non-GAAP FFO.
- Examine comparable-hotel RevPAR trends, the impact of acquisitions on reported growth, and the assumptions behind the 2013 outlook.
- Review IHM’s related-party management arrangements, fees, termination provisions and governance safeguards, as well as the joint venture’s capital-call and distribution terms.
- Confirm completion and costs of the Washington, D.C. rebranding and the Houston acquisition, including their impact on debt, dilution and operating performance.