Chatham Lodging Trust — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. Chatham is a lodging REIT focused on upscale extended-stay and premium-branded select-service hotels. At quarter-end it owned 39 hotels with 5,914 rooms across 16 states and the District of Columbia.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $67.6 million | $54.9 million | +23.2% |
| Operating income (loss) | $2.1 million | $(3.3) million | Improved |
| Net loss | $(5.0) million | $(9.7) million | Improved |
| Net loss attributable to common shareholders | $(6.8) million | $(11.4) million | Improved |
| Loss per common share, diluted | $(0.14) | $(0.23) | Improved |
| Net cash from (used in) operating activities | $4.8 million | $(4.2) million | +$9.0 million |
| Capital improvements | $8.1 million | $4.1 million | +$4.0 million |
| Adjusted Hotel EBITDA | $20.7 million | $15.9 million | +29.8% |
| Adjusted Hotel EBITDA margin | 30.6% | 29.0% | +1.6 percentage points |
Same-property RevPAR rose 28.3%, as occupancy increased 12.9% to 68.5% and ADR increased 13.6% to $168.95. Total revenue growth reflected the lodging recovery and the ramp-up of Home2 Woodland Hills, partly offset by the absence of four hotels sold in 2022. Hotel operating expenses rose 20.2% to $40.5 million, with higher occupancy and inflation contributing to the increase. GAAP operating margin was approximately 3.1%, compared with a 6.0% operating loss margin a year earlier.
FFO attributable to common shareholders and units was $7.2 million, versus $3.3 million; Adjusted FFO was $7.9 million, versus $3.5 million. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- Total assets were $1.332 billion and total equity was $809.3 million at March 31, 2023. Cash and cash equivalents were $22.5 million, with $13.3 million of restricted cash; combined cash, cash equivalents and restricted cash totaled $35.8 million.
- Total debt before deferred financing costs was $469.7 million, with a reported weighted-average interest rate of approximately 4.9%. Net debt to hotel investments at cost was 26.7%.
- Chatham drew $75.0 million under its unsecured term loan and used financing to repay the $39.3 million Home2 Woodland Hills construction loan and approximately $34.1 million of maturing mortgage loans. The revolving credit facility had $260.0 million of capacity and no outstanding borrowings.
- Four mortgage lenders had enforced cash traps, leaving $5.1 million in restricted cash. Management said it did not expect these restrictions to impair short-term liquidity. The company reported compliance with all financial covenants.
- Management disclosed $498.9 million of total debt principal and interest obligations, including $103.4 million due within 12 months; $75.8 million of principal due in that period relates to specified mortgage maturities. It also expects $2.1 million of lease payments within 12 months.
- A 100-basis-point increase in SOFR was estimated to add approximately $0.8 million in annual interest expense, assuming the $75.0 million floating-rate term-loan balance remains outstanding.
Material changes, outlook and risks
- Operating trends improved from the pandemic-affected prior-year quarter. Management cited recovery in leisure travel and improving corporate and group demand, while noting that continued improvement depends on leisure strength and business-travel recovery.
- Management reported that U.S. lodging-industry RevPAR increased 16.7% in Q1 and expected industry RevPAR to continue increasing over the remainder of 2023. The filing does not provide specific company-level earnings or RevPAR guidance.
- The company expected to spend approximately $22.5 million on renovations and other hotel expenditures during the remaining nine months of 2023.
- Common dividends resumed in Q4 2022. Chatham declared $0.07 per common share and LTIP unit for Q1 2023; the Series A preferred dividend was $0.41406 per share. Future common dividends remain subject to Board approval and REIT distribution requirements.
- Notable items included a $0.7 million loss on early extinguishment of debt related to repayment of the construction loan, and no comparable loss in Q1 2022. Q1 2022 included $0.3 million of other charges.
- Risks identified include inflation and higher interest rates, economic or recessionary conditions, seasonality, lodging-demand changes, competition, financing access, debt maturities, and uncertainty around the travel recovery. Management reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
- All 39 hotels were managed by Island Hospitality Management, which is wholly owned by the company’s CEO and Chairman. Management fees were $2.3 million in Q1 2023, versus $1.9 million a year earlier.
Important facts for investors to verify
- Refinancing or repayment plans for the $75.8 million of mortgage principal due within 12 months, and the timing and terms of upcoming maturities.
- Whether hotel demand, RevPAR growth and operating margins continue to offset inflationary costs and higher financing rates.
- Availability of unrestricted cash and credit capacity after capital spending, distributions and any lender cash-trap restrictions.
- Progress and funding for the anticipated $22.5 million of 2023 hotel improvements.
- Related-party management arrangements, fees and oversight, given the manager’s ownership by the CEO and Chairman.