Chatham Lodging Trust — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Chatham is a REIT focused primarily on upscale extended-stay and premium-branded select-service hotels. At quarter-end, it owned 39 hotels with 5,900 rooms and held a 10% interest in the Inland JV; it sold its NewINK JV interest during the quarter.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $32.1 million | $60.2 million; down 46.7% |
| Same-property RevPAR | $55.35 | Down 42.1%; occupancy fell 16.6% and ADR fell 30.5% |
| Operating loss | $13.5 million | $17.7 million loss |
| Net income (loss) | $2.7 million | $28.1 million loss |
| FFO attributable to common shareholders and units | $7.2 million loss | $3.5 million positive |
| Adjusted FFO | $7.1 million loss | $6.3 million positive |
| Adjusted EBITDA | $1.2 million | $16.5 million |
| Adjusted Hotel EBITDA | $3.5 million | $16.2 million |
| Net cash used in operating activities | $12.1 million | $2.9 million |
| Cash, cash equivalents and restricted cash | $23.4 million | $31.5 million at December 31, 2020 |
| Total debt before deferred financing costs | $600.6 million | Average interest rate approximately 4.5% |
Q1 net income was primarily attributable to a $23.8 million gain on sale of the NewINK JV interest, not a return to profitable hotel operations. The company reported a $13.5 million operating loss and negative FFO. Hotel operating expenses declined 39.5% year over year, less than the revenue decline. No operating margin was stated in the filing.
Debt comprised $458.8 million of mortgage debt, $120.0 million drawn on a $250 million revolving facility, and $21.8 million on the Warner Center construction loan. The reported leverage ratio was 35.9%. The revolving facility matures in March 2022, subject to extension options. Scheduled debt principal payments total $19.1 million for the remaining nine months of 2021 and $129.2 million in 2022. The New Rochelle mortgage was paid off on April 30, 2021, after quarter-end.
Material changes and capital allocation
- Hotel demand remained depressed by COVID-19: total revenue fell 46.7% and same-property RevPAR fell 42.1% year over year. Same-property RevPAR improved 6.8% in March, following declines in January and February.
- Chatham sold its NewINK JV interest in March for $2.8 million and recognized the $23.8 million gain. Its recorded investment in both NewINK and the Inland JV was zero at quarter-end.
- The company raised $19.3 million through its ATM program and $2.0 million through its dividend reinvestment and stock purchase plan during the quarter. Common shares issued and outstanding rose to 48.5 million from 47.0 million at year-end.
- Common dividends remained suspended; none were declared for Q1 2021. The company said it plans to pay dividends required to maintain REIT status.
- Warner Center hotel development costs were $52.5 million incurred to date, against an estimated total cost of approximately $70 million.
Outlook, liquidity, and risks
Management expected U.S. lodging RevPAR to increase significantly during the remainder of 2021 versus 2020, but remain below 2019 levels. It provided no company-specific financial guidance. Management cited uncertainty around the pandemic, travel demand, government restrictions, and the timing and strength of economic recovery.
Credit facility financial covenants were waived through December 31, 2021, with a requirement to maintain at least $25 million of liquidity, defined to include unrestricted cash and credit facility availability. Chatham reported compliance with modified covenants at quarter-end. Mortgage cash-trap thresholds were breached for all mortgage loans, although no lenders had enforced the provisions. The company said it expected existing cash and facility availability to cover short-term needs; COVID-19 and capital-market disruption could affect future liquidity and access to financing.
The Inland JV’s hotels were in receivership after the JV defaulted on its $780 million non-recourse loan and stopped debt-service payments in April 2020. Chatham’s investment basis was zero, but customary carve-out guarantees and environmental indemnities remain potential exposures. Other disclosed risks include seasonal hotel demand, debt maturities, variable-rate interest exposure, and California wage-and-hour class-action matters; settlements for previously described cases had been paid.
Most important facts for investors to verify
- Whether hotel demand and RevPAR recovery continued after March 2021, and whether results approached pre-pandemic levels.
- How much of reported earnings reflects recurring hotel operations versus the one-time NewINK JV sale gain; review FFO and adjusted measures alongside GAAP results and operating cash flow.
- Available unrestricted cash and revolver capacity relative to the $25 million minimum liquidity requirement, debt maturities, and the March 2022 revolver maturity.
- Any developments in the Inland JV receivership, potential capital calls, or Chatham’s contingent guarantee exposure.
- Progress, remaining costs, and financing for the Warner Center development, as well as the status of the dividend suspension.