WEST PALM BEACH, Fla.–Feb. 24, 2016– Chatham Lodging Trust (NYSE: CLDT), a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels and owns 133 hotels wholly or through joint ventures, today announced results for the fourth quarter ended December 31, 2015. In addition, the company provided initial guidance for 2016.
Fourth Quarter 2015 Highlights
- Portfolio RevPAR – Increased hotel RevPAR 4.7 percent to $119 for Chatham’s 38, wholly owned hotels, slightly below the company’s guidance range of 5-5.5 percent.
- Adjusted EBITDA – Improved 22 percent to $26.0 million.
- Adjusted FFO – Rose 27 percent to $16.1 million. Adjusted FFO per diluted share grew 14 percent to $0.42, within the company’s guidance range of $0.42-$0.44 per share.
- Operating Margins – Gross operating profit (total revenue less total hotel operating expenses) margins declined 80 basis points to 46.4 percent. Using comparable hotels regardless of ownership, gross operating margins were flat year-over-year, and hotel EBITDA margins were down 120 basis points, due to a 130 basis point increase in property taxes. For the year, comparable hotel operating margins were up 140 basis points, and hotel EBITDA margins were up 110 basis points.
- Joint Venture Disposition – Sold its five percent joint venture interest in the Residence Inn by Marriott Torrance, Calif., generating a sizable gain of approximately $3.6 million and an internal rate of return of almost 100 percent. As a result, Chatham rewarded its investors by declaring a $0.08 per share special dividend.
Consolidated Financial Results
The following is a summary of the consolidated financial results for the fourth quarter and year ended December 31, 2015. RevPAR, ADR and occupancy for 2015 and 2014 are based on hotels owned as of December 31, 2015 ($ in millions, except per share data, RevPAR, ADR, occupancy and margins):
Three Months Ended December 31,
Year Ended December 31,
2015
2014
2015
2014
Net income (loss) $4.5 $(5.3) $33.2 $67.1 Net income per diluted share to common shareholders
$0.12
$(0.16)
$0.86
$2.30
RevPAR $119 $113 $131 $124 ADR $154 $152 $161 $152 Occupancy 77% 75% 82% 82% GOP Margin 46.4% 47.2% 49.9% 48.3% Hotel EBITDA Margin 37.5% 39.7% 43.1% 41.8% Adjusted EBITDA $26.0 $21.4 $126.5 $84.6 AFFO $16.1 $12.7 $87.6 $55.1 AFFO per diluted share $0.42 $0.37 $2.29 $1.91 Dividends per share $0.38 $0.24 $1.28 $0.93
Operating Metrics Remain Consistent and Solid
“Despite Wall Street selling off lodging REIT stocks in 2015, Chatham generated marked external growth and operating results while strengthening its balance sheet,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “The company achieved numerous great metrics, including the following significant highlights:
- raised the regular common share annual dividend 29 percent to $1.20 per share from $0.93 per share, the fifth consecutive annual increase
- solidified its balance sheet for the long term, successfully closing on a new, unsecured $250 million senior revolving credit facility maturing in late 2020 that can be expanded to $400 million
- improved adjusted EBITDA 50 percent
- increased adjusted FFO nearly 59 percent and adjusted FFO per share 20 percent
- raised approximately $121 million in a common share equity offering in early 2015, using proceeds to reduce leverage and partially fund four outstanding acquisitions
- acquired four, high-quality hotels in San Diego and Los Angeles, Calif., Boston, Mass., and Fort Lauderdale, Fla., for approximately $190 million, increasing hotel investments by approximately 16 percent and expanding the company’s wholly owned portfolio room count by 11 percent
- realized a gain of $3.6 million on the sale of its five percent joint venture interest in the Residence Inn by Marriott Torrance, Calif., and rewarded its investors with a special dividend of $0.08 per share.
“Chatham’s performance in 2015 stood apart from most competitors, validating our strategy,” Fisher highlighted.
Additional data points on the portfolio’s fourth quarter RevPAR performance include:
- Twelve hotels produced RevPAR increases of 10 percent or higher.
- Four Silicon Valley hotels saw an overall RevPAR increase of 3.2 percent to $161.
- RevPAR at the four hotels acquired during 2015 rose 10.4 percent to $144.
- Four Houston-area hotels increased RevPAR 10.2 percent.
“Our fourth quarter portfolio performance remained strong with RevPAR gains across our broader portfolio and the following markets seeing double digit RevPAR growth: Boston, Cherry Creek, Dallas, Exeter, Fort Lauderdale, Holtsville, Houston, Maitland and San Mateo. Silicon Valley RevPAR growth decelerated as expected in the quarter due to a reduced number of long-term guests over the holidays. January 2016 returned to strong RevPAR growth in Silicon Valley, which was up approximately seven percent, and long-term demand remains strong.
“We continue to generate outstanding margins, with operating margins of 46 percent and hotel EBITDA margins of 37 percent in the 2015 fourth quarter,” Fisher noted. “Despite the margin decline in the quarter due primarily to non-comparable hotels and property tax items, our operating margins for the full year were up an impressive 160 basis points to 49.9 percent, and our hotel EBITDA margins rose 130 basis points to 43.1 percent, which are the highest margins among all lodging REITs. As RevPAR continues to grow, we expect to drive comparable margins higher in 2016.
“As we move through 2016 and beyond, our high-quality portfolio will serve as a foundation for our financial performance. Fundamentals for quality, in-fill, select-service portfolios such as ours remain healthy because RevPAR growth is solid, and combined with a lack of major food and beverage or other non-essential amenities, our comparable margins should rise. Combining these expected rising margins with acquisitions of approximately $190 million of high quality hotels in great markets during 2015 will fuel EBITDA and FFO per share growth in 2016 of approximately seven to 11 percent which will be one of the highest growth rates among our lodging peers. In addition, with our Silicon Valley expansions coming on line over the next 18 months, we will be well positioned to produce, on a relative basis, EBITDA and FFO per share growth higher than our peers as those rooms quickly ramp up,” Fisher concluded.
Joint Venture Investment Performance
In December, Chatham sold its interest in the Residence Inn by Marriott Torrance, Calif. Chatham realized a gain on the sale of approximately $3.6 million, subject to certain minor post-closing settlements. Following the transaction’s consummation, Chatham’s board of trustees declared a special, one-time common dividend of $0.08 per share that will be treated as received by shareholders for tax purposes in 2016, but will be applied by Chatham against its 2015 taxable income. Chatham owned a five percent interest in the joint venture.
During the fourth quarter, the joint ventures contributed adjusted EBITDA and adjusted FFO of approximately $3.7 million and $1.8 million, respectively. Chatham received distributions of $1.7 million during the quarter and $8.7 million for the full year from the Innkeepers and Inland joint ventures. Chatham invested $50.1 million for its approximate 10 percent interest in the two joint ventures.
“We are very pleased with the overall operating performance within these joint ventures,” stated Dennis Craven, Chatham’s chief operating officer. “Generating high cash-on-cash returns was the primary driver behind our decision to invest equity alongside NorthStar Realty Finance in these two, billion dollar portfolios, and the leveraged returns to the owners was approximately 17 percent based on the distributions we received in 2015.”
Capital Markets & Capital Structure
As of December 31, 2015, the company had net debt of $586.8 million (total consolidated debt less unrestricted cash). Total debt outstanding was $607.9 million at an average interest rate of 4.4 percent, comprised of $542.3 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $65.6 million outstanding on the company’s $250 million senior unsecured revolving credit facility which currently carries an interest rate of 1.9 percent.
Chatham’s leverage ratio was approximately 41 percent at December 31, 2015, based on the ratio of the company’s net debt to hotel investments at cost, down from 44 percent at December 31, 2014. The weighted average maturity date for Chatham’s fixed rate debt is January 2024. As of December 31, 2015, Chatham’s proportionate share of joint venture debt and unrestricted cash was $168.0 million and $2.6 million, respectively.
During the fourth quarter, the company successfully closed on a new, expanded $250 million senior unsecured revolving credit facility. The new unsecured revolving credit facility, which replaces a $175 million secured credit facility that was scheduled to mature in 2016, will mature in November 2020. Other key terms are as follows:
Previous Terms
New Terms
Facility amount $175 million $250 million Accordion feature Additional $50 million Additional $150 million Security Secured Fully unsecured Interest rate* LIBOR + 200-300 basis points LIBOR + 155-230 basis points Unused fees 25-35 basis points 20-30 basis points Share repurchases Not allowed $75 million * At current leverage, savings are approximately 85 basis points.
“We have further solidified our capital structure by unencumbering our line of credit and pushing out all of our debt maturities through late 2020,” explained Jeremy Wegner, Chatham’s chief financial officer. “Additionally, the new line of credit reduces our annual interest costs which helps us generate incremental free cash flow. Lastly, it provides us with capacity and flexibility to enhance shareholder value through a variety of opportunistic avenues.”
Dividend
Chatham currently pays a monthly dividend of $0.10 per common share, one of two public lodging REIT to pay monthly dividends. “We have raised our regular annual dividend each year since our 2010 IPO, from $0.35 in 2010 to $1.20 per share for 2015, an increase of 243 percent,” Craven emphasized. “We have stated since our IPO that we would increase our dividend in tandem with growth in cash flow, EBITDA and adjusted FFO per share. Given the fact that FFO per share is projected to grow between seven and 11 percent in 2016, we would expect our dividend to grow in the near future.” Chatham’s board of trustees evaluates the dividend on a quarterly basis.
Hotel Reinvestments/Expansions
During the fourth quarter, Chatham completed the renovation of the SpringHill Suites in Savannah, Ga. Chatham began renovations in the fourth quarter on the Homewood Suites in San Antonio, Texas, which is expected to be completed in the 2016 first quarter.
The 32-room expansion of the Residence Inn Palo Alto Mountain View in Silicon Valley remains on track to be completed towards the end of the 2016 second quarter. The remaining Silicon Valley property expansions are expected to start later in 2016 and will take approximately 12-15 months to complete.
2016 Guidance
The company provides guidance, but does not undertake to update it for any developments in its business. Achievement of the results is subject to the risks disclosed in the company’s filings with the Securities and Exchange Commission. The company’s 2016 guidance reflects the following:
- U.S. GDP growth rate of 2 to 2.5 percent in 2016
- Renovations at the following hotels: Homewood Suites San Antonio and Hilton Garden Inn Burlington, Mass., in the first quarter; Courtyard by Marriott Addison (Dallas), Texas and Homewood Suites Carlsbad, Calif., during the second quarter; Residence Inn San Diego Gaslamp during the fourth quarter.
- Repayment of the $6.0 million mortgage on one hotel that matures during the 2016 first quarter.
- Completion of the 32-room tower in Mountain View, Calif. during the second quarter.
- No additional acquisitions, dispositions, debt or equity issuance.
Q1 2016
2016 Forecast
RevPAR $123-$125 $135-$137 RevPAR growth +2.0-4.0% +3.0-4.0% Total hotel revenue $67.4-$68.8 M $297.9-$301.1 M Net income $2.3-$3.6 M $36.6-$40.4 M Net income per diluted share $0.06-$0.09 $0.95-$1.05 Adjusted EBITDA $27.2-$28.5 M $136.5-$140.2 M Adjusted funds from operation ("FFO") $16.8-$18.1 M $94.7-$98.5 M Adjusted FFO per diluted share $0.43-$0.47 $2.45-$2.55 Hotel EBITDA margins 39.0-40.0% 43.0-43.6% Corporate cash administrative expenses $2.3 M $8.8 M Corporate non-cash administrative expenses $0.8 M $3.5 M Interest expense (excluding fee amortization) $6.8 M $27.0 M Non-cash amortization of deferred fees $0.4 M $1.5 M Income taxes $0.5 M $1.9 M Chatham’s share of JV EBITDA $3.2-$3.3 M $17.4-$18.0 M Chatham’s share of JV FFO $1.2-$1.3 M $9.3-$9.9 M Weighted average shares outstanding 38.6 M 38.6 M Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA and Adjusted EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.
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