WEST PALM BEACH, Fla.–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 second quarter ended June 30, 2016. In addition, the company updated its guidance for 2016.
Quarter 2016 Highlights
- Net Income – Declined $0.5 million to $12.3 million. Net income per diluted share was $0.31, slightly below the company’s guidance range of $0.32-$0.34 per share.
- Portfolio Revenue per Available Room (RevPAR) – Rose 0.6 percent as compared to the second quarter of 2015 to $141 for Chatham’s 38, wholly owned hotels. Average daily rate (ADR) was up 70 basis points to $164, and occupancy was flat at 86 percent.
- Adjusted EBITDA – Increased $0.1 million to $36.8 million.
- Adjusted FFO – Declined $0.5 million to $26.7 million. Adjusted FFO per diluted share was $0.69, within the company’s guidance of $0.69-$0.71 per share.
- Operating Margins –Experienced a 120 basis point decline in comparable hotel gross operating profit margins (total revenue less total hotel operating expenses) to 50.7 percent using comparable hotels regardless of ownership, and comparable hotel EBITDA margins declined 150 basis points to 44.2 percent.
Consolidated Financial Results
The following is a summary of the consolidated financial results for the three and six months ended June 30, 2016. RevPAR, ADR and occupancy for 2016 and 2015 are based on hotels owned as of June 30, 2016 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):
Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015 Net income $12.3 $12.8 $15.6 $14.3 Diluted net income per common share $0.31 $0.33 $0.40 $0.37 RevPAR $141 $140 $132 $130 ADR $164 $163 $162 $161 Occupancy 86% 86% 82% 81% Adjusted EBITDA $36.8 $36.7 $64.3 $61.1 GOP Margin 50.7% 52.0% 48.8% 50.1% Hotel EBITDA Margin 44.2% 46.1% 41.9% 43.7% AFFO $26.7 $27.2 $44.4 $42.2 AFFO per diluted share $0.69 $0.71 $1.15 $1.11 Dividends per share $0.33 $0.30 $0.64 $0.60
Operating Results
“RevPAR growth continued to decelerate in the 2016 second quarter as weakening industry fundamentals persisted with increased supply combined with muted demand and GDP growth,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “As an industry, we are finding it very difficult to drive rate increases given weaker business demand and the impact on rates from the online travel agents, as well as increased supply in certain gateway markets.
“Our RevPAR growth of 0.6 percent was below our RevPAR growth guidance of 2-3 percent,” Fisher noted. “We were able to maintain occupancy at a very high 86 percent year-over-year during the quarter, but were not able to drive meaningful rate increases. The industry benefitted in the second quarter from the Easter and July 4th calendar shifts, but our hotels were already at an occupancy level that made for a tough year-over-year comparison.”
“In the face of a challenging quarter where our RevPAR growth underperformed our expectations, we produced operating results within our guidance range with adjusted FFO per share of $0.69 coming in at the lower-end of our guidance range, as hotel EBITDA margins were within our guidance range. We also benefitted from lower than expected income taxes and slightly better than expected FFO from our joint venture investments,” explained Dennis Craven, Chatham’s chief operating officer. “With RevPAR growth of 0.6 percent, we were unable to hold our gross operating profit margins, and comparable operating margins declined 120 basis points. In addition to minimum wage pressures in certain markets, we continue to see substantial increases in certain non-controllable expenses related to guest acquisition costs, such as travel agency commissions and guest reward costs.”
Joint Venture Investment Performance
During the quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $4.9 million and $3.0 million, respectively. For the six months ended June 30, 2016, the joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $8.3 million and $4.3 million, respectively.
Chatham received distributions of $3.2 million during the quarter from the joint ventures. For the six months ended June 30, 2016, Chatham received distributions of $4.1 million from the joint ventures. Chatham invested $50.1 million for its approximate 10 percent interest in the two joint ventures.
Capital Markets & Capital Structure
As of June 30, 2016, the company had net debt of $585.5 million (total consolidated debt less unrestricted cash). Total debt outstanding was $600.8 million at an average interest rate of 4.4 percent, comprised of $534.6 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $66.3 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries an interest rate of 2.6 percent.
Chatham’s leverage ratio was approximately 41 percent at June 30, 2016, based on the ratio of the company’s net debt to hotel investments at cost. The weighted average maturity date for Chatham’s fixed rate debt is February 2024. As of June 30, 2016, Chatham’s proportionate share of joint venture debt and unrestricted cash was $168.0 million and $3.1 million, respectively.
On June 30, 2016, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint ventures, was 3.5 times, and total net debt to trailing 12-month corporate EBITDA was 5.8 times. Excluding its interests in the two joint ventures with NorthStar, Chatham’s fixed charge coverage ratio was 3.6 times, and net debt to trailing 12-month corporate EBITDA was 5.2 times.
“During the quarter, we generated significant free cash flow and reduced our net debt by $8.1 million,” said Jeremy Wegner, Chatham’s chief financial officer. “Our capital structure is solid with no debt maturing before late 2020. Additionally, given our minimal exposure to any increase in interest rates and our very strong coverage ratios, we remain well protected at this point in the cycle.”
Dividend
During the first quarter, Chatham’s Board of Trustees increased its regular monthly dividend by 10 percent, or $0.01 per common share, to $0.11 per common share. Chatham currently pays a monthly dividend of $0.11 per common share. “Despite the reduction in our 2016 guidance, our 2016 cash dividend per share of $1.30 will represent approximately 57 percent of our estimated Adjusted FFO per share based on the midpoint of our guidance, so we believe the dividend remains safe and supportable,” Craven emphasized.
Hotel Reinvestments/Expansions
During the 2016 second quarter, Chatham substantially completed the renovation of the Homewood Suites in Carlsbad, Calif., the Courtyard by Marriott in Addison, Texas, and the Hilton Garden Inn in Burlington, Mass. No renovations are planned for the third quarter.
The 32-room expansion of the Residence Inn Palo Alto Mountain View in Silicon Valley is nearing completion. The company expects the building to be completed in August with the certificate of occupancy contingent upon final electrical connections and inspections.
2016 Guidance
“We are reducing our previously announced full-year Adjusted EBITDA and FFO per share guidance by approximately 5 percent and our RevPAR growth range by 200-250 basis points based on the current outlook for the hotel industry and our portfolio. Lower GDP growth is adversely impacting the lodging industry, and for our portfolio, new supply is an added constraint. We expect these trends to continue for the balance of 2016, and with RevPAR growth at these levels, our industry leading margins are expected to decline slightly,” Fisher concluded.
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 guidance reflects the following:
- U.S. GDP growth rate of approximately 1.5 percent for the last six months of 2016.
- Renovation at Residence Inn San Diego Gaslamp during the fourth quarter.
- Opening of the 32-room tower in Mountain View, Calif., during the third quarter.
- No additional acquisitions, dispositions, debt or equity issuance.
Q3 2016 2016 Forecast RevPAR $145-$148 $131-$132 RevPAR growth -1.0 to +1.0% +0.0-1.0% Total hotel revenue $80.0-$81.5 M $290.9-$293.7 M Net income $13.4-$14.9 M $30.2-$32.3 M Net income per diluted share $0.35-$0.38 $0.78-$0.83 Adjusted EBITDA $38.0-$39.5 M $128.1-$130.1 M Adjusted funds from operation ("FFO") $27.7-$29.2 M $87.8-$89.9 M Adjusted FFO per diluted share $0.72-$0.75 $2.26-$2.32 Hotel EBITDA margins 44.6-45.2% 41.7-41.9% Corporate cash administrative expenses $2.4 M $9.2 M Corporate non-cash administrative expenses $0.8 M $3.6 M Interest expense (excluding fee amortization) $6.9 M $27.4 M Non-cash amortization of deferred fees $0.3 M $1.3 M Income taxes $0.3 M $0.7 M Chatham’s share of JV EBITDA $4.8-$5.0 M $16.1-$16.5 M Chatham’s share of JV FFO $2.8-$3.1 M $8.2-$8.7 M Weighted average shares outstanding 38.7 M 38.7 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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