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 first quarter ended March 31, 2017. The company also provided its initial guidance for the 2017 second quarter and updated its full-year guidance.
First Quarter 2017 Key Metrics
- Portfolio Revenue per Available Room (RevPAR) – Rose 1.2 percent, above the guidance range of 0-1 percent, to $125, compared to the 2016 first quarter, for Chatham’s 38, wholly owned hotels. Average daily rate (ADR) improved 2.5 percent to $163, while occupancy declined 1.3 percent occupancy to 77 percent.
- Net Income – Improved $1.3 million to $4.6 million. Net income per diluted share improved to $0.12 versus $0.08 in the 2016 first quarter.
- Adjusted EBITDA – Advanced $0.5 million, or 1.8 percent, to $28.1 million.
- Adjusted FFO – Rose $0.4 million to $18.1 million. Adjusted FFO per diluted share was $0.47, up 2 percent versus last year at the upper end of the company’s guidance of $0.44-$0.47 per share.
- Operating Margins – Advanced hotel gross operating profit margins (total revenue less total hotel operating expenses) 40 basis points to a strong 47.0 percent. Comparable hotel EBITDA margins improved further, up 70 basis points to 39.9 percent.
Consolidated Financial Results
The following is a summary of the consolidated financial results for the three months ended March 31, 2017. RevPAR, ADR and occupancy for 2017 and 2016 are based on hotels owned as of March 31, 2017 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):
Three Months Ended March 31, 2017 2016 Net income $4.6 $3.3 Diluted net income per common share $0.12 $0.08 RevPAR $125 $124 ADR $163 $159 Occupancy 77% 78% Adjusted EBITDA $28.1 $27.6 GOP Margin 47.0% 46.6% Hotel EBITDA Margin 39.9% 39.2% AFFO $18.1 $17.7 AFFO per diluted share $0.47 $0.46 Dividends per share $0.33 $0.31
Operating Results
“Our first quarter results exceeded our guidance expectations for the quarter, driven by a combination of better than expected RevPAR and operating margin performance,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Despite tough comparisons from the 2016 first quarter and the fact that lower quality brands in our markets have more capacity to grab market share on a relative basis, RevPAR growth for our entire portfolio exceeded its markets’ average by 90 basis points. As we have commented over the last nine months, we have focused a lot of effort on modifying and enhancing our revenue management strategies and are pleased with these gains, especially in this environment. Excluding our six hotels in oil-industry influenced Houston and western Pennsylvania markets where RevPAR declined 6.5 percent, RevPAR would have risen 2.3 percent, entirely attributable to increased ADR.”
First quarter RevPAR performance for certain key markets:
- Enhanced by the inauguration, two Washington D.C.-area hotels saw RevPAR jump 8.4 percent.
- Silicon Valley RevPAR rose 0.2 percent with a 1.0 percent increase in ADR to $230.
- RevPAR at its three San Diego hotels advanced 3.4 percent.
- Four Houston hotels experienced a RevPAR decline of 3.6 percent. The city benefited from hosting the Super Bowl in February, and the company’s hotels maximized revenues around the game. In the last two quarters of 2016, RevPAR declined 22.0 percent and 21.9 percent, respectively.
- Two Los Angeles area hotels experienced a RevPAR decline of 3.8 percent due to the impact of new Residence Inn supply not far from its Residence Inn in Anaheim, Ca as well as tough comparisons related to the Porter Ranch gas leak displacement.
“Our ability to control expenses in a modest RevPAR growth environment was key to our success in the quarter. Considering that RevPAR rose 1.2 percent, we grew hotel EBITDA by 2.7 percent and hotel EBITDA margins by a meaningful 70 basis points,” highlighted Dennis Craven, Chatham’s chief operating officer. “On the expense side, we reduced rooms-related expenses year-over-year. Guest acquisition costs, which have grown in recent years, were flat year-over-year. Hotel operating expenses were only up slightly, rising $0.1 million, or 0.2 percent, to $36.3 million.”
Joint Venture Investment Performance
During the quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.2 million and $1.4 million, respectively. Adjusted EBITDA finished the quarter at the upper end of guidance and Adjusted FFO was $0.2 million above guidance. Year-over-year, Adjusted EBITDA contributed by the joint ventures was down $0.1 million, but Adjusted FFO contributed by the joint ventures was up $0.1 million.
No distributions were made during the 2017 first quarter. Chatham and Colony NorthStar have executed commitment letters to refinance the debt on both the Innkeepers portfolio and the Inland portfolio. The new loans will have a fully extended maturity date in 2022 and are expected to lower the overall combined interest rate. Closing is estimated to occur during the second quarter.
“We have worked diligently with Colony NorthStar to refinance the debt for both portfolios,” stated Jeremy Wegner, Chatham’s chief financial officer. “We believe this is an excellent time to solidify the two joint ventures’ capital structures and set aside reserves to fund any necessary capital expenditures to enhance the competitive position of the hotels. By the end of 2017, most of the 48 hotels in the Inland portfolio, which were capital-starved under prior ownership, will be fully renovated, and we will have renovated approximately one-third of the hotels in the Innkeepers portfolio.”
Capital Markets & Capital Structure
As of March 31, 2017, the company had net debt of $575.2 million (total consolidated debt less unrestricted cash). Total debt outstanding was $588.0 million at an average interest rate of 4.5 percent, comprised of $531.5 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $56.5 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.4 percent interest rate.
Chatham’s leverage ratio was approximately 40 percent at March 31, 2017, 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 March 31, 2017, Chatham’s proportionate share of joint venture debt and unrestricted cash was $168.0 million and $2.9 million, respectively.
On March 31, 2017, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint ventures with Colony NorthStar, was 3.4 times, and total net debt to trailing 12-month corporate EBITDA was 5.8 times. Excluding its interests in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.6 times, and net debt to trailing 12-month corporate EBITDA was 5.1 times.
Dividend
Chatham currently pays a monthly dividend of $0.11 per common share.
Hotel Investments
During the quarter, the company began the renovations of the Residence Inn San Diego Gaslamp and the Courtyard by Marriott at the Houston Medical Center. Chatham is investing approximately $18 thousand per room upgrading the two hotels’ design and features.
Chatham continues to pursue the redevelopment and expansion of its two Residence Inns in Sunnyvale, Calif. “We are value engineering the two projects in Sunnyvale to ensure that we maximize the returns,” Fisher stated. “Building in Silicon Valley is not only expensive but also very complex when it comes to zoning, permitting and construction requirements. Although it has taken quite some time, these are long-term investments which we expect to create significant value for our shareholders.
2017 Guidance
The company is providing its initial guidance for the 2017 second quarter and raising the lower end of its full year guidance to account for the company’s performance in the first quarter. The guidance also reflects the following:
- Industrywide RevPAR growth of 0 to 3 percent in 2017
- Renovations at the following hotels:
- Residence Inn San Diego Gaslamp and Courtyard by Marriott Houston Medical Center commenced in the first quarter with an expected completion date in May
- Homewood Suites Maitland, Fla., beginning in the second quarter
- Homewood Suites in Bloomington, Minn., and Brentwood, Tenn., starting in the third quarter
- Residence Inn San Diego Mission Valley in the fourth quarter and a completion date in the first quarter, 2018
- No additional acquisitions, dispositions, debt or equity issuance
Q2 2017 2017 Forecast RevPAR $139-$141 $130-$132 RevPAR growth -1.5%-0.0% -1.0%-1.0% Total hotel revenue $76.4-$77.5 M $287.8-$293.2 M Net income $9.7-$11.7 M $26.1-$30.6 M Net income per diluted share $0.25-$0.30 $0.67-$0.79 Adjusted EBITDA $33.5-$35.5 M $122.0-$126.5 M Adjusted funds from operation ("FFO") $23.5-$25.5 M $81.4-$85.9 M Adjusted FFO per diluted share $0.60-$0.65 $2.09-$2.20 Hotel EBITDA margins 40.5%-42.3% 39.8-40.4% Corporate cash administrative expenses $2.2 M $8.9 M Corporate non-cash administrative expenses $1.0 M $3.8 M Interest expense (excluding fee amortization) $6.8 M $27.3 M Non-cash amortization of deferred fees $0.1 M $1.1 M Income taxes $0.0 M $0.4 M Chatham’s share of JV EBITDA $4.8-$5.0 M $16.4-$16.9 M Chatham’s share of JV FFO $2.7-$2.9 M $8.4-$8.9 M Weighted average shares/units outstanding 39.0 M 39.0 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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