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 fourth quarter ended December 31, 2016. The company also provided its initial guidance for 2017.
Fourth Quarter 2016 Key Metrics
- Net Income – Declined $1.8 million to $2.7 million. Net income per diluted share was $0.07 versus $0.12 in the 2015 fourth quarter.
- Portfolio Revenue per Available Room (RevPAR) – Declined slightly, 0.8 percent, compared to the 2015 fourth quarter, to $118 for Chatham’s 38, wholly owned hotels. Average daily rate (ADR) improved 1.7 percent to $157, offset by a 2.4 percent occupancy decline to 75 percent.
- Adjusted EBITDA – Rose $0.3 million to $26.3 million.
- Adjusted FFO – Improved $0.9 million to $17.0 million. Adjusted FFO per diluted share was $0.44, up 5 percent versus last year and significantly exceeding the company’s guidance of $0.35-$0.38 per share.
- Operating Margins – Experienced a 50 basis point reduction in comparable hotel gross operating profit margins (total revenue less total hotel operating expenses) to 45.9 percent, using comparable hotels regardless of ownership. Comparable hotel EBITDA margins dropped 80 basis points to 36.7 percent.
Consolidated Financial Results
The following is a summary of the consolidated financial results for the three months and year ended December 31, 2016. RevPAR, ADR and occupancy for 2016 and 2015 are based on hotels owned as of December 31, 2016 ($ in millions, except per share, RevPAR, ADR, occupancy and margins):
Three Months Ended Year Ended December 31, December 31, 2016 2015 2016 2015 Net income $2.7 $4.5 $31.7 $33.2 Diluted net income per common share $0.07 $0.12 $0.81 $0.86 RevPAR $118 $119 $131 $131 ADR $157 $154 $163 $161 Occupancy 75% 77% 81% 82% Adjusted EBITDA $26.3 $26.0 $128.0 $126.7 GOP Margin 45.9% 46.4% 48.6% 49.9% Hotel EBITDA Margin 36.7% 37.5% 41.2% 43.1% AFFO $17.0 $16.1 $89.0 $87.8 AFFO per diluted share $0.44 $0.42 $2.30 $2.29 Dividends per share $0.33 $0.38 $1.30 $1.28
Operating Results
“Our overall operating results were much better than the guidance we provided for the fourth quarter. The results were driven by across the board beats with RevPAR only declining 0.8 percent versus our guidance of a decline of approximately 2.5 percent. Margins finished 130 basis points better than forecasted, and we achieved lower corporate general and administrative expenses,” commented Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Portfolio RevPAR growth in November rose 1.0 percent, much better than we expected, and December RevPAR was down 1.3 percent. Both months outperformed October when RevPAR declined 1.9 percent. We certainly are not applauding the fact that RevPAR declined 0.8 percent in the quarter, but we were encouraged by fourth quarter performance improvements from the 2.1 percent RevPAR decline in the 2016 third quarter. Excluding our six hotels in oil-industry influenced Houston and western Pennsylvania markets where RevPAR declined 19.5 percent, RevPAR would have risen 1.6 percent so these two markets had an adverse impact of 240 basis points on our entire portfolio.”
Fourth quarter RevPAR performance for certain key markets:
- Silicon Valley RevPAR rose 4.8 percent with a 5.7 percent increase in ADR
- Four Houston hotels experienced a RevPAR decline of 21.9 percent
- Two Washington D.C. hotels saw RevPAR rise 4.8 percent
- Three Boston hotels experienced a RevPAR decline of 3.2 percent
“As we mentioned during our third quarter earnings call, we quickly implemented cost savings initiatives and modified revenue management strategies across the portfolio. When combined with our top-line performance, we generated better than expected operating margins of 45.9 percent, down 50 basis points from last year, but much-improved from the 180 basis point decline we experienced in the 2016 third quarter,” highlighted Dennis Craven, Chatham’s chief operating officer. “We certainly could not have reacted this quickly had it not been for our unique relationship with Island Hospitality. As market metrics declined, Island initiated numerous changes that positively influenced our top and bottom lines, and that nimbleness greatly enhanced our ability to drive incremental earnings. This relationship is very valuable for us and our shareholders. Lastly, our corporate expenses were down approximately $0.5 million versus our forecast for the quarter as a result of lower payroll related expenses, miscellaneous items and taxes.”
Joint Venture Investment Performance
During the quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.4 million and $1.5 million, respectively, both results approximately $0.3 million better than Chatham’s fourth quarter guidance. For the year ended December 31, 2016, the joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $16.7 million and $8.9 million, respectively.
Chatham received distributions of $0.6 million during the quarter from the joint ventures. For the year ended December 31, 2016, Chatham received distributions of $7.2 million from the joint ventures. Chatham’s investment for its approximate 10 percent interest in the two joint ventures was $50.1 million.
Capital Markets & Capital Structure
As of December 31, 2016, the company had net debt of $572.9 million (total consolidated debt less unrestricted cash). Total debt outstanding was $585.1 million at an average interest rate of 4.5 percent, comprised of $532.6 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $52.5 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 2.7 percent interest rate.
Chatham’s leverage ratio was approximately 40 percent at December 31, 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 December 31, 2016, Chatham’s proportionate share of joint venture debt and unrestricted cash was $168.0 million and $2.6 million, respectively.
On December 31, 2016, 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 5.2 times.
“Our hotel investments continue to generate significant free cash flow, enabling us to reduce our net debt by $13.9 million in 2016 after $22.5 million in capital expenditures,” said Jeremy Wegner, Chatham’s chief financial officer. “We will continue to use our free cash flow after capital expenditures to reduce debt. With our well-positioned capital structure, strong coverage ratios and low cost of debt, we are prudently leveraged.”
Dividend
During the 2016 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. “Our 2016 regular cash dividend per share of $1.30 represented approximately 57 percent of our estimated Adjusted FFO per share,” Craven stated.
Hotel Reinvestments/Expansions
No renovations were undertaken during the 2016 fourth quarter. The 32-suite expansion of the Residence Inn Palo Alto Mountain View in Silicon Valley opened in early October. “The tower expansion increased our hotel room count in Mountain View by 29 percent, and the 32 new studio king suites provide us the flexibility to augment our room revenue through revenue management strategies with our other suite types on property. Silicon Valley is home to some of the fastest growing companies in America, and the high-tech industry is one of the strongest industries in our economy,” Fisher highlighted. “In Mt. View, we effectively utilized a parcel of vacant land that was acquired approximately three years ago. Including land, our all-in investment was approximately $300 thousand per new room, significantly below market value.”
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