8-K: Chatham Lodging Q2 2025: RevPAR Beats Guidance

Chatham Lodging Trust announced second quarter 2025 results, with RevPAR declining less than 1% but exceeding guidance, alongside strategic asset sales and a new share repurchase program.

Summary

• Second quarter 2025 Portfolio Revenue Per Available Room (RevPAR) declined less than 1% to $155 compared to $156 in Q2 2024 for 34 comparable hotels, but finished better than the guidance range of a 2% to 0.5% decline.
• Average daily rate (ADR) held at $191, and occupancy was 82%, slipping a mere 30 basis points.
• Net income applicable to common shareholders was $3 million, down from $5 million in Q2 2024, resulting in diluted net income per common share of $0.07 versus $0.10 for the same period last year.
• Hotel Gross Operating Profit (GOP) margins rose 30 basis points to 46%, while Hotel EBITDA margins declined 40 basis points to 39% compared to Q2 2024.
• Adjusted EBITDA declined $2 million to $29 million from $31 million, primarily due to the impact from hotels sold.
• Adjusted FFO was $19 million in Q2 2025 versus $20 million in Q2 2024, with Adjusted FFO per diluted share at $0.36, compared to $0.39 in Q2 2024, meeting the top of the guidance range.
• Completed the sale of the last of five listed hotels, bringing aggregate sales proceeds from these five hotels to $83 million, equating to an approximate 6% capitalization rate on 2024 net operating income.
• Net debt decreased to $336 million as of June 30, 2025, from $389 million as of December 31, 2024, reducing the leverage ratio to approximately 21% from 23%.
• The board approved a $25 million share repurchase program, with 20,480 shares repurchased in Q2 at an average price of $7.02 per share.
• Declared a common dividend of $0.09 per share and a preferred share dividend of $0.41406 per share, payable on July 15, 2025.

Sentiment

Score: 7

Explanation: Despite slight year-over-year declines in net income and RevPAR, the company outperformed its own guidance for Q2 RevPAR and Adjusted FFO per share. Strategic asset sales, significant debt reduction, and the initiation of a share repurchase program demonstrate proactive management and a focus on shareholder value. The positive outlook for business travel and continued industry outperformance further supports a favorable sentiment, indicating resilience and strategic positioning.

Positives

• Second quarter RevPAR decline of 0.4% finished better than the guidance range of a decline of 2% to 0.5%.
• Adjusted FFO per diluted share of $0.36 was at the top of the guidance range.
• Successfully completed the sale of five low RevPAR hotels for $83 million, improving portfolio quality and de-leveraging the balance sheet.
• Leverage ratio improved to 21% net debt to hotel investments at cost, down from 23% at year-end 2024.
• Commenced a $25 million share repurchase plan, repurchasing 20,480 shares at an average price of $7.02.
• GOP margins rose 30 basis points compared to Q2 2024, partly due to an approximately $0.8 million refund on the workers' compensation plan, which improved operating margins by 110 basis points.
• Total labor and benefit costs per occupied room declined 7% year-over-year.
• Silicon Valley hotels, the largest market, produced solid RevPAR growth of 3%, setting post-pandemic Q2 highs in occupancy (80%) and ADR ($193).
• San Diego rebounded with the highest RevPAR gain among top markets, growing 5% in Q2.
• Hyatt Place Pittsburgh had strong RevPAR growth of 23%.
• Added 8 rooms to the portfolio by converting meeting or other spaces into guestrooms.

Negatives

• Portfolio RevPAR declined less than 1% to $155.
• Net income applicable to common shareholders decreased to $3 million from $5 million in Q2 2024.
• Diluted net income per common share decreased to $0.07 from $0.10 in Q2 2024.
• Hotel EBITDA margins declined 40 basis points to 39% compared to Q2 2024.
• Adjusted EBITDA declined $2 million to $29 million from $31 million.
• Adjusted FFO declined to $19 million from $20 million, and Adjusted FFO per diluted share declined to $0.36 from $0.39.
• Coastal Northeast RevPAR declined 4% and Washington, D.C. RevPAR declined 2%.
• Dallas was the worst-performing large market, with RevPAR down 9% due to the multi-year closure of the convention center, leading to a 17% RevPAR decline for Courtyard Dallas Downtown.
• The 2025 convention calendar for San Diego is down from 2024 for the remainder of the year.

Risks

• National and local economic and business conditions, including the effect on travel of potential terrorist attacks, that will affect occupancy rates and demand for hotel products and services.
• Operating risks associated with the hotel business.
• Risks associated with the level of indebtedness and the ability to meet covenants in debt agreements.
• Relationships with property managers.
• Ability to maintain properties in a first-class manner, including meeting capital expenditure requirements.
• Ability to compete effectively in areas such as access, location, quality of accommodations, and room rate structures.
• Changes in travel patterns, taxes, and government regulations which influence or determine wages, prices, construction procedures, and costs.
• Ability to complete acquisitions and dispositions.
• Ability to continue to satisfy complex rules in order to remain a REIT for federal income tax purposes.
• Inaccuracies of accounting estimates.
• The uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent COVID-19 pandemic.

Future Outlook

The company projects Q3 2025 RevPAR growth in the range of +0.5% to -1.5% and Q4 RevPAR to range from -1% to +1%. For the full year 2025, RevPAR growth is projected from 0% to 1%, with Adjusted EBITDA guidance of $89 million to $93 million and Adjusted FFO per diluted share guidance of $0.95 to $1.03. Management anticipates improving business travel demand in August, September, and the fourth quarter, expecting to outperform the industry yet again in 2025 after beating it for the last three years.

Management Comments

• Jeffrey H. Fisher, President and CEO: "After a weak April, our RevPAR turned positive in May and June, and our second quarter RevPAR decline of 0.4% finished better than our guidance range of a decline of 2 percent to a decline of 0.5 percent."
• Jeffrey H. Fisher, President and CEO: "Despite the RevPAR decline, we were able to hold margins essentially flat compared to last year and delivered adjusted FFO per share at the top of our guidance range."
• Jeffrey H. Fisher, President and CEO: "We were pleased with our overall performance in the second quarter, delivering solid operating results given the sluggish start to the quarter, completing the sale of five low RevPAR hotels in lagging markets, de-leveraging further our balance sheet to only 21 percent, and commencing our share repurchase plan."
• Jeffrey H. Fisher, President and CEO: "We are greatly positioned to add shareholder value through acquisitions, developments and share repurchases."
• Jeffrey H. Fisher, President and CEO: "Like the second quarter, our third quarter begins a bit weaker than the balance of the quarter, but we see improving business travel demand in August and September and the fourth quarter."
• Jeffrey H. Fisher, President and CEO: "On top of this, our seven primarily leisure demand-driven hotels are performing well with RevPAR up 4 percent in the quarter and 2 percent year-to-date when you exclude our Portsmouth hotel that was under renovation for four months this year. This should enable us to continue to outperform industry yet again in 2025 after beating the industry the last three years."
• Dennis Craven, Chief Operating Officer: "Even though RevPAR declined slightly, we beat industry performance again in the second quarter, and our streak grows to three and a half years."
• Dennis Craven, Chief Operating Officer: "For this comparable portfolio, we hit our all-time high in ADR and RevPAR for the month of May and almost hit an all-time ADR high in June."
• Dennis Craven, Chief Operating Officer: "Silicon Valley, our largest market, produced solid RevPAR growth of 3 percent in the quarter as technology related demand remained strong. We set post-pandemic second quarter highs in both occupancy and ADR with 80 percent and a strong $193, respectively."
• Dennis Craven, Chief Operating Officer: "Our worst performing large market was Dallas, which was adversely impacted by the closure of the convention center for a multi-year expansion and renovation. Our Courtyard Dallas Downtown experienced a RevPAR decline of 17 percent in the quarter."
• Dennis Craven, Chief Operating Officer: "Our GOP margins rose 30 basis points compared to the second quarter of 2024. Our total labor and benefit costs declined $0.9 million or 7 percent per occupied room year-over-year due to a refund on our workers compensation plan of approximately $0.8 million. Even excluding this, our total labor and benefit costs per occupied room were lower in the 2025 second quarter. This refund improved our operating margins by 110 basis points."

Industry Context

The company continues to outperform the broader lodging industry, extending its streak to three and a half years, and anticipates continued outperformance in 2025. Business travel demand is expected to improve in the latter half of Q3 and Q4. Key markets like Silicon Valley are seeing strong technology-related demand, while others like Dallas are adversely affected by local infrastructure projects (convention center closure). The company maintains the highest concentration of extended-stay rooms among public lodging REITs, which generated 66% of its hotel EBITDA over the last twelve months.

Comparison to Industry Standards

• Outperformed the industry in Q2 2025, extending a streak of outperformance to three and a half years.
• Expects to outperform the industry again in 2025, following three consecutive years of outperformance.
• Has the highest concentration of extended-stay rooms of any public lodging REIT at 59%.
• Unlike some other lodging REITs, Chatham does not add back share-based compensation expense in its calculation of adjusted FFO per share, which may result in a more conservative FFO per share metric compared to peers who do.

Corporate Governance

Related Party Transactions

• Reimbursable costs from related parties: $249 thousand for Q2 2025 ($275 thousand for Q2 2024).
• Management fees paid to related parties: $2.685 million for Q2 2025 ($2.850 million for Q2 2024).
• Accounts payable and accrued expenses include $719 thousand due to related parties as of June 30, 2025 ($490 thousand as of December 31, 2024).

Stakeholder Impact

• Shareholders: Potential for increased value through share repurchases and continued dividends, despite a decline in net income and EPS. Strategic asset sales and debt reduction improve financial stability.
• Employees: Total labor and benefit costs per occupied room declined, potentially indicating efficiency gains.
• Creditors: Significant de-leveraging of the balance sheet (net debt down, leverage ratio improved) reduces credit risk.
• Customers: Ongoing hotel renovations aim to enhance guest experience and property quality.
• Suppliers: No specific direct impact mentioned, but overall hotel operations and capital expenditures would involve various suppliers.

Next Steps

• The company will hold its second quarter 2025 conference call on August 6, 2025, at 10:00 a.m. Eastern Time.
• Renovations of the Residence Inn Austin, Texas, and the Residence Inn Mountain View, Calif., will commence in the fourth quarter.
• Share repurchases may be made from time to time at management's discretion under the approved $25 million program.

Key Dates

Recommendation

While Chatham Lodging Trust demonstrated strong operational execution by exceeding its own RevPAR guidance and delivering Adjusted FFO at the top of its range, the overall financial performance metrics such as net income, Adjusted EBITDA, and Adjusted FFO still show year-over-year declines. The strategic asset sales and initiation of a share repurchase program are positive long-term value drivers, and the improved leverage is a favorable development. However, the mixed market performance, with some key markets experiencing RevPAR declines and a reduced convention calendar in San Diego, suggests that the company faces ongoing challenges. The stock is likely to maintain its current valuation with potential for gradual appreciation as strategic initiatives mature and business travel fully recovers, but it lacks a compelling catalyst for a 'buy' recommendation at this time given the current financial trends.

Keywords

Lodging REIT, Hotel Investment, Extended-Stay Hotels, Select-Service Hotels, RevPAR, ADR, Occupancy, Hotel EBITDA, Adjusted FFO, Share Repurchase, Asset Sales, Real Estate Investment Trust, Hospitality, Financial Results, Corporate Governance, CLDT