8-K: Chatham Lodging Trust Announces Strong Q4 2024 Results: RevPAR Surges, Margins Expand, and Outlook Remains Healthy

Chatham Lodging Trust reports a strong fourth quarter in 2024, driven by RevPAR growth and margin expansion, with a positive outlook for 2025.

Summary

• Chatham Lodging Trust (CLDT) announced its fourth-quarter 2024 results, showcasing positive performance metrics.
• RevPAR increased by 4 percent to $129 compared to Q4 2023 for comparable hotels.
• Occupancy rates rose by 5 percent to 74 percent, while the average daily rate (ADR) saw a slight decrease of 1 percent to $176.
• The company reported a net loss of $1.9 million, an improvement from the $9.3 million net loss in Q4 2023.
• GOP margins increased by 150 basis points to 40.5 percent, and Hotel EBITDA margins rose by 90 basis points to 32.5 percent.
• Adjusted EBITDA increased to $21.1 million from $20.8 million in the previous year.
• Adjusted FFO was $10.0 million, compared to $9.8 million in Q4 2023.
• The company sold two hotels for $29 million in Q4 2024 and one hotel for $15 million subsequent to year-end.
• Two additional hotel sales are expected to close in March, generating approximately $39 million in net proceeds.
• For 2024, RevPAR grew 3 percent, outperforming the industry by 56 percent.
• The company repaid $297 million of maturing debt and reduced net debt by $29 million.
• The overall leverage ratio decreased from 25 percent to 23 percent.
• 2025 guidance includes RevPAR growth between 1 percent and 3.5 percent and adjusted FFO per diluted share between $1.01 and $1.11.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong Q4 results, margin expansion, and strategic asset management. The company's focus on high-growth markets and debt reduction contributes to a favorable sentiment.

Positives

• RevPAR increased by 4 percent in Q4 2024, indicating stronger performance.
• Occupancy rates rose by 5 percent, suggesting increased demand.
• GOP and Hotel EBITDA margins expanded, reflecting improved operational efficiency.
• Adjusted EBITDA and FFO increased, demonstrating enhanced profitability.
• The company successfully executed asset recycling, selling hotels for a total of $101 million.
• Debt was reduced by $29 million, strengthening the balance sheet.
• The leverage ratio decreased from 25 percent to 23 percent, indicating reduced financial risk.
• The company's 2024 top-line performance outperformed the industry and most peers.
• Labor expense pressures moderated, enabling strong gross operating profit margins.
• The company is optimistic about future performance, particularly in technology-dependent markets.
• The company has financial flexibility to make meaningful acquisitions or other hotel investments.
• The company stands to benefit from declining interest rates.

Negatives

• The company incurred a net loss of $1.9 million in Q4 2024, although it's an improvement from the previous year.
• ADR declined slightly by 1 percent in Q4 2024.
• Hotel EBITDA margin declined from 36% to 35% year over year.
• San Diego benefited from a great convention calendar in 2024, and although large conventions will be down in 2025, other business is picking up.
• The Courtyard Dallas Downtown was adversely impacted by the renovation/expansion of the convention center.

Risks

• The company's performance is subject to national and local economic conditions.
• Operating risks associated with the hotel business could impact results.
• The company's indebtedness and ability to meet debt covenants pose a risk.
• Relationships with property managers could affect operations.
• The company must maintain its properties to remain competitive.
• Changes in travel patterns, taxes, and government regulations could influence costs and revenues.
• The company's ability to complete acquisitions and dispositions is uncertain.
• The company must continue to satisfy complex rules to remain a REIT.
• Inaccuracies of accounting estimates and the uncertainty and economic impact of pandemics, epidemics or other public health emergencies of fear of such events, such as the recent COVID-19 pandemic.

Future Outlook

Chatham Lodging Trust anticipates continued outperformance in 2025, driven by technology market recovery and strategic asset management. The company expects RevPAR growth to exceed industry expectations, operating margins to improve, and adjusted FFO per share to increase, accounting for the impact of hotel sales.

Management Comments

• Jeffrey H. Fisher, Chatham's president and chief executive officer, highlighted that 2024 was a successful year with top-line performance outperforming the industry and most peers.
• Fisher noted that labor expense pressures moderated, enabling strong gross operating profit margins.
• Fisher stated that the company addressed maturing debt through asset sales and new debt issuance, solidifying its financial position.
• Fisher is optimistic that the portfolio will continue to outperform due to the location of key hotels in recovering tech markets.
• Fisher emphasized a positive outlook for 2025 on both the topand bottom-lines.
• Dennis Craven, Chatham's chief operating officer, commented that fourth quarter ADR of $176 is our highest since inception and up 8 percent over 2019 levels.
• Craven noted that occupancy for each month of the quarter reached the highest levels since 2019, proving that business travel demand is growing.
• Jeremy Wegner, Chatham's chief financial officer, stated that the company has completed its multi-year balance sheet repositioning and is in great financial condition.

Industry Context

Chatham's focus on upscale, extended-stay hotels and premium-branded, select-service hotels positions it to benefit from the resurgence of business travel and the growth in technology-dependent markets. The company's outperformance of industry RevPAR growth suggests a competitive advantage in its chosen segments.

Comparison to Industry Standards

• Chatham Lodging Trust's RevPAR growth of 3 percent in 2024 exceeded industry RevPAR performance by 56 percent, indicating a strong competitive position.
• The company's focus on extended-stay hotels, with 65 percent of its EBITDA generated from this segment, differentiates it from other public lodging REITs.
• The company's GRESB score increased from 82 to 83, ranking it 24th out of 108 listed companies in the Americas and 2nd in its peer group, demonstrating a commitment to sustainability.
• The company's leverage ratio of 23 percent is relatively conservative compared to some peers, providing financial flexibility.

Related Party Transactions

• The company had accounts payable and accrued expenses due to related parties of $490,000 and $399,000 at December 31, 2024 and 2023, respectively.
• The company incurred reimbursable costs from related parties of $269,000 and $272,000 for the three months ended December 31, 2024 and 2023, respectively.
• The company incurred management fees paid to related parties of $2,615,000 and $2,484,000 for the three months ended December 31, 2024 and 2023, respectively.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and potential for future growth.
• Employees may experience improved job security and potential for wage increases due to the company's strong performance.
• Customers can expect continued high-quality service and accommodations.
• Suppliers may see increased demand for their products and services.
• Creditors will benefit from the company's reduced debt and improved financial stability.

Next Steps

• The company expects to close on the sale of two additional hotels in March.
• The company will continue renovations at the SpringHill Suites Savannah, the Residence Inn Bellevue, Wash., and the Hilton Garden Inn Portsmouth, N.H.
• The company will renovate the Hilton Garden Inn Portsmouth, N.H., during the first quarter, the Residence Inn Austin, Texas and the Residence Inn Mountain View, Calif., during the fourth quarter.
• The Board of Trustees will continue to evaluate the common share dividend on a quarterly basis.

Key Dates