8-K: Chatham Lodging Trust Exceeds Expectations in Q1 2024, Fueled by Tech Market Rebound

Chatham Lodging Trust reported a strong first quarter of 2024, with adjusted FFO per share beating estimates and RevPAR growth outpacing the industry.

Summary

• Chatham Lodging Trust announced its first quarter 2024 results, showing a net loss of $5.5 million, which is slightly worse than the $5.0 million loss in the same period last year.
• However, the company's adjusted FFO per share of $0.16 beat consensus estimates.
• The company's portfolio RevPAR increased by 2 percent to $120, driven by a 1 percent increase in both ADR to $171 and occupancy to 70 percent.
• Notably, RevPAR for the Silicon Valley and Bellevue hotels surged by 17 percent.
• Hotel EBITDA margins were 30.8 percent, a slight increase from 30.7 percent in the first quarter of 2023.
• Adjusted EBITDA rose by 6 percent to $18.9 million.
• The company sold the Hilton Garden Inn Denver Tech Center for $18 million, avoiding a $6 million renovation.
• Net debt to trailing twelve-month EBITDA was a healthy 4.0 times.
• The company also reduced net debt by approximately $6 million during the quarter.
• Chatham's 2024 capital expenditure budget is approximately $37 million.
• The company has provided second quarter 2024 guidance, projecting RevPAR between $149 and $151, and adjusted FFO per diluted share between $0.33 and $0.36.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company exceeding expectations in adjusted FFO per share, strong RevPAR growth in key markets, and a healthy balance sheet. While there are some negative aspects, such as the net loss and underperformance in Los Angeles, the overall tone is optimistic and forward-looking.

Positives

• The company exceeded expectations with its adjusted FFO per share.
• RevPAR growth significantly outpaced the industry average.
• The strong performance of the Silicon Valley and Bellevue hotels indicates a positive trend in technology-dependent markets.
• The company's balance sheet is healthy, with a net debt to trailing twelve-month EBITDA of 4.0 times.
• The sale of the Hilton Garden Inn Denver Tech Center for $18 million allowed the company to avoid a $6 million renovation.
• The company is actively managing costs and pushing revenue initiatives.
• Weekday occupancy has surpassed weekend occupancy for the first time since the pandemic.
• The company has a high concentration of extended-stay hotels, which are performing well.

Negatives

• The company reported a net loss of $5.5 million, slightly worse than the $5.0 million loss in the first quarter of 2023.
• GOP margins decreased slightly from 39.8% to 38.6%.
• The Homewood and Hilton Garden Inn brands experienced RevPAR declines due to renovations.
• The Los Angeles market is underperforming expectations.
• Labor costs adversely impacted GOP margins by approximately 110 basis points.

Risks

• The company's performance is subject to national and local economic conditions, including the impact of potential terrorist attacks on travel.
• Operating risks associated with the hotel business could affect the company's results.
• The company's ability to meet covenants in its debt agreements is a risk.
• Changes in travel patterns, taxes, and government regulations could impact the company's performance.
• The company's ability to complete acquisitions and dispositions is a risk.
• The company must continue to satisfy complex rules to remain a REIT for federal income tax purposes.
• Inaccuracies in accounting estimates and the economic impact of pandemics or other public health emergencies could affect the company.
• The company has approximately $252 million of debt maturing in July.

Future Outlook

The company expects second quarter 2024 RevPAR to be between $149 and $151, with growth of 2.5% to 4.0%. Adjusted FFO per diluted share is projected to be between $0.33 and $0.36. The company also anticipates issuing $60 million of CMBS debt during the second half of May.

Management Comments

• Jeffrey H. Fisher, Chatham's president and chief executive officer, stated that they are quite pleased with their strong start to the year, delivering adjusted FFO per share of $0.16, beating consensus estimates.
• Fisher also noted that RevPAR growth of 2 percent was in the middle of their guidance, and their earnings beat was driven by hotel EBITDA margins exceeding their midpoint by approximately 230 basis points.
• Dennis Craven, Chatham's chief operating officer, highlighted the growth in Silicon Valley and Bellevue as corporate travel demand continues to increase.
• Craven also mentioned that for the first time since the start of the pandemic, RevPAR at their D.C. area hotels has surpassed 2019 levels.
• Jeremy Wegner, Chatham's chief financial officer, commented on the additional Term Loan commitments and the company's liquidity to address debt maturities.

Industry Context

The report indicates that Chatham Lodging Trust is outperforming the broader hotel industry, particularly in technology-dependent markets like Silicon Valley and Bellevue. This suggests a strategic advantage in these areas, which are experiencing a resurgence in corporate travel. The company's focus on extended-stay hotels also positions it well within a growing segment of the market.

Comparison to Industry Standards

• Chatham's RevPAR growth of 2% significantly outpaced the industry average, which was approximately 0.3% for the first quarter.
• The company's tech-heavy markets, particularly Silicon Valley and Bellevue, saw a 17% increase in RevPAR, demonstrating a strong recovery in these areas compared to other markets.
• Chatham's EBITDA margins of 30.8% are competitive within the REIT sector, although some luxury hotel REITs may have higher margins.
• The company's net debt to trailing twelve-month EBITDA of 4.0 times is considered healthy compared to some peers with higher leverage ratios.
• Compared to companies like Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK), which have a more diversified portfolio, Chatham's focus on extended-stay and select-service hotels provides a different risk and return profile.
• The company's ability to generate a 17% increase in other operating department profit and a $0.8 million decrease in property tax expense demonstrates effective cost management compared to industry averages.

Related Party Transactions

• The document mentions reimbursable costs from related parties, and management fees paid to related parties, but does not provide details of the transactions.

Stakeholder Impact

• Shareholders will likely view the results positively due to the better-than-expected adjusted FFO per share and strong RevPAR growth.
• Employees may benefit from the company's improved financial performance and cost management initiatives.
• Customers may experience improved services and facilities as the company continues to invest in its properties.
• Creditors may view the company's debt reduction efforts and healthy leverage ratio favorably.
• Suppliers may benefit from the company's continued operations and capital expenditure plans.

Next Steps

• The company will continue to opportunistically sell additional assets in 2024 with the intent to redeploy those proceeds into debt reduction and ultimately make higher growth hotel investments.
• The company plans to issue $60 million of CMBS debt during the second half of May.
• The company will hold its first quarter 2024 conference call later today at 10:30 a.m. Eastern Time.

Key Dates

Keywords

REIT, lodging, hotels, RevPAR, EBITDA, FFO, occupancy, ADR, extended-stay, technology markets