8-K: Chatham Lodging Trust Reports Mixed Q3 Results, RevPAR Growth Accelerates in October

Chatham Lodging Trust announced its third quarter 2024 results, showing a slight increase in RevPAR but a decrease in net income compared to the same period last year, while also highlighting strong RevPAR growth in October.

Summary

• Chatham Lodging Trust reported a 1.3 percent increase in RevPAR to $150 for its 38 comparable hotels in the third quarter of 2024, with average daily rate (ADR) up 1.3 percent to $188 and occupancy flat at 80 percent.
• Excluding hotels under renovation and a new hotel, RevPAR growth was 2.1 percent.
• Net income decreased to $4.3 million from $7.5 million in the third quarter of 2023, with diluted earnings per share at $0.05 compared to $0.11.
• Hotel EBITDA margin was 37 percent, down from 38 percent in the previous year.
• Adjusted EBITDA was $29.6 million, down from $30.6 million, and adjusted FFO was $17.6 million, down from $20.2 million.
• The company has entered agreements to sell five hotels for approximately $80 million, which will be used to reduce debt.
• October RevPAR accelerated to 6 percent growth over 2023, reaching $158, the second highest October RevPAR since the company's inception.
• The company's technology-dependent hotels in Silicon Valley and Bellevue saw an 8 percent RevPAR increase in the third quarter and a 14 percent increase in October.
• The company has provided fourth quarter guidance with an expected RevPAR of $124-$127, a net loss of $4-$6 million, and adjusted FFO of $7-$9 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positive aspects like strong RevPAR growth in specific markets and the asset recycling program, the overall financial results show a decline in net income and adjusted FFO, and the fourth quarter guidance is weak.

Positives

• RevPAR growth accelerated in October, reaching the second highest level since the company's inception.
• The company's technology-focused hotels in Silicon Valley and Bellevue showed strong RevPAR growth.
• The sale of five hotels is expected to generate $80 million in net proceeds, which will be used to reduce debt.
• The company's leverage is at its lowest level in over a decade.
• The company is well-positioned to benefit from a potential decline in interest rates due to its floating rate debt.
• The company's extended-stay hotels generated 65 percent of the company's EBITDA over the last twelve months.

Negatives

• Net income decreased to $4.3 million from $7.5 million in the third quarter of 2023.
• Adjusted EBITDA and adjusted FFO decreased compared to the same period last year.
• Hotel EBITDA margin decreased to 37 percent from 38 percent in the third quarter of 2023.
• The company is forecasting a net loss of $4-$6 million in the fourth quarter of 2024.
• The company's fourth quarter guidance indicates a significant decrease in profitability compared to previous quarters.

Risks

• The company's performance is subject to national and local economic conditions, which can affect occupancy rates and demand for hotel services.
• The company faces operating risks associated with the hotel business, including competition and the need to maintain properties.
• The company's indebtedness and ability to meet debt covenants pose a risk.
• The company's ability to complete acquisitions and dispositions is subject to market conditions.
• The company's performance is subject to changes in travel patterns, taxes, and government regulations.
• The company's future performance is subject to the risk of inaccuracies in accounting estimates and the uncertainty of pandemics or other public health emergencies.

Future Outlook

The company's fourth quarter guidance includes an expected RevPAR of $124-$127, a net loss of $4-$6 million, and adjusted FFO of $7-$9 million. The company anticipates benefiting from a potential decline in interest rates due to its floating rate debt.

Management Comments

• Jeffrey H. Fisher, Chatham's president and chief executive officer, commented, 'Its been a productive quarter delivering RevPAR growth of over 2 percent, meeting consensus estimates of $0.35 per share and progressing on our capital recycling initiative.'
• Dennis Craven, Chatham's chief operating officer, highlighted, 'Excluding Silicon Valley and Bellevue, second quarter RevPAR of $148 exceeds 2019 RevPAR of $138.'
• Jeremy Wegner, Chatham's chief financial officer, stated, 'With only $30 million of maturing debt over the next year, leverage at our lowest levels in over a decade and proceeds from the sale of five hotels of approximately $80 million, we are well-positioned to capitalize on any meaningful opportunities that will add hotel EBITDA and FFO.'

Industry Context

The report indicates that Chatham's RevPAR growth of 2.1 percent, excluding renovations, surpassed the industry-wide RevPAR growth of less than 0.9 percent, suggesting a competitive advantage in the market. The company's focus on extended-stay hotels also positions it well within a growing segment of the lodging industry.

Comparison to Industry Standards

• Chatham's RevPAR growth of 2.1 percent, excluding renovations, exceeded the industry average of less than 0.9 percent, indicating a stronger performance than many of its peers.
• The company's focus on extended-stay hotels, which make up 65 percent of its EBITDA, is a higher concentration than any other public lodging REIT, suggesting a unique market position.
• The company's technology-driven hotels in Silicon Valley and Bellevue saw an 8 percent RevPAR increase in Q3 and 14 percent in October, outperforming many other markets.
• While Chatham's overall RevPAR growth was modest, the strong performance in specific markets like Silicon Valley and Bellevue suggests a strategic advantage in those areas.
• The company's hotel EBITDA margin of 37 percent is comparable to other REITs in the sector, but the decrease from 38 percent in the previous year indicates potential challenges in cost management.

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 be impacted by the decrease in net income and adjusted FFO, as well as the expected net loss in the fourth quarter.
• Employees may be impacted by the company's efforts to reduce labor costs.
• Customers may experience improvements in hotel quality due to ongoing renovations.
• Creditors will be impacted by the company's debt reduction efforts.

Next Steps

• The company will complete the sale of five hotels, generating approximately $80 million in net proceeds.
• The company will complete renovations at the SpringHill Suites Savannah in the fourth quarter.
• The company will commence renovations at the Residence Inn Bellevue and Hilton Garden Inn Portsmouth in the fourth quarter.
• The company will hold its third quarter 2024 conference call on November 7, 2024.

Key Dates

Keywords

RevPAR, EBITDA, FFO, Hotel, REIT, Lodging, Real Estate, Occupancy, ADR, Debt, Asset Recycling