8-K: Chatham Lodging Trust Reports Mixed Q4 Results, Cites Tech Sector Rebound

Chatham Lodging Trust announced its fourth quarter 2023 results, showing a slight increase in RevPAR but a larger net loss compared to the same period last year.

Summary

• Chatham Lodging Trust's fourth quarter 2023 saw a 2.5 percent increase in portfolio RevPAR to $121, driven by a 0.5 percent rise in ADR to $173 and a 2 percent jump in occupancy to 70 percent.
• The company experienced a net loss of $11.0 million, or $(0.23) per diluted share, compared to a $4.0 million loss, or $(0.08) per diluted share, in the fourth quarter of 2022.
• Hotel EBITDA margins were 31.6 percent, down from 33.3 percent in the prior year's quarter.
• Adjusted EBITDA increased slightly to $20.8 million from $20.4 million, while Adjusted FFO decreased to $9.8 million from $10.2 million.
• The company sold the Hilton Garden Inn Denver Tech Center for approximately $18 million after the quarter ended.
• For the full year 2023, Chatham's RevPAR grew by 6.1 percent, outperforming the industry by approximately 25 percent, despite losing approximately $12 million in intern-related room revenue.
• Chatham reduced net debt by $26 million and its leverage ratio to 25 percent, the lowest in a decade.
• The company issued $83 million of fixed-rate debt and repaid $150 million of maturing debt.
• Chatham's 2024 capital expenditure budget is approximately $37 million, including $23 million for renovations at five hotels.

Sentiment

Score: 7

Explanation: The document presents a mixed picture with positive RevPAR growth and debt reduction, but also a net loss and decreased EBITDA margins. The management's optimistic outlook and focus on tech sector recovery contribute to a moderately positive sentiment.

Positives

• Chatham's RevPAR growth of 6.1 percent for 2023 significantly outperformed the industry by approximately 25 percent.
• The company reduced its net debt by $26 million and lowered its leverage ratio to 25 percent, the lowest in a decade.
• Chatham successfully issued $83 million of fixed-rate debt and repaid $150 million of maturing debt.
• The company increased its GRESB score by 9 percent, earning four of five GRESB Stars and a 'Green Star' award.
• The company's other department profits rose by 25 percent due to revenue enhancement initiatives.
• The company paid common share dividends of $0.28 per share compared to $0.07 per share in 2022.
• The company beat fourth quarter consensus estimates with better-than-expected topand bottom-line performance.
• The company's technology markets started to gain traction in the fourth quarter, an encouraging sign for 2024.

Negatives

• Chatham experienced a net loss of $11.0 million in the fourth quarter of 2023, compared to a $4.0 million loss in the same period of 2022.
• Hotel EBITDA margins decreased to 31.6 percent in the fourth quarter of 2023 from 33.3 percent in the fourth quarter of 2022.
• Adjusted FFO decreased to $9.8 million in the fourth quarter of 2023 from $10.2 million in the fourth quarter of 2022.
• The company lost approximately $12 million in intern-related room revenue in 2023.
• Labor and benefits increased approximately 4 percent versus the 2022 fourth quarter on a cost per occupied room basis, impacting operating margins by approximately 70 basis points.
• February RevPAR has been adversely impacted by severe weather across the country.

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, including relationships with property managers, could affect results.
• The company's ability to maintain its properties and meet capital expenditure requirements 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's ability to continue to satisfy complex rules to remain a REIT is a risk.
• Inaccuracies in accounting estimates and the economic impact of pandemics or other public health emergencies could affect results.
• The company's performance is subject to the risks disclosed in its filings with the Securities and Exchange Commission.

Future Outlook

The company is encouraged by early trends in 2024, particularly the rebound in technology markets, and expects more deal flow with the financial flexibility to address debt maturities, make acquisitions, grow FFO, and increase distributable cash flow. First quarter 2024 guidance includes a RevPAR of $118-$121, a net loss of $(9.4)-$(7.4) million, and adjusted EBITDA of $16.2-$18.2 million.

Management Comments

• Jeffrey H. Fisher, Chatham's president and chief executive officer, noted that the lodging industry in 2023 was interesting given the differing RevPAR trends each segment experienced.
• Fisher stated that Chatham's 2023 was a roller coaster, with the beginning of the year impacted by technology sector layoffs, followed by a rebound in the fourth quarter.
• Fisher highlighted that the company beat fourth quarter consensus estimates with better-than-expected topand bottom-line performance.
• Fisher emphasized that the future looks incredibly bright with surging investments being made into artificial intelligence and the processing infrastructure necessary to support those initiatives.
• Dennis Craven, Chatham's chief operating officer, stated that it was encouraging to see all but one market grow in the fourth quarter and great that the largest market produced the strongest growth of all top markets.
• Jeremy Wegner, Chatham's chief financial officer, highlighted that the company has $328 million of liquidity and 24 unencumbered hotels to address maturing debt of $294 million in 2024.

Industry Context

This announcement reflects the ongoing recovery in the lodging industry, particularly the rebound in business travel and the tech sector. Chatham's focus on extended-stay and select-service hotels positions it to benefit from these trends. The company's exposure to technology-driven markets, especially in Silicon Valley, is a key differentiator compared to other lodging REITs.

Comparison to Industry Standards

• Chatham's 2023 RevPAR growth of 6.1 percent exceeded industry performance by approximately 25 percent, indicating a strong competitive position.
• While the company does not directly name competitors, it notes that no other lodging REIT has the same exposure to the AI-based tech resurgence as Chatham does, suggesting a unique market position.
• The company's focus on extended-stay hotels, with 61 percent of its rooms in this category, is higher than any other public lodging REIT, indicating a strategic focus on this segment.
• The company's GRESB score of 82/100 ranks 31st out of 115 listed companies in the Americas region and 2nd in its peer group, demonstrating a commitment to sustainability.
• The company's leverage ratio of 25 percent is lower than many of its peers, indicating a more conservative financial approach.

Related Party Transactions

• The document mentions reimbursable costs from related parties, but does not provide details of the transactions.

Stakeholder Impact

• Shareholders will be impacted by the net loss and decreased EBITDA margins, but also by the positive RevPAR growth and debt reduction.
• Employees may be impacted by the company's focus on cost management and operational efficiency.
• Customers will benefit from the company's ongoing renovations and focus on quality accommodations.
• Creditors will be impacted by the company's debt reduction and strong liquidity position.
• Suppliers may be impacted by the company's capital expenditure plans and renovation projects.

Next Steps

• The company will complete renovations at four hotels in the first quarter of 2024.
• The company plans to renovate five hotels in 2024, with four of those renovations occurring in the third and fourth quarters.
• The company will hold its fourth quarter 2023 conference call on February 27, 2024.
• The company will continue to monitor deplanements into its tech-driven markets.

Key Dates

Keywords

REIT, lodging, hotels, RevPAR, EBITDA, FFO, occupancy, ADR, debt, renovations