Chatham Lodging Trust (NYSE: CLDT), a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels and owns 134 hotels wholly or through joint ventures, today announced results for the fourth quarter ended December 31, 2019. The company also provided initial guidance for 2020.

Fourth Quarter 2019 Key Metrics

Portfolio Revenue per Available Room (RevPAR) - Declined 4.9 percent to $118, compared to the 2018 fourth quarter, ahead of guidance expectations of a decline of 5 percent to 6.5 percent. The 2018 fourth quarter benefited from one-time-business related to the north Boston gas explosions and border patrol demand in San Diego. Average daily rate (ADR) decreased 4.1 percent to $157, and occupancy slipped 0.8 percent to 76 percent.
Net (loss) - Weakened $2.2 million to a loss of $2.4 million, compared to the 2018 fourth quarter, due primarily to $1.2 million of one-time incremental losses in its joint ventures related to property impairments and a loss on the sale of one joint venture hotel. Net loss per diluted share was $0.05 versus $0.01.
Adjusted EBITDA - Decreased $3.0 million to $25.9 million but exceeded the upper end of the company’s guidance of $25.1 million.
Adjusted FFO - Declined $3.1 million to $15.3 million but exceeded the upper end of the company’s guidance of $14.6 million. Adjusted FFO per diluted share was $0.32, above guidance of $0.28-$0.31 per share.
Operating Margins - Comparable hotel gross operating profit margins lessened 150 basis points to 42.6 percent. Comparable hotel EBITDA margins were down 200 basis points to 34.4 percent, above the company’s guidance range.

The following chart summarizes the consolidated financial results for the three and 12 months ended December 31, 2019 and 2018 based on all properties owned during those periods ($ in millions, except margin percentages and per share data):

	Three Months Ended		Twelve Months Ended
	December 31,		December 31,
	2019	2018	2019	2018
Net income (loss)	$(2.4)	$(0.2)	$18.9	$30.9
Diluted net income (loss) per common share	$(0.05)	$(0.01)	$0.39	$0.66
GOP Margin	42.1%	44.0%	46.0%	46.4%
Hotel EBITDA Margin	33.9%	36.3%	38.3%	39.0%
Adjusted EBITDA	$25.9	$28.9	$131.0	$131.5
AFFO	$15.3	$18.4	$87.8	$90.7
AFFO per diluted share	$0.32	$0.39	$1.85	$1.95
Dividends per share	$0.33	$0.33	$1.32	$1.32

The below chart summarizes key hotel financial statistics for the 40 comparable operating hotels owned as of December 31, 2019 (does not include two hotels sold earlier in 2019):

	Three Months Ended		Twelve Months Ended
	December 31,		December 31,
	2019	2018	2019	2018
RevPAR	$118.5	$124.5	$133.5	$135.6
ADR	$156.7	$163.4	$166.5	$168.7
Occupancy	75.6%	76.3%	80.2%	80.4%
GOP Margin	42.6%	44.1%	46.3%	46.7%
Hotel EBITDA Margin	34.4%	36.4%	38.6%	39.3%

2019 Highlights

“STR describes the current state of lodging as ‘Flat is the New Up,’ with most metrics showing minimal growth. Industry RevPAR rose 0.9 percent, while occupancy was unchanged at 66.1 percent in 2019. Supply and demand growth offset each other after both increased 2.0 percent. By most metrics, 2019 industry performance finished below most industry pundits’ initial expectations,” said Jeffrey H. Fisher, Chatham’s president and chief executive officer. “Although the industry is experiencing decelerating RevPAR growth, the overall health of the lodging industry remains on solid ground as the industry set all-time highs in RevPAR and ADR in 2019. Consequently, cash flow remains strong, allowing us to reinvest substantial dollars into our portfolios and continue to pay meaningful dividends.

“Chatham’s comparable full-year RevPAR decline was primarily attributable to some extremely tough RevPAR comparisons from the 2018 fourth quarter. Despite the decline in RevPAR, I was extremely pleased with our overall performance given the challenging top-line:

minimized gross operating profit margin erosion to only 40 basis points, despite a 1.6 percent RevPAR decline, through aggressive asset management and highly effective collaboration with Island Hospitality
generated a 22 percent rise in other income of $3.0 million due primarily to the continued improvement in parking revenue and room-cancellation revenue collections
reduced leverage to 34.1 percent from 34.7 percent based on the ratio of Chatham’s net debt to investment in hotels, at cost
commenced construction on the company’s first ground-up development since its initial public offering in 2010
raised approximately $7 million through the company’s share plans with an average issuance price of over $20 per share, using proceeds to partially fund development
sold two, non-core hotels for approximately $10 million at an approximate six percent net operating income capitalization rate
invested almost $36 million in capital improvements at existing hotels

Fourth Quarter Operating Results

“We faced extremely tough comparisons in the 2019 fourth quarter, and RevPAR declined 4.9 percent due to one-time-business we received in the 2018 fourth quarter related to the north Boston gas explosions that benefitted our Boston and New Hampshire hotels and border patrol demand in San Diego. Our 2019 fourth quarter results were above the upper end of our guidance range as RevPAR in Silicon Valley performed above our expectations,” Fisher noted. “Even though it was a very challenging quarter, our RevPAR index gained approximately 70 basis points in the quarter as we continue to work very closely with Island Hospitality’s revenue management and sales teams to maximize our performance.”

Chatham’s six largest markets comprise approximately 60 percent of its hotel EBITDA. Fourth quarter 2019 RevPAR performance for these key markets include:

Silicon Valley RevPAR declined 4.2 percent to $158 at its four hotels with two hotels under renovation during the quarter.
RevPAR at its two San Diego hotels decreased 19.2 percent, facing tough comparisons to 2018 related to border patrol room demand.
Washington, D.C. RevPAR rose 2.9 percent with all three hotels showing gains, led by the freshly renovated Tyson’s Corner, Va. hotel where RevPAR rose 9.1 percent.
RevPAR at its three coastal hotels in Maine and New Hampshire fell 8.4 percent following a gain of 17.5 percent in the 2018 fourth quarter related to demand from the north Boston gas explosions at its two New Hampshire hotels
At its four Houston hotels, RevPAR dropped 11.8 percent to $83 due primarily to the impact of new supply at the Houston Medical Center and downtown
Two Los Angeles-area hotels experienced a 4.3 percent RevPAR decline.

At its 40 comparable operating hotels, gross operating profit margins in the 2019 fourth quarter were off 150 basis points to 42.6 percent. Hotel EBITDA margins fell 200 basis points to 34.4 percent, above the company’s upper end of guidance of 33.4 percent.

“Our strong margins during an unusual quarter were the primary driver behind our adjusted EBITDA and FFO per share outperformance as we collaborate with Island Hospitality on a frequent basis to increase revenue and reduce operating expenses or minimize expense increases,” emphasized Dennis Craven, Chatham’s chief operating officer. “Our best-in-class operating platform provides us the ability to aggressively pursue initiatives that we can quickly assess and decide whether to pursue, expand or discontinue. This is critical to maximizing opportunities in select-service and limited-service hotels where pennies matter.”

Other revenue was up $1.0 million, or 31 percent, in the quarter, led primarily by a 27 percent incremental parking revenue improvement of $0.4 million. Additionally, miscellaneous income increased $0.3 million, or 48 percent, primarily related to enhanced execution on 48-hour cancellation fee collections. Additionally, third-party lease income related to its San Diego Gaslamp Residence Inn rose $0.3 million.

On a per occupied room basis at its 40 comparable Island-managed hotels, payroll and benefits costs increased 3.6 percent in the 2019 fourth quarter, reducing margins by 120 basis points, due largely to historically low unemployment.

“Throughout 2019, on a year-over-year basis, we were aided by reduced employee benefits costs which were down almost six percent in 2019 due to lower claims costs and refinements to our employee benefit plans. This partially offset payroll costs that rose almost 5 percent on a per occupied room basis,” Craven concluded.

Strategic Capital Recycling Program and Hotel Investments

During the 2019 fourth quarter, the company substantially completed the renovations of the Residence Inn Fort Lauderdale, Fla. The company commenced renovations of the Residence Inn Sunnyvale, Calif., #2, during the 2019 fourth quarter with expected completion in the 2020 first quarter.

During 2020, Chatham plans to commence renovations on four hotels comprising 554 rooms, compared to six hotels encompassing 814 rooms that underwent renovation in 2019 (including two hotels with approximately 408 rooms located in Silicon Valley).

Hotel Under Development

Development on a very select basis is part of Chatham’s long-term growth strategy. Chatham is actively developing and constructing a hotel in the Warner Center submarket of Los Angeles, Calif., on a parcel of land owned by the company. The company expects the total development costs to be approximately $65 million, inclusive of land of $6.6 million. Including land, the company has incurred costs to date of $20.5 million. The hotel site is well located within Warner Center, an urban community consisting of more than 10 million square feet of office space, approximately eight million square feet of retail space and 20,000 residents. The surrounding area employs more than 50,000 people. Under the Warner Center 2035 Plan, it is expected to more than double those metrics.

Capital Markets & Capital Structure

As of December 31, 2019, the company had net debt of $580.2 million (total consolidated debt less unrestricted cash). Total debt outstanding was $586.9 million at an average interest rate of 4.6 percent, comprised of $496.9 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $90.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.4 percent interest rate.

Chatham’s leverage ratio was approximately 34.1 percent on December 31, 2019, based on the ratio of the company’s net debt to hotel investments at cost. The weighted average maturity date for Chatham’s fixed-rate debt is February 2024, with the earliest maturity in 2021. As of December 31, 2019, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.9 million and $3.2 million, respectively. At Chatham’s current leverage level, the borrowing cost under its facility is LIBOR plus 1.65 percent.

On December 31, 2019, as defined in the company’s credit agreement, Chatham’s fixed charge coverage ratio, including its interest in the two joint venture portfolios with Colony NorthStar, was 3.0 times, and total net debt to trailing 12-month corporate EBITDA was 5.7 times. Excluding its interest in the two joint ventures, Chatham’s fixed charge coverage ratio was 3.3 times, and net debt to trailing 12-month corporate EBITDA was 5.1 times.

“During 2019, we raised $6.8 million of equity through opportunistic share sales at a weighted average price of $20.16, approximately 10 percent higher than our year-end closing share price. We also sold two hotels during the 2019 second quarter for approximately $10 million,” remarked Jeremy Wegner, Chatham’s chief financial officer.

“Since the beginning of 2017, we generated gross proceeds of approximately $225 million through the issuance of equity and the sale of three hotels. This liquidity provided us added flexibility to acquire hotels for $201.5 million over that same period and execute on a key component of our long-term strategy, hotel development.”

Joint Venture Investments

During the 2019 fourth quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $3.3 million and $0.9 million, respectively, compared to 2018 fourth quarter Adjusted EBITDA and FFO of approximately $3.4 million and $1.3 million, respectively.

For the entire year, the joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $16.5 million and $6.5 million, respectively, compared to 2018 Adjusted EBITDA and FFO of approximately $16.7 million and $7.2 million, respectively. The year-over-year decrease in adjusted FFO is primarily attributable to increased interest expense caused by higher LIBOR borrowing rates.

Chatham received distributions from its joint venture investments of $2.0 million during the 2019 fourth quarter and $2.7 million for the year.

During the fourth quarter, Colony Capital and Chatham closed on the refinancing of the debt securing the hotels in the Innkeepers portfolio. The loan is interest only, incurs interest based on one-month LIBOR plus an applicable credit spread and has a fully extended maturity date in 2026. A comparison of the key terms of the new and old loans is as follows:

	New
Loans outstanding (in millions)	$855	$850
Credit spread (basis points)	282 bps	279 bps

In connection with the refinancing of the Innkeepers portfolio, no additional capital was required to be invested.

“The Chatham and Colony teams seamlessly executed this new loan, working closely with our lenders. We have extended the maturity to 2026 and amended key terms of the loan, including a funding mechanism to ensure that we have adequate reserves to fund necessary capital expenditures and maintain the competitive position of the hotels,” Wegner commented.

Dividend

Chatham currently pays a monthly dividend of $0.11 per common share. Chatham’s 2019 dividend per share of $1.32 represents approximately 71 percent of its 2019 adjusted FFO per share.

2020 Guidance

The company provides guidance but does not undertake to update it for any developments in its business. Achievement of the results is subject to the risks disclosed in the company’s filings with the Securities and Exchange Commission.

The company’s 2020 guidance reflects the following assumptions:

Industrywide RevPAR down 0.5 percent to up 0.5 percent in 2020
- STR projected industry RevPAR growth of 0.0 percent with ADR rising 0.3 percent and occupancy declining 0.3 percent.
- Hilton Hotels & Resorts systemwide RevPAR growth of 0.0 to 1.0 percent
- Marriott International’s 2020 forecast was not known as of this release date
Renovations commencing at the following hotels:
- Residence Inn Anaheim, Calif. and Residence Inn New Rochelle, New York in the first quarter
- Residence Inn Holtsville, New York and Residence Inn Washington, D.C. in the fourth quarter
Capital expenditures of $23 million on existing hotels and $30 million on its development project
No material impact from COVID-19
No additional acquisitions, dispositions, debt or equity issuance

The following bridges 2019 Adjusted FFO per share to the midpoint of the company’s 2020 guidance:

2019 Adjusted FFO per share

$1.85

Same store EBITDA decline

<0.09>

Reduction in interest expense

0.03

Other

<0.03>

2020 Adjusted FFO per share at guidance midpoint

$1.76

Q1 2020

2020 Forecast

RevPAR

$120 to $122

$131 to $133

RevPAR growth

-2.0% to -0.5%

-1.25% to 0.25%

Total hotel revenue

$72.6 to $73.8 M

$318.2 to $322.7 M

Net income (loss)

$(1.5) to $(0.4) M

$19.6 to $23.5 M

Net income (loss) per diluted share

$(0.03) to $(0.01)

$0.41 to $0.49

Adjusted EBITDA

$24.4 to $25.5 M

$123.1 to $127.0 M

Adjusted FFO

$14.1 to $15.2 M

$82.2 to $86.1 M

Adjusted FFO per diluted share

$0.29 to $0.32

$1.72 to $1.80

Hotel EBITDA margins

33.1% to 33.7%

36.9% to 37.4%

Corporate cash administrative expenses

$2.4 M

$9.3 M

Corporate non-cash administrative expenses

$1.2 M

$5.0 M

Interest expense (excluding fee amortization)

$6.5 M

$25.9 M

Non-cash amortization of deferred fees

$0.3 M

$1.2 M

Chatham’s share of JV EBITDA

$2.7 to $3.0 M

$14.9 to $15.5 M

Chatham’s share of JV FFO

$0.5 to $0.8 M

$6.2 to $6.8 M

Weighted average shares/units outstanding

47.8 M

47.9 M

Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA, Adjusted EBITDA and Hotel EBITDA margins are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

About Chatham Lodging Trust

Chatham Lodging Trust is a self-advised, publicly-traded real estate investment trust focused primarily on investing in upscale, extended-stay hotels and premium-branded, select-service hotels. The company owns interests in 137 hotels totaling 18,783 rooms/suites, comprised of 42 properties it wholly owns with an aggregate of 6,283 rooms/suites in 15 states and the District of Columbia and a minority investment in two joint ventures that own 95 hotels with an aggregate of 12,500 rooms/suites.

Logos, product and company names mentioned are the property of their respective owners.

Chatham Lodging Trust Results

Chatham Lodging Trust Announces Fourth Quarter 2019 Results