Chatham Lodging Trust reported a slight increase in Q3 2024 RevPAR and net income of $4.3 million, with plans to sell five older hotels to reduce debt.
WEST PALM BEACH, FLA. – Chatham Lodging Trust, a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels, announced results for the third quarter ended September 30, 2024.
Third Quarter 2024 Operating Results
- Portfolio Revenue Per Available Room (RevPAR) – Generated RevPAR growth of 2.1 percent excluding hotels under renovation during the 2024 and 2023 third quarters, as well as the Home2 Phoenix Downtown that opened in January 2024.
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- RevPAR increased 1.3 percent to $150 compared to the 2023 third quarter for the 38 comparable hotels. Average daily rate (ADR) was up 1.3 percent to $188, and occupancy was flat at 80 percent.
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- RevPAR for the Silicon Valley and Bellevue hotels was up 8 percent over the 2023 third quarter.
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- October RevPAR accelerated 6 percent over 2023 to $158, the second highest October RevPAR since Chatham’s inception.
- Net Income – Produced net income of $4.3 million compared to net income of $7.5 million in the 2023 third quarter. Net income per diluted common share was $0.05 versus $0.11 during the 2023 third quarter.
- Hotel EBITDA Margin – Generated margins of 37 percent in the 2024 third quarter compared to 2023 second quarter margins of 38 percent.
- Adjusted EBITDA – Produced third quarter adjusted EBITDA of $29.6 million versus $30.6 in 2023.
- Adjusted FFO – Earned adjusted FFO of $17.6 million in the 2024 third quarter compared to $20.2 million in the 2023 third quarter. Adjusted FFO per diluted share was $0.35 in 2024 and $0.40 in 2023.
- Asset Recycling – Entered into separate agreements to sell five hotels with an average age of 23 years, forecast 2024 RevPAR of $101 (among the six lowest RevPAR hotels in the portfolio) and due for renovation in the next 24 months. The transactions, if closed, will generate net proceeds of approximately $80 million, with funds being used initially to reduce debt.
The following chart summarizes the consolidated financial results for the three- and nine-months ended September 30, 2024, and 2023, based on all properties owned during those periods ($ in millions, except margin percentages and per share data):
| Three Months Ended | Nine Months Ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net income (loss) to common shareholders | $2.3 | $5.3 | $(0.1) | $5.7 | |||
| Diluted net income (loss) per common share | $0.05 | $0.11 | $— | $0.11 | |||
| GOP Margin | 44.5% | 44.9% | 43.4% | 44.7% | |||
| Hotel EBITDA Margin | 37.1% | 37.9% | 36.0% | 37.1% | |||
| Adjusted EBITDA | $29.6 | $30.6 | $79.8 | $80.2 | |||
| AFFO | $17.6 | $20.2 | $45.5 | $49.8 | |||
| AFFO per diluted share | $0.35 | $0.40 | $0.89 | $0.99 | |||
| Dividends per common share | $0.07 | $0.07 | $0.21 | $0.21 | |||
Jeffrey H. Fisher, Chatham’s president and chief executive officer, commented, “It’s 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. We currently have five hotels under contract to be sold which would result in net proceeds of approximately $80 million if the transactions close.”
Hotel RevPAR Performance
The below chart summarizes key hotel financial statistics for the 38 comparable hotels owned as of September 30, 2024, compared to the 2023 and 2019 second quarters:
| Q3 2024 RevPAR | Q3 2023 RevPAR | Q3 2019 RevPAR | |||
| Occupancy | 80% | 80% | 85% | ||
| ADR | $188 | $185 | $176 | ||
| RevPAR | $150 | $148 | $150 |
The below chart summarizes RevPAR statistics by month for Chatham’s comparable hotels:
| July | August | September | October | ||||
| Occupancy – 2024 | 81% | 79% | 80% | 83% | |||
| ADR – 2024 | $192 | $182 | $189 | $191 | |||
| RevPAR – 2024 | $155 | $144 | $151 | $158 | |||
| RevPAR – 2023 | $154 | $143 | $146 | $148 | |||
| % Change in RevPAR vs. prior year | —% | —% | 3% | 6% |
Fisher highlighted, “We were very pleased with our same-store RevPAR growth of 2.1 percent after excluding hotels under renovation, far surpassing industry wide RevPAR growth of less than 0.9 percent. Our five technology dependent hotels in Silicon Valley and Bellevue produced strong RevPAR growth of 8 percent in the quarter, and growth surged to 14 percent in October at these same five hotels as we continue to benefit from surging tech demand.
“Fundamentals in our markets remain strong, as July and August market RevPAR grew 2 percent, and we closed out the quarter with September RevPAR growth of 3 percent and strong growth of 6 percent in October. Monthly RevPAR in September and October of $151 and $158 represents the second highest monthly RevPAR since our inception for each of those respective months. Business travel demand, our most important segment, continues to gain momentum as we experienced broad gains across our portfolio. Within our leisure market hotels, RevPAR rose slightly when we exclude our Savannah hotel that was under renovation for a portion of August and September,” Fisher concluded.
RevPAR performance for Chatham’s largest markets comprise 71 percent of trailing twelve-month hotel EBITDA (based on EBITDA contribution over the last twelve months) is presented below:
| % of LTM EBITDA | Q3 2024 RevPAR | Change vs. Q3 2023 | Q3 2023 RevPAR | Q3 2019 RevPAR | |||||
| 38 – Hotel Portfolio | $150 | 1% | $148 | $150 | |||||
| Silicon Valley | 14% | $148 | 8% | $137 | $205 | ||||
| Coastal Northeast | 9% | $264 | 4% | $253 | $225 | ||||
| Los Angeles | 9% | $175 | (4)% | $181 | $174 | ||||
| Washington, D.C. | 8% | $153 | 6% | $144 | $152 | ||||
| Greater New York | 8% | $182 | 2% | $178 | $153 | ||||
| San Diego | 7% | $216 | 5% | $206 | $185 | ||||
| Dallas | 6% | $86 | (11)% | $97 | $86 | ||||
| Austin | 5% | $121 | 5% | $115 | $125 | ||||
| Seattle | 5% | $184 | 7% | $172 | $188 |
Within Dallas, the Courtyard by Marriott Addison was under renovation for most of the quarter. “Continuing a noteworthy trend, our primarily tech-driven hotels in Silicon Valley and Bellevue led the way with combined RevPAR growth of 8 percent in the quarter, driven by a 3 percent gain in occupancy and a 5 percent gain in ADR. Occupancy reached 78 percent in the quarter, and ADR reached $199,” highlighted Dennis Craven, Chatham’s chief operating officer. “Excluding Silicon Valley and Bellevue, second quarter RevPAR of $148 exceeds 2019 RevPAR of $138.
“A great indicator for our portfolio is that seven of our top nine markets produced RevPAR growth, highlighting the broad growth we are experiencing. Washington, D.C., Greater New York, San Diego, Austin and Seattle are benefitting from primarily business travel demand. Our Coastal Northeast primarily leisure portfolio bucked the trends of most leisure markets and continued to see RevPAR grow.”
Approximately 65 percent of Chatham’s hotel EBITDA over the last twelve months was generated from its extended-stay hotels, the highest concentration of extended-stay rooms of any public lodging REIT. Third quarter 2024 occupancy, ADR and RevPAR for each of Chatham’s major brands is presented below (number of hotels in parentheses):
| Residence Inn (16) | Homewood Suites (6) | Courtyard (4) | Hampton Inn (3) | HGI (3) | |||||
| % of LTM EBITDA | 49% | 10% | 9% | 8% | 6% | ||||
| Occupancy – 2024 | 82% | 78% | 63% | 93% | 85% | ||||
| ADR – 2024 | $198 | $149 | $143 | $238 | $240 | ||||
| RevPAR – 2024 | $163 | $116 | $90 | $220 | $204 | ||||
| RevPAR – 2023 | $155 | $122 | $89 | $205 | $207 | ||||
| % Change in RevPAR | 5% | (4)% | 1% | 8% | (2)% |
Hotel Operations Performance
The below chart summarizes key hotel operating performance measures for the three-months ended September 30, 2024, and 2023. Gross operating profit is calculated as hotel EBITDA plus property taxes, ground rent and insurance (in millions, except for RevPAR and margin percentages):
| Q3 2024 | Q3 2023 | |||
| RevPAR | $150 | $148 | ||
| Gross operating profit | $38.7 | $38.8 | ||
| Hotel EBITDA | $32.2 | $32.8 | ||
| GOP margin | 44% | 45% | ||
| Hotel EBITDA margin | 37% | 38% |
Craven concluded, “For our 38 same-store hotels, our GOP margins only declined 40 basis points compared to the 2023 third quarter, encouraging given RevPAR growth of 1 percent. The main driver of this is moderating wage pressures and an efficient workforce. Our headcount is down approximately 1 percent from year-end. Reduced labor costs actually improved margins 10 basis points year-over-year, while increased benefits-related costs adversely impacted our margins by approximately 60 basis points. Encouragingly, we are hopeful based on preliminary estimates that employee benefits costs will be essentially flat next year for the first time in a long time.”
Corporate Update
The below chart summarizes key financial performance measures for the three months ended September 30, 2024, and 2023. Corporate EBITDA is calculated as hotel EBITDA minus cash corporate general and administrative expenses and is before debt service and capital expenditures. Debt service includes interest expense and principal amortization on its secured debt, as well as dividends on its preferred shares of $2.0 million per quarter. Cash flow before CapEx and common dividends is calculated as corporate EBITDA less debt service and preferred share dividends. Amounts are in millions, except RevPAR.
| Q3 2024 | Q3 2023 | |||
| RevPAR | $150 | $148 | ||
| Hotel EBITDA | $32.2 | $32.8 | ||
| Corporate EBITDA | $29.6 | $30.6 | ||
| Debt Service & Preferred dividends | $(10.2) | $(10.1) | ||
| Cash flow before CapEx and Common dividends | $19.4 | $20.5 |
Capital Markets & Capital Structure
As of September 30, 2024, Chatham had net debt of $419 million (total consolidated debt less unrestricted cash). Total debt outstanding as of September 30, 2024, was $439 million at an average interest rate of 6.8 percent, comprised of $174 million of fixed-rate mortgage debt at an average interest rate of 6.7 percent, $140 million outstanding on its term loan at a rate of 6.9 percent and $125 million outstanding on the company’s $260 million senior unsecured revolving credit facility at a rate of 6.9 percent. Based on the ratio of Chatham’s net debt to hotel investments at cost, the company’s leverage ratio was approximately 24 percent.
“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,” stated Jeremy Wegner, Chatham’s chief financial officer. “Additionally, with $265 million of floating rate debt, we will benefit from an expected declining interest rate environment. Based on outstanding debt as of September 30, 2024, for every 100 basis point decline in SOFR, our AFFO per share will increase $2.6 million or $0.05 per share.”
Hotel Investments
During the third quarter, the company invested capital expenditures of $6 million and approximately $25 million year-to-date. Chatham’s 2024 budget is approximately $37 million. A renovation of the Courtyard Dallas Addison commenced in July and was completed in the third quarter. A renovation of the SpringHill Suites Savannah commenced in August and will be completed in the fourth quarter. A renovation of the Residence Inn Bellevue, Wash., will commence in the fourth quarter and be completed in the 2025 first quarter. Additionally, the renovation of the Hilton Garden Inn Portsmouth, N.H., scheduled for early 2025, will commence in the 2024 fourth quarter.
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