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Chatham Lodging Trust announces 1st Quarter 2020 results

Portfolio Revenue per Available Room (RevPAR) declined 21.8 percent to $96, compared to the 2019 first quarter. Average daily rate (ADR) decreased 5.2 percent to $153, and occupancy dropped 17.5 percent to 63 percent.

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 and owns 134 hotels wholly or through joint ventures, announced results for the first quarter ended March 31, 2020.

First Quarter 2020 Operating Results

  • Portfolio Revenue per Available Room (RevPAR) – Declined 21.8 percent to $96, compared to the 2019 first quarter. Average daily rate (ADR) decreased 5.2 percent to $153, and occupancy dropped 17.5 percent to 63 percent.
  • Net income (loss) – Declined $29.7 million to a loss of $(28.1) million for the 2020 first quarter compared to the 2019 first quarter, due primarily to a $15.3 million impairment on its investment in the Inland joint venture. Net loss per diluted share was $0.59 versus net income per diluted share of $0.03 last year.
  • Adjusted EBITDA – Decreased $10.5 million to $16.5 million.
  • Adjusted FFO – Declined $9.9 million to $6.3 million. Adjusted FFO per diluted share was $0.13, compared to $0.34 in the 2019 first quarter.
  • Operating Margins – Comparable hotel gross operating profit margins weakened 590 basis points to 38.0 percent. Comparable – Hotel EBITDA margins were down 800 basis points to 27.6 percent.

2020 RevPAR performance for Chatham’s six largest markets include:

  • Silicon Valley RevPAR declined 30.8 percent with one hotel under renovation.
  • RevPAR at its two San Diego hotels decreased 22.0 percent.
  • Washington, D.C. RevPAR weakened 15.5 percent.
  • RevPAR at its three coastal hotels in Maine and New Hampshire declined 18.0 percent.
  • At its four Houston hotels, RevPAR decreased 23.2 percent.
  • Two Los Angeles-area hotels experienced a 25.6 percent RevPAR decline.

Hotel Investments
During the 2020 first quarter, the company completed the renovations of the Residence Inn Sunnyvale, Calif., #2. The company commenced renovations on the Residence Inn in Anaheim, Calif., and the Residence Inn in New Rochelle, New York during the first quarter with expected completion in the second quarter. All remaining renovations planned to commence later in 2020 have been deferred until at least 2021.

Other than the Warner Center development, the company also has suspended all remaining capital projects, other than projects required by local fire and life safety regulations or expenditures for emergency purposes.

Hotel Under Development
Chatham is 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 approximately $27 million. The company has self-mandated a slowing of the development activity due to restrictions related to COVID-19.

Capital Markets & Capital Structure
As of March 31, 2020, the company had net debt of $609.6 million (total consolidated debt less unrestricted cash). Total debt outstanding was $667.8 million at an average interest rate of 4.4 percent, comprised of $494.6 million of fixed-rate mortgage debt at an average interest rate of 4.7 percent and $173.0 million outstanding on the company’s $250 million senior unsecured revolving credit facility, which currently carries a 3.5 percent interest rate.

Chatham’s leverage ratio was approximately 35.6 percent on March 31, 2020, 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 March 31, 2020, Chatham’s proportionate share of joint venture debt and unrestricted cash was $165.9 million and $1.8 million, respectively.

On May 6, 2020, Chatham amended its credit facility. Key terms of the amendment, which are applicable during the waiver period, are as follows:

  • Waiver of key financial covenants through March 31, 2021.
  • Allows for full utilization of entire $250 million credit facility.
  • Applicable margin on borrowings set at LIBOR plus 250 basis points if borrowings on the credit facility are under $200 million and LIBOR plus 300 basis points if borrowings are over $200 million. LIBOR floor is set at 50 basis points.
    – The applicable margin was set to increase to 225 basis points.
  • Equity pledges on the 18 borrowing base assets.
  • Must maintain minimum liquidity of $25 million whether in cash or available capacity under the credit facility.
  • Certain limitations on the incurrence of additional indebtedness.
  • Common share dividends are allowed but limited to 100 percent of REIT taxable income, and any dividends paid would include a cash component no greater than the minimum percentage allowed under the Internal Revenue Code.

Joint Venture Investments
During the 2020 first quarter, the Innkeepers and Inland joint ventures contributed Adjusted EBITDA and Adjusted FFO of approximately $1.8 million and $(0.3) million, respectively, compared to 2019 first quarter Adjusted EBITDA and FFO of approximately $3.2 million and $0.7 million, respectively.

RevPAR for the two joint ventures was down approximately 18 percent in the 2020 first quarter and Chatham received no distributions from its joint venture investments during the quarter.

Both joint ventures have not made their respective debt service payments in April and May. Colony and Chatham are in active negotiations with the respective servicers to seek various relief, including interest forbearance, temporary use of capital expenditure reserves to fund interest payments and hotel operations. The debt of the joint ventures is non-recourse to Chatham except for customary non-recourse carveout provisions such as fraud, material and intentional misrepresentations and misapplication of funds, and defaults under the joint venture debt do not trigger cross-defaults under any Chatham debt.

COVID-19 Hotel Operations Update
Chatham began to see accelerating declines in nightly room revenue during the second week of March. Chatham’s nightly portfolio occupancy fell below 60 percent on March 12, 2020. Since that date, the lowest single night occupancy was approximately 17 percent on March 29, 2020 and since March 29, 2020, the highest single night occupancy was 30 percent on May 6, 2020. Occupancy for the month of April was 24 percent, month-to-date occupancy in May is 29 percent through May 7, 2020. ADR for the portfolio has declined since the second week of March. Since then, the lowest nightly ADR occurred on May 7, 2020 at $90. ADR for the month of April was $101 and month-to-date ADR in May is $91. Since March 12, 2020, the lowest single night RevPAR was $20 on March 29, 2020 and the highest single night RevPAR since March 29, 2020 was $28 on May 6, 2020.

“Our teams at Chatham and Island Hospitality are working vigorously to maximize revenue, and we have aggressively cut operating costs and deferred all non-essential capital expenditures to minimize the adverse effects on cash flow,” commented Jeffrey H. Fisher, Chatham’s president and chief executive officer. “We have the experience to persevere through difficult situations having lived through numerous cycles and shocks to the industry.  We are thankful to have this platform that enables us to move effectively, aggressively and quickly.”

Chatham and Island Hospitality have taken dramatic actions at its hotels, including:

  • Laid off or furloughed almost 70 percent of its employees beginning in mid-March.
  • Reduced service levels at hotels (less frequent room cleaning, reduced or eliminated breakfast offerings and hospitality hours).
  • Reduced staffing at low occupancy hotels to absolute minimum levels.
  • Consolidated key operations of nearby hotels (Silicon Valley, Houston Medical Center, Houston West University, Dallas, Denver and Summerville) to gain greater economies of scale.
  • Successfully secured unique sources of demand for many of Chatham’s hotels through exhaustive direct sales efforts.
  • Over 70 percent of Chatham’s 2019 hotel EBITDA was generated from extended-stay brands, with Residence Inn and Homewood Suites comprising approximately 66 percent of its hotel EBITDA.  Additionally, more than 96 percent of Chatham’s rooms are characterized as limited-service rooms, the highest percentage among public lodging REITs.

“These attributes position us well for current demand as evidenced by our ability to sharply increase RevPAR index in March and April. As markets reopen, we are situated to capture more of the forthcoming demand and better bridge the gap to recovery. Our hotels are benefitting from the closure of many other (mostly full-service) hotels in our markets, and since our hotels are open, there will be minimal costs related to ramping up our hotels when the economic recovery begins. We are able to generate more revenue, retain more employees, lose less money and better our overall cash position by remaining open,” Fisher noted.

COVID-19 Corporate Update

  • Chatham has taken aggressive corporate actions to mitigate the operating and financial impact of the COVID-19 (coronavirus) pandemic. Some of the major steps include:
  • Suspended its monthly dividend entirely, preserving approximately $5.3 million per month and approximately $64 million on an annualized basis.
  • Reduced its 2020 capital expenditures budget by approximately $10 million or 45 percent.
  • Drew down cash on its credit facility, increasing its cash liquidity position to approximately $58 million as of March 31, 2020.
  • Amended its credit facility on May 6, 2020 to provide covenant relief and full access to its entire $250 million capacity.
  • Chatham currently has 6 unencumbered hotels available as collateral to source additional liquidity.
  • Negotiated three-month deferral of interest, principal amortization and capital expenditure reserve contributions for its – Residence Inn New Rochelle mortgage loan.
  • Temporarily reduced compensation for its executive officers and employees. Fisher and Dennis Craven, executive vice president and chief operating officer, have both volunteered to reduce their salaries by 50 percent. Jeremy Wegner, chief financial officer, and all other corporate employees have temporarily reduced their salary by 25 percent.
  • Lessened compensation for its Board of Trustees who voluntarily agreed to temporarily reduce their proposed 2020 base compensation by approximately 25 percent.

“We have taken meaningful short-term measures to protect long-term value for our shareholders and employees, preserving as much cash flow as possible and making additional liquidity available should the need arise if the recovery is slower than expected,” stated Dennis Craven, Chatham’s chief operating officer. “We appreciate the commitment of our employees and support of our lenders, banks and vendors during these unprecedented times. We are hopeful that people will have the confidence to resume travel, though we expect demand will recover slowly. Our actions provide us the stability to withstand a slow recovery.”

The company withdrew its original guidance for the remainder of 2020 on March 10, 2020 and will not issue new guidance due to the uncertainty caused by the COVID-19. The company does not expect to pay any additional dividends for the remainder of 2020.

Chatham has estimated liquidity of $135 million including cash of approximately of $58 million as of March 31, 2020 and remaining borrowing capacity on the credit facility of $77 million. On a pro forma basis as of March 31, 2020, assuming the $250 million facility is fully drawn plus $495 million of outstanding secured debt, the company’s pro forma leverage would be 40 percent based on the ratio of the company’s pro forma net debt to hotel investments at cost. Additionally, Chatham has six unencumbered hotels with a total aggregate investment of $276 million as of March 31, 2020.

Chatham’s current estimate of monthly cash flow after debt service and before capital expenditures is projected based on certain revenue per available room (RevPAR) levels (April RevPAR was approximately $24) and does not include any payments related to its Warner Center development which has been temporarily slowed due to restrictions related to COVID-19.

Vicky Karantzavelou
Co-Founder & Chief Editor - TravelDailyNews Media Network | Website

Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales.

She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.

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