WEST PALM BEACH, FLA. - Chatham Lodging Trust, a hotel real estate investment trust (REIT) focused on investing in upscale, extended-stay hotels and premium-branded, select-service hotels, today announced that the company has acquired in an off-market transaction two, high-quality, premium-branded hotels comprising 269 rooms at the Domain in Austin, Texas, for $71.2 million, or approximately $265,000 per room. The acquired hotels include the 132-room Residence Inn Austin Domain, which opened in July 2016, and the 137-room TownePlace Suites Austin Domain, which opened in June 2021. Upon stabilization, the Austin Acquisitions are expected to generate an estimated NOI yield of 8.0% to 8.5%.
“Having actively managed our way through the worst era in the history of the hotel industry, our actions have enabled us to emerge from the pandemic with a stronger balance sheet and more liquidity,” highlighted Jeffrey H. Fisher, Chatham’s chief executive officer and president. “This has given us the flexibility and the confidence to be acquisitive when we identify opportunities that fit our stringent criteria, and the Austin Acquisitions are ideal additions to our portfolio. Strategically, our acquisitions are aimed at increasing further our exposure to premium-branded, extended-stay hotels, enhancing portfolio RevPAR and reducing the average age of our portfolio. The Austin Acquisitions check all of these boxes, will be two of our four newest hotels and are expected to producing RevPAR levels higher than our portfolio average.”
The Domain is a rapidly growing mixed-use development known as Austin’s “second downtown” with over 4.2 million square feet of office space, 1.8 million square feet of retail space, plus another 2.8 million additional square feet of office space expected to be delivered over the next two years and another 3.8 million square feet of office space planned thereafter. Companies with large offices located at The Domain include IBM, Amazon, Facebook, Indeed, Expedia / VRBO and Trend Micro Companies. Apple currently is constructing a 2 million square foot office campus approximately 5 miles from the Austin Acquisitions that will cost over $1 billion and eventually accommodate around 15,000 employees. For comparison purposes, Apple Park, Apple’s main campus in Cupertino, Calif., is approximately 2.8 million square feet.
Other key Austin attributes that will drive significant demand include:
- Austin receives over 27 million visitors annually
- Austin is considered one of the nation’s dominant tech hubs after Silicon Valley
- Austin is the third fastest growing city in the United States over the last decade
- Austin was ranked the most desirable real estate investment market in the country in CBRE’s 2021 Investor Intentions survey
- #1 real estate market in 2020 according to the Urban Land Institute and PwC
- In its 2019 rankings, Business Insider ranked Austin the best place to live, and Travel and Leisure ranked Austin a top 10 city to visit
- The Austin office market ranks fourth nationally in terms of rent per square foot at $49 (only behind New York, San Francisco and Silicon Valley) and third nationally in percentage of square feet under construction relative to existing square feet at 10%
- The $260 million Austin FC Stadium recently opened up within a short walking distance of both hotels
“Austin is unique in that it benefits from strong corporate, group and leisure demand as evidenced by many of these market attributes, and the Domain is an absolutely booming market within Austin. The Austin Acquisitions are in an outstanding location within walking distance of everything the Domain has to offer. We will be able to leverage our deep relationships with key accounts in our other markets such as Silicon Valley or Bellevue, Wash., to drive higher RevPAR performance in Austin. Lastly, the Austin Acquisitions will generate premium RevPAR growth over the next cycle, be accretive to FFO and enhance our net asset value,” Fisher concluded.
Chatham funded the purchase using a portion of the proceeds from the recently completed Series A Preferred Share offering. The hotels will be managed by Island Hospitality Management, which is owned by Fisher.
Chatham Lodging Trust Announces Second Quarter 2021 Results
Chatham Lodging Trust also announced results for the second quarter ended June 30, 2021.
Second Quarter 2021 Operating Results
- Portfolio Revenue Per Available Room (RevPAR) – Increased 170 percent to $87, compared to the 2020 second quarter. Average daily rate (ADR) rose 32 percent to $127, and occupancy jumped 105 percent to 68 percent for the 39 comparable hotels owned as of June 30, 2021. - All Chatham hotels remained open throughout the pandemic.
- Net loss – Lessened $18.5 million to a net loss of $8.7 million from a net loss of $27.2 million in the 2020 second quarter. Net loss per diluted share was $(0.18) versus net loss per diluted share of $(0.57) for the same period last year.
- GOP Margin – Generated GOP margins of 43 percent compared to 30 percent in the 2021 first quarter, 25 percent in the 2020 fourth quarter and 19 percent in the 2020 second quarter.
- Adjusted EBITDA – Produced positive Adjusted EBITDA for the fourth consecutive quarter, generating Adjusted EBITDA of $12.5 million in the 2021 second quarter, compared to $1.2 million in the 2021 first quarter, $0.2 million in the 2020 fourth quarter and an Adjusted - EBITDA loss of $3.3 million in the 2020 second quarter.
- Adjusted FFO – Jumped $17.3 million to $4.9 million compared to the 2020 second quarter, the first quarter since the beginning of the pandemic to generate positive Adjusted FFO. Adjusted FFO per diluted share was $0.10, compared to an FFO loss of $(0.26) in the 2020 second quarter.
- Cash Flow/Burn Before Capital Expenditures – Generated second quarter 2021 cash flow before capital expenditures of $4.0 million, an improvement of $11.6 million from first quarter cash burn of $7.6 million. This also compares to cash burn of $9.5 million in the 2020 fourth quarter, burn of $5.1 million in the 2020 third quarter and burn of $12.8 million in the 2020 second quarter. Cash flow/burn includes $2.2 million of principal amortization per quarter.
- Taps Capital Markets for First Preferred Issuance, Under Contract to Acquire Two Hotels – Raised net proceeds of approximately $116 million through the issuance of 6.625% Series A Preferred Shares. Chatham will use a portion of the proceeds to acquire two high-quality, premium-branded, extended-stay hotels in Austin, Texas for $71 million.
“During the pandemic, we actively managed our way through the worst era in the history of the hotel industry, had significantly less cash burn than most of our peers and took a number of steps to improve our liquidity profile and solidify our financial position. Our cash burn before capital of $35 million from April 2020 through March 2021 is expected to be more than fully replenished with approximately $25 million of proceeds from the issuance of common shares during 2021 together with the $4 million of cash flow before CAPEX generated in the 2021 second quarter and expected cash flow before CAPEX in the 2021 third quarter,” highlighted Jeffrey H. Fisher, Chatham’s president and chief executive officer. “The $70 million of proceeds from the sales of the Residence Inn Mission Valley and our stake in the INK JV will be fully reinvested into our Home2 Warner Center development. We also repaid a $13 million mortgage maturing in 2021 and now have no debt maturities until 2023. Finally, in June, we completed our first perpetual preferred share offering, raising $116 million.
“The actions we have taken have enabled us to emerge from the pandemic with a stronger balance sheet and more liquidity than we had going into the pandemic. We have the flexibility to go on offense and make acquisitions or other hotel investments. In fact, with proceeds from our recently completed preferred offering, we will acquire two hotels in the thriving market of Austin, Texas. Additionally, we will open our extended-stay Home2 Suites in Los Angeles in the fourth quarter. All three hotels will increase further our exposure to high-quality, premium-branded, extended-stay hotels, grow our FFO per share and increase our net asset value,” Fisher concluded.