• Proceeds from Hotel Sales: Expected to generate approximately $80 million from selling five hotels.
• RevPAR Growth: 2.1% growth excluding renovations, compared to industry growth of 0.9%.
• Same-Store GOP Margin Decline: Limited to 40 basis points.
• Absolute GOP Margins: 45% for the quarter.
• Third Quarter RevPAR: $150, exceeding 2019 levels.
• Silicon Valley and Bellevue Hotels RevPAR Growth: 8% in the quarter, 14% in October.
• Occupancy Rates: 79% on Monday, 84% on Tuesday and Wednesday, 79% on Thursday.
• Weekday ADR: Up 2% to $186.
• Hotel EBITDA: $32.2 million for Q3 2024.
• Adjusted EBITDA: $29.6 million for Q3 2024.
• Adjusted FFO: $0.35 per share for Q3 2024.
• Hotel EBITDA Margin: 37.1% for Q3 2024.
• Net Debt to LTM EBITDA: 4.2 times as of September 30th.
• Q4 Guidance RevPAR Growth: Expected 1% to 3%.
• Q4 Guidance Adjusted EBITDA: $19 million to $21 million.
• Q4 Guidance Adjusted FFO per Share: $0.15 to $0.18.

• Warning! GuruFocus has detected 3 Warning Signs with CLDT.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Chatham Lodging Trust (NYSE:CLDT) has entered into contracts to sell five hotels, expected to generate approximately $80 million in proceeds, which will be used to pay down debt and make additional investments.
• The company reported strong liquidity with the lowest leverage levels in over a decade and only $30 million of debt maturing over the next year.
• RevPAR growth continues to exceed industry and peer performance, with a 2.1% increase excluding renovation impacts, compared to the industry's 0.9% growth.
• Chatham Lodging Trust (NYSE:CLDT) achieved strong GOP margins of 45% and hotel EBITDA margins of 37.1% in Q3 2024.
• The company is well-positioned to benefit from declining interest rates, with significant exposure to floating rate debt, potentially increasing FFO by $2.6 million for every 100 basis points decline in rates.

Negative Points

• Five hotels being sold are among the lowest RevPAR performers in the portfolio, indicating potential challenges in maintaining overall portfolio performance.
• Despite improvements, the recovery of the five tech-driven hotels in Silicon Valley and Bellevue has been sluggish, impacting overall performance.
• Benefit costs increased by 18% in the quarter, adversely impacting margins by approximately 60 basis points.
• Insurance costs have risen by 20% year-over-year, impacting margins by another 20 basis points.
• Utility costs have increased, adversely impacting margins by 20 basis points, indicating ongoing operational cost pressures.

Q & A Highlights

Q: RevPAR sequentially improved in September and into October relative to earlier in the quarter. Is this a shift in demand or a continuation of steady improvement? A: Jeffrey H. Fisher, CEO & President: It's more about the end of the leisure summer component and a return to business travel post-summer. September and October are typically times to get back to work, leading to a pickup in corporate demand.

Q: What is your target leverage, and how are you thinking about asset sales given the current demand environment and solid balance sheet? A: Jeremy Wegner, VP & CFO: We aim for a leverage range of 4.75 to 5.25 times, slightly above our current level. Jeffrey H. Fisher, CEO & President: We are focused on recycling capital, selling assets to enhance growth, and looking at opportunities to acquire newer assets to lower ongoing capital requirements and increase free cash flow.

Q: Can you discuss the current market conditions in terms of volume and pricing for asset sales? A: Jeffrey H. Fisher, CEO & President: There hasn't been much dramatic change, but there is increased activity and interest from brokers and sellers testing the market, indicating potential opportunities.

Q: Given the improving demand environment, is there anything specific you need to see to accelerate acquisitions? A: Jeffrey H. Fisher, CEO & President: We are actively looking at opportunities and expect more favorable conditions in 2025. Our focus is on enhancing internal growth, reducing capital requirements, and lowering the portfolio's average age.

Q: How are you managing the balance between asset sales and acquisitions in the current market? A: Jeffrey H. Fisher, CEO & President: We are committed to recycling capital by selling older assets and reinvesting in newer properties to improve portfolio quality and growth potential, while maintaining a solid balance sheet.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.