Chatham Lodging Trust Announces Second-Quarter Earnings, Executing Growth Plans

Chatham Lodging Trust (NYSE: CLDT), a hotel real estate investment trust (REIT) focused on upscale extended-stay hotels and premium- branded select-service hotels, today announced results for the quarter ended June 30, 2010.

Operating Results

Revenue per available room (RevPAR) for the 2010 second quarter at the company's hotels improved 10.2 percent to $81.00, led by a 15.5 percent increase in occupancy to 78.2 percent, partially offset by a 4.6 percent decline in average daily rate (ADR) to $103.55.  The 2010 second quarter results reflect the results of operations of the REIT's six hotels since the date these hotels were acquired by the company on April 23, 2010.

Gross operating profit (GOP) margins (hotel operating revenue less hotel operating expenses, before property taxes and insurance) for the company's six hotels were 42.8 percent.  After adjusting for expenses associated with its acquisitions, adjusted FFO per share of $0.08 exceeded consensus analyst expectations of $0.02.

"We had a strong quarter with revenue, adjusted EBITDA and adjusted FFO ahead of expectations, and we are ahead of schedule with respect to the investment of our IPO proceeds," said Jeffrey H. Fisher, chief executive officer and president.  "We closed our IPO on April 21, 2010, and the execution of our strategic plan through the first one hundred days since our IPO has been very positive, with activity continuing at a high level.  Industry-wide RevPAR in March 2010 was positive year over year for the first time in 19 months, so our IPO and first portfolio acquisition were timely.  Four of the six hotels achieved RevPAR growth in excess of 15 percent, with our Nashville-Brentwood property achieving a RevPAR gain of nearly 22 percent for the period ended June 30, 2010."

Acquisitions Activity

The company acquired six Homewood Suite hotels with 813 rooms/suites for a total of $73.5 million in the 2010 second quarter in a single transaction.  Following the end of the second quarter, Chatham acquired the 120-room Hampton Inn & Suites hotel in Houston, Texas for $16.5 million and the 124-suite Residence Inn by Marriott®, Holtsville (Long Island), N.Y. for $21.3 million.  Additionally, Chatham has signed separate agreements to acquire the following four hotels aggregating 448 rooms/suites and expects to close these acquisitions by the end of the third quarter:

• The 133-suite Residence Inn by Marriott® White Plains, N.Y. (Westchester County)
• The 86-suite SpringHill Suites by Marriott®, Washington, Pa.
• The 105-room Courtyard by Marriott®, Altoona, Pa.
• The 124-suite Residence Inn by Marriott®, New Rochelle, N.Y. (Westchester County)

"We have accomplished a great deal in our first 100 days, and we are effectively sourcing additional acquisition opportunities through our network of industry contacts, properties that fit our profile of premium-branded select-service and upscale extended-stay hotels in markets with high barriers to entry near strong demand generators," Fisher commented.  "With the closing of these transactions, our portfolio will comprise 1,505 rooms/suites, and we will have fully invested the proceeds from our initial public offering.  With the acquisition of these four additional hotels, we will have invested $177 million since the completion of our initial public offering, including the assumption of $12.5 million of debt."

Property Upgrade Status

Chatham is in the process of executing property improvement plans (PIPs) associated with the six hotels acquired during the 2010 second quarter.  "We will begin our PIPs during the 2010 third quarter and expect to complete them by the summer of 2011.  In addition to $11 million it will cost us to complete the PIPs, we will invest additional funds into these properties to enhance the guest experience and improve the properties' competitive position in their respective markets.  We now expect to spend a total of approximately $12.5 million on these hotels," Fisher commented.

Balance Sheet

As of June 30, 2010, the company had $98.7 million of cash and cash equivalents.  During the second quarter, the company used available cash to acquire the six hotels for $73.5 million.  Subsequent to the acquisition of the Houston Hampton Inn & Suites and Residence Inn Holtsville, the company had $63.4 million in cash and cash equivalents.  The company has a remaining obligation of approximately $5.2 million that will be paid to the underwriters for the company's IPO once Chatham has invested 85 percent of the initial public offering proceeds, including proceeds from the concurrent private placement to company founder and CEO Fisher, in hotel properties.

Capital Structure

The company raised $168.9 million in its initial public offering and private placement to Fisher after deducting the full amount of the underwriters discount, including that portion the underwriters agreed to defer until the company has invested 85 percent of the combined proceeds.  The company had no debt as of June 30, 2010.  Chatham signed a commitment letter with a group of lenders for an $85 million senior secured credit facility.  Barclays Capital and Regions Capital Markets are the joint lead arrangers for the revolving facility, with Barclays Bank PLC serving as the administrative agent and Regions Bank acting as the syndication agent.  Other banks providing commitments for the credit facility include Credit Agricole Corporate and Investment Bank, UBS Investment Bank and US Bank National Association.  

"The successful completion of the secured line of credit will support the continued execution of our growth strategy," said Julio Morales, chief financial officer.  "Our ability to obtain new financing, via either debt or equity, will be a critical aspect of our future growth.  We will maintain low leverage ratios as we continue to pursue disciplined acquisitions."  

Strategic Plan Execution

In its IPO road show, the company provided guidance regarding its growth strategy, corporate overhead costs and timing of dividend payments:

• Within one year, the company expects to complete the acquisition of two hotel portfolios comprising 10 hotels for approximately $135 million and an additional $50 million of other acquisitions.
• The company projected that its corporate general and administrative expenses, excluding non-cash stock compensation expense and acquisition expenses, would be slightly less than $3 million per year.
• The company expects to declare a dividend in the third quarter with payment made in the 2010 fourth quarter.

"We are well ahead of our growth plan as we expect to fully invest our IPO proceeds by the end of the third quarter and have incremental purchasing power through borrowing capacity under our new line of credit," Fisher said.  "We still expect that our base line general and administrative costs will be in line with our previous guidance, and furthermore, in consideration of the better than expected operating results of our current hotel portfolio as well as the pending acquisitions, we remain confident that we will begin paying a dividend this year."

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