Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CLDT > SEC Filings for CLDT > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for CHATHAM LODGING TRUST

Form 10-Q for CHATHAM LODGING TRUST


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011. In this report, we used the terms "the Company, "we" or "our" to refer to Chatham Lodging Trust and its subsidiaries, unless the context indicates otherwise.

Statement Regarding Forward-Looking Information

The following information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include information about possible or assumed future results of the lodging industry, our business, financial condition, liquidity, results of operations, cash flow and plans and objectives. These statements generally are characterized by the use of the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the local, national and global economic conditions, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global real estate conditions, declines in lodging industry fundamentals, increased operating costs, seasonality of the lodging industry, our ability to obtain debt and equity financing on satisfactory terms, changes in interest rates, our ability to identify suitable investments, our ability to close on identified investments and inaccuracies of our accounting estimates. Given these uncertainties, undue reliance should not be placed on such statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the "Risk Factors" section in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as updated elsewhere in this report.

Overview

We are a self-advised hotel investment company organized in October 2009 that commenced operations in April 2010. Our investment strategy is to invest in premium-branded upscale extended-stay and select-service hotels in geographically diverse markets with high barriers to entry near strong demand generators. We may acquire portfolios of hotels or single hotels. We expect that a significant portion of our portfolio will consist of hotels in the upscale extended-stay or select-service categories, including brands such as Homewood Suites by Hilton®, Doubletree Suites by Hilton®, Residence Inn by Marriott®, Hyatt® Summerfield Suites, Courtyard by Marriott®, Hampton Inn® and Hampton Inn and Suites®.

We focus on premium-branded, select-service hotels in high growth markets with high barriers to entry concentrated primarily in the 25 largest metropolitan markets in the United States.

Our long-term goal is to maintain our leverage at a ratio of net debt to investment in hotels (at cost) at less than 35 percent. However, during what we believe are the early stages of the lodging cycle recovery, we and our Board of Trustees are comfortable at levels in excess of that amount.

Future growth through acquisitions will be funded by issuances of both common and preferred shares, draw-downs under our available credit facility, the incurrence or assumption of individually secured hotel debt or, potentially, proceeds from dispositions of assets or distributions from the JV.

We believe 2012 and beyond will offer attractive growth for the industry and for us. We intend to acquire quality assets at attractive prices, improve their returns through knowledgeable asset management and seasoned, proven hotel management while remaining prudently leveraged.

We elected to qualify for treatment as a real estate investment trust ("REIT") for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), we cannot operate our hotels. Therefore, our operating partnership, Chatham Lodging, L.P. (the "Operating Partnership"), and its subsidiaries lease our hotel properties to taxable REIT lessee subsidiaries ("TRS Lessees"), who will in turn engage eligible independent contractors to manage the hotels. Each of these lessees is treated as a taxable REIT subsidiary for federal income tax purposes and is consolidated within our financial statements for accounting purposes. However, since we control both the Operating Partnership and the TRS Lessees, our principal source of funds on a consolidated basis is from the operations of our hotels. The earnings of the TRS Lessees are subject to taxation as regular C corporations, as defined in the Code, potentially reducing the TRS Lessees' cash available to pay dividends to us, and therefore our funds from operations and the cash available for distribution to our shareholders.


Table of Contents

Financial Condition and Operating Performance Metrics

We measure financial condition and hotel operating performance by evaluating financial metrics and measures such as:

• Revenue Per Available Room ("RevPAR"),

• Average Daily Rate ("ADR"),

• Occupancy percentage,

• Funds From Operations ("FFO"),

• Adjusted FFO,

• Earnings before interest, taxes, depreciation and amortization ("EBITDA"), and

• Adjusted EBITDA.

We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each hotel's contribution toward providing income to our shareholders through increases in distributable cash flow and increasing long-term total returns through appreciation in the value of our common shares. RevPAR, ADR and Occupancy are hotel industry measures commonly used to evaluate operating performance. RevPAR, which is calculated as total room revenue divided by total number of available rooms, is an important metric for monitoring hotel operating performance.

"Non-GAAP Financial Measures" provides a detailed discussion of our use of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA and a reconciliation of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA to net income or loss, measurements recognized by generally accepted accounting principles in the United States ("GAAP").

Results of Operations

Industry outlook

We believe that the hotel industry's performance is correlated to the performance of the economy overall, and with key economic indicators such as GDP growth, employment trends and corporate profits. We expect a continuing improvement in the performance of the hotel industry. As reported by Smith Travel Research, monthly industry RevPAR has been higher year over year since March 2010. As reported by Smith Travel Research, industry RevPAR in 2011 was up 8.3% and was up 6.9% year to date through September 30, 2012. Industry analysts such as Smith Travel Research and PKF Hospitality are projecting industry RevPAR to grow 4-7% in 2012 based on sustained economic growth, lack of new supply and increased business travel spending. Of the 4-7% projected growth, most expect ADR growth to comprise approximately two-thirds of the expected RevPAR growth. We are currently projecting RevPAR at our hotels to grow 6-8% in 2012 with ADR comprising approximately half of our RevPAR growth. Industry analysts and other public lodging companies have begun to refine their RevPar projections for 2013. All expect RevPar to continue to grow in 2013, albeit at levels less than what the industry experienced in 2011 and 2012. We expect ADR increases to comprise a majority of the RevPar increases for the remainder of 2012 and to continue to do so in 2013.

Comparison of the Three Months Ended September 30, 2012 ("2012") to the Three Months Ended September 30, 2011 ("2011")

Results of operations for the three months ended September 30, 2012 include the operating activities of our 18 wholly-owned hotels and our investment in the JV. We owned 18 hotels at September 30, 2011, but not for all of the three months ended as five hotels (the "5 Sisters") we acquired from Innkeepers USA Trust ("Innkeepers") were acquired on July 14, 2011. Accordingly, the comparisons below are influenced by the fact that the 18 hotel portfolio was not owned for all of the third quarter of 2011.

As reported by Smith Travel Research, industry RevPAR for the three months ended September 30, 2012 and 2011 was up 5.1% and up 7.9%, for the comparative 3 months in the prior year, respectively. RevPAR at our hotels was up 5.8% and 5.4% in the 2012 and 2011 periods. Approximately two-thirds of our RevPAR growth in the 2012 third quarter was attributable to occupancy.

Revenues

Total revenue was $27.0 million for the quarter ended September 30, 2012 compared to total revenue of $23.6 million for the 2011 period. Since all of our hotels are select service or limited service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage revenue or large group conference facilities. Room revenue was $25.3 and $22.6 million for the quarters ended September 30, 2012 an 2011, respectively. ADR at our hotels was up 3.6% as well as increased occupancy of 2.2% for the quarter.


Table of Contents

Since room revenue is the primary component of total revenue, our revenue results are dependent on maintaining and improving hotel occupancy, ADR and RevPAR at our hotels. Occupancy, ADR, and RevPAR results are presented in the following table in each period to reflect operation of the hotels regardless of ownership:

                  For the three months ended        For the three months ended
                      September 30, 2012                September 30, 2011
     Occupancy                           86.2 %                            84.4 %
     ADR         $                     132.29      $                     127.72
     RevPar      $                     114.09      $                     107.83

Other operating revenue, comprised of meeting room, gift shop, in-room movie and other ancillary amenities revenue, was $1.3 and $0.9 million for the quarters ended September 30, 2012 and 2011, respectively. As a percentage of total revenue, other operating revenue was 4.6% and 3.9% for the quarters ended September 30, 2012 and 2011.

Cost reimbursements from unconsolidated real estate entities, comprised of payroll costs at the JV where the Company is the employer, was $0.4 million and $0.0 million for the quarters ended September 30, 2012 and 2011, respectively.

Hotel Operating Expenses

Hotel operating expenses increased $1.5 million to $14.3 million for the three months ended September 30, 2012 compared to $12.8 million for the three months ended September 30, 2011. As a percentage of total revenue, hotel operating expenses were 53% for 2012 and 54% for 2011, which decrease is expected as ADR grows year over year. Room expenses, which are the most significant component of hotel operating expenses, increased $0.9 million from $4.6 million in 2011 to $5.5 million in 2012 or 19.7% and 20.2% of total revenue for the three months ended September 30, 2011 and 2012, respectively. Other direct expenses, which include management and franchise fees, insurance, utilities, repairs and maintenance, advertising and sales, and hotel general and administrative expenses increased $0.7 million from $8.2 million in 2011 to $8.9 million in 2012.

Depreciation and Amortization

Depreciation and amortization expense remained unchanged at $3.4 million for the three months ended September 30, 2011 and September 30, 2012. Depreciation is recorded on our hotel buildings over 40 years from the date of acquisition. Depreciable lives of hotel furniture, fixtures and equipment are generally three to ten years between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded on a straight line basis over the term of the respective franchise agreement.

Personal Property Taxes and Insurance

Total property tax and insurance expenses increased $0.3 million from $1.6 million for the three months ended September 30, 2011 to $1.9 million for the three months ended September 30, 2012. The increase is due to increased tax assessments in 2012 at the Bloomington, Brentwood and Tyson's Corner Hotels.

Corporate General and Administrative

Corporate general and administrative expenses principally consist of employee-related costs, including base payroll and amortization of restricted stock and awards of long-term incentive plan ("LTIP") units. These expenses also include corporate operating costs, professional fees and trustees' fees. Total corporate general and administrative expenses (excluding amortization of stock based compensation of $0.5 and $0.4 million for the three months ended September 30, 2012 and 2011, respectively) increased $0.2 million to $1.2 million in 2012 from $1.0 million in 2011.

Hotel Property Acquisition Costs

Hotel property acquisition costs decreased $2.08 million from $2.1 million for the three months ended September 30, 2011 to $0.02 million for the three months ended September 30, 2012. Expenses during the 2011 period related to our acquisition of the 5 Sisters from Innkeepers during the 2011 third quarter as well as acquisition costs related to our investment in the JV and the JV's initial acquisition of 64 hotels described in Note 7, Investment in Unconsolidated Entities, in the notes to our financial statements above. Acquisition-related costs are expensed when incurred.


Table of Contents

Reimbursed Costs from Unconsolidated Real Estate Entities

Reimbursed costs from unconsolidated real estate entities, comprised of payroll costs at the JV where the Company is the employer, were $0.4 million and $0.0 million for the quarters ended September 30, 2012 and 2011, respectively.

Interest and Other Income

Interest on cash and cash equivalents and other income increased $47 thousand from $6 thousand for the three months ended September 30, 2011 to $53 thousand for the three months ended September 30, 2012. This increase was due to miscellaneous income associated with our San Antonio and Washington, D.C. hotels.

Interest Expense

Interest expense increased $0.5 million from $3.1 million for the three months ended September 30, 2011 to $3.6 million for the three months ended September 30, 2012 due to interest cost of $0.3 million on the six new loans acquired or assumed in the third quarter of 2011, as well as incremental interest costs of $0.2 million on our senior secured revolving credit facility attributable to a higher interest rate on our credit facility borrowings as a result of our higher leverage ratio and average borrowings of $50.8 million at 5.5% in 2012 compared to weighted average borrowings of $44.0 million at 4.5% in 2011 and unused commitment fees of 50 basis points on the unused portion of our credit facility.

Loss from Unconsolidated Real Estate Entities

Loss from unconsolidated real estate entities increased $0.2 million from $0.0 million for the three months ended September 30, 2011 to $0.2 million for the three months ended September 30, 2012. We did not own an interest in the JV at September 30, 2011.

Income Tax Benefit (Expense)

Income tax benefit (expense) increased $100 thousand from $61 thousand expense for the three months ended September 30, 2011 to $39 thousand benefit for the three months ended September 30, 2012 due to 2011 tax refunds recognized after completing our final 2011 tax returns. We are subject to income taxes based on the taxable income of our taxable REIT subsidiary holding companies at a combined federal and state tax rate of approximately 40%.

Net income (loss)

Net income was $1.5 million for the three months ended September 30, 2012, compared to a net loss of $1.0 million for the three months ended September 30, 2011. This increase was due to the factors discussed above.

Material Trends or Uncertainties

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either the capital resources or the revenues or income to be derived from the acquisition and operation of properties, loans and other permitted investments, other than those referred to in the risk factors identified in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2011.

Comparison of the Nine Months Ended September 30, 2012 ("2012") to the Nine Months Ended September 30, 2011 ("2011")

Results of operations for the nine months ended September 30, 2012 include the operating activities of our 18 wholly-owned hotels and our investment in the JV at September 30, 2012. The 5 Sister Hotels were purchased on July 14, 2011. Additionally, the primary driver of the increase in room revenue is through the growth in RevPar year over year.

As reported by Smith Travel Research, industry RevPAR for the nine months ended September 30, 2012 and 2011 was up 6.9% and up 8.3%, from the comparative 9 months in the prior year, respectively. RevPAR at our hotels was up 8.1% and 1.9% in the 2012 and 2011 periods. In addition, 5 of our 13 hotels were undergoing significant renovations in 2011. Approximately two-thirds of our RevPAR growth in 2012 was attributable to occupancy.

Revenues

Total revenue was $76.2 million for the nine months ended September 30, 2012 compared to total revenue of $51.0 million for the 2011 period due to the increased number of hotels owned in the 2012 period. Since all of our hotels are select service or limited service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage revenue or large group conference facilities. Room revenue was $71.8 million and $49.3 million for the nine months ended September 30, 2012 an 2011, respectively. Total revenue for the 5 Sisters hotels for the nine months ended September 30, 2012 and 2011 was $28.5 million and $7.5 million, respectively.


Table of Contents

Since room revenue is the primary component of total revenue, our revenue results are dependent on maintaining and improving hotel occupancy, ADR and RevPAR at our hotels. Occupancy, ADR, and RevPAR results are presented in the following table in each period to reflect operation of the hotels regardless of ownership (the 5 Sisters were not owned by us until July 14, 2011, but are included below for comparative purposes):

                   For the nine months ended        For the nine months ended
                      September 30, 2012               September 30, 2011
      Occupancy                          82.9 %                           79.4 %
      ADR         $                    130.96      $                    126.37
      RevPar      $                    108.50      $                    100.40

Other operating revenue, comprised of meeting room, gift shop, in-room movie and other ancillary amenities revenue, was $3.3 million and $1.7 million for the nine months ended September 30, 2012 and 2011, respectively. As a percentage of total revenue, other operating revenue was 4.3% and 3.3% for the nine months ended September 30, 2012 and 2011, respectively. Other operating revenue for the 5 Sisters was $1.9 million for the nine months ended September 30, 2012.

Cost reimbursements from unconsolidated real estate entities, comprised of payroll costs at the JV where the Company is the employer, were $1.2 million and $0.0 million for the nine months ended September 30, 2012 and 2011, respectively.

Hotel Operating Expenses

Hotel operating expenses increased $12.1 million to $41.2 million for the nine months ended September 30, 2012 compared to $29.1 million for the nine months ended September 30, 2011 due to the increased number of hotels owned in the 2012 period. As a percentage of total revenue, hotel operating expenses were 54% for 2012 and 57% for 2011, which decrease is expected as ADR grows year over year and because the 5 Sisters operate at a higher gross profit margin than the other 13 hotels (48.6% gross operating profit margin for the 5 Sisters compared to 43.2% for the other 13 hotels for the nine months ended September 30, 2012). Room expenses, which are the most significant component of hotel operating expenses, increased $4.8 million to $15.7 million in 2012 from $10.9 million in 2011 or 20.6% and 21.3% of total revenue for the nine months ended September 30, 2012 and 2011, respectively. Other direct expenses, which include management and franchise fees, insurance, utilities, repairs and maintenance, advertising and sales, and hotel general and administrative expenses increased $7.3 million to $25.5 million in 2012 from $18.2 million in 2011.

Depreciation and Amortization

Depreciation and amortization expense increased $2.3 million from $8.6 million for the nine months ended September 30, 2011 to $10.9 million for the nine months ended September 30, 2012. The increase is due to the increased number of hotels during the 2012 period, offset by depreciation in 2011 due to the disposition and replacement of furniture and fixtures at 6 hotels where major renovations were completed in 2011. Depreciation is recorded on our hotel buildings over 40 years from the date of acquisition. Depreciable lives of hotel furniture, fixtures and equipment are generally three to ten years between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded over the term of the respective franchise agreement.

Personal Property Taxes and Insurance

Total property tax and insurance expenses increased $1.5 million from $3.7 million for the nine months ended September 30, 2011 to $5.2 million for the nine months ended September 30, 2012. The increase is due primarily to the increased number of hotels owned during the 2012 period, which account for $1.2 million of the year over year increase.

Corporate General and Administrative

Corporate general and administrative expenses principally consist of employee-related costs, including base payroll and amortization of restricted stock and awards LTIP units. These expenses also include corporate operating costs, professional fees and trustees' fees. Total corporate general and administrative expenses (excluding amortization of stock based compensation of $1.5 and $1.2 million for the nine months ended September 30, 2012 and 2011, respectively) increased $0.9 million to $3.9 million in 2012 from $3.0 million in 2011. Key increases were related to corporate employee compensation and professional fees.


Table of Contents

Hotel Property Acquisition Costs

Hotel property acquisition costs decreased $3.5 million from $3.6 million for the nine months ended September 30, 2011 to $0.1 million for the nine months ended September 30, 2012. Expenses during the 2011 period related to our acquisition of the 5 Sisters during the 2011 third quarter as well as acquisition costs related to our investment in the JV and the JV's acquisition of 64 hotels described in Note 7, Investment in Unconsolidated Entities, in the notes to our financial statements above. Acquisition-related costs are expensed when incurred.

Reimbursed Costs from Unconsolidated Real Estate Entities

Reimbursed costs from unconsolidated real estate entities, comprised of payroll costs at the JV where the Company is the employer, were $1.2 million and $0.0 million for the quarters ended September 30, 2012 and 2011, respectively.

Interest and Other Income

Interest on cash and cash equivalents and other income increased $36 thousand from $18 thousand for the nine months ended September 30, 2011 to $54 thousand for the nine months ended September 30, 2012. This increase was due to miscellaneous income associated with our San Antonio and Washington D.C. hotels.

Interest Expense

Interest expense increased $6.8 million from $4.5 million for the nine months ended September 30, 2011 to $11.3 million for the nine months ended September 30, 2012 due to interest cost of $4.8 million on six new loans acquired or assumed in the third quarter of 2011, interest of $1.6 million on our senior secured revolving credit facility with weighted average borrowings of $58.9 million at an average interest rate of 5.38% in 2012 compared to weighted average borrowings of $20.4 million at an average interest rate of 4.5%, unused commitment fees of 50 basis points on the unused portion of our credit facility and amortization of deferred financing fees of $0.4 million for the nine months ended September 30, 2012 relating to the eight total mortgage loans and the credit facility.

Loss from Unconsolidated Real Estate Entities

Loss from unconsolidated real estate entities increased $0.1 million from $0.0 million for the nine months ended September 30, 2011 to $0.1 million for the nine months ended September 30, 2012. We did not own an interest in the JV at September 30, 2011.

Income Tax Benefit (Expense)

Income tax benefit (expense) decreased $14 thousand from $75 thousand expense for the nine months ended September 30, 2011 to $61 thousand expense for the nine months ended September 30, 2012. We are subject to income taxes based on the taxable income of our taxable REIT subsidiary holding companies at a combined federal and state tax rate of approximately 40%.

Net income (loss)

Net income was $0.9 million for the nine months ended September 30, 2012, compared to a net loss of $2.9 million for the nine months ended September 30, 2011. This decrease in loss was due to the factors discussed above.

Material Trends or Uncertainties

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either the capital resources or the revenues or income to be derived from the acquisition and operation of properties, loans and other permitted investments, other than those referred to in the risk factors identified in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2011.

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our operating performance: (1) FFO, (2) Adjusted FFO,
(3) EBITDA, and (4) Adjusted EBITDA. These non-GAAP financial measures could be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance prescribed by GAAP.

FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not represent cash generated . . .

  Add CLDT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CLDT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.