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to Net Loss of $.3 million Same Period 2010; RevPAR Increased 5.4%
AFFO Exceeds Analyst
Expectations
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PALM BEACH, Fla.--November 7, 2011--Chatham Lodging Trust (NYSE: CLDT), a hotel real estate investment trust (REIT) focused on investing in premium branded upscale extended-stay hotels and select-service hotels, today announced results for the third quarter ended September 30, 2011. 2011 Third Quarter Highlights and Operating Results
“The third quarter was about producing strong operating results, enhancing our investment portfolio with the acquisition of five high quality hotels in great markets around the country and achieving a critical mass that will support Chatham as a premier owner of premium branded upscale extended-stay and select service hotels,” said Jeffrey H. Fisher, Chatham’s chief executive officer and president. “Our hotels generated strong profit margins during the quarter. We are beginning to see much improved results in those hotels where we have invested significantly in major renovations and realized incremental operating profits through some unique value-enhancing strategies we have implemented across our portfolio.” Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA and Adjusted EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures. Year-to-Date Results
Innkeepers Acquisitions Chatham acquired five hotels from Innkeepers in the 2011 third quarter, comprising a total of 764 rooms, at an average cost of approximately $255,000 per room. The properties include:
“These are five great hotels that command ADR and RevPAR premiums greater than 25 percent when compared to our initial 13 hotels, with third quarter ADR and RevPAR of $150 and $125, respectively,” Fisher noted. “This translated into a higher profit margin average as a result of the five hotels generating operating margins of approximately 53 percent during the third quarter of 2011, up 510 basis points over the 2010 third quarter.” In a separate transaction following the close of the 2011 third quarter, Chatham acquired with affiliates of Cerberus Capital Management, L.P., 64 hotels aggregating 8,329 rooms for $1.02 billion from subsidiaries of Innkeepers USA Trust, including the assumption of $675 million of debt. Chatham’s investment of $37 million results in an approximate 10.3 percent interest in the joint venture. “This was a complex transaction that had to be revalued due to changing market conditions,” Fisher said. “However, we believe it will be an outstanding long-term investment with Cerberus. We believe both of these transactions are truly transformative for Chatham, growing our hotel investments to over half a billion dollars. Our annual cash overhead now represents less than 1 percent of our assets, a goal we set forth at the time of our IPO and consistent with the management team’s prior leadership of other publicly held companies.” Pittsburgh Acquisition Update Following the close of the third quarter, Chatham terminated its previously announced acquisition of the Residence Inn Pittsburgh University Medical Center. In connection with the termination, Chatham forfeited a $600,000 deposit, which will be included in acquisition costs in the 2011 fourth quarter. Property Upgrade Status “To remain highly competitive, we intend to maintain our portfolio in top condition and we have spent $13.2 million to date on our portfolio,” said Dennis M. Craven, chief financial officer. “As we indicated on our last earnings call, we expected these investments to start delivering exceptional performance, and we are just beginning to experience that, as evidenced by third quarter RevPAR growth of 10.5 percent at the initial six renovated hotels. Our fourth quarter renovations are proceeding as planned and upon completion, 13 of our 18 hotels will have been renovated since the 2010 fourth quarter. Only two other hotels are slated for renovation beginning in the 2012 fourth quarter. We fully expect our portfolio to benefit strongly from a much better room product to sell, allowing us to take advantage of industry forecasts for continued improvement in lodging fundamentals and limited supply growth over the next few years.” Capital Structure At September 30, 2011, the company had debt outstanding of approximately $192.9 million at an average interest rate of 5.73% with a weighted average five-year maturity on its fixed rate debt. “We increased our leverage profile with very attractive long-term debt to take advantage of the unique opportunities afforded to us with the Innkeepers transactions and are now at the point where if we want to continue our growth strategy, we will need to fund that growth by recycling our capital through the sale of existing hotels and reinvesting those proceeds or by issuing equity at pricing that enhances Chatham’s net asset value,” Craven said. “Although we are at a leverage level higher than our long-term goal, we are confident that this portfolio will generate sufficient cash flow from operations to fund future capital improvements and dividends in 2012 and beyond.” Dividend On September 13, 2011, the company declared a common share dividend of $0.175 per share, paid on October 14, 2011 to shareholders of record on September 30, 2011. The company will continue to evaluate its dividend policy on a quarterly basis. 2011 Fourth Quarter Guidance The company is providing initial guidance for the 2011 fourth quarter based on the later-than-expected closing of the joint venture and the termination of the Pittsburgh acquisition. Combined, these two items reduced fourth quarter adjusted FFO per share by $0.04. The company’s last guidance which was issued on June 30, 2011 anticipated closing the joint venture on July 31, 2011 and closing the Pittsburgh acquisition on October 1, 2011. The impact on full year 2011 adjusted FFO per share caused by the delayed closing of the joint venture was $0.05 per share and Pittsburgh was $0.02 per share. Key guidance points are below:
Earnings Call The company will hold its third quarter 2011 conference call tomorrow, November 8, 2011, at 10 a.m. Eastern Time. Shareholders and other interested parties may listen to a simultaneous webcast of the conference call on the Internet by logging onto Chatham's Web site, www.chathamlodgingtrust.com, or www.streetevents.com, or may participate in the conference call by calling 1-877-941-6009, reference number 4479976. A recording of the call will be available by telephone until midnight on Tuesday, November 15, 2011, by dialing 1-800-406-7325, reference number 4479976. A replay of the conference call will be posted on Chatham’s website. About Chatham Lodging Trust Chatham Lodging Trust is a self-advised REIT that was organized to invest in upscale extended-stay hotels and premium-branded, select-service hotels. The company currently owns 18 hotels with an aggregate of 2,414 rooms/suites in 10 states and the District of Columbia and holds a minority investment in a joint venture that owns 64 hotels with 8,329 rooms/suites. Additional information about Chatham may be found at www.chathamlodgingtrust.com. Included in this press release are certain “non-GAAP financial measures,” within the meaning of Securities and Exchange Commission (SEC) rules and regulations, that are different from measures calculated and presented in accordance with GAAP (generally accepted accounting principles). The company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its 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, cash flows from operations or any other measures of the company’s operating performance prescribed by GAAP. FFO As Defined by NAREIT and Adjusted FFO The company calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it measures performance without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that the company believes are not indicative of the performance of its underlying hotel properties. The company believes that these items are more representative of its asset base and its acquisition and disposition activities than its ongoing operations, and that by excluding the effects of the items, FFO is useful to investors in comparing its operating performance between periods and between REITs that also report FFO in accordance with the NAREIT definition. The company further adjusts FFO for certain additional items that are not in NAREIT’s definition of FFO, including acquisition transaction costs and costs associated with the departure of the former CFO. The company believes that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO. EBITDA and Adjusted EBITDA The company calculates EBITDA as net income or loss excluding interest expense; provision for income taxes, including income taxes applicable to sale of assets; and depreciation and amortization. The company believes EBITDA is useful to investors in evaluating its operating performance because it helps investors compare the company’s operating performance between periods and between REITs that report similar measures by removing the impact of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results. In addition, the company uses EBITDA as one measure in determining the value of hotel acquisitions and dispositions. The company further adjusts EBITDA for certain additional items, including acquisition transaction costs, non-cash share-based compensation and costs associated with the departure of the former CFO, which it believes are not indicative of the performance of its underlying hotel properties. The company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs. Although the company presents FFO, Adjusted FFO, EBITDA and Adjusted EBITDA because it believes they are useful to investors in comparing the company’s operating performance between periods and between REITs, these measures have limitations as analytical tools. Some of these limitations are:
The company’s reconciliation of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA to net income (loss) attributable to common shareholders, as determined under GAAP, is set forth below. Forward-Looking Statement Safe Harbor Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, including references to assumption and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the effect on travel of potential terrorist attacks, that will affect occupancy rates at the company’s hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the company’s indebtedness and its ability to meet covenants in its debt agreements; relationships with property managers; the company’s ability to maintain its properties in a first-class manner, including meeting capital expenditure requirements; the company’s ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; the company’s ability to complete acquisitions and dispositions; and the company’s ability to continue to satisfy complex rules in order for the company to remain a REIT for federal income tax purposes and other risks and uncertainties associated with the company’s business described in the company's filings with the SEC. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of November 7, 2011, and the company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.
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