Chatham Lodging Trust (NASDAQ: CDLT) is a hotel real estate investment trust, or hotel REIT, with 30 properties in several key markets throughout the U.S., with a particularly large concentration in California. In this article, we'll take a closer look at Chatham's business, recent developments and how they've affected the business, the company's long-term performance history, and whether it could be a hotel REIT worth putting on your radar.
Chatham Lodging Trust company profile
As its name suggests, Chatham Lodging Trust is a real estate investment trust, or REIT, that specializes in hotel properties.
Specifically, Chatham owns a portfolio of upscale extended-stay and select-service hotel properties. If you are not familiar with the latter term, a select-service hotel is one that derives the bulk of its revenue from rooms, as opposed to food and beverage outlets, meeting spaces, and other sources. They're also commonly referred to as "rooms-focused" hotels. Indeed, 96% of Chatham's rooms are in these "limited service" hotel categories. It is also the most extended-stay focused hotel REIT in the market, with 58% of its rooms falling into this category.
Just to give you an idea of the types of hotels Chatham buys, top brands represented in its portfolio of 30 hotels include Residence Inn, which accounted for just over half of EBITDA in 2019. There are also significant concentrations of Homewood Suites, Hilton Garden Inn, Courtyard by Marriott, and Hampton Inn.
As far as geographic diversification goes, it's worth pointing out that Chatham gets nearly one-fourth of its revenue from properties in Silicon Valley, so it's a fairly concentrated portfolio. Between Silicon Valley and its next six largest markets (which include D.C., New Hampshire, and Los Angeles, among others), Chatham gets roughly two-thirds of its revenue.
Chatham Lodging Trust news
Like most hotel REITs, Chatham's business was heavily impacted by the COVID-19 pandemic. At the start of the pandemic, several of its properties were closed and occupancy fell as low as 24% in April 2020 as the peak of the lockdowns was happening. The company reduced services at its hotels, consolidated the operations of some of its properties in the same markets, and modified its debt covenant agreements to give it more flexibility. The company suspended its monthly dividend and drew down its credit facility. Revenue per available room (RevPAR) fell 77% year over year in the second quarter of 2020.
Chatham's business should be relatively quick to rebound from the COVID-19 pandemic, at least compared with other hotel REITs. The types of properties in the portfolio don't rely heavily on business travel or group events, and it has relatively little urban exposure, including no properties in the New York City market. Over the one-year period ending in March 2021, Chatham's EBITDA per room was one of the highest in the hotel REIT industry, and the focus on limited service hotels is a big reason why.
And while occupancy hasn't quite reached pre-pandemic levels, it was around 70% by June 2021, which is pretty impressive for a hotel REIT at this stage of the recovery and is a sharp improvement from the 50% occupancy rate in February.
However, while Chatham's properties themselves might be in a strong position to rebound, it's worth noting that the company's financial position heading into the pandemic wasn't quite as strong as some of its hotel REIT peers. Specifically, the $58 million of liquidity the company had in March 2020 was one of the lowest figures in the industry. For context, Chatham reported cash burn of $12.8 million in the second quarter of 2020 alone, so this didn't give too much runway. From the second through fourth quarters, Chatham burned through $27.4 million, although it ended up modifying its debt covenant agreements and gaining access to additional liquidity.
In other news, Chatham is expanding its portfolio. Well, sort of. It is currently developing a 170-room property in the Warner Center area of Los Angeles, and it expects the hotel to open in the fourth quarter of 2021. Aside from this property, Chatham suspended all nonessential capital projects at the start of the pandemic.
Chatham Lodging Trust stock price
Chatham Lodging Trust completed its IPO in April 2010, so it's been a public company for more than a decade. From its IPO through early July 2021, the stock price has declined by a total of about 40%. However, this doesn't tell the whole story – there are a couple of things investors need to know in order to put this seemingly awful performance into context.
First, a fair amount of the decline can be attributed to the COVID-19 pandemic. In the early days of the pandemic, Chatham Lodging Trust fell by as much as 70% due to uncertainty in the lodging industry. While it has rebounded significantly, the stock is still about 33% lower than where it started 2020.
Second, like most REITs, Chatham Lodging Trust has historically been a strong dividend stock, having made regular monthly distributions until the COVID-19 pandemic hit. For example, during the three-year period from 2017 through 2019, Chatham's dividend yield never dipped below 5.5%. So, when evaluating the performance of Chatham over time, it's important to consider total returns, which are a combination of dividend yield and stock price changes. With that in mind, here's how Chatham has performed in comparison with the S&P 500 over certain time intervals: