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 (CLDT, Financial) 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 (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.
