Q3 2024 Chatham Lodging Trust Earnings Call

In This Article:

Participants

Jeffrey H. Fisher; CEO & President; Chatham Lodging Trust

Dennis M. Craven; President & COO; Chatham Lodging Trust

Jeremy Wegner; VP & CFO; Chatham Lodging Trust

Jonathan Jenkins; Analyst; Oppenheimer & Co

Presentation

Operator

Greetings and welcome to the Chatham Lodging third quarter, 2024 financial results conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad as a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Daly. Thank you, Chris. You may begin.

Thank you, Julian. Good morning, everyone and welcome to the Chatham Lotting Chest third quarter, 2024 results conference call. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties both known and unknown as described in our most recent form 10-K and other sec filings. All information in this call is as of November 7th, 2024. Unless otherwise noted 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. You can find copies of our sec filings and other and earnings release which contains reconciliations to non-GAAP financial measures referenced on this call on our website at Chathamlodgingtrust.com.
Now to provide you with some insight into Chatham 2024 3rd quarter results allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer Dennis Craven, executive Vice President and Chief Operating Officer and Jeremy Wagner, senior Vice President and Chief Financial Officer. Let me turn the session over to Jeff Fisher. Jeff.

Jeffrey H. Fisher

All right, thanks Chris and I certainly appreciate everyone joining us this morning for our call. We've got some good news here throughout before I get into our quarterly results. I'd like to provide an update on some key corporate initiatives that we've been undertaking. First, we've entered into separate contracts to sell five hotels and are hopeful that those transactions close in this fourth quarter. When closed will generate proceeds of approximately $80 million. The five hotels slated for closing are on average 23 years old. Among the six lowest RevPAR hotels in our portfolio have they have forecasted 2024 RevPAR of $101 and importantly are in need of renovations within the next 24 months. We will use these proceeds to initially pay down debt but ultimately make additional investments to accretively grow EBITA and FFO. This recycling initiative will enable us to continue to add hotels in new markets or expand our presence in existing markets. We will continue to look at opportunities to sell assets and reinvest in hotels that enhance our portfolio quality and growth profile.
Secondly, our liquidity is strong. We are at the lowest leverage levels in over a decade. We paid off another maturing mortgage in the quarter and have a mere $30 million of debt maturing over the next year. Additionally, we've added exposure to floating rate debt and with raises expected to decline, we will be able to grow FFO in fact, based on current borrowings outstanding, our FFO increases $2.6 million or approximately $0.5 per share for every 100 basis points decline in so far. I'd like to spend a few minutes on our solid third quarter results and you'll hear more detail from Dennis. We're quite pleased to report the I and FFO near the top of our guidance range. Importantly, our RevPAR growth continues to exceed industry and most peer performance. Our RevPAR growth of 2.1% when you take without the impact of renovations handily beat industry growth of 0.9%. We were able to deliver even an FFO at the upper end of our guidance range because our operating expenses were at the lower end of our expectations. We were able to limit our same store GOP margin decline to only 40 basis points. And as we've said, in the last few quarters, employment and wage pressures are moderating with year over year wages up only 3% well below what has been experienced over the last five years. And our absolute GOP margins of 45% are strong. I think if you step back, what you really see here is the complete cycle change from the post COVID environment. And I believe as you look forward for the industry and specifically for us, you will see those margins pop back up to some pretty strong levels. Third quarter, RevPAR of $150 exceeded 2019 levels. Marking the second consecutive quarter beating 2019 levels. And based on our current guidance, full year, 2024 RevPAR should exceed 2019 levels for the first time since the pandemic. As most most understand the sluggish recovery in our five tech driven hotels in Silicon Valley and Bellevue have caused us to lag 2019 levels up till now. But we are moving ahead. If you pull out the five tech driven hotels, RevPAR of $148 is up 7% compared compared to 2019. With ADR up a strong 14% in occupancy up 6%. Of course, mostly attributable to Silicon Valley.
Let's talk about our five tech driven hotels in Silicon Valley and Bellevue which achieved third quarter red Park growth of 8% in the quarter and a whopping 14% in October in the quarter. ADR rose 5% to almost $200 and occupancy rose 3% to almost 79%.
We're really encouraged by the demand dynamics we're seeing in the markets. And as we've spoken quite a bit over the last few quarters, a lot of good things are happening in the market related to AI computer chip initiatives and re-office efforts by most of the big tech companies announcing the return to office that we've been waiting for. To give you some additional color on what's happening. Just a week ago in Sunnyvale, our largest individual market with just about 500 rooms there. It was announced that Sunnyvale was selected as the site for the new Chips for America design and collaboration facility. The facility will be one of the flagship R&D facilities for the Chips for America initiative. Last month, applied materials acquired another site less than half a mile from our Sunnyvale to residents in for about $100 million.
The plans for that side have not been announced but certainly will be beneficial to our hotel and applied materials. Forever has been one of our top five accounts. Applied materials previously announced $4 billion, 180,000 square foot R&D facility is expected to break ground shortly and I know we're already doing business with folks involved in that facilities' construction, whether they're consultants, architects or otherwise. As a reminder, this facility sits about a mile from our two hotels. Within the last quarter. General Motors opened in Mountain View, a technical center to be a focal point for software development and innovation it's located right in Silicon Valley. And of course, we do have a residence inn right in mountain view and it's certainly going to be beneficial overall to our hotel and the market, as previously mentioned, intuitive Surgical, another one of our largest corporate clients in Sunnyvale is also expanding its footprint, building, another 1 million square feet of office and R&D industrial construction obviously has resumed and we are pleased with what we see going forward.
Looking across the remainder of the portfolio business travel continues its steady growth across the country and that certainly was proven out again this quarter for us with seven of our largest nine markets delivering RevPAR growth in the quarter. Our occupancy for the key weekday business travel days was 79% on Monday, 84% on Tuesday and Wednesday and 79% on Thursday. All but Thursday up over last year, weekday ADR was up 2% in the quarter to $186. And weekend ADR was down 1%. Just to finish up here. In conclusion, we remain encouraged by the fact that our repvar growth continues to outperform the industry in most peers and we still have the most internal growth upside as we look forward of other lodging reads. Given the recovery still available in those five tech hotels. Additionally, expense pressures, as I've said, have certainly lessened labor and benefit wages costs seem to be under control. And by that, I mean, reverting back to more historical normal increases that we've experienced over the last five years. And we're hopeful that enables us to drive margins higher.
Finally, on the balance sheet side, we are in excellent financial condition and we're positioned to meaningfully benefit from declining interest rates. And we've got the capacity and flexibility to continue to recycle capital, acquire hotels where they can really be accreted to FFO our earnings. And nav with that, I'd like to turn it over to Dennis.

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