Chatham Lodging Trust Q1 2023 Earnings Call
Greetings and welcome to the Chatham Lodging Trust first quarter 2023 financial results at this time all participants are in a listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.
This conference is being recorded I would now like to turn the conference over to your host Mr. Chris Daly President D. G. Public relations. Please go ahead Sir.
Thank you Melissa good morning, everyone and welcome to the Chatham Lodging Trust first quarter 2023 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 May four 2023, unless otherwise noted and the company undertakes no obligation to update any forward looking statements to conform the statement to actual results or changes in the company's expectations.
Can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at Chatham Lodging Trust dotcom.
Now to provide you with some insight in the Chatham 2023 first 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 Wegner, Senior Vice President and Chief Financial Officer, Let me turn the session over to Jeff Fisher Jeff.
Thanks, Chris and good afternoon, everyone I certainly appreciate being on the call. This afternoon with us.
Just before addressing our quarterly performance I wanted to highlight that we were awarded the Hilton brand Development Award for our home two suites at Woodland Hills Warner Center, California that we've spoken highly about and give special recognition to the teams from Chatham Islands Western.
International and Emco, who worked incredibly hard over several years to bring that project to fruition.
Turning to our performance in the quarter, which was very strong with higher than expected revpar growth driving EBITDA growth of 34% and more than doubling F. F O per share to 16 cents exceeding consensus estimates of 13 cents.
Driven by meaningful growth in some of our larger markets more reliant on the business traveler Revpar growth was over 25% in the quarter the fourth best amongst all lodging companies.
Our revpar growth was attributable to similar growth in both occupancy and ADR of approximately 14% relative to 2019 Revpar was off about 6% and that result was adversely impacted by approximately 700 basis points due to the performance at our four.
Our Silicon Valley hotels, so excluding those hotels revpar was up almost 1% compared to 2019.
Relative to 2019 Revpar improved each of the first four months of 2023, with Revpar down, 12%, 5%, 4% and less than 2%, an encouraging trend and a key indicator that business travel continues its recovery across the country even in silicon.
Valley.
Leisure travel remains strong with all of our leisure markets producing strong growth in the quarter. We can look at in Destin, Florida up 13%, Portsmouth, New Hampshire up 40%, Portland, Maine up 16% in Anaheim up 14% Fort Lauderdale up 9% and Savannah.
Up 28%.
Occupancy finished the quarter at 69% up almost 14% and about 10% off pre pandemic levels evidenced by the year over year growth of 28%. We continue to see the return of the business traveler across our portfolio as well as improved international travel due to loosening restrictions.
On entering the U S and obtaining work visas.
Weekday occupancy is the best indicator of business travel and versus 2019 weekday occupancy in the first quarter improved each month of 2023 and was 69% for the entire first quarter.
Weekday ADR was up approximately 17% versus last year, and only down approximately 1% versus 2019.
An encouraging pattern given the first quarter historically is our slowest of the year weekend Revpar remains strong as it was up approximately 9% in the quarter versus 2019.
As we move into the second and third quarters, we are more confident with respect to the outlook as we see business travel demand continuing the build month by month for the first time since the pandemic. We're also really starting to see meaningful demand pickup from Korea, Japan.
Taiwan and China.
In our Silicon Valley hotels, and our Bellevue, Washington Hotel.
Offsetting some of this recovery is going to be the intern programs in 2023 since.
Since our last call many of the world's largest tech companies, such as meta Apple, Google, Microsoft and T mobile have meaningfully reduced their programs in 2023 following significant corporate layoffs.
Although they are expected to fully return in 2024.
We will see a decline and in turn revenue of approximately 80% to 90% across our four hotels in Silicon Valley and Bellevue, Washington from about $12 million in revenue last year.
Between a million and a half and two and a half million dollars. This year.
Thankfully and most importantly, we are able and expect to be able to make up at least half to 75% of the in turn related EBITDA loss of $6 million. So work is ongoing and recent occupancy trends in Silicon Valley.
Particularly.
Our stronger than expected on a week by week basis. So we feel very positive about the piece of the insurance business and the EBITDA related to it that we should be able to replace.
Operationally, our margins grew 200 basis points over last year to a post pandemic first quarter high of 40%.
Good flow through in corporate expense controls allowed us to double free cash flow before capex and amortizing debt from about $5 million last year to $10 million this year.
Lastly, I want to touch on our financial condition, which is extremely healthy as we sit here at our lowest leverage levels in over a decade. During the first quarter, we've already paid off loans amounting to $73 million, including the high rated loan on our woodland Hills hotel as well as two maturing loans, replacing them.
With an average interest rate of 8% with the term loan that is currently at six 2% funded with our remaining borrowings on our term loan and free cash flow on may 5th we will repay another $16 million maturing mortgage after that we'll only have 20 trailing three maturing debt of about.
<unk> 60 million secured by two hotels for later this year and we have full capacity in our $260 million unsecured credit facility.
Touching quickly on on external growth excuse me the transaction market has been dormant, but it does seem like it's starting to ease up a bit with the significant rise in interest rates and a bunch of maturing maturing debt occurring throughout the industry. We believe there'll be some opportunities to acquire hotels.
<unk> that fit into our high quality portfolio in the back half of the year with 39 hotels, we can acquire one or two hotels and a significantly moves the needle with respect to EBITDA and <unk> growth. We want to continue to increase further our focus of course.
On the extended stay segment.
With that I'd like to turn it over to Dennis for a little more color Dennis Thanks, Jeff.
All are performed significantly better than the industry with first quarter revpar growth of 28% exceeding industry performance by approximately 50% again for the second consecutive quarter, excluding the impact of the interim business. This is a pretty relative indicator of potential performance moving forward in 2023, if you look at our.
Portfolio for the quarter, excluding Silicon Valley, our first quarter Revpar was up slightly versus 2019, an ADR growth of almost 10% offset by a decline in occupancy of 9%.
Silicon Valley, our largest market continues to grow meaningfully over the prior year with first quarter revpar growth of 59%.
Meaningfully higher than our fourth quarter 2020 to revpar growth of 45% that market remains well off of 2019 levels still down 36% occupancy of 64% in the quarter for those four hotels was up 20% over last year.
And still below 2019 levels by approximately 16 percentage points Silicon Valley EBITA was $3 million in the first quarter, which is up 150% over last year still below first quarter 2019, EBITDA levels, though first quarter International air travel into both San Fran and San.
Jose airports are at their best level since the pandemic there was still off approximately 16% versus 2019 again. This is an encouraging trend and other key tech markets Seattle Revpar grew 17% in the quarter. It still remains about 35% below 2019 levels EBITDA at that hotel grew over.
30% in the quarter.
First quarter International Air travel into Seattle was only off 2%.
<unk> 2019 and for the first time since the pandemic March international deployments exceeded 2019 levels.
Beating the slower recovery in our Silicon Valley, and Seattle markets Austin continues to do really well at our residence Inn Austin Revpar was up 13% versus 2019 with gains in both occupancy and ADR. Our town place suites was not open in 2019, but I will say that revpar at our town place suites Austin was up.
Almost 40% year over year.
Our five.
Our five highest hotels with absolute revpar in the quarter, where our residents Fort Lauderdale with Revpar over $273 on occupancy of 93% followed by our Hilton Garden Inn Marina del Rey with Revpar of 147, and then our Springhill suites in Savannah, Springhill suites, Savannah and home to woodland.
Hills and those both also had revpar over a 150 Bucks 27 of our 36 comparable hotels achieved first quarter ADR higher than 2019, and 14 of our 36 comparable hotels achieved revpar higher than 19, we continued to see an average length of stay approximately 10% longer than our historic.
You'll levels, it's come down from pandemic related stays but on a long term basis should remain longer due to the more flexible work arrangements that exist in today's work environment for the quarter total hotel revenue of $60 7 million was up 23% compared to last year's revenue of $54 million.
Which is the same percentage growth is last quarter, we were able to generate incremental incremental GOP flow through of almost $6 million for flow through of approximately 50%.
Much better than our fourth quarter flow through of 35%, we were still able to control operating expenses and head count or employee head count means approximately 20% below pre pandemic levels and since 2019, our hourly wages similar to last quarter have increased approximately 25% over that same.
Four year period and versus last year through the first quarter, our hourly wages are essentially flat at our hotels.
Our top five producers of G O P in the quarter or our Gaslamp residence Inn, the fifth straight quarter to lead the portfolio followed by a residence Inn Fort Lauderdale courtyard, Dallas downtown and then our residence in Silicon Valley two.
And then our Springhill suites in Savannah.
With respect to capital expenditures, we spent approximately $8 million in the quarter and expect to spend about $30 million total in 2023 that includes $22 million of renovation cost at five hotels during the quarter, we completed renovations at our residence Inns in White Plains and hotel in New York as well as our rather.
10, a foggy bottom.
And just as a extra tidbit revenue revpar at our residence Inn foggy bottom was actually still up approximately 60% year over year, despite being under renovation for most of the quarter indicative of just another business.
Business travel market, that's been pretty dormant for the last couple of years is starting to come back to life.
A reminder, we are hosting in person meetings at REIT week in early June . So please email me directly if we haven't already locked up a meeting yet with that I'll turn it over to Jeremy. Thanks, Dennis Good afternoon, everyone. Our Q1 2023 hotel EBITDA was $20 $7 million adjusted EBITDA.
Was $17 8 million adjusted <unk> per share was <unk> <unk> and cash flow before capital was $7 $6 million.
While we have seen cost increase due at a reinstatement of certain brand standards and the impacts of inflation on a number of key line items, we were able to generate a solid GOP margin of 39, 8% and hotel EBITDA margin of 37% in Q1.
Our Q1 GOP margin of 39, 8% was essentially equal to our Q4 2022 GOP margin of 39, 9% and it was 150 basis points higher than our Q1 2022 GOP margin of 38, 3%.
Over the last several years Chatham has taken a number of steps to strengthen its balance sheet and as a result, we now have the lowest leverage in most liquidity we've ever had.
As of March 31 challenge net debt to LTM EBITDA was four three times, which is significantly below our pre pandemic leverage which is generally in the five five to six times area. Despite the fact that EBITDA has not fully recovered to pre pandemic levels in.
In Q1, we used $75 million of the delayed draw term loan availability to repay two maturing mortgage loans and the construction loan and our home to Warner Center.
We intend to use the remaining availability under our delayed draw term loan to repay a $16 million mortgage that matures in may 2023, and use available cash to repay a $20 million mortgage that matures in July of 2023.
Over the course of 2023 will continue to closely monitor debt markets to consider opportunities to refinance a $40 million mortgage that matures in December and potentially address a portion of our 2024 debt maturities.
Our undrawn $260 million revolving credit facility provides a valuable source of liquidity that increases our flexibility to address our remaining debt maturities.
With a reasonable leverage solid liquidity strong operating performance sizable portfolio of unencumbered hotels and meaningful free cash flow, we are well positioned to refinance our remaining debt maturities when needed.
As a reminder, our reported 2022 Revpar figures did not include results for the home to Warner Center since it had been in operation for less than a year and a report in 2023 Revpar figures include Warner Center as a result, starting on January 24, 2023, the one year anniversary of its opening date.
2022, Revpar, including Warner Center was $90 in Q1 $138 in Q2 $151 in Q3 of $118 in Q4 and $124 for the full year.
This concludes my portion of the call operator, please open the line for questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Ari Klein with BMO capital markets. Please proceed with your question.
Thanks, and good afternoon.
Maybe can you talk a little bit about the silicon Valley market.
It looks like Revpar versus 2019, maybe take a little bit of that back in in the first quarter relative to the fourth quarter, obviously market that that has a lot of challenges.
To what extent if any have they maybe maybe gotten it somewhat worse recently with with the layoffs and banking and I think you.
You mentioned potentially back filling that in turn business can you just talk about that a little bit and add some color and context there.
Yeah, I mean, I'll start and Jeff can chime in on.
This is Dennis I think if you look kind of sequentially from the fourth quarter. The first quarter I think really the only difference is between kind of October and now as we sit here today you had a 100 plus thousand dollars of announced job cuts. So you know and in the short term I would say not all surprising given.
Just the quarter to quarter sequential movement.
I think the important thing, which I think Jeff talked about and is that you know we are really and I think we even talked about this in February which kind of by the time. The second week of February came along we actually just started to see some trickling of of international travel, which is only only continued to improve and if you look at.
If you look at the four hotels in Silicon Valley, just as recently as the last couple of weeks you know you're looking at 82% occupancy in mountain view, 82% in San Mateo, 80%, it's silly silly, one and basically 79% to 80%, it's silly to so occupancy wise.
Market is continuing and as Jeff talked about demand from not only internationally, but just broadening corporate demand in the market has gotten better I mean to sit here and basically April with 75% to 80% occupancy at those four hotels is encouraging.
And you know rates as well.
If you look at each of those four hotels in our rates on average are up essentially 10 to $15 from.
Seven or eight weeks ago. So.
It's a good trend you know our operators there are positive about what theyre seeing from a demand perspective and that at least believe I think as as we've worked through the last three months you know we're encouraged by that trend and we do feel even though we took a bunch of interim business last year, which was almost double what we had done.
Historically on a pre pandemic basis.
We will be able to offset.
Good chunk of if not most of that net lost EBITDA.
<unk>.
Thanks, and then just maybe Jeremy on the balance sheet, you mentioned some of the things that you're doing this year. There's a lot of debt that's coming due next year some of it in and in Silicon Valley challenged market.
Yeah, what I can I guess kind of kind of the plan there.
How difficult is it do you think it'll be to refinance those.
Can you look at the delayed at Torrance.
Current term loan as an option I guess, how you're approaching it.
Look I mean, we have overall very very low leverage and a lot of unencumbered properties that serve as as borrowing base. The credit facility much more than we need there. So I think we're probably unlikely to put in longer term fixed rate debt on on a bunch of the silicon Valley properties given the performance levels.
So we're likely just to put put debt on other assets.
You know rates have been coming down a little bit spreads kind of depend on the week. You know I think you know in todays market you know new that probably has a six handle on it so there's going to be some increase in costs at some point unless unless rates come down which they they certainly could depending on what's going on in the <unk>.
World, but I think overall were probably less likely to put that on the silicon Valley and Silicon Valley assets. So that won't really have an impact on our refinancing plans.
This is just one thing I want to just continue to add just on Silicon Valley, because obviously, that's a big component.
The fact is you know between all of the layoffs of the tech companies since kind of late in 2022.
Their employment numbers are still well above where they were four years ago and I think to certainly as you look forward and again in a market that we're running 75%, 80% occupancy and having come through tech layoffs, probably as many or there have been since the financial crisis.
I think it's not necessary I mean lesson, we certainly would love for revpar to be higher, but it's not the end of the world either.
The hotels are doing well our rate will continue to rise and demand is going to continue to come back. We've owned these hotels, whether it be with Chatham are with innkeepers since the late nineties.
Every cycle is better than the prior one so I think that growth is coming it's just a question of the timing of how it comes back.
Okay. Thanks, I appreciate the color.
Thank you. Our next question comes from the line of Bryan Maher with B Riley Securities. Please proceed with your question.
Oh, Thanks, and good afternoon.
You mentioned in your prepared comments and we'd been hearing another call you know the international travel starting to come back in and I think the numbers, you said into San Francisco and Seattle.
We are encouraging.
For your markets out on the West Coast does that include or how should we think about international travel into those markets for kind of rest of world versus you know inbound from Asia, which.
We're hearing is just now really starting to ramp.
Yeah.
Most of our Silicon Valley business is Asia.
Engineers staying in our hotels.
You know I was there two weeks ago, we're still doing you know.
The appropriate breakfast for that clientele.
Our residence inns and so that.
That business at least for us seems pretty darn strong.
Okay, and then on the acquisition right.
You know as we think about you know gateway full service hotel in New York and the other big markets like that you know having problems you know big ticket hotels with refinancing that's probably later this year how would you characterize your segment of the market you know as it relates to opportunities I know that you said you know one or two hotels.
The needle, but you get the sense that you know, we'll see you know kind of a barrage of $20 $30 $40 million extended stay hotels hit the market or are they just easier to refinance and that's not going to happen.
It's hard to tell I mean every time, we speculate and you've been around [laughter].
For a long time too.
You know every time, we speculate about oncoming distress it seems like going back to obviously the dfc in till the beginning of the pandemic and all the other cycles, we've been through it never quite happens the way we expect it to happen.
But I think there should be just call at select service hotels.
You know across the board there there's a lot of that there's a lot of debt maturing I think extended stay hotels are way closer if not on top of 2019 EBIT numbers, so probably as a group frankly, you might see less issue.
Use within.
What we really like to acquire but that doesn't mean, there won't be anything to acquire because there's just so much of it and it's really owner dependent upon the status of what their balance sheets may or may not look like of course, they're all nonrecourse loans anyway, but what is there any reserve account look like.
You know what kind of capital calls if they had during the pandemic what's their appetite.
To put money back in et cetera. So you know, we're well we're kind of cautiously very optimistic about opportunities down the road.
Alright, Thanks, Jeff and thanks for making me feel old I appreciate it.
It wasn't intended that way.
Yeah.
Our next question comes from the line of Tyler <unk> with Oppenheimer. Please proceed with your question.
Alright, Thank you and good afternoon. This is Jonathan on for Tyler. Thanks for taking my questions first one for me.
Any additional color on our more recent demand trends, maybe outside of the Silicon Valley market.
Pockets of weakness or slowing that are worth calling out there given some of the macro volatility we've seen.
Hey, Jonathan This is Dennis no I mean, I think you know outside of that especially if you look at our major markets.
As I talked about with Washington D. C is is coming back to life finally.
You know Dallas, Texas is just really on fire, Los Angeles, especially with Marina del Rey is doing really well.
San Diego has just been killing it.
It was more leisure driven in the early years of the pandemic.
Now back to a pretty strong convention calendar business travelers. So.
Outside of you know I would say Silicon Valley and Seattle everything else is pretty good even Austin, which is another tech related market, our two hotels at the domain.
Good growth not only year over year, but versus 2019.
And it's it's it's been able to still run.
Hi, Hi, <unk>, 90% Occupancies.
As well. So you know very are very very encouraging you know pretty much everywhere else.
That's great I appreciate that color and then switching gears on the capital structure, Jeremy you highlighted the strong leverage profile in the prepared remarks.
Any updated color you can provide on how you're thinking about the leverage profile moving forward.
I think we have capacity to add a little leverage over time.
Even at current EBITDA levels. So you know I think we'd be comfortable taking leverage to four and three quarters five times something like that and then you know as as as EBITDA recovers, especially silicon valley that should give us more a more buying capacity as well.
Okay excellent. Thank you very much guys. That's all from me.
Thanks.
Thank you, ladies and gentlemen, if you would like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Good afternoon actually a question on the extended stay brands at.
A lot of the major brands seem to have a lot of energy around these new midscale brands in the extended stay segment.
Got you you would look into long term or are you still more focused on more upscale extended stay in the market.
Hi, Anthony it's Jeff.
He is going to be interesting to see how all this shakes out I believe.
That Marriott will announce theirs at the upcoming NYU conference, so they'll be a full round up of everybody in the business.
And look we're not going to foreclose any opportunities because if you.
Because we like extended stay obviously, we're very happy with our home too.
Performance and and that is more of a mid to upper mid scale brand. Then you know that resident Sandra Homewood suites, we do a bunch of those you and we look at other opportunities in some of the other <unk>.
And so I think it's certainly a proven.
Business model, if anything perhaps might get over played a little bit but there's also you know not as many developers able to truly finance the construction of those deals as the brands would lead you to believe so we'll see how much really gets built it'll be interesting.
<unk>.
So you're not worried that maybe some brands would be too low ADR or I mean, it sounds like the business model is still even attractive even at lower price points.
It just depends on what the service model is really you know first of all we're not going to.
Get involved.
You know 40 or 50 dollar Revpar deal, but you know if if the revpar is pretty close like a home two's Revpar is to residents in our Homewood yet your margins are you could prove them out to be way in excess or in excess of 50% at the GOP line those numbers.
Can work really well depending on.
Construction cost.
Got it okay, and one more on the Silicon Valley and I guess, the interim business can you remind us when did that start last year was that in June so is that a.
Q2 impact or is that more <unk> in terms of a year over year comparison.
It's a bit of each Anthony I mean really the in terms of last year wasn't really every year. Some trickle in in the last week of May.
Bulk of them are in June basically June July and August so it's essentially a third of it in June two thirds of it July and August .
So I guess, we'll start seeing that impact on the comp this quarter I mean, I know you get back some of it but I guess in June .
And it could be okay alright.
Okay alright, thank you.
Thanks.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Fischer for any final comments.
Well as always we certainly appreciate everybody being on this call normally I'd just say, we'll see you next time.
I would like to just kind of pick up the ball a little bit and conclude.
With good news in Silicon Valley, because I was there as I mentioned, a couple of weeks ago and spent extensive amount of time and every hotel.
Meeting with the teams, particularly our sales team and I will tell you that there's a lot of excitement around for example, AI.
And and business, that's being talked about that will be generated.
By the big companies that we already do business with that everybody knows the name out.
For incoming this year and certainly moving into 2024, it's funny I read a silicon I read the Silicon Valley business Journal and about two or three weeks ago read that they had the lowest amount of startups are funded.
In three or four years in Silicon Valley and that week that number was eight or nine so in.
In a normal week more like 30 to 40, there is still business in Silicon Valley and you know there will be plenty of business I think as we move through the year and into future years, and that's why we like our exposure there.
In good times and in Bad times as Dennis indicated we've certainly lived through many cycles, there, but there continues to be exciting developments.
A lot of different arenas.
Further funding of a company that does those vertical helicopters.
Our folks are talking to with another round of financing coming in on those for approval in flight in 2024.
So.
All is not lost and will be more than five and with that we will talk to you next time. Thanks.
Yes.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.