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Chatham (CLDT) Sells Residence Inn, Enhances Liquidity

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Chatham Lodging Trust (CLDT - Free Report) has announced the completion of the sale of Residence Inn by Marriott San Diego Mission Valley for $67 million to the San Diego Housing Commission (“SDHC”). The move helps the company to enhance its near-term liquidity.

With 192 rooms at the property, the sale price comes at around $349,000 per room. Notably, since the acquisition of the hotel in 2011, the company witnessed net operating income (NOI) growth from $2.9 million to $4.4 million in 2019.

It generated an annual unleveraged return of 9.5% on the investment.

Notably, Chatham intends to use the sales proceeds to repay the $27-million mortgage on the hotel. After accounting for sales-related expenses, including Marriott termination fees, the remaining $38 million will be used to repay borrowings under the company’s credit facility.

In fact, its liquidity as of the third-quarter end was $146 million, including $32 million of cash and $114 million of remaining borrowing capacity on the credit facility. Based on cash used before capital expenditure of $1.6 million this September and the assumption that September operating levels are to continue, the company would have liquidity for around 91 months or into 2028.

Additionally, pro forma for the pending sale of the joint venture with Colony Capital and this sale, Chatham’s credit profile has improved, with pro forma leverage being reduced to 35% from 38% as of Sep 30 2020.

Per management, “we have produced the highest absolute RevPAR of all lodging REITs over the past two quarters, and given our portfolio quality and premium locations, we believe we will be one of the first lodging REITs to return to pre-pandemic levels.”

While this indicates that the company is likely to recover faster than its peers, the pandemic and related uncertainties have resulted in declining lodging demand, with several travel restrictions and social-distancing requirements. Hence, occupancy and revenue growth is likely to remain challenging until proven treatment and vaccines are established, leading to a recovery in the lodging demand.

Shares of this Zacks Rank #4 (Sell) company have plunged 37.8% over the past year compared with the industry’s decline of 3.1%.


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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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