Chatham Lodging Trust ( CLDT Quick Quote CLDT - Free Report) executed an amendment of its $250-million revolving credit facility, following the previous amendment completed this May.
In May, the company secured a waiver of key financial covenants through Mar 31, 2021, which has now been subsequently extended to Dec 31, 2021, with testing of covenants as of Mar 31, 2022.
Nonetheless, the amendment continues to allow for the complete utilization of the full $250 million in its credit facility. Moreover, it continues to uphold applicable margin on borrowings at LIBOR plus 250 basis points (bps) for borrowings under $200 million on the credit facility and LIBOR plus 300 bps if borrowings exceed $200 million.
The company must maintain minimum liquidity of $25 million, whether in cash or available capacity under the credit facility. Notably, as of Sep 30, 2020, Chatham Lodging had an estimated liquidity of $146 million, consisting of around $32 million in cash and remaining borrowing capacity on the credit facility of $114 million.
The company has been making concerted efforts to improve its liquidity position and has resorted to asset monetization and joint ventures. Earlier this month, it completed the sale of Residence Inn by Marriott San Diego Mission Valley for $67 million to the San Diego Housing Commission (“SDHC”).
Additionally, pro forma for this sale and the pending sale of the joint venture with Colony Capital, Chatham Lodging’s credit profile has improved, with pro forma leverage being reduced to 35% from 38% as of Sep 30, 2020.
Management stated, “We made significant cost reductions at the outset of the pandemic, including meaningful corporate layoffs and salary reductions, we have delivered the highest absolute RevPAR of any lodging REIT throughout the pandemic, and with the opportunistic sale of the Residence Inn San Diego Mission Valley, we have been able to pay down approximately $65 million or 10% of all debt outstanding, including $38 million on our credit facility.”
Such efforts position the company for an encouraging recovery post pandemic.
Markedly, the COVID-19 outbreak-related restrictions on travel at the onset of the pandemic resulted in a sharp decline in group, business and leisure travel, impacting the demand for hotels. Moreover, delays or cancellation of conventions and conferences as well as other large public gatherings and events, which are typically demand-drivers for hotel REITs, have impacted the company’s earnings and hindered its ability to comply with certain financial covenants. Hence, the amendment enables it to obtain waivers from lenders prior to any violations.
Shares of this Zacks Rank #4 (Sell) company have plunged 37.4% over the past year, wider than the
industry’s decline of 2.7%.
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Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs. 5 Stocks Set to Double
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