PALM BEACH, Fla.--(BUSINESS WIRE)--Chatham Lodging Trust (NYSE:CLDT), a hotel real estate investment trust (REIT) focused on investing in upscale extended-stay and premium-branded, select-service hotels, today announced it will hold a conference call at 10 a.m., EDT today (details may be found later in this release). The call will discuss the previously announced sale of its Innkeepers joint venture with Cerberus Capital Management LP and to provide updated guidance with respect to the acquisition of four wholly owned Silicon Valley Residence Inn by Marriott hotels and the formation of a new joint venture with NorthStar Realty Finance (NYSE: NRF) that bought the remaining 47-hotel, 6,094-room Innkeepers joint venture portfolio. The combined total purchase price for the transactions was $1.3 billion, before capital expenditure reserves credited to the buyers of $39.7 million.
Presentation materials relating to the conference call will be posted prior to the call and may be found at Chatham’s Web site, www.chathamlodgingtrust.com, in the investor relations section and clicking on the events and presentations page.
The hotels were sold in two portfolios by a joint venture between Chatham and Cerberus Capital Management LP. Based on the net purchase price, Chatham estimates it will experience a non-GAAP economic gain of approximately $80 million or over $3 per share, generating an approximate 81 percent internal rate of return on its original $37 million investment over the investment period. Chatham’s gain is expected to be primarily rolled over tax-free between the basis of Chatham’s investments in the joint venture and the four Silicon Valley hotels.
The Silicon Valley Residence Inn portfolio provides Chatham with a significant presence in one of the highest quality, upscale, extended-stay markets in the country. The Silicon Valley portfolio now comprises approximately 34 percent of Chatham’s hotel investments at cost and brings Chatham’s West Coast market presence to 54 percent of its investments (eight of its wholly owned hotels are located in West Coast markets), one of the highest among all lodging REITs. The Silicon Valley portfolio was acquired for $326.4 million and was funded with four new individual mortgage loans from JP Morgan Chase aggregating $222.0 million, an approximate $58 million tax-free rollover and the remainder from borrowings on its revolving credit facility. The new loans have a 10-year term at an interest rate of 4.64 percent with interest only payments for five years.
Chatham’s management will outline its current, preliminary plans to redevelop and expand all four of the hotels, which would increase room count by 36 percent to a total of 1,023 rooms. The 272-room expansion would include a new lobby and public spaces in each location with an estimated aggregate cost of approximately $59.0 million, or approximately $217k per additional room. On a pro-forma basis, the all-in cash cost for the four hotels would be approximately $331.9 million, or approximately $324k per room. The expansion/upgrade would take approximately 12 months from commencement date in each location, but given the campus layout of the sites, disruption is expected to be minimal.
The 47-hotel joint venture portfolio was acquired for a net cash purchase price of $933.9 million, or $153k per room. NorthStar acquired Cerberus’ 89.7 percent interest in the joint venture, while Chatham retained its 10.3 percent ownership stake without any additional cash investment via the tax-free rollover of $22 million of the gain. Per its joint venture agreement with NorthStar, Chatham also has the ability to earn a promoted interest based on achieving certain returns in the future.
Island Hospitality Management, one of the nation’s largest independent hotel management companies, will continue to operate the hotels. Island Hospitality is 90 percent owned by Chatham’s president and CEO, Jeffrey H. Fisher.
Outlook for 2014
The transactions are expected to have a significant impact on Chatham’s outlook. “Chatham has been one of the top lodging REITs at driving Adjusted FFO per share growth since 2011 and these transactions are expected to create significant growth for us in 2014 and looking ahead to 2015 based on current industry forecasts,” said Jeffrey H. Fisher, Chatham's chairman, chief executive officer and president. “Our long‐term stated goal is to build Chatham into the premier, select‐service and upscale, extended‐stay lodging REIT. To date, we have successfully created significant value for our shareholders by making, in our view, disciplined acquisitions at attractive pricing. With historically low interest rates and our belief that there is still running room in this cycle, we will continue to look at opportunities to grow our hotel portfolio with the right balance of leverage and equity capital.”
The company is providing updated guidance for the remainder of 2014, but does not undertake to update it for any future developments in its business. Achievement of the results is subject to the risks and other factors disclosed in the company’s filings with the Securities and Exchange Commission. The company’s 2014 guidance as of June 17, 2014 updates the 2014 guidance provided on May 9, 2014 for the partial-year impact of the Silicon Valley Residence Inn portfolio acquisition and Innkeepers joint venture recapitalization that closed on June 10, 2014, and does not take into account any additional acquisitions, dispositions, debt or equity issuances.
|May 9 Forecast||Updated Forecast|
|Total hotel revenue||$161-$162.5 M||$176.5-$178.5 M|
|Net income||$12.5-$14.0 M||$3.7-$5.5 M|
|Net income per diluted share||$0.47-$0.53||$0.14-$0.21|
|Adjusted EBITDA||$68.0-$69.5 M||$78.5-$80.5 M|
|Adjusted funds from operation ("FFO")||$45.3-$46.8 M||$49.7-$51.5 M|
|Adjusted FFO per diluted share||$1.71-$1.77||$1.86-$1.93|
|Hotel EBITDA margins||39.8-40.3%||40.8-41.5%|
|Corporate cash administrative expenses||$6.7 M||$6.9 M|
|Corporate non-cash administrative expenses||$2.4 M||$2.4 M|
|Interest expense||$13.0 M||$19.9 M|
|Non-cash amortization of deferred fees||$1.6 M||$1.7 M|
|Income taxes||$0.2 M||$0.2 M|
|Chatham’s share of JV EBITDA||$10.6 M||$9.5 M|
|Chatham’s share of JV FFO||$4.9 M||$4.8 M|
|Weighted average shares outstanding||26.5 M||26.8 M|
Funds from operations (FFO), Adjusted FFO (AFFO), Earnings before interest, taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.
As previously reported in March 2014, Chatham entered into an agreement with entities affiliated with HG Vora Capital (the “HG Vora Group”), which at the time represented to Chatham that they beneficially owned 1,262,500 common shares of Chatham, or 4.78% of its then-outstanding common shares. Pursuant to the agreement, among other things, (i) the HG Vora Group withdrew its three nominees for election to Chatham’s board of trustees at Chatham’s 2014 annual meeting of shareholders, (ii) the HG Vora Group agreed to cause all its beneficially owned shares to be voted in favor of the persons nominated for election as trustees by Chatham’s board, and (iii) the HG Vora Group was provided certain anti-dilution rights with respect to certain stock issuances by Chatham.
On June 11, 2014, HG Vora Capital notified Chatham that as of that date, HG Vora Capital did not hold any common shares of Chatham. “Chatham’s management team has done a great job creating shareholder value and we wish the company tremendous success in the future,” said Parag Vora, HG Vora’s founder and portfolio manager.
Chatham will hold a conference call at 10 a.m. EDT, today, Tuesday, June 17, 2014, to provide in-depth details of the acquisitions and Innkeepers joint venture recapitalization, discuss plans for the four-hotel portfolio and update guidance. Shareholders and other interested parties may listen to a simultaneous webcast of the conference call on the Internet by logging onto Chatham’s Web site, www.chathamlodgingtrust.com, or www.streetevents.com, or may participate in the conference call by dialing 1-888-430-8705, reference number 7070032. A recording of the call will be available by telephone until 1 p.m. EDT on June 24, 2014, by dialing 1-888-203-1112, reference number 7070032. A replay of the conference call will be posted on Chatham’s website.
About Chatham Lodging Trust
Chatham Lodging Trust is a self-advised REIT that was organized to invest in upscale extended-stay hotels and premium-branded, select-service hotels. The company owns interests in 77 hotels totaling 10,685 rooms/suites, comprised of 29 hotels it wholly owns with an aggregate of 4,343 rooms/suites in 15 states and the District of Columbia and a minority investment in two joint ventures that own 48 hotels with an aggregate of 6,342 rooms/suites. Additional information about Chatham may be found at www.chathamlodgingtrust.com.
FFO As Defined by NAREIT and Adjusted FFO
The company calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment write-downs, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it measures performance without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that the company believes are not indicative of the performance of its underlying hotel properties. The company believes that these items are more representative of its asset base and its acquisition and disposition activities than its ongoing operations, and that by excluding the effects of the items, FFO is useful to investors in comparing its operating performance between periods and between REITs that also report FFO in accordance with the NAREIT definition.
The company further adjusts FFO for certain additional items that are not in NAREIT’s definition of FFO, including acquisition transaction costs and other charges, losses on the early extinguishment of debt and adjustments for unconsolidated partnerships and joint ventures. The company believes that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO.
EBITDA and Adjusted EBITDA
The company calculates EBITDA as net income or loss excluding interest expense; provision for income taxes, including income taxes applicable to sale of assets; depreciation and amortization; and after adjustments for unconsolidated partnerships and joint ventures. The company believes EBITDA is useful to investors in evaluating its operating performance because it helps investors compare the company’s operating performance between periods and between REITs that report similar measures by removing the impact of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results. In addition, the company uses EBITDA as one measure in determining the value of hotel acquisitions and dispositions.
The company further adjusts EBITDA for certain additional items, including acquisition transaction costs and other charges, losses on the early extinguishment of debt, non-cash share-based compensation and adjustments for unconsolidated partnerships and joint ventures, which it believes are not indicative of the performance of its underlying hotel properties. The company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs.
Although the company presents FFO, Adjusted FFO, EBITDA and Adjusted EBITDA because it believes they are useful to investors in comparing the company’s operating performance between periods and between REITs, these measures have limitations as analytical tools. Some of these limitations are:
- FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect the company’s cash expenditures, or future requirements, for capital expenditures or contractual commitments;
- FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, the company’s working capital needs;
- FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect funds available to make cash distributions;
- EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the company’s debts;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
- Non-cash compensation is and will remain a key element of the company’s overall long-term incentive compensation package, although the company excludes it as an expense when evaluating its operating performance for a particular period using adjusted EBITDA;
- Adjusted FFO and Adjusted EBITDA do not reflect the impact of certain cash charges (including acquisition transaction costs) that result from matters the company considers not to be indicative of the underlying performance of its hotel properties; and
- Other companies in the company’s industry may calculate FFO, Adjusted FFO, EBITDA and Adjusted EBITDA differently than the company does, limiting their usefulness as a comparative measure.
Forward-Looking Statement Safe Harbor
Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "plan," "predict," "project," "will," "continue" and other similar terms and phrases, and include among other things statements regarding the acquisitions, expansions, capital expenditures, the tax treatment of Chatham’s gain on sale and forecasts of future operating results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the effect on travel of potential terrorist attacks, that will affect occupancy rates at the company’s hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the company’s indebtedness and its ability to meet covenants in its debt agreements; relationships with property managers; the company’s ability to maintain its properties in a first-class manner, including meeting capital expenditure requirements; the company’s ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; the company’s ability to successfully and timely complete the expansion and development projects; and the company’s ability to continue to satisfy complex rules in order for the company to remain a REIT for federal income tax purposes and other risks and uncertainties associated with the company’s business described in the company's filings with the SEC. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of June 17, 2014, 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.