Chatham Lodging Trust(CLDT) - 2020 Q1 - Quarterly Report

PART I Financial Statements The Q1 2020 financial statements reflect a significant downturn with a $28.1 million net loss and 20.4% revenue decrease, primarily due to COVID-19 impacts Consolidated Balance Sheets Balance Sheet Highlights (In thousands) | Balance Sheet Highlights (In thousands) | March 31, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $57,972 | $6,620 | | Investment in hotel properties, net | $1,339,778 | $1,347,116 | | Total assets | $1,470,092 | $1,438,574 | | Liabilities & Equity | | | | Mortgage debt, net | $493,265 | $495,465 | | Revolving credit facility | $173,000 | $90,000 | | Total liabilities | $731,822 | $663,550 | | Total equity | $738,270 | $775,024 | - Cash and cash equivalents increased significantly to $58.0 million from $6.6 million, primarily due to drawing $83.0 million from the revolving credit facility to enhance liquidity in response to the COVID-19 pandemic[10][173] Consolidated Statements of Operations Statement of Operations (In thousands) | Statement of Operations (In thousands) | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Total revenue | $60,209 | $75,679 | | Total operating expenses | $77,896 | $65,786 | | Operating (loss) income | $(17,686) | $9,893 | | Impairment loss on investment | $15,282 | $— | | Net (loss) income | $(28,111) | $1,628 | | (Loss) income per Common Share - Diluted | $(0.59) | $0.03 | - The company recorded a significant impairment loss of $15.3 million on its investment in unconsolidated real estate entities (the Inland JV), which was a major contributor to the net loss in Q1 2020[13][48] Consolidated Statements of Cash Flows Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,860) | $13,311 | | Net cash used in investing activities | $(12,307) | $(11,741) | | Net cash provided by (used in) financing activities | $64,556 | $(1,366) | | Net change in cash, cash equivalents and restricted cash | $49,389 | $204 | - Financing activities provided $64.6 million in cash, primarily from net borrowings of $83.0 million on the revolving credit facility, which was partially offset by $16.2 million in distributions to shareholders[18] Notes to the Consolidated Financial Statements Notes detail the company's REIT structure, a $15.3 million Inland JV impairment, credit facility draw, and subsequent covenant waivers and JV debt defaults - As of March 31, 2020, the company wholly owned 40 hotels and held noncontrolling interests in two joint ventures (NewINK JV and Inland JV) which collectively own 94 hotels[27] - Due to the significant impact of the COVID-19 pandemic, the company determined its investment in the Inland JV was not recoverable and recorded a full impairment of $15.3 million[48] - Subsequent to quarter-end, on May 6, 2020, the company amended its credit facility to waive certain financial covenants through March 31, 2021, and gain full access to the $250 million facility[106] - In April and May 2020, both the NewINK JV and the Inland JV failed to make their required debt service payments, resulting in events of default on their respective loans[107][108] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses the severe COVID-19 impact on Q1 2020 operations, including a 21.8% RevPAR decrease, $28.1 million net loss, and liquidity measures COVID-19 Pandemic Impact - The lodging industry has been significantly impacted by the COVID-19 pandemic due to travel restrictions and a decline in domestic travel, with the full impact uncertain and dependent on future developments[113] - In response to the pandemic, the company has taken actions to mitigate the financial impact, including suspending monthly dividends, reducing 2020 capital expenditures, borrowing under its credit facility, and temporarily reducing executive compensation[113] Results of Operations Key Operating Metrics (Same Property, 40 hotels) | Key Operating Metrics (Same Property, 40 hotels) | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Occupancy | 62.7% | 76.0% | (17.5)% | | ADR | $152.63 | $160.91 | (5.1)% | | RevPAR | $95.71 | $122.32 | (21.8)% | - Total revenue for Q1 2020 was $60.2 million, a decrease of 20.4% from $75.7 million in Q1 2019, primarily due to the COVID-19 pandemic[127][130] - Total hotel operating expenses decreased by 13.1% to $36.3 million, reflecting cost reduction measures in response to lower revenues and occupancy[137] - The company recorded a net loss of $28.1 million in Q1 2020, compared to net income of $1.6 million in Q1 2019, largely driven by lower revenue and a $15.3 million impairment charge[153][141] Non-GAAP Financial Measures FFO and Adjusted FFO (In thousands) | FFO and Adjusted FFO (In thousands) | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net (loss) income | $(28,111) | $1,628 | | FFO attributable to common share and unit holders | $3,492 | $16,156 | | Adjusted FFO attributable to common share and unit holders | $6,262 | $16,173 | EBITDA and Adjusted EBITDA (In thousands) | EBITDA and Adjusted EBITDA (In thousands) | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net (loss) income | $(28,111) | $1,628 | | EBITDA | $(4,142) | $25,952 | | EBITDAre | $12,535 | $25,952 | | Adjusted EBITDA | $16,509 | $27,028 | Liquidity and Capital Resources - As of March 31, 2020, the company had cash, cash equivalents, and restricted cash of approximately $69.6 million, a significant increase from $20.2 million at year-end 2019[172] - The company drew down heavily on its $250.0 million revolving credit facility, with outstanding borrowings increasing to $173.0 million at March 31, 2020, from $90.0 million at December 31, 2019[177] - On May 6, 2020, the company amended its credit facility to waive financial covenants through March 31, 2021, and ensure access to the full facility size, in exchange for stricter limits on debt, dividends, and capital expenditures[180] - Planned 2020 capital expenditures have been reduced by approximately $10 million as a result of the COVID-19 pandemic[185] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure, with a 100 basis point increase on $173.0 million floating-rate debt adding $1.7 million in annual interest Debt Maturities by Rate Type (as of March 31, 2020, in thousands) | Debt Maturities by Rate Type (as of March 31, 2020, in thousands) | Total | Fair Value | | :--- | :--- | :--- | | Floating rate debt | $173,000 | $173,000 | | Average interest rate | 3.48% | N/A | | Fixed rate debt | $494,564 | $468,690 | | Average interest rate | 4.66% | N/A | - A hypothetical 100 basis point increase in the variable interest rate on the $173.0 million of floating rate debt outstanding would result in approximately $1.7 million of additional annual interest expense[204] Controls and Procedures Management concluded disclosure controls and procedures were effective as of quarter-end, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[207] - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2020[208] PART II. OTHER INFORMATION Legal Proceedings The company's hotel manager, IHM, faces class-action lawsuits for wage and hour violations, with the company accruing $0.7 million for its estimated indemnification exposure - The company's hotel manager, IHM, is a defendant in several class action lawsuits in California related to alleged wage and hour law violations[209][210][211] - As of March 31, 2020, the company has accrued $0.7 million ($0.1 million for Ruffy/Doonan cases and $0.6 million for Perez class actions) as its estimated total exposure for these litigations[210][211] Risk Factors The COVID-19 pandemic is a primary risk factor, causing severe adverse impacts on the company's financial condition and operations, including declining travel demand and potential debt covenant non-compliance - The COVID-19 pandemic is identified as a primary risk factor, causing a severe negative impact on the U.S. and global economies, financial markets, and the lodging industry[212][214] - Specific risks stemming from the pandemic include a sharp decline in group, business, and leisure travel; reduced hotel operations; potential default on debt covenants; difficulty accessing capital; and suspension of dividends[215] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[219] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[221] Other Information No other information was reported under this item - None[225] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to the credit agreement and officer certifications - Key exhibits filed include the First Amendment to the Amended and Restated Credit Agreement, dated May 6, 2020, and CEO/CFO certifications[227]