Chatham Lodging Trust(CLDT) - 2020 Q4 - Annual Report

Hotel Portfolio - As of December 31, 2020, the company owned 39 hotels with a total of 5,900 rooms located in 15 states and the District of Columbia[22] - The company held a 10.3% noncontrolling interest in a joint venture owning 46 hotels with an aggregate of 5,948 rooms and a 10.0% interest in another joint venture owning 48 hotels with 6,402 rooms[22] - The company primarily invests in upscale extended-stay hotels, including 16 Residence Inn by Marriott and 7 Homewood Suites by Hilton[25] - The company focuses on acquiring hotel properties below replacement cost in strong demand markets[29] - The company operates a total of 39 wholly owned hotels with a total of 5,900 rooms[210] - The total purchase price for all hotels amounts to $1,408.1 million, averaging $238,661 per room[210] - The Residence Inn Silicon Valley I has the highest purchase price at $92.8 million, with a purchase price per room of $401,776[210] - The Residence Inn Bellevue has the largest number of rooms at 231, purchased for $71.8 million, averaging $316,883 per room[210] - The Homewood Suites by Hilton San Antonio River Walk was acquired for $32.5 million, with a purchase price per room of $222,603[210] - The Hampton Inn & Suites Houston Medical Center has a mortgage debt balance of $17.4 million[210] - The company has a diverse portfolio across various states, including California, Texas, and New York[210] Financial Performance and Strategy - The company's leverage ratio was approximately 35.8% as of December 31, 2020, an increase from 34.1% at December 31, 2019[31] - The company aims to maintain a leverage ratio between the mid-30s and low 50s over the long term[29] - The company plans to finance growth through free cash flow, debt, and issuances of common shares and/or preferred shares[31] - Future growth is contingent on securing new financing; without it, growth will be limited[79] - Future debt service obligations could adversely affect the company's overall operating results or cash flow, potentially requiring asset liquidation[69] - Increased debt service requirements and higher interest rates could reduce cash available for distributions to shareholders[90] - Future debt obligations may necessitate property liquidation, adversely affecting shareholder distributions and share price[92] - The company must distribute at least 90% of its REIT taxable income annually to maintain REIT status, limiting retained earnings for capital expenditures[89] - The company has not established a minimum distribution payment level, which may affect shareholder returns[198] Competition and Market Conditions - The company faces significant competition for hotel property investments from institutional pension funds, private equity investors, and REITs, which may increase acquisition costs and reduce suitable investment opportunities[32] - The lodging industry is highly competitive, with factors such as location, brand affiliation, and customer service impacting occupancy rates, average daily rates (ADR), and revenue per available room (RevPAR)[32] - The cyclical nature of the lodging industry may adversely affect the return on investments, especially during downturns[64] - Increased competition from alternative lodging marketplaces like Airbnb may reduce demand for traditional hotel rooms[132] - The COVID-19 pandemic has significantly impacted the U.S. lodging industry, leading to reduced occupancy rates at some hotels[70] - The company has experienced a sharp decline in group, business, and leisure travel due to various pandemic-related restrictions[75] - The ongoing pandemic may lead to a deterioration of economic conditions, potentially resulting in a recession that could adversely affect hotel demand and revenues[71] Regulatory and Compliance Risks - The company is subject to various regulations, including the Americans with Disabilities Act (ADA), which may require modifications to properties and could adversely affect financial conditions[35][36] - Environmental regulations impose potential liabilities for hazardous substances, which could exceed property values and affect the company's ability to sell or borrow against real estate[38][40] - The company has not conducted comprehensive audits for ADA compliance, which may lead to undiscovered liabilities[35][40] - The company continues to assess properties for ADA compliance and make necessary alterations, which may impact financial results[36] - Noncompliance with environmental laws could adversely affect operating results and the ability to distribute to shareholders[143] - The company may incur additional costs to comply with the Americans with Disabilities Act (ADA) and other regulations, impacting financial condition and shareholder distributions[148] Management and Operational Risks - The company utilizes independent management companies, including Island Hospitality Management, which managed all 39 wholly owned hotels as of December 31, 2020[24] - The concentration of hotel management in one company poses operational risks and may affect the company's ability to execute its business strategy[77] - The management of hotels is concentrated in one company, IHM, which manages all 39 wholly owned hotels, increasing operational risk[82] - The company relies on third-party management companies to operate its hotels, which is essential for maintaining its REIT status[69] Taxation and Dividend Distribution - The company has elected to be taxed as a REIT, requiring it to distribute at least 90% of its taxable income to avoid federal income tax[41] - The company may distribute taxable dividends in cash or common shares, which could lead to tax liabilities for shareholders[110] - Dividends payable by REITs do not qualify for reduced tax rates, potentially making investments in REITs less attractive compared to non-REIT corporations[180] - The ability to make distributions may be adversely affected by factors such as unanticipated expenses, decreases in asset values, and inaccurate operating expense estimates[197] - The revolving credit facility limits distributions to the greater of 95% of adjusted funds from operations or the amount required to maintain REIT status[200] Insurance and Liability Risks - The company maintains comprehensive insurance on hotel properties, but uninsured losses could adversely affect operating results and shareholder distributions[140] - In the event of a substantial loss, insurance coverage may not be sufficient to cover the full market value or replacement cost of the lost investment, potentially leading to significant financial obligations[141] - The company may assume unknown liabilities when acquiring hotel properties, which could significantly impact financial performance[139] - The presence of harmful mold in hotel properties could lead to liability and costly remediation efforts[158] Human Capital Management - The company employs 23 individuals, with 17 shared with a joint venture, focusing on talent development and diversity[58] - The company’s human capital management objectives include competitive pay and benefit programs to attract and retain talent[59] Lease Obligations - The total future lease payments for the company amount to $77.236 million, with $2.051 million due in 2021 and $66.720 million thereafter[56] - The company has a corporate office lease with a term of 11 years, including a 12-month rent abatement period[54] - The Residence Inn New Rochelle hotel has lease agreements expiring in 2104, with aggregate rent of approximately $31,000 per quarter[52] - The Hilton Garden Inn Marina del Rey hotel has minimum monthly payments of approximately $47,500, with percentage rent payments of 5% to 25% of gross income[53] - The Residence Inn San Diego Gaslamp hotel has a ground lease with monthly payments of approximately $44,400, increasing by 10% every five years[51] - The company’s leases typically provide multi-year renewal options, with options included in lease obligation calculations only when reasonably certain to be exercised[55]