Chatham Lodging Trust(CLDT) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited consolidated financial statements of Chatham Lodging Trust, including the balance sheets, statements of operations, statements of equity, and statements of cash flows for the periods ended September 30, 2021, and December 31, 2020 (for balance sheet) or September 30, 2020 (for income/cash flow statements) - The financial statements are unaudited, prepared in accordance with GAAP and SEC rules for interim information, and include all necessary adjustments for fair presentation; interim results are not necessarily indicative of full-year performance[30] Consolidated Balance Sheets The consolidated balance sheets provide a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Consolidated Balance Sheets (September 30, 2021 vs. December 31, 2020) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $1,425,967 | $1,370,257 | +$55,710 | | Total Liabilities | $599,439 | $677,797 | -$78,358 | | Total Equity | $826,528 | $692,460 | +$134,068 | | Investment in hotel properties, net | $1,299,296 | $1,265,174 | +$34,122 | | Investment in hotel properties under development | $64,168 | $43,651 | +$20,517 | | Cash and cash equivalents | $18,580 | $21,124 | -$2,544 | | Mortgage debt, net | $441,414 | $460,145 | -$18,731 | | Revolving credit facility | $70,000 | $135,300 | -$65,300 | | Construction loan | $32,283 | $13,325 | +$18,958 | Consolidated Statements of Operations The consolidated statements of operations detail the company's revenues, expenses, and net loss for the three and nine months ended September 30, 2021, and 2020 Consolidated Statements of Operations (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Revenue | $64,295 | $34,969 | +$29,326 | +83.9% | | Total Operating Expenses | $59,848 | $45,214 | +$14,634 | +32.4% | | Operating Income (Loss) | $4,440 | $(10,245) | +$14,685 | N/A | | Net Loss | $(1,383) | $(18,312) | +$16,929 | N/A | | Net Loss Attributable to Common Shareholders | $(3,307) | $(18,057) | +$14,750 | N/A | | Loss per Common Share - Basic | $(0.07) | $(0.38) | +$0.31 | N/A | Consolidated Statements of Operations (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Revenue | $146,653 | $115,351 | +$31,302 | +27.1% | | Total Operating Expenses | $158,071 | $161,904 | -$3,833 | -2.4% | | Operating Income (Loss) | $(11,439) | $(46,550) | +$35,111 | N/A | | Net Loss | $(7,399) | $(73,616) | +$66,217 | N/A | | Net Loss Attributable to Common Shareholders | $(9,209) | $(72,667) | +$63,458 | N/A | | Loss per Common Share - Basic | $(0.19) | $(1.55) | +$1.36 | N/A | Consolidated Statements of Equity The consolidated statements of equity outline changes in shareholders' equity, including preferred share issuances and net loss attributable to common shareholders Total Equity (September 30, 2021 vs. September 30, 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Total Shareholders' Equity | $810,667 | $681,128 | | Noncontrolling Interest in Operating Partnership | $15,861 | $13,753 | | Total Equity | $826,528 | $694,881 | - Issuance of 4,800,000 preferred shares in 2021, net of offering costs, contributed $48 thousand to preferred shares amount and $115,909 thousand to additional paid-in capital[18] - Net loss attributable to common shareholders was $(3,307) thousand for the three months ended September 30, 2021, compared to $(18,057) thousand for the same period in 2020[17] Consolidated Statements of Cash Flows The consolidated statements of cash flows categorize cash movements from operating, investing, and financing activities for the nine months ended September 30, 2021, and 2020 Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | Change (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net cash provided by (used in) operating activities | $18,416 | $(12,750) | +$31,166 | | Net cash used in investing activities | $(94,276) | $(27,130) | -$67,146 | | Net cash provided by financing activities | $73,973 | $62,113 | +$11,860 | | Net change in cash, cash equivalents and restricted cash | $(1,887) | $22,233 | -$24,120 | | Cash, cash equivalents and restricted cash, end of period | $29,566 | $42,415 | -$12,849 | - Supplemental non-cash investing and financing information includes the issuance of shares for trustee compensation and accrued distributions payable[21] Notes to the Consolidated Financial Statements These notes provide detailed explanations of the company's organization, significant accounting policies, and specific financial statement line items Note 1. Organization This note describes Chatham Lodging Trust's formation, investment focus, hotel portfolio, and management structure - Chatham Lodging Trust is a Maryland REIT, formed in 2009, investing in upscale extended-stay and premium-branded select-service hotels[25] - As of September 30, 2021, the Company wholly owned 41 hotels across 15 states and D.C[27] - The Company sold its 10% noncontrolling interest in the Inland JV in September 2021 and its 10.3% noncontrolling interest in the NewINK JV in March 2021 for $2.8 million[27] - All 41 wholly-owned hotels are managed by Island Hospitality Management LLC (IHM), which is 100% owned by the Company's Chairman, President, and CEO, Jeffrey H. Fisher[29] Note 2. Summary of Significant Accounting Policies This note outlines the accounting principles and estimation methods used in preparing the unaudited interim consolidated financial statements - Unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules[30] - Management's estimates and assumptions are used, and actual results could differ[34] - Consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries, with intercompany balances and transactions eliminated[31] Note 3. Acquisition of Hotel Properties This note details the acquisition of two hotel properties in Austin, TX, during August 2021 Hotel Acquisitions (August 3, 2021) | Hotel | Location | Acquisition Price (in millions) | | :------------------------------------ | :--------- | :------------------------------ | | Residence Inn Austin Northwest/The Domain Area | Austin, TX | $37.0 | | TownePlace Suites Austin Northwest/The Domain Area | Austin, TX | $34.3 | Note 4. Disposition of Hotel Properties This note describes the sale of the Residence Inn Mission Valley in San Diego, CA, in November 2020 Hotel Disposition (November 24, 2020) | Hotel | Location | Sale Price (in millions) | Gain on Sale (in millions) | | :------------------------------------ | :--------- | :----------------------- | :------------------------- | | Residence Inn Mission Valley | San Diego, CA | $67.0 | $21.1 | Note 5. Allowance for Doubtful Accounts This note presents the allowance for doubtful accounts as of September 30, 2021, and December 31, 2020 Allowance for Doubtful Accounts | Date | Amount (in millions) | | :----------------- | :------------------- | | Sep 30, 2021 | $0.4 | | Dec 31, 2020 | $0.2 | Note 6. Investment in Hotel Properties This note provides a breakdown of the company's investment in hotel properties, including land, buildings, and ongoing development Investment in Hotel Properties, Net | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Land and improvements | $291,749 | $287,049 | | Building and improvements | $1,263,289 | $1,195,276 | | Furniture, fixtures and equipment | $90,799 | $84,381 | | Renovations in progress | $6,387 | $11,225 | | Less: accumulated depreciation | $(352,928) | $(312,757) | | Total Investment in hotel properties, net | $1,299,296 | $1,265,174 | - The Company is developing a Home2 Suites by Hilton hotel in Los Angeles, CA, with $64.2 million of costs incurred to date ($6.6 million for land, $57.6 million for other development costs)[38] Note 7. Investment in Unconsolidated Entities This note details the disposition of interests in NewINK and Inland JVs and the resulting gains or losses - NewINK JV Disposition: Sold 10.3% interest in March 2021 for $2.8 million, resulting in a $23.8 million gain on sale[40] - Inland JV Disposition: Sold 10.0% interest in September 2021 for $0, after recording a $15.3 million impairment loss in Q1 2020[41] Loss from Unconsolidated Real Estate Entities (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | | Total loss from unconsolidated real estate entities attributable to the Company | $1,231 | $6,099 | Note 8. Debt This note outlines the company's debt structure, including revolving credit facilities, construction loans, and mortgage debt, along with covenant compliance Total Debt Outstanding | Date | Amount (in thousands) | | :----------------- | :-------------------- | | Sep 30, 2021 | $543,697 | | Dec 31, 2020 | $608,770 | Debt Composition (Sep 30, 2021 vs. Dec 31, 2020) | Debt Type | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Revolving Credit Facility | $70,000 | $135,300 | | Construction Loan | $32,283 | $13,325 | | Mortgage Debt | $441,414 | $460,145 | - The Company was in compliance with all modified financial covenants as of September 30, 2021, following an amendment in December 2020 that waived certain covenants through December 31, 2021, and required minimum liquidity of $25 million[49] - All mortgage loans were below minimum debt service coverage ratios or debt yields, allowing for cash trap enforcement, but no lenders had enforced these provisions as of September 30, 2021[50] - The Company uses interest rate cap agreements for its Warner Center construction loan to hedge against LIBOR exceeding 3.5%[52] Note 9. Income Taxes This note discusses the company's income tax expense and the valuation allowance on deferred tax assets - Income tax expense was $0 for the three and nine months ended September 30, 2021 and 2020[54] - The TRS expects continued taxable losses in 2021 and maintains a full valuation allowance on net deferred tax assets[55] Note 10. Dividends Declared and Paid This note details the suspension of common share dividends and the declaration of preferred share dividends - Common share dividends were suspended after March 2020 due to the COVID-19 pandemic[56] - No common share dividends were declared for the three and nine months ended September 30, 2021[56] Preferred Dividends Declared (September 2021) | Share Type | Dividend Per Share | Payable Date | Record Date | | :---------------------------------------------------- | :----------------- | :----------- | :---------- | | 6.625% Series A Cumulative Redeemable Preferred Shares | $0.48307 | Oct 15, 2021 | Sep 30, 2021 | Note 11. Shareholders' Equity This note provides information on common shares outstanding, ATM plans, DRSPP, preferred share issuance, and LTIP units - Common Shares Outstanding: 48,767,816 as of September 30, 2021[58] - ATM Plan: Approximately $77.5 million available for issuance under the ATM Plan as of September 30, 2021[59] - DRSPP: Approximately $48.0 million available for issuance under the New DRSPP as of September 30, 2021[61] Series A Preferred Shares Issuance (June 30, 2021) | Metric | Value | | :-------------------------------- | :-------------------- | | Shares Issued | 4,800,000 | | Net Proceeds | ~$115.9 million | | Distribution Rate | 6.625% per annum ($1.65625 per share) | | Liquidation Preference | $25.00 per share | | Redemption | Callable by Company after June 30, 2026 | - Operating Partnership LTIP Units: 976,102 vested LTIP units held by current and former employees as of September 30, 2021[64] Note 12. Earnings Per Share This note presents the basic loss per common share for the three and nine months ended September 30, 2021, and 2020 Loss per Common Share - Basic (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--------------------------------------- | :----------- | :----------- | | Net loss attributable to common shareholders | $(0.07) | $(0.38) | Loss per Common Share - Basic (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--------------------------------------- | :----------- | :----------- | | Net loss attributable to common shareholders | $(0.19) | $(1.55) | - Unvested restricted shares and LTIP units are excluded from diluted loss per share when anti-dilutive[66] Note 13. Equity Incentive Plan This note details the company's equity incentive plan, including available shares, restricted share awards, and LTIP unit awards - Shares Available for Issuance: 579,825 common shares available under the Equity Incentive Plan as of September 30, 2021[68] - Restricted Share Awards: Unrecognized compensation costs of $116 thousand as of September 30, 2021, to be recognized over ~2.7 years[70] LTIP Unit Awards (Non-vested at period end) | Date | Number of Units | | :----------------- | :-------------- | | Sep 30, 2021 | 764,178 | | Dec 31, 2020 | 669,609 | - Compensation expense for LTIP units was $3.2 million for the nine months ended September 30, 2021, with $6.5 million in unrecognized costs remaining, expected to be recognized over approximately 1.9 years[81] - Performance-Based LTIP Unit Awards: Vesting is conditional on achieving certain long-term market-based Total Shareholder Return (TSR) criteria over a three-year period (March 1, 2021 to February 28, 2024) and continued employment[76][77] Note 14. Leases This note outlines the company's lease liabilities, weighted-average remaining lease term, and discount rate Total Future Lease Payments (Sep 30, 2021) | Metric | Amount (in thousands) | | :--------------------------------------- | :-------------------- | | Total Future Lease Payments | $75,701 | | Less: Imputed interest | $(52,865) | | Present value of lease liabilities | $22,836 | Lease Term and Discount Rate (September 30, 2021) | Metric | Value | | :--------------------------------------- | :------ | | Weighted-average remaining lease term (years) | 40.56 | | Weighted-average discount rate | 6.59% | - Fixed lease payments incurred for nine months ended Sep 30, 2021: $0.9 million[88] Note 15. Commitments and Contingencies This note discusses routine litigation, management agreements, and franchise agreements, including associated fees - Litigation: Routine litigation is not expected to have a material adverse impact[91] - Management Agreements (IHM): Initial term of five years, automatically renewable. Base fees are a percentage of gross room revenue; incentive fees are 10% of net operating income (less fixed costs, base fees, and return threshold), capped at 1% of gross hotel revenues[92] Management Fees Incurred | Period | 2021 (in millions) | 2020 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Three months ended Sep 30 | $2.2 | $1.3 | | Nine months ended Sep 30 | $5.1 | $4.2 | - Franchise Agreements: Fees are a specified percentage of gross room revenue. Weighted average expiration is August 2030[94] Franchise and Marketing Fees Incurred | Period | 2021 (in millions) | 2020 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Three months ended Sep 30 | $5.3 | $2.9 | | Nine months ended Sep 30 | $12.0 | $9.2 | Note 16. Related Party Transactions This note describes transactions with related parties, specifically hotel management fees paid to Island Hospitality Management LLC - Jeffrey H. Fisher, CEO, acquired 100% ownership of IHM during the nine months ended September 30, 2021[96] - IHM manages all 41 of the Company's wholly-owned hotels[96] Hotel Management Fees Paid to IHM | Period | 2021 (in millions) | 2020 (in millions) | | :-------------------------------- | :----------------- | :----------------- | | Three months ended Sep 30 | $2.2 | $1.3 | | Nine months ended Sep 30 | $5.1 | $4.2 | - Cost reimbursements from unconsolidated entities (including IHM) are recorded without markup and do not impact operating or net income[97] Note 17. Subsequent Events This note details the credit facility amendment in October 2021, extending covenant waivers and facility maturity - Credit Facility Amendment (October 26, 2021): Waiver of financial covenants extended to June 30, 2022. Facility maturity extended to March 8, 2023, with two six-month extension options (to March 8, 2024). Equity pledges on three unencumbered hotels provided to lenders[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides a detailed discussion and analysis of Chatham Lodging Trust's financial condition and results of operations, focusing on the impact of the COVID-19 pandemic, industry outlook, and key financial performance indicators - The lodging industry has been significantly impacted by the COVID-19 pandemic, but trends are improving, with strong growth expected in 2021 relative to 2020[101][110] - Company actions to mitigate the impact of COVID-19 include suspending common share dividends, reducing capital expenditures, borrowing under its credit facility, obtaining credit facility covenant waivers, and temporarily reducing executive compensation[101] - Investment Strategy: Invests in upscale extended-stay and premium-branded select-service hotels in geographically diverse markets with high barriers to entry near strong demand generators[104] - Leverage Ratio: 30.6% at September 30, 2021 (measured as net debt to hotel investments at cost)[105] COVID-19 Pandemic This section discusses the significant impact of the COVID-19 pandemic on the lodging industry and the company's mitigating actions - The lodging industry has been significantly impacted by the COVID-19 pandemic, but trends are improving, with strong growth expected in 2021 relative to 2020[101][110] - Company actions to mitigate the operating and financial impact include suspending common share dividends, reducing capital expenditures, borrowing under its credit facility, obtaining credit facility covenant waivers, and temporarily reducing executive compensation[101] - The full magnitude of the impact of the COVID-19 pandemic on the Company's financial condition, liquidity, and future results of operations will depend on future developments which are highly uncertain[101] Statement Regarding Forward-Looking Information This section highlights that forward-looking statements are subject to risks and uncertainties, particularly concerning the COVID-19 pandemic's ongoing impact - Forward-looking statements are subject to risks, and actual results could differ materially from expectations, particularly due to the ongoing impact of the COVID-19 pandemic[102] - The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements[102] Overview This section provides an overview of Chatham Lodging Trust as a self-advised hotel investment company, its strategy, and leverage ratio - Chatham Lodging Trust is a self-advised hotel investment company, organized in October 2009, focusing on upscale extended-stay and premium-branded select-service hotels[104] - Investment strategy is to acquire quality assets at attractive prices and improve their returns through knowledgeable asset management and seasoned, proven hotel management while remaining prudently leveraged[104] - At September 30, 2021, the Company's leverage ratio was 30.6% (net debt to hotel investments at cost)[105] - As a REIT, the Company's Operating Partnership leases hotel properties to taxable REIT subsidiary lessees (TRS Lessees), who engage independent contractors to manage the hotels[106] Key Indicators of Operating Performance and Financial Condition This section identifies the key non-financial and financial metrics used to assess the company's operating performance and financial health - Key non-financial metrics include Average Daily Rate (ADR), Occupancy, and Revenue Per Available Room (RevPAR)[107] - Key financial metrics include Funds From Operations (FFO), Adjusted FFO, Earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDAre, Adjusted EBITDA, and Adjusted Hotel EBITDA[107] - These metrics are used to determine each hotel's contribution toward providing income to shareholders and increasing long-term total returns[108] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and net loss, for the periods presented - Financial results benefited from increased visitation at properties due to a reduction in the impact from the COVID-19 pandemic relative to 2020[111][137] - The comparisons are influenced by the COVID-19 pandemic, the acquisition of two hotels, the sale of the NewINK JV, and the disposition of one hotel[111][137] Total Revenue (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Total Revenue | $64,295 | $34,969 | 83.9% | Total Revenue (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Total Revenue | $146,653 | $115,351 | 27.1% | Industry Outlook This section provides an outlook on the US lodging industry, including RevPAR trends and expectations for 2021 - US lodging industry RevPAR increased 83.8% for the three months ended September 30, 2021[110] - RevPAR is expected to increase significantly versus 2020 but remain below the RevPAR levels achieved in 2019 for the remainder of 2021[110] Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020 This section compares the company's financial performance for the three months ended September 30, 2021, against the same period in 2020 - Total revenue increased by $29.3 million (83.9%) to $64.3 million, primarily related to the recovery from the COVID-19 pandemic and the two hotels acquired in 2021[112] - Same property RevPAR increased 92.2% due to a 39.3% increase in ADR and a 38.1% increase in occupancy[119] - Hotel operating expenses increased $13.5 million (61.8%) to $35.4 million, primarily due to the increase in revenues and occupancy[122] - Net loss was $1.4 million, compared to $18.3 million in the prior year, primarily due to increased occupancies and revenues and the sale of the NewINK JV[135] - Interest expense decreased by 19.6% to $5.8 million, mainly due to mortgage debt repayments and a reduction in the revolving credit facility balance[132] Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020 This section compares the company's financial performance for the nine months ended September 30, 2021, against the same period in 2020 - Total revenue increased by $31.3 million (27.1%) to $146.7 million, primarily related to the recovery from the COVID-19 pandemic and the two hotels acquired in 2021[138] - Same property RevPAR increased 37.6% due to a 4.5% increase in ADR and a 31.5% increase in occupancy[145] - Hotel operating expenses increased $11.8 million (16.0%) to $85.7 million, primarily due to the increase in revenues and occupancy[146] - Impairment loss on investment in unconsolidated real estate entities decreased by $15.3 million, as the prior year included an impairment on the Inland JV[150] - Gain on sale of investment in unconsolidated real estate entities increased by $23.8 million due to the sale of the NewINK JV[159] - Net loss was $7.4 million, compared to $73.6 million in the prior year, primarily due to increased occupancies and revenues and the NewINK JV sale gain[161] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures such as FFO, Adjusted FFO, EBITDA, and Adjusted Hotel EBITDA - The Company uses FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA, and Adjusted Hotel EBITDA as key supplemental measures of operating performance[163] FFO and Adjusted FFO Attributable to Common Share and Unit Holders (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | FFO | $10,241 | $(3,974) | | Adjusted FFO | $10,497 | $(4,173) | FFO and Adjusted FFO Attributable to Common Share and Unit Holders (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | FFO | $7,557 | $(13,141) | | Adjusted FFO | $8,236 | $(10,351) | EBITDA, EBITDAre, and Adjusted EBITDA (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | EBITDA | $18,108 | $4,129 | | EBITDAre | $18,115 | $4,130 | | Adjusted EBITDA | $19,606 | $5,056 | EBITDA, EBITDAre, and Adjusted EBITDA (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | EBITDA | $52,789 | $(4,678) | | EBITDAre | $28,993 | $11,991 | | Adjusted EBITDA | $33,257 | $18,254 | Adjusted Hotel EBITDA (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Adjusted Hotel EBITDA | $22,518 | $6,134 | Adjusted Hotel EBITDA (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Adjusted Hotel EBITDA | $41,563 | $20,200 | Sources and Uses of Cash This section analyzes the company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2021 Cash, Cash Equivalents and Restricted Cash | Date | Amount (in millions) | | :----------------- | :------------------- | | Sep 30, 2021 | $29.6 | | Dec 31, 2020 | $31.5 | Net Cash Flows (Nine Months Ended Sep 30, 2021) | Activity | Amount (in millions) | | :--------------------------------------- | :------------------- | | Operating Activities | +$18.4 | | Investing Activities | -$94.3 | | Financing Activities | +$74.0 | - Key Investing Activities (Nine Months Ended Sep 30, 2021): Acquisition of RI Austin and TPS Austin hotels ($71.3 million), capital improvements ($5.2 million), hotel development ($20.5 million)[179] - Key Financing Activities (Nine Months Ended Sep 30, 2021): Net proceeds from Series A Preferred Share offering ($115.9 million), common equity proceeds ($24.6 million), net repayments on revolving credit facility ($65.3 million)[179] Liquidity and Capital Resources This section discusses the company's leverage ratio, total debt, and strategies for meeting short-term and long-term liquidity requirements - At September 30, 2021, the Company's leverage ratio was approximately 30.6% (net debt to hotel investments at cost)[183] - Total debt at September 30, 2021, was $544.4 million at an average interest rate of approximately 4.7%[183] Outstanding Borrowings (Sep 30, 2021) | Debt Type | Amount (in millions) | | :-------------------------- | :------------------- | | Revolving Credit Facility | $70.0 | | Construction Loan | $32.3 | | Mortgage Debt | $442.1 | - The credit facility amendment in December 2020 waived certain financial covenants through December 31, 2021, requiring a minimum liquidity of $25 million[185] - Short-term liquidity requirements are expected to be met through existing cash balances and availability under the credit facility; long-term liquidity requirements will be met through additional borrowings, equity/debt issuances, or asset sales[189] Dividend Policy This section outlines the company's dividend policy, including the suspension of common share dividends and preferred share distributions - Common share dividends were suspended after the March 2020 payment due to the decline in operating performance caused by the COVID-19 pandemic[191] - No common share dividends were declared for the nine months ended September 30, 2021[191] - Chatham declared a dividend of $0.48307 per share of 6.625% Series A Cumulative Redeemable Preferred Shares payable on October 15, 2021[192] Capital Expenditures This section details capital expenditures on existing hotels and the ongoing development of a new hotel property Capital Expenditures on Existing Hotels | Period | Amount (in millions) | | :--------------------------------------- | :------------------- | | Nine months ended Sep 30, 2021 | $5.2 | | Nine months ended Sep 30, 2020 | $13.9 | - The Company expects to invest an additional $1.1 million on renovations, discretionary and emergency expenditures on existing hotels for the remainder of 2021[194] Hotel Development (Home2 Suites by Hilton, Warner Center) | Metric | Amount (in millions) | | :--------------------------------------- | :------------------- | | Estimated Total Development Costs | ~$70 | | Costs Incurred to Date (Sep 30, 2021) | $64.2 | Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements as of September 30, 2021 - The Company had no material off-balance sheet arrangements at September 30, 2021[196] Contractual Obligations This section presents a summary of the company's contractual obligations, including leases and debt, as of September 30, 2021 - Total contractual obligations as of September 30, 2021, were $661,327 thousand[198] Contractual Obligations (Sep 30, 2021, in thousands) | Obligation Type | Total | Less Than One Year | One to Three Years | Three to Five Years | More Than Five Years | | :--------------------------------------- | :------ | :----------------- | :----------------- | :------------------ | :------------------- | | Corporate office lease | $4,374 | $211 | $1,727 | $1,814 | $622 | | Revolving credit facility, including interest | $71,283 | $740 | $70,543 | $0 | $0 | | Construction loan | $39,389 | $625 | $5,004 | $33,760 | $0 | | Ground leases | $71,328 | $305 | $2,438 | $2,487 | $66,098 | | Property loans, including interest | $474,953 | $7,366 | $147,374 | $320,213 | $0 | - The table does not include management and franchise fees, or $5.8 million of estimated remaining costs associated with the Los Angeles hotel development[198] Inflation This section discusses the impact of inflation on hotel operations and the ability to adjust room rates - Operators of hotels generally possess the ability to adjust room rates daily to reflect the effects of inflation[199] - Competitive pressures may limit the ability of management companies to raise room rates[199] Seasonality This section explains the recurring seasonal patterns affecting hotel demand, revenue, operating income, and cash flow - Demand for hotels is affected by recurring seasonal patterns, generally resulting in lower revenue, operating income, and cash flow in the first and fourth quarters[200] - Higher revenue, operating income, and cash flow are typically expected in the second and third quarters[200] - These trends are influenced by overall economic cycles and the geographic locations of the hotels[200] Critical Accounting Policies This section highlights the critical accounting policies that require significant management estimates and assumptions - Consolidated financial statements are prepared in conformity with GAAP, requiring management to make estimates and assumptions[201] - Actual results could differ from these estimates due to the exercise of judgment and assumptions about future uncertainties[201] - All significant accounting policies, including critical accounting policies, are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[201] Recently Issued Accounting Standards This section refers to Note 2 for details on recently issued accounting standards relevant to the company - Refer to Note 2, Summary of Significant Accounting Policies, for all new recently issued accounting standards[202] Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Company is exposed to interest rate changes primarily as a result of its assumption of long-term debt, with risk management focused on limiting impact and lowering borrowing costs - The Company is exposed to interest rate changes primarily as a result of its assumption of long-term debt[204] - Interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs, primarily by borrowing at fixed rates or variable rates with the lowest margins available[204] Fair Value of Debt (September 30, 2021 vs. December 31, 2020) | Debt Type | Sep 30, 2021 (in millions) | Dec 31, 2020 (in millions) | | :----------------- | :------------------------- | :------------------------- | | Fixed Rate Debt | $450.7 | $462.6 | | Variable Rate Debt | $102.3 | $148.6 | - A hypothetical 100 basis points increase in LIBOR would result in additional interest of approximately $0.7 million annually[206] Item 4. Controls and Procedures. Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2021, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated as effective by the Chief Executive Officer and Chief Financial Officer as of September 30, 2021[209] - There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the last fiscal quarter[210] PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various routine legal claims and lawsuits arising in the ordinary course of business, not expected to have a material adverse impact - The Company is subject to various claims, lawsuits and legal proceedings arising in the ordinary course of business[212] - Management believes that the aggregate identifiable amount of such liabilities, if any, will not have a material adverse impact on its financial condition or results of operations[212] Item 1A. Risk Factors. This section refers to the detailed discussion of risk factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as updated by subsequent SEC filings - Detailed discussions of risk factors are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as updated by subsequent filings with the SEC[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The Company reported no unregistered sales of equity securities or use of proceeds for the period - None reported[214] Item 3. Defaults Upon Senior Securities. The Company reported no defaults upon senior securities for the period - None reported[216] Item 4. Mine Safety Disclosures. This item is not applicable to the Company - Not applicable[218] Item 5. Other Information. The Company reported no other information for the period - None reported[220] Item 6. Exhibits. This section lists the exhibits filed as part of the report, including articles of amendment, bylaws, credit agreement amendments, and certifications from the CEO and CFO - Exhibits include Articles of Amendment and Restatement, Second Amended and Restated Bylaws, and Articles Supplementary designating the 6.625% Series A Cumulative Redeemable Preferred Shares[223] - The Fourth Amendment to Amended and Restated Credit Agreement, dated October 26, 2021, is filed as an exhibit[223] - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are included[223] SIGNATURE The report is duly signed on November 4, 2021, by Jeremy B. Wegner, Senior Vice President and Chief Financial Officer, as the principal financial and accounting officer - The report was signed on November 4, 2021, by Jeremy B. Wegner, Senior Vice President and Chief Financial Officer[226]