Chatham Lodging Trust: Soaring Past Projections, Fueled by Strategic Growth and Market Recovery

First-Quarter Financial Achievements Exceed Forecasts

Chatham Lodging Trust's senior leadership has confirmed an exceptional first quarter, outperforming initial projections. This strong showing was supported by a notable increase in demand within the Silicon Valley area, meticulous control over operational costs, the successful integration of a recent acquisition, and a consistent strategy of share repurchases. These combined efforts have positioned the company for continued financial strength and market confidence.

Enhanced Outlook and Shareholder Returns

Chairman, President, and CEO Jeff Fisher highlighted the company's improved financial trajectory, noting an approximate 15% increase in its 2026 guidance since February. This optimistic revision is based on solid operational achievements, a value-accretive acquisition, and an improved market forecast for the remainder of the year. Furthermore, Chatham has demonstrated its commitment to shareholder value by raising its common dividend by 11% in the first quarter, building on a significant 28% increase in 2025. Fisher emphasized the dividend's strong coverage, maintaining a common dividend-to-FFO payout ratio of 32% based on the updated guidance.

Detailed First-Quarter Performance Highlights

Jeremy Wegner, Senior Vice President and Chief Financial Officer, provided a comprehensive breakdown of the first-quarter financials. Hotel EBITDA reached $21.4 million, with adjusted EBITDA at $18.4 million and adjusted FFO per share at $0.20. The company also achieved a gross operating profit (GOP) margin of 42.2% and a hotel EBITDA margin of 31.8%, showcasing operational efficiency. Wegner further noted a 60-basis-point rise in GOP margins year-over-year, largely due to effective expense controls, and a 140-basis-point increase in hotel EBITDA margins, bolstered by both cost management and $500,000 in property tax refunds. On a comparable basis, hotel EBITDA saw a 5% increase, with margins improving by 135 basis points. Revenue per available room (RevPAR) closed the quarter up 1%, surpassing expectations, with a significant rebound from a 5% decline in January to 1% growth in February and 5% in March. Fisher acknowledged the challenging comparisons to the previous year, which saw heightened demand in Los Angeles hotels due to wildfires.

Operational Efficiencies and Cost Management

Executive Vice President and Chief Operating Officer Dennis Craven detailed the company's success in managing operational costs. Chatham saw a reduction of over 1%, or $0.50 per occupied room, in labor and benefits expenses during the quarter. The company also benefited from favorable property insurance renewal rates and property tax refunds, which helped to offset a roughly 12% rise in utility costs across comparable hotels, demonstrating robust expense control strategies.

Silicon Valley's Significant Contribution to Growth

Silicon Valley emerged as Chatham's top-performing market for the quarter, with executives highlighting its critical role in the company's overall success. Excluding the Mountain View hotel, which was undergoing major renovations, RevPAR in Chatham's Silicon Valley hotels surged by 23%. Occupancy rates across the four Silicon Valley properties remained stable at 72% despite the renovation impact, while the average daily rate climbed 10% to $210, marking a post-pandemic high for the quarter. Fisher noted that for the three Silicon Valley hotels not under renovation, RevPAR experienced double-digit growth each month of the quarter and an additional 12% increase in April. This strong performance was largely driven by demand from technology companies and substantial investments in artificial intelligence infrastructure, semiconductors, and other tech-related sectors. Craven added that comparable Silicon Valley hotel EBITDA grew 35% year-over-year, driven by a 23% RevPAR increase, excluding property tax refunds. Including the refunds, hotel EBITDA growth was approximately 50%. Looking ahead, Chatham projects mid- to upper-single-digit RevPAR growth for the four Silicon Valley hotels through the end of the year, with management acknowledging this forecast might be conservative given the strong performance in the initial months.

Strategic Expansion with Hilton Portfolio Acquisition

In early March, Chatham successfully completed the acquisition of six Hilton-branded hotels, comprising 589 rooms, for $92 million. Wegner confirmed that this acquisition was financed through the company's revolving credit facility, which currently carries an interest rate of approximately 5.1%. Fisher emphasized that the new portfolio immediately contributes to Chatham's operating margins, FFO, and FFO per share. The acquired hotels, averaging about 10 years in age, primarily feature extended-stay formats, accounting for 66% of the rooms. These properties are strategically located in areas experiencing significant growth due to manufacturing and distribution investments, including Joplin, Missouri; Paducah, Kentucky; and Effingham, Illinois. Craven reported that the acquired portfolio's RevPAR grew by 6% in the first quarter and 7% in April, slightly exceeding underwriting expectations. Occupancy rates in the first quarter stood at 74%, surpassing Chatham's portfolio average by approximately 200 basis points. The hotels require minimal near-term capital expenditure, with only the Hampton Inn & Suites Paducah slated for renovation in the next two years. During a Q&A session, Craven noted that while the transaction was brokered to multiple potential buyers, the portfolio's performance was largely in line with, or slightly above, initial projections, with RevPAR exceeding expectations by $1 to $2.

Focused Capital Allocation: Buybacks and Asset Management

Chatham maintained its commitment to capital allocation through continued share repurchases. Fisher stated that by the end of the first quarter, the company had repurchased 2.2 million shares, representing approximately 4% of common equity, at an average price of $7.04. Craven further detailed that an additional 200,000 shares were bought back in April at approximately $8.34 per share. Craven outlined a $25 million repurchase plan initiated in 2025, which the company intends to complete this year, supported by projected free cash flow of approximately $20 million in 2026. A reevaluation for a new plan is anticipated in the coming months. Chatham is also actively exploring asset recycling opportunities. Craven indicated that the company might sell one or two assets over the remainder of the year, with potential proceeds allocated towards further share repurchases or new acquisitions. Wegner confirmed that Chatham's leverage ratio, as defined in its credit agreement, was 32.5% post-acquisition, reinforcing the company's strong balance sheet position to support share repurchases, the planned development of a hotel in Portland, Maine, and additional accretive acquisitions.

Revised 2026 Financial Projections

For the full year 2026, Chatham has updated its guidance, with RevPAR growth expected to range from 0% to 2%. Adjusted EBITDA is projected to be between $95.3 million and $99.6 million, and adjusted FFO per share is estimated to be $1.21 to $1.29, as per Wegner. This guidance incorporates the contribution from the six-hotel acquisition, effective from March 3, but does not account for any future share repurchases or acquisitions. For the second quarter, the company anticipates RevPAR to increase by approximately 1% to 2%. Craven noted a cautious approach in forecasting the impact of the World Cup, despite Chatham's presence in host markets such as Dallas, San Francisco, Los Angeles, Seattle, and Fort Lauderdale. Fisher announced that the development of the Portland, Maine hotel is slated to commence during the current quarter, with an expected opening before the fall season of 2028. The company plans to release a detailed breakdown of total expenditures and timelines during its second-quarter earnings call. Craven also confirmed that total capital expenditures for 2026 are projected to be around $27 million. Chatham has completed the full renovation of its Residence Inn in Austin and the room renovations at the Mountain View property during the first quarter. Upcoming renovations later in the year include the Gaslamp Residence Inn, Hyatt Place Pittsburgh, and Homewood Suites Farmington.