Monthly Dividend Stock In Focus: Chatham Lodging Trust

Up to date on August twelfth, 2021 by Bob Ciura

Actual Property Funding Trusts are in style investments amongst revenue traders, and for apparent causes.

They’re required to cross alongside the overwhelming majority of their earnings with the intention to retain a positive tax construction, which frequently ends in very excessive dividend yields throughout the asset class. You possibly can see our full record of all 166 publicly-traded REITs right here.

Chatham Lodging Belief (CLDT) had been a high-yielding REIT till final 12 months, when the corporate suspended its dividend because of the coronavirus pandemic. The corporate has not but reinstated its dividend payout, however we anticipate it to sooner or later over the subsequent 12 months.

Chatham had been paying a month-to-month dividend previous to the suspension, making it one of many practically 50 month-to-month dividend shares we cowl.

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yields and payout ratios) by clicking on the hyperlink beneath:

Shopping for shares with sustainable dividends is a significant aim for revenue traders. In consequence, it’s crucial for traders to ensure excessive dividend payouts are sustainable over the long-term. Chatham is working its method again, however the inventory stays a dangerous wager for revenue traders.

Enterprise Overview

Chatham Lodging Belief manages and invests in upscale prolonged keep and premium branded lodge companies. The firm wholly owns 39 motels with practically 6,000 rooms throughout 15 states and the District of Columbia. Chatham additionally has an curiosity in 85 motels with nearly 12,000 rooms/suites. The corporate appears to purchase properties at a low cost in massive metropolis facilities.

Chatham operates underneath model names like Hyatt, Marriott, and Hilton.

Supply: Investor Presentation

On August 3rd, Chatham Lodging Belief introduced second quarter outcomes. Portfolio income per obtainable room (RevPAR) elevated 170% to $87, in comparison with the identical quarter final 12 months. Common each day price (ADR) rose 32% to $127, and occupancy price greater than doubled to 68% for the 39 comparable motels owned.

All of Chatham’s motels remained open all through the pandemic. These are promising metrics given the decreases skilled over the previous few quarters. Adjusted FFO was constructive for the primary quarter for the reason that starting of the pandemic, from a lack of $(0.26) final 12 months to $0.10 on this quarter.

Because the U.S. economic system regularly reopens, we anticipate 2021 to be a 12 months of restoration for Chatham, with continued progress in 2022.

Progress Prospects

Chatham’s progress is being challenged by a number of fronts. Not solely did the lodge trade must grapple with the pandemic final 12 months which brought about many motels to shut for prolonged intervals, however even earlier than that the trade was going through rising competitors from Airbnb (ABNB).

Nonetheless, Chatham is a well-run REIT. It’s on the prime of the pile amongst its rivals when it comes to profitability, which is one cause we like its fundamentals. Chatham’s EBITDA margin is in extra of 38%, and whereas that’s down from 2018, Chatham continues to paved the way.

Choose-service lodging gives larger margins than full-service, and Chatham focuses on the previous partially for that very cause.

Supply: Investor Presentation

Chatham’s deal with the very best markets and types within the select-service sector has boosted its RevPAR above the opposite REITs that concentrate on select-service properties.

This helps drive not solely larger income, however higher margins in addition to mounted prices are leveraged down. Certainly, we are able to see that Chatham drives higher RevPAR than all of its rivals through the use of this technique.

Chatham’s deal with the select-service mannequin and its execution has been excellent to date. This could serve it properly within the years to return when it comes to progress, which means Chatham’s future is vibrant. And, the corporate continues to be investing in progress.

For instance, Chatham has begun building on a lodge within the Warner Middle in Los Angeles, CA. That is the first floor–up growth for the reason that firm’s inception. Complete growth prices are anticipated to be about $70 million. To this point, the corporate has spent $59 million on this mission. The hotel is predicted to open throughout the fourth quarter.

Investments like these, together with progress at present properties, gas our expectations of 5% annual FFO-per-share progress over the subsequent 5 years.

Dividend Evaluation

Chatham’s lack of a dividend is clearly a significant unfavourable for shareholders, because the inventory had been a high-yielder earlier than the suspension. Chatham administration famous in the latest earnings launch that the corporate doesn’t anticipate to pay a dividend for 2021, and if it does, will solely be the minimal to fulfill the REIT necessities.

Thus, if traders are in search of present revenue, Chatham will not be an interesting inventory. Nevertheless, if traders are keen to attend, Chatham might return to a excessive dividend yield as early as subsequent 12 months. After all, traders ought to at all times monitor the quarterly outcomes of high-yield shares like Chatham, to make sure the restoration stays intact.

One constructive is that with the corporate not burning money, it may possibly enhance liquidity and its stability sheet. Chatham has an inexpensive degree of leverage and well-balanced maturities.

Supply: Investor Presentation

Chatham has no maturities till 2023, which supplies it time to restore the stability sheet till it must refinance debt. Chatham additionally has a net-debt-to-enterprise worth ratio of 47%, which is roughly in the course of its peer group.

Last Ideas

Chatham, as a lodge REIT, was one of many hardest-hit REITs from the pandemic. Whereas 2020 was a particularly tough 12 months, situations have improved materially over the course of 2021. Nevertheless, Chatham continues to be not paying dividends to shareholders, which immediately makes the inventory much less interesting for revenue traders.

We consider Chatham will probably return to paying a dividend subsequent 12 months, though at what degree stays unsure. It’s probably the corporate will provoke a decrease dividend payout at first whereas it continues to enhance its monetary outcomes.

Total, Chatham Lodging has a very good popularity as an REIT with in style identify manufacturers, however the points going through the lodge sector weighs very closely on the corporate. We anticipate Chatham to supply whole returns of ~3%, primarily targeted on earnings progress from this low level, which is speculative. At present costs, we do not see a margin of security and see the firm as overvalued, and thus price the inventory a promote.