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Chatham Lodging Trust

Chatham Lodging Trust

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CLDT
CLDT

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Published by: presentation111 on Aug 19, 2013
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08/21/2013

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Chatham Lodging Trust (NYSE: CLDT)
August 19
th
, 2013The Cheap Hotel REIT with a Hidden Gem.
Combined NAV $24.15/sh
Overview-CLDT is a self-advised lodging REIT that invests primarily in premium-branded upscale extended-stay, select-service and full-service hotels in the 25 largest metropolitan markets in the United States. They are 1 of 4 public players today in the hotel REIT space focusing on the select service category. Approximately
58% of Chatham’s
 portfolio is located in the attractive gateway CBDs of New York, Washington DC, Boston and Southern California-centered around the premium select-service flags of Residence Inn, Homewood Suites, Courtyard by Marriott, andHampton. These segments are characterized by higher-than-industry average occupancy levels and lower operatingcosts and high margins. In addition, there is a greater pool of acquisition targets within the limited service spacewhen compared to full service, with only a few other lodging REITs targeting these hotels.Footprint-Background-CLDT
’s initial portfolio was purch
ased at an attractive valuation. Chatham purchased six Homewood Suites
 properties for $73.5M, or ~11x ‘
09 EBITDA. In addition, the company soon after went into contract on four additional hotels for $61M, or ~11.5x
09 EBITDA.In its April 15, 2010 IPO, CLDT offered 7,500,000 shares at $20 per share, raising $150M. Concurrent with theIPO, CEO Jeff Fisher made a private placement of $10M into the company at the listing price. On April 20,Chatham announced the full
exercise of the underwriters’ overallotment option to purchase an additional 1,125,000
 shares at the listing price. Proceeds from the IPO were allocated toward purchasing the portfolio of six HomewoodSuites from RLJ and four additional hotels, which were announced in May of that yr. CLDT mgmt. was clear that inthe initial years as a public co they planned to make roughly $200M in acquisitions per year in the premium-brandedupscale extended stay and select-service segments.
Looking at their initial portfolio deal: Chatham’s purchase of its
ini
tial hotel portfolio in April ‘
10 from RLJDevelopment LLC for $73.5M, implied an average of $90,406 per key. The portfolio is comprised of six high-quality Homewood Suites, each located within a top 25 MSA with relatively high barriers to entry. The hotels had
 
agreed to be managed by a subsidiary of Hilton. As determined by third-party appraisal prior to the purchase, thevalue of this portfolio implied a 36% discount to the estimated replacement value of $142,000 per key. On a yield basis, the hotels were purc
hased at an 8.6% ‘09 property
-level cap rate, or 7.5% once including planned renovationcapex.Valuation-While the analysis of the property portfolio is fairly straightforward given the limited number of assets andconsistent asset type, most sell-side (and buy side) analyses either ignore or grossly under appreciate the
incremental value of CLDT’s Innkeeper 
s promote and the value of that fee income to an owner/operator in the eventof sale. Furthermore, the near 5% current cash-pay dividend yield is at the upper end of the lodging REIT comp set.On a cap rate basis, the portfolio trades today at ~ 8.9% on next yr hotel-
level NOI. That’s almost a turn higher thanBlackstone’s recent purchase
 
of Apple REIT, a close comp., and sub 11x AFFO. As seen below, even on ’13 #’s, the
comps set trades predominantly ~12-17x.
Portfolio Valuation Calc.
EBITDA multiple
12.75x
Cap Rate - Cash Flow
7.50%
EBITDA 2014E $56,843Less: Maintenance Capex(2,467)Operating Cash Flow$54,376Implied Value of Properties NOI$724,747Plus: Cash and Cash Equivalents$18,690Plus: Other Assets$12,936Estimated Market Value of Assets$756,373Less: Debt$287,300
Implied Net Asset Value$469,073
Shares Outstanding22,558
Implied NAV Per Share$20.79
Current Stock Price$17.55
Premium to Share Price18.5%
 
Current Implied Valuation:
 
Ignoring the Innkeepers promote entirely, a property-by-property replacement cost analysis yields ~$20/sh in valuefor the wholly owned and consolidated JV assets.What both portfolio NAV valuations and portfolio replacement cost valuations exclude, and what sell-side has donelimited work on, is the incremental value associated with the Innkeepers promote attributable to CLDT. The tiered promote structure is a meaningful, and could be as high as a 20% split at current performance hurdles.
The result isa combined price target of $24.15/sh.
Enterprise Val.664,5032014E EBITDA56,843EV/EBITDA
11.7x
2014 AFFO36,821 AFFO/Sh1.63 AFFO Mult.
10.75x
Replacement Cost Check 
(Wholly Owned + Consolidated JV Props.)
Val.AssetBrand# KeysPer RoomVal. ($000)
Homewood Suites Boston, MA147180,000 26,460,000  Homewood Suites Bloomington, MN121215,000 26,015,000  Homewood Suites Brentwood, TN144165,000 23,760,000  Homewood Suites Dallas, TX137155,000 21,235,000  Homewood Suites Farmington, CT143165,000 23,595,000  Homewood Suites Maitland, Fl121130,000 15,730,000  Hampton InnHouston, TX120210,000 25,200,000  Residence InnHoltsville, NY124255,000 31,620,000  CourtyardAltoona, PA105160,000 16,800,000  Residence InnWhite Plains, NY133295,000 39,235,000  Residence InnNew Rochelle, NY124285,000 35,340,000  Springhill SuitesWashington, PA86185,000 15,910,000  Residence InnAnaheim, CA200325,000 65,000,000  Residence InnSan Diego, CA192330,000 63,360,000  Residence InnTysons Corner, VA121325,000 39,325,000  Residence InnWashington, DC105335,000 35,175,000  Homewood Suites San Antonio, TX146325,000 47,450,000  Hampton InnPortland, ME122250,000 30,500,000  CourtyardHouston, TX197225,000 44,325,000  Hyatt Place Pittsburgh, PA178225,000 40,050,000  Homewood Suites Carlsbad, CA145275,000 39,875,000 
Total2,911 
242,515705,960,000 
avg. value 
Plus: Cash$18,690,000Plus: Other Assets$12,936,000Less: Debt($287,300,000)
Equity Value$450,286,000
Shares Out.22,558,000
Equity Value Per Share$19.96
Current Price$17.55
 Premium to Share Price
13.7%Replacement cost

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