Wed. Jan 19th, 2022

Updated August 12, 2021 by Bob Ciura

Real estate investment trusts are popular investments among investors with income and for obvious reasons.

The vast majority of its profits must be spent to maintain a favorable tax structure, which often results in very high dividend yields across the asset class. You can see our full list of all 166 public trading REITs here.

Chatham Lodging Trust (CLDT) had been a high-performing REIT until last year, when the company suspended its dividend due to the coronavirus pandemic. The company has not yet reinstated dividend payments, but hopefully sometime next year.

Chatham had paid a monthly dividend before the suspension, making it one of the nearly 50 monthly dividend shares we cover.

You can download the full Excel spreadsheet of all monthly dividend shares (along with metrics that matter such as dividend yield and pay ratios) by clicking the link below:

Buying stocks with sustainable dividends is an important goal for income investors. As a result, it is critical for investors to ensure that high dividend payments are sustainable in the long run. Chatham is working its way back, but stocks remain a risky bet for income investors.

Business overview

Chatham Lodging Trust manages and invests in extended stays and top quality hotel services. He company in its entirety owns 39 hotels with almost 6,000 rooms in 15 states and the district of Columbia. Chatham also has an interest in 85 hotels with almost 12,000 rooms / suites. The company is looking to buy properties in discount in large city centers.

Chatham operates below brands like Hyatt, Marriott and Hilton.

Source: Investor presentation

On August 3rdrd, Chatham Lodging Trust announced second quarter results. Portfolio income per available room (RevPAR) rose 170% to $ 87, compared to the same quarter last year. Average daily rate (ADR) pink From 32% to $ 127 i the occupancy rate doubled to 68% in the 39 comparable hotels owned.

All Chatham hotels remained open throughout the pandemic. These are promising metrics the decreases experienced in recent quarters. FFO adjusted was positive during the first quarter since the beginning of the pandemic, of a loss of $ (0.26) last year to $ 0.10 this quarter.

As the U.S. economy gradually reopens, we expect 2021 to be a year of recovery for Chatham, with continued growth in 2022.

Growth prospects

Chatham’s growth is being challenged on multiple fronts. Not only did the hotel industry face last year’s pandemic, which caused many hotels to close for extended periods, but even before the industry faced growing competition from Airbnb (ABNB) .

Still, Chatham is a well-managed REIT. It ranks at the top of the stack among its competitors in terms of profitability, which is one of the reasons we like its fundamentals. Chatham’s EBITDA margin exceeds 38% and, while declining from 2018, Chatham continues to lead the way.

Selected service accommodation provides higher margins than full service and Chatham focuses in part on the former for this reason.

Source: Investor presentation

Chatham’s focus on the best markets and brands in the select services sector has increased its RevPAR above other REITs that focus on select services properties.

This helps to generate not only higher revenue, but also leverage fixed margins and costs. In fact, we can see that Chatham drives RevPAR better than all of its competitors through this strategy.

Chatham’s focus on the select service model and its execution has been exceptional so far. This should be useful in the coming years in terms of growth, which means Chatham’s future is bright. And the company continues to invest in growth.

For example, Chatham has begun construction of a hotel at the Warner Center in Los Angeles, California. This is the first grounddevelopment since the establishment of the company. Total development costs are expected to be approximately $70 millions. So far, the company has spent $59 millions in this project. He hoteIt is expected to open during the fourth quarter.

Investments like these, along with the growth of existing properties, fuel our expectations of an annual 5% growth in FFO per share over the next five years.

Dividend analysis

Chatham’s lack of dividend is obviously a major downside for shareholders, as the shares had been very profitable before the suspension. Chatham management noted in the most recent earnings launch that the company does not expect to pay a dividend in 2021 and if it does, it will only be the minimum to meet REIT requirements.

Therefore, if investors are looking for current income, Chatham may not be an attractive stock. However, if investors are willing to wait, Chatham could again get a high dividend yield as early as next year. Of course, investors should always monitor the quarterly results of high-yield stocks like Chatham, to ensure the recovery remains intact.

One of the positives is that since the company no longer burns cash, it can improve its liquidity and balance sheet. Chatham has a reasonable level of leverage and well-balanced maturities.

Source: Investor presentation

Chatham has no maturities until 2023, which gives him time to repair the balance sheet until he needs to refinance the debt. Chatham also has a net debt-to-business ratio of 47%, roughly at the center of its peer group.

Final thoughts

Chatham, as a REIT hotel, was one of the REITs hardest hit by the pandemic. Although 2020 was an extremely difficult year, conditions have materially improved throughout 2021. However, Chatham still does not pay dividends to shareholders, making the shares less attractive to income investors.

We believe Chatham will likely pay a dividend again next year, although at what level it remains uncertain. The company is likely to start a lower dividend payment at the beginning, while continuing to improve its financial results.

Overall, Chatham Lodging has a good reputation as an REIT with popular name brands, but the problems facing the hotel sector weighs a lot strongly in the company. We hope Chatham to offer total yields of ~ 3%, focused mainly on revenue growth from this low point, which is speculative. We do it at current prices do not see a safety margin and see the company with overvaluedand therefore values ​​the stock a sale.

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