Chatham Lodging Trust [CLDT] Filings

10-Q 1 cldt-20230630.htm 10-Q cldt-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34693

CHATHAM LODGING TRUST

(Exact Name of Registrant as Specified in Its Charter)


Maryland		27-1200777
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

222 Lakeview Avenue, Suite 200
West Palm Beach	Florida	33401
(Address of Principal Executive Offices)		(Zip Code)

(561) 802-4477

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Shares of Beneficial Interest, $0.01 par value

CLDT

New York Stock Exchange

6.625% Series A Cumulative Redeemable Preferred Shares

CLDT-PA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class			Outstanding at August 2, 2023
Common Shares of Beneficial Interest ($0.01 par value per share)			48,857,477

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION

Item1.	Financial Statements.	3
Item2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
Item3.	Quantitative and Qualitative Disclosures about Market Risk.	37
Item4.	Controls and Procedures.	38

	PART II. OTHER INFORMATION

Item1.	Legal Proceedings.	39
Item1A.	Risk Factors.	39
Item2.	Unregistered Sales of Equity Securities and Use of Proceeds.	39
Item3.	Defaults Upon Senior Securities.	39
Item4.	Mine Safety Disclosures.	39
Item5.	Other Information.	39
Item6.	Exhibits.	40

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHATHAM LODGING TRUST

Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30, 2023		December 31, 2022
	(unaudited)
Assets:
Investment in hotel properties, net	$	1,250,259	$	1,264,252

Cash and cash equivalents	32,900		26,274
Restricted cash	14,799		18,879

Right of use asset, net	18,424		19,297
Hotel receivables (net of allowance for doubtful accounts of $408 and $344, respectively)	5,705		5,178
Deferred costs, net	4,965		6,428
Prepaid expenses and other assets	9,604		3,430

Total assets	$	1,336,656	$	1,343,738
Liabilities and Equity:
Mortgage debt, net	$	376,454	$	430,553
Revolving credit facility	—		—
Construction loan	—		39,331
Unsecured term loan, net	89,405		—
Accounts payable and accrued expenses	29,964		28,528

Lease liability, net	21,019		22,108
Distributions payable	5,327		5,221
Total liabilities	522,169		525,741
Commitments and contingencies (Note 14)
Equity:
Shareholders’ Equity:
Preferred shares, $0.01 par value, 100,000,000 shares authorized; 4,800,000 and 4,800,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	48		48
Common shares, $0.01 par value, 500,000,000 shares authorized; 48,856,806 and 48,808,105 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	488		488
Additional paid-in capital	1,047,124		1,047,023
Accumulated deficit	(259,184)		(252,665)
Total shareholders’ equity	788,476		794,894
Noncontrolling Interests:
Noncontrolling interest in Operating Partnership	26,011		23,103
Total equity	814,487		817,997
Total liabilities and equity	$	1,336,656	$	1,343,738

The accompanying notes are an integral part of these consolidated financial statements.

CHATHAM LODGING TRUST

Consolidated Statements of Operations

(In thousands, except share and per share data)

(unaudited)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue:
Room	$	77,486	$	75,761	$	139,157	$	125,926
Food and beverage	2,094		1,968		4,182		3,382
Other	4,531		3,674		8,022		6,654
Reimbursable costs from related parties	365		358		730		684
Total revenue	84,476		81,761		152,091		136,646
Expenses:
Hotel operating expenses:
Room	14,578		14,480		28,694		26,074
Food and beverage	1,584		1,429		3,141		2,476
Telephone	360		359		722		760
Other hotel operating	950		879		1,863		1,611
General and administrative	7,305		6,804		14,112		12,153
Franchise and marketing fees	6,801		6,559		12,141		10,966
Advertising and promotions	1,460		1,230		2,975		2,419
Utilities	2,899		2,784		6,050		5,673
Repairs and maintenance	3,894		3,347		7,623		6,792
Management fees	2,791		2,727		5,079		4,645
Insurance	701		747		1,400		1,457
Total hotel operating expenses	43,323		41,345		83,800		75,026
Depreciation and amortization	14,670		15,277		28,928		30,313

Property taxes, ground rent and insurance	6,069		5,932		12,174		10,890
General and administrative	4,612		4,462		8,954		8,405
Other charges	38		150		38		400
Reimbursable costs from related parties	365		358		730		684
Total operating expenses	69,077		67,524		134,624		125,718
Operating income before gain on sale of hotel properties	15,399		14,237		17,467		10,928
Gain on sale of hotel properties	55		2,020		55		2,020
Operating income	15,454		16,257		17,522		12,948
Interest and other income	189		1		209		1
Interest expense, including amortization of deferred fees	(6,442)		(6,936)		(12,880)		(13,325)
Loss on early extinguishment of debt	—		—		(691)		—
Gain from partial lease termination	164		—		164		—


Income (loss) before income tax expense	9,365		9,322		4,324		(376)
Income tax expense	—		—		—		—
Net income (loss)	9,365		9,322		4,324		(376)
Net (income) loss attributable to noncontrolling interests	(221)		(171)		(28)		82
Net income (loss) attributable to Chatham Lodging Trust	9,144		9,151		4,296		(294)
Preferred dividends	(1,987)		(1,987)		(3,975)		(3,975)
Net income (loss) attributable to common shareholders	$	7,157	$	7,164	$	321	$	(4,269)

Income (loss) per common share - basic:
Net income (loss) attributable to common shareholders (Note 11)	$	0.15	$	0.15	$	0.01	$	(0.09)
Income (loss) per common share - diluted:
Net income (loss) attributable to common shareholders (Note 11)	$	0.15	$	0.15	$	0.01	$	(0.09)
Weighted average number of common shares outstanding:
Basic	48,846,913		48,795,348		48,842,850		48,791,455
Diluted	48,962,842		49,017,184		48,964,908		48,791,455
Distributions declared per common share:	$	0.07	$	—	$	0.14	$	—

The accompanying notes are an integral part of these consolidated financial statements.

CHATHAM LODGING TRUST

Consolidated Statements of Equity

(In thousands, except share and per share data)

(unaudited)


Three months ended June 30, 2022 and 2023
	Preferred Shares			Common Shares			Additional Paid - In Capital		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interest in Operating Partnership		Total Equity
	Shares	Amount		Shares	Amount
Balance, April 1, 2022	4,800,000	$	48	48,804,585	$	488	$	1,047,031	$	(262,536)	$	785,031	$	19,108	$	804,139


Issuance of common shares, net of offering costs of $79	—	—		1,522	—		(61)		—		(61)		—		(61)



Amortization of share based compensation	—	—		—	—		10		—		10		1,275		1,285



Dividends accrued on preferred shares	—	—		—	—		—		(1,987)		(1,987)		—		(1,987)

Net income	—	—		—	—		—		9,151		9,151		171		9,322
Balance, June 30, 2022	4,800,000	$	48	48,806,107	$	488	$	1,046,980	$	(255,372)	$	792,144	$	20,554	$	812,698

Balance, April 1, 2023	4,800,000	$	48	48,855,155	$	488	$	1,047,095	$	(262,921)	$	784,710	$	24,546	$	809,256


Issuance of common shares, net of offering costs of zero	—	—		1,651	—		17		—		17		—		17



Amortization of share based compensation	—	—		—	—		12		—		12		1,425		1,437
Dividends declared on common shares ($0.07 per share)	—	—		—	—		—		(3,420)		(3,420)		—		(3,420)
Distributions declared on LTIP units ($0.07 per unit)	—	—		—	—		—		—		—		(181)		(181)

Dividends accrued on preferred shares	—	—		—	—		—		(1,987)		(1,987)		—		(1,987)

Net income	—	—		—	—		—		9,144		9,144		221		9,365
Balance, June 30, 2023	4,800,000	$	48	48,856,806	$	488	$	1,047,124	$	(259,184)	$	788,476	$	26,011	$	814,487



Six months ended June 30, 2022 and 2023
	Preferred Shares			Common Shares			Additional Paid - In Capital		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interest in Operating Partnership		Total Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2022	4,800,000	$	48	48,768,890	$	487	$	1,048,070	$	(251,103)	$	797,502	$	16,691	$	814,193

Issuance of shares pursuant to Equity Incentive Plan	—	—		34,672	1		486		—		487		—		487
Issuance of common shares, net of offering costs of $107	—	—		2,545	—		(74)		—		(74)		—		(74)



Amortization of share based compensation	—	—		—	—		19		—		19		2,424		2,443



Dividends accrued on preferred shares	—	—		—	—		—		(3,975)		(3,975)		—		(3,975)
Reallocation of noncontrolling interest	—	—		—	—		(1,521)		—		(1,521)		1,521		—
Net loss	—	—		—	—		—		(294)		(294)		(82)		(376)
Balance, June 30, 2022	4,800,000	$	48	48,806,107	$	488	$	1,046,980	$	(255,372)	$	792,144	$	20,554	$	812,698

Balance, January 1, 2023	4,800,000	$	48	48,808,105	$	488	$	1,047,023	$	(252,665)	$	794,894	$	23,103	$	817,997

Issuance of common shares pursuant to Equity Incentive Plan	—	—		45,835	—		540		—		540		—		540
Issuance of common shares, net of offering costs of zero	—	—		2,866	—		31		—		31		—		31



Amortization of share based compensation	—	—		—	—		23		—		23		2,749		2,772
Dividends declared on common shares ($0.14 per share)	—	—		—	—		—		(6,840)		(6,840)		—		(6,840)
Distributions declared on LTIP units ($0.14 per unit)	—	—		—	—		—		—		—		(362)		(362)

Dividends accrued on preferred shares	—	—		—	—		—		(3,975)		(3,975)		—		(3,975)
Reallocation of noncontrolling interest	—	—		—	—		(493)		—		(493)		493		—
Net income	—	—		—	—		—		4,296		4,296		28		4,324
Balance, June 30, 2023	4,800,000	$	48	48,856,806	$	488	$	1,047,124	$	(259,184)	$	788,476	$	26,011	$	814,487

The accompanying notes are an integral part of these consolidated financial statements.

CHATHAM LODGING TRUST

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	For the six months ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	4,324	$	(376)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	28,821		30,193
Amortization of deferred franchise fees	117		129
Amortization of deferred financing fees included in interest expense	589		720
Gain on sale of hotel properties	(55)		(2,020)


Loss on early extinguishment of debt	667		—

Share based compensation	3,007		2,713
Gain from partial lease termination	(164)		—


Changes in assets and liabilities:
Right of use asset	342		340
Hotel receivables	(527)		(4,293)

Deferred costs	(380)		(243)
Prepaid expenses and other assets	(6,186)		(5,592)
Accounts payable and accrued expenses	2,580		428
Lease liability	(394)		(286)
Net cash provided by operating activities	32,741		21,713
Cash flows from investing activities:
Improvements and additions to hotel properties	(15,600)		(9,435)
Acquisition of hotel properties	—		(31,048)
Investment in hotel properties under development	—		(3,573)
Proceeds from sale of hotel properties, net	—		79,569



Receipt of deferred key money	—		400
Net cash (used in) provided by investing activities	(15,600)		35,913
Cash flows from financing activities:
Borrowings on revolving credit facility	—		40,000
Repayments on revolving credit facility	—		(95,000)
Borrowings on construction loan	—		4,136
Repayments on construction loan	(39,331)		—
Borrowings on unsecured term loan	90,000		—
Payments on mortgage debt	(54,221)		(4,475)


Payment of financing costs	(3)		(172)
Payment of offering costs on common shares	—		(107)
Proceeds from issuance of common shares	31		33



Distributions-common shares/units	(7,096)		(147)
Distributions-preferred shares	(3,975)		(3,975)
Net cash used in financing activities	(14,595)		(59,707)
Net change in cash, cash equivalents and restricted cash	2,546		(2,081)
Cash, cash equivalents and restricted cash, beginning of period	45,153		29,869
Cash, cash equivalents and restricted cash, end of period	$	47,699	$	27,788
Supplemental disclosure of cash flow information:
Cash paid for interest	$	11,961	$	12,976
Capitalized interest	$	—	$	330
Cash paid for taxes	$	697	$	600
Remeasurement of right of use asset from partial lease termination	$	531	$	—
Remeasurement of lease liability from partial lease termination	$	695	$	—

-continued-

Supplemental disclosure of non-cash investing and financing information (dollars in thousands):

On January 17, 2023, the Company issued 43,378 common shares to its independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2022. On January 18, 2022, the Company issued 34,672 common shares to its independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2021.

As of June 30, 2023, the Company had accrued distributions payable of $5,327. As of June 30, 2022, the Company had accrued distributions payable of $1,656.

Accrued share based compensation of $235 and $270 is included in accounts payable and accrued expenses as of June 30, 2023 and 2022, respectively.

Accrued capital improvements of $700 and $802 are included in accounts payable and accrued expenses as of June 30, 2023 and 2022, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

CHATHAM LODGING TRUST

Notes to the Consolidated Financial Statements

(unaudited)

1. Organization

Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust on October 26, 2009. The Company is internally-managed and invests primarily in upscale extended-stay and premium-branded select-service hotels. The Company has elected to be treated as a real estate investment trust for federal income tax purposes ("REIT").

The net proceeds from our share offerings are contributed to Chatham Lodging, L.P., our operating partnership (the “Operating Partnership”), in exchange for partnership interests. Substantially all of the Company’s assets are held by, and all operations are conducted through, the Operating Partnership. The Company is the sole general partner of the Operating Partnership and owns 100% of the common units of limited partnership interest in the Operating Partnership ("common units"). Certain of the Company’s executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership ("LTIP units"), which are presented as non-controlling interests on our consolidated balance sheets.

As of June 30, 2023, the Company owned 39 hotels with an aggregate of 5,915 rooms located in 16 states and the District of Columbia.

To qualify as a REIT, the Company cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease the Company's wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the Company’s taxable REIT subsidiary (“TRS”) holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel revenue. Lease revenue from each TRS Lessee is eliminated in consolidation.

The TRS Lessees have entered into management agreements with a third-party management company that provides day-to-day management for the hotels. As of June 30, 2023, Island Hospitality Management LLC (“IHM”), which is 100% owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all of the Company’s hotels.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. These unaudited consolidated financial statements, in the opinion of management, include all adjustments consisting of normal, recurring adjustments which are considered necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statements of cash flows for the periods presented. Interim results are not necessarily indicative of full year performance due to seasonal and other factors, including the timing of the acquisition or sale of hotels.

The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements prepared in accordance with GAAP, and the related notes thereto as of December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04 Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In December 2022, the FASB issued ASU No. 2022-06 Reference Rate Reform (Topic 848). ASU 2022-06 amended and deferred the sunset provision in ASU 2020-04 from December 31, 2022 to December 31, 2024. As of June 30, 2023, the Company does not anticipate that this guidance will have a material impact on its consolidated financial statements; however, the Company will continue to evaluate the impact that ASU 2020-04 may have on its consolidated financial statements and related disclosures.

3. Acquisition of Hotel Properties

On March 8, 2022, the Company acquired the Hilton Garden Inn Destin Miramar Beach ("HGI Destin") hotel property in Miramar Beach, FL for $31.0 million. The Company allocated the purchase price of the hotel based on the estimated fair values of the assets on the date of acquisition. Property acquisition costs of $48 thousand were capitalized in 2022.

4. Disposition of Hotel Properties

On May 6, 2022, the Company sold the Hilton Garden Inn Boston-Burlington ("HGI Burlington") hotel property in Burlington, MA for $23.2 million and recognized a gain on sale of the hotel property of $0.5 million. Proceeds from the sale were used to repay amounts outstanding on the Company's revolving credit facility.

On May 13, 2022, the Company sold a portfolio of three hotels, the Homewood Suites Dallas-Market Center ("HWS Dallas") hotel property in Dallas, TX, the Courtyard Houston West University ("CY Houston West U") hotel property in Houston, TX, and the Residence Inn Houston West University ("RI Houston West U") hotel property in Houston, TX, for $57.0 million, and recognized a gain on sale of the hotel properties of $1.8 million. Proceeds from the sale were used to repay amounts outstanding on the Company's revolving credit facility.

The sales did not represent a strategic shift that had or will have a major effect on the Company's operations and financial results and did not qualify to be reported as discontinued operations.

5. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was $0.4 million and $0.3 million as of June 30, 2023 and December 31, 2022, respectively.

6. Investment in Hotel Properties

Investment in hotel properties,net

Investment in hotel properties, net as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Land and improvements	$	289,653	$	289,589
Building and improvements	1,274,431		1,267,035
Furniture, fixtures and equipment	105,856		98,373
Renovations in progress	11,550		11,710
	1,681,490		1,666,707
Less: accumulated depreciation	(431,231)		(402,455)
Investment in hotel properties, net	$	1,250,259	$	1,264,252

7. Debt

The Company’s mortgage loans are collateralized by first-mortgage liens on certain of the Company’s properties. The mortgage loans are non-recourse except for instances of fraud or misapplication of funds. Mortgage, revolving credit facility, and unsecured term loan debt consisted of the following (dollars in thousands):


Collateral	Interest Rate		Maturity Date	June 30, 2023 Property Carrying Value		Balance Outstanding on Loan as of
						June 30, 2023		December 31, 2022
Revolving Credit Facility (1)	—	%	October 28, 2026	$	—	$	—	$	—
Unsecured Term Loan (2)	6.40	%	October 28, 2025	—		90,000		—
Construction Loan (3)	11.0	%	August 4, 2024	—		—		39,331
Homewood Suites by Hilton San Antonio, TX	4.59	%	February 6, 2023	—		—		14,402
Residence Inn by Marriott Vienna, VA	4.49	%	February 6, 2023	—		—		19,680
Courtyard by Marriott Houston, TX	4.19	%	May 6, 2023	—		—		16,200
Hyatt Place Pittsburgh, PA	4.65	%	July 6, 2023	31,113		19,694		19,975
Residence Inn by Marriott Bellevue, WA	4.97	%	December 6, 2023	58,567		40,634		41,133
Residence Inn by Marriott Garden Grove, CA	4.79	%	April 6, 2024	37,063		29,843		30,184
Residence Inn by Marriott Silicon Valley I, CA	4.64	%	July 1, 2024	66,000		60,710		61,280
Residence Inn by Marriott Silicon Valley II, CA	4.64	%	July 1, 2024	73,743		66,237		66,860
Residence Inn by Marriott San Mateo, CA	4.64	%	July 1, 2024	55,606		45,532		45,960
Residence Inn by Marriott Mountain View, CA	4.64	%	July 1, 2024	40,765		35,508		35,842
SpringHill Suites by Marriott Savannah, GA	4.62	%	July 6, 2024	30,985		28,100		28,365
Hilton Garden Inn Marina del Rey, CA	4.68	%	July 6, 2024	36,773		19,281		19,535
Homewood Suites by Hilton Billerica, MA	4.32	%	December 6, 2024	11,055		14,643		14,804
Hampton Inn & Suites Houston Medical Center, TX	4.25	%	January 6, 2025	14,211		16,523		16,706

Total debt before unamortized debt issue costs				$	455,881	$	466,705	$	470,257
Unamortized term loan and mortgage debt issue costs						(846)		(373)
Total debt outstanding						$	465,859	$	469,884

1.The interest rate for the revolving credit facility is variable and based on one-month term secured overnight financing rate ("SOFR") plus a spread of 1.50% to 2.25% based on the Company's leverage and a credit spread adjustment of 0.10%.

2.The interest rate for the unsecured term loan is variable and based on one-month term SOFR plus a spread of 1.45% to 2.20% based on the Company's leverage and a credit spread adjustment of 0.10%.

3.On August 4, 2020, a subsidiary of Chatham entered into an agreement with affiliates of Mack Real Estate Credit Strategies to obtain a $40.0 million loan to fund the remaining construction costs of the Home2 Suites by Hilton Woodland Hills Los Angeles ("Home2 Woodland Hills") hotel development. The loan had an initial term of 4 years and there were two six-month extension options. The interest rate on the loan was LIBOR, subject to a 0.25% floor, plus a spread of 7.5%. The loan was repaid on February 1, 2023.

On October 28, 2022, the Company entered into a $215.0 million unsecured revolving credit facility and a $90.0 million unsecured delayed-draw term loan facility that replaced the Company’s previous $250.0 million revolving credit facility that was scheduled to mature on March 8, 2023. The revolving credit facility has an initial maturity of October 28, 2026 and provides two six-month extension options. The unsecured delayed-draw term loan facility has an initial maturity of October 28, 2025 and provides two one-year extension options. On December 19, 2022, the Company executed an amendment to its unsecured revolving credit facility, increasing commitments by $45.0 million for a total borrowing capacity of $260.0 million.

During the six months ended June 30, 2023, the Company repaid the $39.3 million construction loan on the Home2 Woodland Hills hotel property, and the maturing mortgage loans of $14.4 million on the Homewood Suites San Antonio hotel property, $19.7 million on the Residence Inn Tysons hotel property and $16.0 million on the Courtyard Houston hotel property. The Company utilized borrowings under its unsecured delayed-draw term loan to repay these loans and no prepayment penalties were incurred.

The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. All of the Company's mortgage loans are fixed-rate. Rates take into consideration general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level 3 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt as of June 30, 2023 and December 31, 2022 was $365.2 million and $412.7 million, respectively.

The Company estimates the fair value of its variable rate debt by taking into account general market conditions and the estimated credit terms it could obtain for debt with similar maturity and is classified within level 3 of the fair value hierarchy. As of June 30, 2023, the Company’s variable rate debt consisted of borrowings under its revolving credit facility and its unsecured delayed-draw term loan. The estimated fair value of the Company’s variable rate debt as of June 30, 2023 and December 31, 2022 was $90.0 million and $39.3 million, respectively.

The Company's mortgage debt agreements contain “cash trap” provisions that are triggered when the hotel’s operating results fall below a certain debt service coverage ratio or debt yield. When these provisions are triggered, all of the excess cash flow generated by the hotel is deposited directly into cash management accounts for the benefit of the lenders until a specified debt service coverage ratio or debt yield is reached. Such provisions do not allow the lender the right to accelerate repayment of the underlying debt. As of June 30, 2023, four of our mortgage debt lenders have enforced cash trap provisions resulting in $5.6 million of restricted cash. The Company does not expect that such cash traps will affect its ability to satisfy its short-term liquidity requirements.

Future scheduled principal payments of debt obligations as of June 30, 2023, for the current year and each of the next five calendar years and thereafter are as follows (in thousands):


	Amount
2023 (remaining six months)	$	63,741
2024	297,003
2025	105,961
2026	—
2027	—
Thereafter	—
Total debt before unamortized debt issue costs	$	466,705
Unamortized term loan and mortgage debt issue costs	(846)
Total debt outstanding	$	465,859

Accounting for Derivative Instruments

The Company had interest rate cap agreements to hedge against interest rate fluctuations related to the construction loan for the Home2 Woodland Hills hotel. The Company recorded its derivative instruments on the balance sheet at their estimated fair values. Changes in the fair value of the derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship. The Company's interest rate caps were not designated as a hedge but to eliminate the incremental cost to the Company if the one-month LIBOR were to exceed 3.5%. Accordingly, the interest rate caps were recorded on the balance sheet under prepaid expenses and other assets at the estimated fair value and realized and unrealized changes in the fair value are reported in the consolidated statement of operations. During the six months ended June 30, 2023, the Company terminated its interest rate caps related to the construction loan when the loan was repaid.

8. Income Taxes

The Company’s TRS is subject to federal and state income taxes. Income tax expense was zero for the three and six months ended June 30, 2023 and 2022.

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. The Company's TRS is expecting continued taxable losses in 2023. As of June 30, 2023, the TRS continues to recognize a full valuation allowance equal to 100% of the net deferred tax assets due to the uncertainty of the TRS's ability to utilize these net deferred tax assets. Management will continue to monitor the need for a valuation allowance.

On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022, which contains tax-related provisions, including a 15% book-income alternative minimum tax on large corporations with financial accounting profits over $1 billion effective for tax years beginning on or after January 1, 2023, a 1% excise tax on stock repurchases, and the extension and expansion of renewable energy incentives and tax credit programs. The Company is monitoring for potential impacts, but this new law is not expected to have a significant impact on Chatham.

9. Dividends Declared and Paid

Common Dividends

The Company suspended common share dividends beginning after the payment of the March 27, 2020 dividend due to a decline in operating performance caused by the COVID-19 pandemic. The Company reinstated common share dividends during the fourth quarter of 2022. The Company declared total common share dividends of $0.07 per share and distributions on LTIP units of $0.07 per unit for the three months ended June 30, 2023, and $0.14 per share and unit for the six months ended June 30, 2023.



	Record Date	Payment Date	Common share distribution amount		LTIP unit distribution amount


March	3/31/2023	4/17/2023	$	0.07	$	0.07





June	6/30/2023	7/17/2023	0.07		0.07







Total 2023			$	0.14	$	0.14

Preferred Dividends

During the three and six months ended June 30, 2023, the Company declared dividends of $0.41406 and $0.82812, respectively, per share of 6.625% Series A Cumulative Redeemable Preferred Shares. The preferred share dividends paid were as follows:

Record Date

Payment Date

Dividend per Preferred Share

March

3/31/2023

4/17/2023

0.41406

June

6/30/2023

7/17/2023

0.41406

Total 2023

0.82812

10. Shareholders' Equity

Common Shares

The Company is authorized to issue up to 500,000,000 common shares of beneficial interest, $0.01 par value per share ("common shares"). Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by the Company's Board of Trustees. As of June 30, 2023, 48,856,806 common shares were outstanding.

In January 2021, we established an "at-the-market" equity offering program (the "ATM Program") whereby, from time to time, we could publicly offer and sell our common shares having an aggregate offering price of up to $100.0 million by means of ordinary brokers transactions on the New York Stock Exchange (the "NYSE"), in negotiated transactions or in transactions deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc., BTIG, LLC, Citigroup Global Markets Inc., Regions Securities LLC, Stifel, Nicolaus & Company, Incorporated and Wells Fargo Securities act as sales agents under the ATM Program. The Company did not issue any shares under the ATM Program during the three and six months ended June 30, 2023. As of June 30, 2023, there was approximately $77.5 million in common shares available for issuance under the ATM Program.

In December 2017, we established a $50.0 million dividend reinvestment and stock purchase plan. We filed a new $50.0 million shelf registration statement for the dividend reinvestment and stock purchase plan (the "DRSPP") on December

22, 2020 to replace the prior plan. Under the DRSPP, shareholders may purchase additional common shares by reinvesting some or all of the cash dividends received on common shares. Shareholders may also make optional cash purchases of the Company's common shares subject to certain limitations detailed in the prospectuses for the DRSPP. During the three months ended June 30, 2023, the Company issued 1,651 common shares under the DRSPP at a weighted average price per share of $9.94, which generated $16 thousand of proceeds. During the six months ended June 30, 2023, the Company issued 2,866 common shares under the DRSPP at a weighted average price per share of $10.85, which generated $31 thousand of proceeds. As of June 30, 2023, there was approximately $47.8 million in common shares available for issuance under the DRSPP.

Preferred Shares

The Company is authorized to issue up to 100,000,000 preferred shares of beneficial interest, $0.01 par value per share, in one or more series.

On June 30, 2021, the Company issued 4,800,000 6.625% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share (the “Series A Preferred Shares”), and received net proceeds of approximately $115.9 million. The Series A Preferred Shares rank senior to common shares with respect to the payment of dividends and distributions of assets in the event of a liquidation, dissolution, or winding up. The Series A Preferred Shares do not have any maturity date and are not subject to mandatory redemptions or sinking fund requirements. The distribution rate is 6.625% per annum of the $25.00 liquidation preference, which is equivalent to $1.65625 per annum per Series A Preferred Share. Distributions on the Series A Preferred Shares are payable quarterly in arrears with the first distribution on the Series A Preferred Shares paid on October 15, 2021. The Company may not redeem the Series A Preferred Shares before June 30, 2026 except in limited circumstances to preserve the Company's status as a REIT for federal income tax purposes and upon the occurrence of a change of control. On and after June 30, 2026, the Company may, at its option, redeem the Series A Preferred Shares, in whole or from time to time in part, by paying $25.00 per share, plus any accrued and unpaid distributions to, but not including, the date of redemption. Upon the occurrence of a change of control, as defined in the Company's declaration of trust, the result of which common shares and the common securities of the acquiring or surviving entity are not listed on the New York Stock Exchange, the NYSE American or NASDAQ, or any successor exchanges, the Company may, at its option, redeem the Series A Preferred Shares in whole or in part within 120 days following the change of control by paying $25.00 per share, plus any accrued and unpaid distributions through the date of redemption. If the Company does not exercise its right to redeem the Series A Preferred Shares upon a change of control, the holders of Series A Preferred Shares have the right to convert some or all of their shares into a number of common shares based on defined formulas subject to share caps. The share cap on each Series A Preferred Share is 3.701 common shares. As of June 30, 2023, 4,800,000 Series A Preferred Shares were issued and outstanding. During the three months ended June 30, 2023, the Company accrued preferred share dividends of approximately $2.0 million.

Operating Partnership Units

Holders of common units in the Operating Partnership, if and when issued, will have certain redemption rights, which will enable the unit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price per common share at the time of redemption or for common shares on a one-for-one basis. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of limited partners or shareholders. As of June 30, 2023, there were 1,587,317 vested Operating Partnership LTIP units held by current and former employees.

11. Earnings Per Share

The two-class method is used to determine earnings per share because unvested restricted shares and unvested LTIP units are considered to be participating shares. The LTIP units held by the non-controlling interest holders, which may be converted to common shares, have been excluded from the denominator of the diluted earnings per common share calculation as there would be no effect on the amounts since limited partners' share of income or loss would also be added back to net income or loss. Unvested restricted shares, unvested long-term incentive plan units and unvested Class A Performance LTIP units that could potentially dilute basic earnings per common share in the future would not be included in the computation of diluted loss per common share, for the periods where a loss has been recorded, because they would have been anti-dilutive for the periods presented. For the six months ended June 30, 2023 and 2022, the Company excluded zero and 210,938, respectively, of unvested shares and units as their effect would have been anti-dilutive.

The following is a reconciliation of the amounts used in calculating basic and diluted net income per common share (in thousands, except share and per share data):


	For the three months ended				For the six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Numerator:
Net income (loss) attributable to common shareholders	$	7,157	$	7,164	$	321	$	(4,269)
Dividends on unvested shares and units	(28)		—		(55)		—

Net income (loss) attributable to common shareholders	$	7,129	$	7,164	$	266	$	(4,269)
Denominator:
Weighted average number of common shares - basic	48,846,913		48,795,348		48,842,850		48,791,455

Unvested shares and units	115,929		221,836		122,058		—
Weighted average number of common shares - diluted	48,962,842		49,017,184		48,964,908		48,791,455
Basic income (loss) per common share:
Net income (loss) attributable to common shareholders per weighted average basic common share	$	0.15	$	0.15	$	0.01	$	(0.09)
Diluted income (loss) per common share:
Net income (loss) attributable to common shareholders per weighted average diluted common share	$	0.15	$	0.15	$	0.01	$	(0.09)

12. Equity Incentive Plan

The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. The plan was amended on May 24, 2022 to increase the maximum number of shares available under the plan by 1,600,000 shares and extend the term of the plan to March 22, 2032. Share awards under this plan generally vest over three to five years, though compensation for the Company’s independent trustees includes share grants that vest immediately. The Company pays dividends on unvested shares and units, except for performance-based shares and outperformance based units, for which dividends on unvested performance-based shares and units are accrued and not paid until those shares or units vest. Certain awards may provide for accelerated vesting if there is a change in control. In January 2023 and 2022, the Company issued 43,378 and 34,672 common shares, respectively, to its independent trustees as compensation for services performed in 2022 and 2021, respectively. As of June 30, 2023, there were 1,252,326 common shares available for issuance under the Equity Incentive Plan.

Restricted Share Awards

From time to time, the Company may award restricted shares under the Equity Incentive Plan as compensation to officers, employees and non-employee trustees. The Company recognizes compensation expense for the restricted shares on a straight-line basis over the vesting period based on the fair market value of the shares on the date of issuance.

A summary of the Company’s restricted share awards for the six months ended June 30, 2023 and the year ended December 31, 2022 is as follows:


	For the six months ended			For the year ended
	June 30, 2023			December 31, 2022
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Non-vested at beginning of the period	6,666	$	11.47	10,000	$	11.47
Granted	2,457	12.21		—	—
Vested	—	—		(3,334)	11.47

Non-vested at end of the period	9,123	$	11.67	6,666	$	11.47

As of June 30, 2023 and December 31, 2022, there were $69 thousand and $61 thousand, respectively, of unrecognized compensation costs related to restricted share awards. As of June 30, 2023, these costs were expected to be recognized over a weighted-average period of approximately 1.7 years. For the three months ended June 30, 2023 and 2022, the Company recognized approximately $12 thousand and $10 thousand, respectively, and for the six months ended June 30, 2023 and 2022, the Company recognized approximately $22 thousand and $19 thousand, respectively, of expense related to the restricted share awards.

Long-Term Incentive Plan Awards

LTIP units are a special class of partnership interests in the Operating Partnership which may be issued to eligible participants for the performance of services to or for the benefit of the Company. Under the Equity Incentive Plan, each LTIP unit issued is deemed equivalent to an award of one common share thereby reducing the number of shares available for other equity awards on a one-for-one basis.

A summary of the Company's LTIP unit awards for the six months ended June 30, 2023 and the year ended December 31, 2022 is as follows:


	For the six months ended			For the year ended
	June 30, 2023			December 31, 2022
	Number of Units	Weighted-Average Grant Date Fair Value		Number of Units	Weighted-Average Grant Date Fair Value
Non-vested at beginning of the period	905,525	$	15.03	764,178	$	15.00
Granted	466,988	14.36		380,004	16.08
Vested	(372,558)	13.27		(238,657)	16.61

Non-vested at end of the period	999,955	$	15.37	905,525	$	15.03

Time-Based LTIP Awards

On March 1, 2023, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee, granted 171,171 time-based LTIP unit awards (the “2023 Time-Based LTIP Unit Award”). The grants were made pursuant to award agreements that provide for time-based vesting (the "LTIP Unit Time-Based Vesting Agreement").

Time-based LTIP unit awards will vest ratably provided that the recipient remains employed by the Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Prior to vesting, a holder is entitled to receive distributions on the LTIP units that comprise the 2023 Time-Based LTIP Unit Awards and the prior year LTIP unit awards set forth in the table above.

Performance-Based LTIP Awards

On March 1, 2023, the Company's Operating Partnership, upon the recommendation of the Compensation Committee, also granted 256,757 performance-based LTIP unit awards (the "2023 Performance-Based LTIP Unit Awards"). The grants were made pursuant to award agreements that have market-based vesting conditions. The Performance-Based LTIP Unit Awards are comprised of Class A Performance LTIP Units that will vest only if and to the extent that (i) the Company achieves certain long-term market-based total shareholder return ("TSR") criteria established by the Compensation Committee and (ii) the recipient remains employed by the Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Compensation expense is based on an estimated value of $16.64 per 2023 Performance-Based LTIP Unit Award, which takes into account that the number of units that ultimately may vest will depend on the achievement of long-term market-based TSR criteria. The 2023 Performance-Based LTIP Unit Awards have an absolute negative TSR modifier which may reduce payout percentages if the absolute TSR over the measurement period is negative.

The 2023 Performance-Based LTIP Unit Awards may be earned based on the Company’s relative TSR performance for the three-year period beginning on March 1, 2023 and ending on February 28, 2026. The 2023 Performance-Based LTIP Unit Awards, if earned, will be paid out between 50% and 200% of target value as follows:


	Relative TSR Hurdles (Percentile)	Payout Percentage
Threshold	25th	50%
Target	55th	100%
Maximum	80th	200%

Payouts at performance levels in between the hurdles will be calculated by straight-line interpolation.

The Company estimated the aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC 718, excluding the effect of estimated forfeitures, using a Monte Carlo approach. In determining the discounted value of the LTIP units, the Company considered the inherent uncertainty that the LTIP units would never reach parity with the other common units of the Operating Partnership and thus have an economic value of zero to the grantee. Additional factors considered in estimating the value of LTIP units included discounts for illiquidity, expectations for future dividends, risk free interest rates, stock price volatility, and economic environment and market conditions.

The grant date fair values of the LTIPs and the assumptions used to estimate the values are as follows:


	Grant Date	Number of Units Granted	Estimated Value Per Unit	Volatility	Dividend Yield	Risk Free Interest Rate
2018 Time-Based LTIP Unit Awards	3/1/2018	97,968	$16.83	26%	—%	2.07%
2018 Performance-Based LTIP Unit Awards	3/1/2018	146,949	$17.02	26%	6.2%	2.37%
2019 Time-Based LTIP Unit Awards	3/1/2019	88,746	$18.45	21%	—%	2.57%
2019 Performance-Based LTIP Unit Awards	3/1/2019	133,107	$18.91	21%	6.2%	2.55%
2020 Time-Based LTIP Unit Awards	3/1/2020	130,206	$13.05	20%	—%	1.06%
2020 Performance-Based LTIP Unit Awards (1)	3/1/2020	195,301	$13.66	20%	8.1%	0.90%
2021 Time-Based LTIP Unit Awards	3/1/2021	132,381	$12.52	78%	—%	0.08%
2021 Performance-Based LTIP Unit Awards	3/1/2021	198,564	$15.91	64%	3.4%	0.30%
2022 Time-Based LTIP Unit Awards	3/1/2022	152,004	$12.33	80%	—%	1.01%
2022 Performance-Based LTIP Unit Awards	3/1/2022	228,000	$18.58	66%	3.5%	1.44%
2023 Time-Based LTIP Unit Awards	3/1/2023	171,171	$11.11	37%	—%	5.11%
2023 Performance-Based LTIP Unit Awards	3/1/2023	256,757	$16.64	69%	3.5%	4.61%

(1) In February 2023, following the end of the measurement period, the Company’s TSR met certain criteria and based on the Company’s TSR over the measurement period, 234,361 LTIP units vested.

The Company recorded $1.4 million and $1.3 million in compensation expense related to the LTIP units for the three months ended June 30, 2023 and 2022, respectively, and $2.7 million and $2.4 million in compensation expense related to the LTIP units for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, there was $10.0 million and $6.5 million, respectively, of total unrecognized compensation cost related to LTIP units. This cost is expected to be recognized over approximately 2.1 years, which represents the weighted average remaining vesting period of the LTIP units.

13. Leases

The Residence Inn Gaslamp hotel property is subject to a ground lease with an expiration date of January 31, 2065 with an extension option by the Company of up to three additional terms of ten years each. Monthly payments are currently approximately $44 thousand per month and increase 10% every five years. The hotel is subject to annual supplemental rent payments calculated as 5% of gross revenues during the applicable lease year, minus 12 times the monthly base rent scheduled for the lease year.

The Residence Inn New Rochelle hotel property is subject to an air rights lease and garage lease that each expire on December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of the garage and established reserves to fund for the cost of capital repairs. Aggregate rent for 2023 is approximately $30 thousand per quarter.

The Hilton Garden Inn Marina del Rey hotel property is subject to a ground lease with an expiration date of December 31, 2067. Minimum monthly payments are currently approximately $47 thousand per month and a percentage rent payment less the minimum rent is due in arrears equal to 5% to 25% of gross income based on the type of income.

The Company entered into a corporate office lease in September 2015. The lease is for a term of 11 years and includes a 12-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to two successive terms of 5 years each. On June 1, 2023, the Company executed an amendment to the corporate office lease to vacate

and surrender possession of 7,374 rentable square feet in exchange for an early termination payment of $0.1 million. The partial termination of this lease required the Company to apply ASC 842 and remeasure the right of use asset and lease liability and recognize those adjustments in the consolidated statement of operations. During the six months ended June 30, 2023, the Company recognized a gain from partial lease termination of approximately $0.2 million as a result of this partial termination. The Company shares the space with a related party and is reimbursed for the pro-rata share of rentable space occupied by the related party.

The Company is the lessee under ground, air rights, garage and office lease agreements for certain of its properties, all of which qualify as operating leases as of June 30, 2023. These leases typically provide multi-year renewal options to extend term as lessee at the Company's option. Option periods are included in the calculation of the lease obligation liability only when options are reasonably certain to be exercised.

In calculating the Company's lease obligations under the various leases, the Company uses discount rates estimated to be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment. Lease obligations are based on contractually required cash payments while lease expense is recognized on a straight-line basis.

The following table includes information regarding the Company's total minimum lease payments for which it is the lessee, as of June 30, 2023, for each of the next five calendar years and thereafter (in thousands):


Total Future Lease Payments	Amount
2023 (remaining six months)	$	933
2024	1,875
2025	1,940
2026	1,727
2027	1,272
Thereafter	63,553
Total lease payments	$	71,300
Less: Imputed interest	(50,281)
Present value of lease liabilities	$	21,019

The Company incurred $0.6 million of fixed lease payments and $0.4 million of variable lease payments for the six months ended June 30, 2023, which are included in property taxes, ground rent and insurance in our consolidated statement of operations.

The following table includes information regarding the right of use assets and lease liabilities of the Company as of June 30, 2023 (in thousands):


	Right of Use Asset		Lease Liability
Balance as of January 1, 2023	$	19,297	$	22,108
Amortization	(342)		(394)
Partial lease termination	$	(531)	$	(695)
Balance as of June 30, 2023	$	18,424	$	21,019


Lease Term and Discount Rate			June 30, 2023

Weighted-average remaining lease term (years)			42.12
Weighted-average discount rate			6.90%

14. Commitments and Contingencies

Litigation

The Company is subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of its hotels, its managers and other Company matters. While it is not possible to ascertain the ultimate outcome of such matters, the Company 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.

Management Agreements

The management agreements with IHM have an initial term of five years and automatically renew for two five-year periods unless IHM provides written notice to us no later than 90 days prior to the then current term’s expiration date of its intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon sale of any IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management fees are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an incentive management fee is calculated as 10% of the hotel's net operating income less fixed costs, base management fees and a specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable calculation.

Management fees totaled approximately $2.8 million and $2.7 million for the three months ended June 30, 2023 and 2022, respectively, and $5.1 million and $4.6 million for the six months ended June 30, 2023 and 2022, respectively.

Franchise Agreements

The fees associated with the franchise agreements are calculated as a specified percentage of the hotel's gross room revenue. Franchise and marketing fees totaled approximately $6.8 million and $6.6 million for the three months ended June 30, 2023 and 2022, respectively, and $12.1 million and $11.0 million for the six months ended June 30, 2023 and 2022, respectively. The initial term of the agreements range from 10 to 30 years with the weighted average expiration being March 2035.

15. Related Party Transactions

As of June 30, 2023, Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, owns 100% of IHM. As of June 30, 2023, the Company had hotel management agreements with IHM to manage all 39 of its hotels. Hotel management, revenue management and accounting fees accrued or paid to IHM for the hotels owned by the Company for the three months ended June 30, 2023 and 2022 were $2.8 million and $2.7 million, respectively, and for the six months ended June 30, 2023 and 2022 were $5.1 million and $4.6 million, respectively. At June 30, 2023 and December 31, 2022, the amounts due to IHM were $0.7 million and $0.4 million, respectively.

Cost reimbursements from related parties revenue represent reimbursements of costs incurred on behalf of IHM. These costs relate primarily to office expenses shared with IHM. Various shared office expenses and rent are paid by the Company and allocated to IHM based on the amount of square footage occupied by each entity. As the Company records cost reimbursements based upon costs incurred with no added markup, the revenue and related expense has no impact on the Company’s operating income or net income. Cost reimbursements are recorded based upon the occurrence of a reimbursed activity.

16. Subsequent Events

The Company repaid the maturing mortgage loan of $19.7 million on the Hyatt Place Pittsburgh hotel property on July 6, 2023 with available cash. No prepayment penalties were incurred as a result of the repayment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2022. In this report, we use the terms “the Company," “we” or “our” to refer to Chatham Lodging Trust and its consolidated subsidiaries, unless the context indicates otherwise.

COVID-19 Pandemic

The lodging industry has been significantly impacted by the COVID-19 pandemic, which began in early 2020. The pandemic caused a sharp decline in travel and a significant reduction in hotel demand, which caused us to experience a significant decline in revenues, profitability and cash flows from operations during the years ended December 31, 2020 and December 31, 2021. During the year ended December 31, 2022, we experienced a significant improvement in our business which has continued into 2023, initially driven primarily by leisure travel, and more recently, improvement in other demand segments including corporate and group. There have also been material increases in inflation and interest rates. We anticipate that continued improvement in operating trends will be dependent on continued strength in leisure travel and a recovery of business travel.

Statement Regarding Forward-Looking Information

The following information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include information about possible or assumed future results of the lodging industry and our business, financial condition, liquidity, results of operations, cash flow and plans and objectives. These statements generally are characterized by the use of the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors that are, in some cases, beyond our control and which could differ materially from those set forth in the forward-looking statements. Important factors that we think could cause our actual results to differ materially from expected results are summarized below. Some factors that might cause such a difference include the following: the continuing and future impact of the COVID-19 pandemic (including its effect on the ability or desire of people to travel), local, national and global economic conditions, uncertainty surrounding the financial stability of the United States, Europe and China, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global real estate conditions, declines in lodging industry fundamentals, increased operating costs, a potential recessionary environment, seasonality of the lodging industry, our ability to obtain debt and equity financing on satisfactory terms, changes in interest rates, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, the uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, the impact of and changes to various government programs, and our ability to dispose of selected hotel properties on the terms and timing we expect, if at all. Given these uncertainties, undue reliance should not be placed on such statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should also be read in light of the risk factors identified in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as updated by the Company's subsequent filings with the SEC under the Exchange Act.

Overview

We are a self-advised hotel investment company organized in October 2009 that commenced operations in April 2010. Our investment strategy is to invest in upscale extended-stay and premium-branded select-service hotels in geographically diverse markets with high barriers to entry near strong demand generators. We may acquire portfolios of hotels or single hotels. We expect that a significant portion of our portfolio will consist of hotels in the upscale extended-stay or select-service categories, including brands such as Homewood Suites by Hilton®, Residence Inn by Marriott®, Hyatt Place®, Courtyard by Marriott®, SpringHill Suites by Marriott®, Hilton Garden Inn by Hilton®, Embassy Suites®, Hampton Inn®, Hampton Inn and Suites®, Home2 Suites by Hilton® and TownePlace Suites by Marriott®.

The Company's future hotel acquisitions may be funded by issuances of both common and preferred shares or the issuance of partnership interests in our operating partnership, Chatham Lodging, L.P. (the "Operating Partnership"), draw-downs under our revolving credit facility, the incurrence or assumption of debt, available cash, or proceeds from dispositions of assets. We intend to acquire quality assets at attractive prices and improve their returns through knowledgeable asset management and seasoned, proven hotel management while remaining prudently leveraged.

At June 30, 2023, our leverage ratio was 25.8% measured as the ratio of our net debt (total debt outstanding before deferred financing costs less unrestricted cash and cash equivalents) to hotel investments at cost. Over the past several years, we have maintained a leverage ratio between the high 20s and the low 50s. As of June 30, 2023, we have total debt of $466.7 million at a weighted average interest rate of approximately 5.0%.

We are a real estate investment trust (“REIT”) for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), we cannot operate our hotels. Therefore, the Operating Partnership and its subsidiaries lease our hotel properties to taxable REIT subsidiary lessees (“TRS Lessees”), who in turn engage eligible independent contractors to manage the hotels. Each of the TRS Lessees is treated as a taxable REIT subsidiary for federal income tax purposes and is consolidated within our financial statements for accounting purposes. However, since we control both the Operating Partnership and the TRS Lessees, our principal source of funds on a consolidated basis is from the operations of our hotels. The earnings of the TRS Lessees are subject to taxation as regular C corporations, as defined in the Code, potentially reducing the TRS Lessees’ cash available to pay dividends to us, and therefore our funds from operations and the cash available for distribution to our shareholders.

Key Indicators of Operating Performance and Financial Condition

We measure financial condition and hotel operating performance by evaluating non-financial and financial metrics and measures such as:

•Average Daily Rate (“ADR”), which is the quotient of room revenue divided by total rooms sold,

•Occupancy, which is the quotient of total rooms sold divided by total rooms available,

•Revenue Per Available Room (“RevPAR”), which is the product of occupancy and ADR, and does not include food and beverage revenue, or other operating revenue,

•Funds From Operations (“FFO”),

•Adjusted FFO,

•Earnings before interest, taxes, depreciation and amortization (“EBITDA”),

•EBITDAre,

•Adjusted EBITDA, and

•Adjusted Hotel EBITDA.

We evaluate the hotels in our portfolio and potential acquisitions using these metrics to determine each hotel’s contribution toward providing income to our shareholders through increases in distributable cash flow and increasing long-term total returns through appreciation in the value of our common shares. RevPAR, ADR and Occupancy are hotel industry measures commonly used to evaluate operating performance.

See “Non-GAAP Financial Measures” for further discussion of FFO, Adjusted FFO, EBITDA, EBITDAre, Adjusted EBITDA and Adjusted Hotel EBITDA.

Results of Operations

Industry Outlook

Smith Travel Research reported that U.S. lodging industry RevPAR increased 2.5% for the three months ended June 30, 2023, with RevPAR up 1.9% in April 2023, up 3.7% in May 2023 and up 1.9% in June 2023. We expect that over the remainder of 2023, lodging industry RevPAR will continue to increase modestly.

Comparison of the three months ended June 30, 2023 to the three months ended June 30, 2022

Results of operations for the three months ended June 30, 2023 include the operating activities of our 39 wholly owned hotels that were owned for the entire period. We sold one hotel located in Burlington, MA on May 6, 2022, and sold three hotels located in Dallas, TX and Houston, TX on May 13, 2022. We developed and opened on January 24, 2022 one hotel located in Los Angeles, CA. The changes in results described below were driven primarily by the recovery from the COVID-19 pandemic, the sales of four hotels, and the ramp-up from opening of one hotel.

Revenues

Revenue, which consists primarily of room, food and beverage and other operating revenues from our wholly owned hotels, was as follows for the periods indicated (dollars in thousands):


	For the three months ended
	June 30, 2023		June 30, 2022		% Change
Room	$	77,486	$	75,761	2.3	%
Food and beverage	2,094		1,968		6.4	%
Other	4,531		3,674		23.3	%
Cost reimbursements from related parties	365		358		2.0	%
Total revenue	$	84,476	$	81,761	3.3	%

Total revenue was $84.5 million for the three months ended June 30, 2023, up $2.7 million compared to total revenue of $81.8 million for the corresponding 2022 period. The increase in total revenue primarily was related to the recovery from the COVID-19 pandemic and the ramp-up of the Home2 Woodland Hills, which opened on January 24, 2022. The Home2 Woodland Hills contributed $2.9 million of revenue during the three months ended June 30, 2023, up $0.4 million from the $2.5 million contributed during the three months ended June 30, 2022. The increase was partially offset by the impact from selling four hotels during the second quarter of 2022 that contributed $0 of revenue during the three months ended June 30, 2023, down $1.7 million from the $1.7 million these hotels contributed during the three months ended June 30, 2022. Since all of our hotels are select-service or limited-service hotels, room revenue is the primary revenue source as these hotels do not have significant food and beverage revenue or large group conference facilities. Room revenue comprised 91.7% and 92.7% of total revenue for the three months ended June 30, 2023 and 2022, respectively. Room revenue was $77.5 million and $75.8 million for the three months ended June 30, 2023 and 2022, respectively, and the increase in room revenue primarily was related to the recovery from the COVID-19 pandemic and the ramp-up of the Home2 Woodland Hills, which opened on January 24, 2022.

Food and beverage revenue was $2.1 million for the three months ended June 30, 2023, up $0.1 million compared to $2.0 million for the corresponding 2022 period. The increase in food and beverage revenue primarily was related to an increase in occupancies at our hotels due to the recovery from the COVID-19 pandemic.

Other operating revenue, comprised of parking, meeting room, gift shop, in-room movie and other ancillary amenities revenue. Other operating revenue was $4.5 million and $3.7 million for the three months ended June 30, 2023 and 2022, respectively. The increase in other operating revenue primarily was related to an increase in occupancies at our hotels due to the recovery from the COVID-19 pandemic.

Reimbursable costs from related parties were $0.4 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively. The cost reimbursements were offset by the reimbursed costs from related parties included in operating expenses.

In the table below, we present both actual and same property room revenue metrics. Actual Occupancy, ADR and RevPAR metrics reflect the performance of the hotels for the actual days such hotels were owned by the Company during the periods presented. Same property Occupancy, ADR, and RevPAR reflect results for the 39 hotels wholly owned by the Company as of June 30, 2023 that have been in operation for a full year regardless of our ownership during the period presented, which is a non-GAAP financial measure. Results for the hotels for periods prior to our ownership were provided to us by prior owners and have not been adjusted by us.


	For the three months ended June 30,
	2023						2022						Percentage Change
	Same Property (39 hotels)			Actual (39 hotels)			Same Property (39 hotels)			Actual (43 hotels)			Same Property (39 hotels)		Actual (39 / 43 hotels)
Occupancy	78.9		%	78.9		%	77.3		%	76.8		%	2.1	%	2.7	%
ADR	$	182.40		$	182.40		$	178.14		$	176.33		2.4	%	3.4	%
RevPAR	$	143.96		$	143.96		$	137.68		$	135.35		4.6	%	6.4	%

For the three months ended June 30, 2023 same property RevPAR increased 4.6% due to an increase in ADR of 2.4% and an increase in occupancy of 2.1% primarily related to the recovery from the COVID-19 pandemic. Same property RevPAR increased 11.8% in April 2023, increased 4.9% in May 2023, and decreased 1.4% in June 2023. Same property RevPAR was $137.58 in April 2023, $139.91 in May 2023, and $154.52

Chatham Lodging Trust [CLDT] Filings

Chatham Lodging Trust [CLDT-PA] Filings