A reader asked me a question about my investment in Chatham Lodging Trust (CLDT) earlier this week. This hotel REIT has been a core part of my income portfolio for almost a year now and the company has performed well since I made my original investment.
I have not penned anything on it in Seeking Alpha since June, and so I thought it would be an appropriate time to revisit its value story - which is becoming more and more compelling over time. I will be looking to add to my position if we continue to sell off in the overall market.
Chatham Lodging Trust is a self-advised REIT that was organized to invest in upscale extended-stay hotels and premium-branded, select-service hotels. The company currently owns 18 hotels, with an aggregate of 2,414 rooms/suites in 10 states and the District of Columbia, and holds a minority investment in a joint venture that owns 64 hotels with 8,329 rooms/suites.
I outline below six reasons why Chatham Lodging Trust belongs in your income portfolio at $13 a share:
- Chatham Lodging Trust is selling at 85% of book value. This is a ridiculously low value, given the amount of renovations the company has made to its holdings. It also makes no sense, given the continuing recovery in real estate values and the very real possibility of accelerating inflation in the years ahead.
- Chatham Lodging Trust has done an impressive and consistent job of raising operating cash flow (OCF). The company's OCF stands approximately 350% above its level in FY2009. Insiders have been net buyers of the shares this year, as well.
- Chatham Lodging Trust provides a yield of 6.1% after the company raised its payout some 12% earlier in the year. I would look for this payout to be raised significantly if the company hits current earnings projections (see the next point).
- Chatham Lodging Trust made 89 cents a share in FY2011 and is set to make more than $1.30 a share in FY2012. Consensus EPS estimates for FY2013 are projecting over $1.60 a share in earnings.
- The four analysts that cover the stock have a median price target of $17 a share on this high yielder. Price targets for Chatham Lodging Trust range from $16 to $20 a share, all significantly above the current stock price.
- Bottom line: With Chatham Lodging Trust, an investor can pick up a 6% plus dividend play for less than 8x forward earnings, and one that is consistently growing earnings and OCF.