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Chatham Lodging Trust's Recent Drop Creates A Great Buying Opportunity For Income Investors

Matthew Utesch profile picture
Matthew Utesch


  • CLDT's high-quality hotels are set to benefit from the improving economic environment.
  • The majority of Q4-2017's miss appears to be related to rising expenses and a significant one-time impairment charge of $6.7 million.
  • The dividend hasn't seen much growth in recent years but at 7.3% yield and a payout ratio below 60%, I have confidence in management's conservative approach.
  • I provide my target price in the conclusion.

Investment Thesis

Real Estate Investment Trusts (REITs) have been struggling across the board which has created some attractive discounts. In the last month, no drop has been more apparent than Chatham Lodging Trust (NYSE:CLDT) has this name normally sells for a premium when compared to other lodging REITs like Apple Hospitality (APLE).

CLDT's drop comes after a small Q4-2017 earnings miss but what was more concerning was the year-over-year change drop in Funds From Operations (FFO) from $.44/share in Q4-2016 to $.36/share in Q4-2017. Although these results were still within suggested guidance, it was notable that expenses increased faster than revenue during 2017.

The goal of this article is to dig in two CLDT's Q4-2017 earnings and 2017 10-K and determine if the current drop in share price is warranted before initiating a long-term position for my clients.


CLDT is comprised of 40 hotels and an aggregate of 6,018 rooms which are spread throughout 15 states in the top 25 metropolitan markets in the United States (as of December 31, 2017). In addition to these holdings, CLDT also holds a non-controlling interest in two joint ventures, including:

  • NewINK Joint Venture - This joint venture was established in Q2-2014 and consists of 47 hotels with a total of 6,097 rooms. CLDT's ownership represents 10.3% of the joint venture.
  • Inland Joint Venture - this joint venture was established in Q4-2014 and consists of 48 hotels and 6,401 rooms. CLDT's ownership represents 10.0% of the joint venture.

CLDT's portfolio primarily focuses on "upscale extended-stay hotels such as Homewood Suites by Hilton and Residence Inn by Marriott" (2017 10-K). Additionally, CLDT invests "in upscale or upper upscale all suite hotels such as SpringHill Suites by Marriott or Embassy Suites" (2017 10-K). According to the

This article was written by

Matthew Utesch profile picture
**Effective 8/20/2023 I will be looking to change platforms because Seeking Alpha has indicated it will no longer support the publishing of my retirement article series John & Jane because it involved too much previous history analysis. I plan to continue this series in a video format on YouTube and apologize in advance for my delay as I build this out.https://www.youtube.com/@consistentdividendinvestor/featuredGraduated in 2011 with degrees in Pre-Law and Business Administration from Eastern Washington University. Completed my MBA at Whitworth University in May of 2017. Over the last decade, I have worked exclusively in the finance industry. I have acquired specialized knowledge in multiple areas, most notably, Secondary Marketing, Underwriting (specializing in subprime credit), and recently established an Indirect Auto Dealer Lending Program for Canopy Federal Credit Union. I am now the Director of Indirect and Retail Underwriting.Started my first Roth IRA at the age of 16, but began seriously investing closer to 2011 at the age of 22. My investment strategy is largely focused on generating retirement income from dividend-paying stocks. I do not hold any professional investment licenses, but I spend a significant amount of time educating children, teenagers, and young adults on basic finance. I also specialize in cash-flow analysis for those nearing retirement or who are in retirement.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CLDT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article reflects my own personal views and is not meant to be taken as investment advice. It is recommended that you do your own research. This article was written on my own and does not reflect the views or opinions of my employer. I've taken this opportunity to buy the drop in CLDT for my client John. Shares were recently purchased in the following quantities: 100 shares at $19.50/each and another 150 shares at $18.21/each (To my client John's Traditional IRA).

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (31)

Landlord Investor profile picture
Any thoughts on CLDT vs HT? Valuations are similar although it seems to me that HT has the better quality portfolio and better EBITDA growth prospects. However, CLDT has less leverage.
Landlord Investor: Both are buys, but I like CLDT best!
patientmike: I own TWO high yield monthly pay hospitality REITs. CLDT and APLE. Both are undervalued. I am adding BOTH now.
BuddhaLove profile picture
Initiated a position in STAG and O recently and have been adding nibbles here and there. Thinking about initiating a position in one or both, CLDT and/or APLE. Which do you prefer Javelina?
BuddhaLove: I like them BOTH. I would split a new buy 50/50.
According to Jim Cramer, you should shy away from any company or REIT offering 10% or more dividend. With the drop in CLDT price, you can see how much that offset the dividend you received and how much you loss you still have.
ryanmartin8 profile picture
Don't put too much weight into what Jim Cramer says.
arson profile picture
got stopped out last month with a slight gain plus dividends received. jumping into bigger and better Hpt
4Q metrics and 2018 guide are concerns but given the track record of this management team over a period of years, they deserve the benefit of a doubt. Would be a much different situation if this management team had a spotty track record of execution. I will stay the course and believe that from here, the stock has more upside than downside over the next 12-18 months. Long CLDT.
Pablo profile picture
I bought CLDT this week. Good company on sale, worthy of a position.
Continuing to evaluate iniating a position in CLDT
to compliment half position in AHT which has rebounded from recent price bottom with 8% YOI. The projected 2018 AFFO is of major concern. Reminds one of classic line from Lost in Space 60's tv show, DANGER WILL ROBINSON.
Investor Dude profile picture
I will wait for a lower entry, limit order sits at 17
Fisher is a great hotel CEO, I like CLDT at current prices.
Great article I knew the recent price drop was an overreaction thanks for confirming this
Oil Can profile picture
Wait... wait... wait......

Did I miss the section of your article where you discuss the significant downward revision of 2018 AFFO:

"2018 guidance for adjusted FFO is $1.80 to $ 1.94 per share vs $2.14 in 2017."

I scanned the article for the text "2018" but didn't find it anywhere.

I believe this is the reason - and possibly a well-justified one - for a 14% drop in share price.

I've owned CLDT since 2016, and considered adding shares, but some big questions remain to be answered:

1) No div increase for two years now, and none apparently in the foreseeable future
2) Share price growth - well, if you bought at the perfect time during the last five years you might have a gain, but most likely you're underwater
3) The 800-lb gorilla: that is a very large downward revision in AFFO. Why?

Long CLDT for the moment, but really on the fence - that is on the "dump it or buy more fence".
I own this and thought about buying more but aren’t there plenty of other REITS on sale?? Why not spread the risk?
Oil Can profile picture
Because I've already spread the risk (the pain). I'm slightly underweight this one.

But that is irrelevant. You can't write an article recommending I buy something but completely ignore the glaring issues.

Well, you can, but then you'd have no credibility as an author.
The Deacon profile picture
They give a great breakdown of why & what each downward adjustment is on the earnings call. I think it starts on page 6.
Thanks for good recap of current quarter earnings and overall situation with CLDT.
Patrick101 profile picture
have you checked their 2018 guidance?
CLDT is another of my high yield monthly paid dividend holdings. I am fully invested, but likely will add even more. It is a BUY at current price. LONG CLDT!
Any in depth thoughts on the dividend not being increased? Any concerns?

I'm holding for now but just a little nervous even though they seem to have good coverage.
What is your opinion and price target for APLE?
The Deacon profile picture
Matthew thanks for the write-up.

Could you expound more about the impairment expense or link the 10-K page reference?

Also with RevPAR growth 1%, you're not more concerned about the food/bev exp increase & Fran,Marketing Fee, Ad, & Promo exp increase resulting in such minimal growth. I took away from the cal they really didn't have a good grip or answers on expenses other than blaming house keeping cost increases - which is something they should have been dealing with as CA and others put in a $15 hr min wage.

Lastly - does seem to be more of a conflict with management, JV and operating leasees so intertwined. Would like to see outside cost/bids for comparison, don't think you'll get it with current conflicts.
Steve Rasher profile picture
Matthew: Thanks for the overview of CLDT. I, too, have some concerns, but believe it deserves another quarter or two to see if the adverse trends at least stabilize if not improve.
Nevertheless, I have a significant problem with one aspect of your analysis. At one point you state:

"One of the most significant items that caught my eye was the impairment loss of $6.7 million on CLDT's Washington SHS, PA hotel. This was a significant contribution to CLDT's total operating expenses and if we exclude this one-time item operating income would've been approximately $59.7 million in 2017 versus $58.9 million in 2016.

Funds From Operations
If we exclude the impact of the one-time impairment charge on CLDT's funds from operations we find that CLDT's operating results are significantly better than their current report shows."

Now I certainly agree that the impairment charge taken for the Washington SHS is significant, because it suggests that this property is under performing to such a degree that CLDT had to take an impairment charge in its value, which adversely affected operating expenses and operating income. However, an impairment charge is usually a non-cash expense under GAAP, and, therefore, it should not have adversely impacted FFO and certainly should not be added back to get at the AFFO level you suggest. Your thoughts and comments would be appreciated. Steve
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