CLDT
#Good afternoon, everybody.
Our results for the fourth quarter, as you've read, significantly outperformed our expectations across the board.
Compared to the midpoint of our guidance, revenue beat by $1.2 million, which translates to $500,000 of FFO.
Hotel EBITDA margins exceeded our guidance by 140 basis points, which generated incremental FFO of $900,000.
FFO from our JVs surpassed our estimates, and we benefited as well from income tax true-ups of approximately $500,000.
So with that, from a top-line perspective, our revPAR declined 0.8% to $118 on a 1.7% increase in ADR, offset by a 2.4% decrease in occupancy to 75%.
Our guidance for the quarter was a revPAR decline of 1.5% to 3.5% negative.
Coming off a third-quarter revPAR decline of 2.1%, we were encouraged by the improvement on a relative basis.
Within the fourth quarter, revPAR performance was sporadic, with October revPAR down approximately 2%, November up 1%, and December down 1.3%.
Our performance through the first half of 2017 will continue to be negatively impacted by the six hotels that we own in the oil-industry-influenced Houston and Western PA markets, which equates to about 9% of our EBITDA.
RevPAR at those 6 hotels declined almost 20%, better than we expected, and impacted our overall revPAR performance by approximately 240 basis points in the quarter.
Excluding these six hotels, then, revPAR for the quarter would have risen 1.6%.
We have certainly felt the impact of new supply at certain of our hotels.
New supply has been more concentrated, as we have discussed, in the top MSA and urban markets during the earlier part in this development cycle.
So in the end, I think Chatham recovers earlier because of where our hotels are located and the fact that we have been hit earlier than most, particularly as we look back at 2016.
And when we look at where we are located and the kind of demand generators that exist in the markets where our hotels are, we are feeling good as that supply gets absorbed.
I do want to spend a few more minutes digging into some of our individual markets to talk about some of the bright spots.
Despite talking about new supply, despite absorbing an almost 10% increase in supply over the last couple of years, our four Silicon Valley hotels saw revPAR rise almost 5%, driven by an approximate 6% increase in ADR to $222.
Tech companies continue to drive our economy, and our four hotels in Silicon Valley are the perfect brand, that being Residence Inn, and excellent locations for this market.
And we have been able to outperform the industry as a result.
For the quarter, our four hotels outperformed our expectations by approximately 300 basis points.
Given our relationship with the top global tech companies around the world, as obviously they are our major customers in Silicon Valley, we knew that tech companies were building a presence in an area outside of Los Angeles that's referred to as Silicon Beach.
And accordingly, we were bullish in acquiring the Hilton Garden Inn in Marina del Rey in late 2015.
And this hotel is well positioned to benefit from the growth in that business segment.
During the fourth quarter, revPAR at our Hilton Garden Inn in Marina del Rey rose 16%, partly due to increased levels of business from tech companies as well as the renegotiation of ADR related to certain large corporate accounts.
Our Residence Inn Washington DC and Foggy Bottom had a great quarter, with revPAR up 8% on an almost 10% increase in ADR, offset by a 2% decline in occupancy to a still-strong 82%.
And revPAR growth was strong throughout the quarter, benefiting from election-related travel.
So you can see there is a theme here, particularly in hotels where we are getting stronger revPAR increases, that most of that revPAR increase are, for example, in the case of Foggy Bottom, 8%, but 10% attributable to the increase in ADR.
So some of the revenue management strategies that our folks at Island have been working on and implementing are really starting to pay off, I think.
We'd rather, at this point, sacrifice a little bit of this occupancy, continuing to push our ADR, since our Company-wide occupancies, particularly with our upscale extended-stay hotels, Residence Inns and Homewood Suites, are so strong, we are just going to keep trying to shift the mix of business and, frankly, the daily revenue through the retail segment and manage that revenue in a way to maximize ADR.
Obviously, we are trying to protect our margins here as well.
Other markets which experienced more than double-digit revPAR growth in the quarter were our SpringHill Suites in Savannah and Homewood Suites in San Antonio, which benefited from revenue displacement in 2015.
As well as our Homewood Suites in Maitland, Florida, where demand was driven by winning back some corporate business, and we also had some incremental business related to Hurricane Matthew.
I guess we need to talk about the weaker side, since our revPAR increase for the quarter sounds like it ought to be double-digit.
Right, guys.
But anyway, we do have our most wonderful hotels in Houston and Western Pennsylvania.
And really, I take it the first six months of this year we will be telling this story.
But we will be lapping over those numbers for the back half of 2017, which I think provides us a little upside.
Because, for example, looking at Houston, the 4hotels saw revPAR decline 22% in the quarter, which was a little better than what we had expected and projected at 26% down.
Two-thirds of the revPAR decline is attributable to occupancy loss and one-third to ADR declines.
So except for the Super Bowl impact in February, we do expect those trends to continue, as I said, through June, maybe into July a little bit.
And after that, things ought to look a lot better.
Despite two hotels being anchored to the Houston Medical Center, as we discussed, and the other two hotels being pretty close, again, the overall weak demand in the market and the high level of new supply in the Houston area obviously makes it a challenging market.
No other hotels outside of the oil markets experienced a revPAR decline greater than 10%, but a couple other weak-performing hotels in the markets were our Hyatt Place in Pittsburgh, with revPAR down 8%.
That market has been a casualty partially of the downdraft caused by the decline in oil prices and fracking overall in the area.
There's certainly no shortage of new supply in the Greater Pittsburgh area.
And lastly, our Residence Inn at White Plains, New York, which did see a revPAR decline of 9% in the fourth quarter.
-As I spoke on our last call and I want to reiterate today, our primary manager, Island Hospitality, has done a very good job not just maintaining, but growing ADR in the face of increased new supply in some of these challenging markets.
We have been hyper-focused, as I said, on revenue management, and we will continue to work together with Island in our revenue management strategies and looking at our utilization, of course, of the online platforms and revenue managing those for profitability.
Island Hospitality, as I said ---+ environment where revPAR is not or not likely to exceed the inflationary rate generally.
Obviously that, together with some wage pressures and increased OTA and other distribution costs in the business, you're going to have some margin erosion.
So we're going to continue to focus on ADR for 2017.
<UNK>.
Thanks, <UNK>.
Good afternoon.
Our same-store operating margins were down 50 basis points to approximately 46%, and for the year were down 130 basis points, but still to a very strong 49% overall.
As we discussed on our last call, we aggressively implemented some cost controls a few months ago.
And despite a small revPAR decline in the quarter were able to minimize the margin loss despite that.
And these ---+ and our margin levels were significantly improved from the margin loss of 120 basis points in the second quarter and 180 basis points in the third quarter.
Our fourth-quarter operating margin guidance projected a decline of 190 basis points at the midpoint, and the significant outperformance in our fourth quarter can be attributable to lower-than-expected wages due to tightening labor staffing models, lower utility costs, and maintenance expenses.
As stated earlier, compared to last year, our operating margins were down 50 basis points.
In the fourth quarter, that increase was driven primarily by an increase in reserves related to our hotel employee workers compensation costs of about $300,000.
On a year-over-year basis for the first time in almost two years, fourth-quarter guest acquisition costs were basically flat year over year at $3 million.
For the year, these costs are up approximately 16%, but at least on an incremental basis, and certainly one quarter does not make a trend, but hopefully these costs are beginning to flatten out.
When you look at our booking patterns in 2016, there was a market shift in 2016 as the business travel within our negotiated accounts was down 6% in terms of production.
And this was offset by a 4% increase in production from our retail segment, which includes our e-channels.
Accordingly, it is very important for franchisors to continue to work with its owners to find the most efficient way to capture and retain travelers loyal to the brands.
And obviously, that's going to increase our profitability and hopefully our margins, obviously.
So as we look ahead to 2017, we are projecting our margins to decline approximately 110 basis points at the midpoint of our guidance, which assumes revPAR range flat over the entire year.
Without revPAR growth of around 2%, it is very difficult to maintain operating margins at the same level.
The industry as a whole is facing wage pressures across several fronts, whether it's trying to find qualified labor, whether it's the states raising the minimum wage, or even new supply that's causing hotel operators to offer what we believe is above-market wages in order to entice employees to switch from our hotels to others.
Additionally, we are expecting and forecasting overall guest acquisition costs to rise approximately 30 basis points in 2017.
But like I mentioned previously, hopefully these costs will begin to flatten out as we move through 2017 and the brand efforts begin to pay off.
The 32-room tower in Mountain View opened on October 5 at an all-in cost of approximately $300,000 per newly constructed room, which is much lower than market value.
Recent transactions within Silicon Valley have shown hotels in limited service and upscale segments trading at more than $500,000 per room.
So certainly we believe that investment of approximately $8 million is going to pay off handsomely.
With respect to the remaining two Silicon Valley expansions, we continue to work with the city and our architects to finalize the plans.
It's been a long and tedious process and we still have a way to go before we begin construction.
Until we can come up with plans that provide the double-digit returns that we are expecting, we will continue to value engineer the projects.
Our guidance at this moment does not assume a certain construction date for either of those two projects nor any disruption related to taking those rooms out of service for the buildings that we would be tearing down.
Lastly, on the joint ventures, as most are aware, Colony and Northstar merged in early January to form Colony Northstar.
We certainly do not expect the merger to have any impact on our day-to-day responsibilities with respect to the two joint ventures.
The transition has been quite smooth, and we look forward to working with the new ownership team.
During 2016, we received cash distributions of $7.2 million from the joint ventures.
And based on our overall investment of $50 million, it equates to an approximate 14% return on our investment.
And by the way, that's even with the significant amount of renovations that occurred within the portfolio in 2016.
And with that, I will turn it over to <UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
For the quarter, we reported net income of $2.7 million or $0.07 per diluted share compared to net income of $4.5 million or $0.12 per diluted share in Q4 2015.
The $4.5 million of net income of Q4 2015 included a $3.6 million gain from the sale of our Florence joint venture.
The primary differences between net income and FFO relate to non-cash costs such as depreciation, which was $12 million in the quarter, and one-time gains or losses and our share of similar items within the joint ventures, which were approximately $2.2 million in the quarter.
Adjusted FFO for the quarter was $17 million compared with $16.1 million in Q4 2015, an increase of 6%.
Adjusted FFO per share was $0.44, which represents an increase of 5% from the $0.42 a share generated in Q4 2015.
Adjusted EBITDA for the Company rose 1% to $26.3 million compared to $26.0 million in Q4 2015.
In the quarter, our joint ventures contributed approximately $3.4 million of adjusted EBITDA and $1.5 million of adjusted FFO.
Similar to the Chatham portfolio, both JV portfolios beat our expectations on both the top and bottom line.
Fourth-quarter revPAR was up 0.7% in the Innkeepers portfolio and 0.1% in the Inland portfolio.
Our balance sheet remains in excellent condition.
Our net debt was $573 million at the end of the quarter and our leverage ratio was 40%.
Over the past year, we've reduced our net debt by $14 million.
Transitioning to our guidance for Q1 and full-year 2017, I would like to note that it takes into account our planned renovations at the Residence Inn Gaslamp and Courtyard Houston Medical Center in Q1, and the Residence Inn Mission Valley, Homewood Suites Bloomington, Homewood Suites Brentwood, and Homewood Suites Maitland during the remainder of the year.
In 2017, we expect to spend approximately $27 million on capital, including $20 million related to these renovations.
We expect Q1 revPAR growth to be flat to up 1% and full-year 2017 revPAR growth to be minus 1% to plus 1%.
Our first quarter is expected to be slightly better than our full-year forecast as we benefit from the inauguration in Washington DC and the Super Bowl in Houston in early February.
For the full year, our revPAR guidance assumes the current trends of modest GDP growth combined with above-average new supply in the upscale segment will continue throughout 2017.
We have not factored any benefit from potential economic stimulus into our 2017 guidance because we believe they are unlikely to materialize before 2018.
Our full-year forecast for corporate cash G&A is $8.8 million, up $700,000 from 2016, but in line with 2015 G&A level.
On a full-year basis, the two joint ventures are expected to contribute $15.5 million to $16.5 million of EBITDA and $7.5 million to $8.5 million of FFO.
The decrease in FFO is due primarily to the expected rise in LIBOR on the debt in the joint ventures, which is entirely floating rate.
Although the Inland portfolio is adversely impacted by a significant amount of renovation in 2016, we are going to be renovating approximately a third of the Innkeepers portfolio in 2017.
I think at this point, operator, that concludes our remarks and we will open it up for questions.
I will lead it off, <UNK>, just by saying that we are always interested and have our eyes and ears to the ground at all times and talking to people that we know privately about good opportunities because we want to be opportunistic.
But we want to be nondilutive generally, so I think that's why you have other REITs talking about it.
And I think we would generally feel similarly that if we could buy something that was going to be an 8 cap, 8.5, 9 cap, something that's going to be better than our implied yield, or around the same number even.
, but we felt there was upside with our management team at Island or otherwise, yes, certainly we would take a look at it.
<UNK>, this is <UNK>.
We're still projecting those costs to go up 30 bps in 2017, which is a little over 10% year over year.
But I will say that the ---+ what we've talked about for the last year basically in regards to what the brands are doing in terms of incentivizing travelers to come on the websites, to book through the websites, to become loyalty members, we have always said that it's going to take a little bit of time to tell if that really pays off, which is why in my prepared comments I said listen, I'm not sure if the fourth quarter is a trend in that does that prove that these efforts are in fact finally making it through to us, the owner.
I think we still have to wait a little bit of time before we can tell if they are going to flatten out or not.
That's why I said listen, I'm not sure one quarter makes trend, but we are still projecting in our guidance a little over a 10% increase in those costs in 2017.
Listen, we believe so.
We haven't seen anything, just to clarify, from the brands proving that out yet.
But the fact is volumes were up in the fourth quarter through some of the other channels, especially on the brand website and through e-channels.
So whether that's the brand loyalty programs or that's the renegotiation of fees with some of the OTAs, it did appear that despite production being up, our costs were level.
We're not going to ---+ again, we're not going to make any tremendous conclusions on a go-forward basis because of that one quarter.
So we'll see.
Listen, I think I will chime in.
First, this is <UNK>.
But I think in a lot of the markets that we are in, and especially in the upscale segments where our brands are, most of the brands that compete with us have been built ---+ are in the process of being built in those markets.
So we don't believe that there's a whole lot of opportunity for the brands to all of a sudden grant a ton of new franchise licenses in those same markets again that would create additional new supply with competing markets.
They've done it.
So we believe that that is going to be fairly limited in terms of new supply.
Yes certainly.
So a couple of them ---+ Silicon Valley outperformed.
At 5% revPAR growth was about 300 basis points better than we expected.
Obviously, those four hotels have a meaningful impact on our results.
The four Houston hotels we expected fourth-quarter revPAR to decline 26%.
It was 400 basis points better than at a decline of 22%.
Those two are the primary drivers.
That is 8 of our 38 hotels alone.
So I think that's the first start of it.
When you look at the overall trend, we were down almost 2% in October and really until we saw November I think surprised everyone.
December was only down 1.3%.
So I think the week October leading into everybody's earnings calls certainly spooked a lot of people in terms of just seeing that continual downdraft that we had seen from the second and third quarter and through the end of October.
But really, those eight hotels between Silicon Valley and Houston had a pretty good impact on our outperformance.
Yes so ---+ for outside of February during the Super Bowl for those 4 hotels, we have low to mid-20% declines in January, March, April, May, and June.
And as <UNK> alluded to earlier, really we are not going to start to see some favorable comps until July.
For the rest of the year, we are still showing a slight decline in revPAR in those four hotels.
For the entire year, those six hotels ---+ the six hotels, which are the four Houstons, and the two Western PA hotels, are impacting our revPAR guidance by about 100 basis points.
Well, obviously, it's factored into our guidance.
In terms of actual the displacements, we have planned the renovations to minimize the amount of displacement.
I don't have the number of the top of my head.
I can circle back with you on what the EBITDA impact is on those six, but obviously we factored it in.
We're going to spend about $20 million on those renovations in 2017.
But I can come back to you on that number.
I don't think there's really a big pipeline out there.
And frankly, you got to work doubly hard to find something that is interesting.
But, as I said earlier, that is our job and so I think that we'll continue to look.
But it is [thick.
Prime is thick].
I think that the jury is still out for us on a brand, for example, like Marriott's AC brand.
You can go and look at some.
I'm sure you have, and they look all wonderful and attractive to that younger guest, but I think there's not enough out there, at least for me, to feel real good about the distribution yet.
And so we will wait to see on that front most likely, unless there's an unusual opportunity in a market that just most likely for us is so familiar to where and who the demand generators are.
We feel good on our own without the benefit of a reservation system that we can fill it up.
And sometimes that happens.
So I think that although we do and we are interested in these home-to-suite products, which is sort of the similar competitor, let's say, at the TownePlace Suite level.
The only difference is their actual ADRs and revPARs that have been achieved in this very fast-growing brand are very close to Homewood's numbers, and spending substantially less dollars to build them and substantially less dollars in the operating model to run them.
So that is intriguing and we are looking at some of those and thinking about those.
No.
Absolutely not.
I think that everybody's hoping and praying for the Trump thump to continue, and for some time down the road this GDP to really get moving again, which of course benefits all of us very directly and does extend the cycle.
So I think that banks ---+ if revPAR is going up in the range that everybody has guided, and even up 100 basis points or 200 basis points, are not going to jump back on the bandwagon that quickly.
So that bodes for a little bit more, as you called it, or an elongated cycle.
If that all comes to fruition, we'll see.
Our numbers in our guidance don't anticipate that per se.
Well, we appreciate everybody being on the call.
And we are just going to work as hard as ever to continue to do the kind of things we're talking about, both from the capital allocation side and in working with our operators on the operating side.
Thank you, all.
We will talk to you soon.
