Chatham Lodging Trust Completes Sale of Residence Inn by Marriott San Diego Mission Valley for $67 Million
Chatham Lodging Trust (NYSE: CLDT), a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels and premium-branded, select-service hotels, has completed the sale of the 192-room Residence by Marriott San Diego Mission Valley for $67 million, or approximately $349,000 per room, to the San Diego Housing Commission (SDHC). Proceeds from the sale will be used to repay the $27 million mortgage on the hotel. After sales related expenses, including Marriott termination fees, remaining net proceeds of approximately $38 million will be used to repay credit facility borrowings.
"Consistent with the guiding principles we established at our IPO in 2010, we choose to be opportunistic with respect to acquisitions and dispositions, and this successful sale at a very attractive valuation is a perfect example of that strategy," highlighted Jeffrey H. Fisher, Chatham's president and chief executive officer. "We acquired this hotel out of the Innkeepers bankruptcy in 2011 when NOI was $2.9 million, and since our acquisition, average annual NOI was approximately $4.4 million through 2019, roughly 50 percent higher. We generated an annual unleveraged return on this investment of approximately 9.5 percent. Now we are selling this asset at an approximate 6.5 percent cap rate on 2019 NOI and will use the net proceeds to enhance liquidity in the near-term and provide dry powder to pursue attractive distressed opportunities in the future. This has been a home-run investment for Chatham and is a win/win for both Chatham and the SDHC."
Chatham has estimated liquidity of $146 million, including cash of approximately $32 million as of September 30, 2020 and remaining borrowing capacity on the credit facility of $114 million. Based on cash used before capital expenditures of $1.6 million in September 2020 and making the assumption that there are no meaningful changes from September operating levels, the company would have approximately 91 months of liquidity remaining, providing liquidity into 2028.
Pro forma for this sale and the pending sale of the joint venture with Colony Capital, Chatham's key credit ratios are significantly enhanced. Pro forma leverage goes to 35 percent from 38 percent based on the ratio of the company's pro forma net debt to hotel investments at cost as of September 30, 2020, and Chatham's pro forma 2019 net debt to EBITDA ratio decreases an entire point to 4.7x compared to 5.7x.
"We constantly seek ways to protect long-term value for our equity holders, and with this sale, we further solidify our financial position which should propel Chatham to come out the other side of this pandemic healthier than many of our lodging REIT peers," stated Dennis Craven, Chatham's chief operating officer. "We have produced the highest absolute RevPAR of all lodging REITs over the past two quarters, and given our portfolio quality and premium locations, we believe we will be one of the first lodging REITs to return to pre-pandemic levels."