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Chatham Lodging (CLDT) Divests Two Hotels, Reduces Debt

Zacks Equity Research

Chatham Lodging Trust CLDT recently announced the sale of two properties — Courtyard by Marriott Altoona, Pa., and SpringHill Suites by Marriott Washington, Pa., — for nearly $10 million. The transaction reflects the company’s ability to achieve value maximization through sale of non-core assets.

Including additional capital investment of more than $4 million for renovations and an assumed annual capital reserve of 4% of total hotel revenues, the sale indicates a net operating income capitalization rate of 6%.

Per management, the hotels were acquired as part of a portfolio purchase in 2010. However, the two non-core properties are no longer in line with the company’s long-term investment strategy.

Further, the assets are located in very small markets and have a combined RevPAR of $65, which does not complement the overall quality of Chatham Lodging’s portfolio. Through the divestiture of the properties, the company’s comparable portfolio RevPAR improves to $135 from $133. Further, the company can avoid the $4-million renovation capex needed to maintain the hotels.

Understandably, disposition efforts will enable the company to de-lever and strengthen its balance sheet. Proceeds from the sale will be used to reduce borrowings under Chatham Lodging’s unsecured credit facility.

The company is focused to sell non-strategic assets and recycle the proceeds into accretive hotel investments in high-growth markets. This will enable the company to strengthen footprint in strategic markets and enjoy higher yields, which will improve net asset value.

While the disposition will enable the company to efficiently recycle capital, such moves may weigh on near-term earnings. In fact, the company anticipates the aforementioned properties to have contributed around $1 million of EBITDA in the ongoing year.

In fact, shares of this Zacks #3 (Hold) Ranked company have underperformed the industry in the past three months. The stock has declined 4.4%, against the industry’s rise of 3.8%.

Further, the Zacks Consensus Estimate for 2019 funds from operations per share was revised marginally downward in the past month.

Stocks to Consider

Better-ranked stocks from the REIT space include Host Hotels & Resorts, Inc HST, PS Business Parks, Inc PSB and OUTFRONT Media OUT. Each of these stocks currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Host Hotels & Resorts’ funds from operations (FFO) per share estimates for the ongoing year have been revised marginally upward to $1.81 in the past week.

PS Business Parks’ Zacks Consensus Estimate for 2019 FFO per share remained unrevised at $6.59 in the past month.

OUTFRONT’s FFO per share estimates for the current year have been revised marginally upward to $2.30 in the past week.

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