For being in general undervalued and having good dividend yields, hotel REITs are a sound path investors might choose if they want to see potential good returns on their long-term investment. However, it is imperative for investors to understand that all hotel REITs are affected by the economy. Let’s take a close look at what is taking place with Chatham Lodging Trust.
- Due to a decline in business travel, Chatham Lodging Trust has lowered its guidance for 2016.
- For two trading days following the announcement, the share price dropped by 13%.
- Chatham joins the ranks of other hotel REITs that are being affected by macroeconomic factors.
- We felt it, but we are still optimistic about the sector and the stock.
Due to the decline of business travel, the hotel REIT Chatham Business Lodging Trust has lowered its annual guidance for revenue per available room (RevPAR) and AFFO per share. Despite the average daily rate (ADR) and occupancy remaining strong, the RevPAR figure did not meet the company’s expectations. During the Q2 conference call last week, the company revealed that it believes this pattern will continue for the rest of the year. The management stated that business travel is declining due to poor GDP growth. Until they see more GDP growth, business travel should be restricted.
After the release of the Q2 results, the share price has dropped by 13%, offsetting all of July’s return. However, the year to date return is still positive since the stock is yielding close to 6%. If nothing dramatic takes place by the end of the year (except a possible Federal hike in September), Chatham investors should be pleased with the stock performance.
Pebblebrook, FelCor Lodging Trust, and Hilton Worldwide have been some of the hotel REITs that reported restrain on Q2 growth for the same reason as Chatham. Besides poor business demand, Chatham has pointed out that discounted rates from online travel agents and increased supply in some gateway markets are two factors that are influencing their performance.
Despite the overall results, we still feel good about the stock. During the call, Chatham stated that numbers for July were not impressive, but they expect them to get better in August and September. The REIT has a solid portfolio that is supported by a sound investment strategy and multiple catalysts. It is also important to point out the following: stock has traded at a mid-range level over the previous twelve months, multiple is in line with peers, and dividend has been covered well.
In short, despite the negative impact on our REIT portfolio, we are not panicking. Our due diligence leads us to believe they can weather through.
Source: Chatham Lodging Trust(NYSE:CLDT)
Written on 04 Aug 2016
Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author is long FCH, XHR, CLDT, and PEB.