Chatham Lodging Trust (CLDT) Q1 2025 Earnings: Navigating Growth Amid Marginal Pressures

Chatham Lodging Trust (CLDT), a REIT focused on upscale extended-stay and select-service hotels, delivered a mixed bag of results in its Q1 2025 earnings call. While revenue per available room (RevPAR) rose 4%, margin pressures from rising costs and uneven market performance clouded the outlook. Let’s dissect the numbers to determine whether CLDT’s stock—currently trading at around $7.50—offers value for income-focused investors.

Financial Highlights: Progress and Pitfalls

The quarter’s 4% RevPAR increase to $127 reflected strong performance in key markets like Silicon Valley (+8%) and Los Angeles (+14%), driven by robust demand from corporate travelers and leisure tourists. However, this growth was offset by softer results in Florida and San Diego, where convention demand lagged and leisure bookings declined.

While CLDT narrowed its net loss to $1 million (from $7 million in Q1 2024), its Adjusted Funds from Operations (AFFO) per share fell to $0.14, down from $0.16 a year earlier. Margins also took a hit: hotel EBITDA margins dipped 30 basis points to 31%, as utility costs rose ~10% and labor expenses increased 4% per occupied room. Management attributed these pressures to macroeconomic uncertainty and supply-chain volatility.

Strategic Moves: Dividends, Buybacks, and Asset Recycling

CLDT’s management demonstrated shareholder-friendly priorities:
- A 29% dividend hike to $0.09 per share, yielding ~5% annually, marks a bold move to reward income investors despite margin headwinds.
- A $25 million share repurchase program—the company’s first—signals confidence in its valuation. With CLDT trading at a 12.5x P/FFO multiple, this buyback could bolster per-share metrics if executed aggressively.

The REIT also monetized five underperforming hotels for $83 million, recycling capital toward higher-yielding opportunities. The sales generated a 6% capitalization rate on 2024 NOI, aligning with CLDT’s strategy to prioritize assets with strong cash flow and growth potential.

Operational Challenges: Cost Pressures and Market Risks

Despite top-line growth, CLDT faces significant hurdles:
1. Utility and Labor Costs: The 10% spike in utility expenses and 3% rise in average hourly wages are squeezing margins. Management has yet to commit to cost-cutting, opting instead to monitor demand trends and adjust staffing levels dynamically.
2. Economic Uncertainty: April’s 4% RevPAR decline—partly due to holiday timing and government travel cuts—highlighted the fragility of demand. Full-year 2025 RevPAR guidance was trimmed to flat to +1%, down from earlier optimism.

The Portland Project: A Double-Edged Sword

The Portland, Maine, development project—a mixed-use property with 150 rooms—remains on hold due to uncertainty around tariffs and construction costs. While this delay avoids overexposure to a potentially overbuilt market, it also limits CLDT’s growth options. Management emphasized that capital will be allocated to acquisitions, buybacks, or the Portland project only if yields exceed 9%, a prudent but conservative stance.

Investor Takeaways: Proceed with Caution

• Dividend Investors: The 5% yield is enticing, but the dividend’s sustainability hinges on margin recovery. CLDT’s $0.95–$1.03 AFFO per share guidance for 2025 leaves little room for error.
• Growth Prospects: While asset sales and buybacks provide near-term catalysts, long-term growth depends on resolving margin pressures and executing on high-yield opportunities.
• Valuation Risks: At 12.5x P/FFO, CLDT is fairly priced relative to peers but lacks the premium enjoyed by REITs with stronger margin visibility.

Conclusion: A Hold with Dividend Appeal

Chatham Lodging Trust’s Q1 results underscore its ability to navigate a challenging environment—dividend hikes and capital recycling are positives—but margin erosion and macro risks temper optimism. The stock’s current valuation and dividend yield make it a hold for income investors, provided shareholders are prepared for volatility.

Key data points to watch:
- Q2 2025 AFFO: Management projects $0.32–$0.36 per share, a test of its ability to stabilize cash flow.
- RevPAR Recovery: A May “flat to slightly positive” trend must extend into Q3 to meet full-year guidance.
- Portland’s Fate: A delayed decision on the project could weigh on growth prospects if alternatives falter.

In short, CLDT offers a dividend-driven play with room for upside—if costs stabilize and markets rebound—but investors should proceed with caution until these risks are resolved.