Chatham Lodging Trust: Undervalued REIT with Strategic Momentum and Strong Dividend Growth

In a market where REITs face headwinds from rising interest rates and economic uncertainty, Chatham Lodging Trust (CLDT) stands out as a compelling opportunity. With a valuation dislocation, disciplined capital allocation, and a resilient dividend growth trajectory, the company is positioned to capitalize on a 2026 recovery in the lodging sector. This analysis examines CLDT's financial performance, strategic initiatives, and analyst projections to build a case for its undervaluation and long-term potential.

Valuation Dislocation: A Bargain at 7.3x Adjusted FFO

Chatham Lodging Trust's current valuation reflects a significant discount to its intrinsic value. As of late 2025, the stock trades at just 7.3x the expected adjusted FFO for 2025, a multiple that appears attractive relative to historical averages and peers in the lodging REIT sector. This dislocation stems from macroeconomic challenges, including the D.C. government shutdown, which depressed RevPAR in key markets during Q4 2025. However, management has consistently emphasized its confidence in the company's fundamentals, evidenced by a $25 million share buyback program executed at an average price of $6.85 per share. These repurchases signal a belief that CLDT is undervalued, particularly given its strong balance sheet and operational resilience in high-growth markets like the Coastal Northeast and Greater New York, where year-to-date RevPAR surged 28%.

Capital Allocation Discipline: Deleveraging and Liquidity Management

CLDT's strategic focus on deleveraging and liquidity has strengthened its position for a 2026 rebound. The company has upsized its credit facility and completed asset sales to reduce its net debt-to-EBITDA ratio to 3.5x, a level that provides flexibility in a volatile environment. This disciplined approach aligns with broader industry trends, as limited supply growth in core markets is expected to drive demand and pricing power in the coming year. By prioritizing debt reduction and liquidity, CLDT is well-positioned to take advantage of value-enhancing opportunities, such as accretive acquisitions or further share repurchases, should market conditions improve.

Dividend Sustainability and Growth: A 5.3% Yield with Room to Expand

Despite concerns about rising operational costs, CLDT's dividend appears sustainable and has room for growth. The company recently increased its quarterly common dividend to $0.09 per share, an annualized yield of 5.3%. This follows a 3% increase in December 2025, marking two consecutive years of dividend growth after a period of modest reductions. Analysts project 2026 earnings of $1.12 per share, which would result in a payout ratio of just 32.1% for the $0.36 annual dividend projected by analysts. This low ratio provides a buffer against potential earnings volatility and suggests management could raise the dividend further if conditions improve.

However, challenges remain. Rising labor and commission expenses, coupled with exposure to business travel fluctuations, could pressure margins. That said, CLDT's recent one-time gain and strong GOP margins of 38.9% in Q1 2025 demonstrate its ability to adapt and maintain profitability.

2026 Outlook: A Recovery-Driven Growth Story

The lodging sector is poised for a rebound in 2026, driven by pent-up demand and limited supply growth in key markets. CLDT's exposure to high-growth regions like Silicon Valley and Los Angeles-where RevPAR rose 8% and 14%, respectively in Q1 2025-positions it to benefit from this trend. Analysts project a 0.5% annual revenue decline for the sector, but CLDT's strategic focus on deleveraging and market diversification could outperform these averages.

Wall Street's price targets further underscore optimism. The average 12-month target of $10.75 implies a 62.51% potential upside from current levels, with a range of $9.50 to $12.00 reflecting confidence in CLDT's recovery. This optimism is supported by management's proactive stance, including its share repurchase program and guidance for adjusted FFO per share of $0.95–$1.03 in 2025.

Conclusion: A REIT with Structural Advantages

Chatham Lodging Trust's combination of an attractive valuation, disciplined capital allocation, and a sustainable dividend makes it a standout in the REIT sector. While macroeconomic risks persist, the company's strategic initiatives and exposure to resilient markets position it to outperform in 2026. For income-focused investors seeking a high-yield opportunity with growth potential, CLDT offers a compelling case for long-term investment.