Chatham Boosts Flexibility With Credit Facility Refinancing

By Zacks Investment ResearchStock MarketsMar 11, 2018 10:16PM ET

www.investing.com/analysis/chatham-boosts-flexibility-with-credit-facility-refinancing-200297304

Chatham Boosts Flexibility With Credit Facility Refinancing

By Zacks Investment Research | Mar 11, 2018 10:16PM ET

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Hotel REIT Chatham Lodging Trust (NYSE:CLDT) has announced refinancing of its $250-million senior unsecured revolving credit facility. The move offers the company financial flexibility as well as capacity to take up growth opportunities.

Specifically, Chatham, which mainly invests in upscale extended-stay hotels and premium branded, select-service hotels, has been able to lower borrowing costs by 0-15 basis points from the comparable leverage-based pricing levels in its previous credit facility. Based on the company’s current leverage level, the borrowing cost under its new facility is LIBOR plus 1.65%.

Moreover, the company has been able to push the maturity. This is because the new unsecured revolving credit facility is slated to mature in March 2023. Further, it bears option for maturity extension by an additional year, while the earlier $250-million senior unsecured credit facility was scheduled to mature in 2020.

This reduction in interest cost as well as extension of maturity is a strategic fit for the company. The company has resorted to opportunistic asset sales for redeploying the proceeds for its development efforts and acquisitions in high growth markets.

However, in the near term, the company’s growth tempo is likely to remain curtailed amid higher supply. Furthermore, the company is likely to face tough comparisons in 2018, mainly in the first and fourth quarters. This is because the company’s four properties in Houston benefited from the Super Bowl in first-quarter 2017, while three properties in the Washington DC area gained from the inauguration in the quarter. Also, significant demand stemmed from hurricanes for the company’s Houston properties in fourth-quarter 2017.

In addition to the difficult comparisons, the company’s margins are likely to bear the brunt of increasing wages and declining revenues. Also, the dilutive impact of asset dispositions on earnings cannot be bypassed.

Amid these, Chatham currently carries a Zacks Rank #5 (Sell). In the past month, the company’s shares have depreciated 7.1%, while its industry registered growth of 2.0%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A few better-ranked stocks from the real estate space include Arbor Realty Trust, Inc. (NYSE:ABR) , CBRE Group, Inc. (NYSE:CBG) and Extra Space Storage Inc. (NYSE:EXR) . All three stocks carry a Zacks Rank of 2 (Buy).

Arbor Realty Trust’s Zacks Consensus Estimates for 2018 funds from operations (FFO) per share have been revised 2.3% upward to 90 cents over the past month. Its share price has risen 1.9% in three months’ time.

CBRE Group’s Zacks Consensus Estimates for 2018 earnings per share have been revised 4.1% upward to $3.04 over the past month. Its share price has risen 10.2% in three months’ time.

Extra Space Storage’s FFO per share estimates for 2018 have been revised upward 0.9% to $4.52 over the past month. The stock has inched up 0.7% during the past three months.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Chatham Boosts Flexibility With Credit Facility Refinancing

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