Chatham Lodging: From Courtyard to Embassy Suites

09/17/2019 5:00 am EST

Focus: REITS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

This is the first time since our initial Chatham Lodging Trust (CLDT) recommendation three years ago that its shares have traded to offer an 8% starting yield, asserts growth and dividend expert Ian Wyatt, editor of High Yield Wealth.

Chatham is a real estate investment trust (REIT) focused on upscale, extended-stay hotels and premium-branded, select-service hotels. You’ll readily recognize the names: Courtyard, Embassy Suites, Hampton Inn, Hilton Garden Inn, Hyatt Place, and Residence Inn.

Chatham owns interests in 135 hotels totaling 18,592 rooms/suites in 15 states and the District of Columbia. It owns a minority interest in two joint ventures that own 95 hotels with an aggregate of 12,500 rooms/suites.

Chatham has fallen out of favor this summer. Its shares are down 13% since early June.  Many investors have reduced their exposure to lodging REITs on recession fears, which could reduce the industry’s revenue growth. 

The fears are exaggerated. Chatham’s hotels are clustered in high-traffic destinations. Forty-one percent of the portfolio located on the West Coast and 29% in the Northeast. These locations maintain high demand through thick or thin.

Chatham’s model produces attractive revenue-per-available-room growth (premium brands in attractive markets) with lower operating costs (select service hotels). The model ensures ample margins and plenty of cash flow.

Look no further than funds from (FFO), an important cash-flow measure. Chatham’s FFO easily covers the dividend year after year. Management projects FFO of $1.80-to-$1.90 per this year. The annual dividend is $1.32 per share, paid in $0.11 monthly increments. 

Chatham has never reduced its dividend. It has been increased by 89% since the company’s 2010 IPO. If you’re seeking a reliable, high-yield monthly income, you’d be hard-pressed to find a better alternative to Chatham Lodging Trust.

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