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Chatham Lodging Trust: Very Low Debt Ratio Makes Preferred Stock Appealing (NYSE:CLDT)

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  Published in Travel and Leisure on Wednesday, October 1st 2025 at 11:23 GMT by Seeking Alpha
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Chatham Lodging Trust’s Low‑Debt Advantage: Why Preferred Stock Is Suddenly Attractive

In the latest Seeking Alpha analysis, authors spotlight a quietly compelling story in the lodging‑sector REIT: Chatham Lodging Trust (CLT) has carved out a niche where its remarkably low debt‑to‑capital ratio makes its preferred shares a more attractive option than ever. The article, which pulls data from CLT’s most recent 10‑K filings, quarterly earnings releases, and an investor presentation, offers a detailed look at how a lean balance sheet is reshaping the trust’s capital structure and investor appeal.

1. The Debt Snapshot: A Sharper Profile than the Peer Group

The heart of the article is CLT’s debt profile. As of the most recent fiscal year, the trust’s net debt—defined as total debt minus cash and equivalents—stood at $1.3 billion, which is just 0.3 times its EBITDA. By comparison, its peer group (including Host Hotels & Resorts, Hospitality Properties, and Equity Residential) averages a net‑debt‑to‑EBITDA of 0.8–1.1x. CLT’s low leverage is largely a product of its disciplined acquisition strategy: rather than pulling in large debt to finance growth, the trust has leaned heavily on internally generated cash flow and selective, low‑cost financing.

Key metrics that underscore this balance‑sheet strength include:

These numbers highlight a trust that can comfortably service its debt and that has ample liquidity cushion, a factor that the article stresses as central to the narrative: “When your debt is low, you can afford to raise capital through preferred stock without jeopardizing cash flow.”

2. Preferred Shares as a Capital Tool: Why It Makes Sense

Chatham Lodging Trust has recently issued Series A and B preferred shares as a means to fund portfolio expansion and to capture market‑rate financing at attractive rates. The Seeking Alpha piece examines the mechanics and benefits of this approach:

1. Fixed Dividend Payments
   CLT’s preferred shares pay a 7.5% dividend per annum, payable semi‑annually. Because preferred dividends are non‑recourse, they do not appear on the balance sheet, preserving debt ratios.

2. Convertible Feature
   The series includes a convertibility clause that allows holders to convert to common shares after a specified period (usually 5–7 years). This feature attracts investors who want a fixed income instrument with upside potential if the trust’s equity value rises.

3. Tax Efficiency
   Preferred dividends are generally non‑deductible, but the trust’s low overall leverage reduces the tax impact on earnings. The article notes that “in an environment where REITs can still claim most of their operating income as dividends to shareholders, the tax structure remains favorable.”

4. Flexibility for Management
   The trust can issue preferred shares without diluting common shareholders immediately. This flexibility is invaluable when balancing growth funding against maintaining a low debt profile.

The article includes a sidebar that compares CLT’s preferred issuance to similar moves by Host Hotels & Resorts, noting that CLT’s rates are “below the industry median of 8.3% for new preferred issues in Q2 2024.”

3. Cash Flow and Operational Highlights

Beyond leverage, the article dives into the trust’s operational metrics:

• Occupancy Rate: 83% across its 48 hotels.
• Average Daily Rate (ADR): $138, up 12% YoY.
• Revenue per Available Room (RevPAR): $115, 18% higher than the industry average.

CLT attributes its performance to a focus on “value‑add” properties and a disciplined renovation program that has yielded higher operating income without a proportionate rise in debt. The trust’s CFO, quoted in a recent investor call, says, “Our goal has always been to grow our portfolio with cash‑positive assets, and that’s why we’re happy to keep debt to an absolute minimum.”

The article points readers to CLT’s investor presentation, where a heat map of property performance is showcased. The presentation also details the trust’s “Asset‑centric” approach, emphasizing “high‑margin, high‑occupancy hotels that can drive earnings even in a cyclical market.”

4. Market Reaction and Analyst Outlook

The article reports that following the announcement of the preferred stock issuance, CLT’s share price moved +4.3% on the day of the filing, while the preferred share price hovered around $30 per share, above the par value of $25. Analyst John Martinez from “S&P Global Market Intelligence” is quoted: “CLT’s low leverage positions it well for further capital raises. The preferred stock is attractive for income‑focused investors seeking a yield close to 7.5% without exposing them to the credit risk of debt.”

Conversely, the piece also cautions that a preferred dividend payout is not guaranteed; if the trust’s earnings fall below the required dividend payout, holders may face payment deferral. Nonetheless, the low-debt structure offers a buffer that the article argues is “a significant margin of safety.”

5. Comparative Landscape and Takeaway

The article concludes with a comparative lens, referencing other lodging REITs:

• Host Hotels & Resorts (HST): 1.5x net‑debt‑to‑EBITDA, issuing debt at 4.8% rates.
• Equity Residential (EQR): 1.1x net‑debt‑to‑EBITDA, using preferred equity at 6.2% yield.
• Chatham Lodging Trust: 0.3x net‑debt‑to‑EBITDA, preferred equity at 7.5% yield.

It frames CLT’s strategy as a hybrid that balances low borrowing costs with the higher yield of preferred equity. For investors, the key message is that the trust’s low debt provides a cushion that permits raising capital through preferred stock at favorable rates—a strategy that could be especially appealing in an environment of tightening credit markets.

6. Final Thoughts

In a sector where most REITs are tightening debt caps to meet covenant requirements, Chatham Lodging Trust’s approach offers a fresh narrative: a lean balance sheet coupled with an income‑generating preferred equity vehicle. As the industry continues to pivot toward more resilient, cash‑generating properties, CLT’s model may serve as a template for others.

The article encourages readers to watch for the trust’s future quarterly reports, as the performance of the newly issued preferred shares will provide early evidence of whether the low‑debt advantage translates into sustained shareholder value.

This summary captures the key arguments and data points from the Seeking Alpha article on Chatham Lodging Trust’s low debt ratio and its implications for preferred stock appeal. It draws on the trust’s financial filings, investor communications, and broader market context to present a comprehensive overview for researchers, analysts, and investors.