Class Outstanding at Common Shares of Beneficial Interest ($0.01 par value per share) Item 2. Item 3. Item 1A. Item 2. Item 3. Item 4. Item 5. Item 6. Assets: Investment in hotel properties, net Cash and cash equivalents Restricted cash Investment in unconsolidated real estate entities Hotel receivables (net of allowance for doubtful accounts of $34 and $28, respectively) Deferred costs, net Prepaid expenses and other assets Total assets Liabilities and Equity: Debt Revolving credit facility Accounts payable and accrued expenses Distributions payable Total liabilities Commitments and contingencies Equity: Shareholders’ Equity: Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at March 31, 2013 and December 31, 2012 Common shares, $0.01 par value, 500,000,000 shares authorized; 17,583,595 and 17,582,235 shares issued and outstanding, respectively, at March 31, 2013 and 13,909,822 and 13,908,907 shares issued and outstanding, respectively, at December 31, 2012 Additional paid-in capital Accumulated deficit Total shareholders’ equity Noncontrolling Interests: Noncontrolling Interest in Operating Partnership Total equity Total liabilities and equity Revenue: Room Other operating Cost reimbursements from unconsolidated real estate entities Total revenue Expenses: Hotel operating expenses: Room Other operating Total hotel operating expenses Depreciation and amortization Property taxes and insurance General and administrative Hotel property acquisition costs and other charges Reimbursed costs from unconsolidated real estate entities Total operating expenses Operating income Interest and other income Interest expense, including amortization of deferred fees Loss on early extinguishment of debt Loss from unconsolidated real estate entities Loss before income tax benefit Income tax benefit Net loss Loss per Common Share - Basic: Net loss attributable to common shareholders (Note 11) Loss per Common Share - Diluted: Net loss attributable to common shareholders (Note 11) Weighted average number of common shares outstanding: Basic Diluted Distributions per common share: Balance, January 1, 2012 Issuance of shares pursuant to Equity Incentive Plan Issuance of restricted time-based shares Amortization of share based compensation Dividends declared on common shares ($0.175 per share) Distributions declared on LTIP units ($0.175 per unit) Net loss Balance, March 31, 2012 Balance, January 1, 2013 Issuance of shares pursuant to Equity Incentive Plan Issuance of shares, net of offering costs of $3,040 Issuance of restricted time-based shares Issuance of performance based shares Repurchase of common shares Amortization of share based compensation Dividends declared on common shares ($0.21 per share) Distributions declared on LTIP units ($0.21 per unit) Net loss Balance, March 31, 2013 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Amortization of deferred franchise fees Amortization of deferred financing fees included in interest expense Loss on early extinguishment of debt Loss on write-off of deferred franchise fee Share based compensation Loss from unconsolidated real estate entities Changes in assets and liabilities: Hotel receivables Deferred tax asset Deferred costs Prepaid expenses and other assets Accounts payable and accrued expenses Net cash provided by operating activities Cash flows from investing activities: Improvements and additions to hotel properties Acquisition of hotel properties, net of cash acquired Distributions from unconsolidated entities Restricted cash Net cash provided (used in) investing activities Cash flows from financing activities: Borrowings on revolving credit facility Repayments on revolving credit facility Payments on debt Proceeds from the issuance of debt Principal prepayment of mortgage debt Payment of financing costs Payment of offering costs Proceeds from issuance of common shares In-substance repurchase of vested common shares Distributions-common shares/units Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for income taxes is managed by Marriott International, Inc. ("Marriott"). 2012 $ Acquisition date Land Building and improvements Furniture, fixtures and equipment Cash Accounts receivable, net Prepaid expenses and other assets Accounts payable and accrued expenses Net assets acquired Net assets acquired, net of cash Pro forma total revenue Pro forma net loss Pro forma loss per share: Basic and diluted Weighted average Common Shares Outstanding Basic and diluted The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was Investment in hotel properties as of Land and improvements Building and improvements Furniture, fixtures and equipment Renovations in progress Less accumulated depreciation Investment in hotel properties, net Cash from operations Cash from financing activities Total Revenue Total operating expenses Operating income Net loss Chatham’s 10.3% interest of net loss reported as Loss from unconsolidated real estate entities Collateral Senior Secured Revolving Credit Facility Courtyard by Marriott Altoona, PA SpringHill Suites by Marriott Washington, PA Residence Inn by Marriott New Rochelle, NY Residence Inn by Marriott Garden Grove, CA Residence Inn by Marriott San Diego, CA (3) Homewood Suites by Hilton San Antonio, TX (1) Doubletree Suites by Hilton Washington, DC Residence Inn by Marriott Vienna, VA (1) 2013 (remaining nine months) 2014 2015 2016 2017 Thereafter purposes. For the three months ended March 31 Federal State Tax expense (benefit) The Company declared total common share dividends of 2013 January February March Numerator: Net loss Dividends paid on unvested shares and units Net loss attributable to common shareholders Denominator: Weighted average number of common shares - basic Effect of dilutive securities: Unvested shares (1) Weighted average number of common shares - diluted Basic Loss per Common Share: Net loss attributable to common shareholders per weighted average common share Diluted Loss per Common Share: Net loss attributable to common shareholders per weighted average common share The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. The plan was amended and restated as of May 17, 2013 to increase the maximum number of shares available under the plan to The 2013 awards of performance-based shares will be issued and vest over a three-year period only if and to the extent that long-term performance criteria established by the board of trustees are met and the recipient remains employed by the Company on the vesting date. Nonvested at beginning of the period Granted Vested Nonvested at end of the period 2013 (remaining nine months) 2014 2015 2016 2017 Thereafter Total IHM. Mr. Fisher owns On Operating Partnership and the TRS Lessees, our principal source of funds on a consolidated basis is from the operations of our hotels. The earnings of the TRS Lessees are subject to taxation as regular C corporations, as defined in the Code, potentially reducing the TRS Lessees’ cash available to pay dividends to us, and therefore our funds from operations and the cash available for distribution to our shareholders. Revenue Per Available Room (“RevPAR”), Average Daily Rate (“ADR”), Occupancy percentage, Funds From Operations (“FFO”), Adjusted FFO, Earnings before interest, taxes, depreciation and amortization (“EBITDA”), and Adjusted EBITDA. 2013. Inn by Marriott. RevPar was up 4.1%. Occupancy ADR RevPar increase and the remaining increase due to higher property taxes. including amortization of deferred fees 2013. In 2012, the gains on asset sales within the Innkeepers JV were taxable to us. Depreciation is recorded on our hotel buildings over 40 years from the date of acquisition. Depreciable lives of hotel furniture, fixtures and equipment are generally three to ten years between the date of acquisition and the date that the furniture, fixtures and equipment will be replaced. Amortization of franchise fees is recorded on a straight-line basis over the term of the respective franchise agreement. Funds From Operations (“FFO”): Net loss Loss (gain) on the sale of assets within the unconsolidated real estate entity Depreciation Adjustments for unconsolidated real estate entity items FFO Hotel property acquisition costs and other charges Loss on early extinguishment of debt Adjustments for unconsolidated real estate entity items Adjusted FFO Weighted average number of common shares Basic Diluted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”): Net loss Interest expense Income tax expense (benefit) Loss (gain) on the sale of assets within the unconsolidated real estate entity Depreciation and amortization Adjustments for unconsolidated real estate entity items EBITDA Hotel property acquisition costs and other charges Loss on early extinguishment of debt Adjustments for unconsolidated real estate entity items Share based compensation Adjusted EBITDA FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect funds available to make cash distributions; EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period using Adjusted EBITDA; Adjusted FFO and Adjusted EBITDA do not reflect the impact of certain cash charges (including acquisition transaction costs) that result from matters we consider not to be indicative of the underlying performance of our hotel properties; and Other companies in our industry may calculate FFO, Adjusted FFO, EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure. Contractual Obligations Corporate office lease Revolving credit facility, including interest (1) Ground leases Property loans, including interest (1) estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended 2012 Liabilities Floating rate: Debt Average interest rate (1) Fixed rate: Debt Average interest rate Description of Exhibit /s/ DENNIS M. CRAVENx QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 March 31,June 30, 2013¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Maryland 27-1200777 50 Cocoanut Row, Suite 211 Palm Beach, Florida 33480 (Address of Principal Executive Offices) (Zip Code) Yes x NoLarge accelerated filer ¨ Accelerated filer x Non-accelerated filer Smaller reporting company ¨ MayAugust 8, 201317,582,23522,558,058 Page Page Item 1.Financial Statements. 3Item 1.17Item 4. 27Item 4. Controls and Procedures.28 Item 1.Legal Proceedings. 28Item 1.282828282829 March 31,
2013 December 31,
2012 (unaudited) $ 460,545 $ 426,074 5,145 4,496 2,268 2,949 12,731 13,362 1,983 2,098 5,299 6,312 2,434 1,930 $ 490,405 $ 457,221 $ 132,120 $ 159,746 96,500 79,500 8,695 8,488 1,284 2,875 238,599 250,609 — — 174 137 290,689 240,355 (40,809 ) (35,491 ) 250,054 205,001 1,752 1,611 251,806 206,612 $ 490,405 $ 457,221 June 30, 2013 December 31, 2012 (unaudited) Assets: Investment in hotel properties, net $ 501,038 $ 426,074 Cash and cash equivalents 18,690 4,496 Restricted cash 2,686 2,949 Investment in unconsolidated real estate entities 13,383 13,362 Hotel receivables (net of allowance for doubtful accounts of $40 and $28, respectively) 2,302 2,098 Deferred costs, net 5,463 6,312 Prepaid expenses and other assets 2,485 1,930 Total assets $ 546,047 $ 457,221 Liabilities and Equity: Debt $ 175,842 $ 159,746 Revolving credit facility 30,500 79,500 Accounts payable and accrued expenses 10,089 8,488 Distributions payable 1,657 2,875 Total liabilities 218,088 250,609 Commitments and contingencies Equity: Shareholders’ Equity: Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at June 30, 2013 and December 31, 2012 — — Common shares, $0.01 par value, 500,000,000 shares authorized; 22,559,418 and 22,558,058 shares issued and outstanding, respectively, at June 30, 2013 and 13,909,822 and 13,908,907 shares issued and outstanding, respectively, at December 31, 2012 223 137 Additional paid-in capital 368,540 240,355 Accumulated deficit (42,698 ) (35,491 ) Total shareholders’ equity 326,065 205,001 Noncontrolling Interests: Noncontrolling Interest in Operating Partnership 1,894 1,611 Total equity 327,959 206,612 Total liabilities and equity $ 546,047 $ 457,221 For the three months ended
March 31, 2013 2012 $ 24,235 $ 21,583 1,161 839 383 405 25,779 22,827 5,551 4,973 9,161 8,014 14,712 12,987 3,756 3,339 1,987 1,633 1,982 1,777 177 39 383 405 22,997 20,180 2,782 2,647 5 1 (2,841 ) (3,847 ) (933 ) — (631 ) (565 ) (1,618 ) (1,764 ) — 33 $ (1,618 ) $ (1,731 ) $ (0.10 ) $ (0.13 ) $ (0.10 ) $ (0.13 ) 17,212,124 13,794,986 17,212,124 13,794,986 $ 0.21 $ 0.175 For the three months ended For the For the six months ended June 30, June 30, 2013 2012 2013 2012 Revenue: Room $ 28,960 $ 24,858 $ 53,195 $ 46,441 Food and beverage 199 72 349 108 Other 1,202 1,084 2,213 1,887 Cost reimbursements from unconsolidated real estate entities 385 345 768 750 Total revenue 30,746 26,359 56,525 49,186 Expenses: Hotel operating expenses: Room 6,065 5,291 11,615 10,264 Food and beverage expense 182 87 317 154 Telephone expense 216 173 407 345 Other expense 378 379 727 676 General and administrative 2,742 2,348 5,308 4,569 Franchise and marketing fees 2,243 1,981 4,144 3,702 Advertising and promotions 651 560 1,308 1,171 Utilities 1,117 936 2,183 1,906 Repairs and maintenance 1,556 1,266 3,001 2,461 Management fees 825 692 1,509 1,288 Insurance 176 148 348 312 Total hotel operating expenses 16,151 13,861 30,867 26,848 Depreciation and amortization 4,026 4,123 7,778 7,462 Property taxes and insurance 2,045 1,623 4,032 3,256 General and administrative 2,064 1,947 4,046 3,724 Hotel property acquisition costs and other charges 1,059 44 1,236 83 Reimbursed costs from unconsolidated real estate entities 385 345 768 750 Total operating expenses 25,730 21,943 48,727 42,123 Operating income 5,016 4,416 7,798 7,063 Interest and other income 111 — 115 1 Interest expense, including amortization of deferred fees (2,817 ) (3,829 ) (5,658 ) (7,676 ) Loss on early extinguishment of debt — — (933 ) — Income (loss) from unconsolidated real estate entities (89 ) 703 (720 ) 138 Income (loss) before income tax expense 2,221 1,290 602 (474 ) Income tax expense (45 ) (133 ) (45 ) (100 ) Net income (loss) $ 2,176 $ 1,157 $ 557 $ (574 ) Income (loss) per Common Share - Basic: Net income (loss) attributable to common shareholders (Note 11) $ 0.12 $ 0.08 $ 0.02 $ (0.05 ) Income (loss) per Common Share - Diluted: Net income (loss) attributable to common shareholders (Note 11) $ 0.11 $ 0.08 $ 0.02 $ (0.05 ) Weighted average number of common shares outstanding: Basic 18,147,108 13,810,190 17,682,199 13,802,588 Diluted 18,383,626 13,915,313 17,897,255 13,802,588 Distributions per common share: $ 0.210 $ 0.200 $ 0.420 $ 0.375 Common Shares Additional
Paid - In Accumulated Total
Shareholders’ Noncontrolling
Interest in
Operating Total Shares Amount Capital Deficit Equity Partnership Equity 13,819,939 $ 137 $ 239,173 $ (23,220 ) $ 216,090 $ 1,028 $ 217,118 27,592 — 300 — 300 — 300 61,376 — — — — — — — — 170 — 170 195 365 — — — (2,443 ) (2,443 ) — (2,443 ) — — — — — (45 ) (45 ) — — — (1,731 ) (1,731 ) — (1,731 ) 13,908,907 $ 137 $ 239,643 $ (27,394 ) $ 212,386 $ 1,178 $ 213,564 13,908,907 $ 137 $ 240,355 $ (35,491 ) $ 205,001 $ 1,611 $ 206,612 22,536 — 337 — 337 — 337 3,592,677 37 49,736 — 49,773 — 49,773 40,829 — — — — — — 17,731 — — — — — — (445 ) — (7 ) — (7 ) — (7 ) — — 268 — 268 195 463 — — — (3,700 ) (3,700 ) — (3,700 ) — — — — — (54 ) (54 ) — — — (1,618 ) (1,618 ) — (1,618 ) 17,582,235 $ 174 $ 290,689 $ (40,809 ) $ 250,054 $ 1,752 $ 251,806 Common Shares Shares Amount Balance, January 1, 2012 13,819,939 $ 137 $ 239,173 $ (23,220 ) $ 216,090 $ 1,028 $ 217,118 Issuance of shares pursuant to Equity Incentive Plan 27,592 — 300 — 300 — 300 Issuance of restricted time-based shares 61,376 — — — — — — Amortization of share based compensation — — 407 — 407 391 798 Dividends declared on common shares ($0.375 per share) — — — (5,235 ) (5,235 ) — (5,235 ) Distributions declared on LTIP units ($0.375 per unit) — — — — — (96 ) (96 ) Net loss — — — (574 ) (574 ) — (574 ) Balance, June 30, 2012 13,908,907 $ 137 $ 239,880 $ (29,029 ) $ 210,988 $ 1,323 $ 212,311 Balance, January 1, 2013 13,908,907 $ 137 $ 240,355 $ (35,491 ) $ 205,001 $ 1,611 $ 206,612 Issuance of shares pursuant to Equity Incentive Plan 22,536 — 337 — 337 — 337 Issuance of shares, net of offering costs of $6,746 8,568,500 86 127,335 — 127,421 — 127,421 Issuance of restricted time-based shares 40,829 — — — — — — Issuance of performance based shares 17,731 — — — — — — Repurchase of common shares (445 ) — (7 ) — (7 ) — (7 ) Amortization of share based compensation — — 520 — 520 391 911 Dividends declared on common shares ($0.42 per share) — — — (7,764 ) (7,764 ) — (7,764 ) Distributions declared on LTIP units ($0.42 per unit) — — — — — (108 ) (108 ) Net income — — — 557 557 — 557 Balance, June 30, 2013 22,558,058 $ 223 $ 368,540 $ (42,698 ) $ 326,065 $ 1,894 $ 327,959 For the three months ended
March 31, 2013 2012 $ (1,618 ) $ (1,731 ) 3,737 3,321 19 18 308 472 933 — 64 — 548 440 631 565 115 54 — (33 ) 369 14 (504 ) (312 ) 94 (2,772 ) 4,696 36 (3,078 ) (1,979 ) (34,764 ) — — 13,095 681 1,630 (37,161 ) 12,746 66,500 5,000 (49,500 ) (10,500 ) (354 ) (450 ) 72,858 — (100,130 ) — (680 ) (54 ) (3,040 ) (152 ) 52,812 — (7 ) — (5,345 ) (2,464 ) 33,114 (8,620 ) 649 4,162 4,496 4,680 $ 5,145 $ 8,842 $ 2,736 $ 3,348 $ 50 $ — For the six months ended June 30, 2013 2012 Cash flows from operating activities: Net income (loss) $ 557 $ (574 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 7,739 7,425 Amortization of deferred franchise fees 40 37 Amortization of deferred financing fees included in interest expense 556 984 Loss on early extinguishment of debt 933 — Loss on write-off of deferred franchise fee 64 — Share based compensation 1,080 967 Loss (income) from unconsolidated real estate entities 720 (138 ) Changes in assets and liabilities: Hotel receivables (204 ) 275 Deferred costs 296 27 Prepaid expenses and other assets (630 ) (396 ) Accounts payable and accrued expenses 964 (2,288 ) Net cash provided by operating activities 12,115 6,319 Cash flows from investing activities: Improvements and additions to hotel properties (7,128 ) (3,912 ) Acquisition of hotel properties, net of cash acquired (74,769 ) — Distributions from unconsolidated entities 908 19,210 Investment in unconsolidated real estate entities (1,649 ) — Restricted cash 263 2,427 Net cash provided by (used in) investing activities (82,375 ) 17,725 Cash flows from financing activities: Borrowings on revolving credit facility 88,500 5,000 Repayments on revolving credit facility (137,500 ) (19,000 ) Payments on debt (807 ) (852 ) Proceeds from the issuance of debt 117,033 — Principal prepayment of mortgage debt (100,130 ) — Payment of financing costs (965 ) (254 ) Payment of offering costs (6,746 ) (153 ) Proceeds from issuance of common shares 134,166 — In-substance repurchase of vested common shares (7 ) — Distributions-common shares/units (9,090 ) (4,942 ) Net cash provided by (used in) financing activities 84,454 (20,201 ) Net change in cash and cash equivalents 14,194 3,843 Cash and cash equivalents, beginning of period 4,496 4,680 Cash and cash equivalents, end of period $ 18,690 $ 8,523 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,241 $ 7,606 Cash paid for income taxes $ 50 $ 138 Trusteestrustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2012. On January 6, 2012, the Company issued 27,592 shares to its independent trustees pursuant to the Company’s Equity Incentive Plan as compensation for services performed in 2011.March 31,June 30, 2013, the Company had accrued distributions payable of $1,284 thousand.$1,657. These distributions were paid on AprilJuly 26, 2013 except for $35 thousand$60 related to accrued but unpaid distributions on unvested performance shares (See Note 12). As of March 31,June 30, 2012, the Company had accrued distributions payable of $2,488 thousand.$2,853. These distributions were paid on AprilJuly 27, 2012 except for $9 thousand$20 related to accrued but unpaid distributions on unvested performance shares.$84$169 is included in Accounts payable and accrued expenses as of March 31,June 30, 2013 and 2012.2012.$366$806 and $1,160$430 are included in Accounts payable and accrued expenses as of March 31,June 30, 2013 and 2012, respectively.1.OrganizationThe Company completed its initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at $20.00 per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), the Company sold 500,000 of its common shares to Jeffrey H. Fisher, the Company’s Chairman, President and Chief Executive Officer (“Mr. Fisher”), at the public offering price of $20.00 per share, for proceeds of $10.0 million.On February 8, 2011, the Company completed a follow-on common share offering generating gross proceeds of $73.6 million and net proceeds of approximately $69.4 million, adding equity capital to the Company’s balance sheet.$51.4$51.4 million and net proceeds of approximately $48.4 million.$48.4 million. On January 31, 2013, the Company issued an additional 92,677 common shares pursuant to the exercise of the underwriters’ over-allotment option in the offering that closed on January 14, 2013, generating gross proceeds of approximately $1.4$1.4 million and net proceeds of approximately $1.3 million.$1.3 million. Proceeds from the January 2013 offerings were used to repay debt under the Company’s secured revolving credit facility, including debt incurred in connection with the acquisition of the Hampton Inn Portland Downtown-Waterfront hotel in Portland, ME (the “Portland Hotel”) and the Courtyard by Marriott Houston Medical Center hotel in Houston, TX (the “Houston CY Hotel”).March 31,June 30, 2013, the Company owned 2021 hotels with an aggregate of 2,7332,911 rooms located in 11 states and the District of Columbia, and held a 10.3% noncontrolling interest in a joint venture (the “JV”“Innkeepers JV”) with Cerberus Capital Management (“Cerberus”), which owns 5452 hotels comprising an aggregate of 7,154 rooms. 6,927 rooms, and held a 5.0% noncontrolling interest in a joint venture (the "Torrance JV") with Cerberus that owns the 248-room Residence Inn by Marriott in Torrance, CA.5452 Innkeepers JV hotels and its interest in the Torrance JV through the Operating Partnership, and owns its interest in the remaining 31 Innkeepers JV hotelshotel through one of its TRS holding companies. All of the Innkeepers JV hotels and the Torrance JV hotel are leased to TRS Lessees, in which the Company indirectly owns a 10.3% noncontrolling interests through one of its TRS holding companies. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is five years.5 years. Lease revenue from each TRS Lessee is eliminated in consolidation.Mr.Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, manages 1819 of the Company’s wholly owned hotels and Concord Hospitality Enterprises Company manages two of the Company’s wholly owned hotels. As of March 31,June 30, 2013, all of the Innkeepers JV hotels arewere managed by IHM. OneThe Torrance JV hotel transitioned management to IHM on January 1, 2013 from an independent manager.2.Summary of Significant Accounting Policies2012.3.Recently Issued Accounting Standardsa materialany impact on the Company’s condensed consolidated financial statements.4.Acquisition of Hotel Properties197-room197-room Houston CY Hotel for a purchase price of $34.8$34.8 million, plus customary pro-rated amounts and closing costs. The Company funded the acquisition with available cash and borrowings under the Company’s secured revolving credit facility.$0.2$1.1 million and $39 thousand,$1.2 million, respectively, during the three and six months ended March 31,June 30, 2013 and 2012.hotel,hotels, based on the fair value on the date of its acquisition was (in thousands): Houston CY, TX
Acquisition 02/05/13 $ 5,600 27,350 1,800 3 7 10 (3 ) $ 34,767 $ 34,764 Pittsburgh Hotel Acquisition Acquisition date 2/5/2013 6/17/2013 Land $ 5,600 $ 3,000 Building and improvements 27,350 35,576 Furniture, fixtures and equipment 1,800 1,424 Cash 3 6 Accounts receivable 7 5 Prepaid expenses and other assets 10 — Accounts payable and accrued expenses (3 ) — Net assets acquired $ 34,767 $ 40,011 Net assets acquired, net of cash $ 34,764 $ 40,005 unaudited pro forma financial information presents the results of operations as if the hotels acquired in the three and six months ended March 31,June 30, 2013 and 2012 had taken place on January 1, 2012. The unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what actual results of operations would have been had the acquisitions taken place on January 1, 2012, nor do they purport to represent the results of operations for future periods (in thousands, except share and per share data). For the three months ended
March 31, 2013 2012 $ 26,386 $ 24,697 $ (1,754 ) $ (1,624 ) $ (0.10 ) $ (0.09 ) 17,582,235 17,582,235 $34$28$28 thousand as of March 31,June 30, 2013 and December 31, 2012, respectively.6.Investment in Hotel PropertiesMarch 31, March 31, 2013 December 31, 2012 $ 69,546 $ 63,428 387,942 360,301 23,779 21,381 7,189 5,145 488,456 450,255 (27,911 ) (24,181 ) $ 460,545 $ 426,074 7.Investment in Unconsolidated EntitiesThe June 30, 2013 December 31, 2012 Land and improvements $ 72,607 $ 63,428 Building and improvements 424,960 360,301 Furniture, fixtures and equipment 29,041 21,381 Renovations in progress 6,338 5,145 532,946 450,255 Less accumulated depreciation (31,908 ) (24,181 ) Investment in hotel properties, net $ 501,038 $ 426,074 ownsacquired a 10.3%5.0% interest in the JV.Torrance JV with Cerberus. The Torrance JV acquired the 248-room Residence Inn by Marriott in Torrance, CA for $31.0 million. The Company's original investment of $1.7 million in the Torrance JV was funded through borrowings under the Company's secured revolving credit facility and with available cash. The Company accounts for this investment under the equity method. During the three and six months ended March 31,June 30, 2013 and 2012, the Company received cash distributions from the Torrance JV related to the followingas follows (in thousands): For the three months ended
March 31, 2013 2012 $ — $ 1,336 — 11,759 $ — $ 13,095 For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Cash generated from financing activities 908 — 908 — Total $ 908 $ — $ 908 $ — For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Cash generated from other activities and excess cash $ — $ 1,747 $ — $ 3,083 Cash generated from asset sales — 4,368 — 4,368 Cash generated from financing activities — — — 11,759 Total $ — $ 6,115 $ — $ 19,210 interestinterests in the Innkeepers JV isand the Torrance JV are subject to change in the event that either the Company or Cerberus calls for additional capital contributions to the respective JV necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. The Company manages theeach JV and will receive a promote interest in the applicable JV if the JVit meets certain return thresholds. Cerberus may also approve certain actions by theeach JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of theeach JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.$12.1$12.4 million and $12.2$24.5 million in depreciation expense during the three and six months ended March 31,June 30, 2013 and $12.3 million and $24.6 million during the three and six months ended June 30, 2012, respectively. The Torrance JV incurred $0.1 million and $0.1 million in depreciation expense during the three and six months ended June 30, 2013 and $0.0 million and $0.0 million three and six months ended June 30, 2012, respectively. The following table sets forth the components of net loss, including the Company’s share, related to the JVboth JVs for the three and six months ended March 31,June 30, 2013 and 2012 (in thousands): For the three months
ended March 31, 2013 2012 $ 61,292 $ 62,972 36,830 38,727 $ 24,462 $ 24,245 $ (6,136 ) $ (5,493 ) $ (631 ) $ (565 ) 8.Debt For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Revenue $ 72,873 $ 73,019 $ 135,064 $ 135,991 Total hotel operating expenses 39,555 41,121 76,385 79,848 Operating income $ 33,318 $ 31,898 $ 58,679 $ 56,143 Net income (loss) from continuing operations $ (648 ) $ 6,836 $ (6,784 ) $ 1,343 Total income (loss) from unconsolidated real estate entities attributable to Chatham $ (89 ) $ 703 $ (720 ) $ 138 senior secured revolving credit facility are collateralized by first-mortgage liens on certain of the Company’s properties. The mortgages are non-recourse except for instances of fraud or misapplication of funds. Mortgage debt consisted of the following (in thousands): Interest
Rate Maturity Date 03/31/13
Property
Carrying
Value Balance Outstanding as of March 31,
2013 December 31, 2012 2.96 % November 5, 2015 $ 191,229 $ 96,500 $ 79,500 5.96 % April 1, 2016 11,100 6,523 6,572 5.84 % April 1, 2015 12,157 5,062 5,104 5.75 % September 1, 2021 20,185 15,374 15,450 5.98 % November 1, 2016 41,226 32,417 32,417 4.66 % February 6, 2023 49,241 30,889 39,557 4.59 % February 6, 2023 31,130 17,652 18,184 6.03 % (2) — — 19,752 4.49 % February 6, 2023 34,606 24,203 22,710 $ 390,874 $ 228,620 $ 239,246 Collateral Maturity Date Balance Outstanding as of June 30, 2013 December 31,
2012Senior Secured Revolving Credit Facility (6) 2.96 % November 5, 2015 $ 190,659 $ 30,500 $ 79,500 Courtyard by Marriott Altoona, PA 5.96 % April 1, 2016 11,024 6,476 6,572 SpringHill Suites by Marriott Washington, PA 5.84 % April 1, 2015 12,050 5,021 5,104 Residence Inn by Marriott New Rochelle, NY 5.75 % September 1, 2021 20,481 15,301 15,450 Residence Inn by Marriott Garden Grove, CA 5.98 % November 1, 2016 44,341 32,417 32,417 Residence Inn by Marriott San Diego, CA (3) 4.66 % February 6, 2023 48,898 30,778 39,557 Homewood Suites by Hilton San Antonio, TX (1) 4.59 % February 6, 2023 30,901 17,588 18,184 Washington Guest Suites (2) 6.03 % (2) — — 19,752 Residence Inn by Marriott Vienna, VA (1) 4.49 % February 6, 2023 34,409 24,112 22,710 Courtyard by Marriott Houston, TX (4) 4.18 % May 6, 2023 34,369 19,974 — Hyatt Place Pittsburgh, PA (5) 4.65 % July 6, 2023 39,955 24,175 — $ 467,087 $ 206,342 $ 239,246 (1) 10-year10-year term and a 30-year30-year amortization payment schedule.(2) On January 31, 2013, the Company paid off the mortgage loan for the DoubletreeWashington Guest Suites Washington, DC hotel. This hotel is in the process of being rebranded as a Residence Inn by Marriott.(3) 10-year10-year term and a 30-year30-year amortization payment schedule.(4) (5) (6) Facility amount $ 95 millionAccordion featureAdditional $20115 millionLIBOR floor None Interest rate applicable margin 200-300 basis points, based on leverage ratio Unused fee 25 basis points if less than 50% unused, 35 basis points if more than 50% unused Minimum fixed charge coverage ratio 1.5x March 31,June 30, 2013 and December 31, 2012, the Company had $96.5$30.5 million and $79.5$79.5 million, respectively, of outstanding borrowings under its secured revolving credit facility. Eleven11 properties in the borrowing base securedserve as collateral for borrowings under the credit facility at March 31, 2013.June 30, 2013. At March 31,June 30, 2013, the maximum borrowing availability under the revolving credit facility was $115.0 million.$115.0 million. using an income approach valuation method by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level 3 of the fair value hierarchy. Level 3 typically consists of mortgages because of the significance of the collateral value to the value of the loan. The estimated fair value of the Company’s fixed rate debt as of March 31,June 30, 2013 and December 31, 2012 was $138.3$177.9 million and $168.2$168.2 million, respectively.MarchJune 30, 2013 and December 31, 2012 was $30.5 million and December 31, 2011 was $96.5$79.5 million and $79.5 million,, respectively. At March 31, 2013, the Company’s consolidated fixed charge coverage ratio was 2.03.March 31,June 30, 2013, the Company was in compliance with all of its financial covenants. At June 30, 2013, the Company’s consolidated fixed charge coverage ratio was 2.03. Future scheduled principal payments of debt obligations as of March 31,June 30, 2013, for each of the next five calendar years and thereafter are as follows (in thousands): Amount $ 1,291 1,871 103,020 39,961 1,705 80,772 $ 228,620 9.Income Taxes Amount 2013 (remaining six months) $ 1,147 2014 2,547 2015 37,786 2016 40,731 2017 2,546 Thereafter 121,585 $ 206,342 one of two TRS holding companies, which we refer to as TRS I and TRS 2, that are treated separately for income tax purposes (TRS 1 and TRS 2). 2013 2012 $ — (26 ) — (7 ) $ — (33 ) For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Federal $ 35 $ 116 $ 35 $ 90 State 10 17 10 10 Tax expense $ 45 $ 133 $ 45 $ 100 March 31,June 30, 2013, TRS 1 had a gross deferred tax asset associated with future tax deductions of $0.6 million.$0.5 million. TRS 1 has continued to record a full valuation allowance equal to 100% of the gross deferred tax asset due to the uncertainty of realizing the benefit of its deferred assets due to the cumulative taxable losses incurred by TRS 1 since its inception. TRS 2 has a gross deferred tax asset of $0.1$0.1 million as of March 31,June 30, 2013 and no valuation allowance has been recorded in connection with the gross deferred tax assets of TRS 2 for March 31, 2013.June 30, 2013. 10.Dividends Declared and Paid$0.21$0.21$0.21 per unit for the three months ended March 31, 2013.June 30, 2013 and $0.42 per share and distributions on LTIP units of $0.42 per unit for the six months ended June 30, 2013. The dividends and distributions were as follows: Record
Date Payment
Date Common
share
distribution
amount LTIP
unit
distribution
amount 1/31/2013 2/22/2013 $ 0.07 $ 0.07 2/28/2013 3/29/2013 $ 0.07 $ 0.07 3/29/2013 4/26/2013 $ 0.07 $ 0.07 $ 0.21 $ 0.21 11.Earnings Per Share January 1/31/2013 2/22/2013 $ 0.07 $ 0.07 February 2/28/2013 3/29/2013 $ 0.07 $ 0.07 March 3/29/2013 4/26/2013 $ 0.07 $ 0.07 1st Quarter 2013 $ 0.21 $ 0.21 April 4/30/2013 5/31/2013 $ 0.07 $ 0.07 May 5/31/2013 6/28/2013 $ 0.07 $ 0.07 June 6/28/2013 7/26/2013 $ 0.07 $ 0.07 2nd Quarter 2013 $ 0.21 $ 0.21 Total 2013 $ 0.42 $ 0.42 For the three months ended
March 31, 2013 2012 $ (1,618 ) $ (1,731 ) (78 ) (20 ) $ (1,696 ) $ (1,751 ) 17,212,124 13,794,986 — — 17,212,124 13,794,986 $ (0.10 ) $ (0.13 ) $ (0.10 ) $ (0.13 ) For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Numerator: Net income (loss) $ 2,176 $ 1,157 $ 557 $ (574 ) Dividends paid on unvested shares and units (73 ) (70 ) (151 ) (134 ) Net income (loss) attributable to common shareholders $ 2,103 $ 1,087 $ 406 $ (708 ) Denominator: Weighted average number of common shares - basic 18,147,108 13,810,190 17,682,199 13,802,588 Effect of dilutive securities: Unvested shares (1) 236,518 105,123 215,056 — Weighted average number of common shares - diluted 18,383,626 13,915,313 17,897,255 13,802,588 Basic income (loss) per Common Share: Net income (loss) attributable to common shareholders per weighted average common share $ 0.12 $ 0.08 $ 0.02 $ (0.05 ) Diluted income (loss) per Common Share: Net income (loss) attributable to common shareholders per weighted average common share $ 0.11 $ 0.08 $ 0.02 $ (0.05 ) (1) Unvested restricted shares and unvested long-term incentive plan units that could potentially dilute basic earnings per share in the future were not included in the computation of diluted loss per share, for the periods where a loss has been recorded, because they would have been anti-dilutive for the periods presented. 12.Equity Incentive Plan4,84410,172 common shares had this liability classified award been satisfied as of March 31, 2013.June 30, 2013. As of March 31,June 30, 2013, there were 6,2062,400,018 common shares available for issuance under the Equity Incentive Plan.three-yearthree-year period and 53,191 shares granted as performance-based equity.equity awards. The performance-based shares will be issued and vest over a three-year period only if and to the extent that long-term performance criteria established by the Board of Trustees are met and the recipient remains employed by the Company on the vesting date. The Company met its criteria for 2012, therefore, on January 15, 2013 the Company issued an aggregate of 17,731 shares to its executive officers.officers as performance based equity compensation under the 2012 awards. Included in the 61,376 grant of 61,376time-based share awardsshares in 2012 are 8,184 share grants made shares granted to restricted common shares toas time-based awards and, effective as of May 17, 2013 upon shareholder approval of the Company’s executive officers pursuant to theAmended and Restated Equity Incentive Plan, that40,829 shares of performance-base equity awards. The 2013 time-based equity awards will vest over a three-year period.$10.20$10.20 per performance share granted, which takes into account that some or all of the awards may not vest if long-term performance criteria are not met during the vesting period. For the performance-based shares granted in 2013, compensation expense is based on a valuation of $10.93 per performance share granted. Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. The Company pays dividends on nonvestednon-vested time-based restricted shares. Dividends for performance-based shares are accrued and paid annually only if and to the extent that long-term performance criteria established by the Board are met and the recipient remains employed by the Company.threesix months ended March 31,June 30, 2013 and year ended December 31, 2012 is as follows: March 31, 2013 December 31, 2012 Number of
Shares Weighted -
Average Grant
Date Fair
Value Number of
Shares Weighted -
Average Grant
Date Fair
Value 140,077 $ 12.70 51,029 $ 19.04 40,829 15.92 114,567 11.28 (38,190 ) 11.28 (25,519 ) 19.04 142,716 $ 14.00 140,077 $ 12.70 June 30, 2013 December 31, 2012 Non-vested at beginning of the period 140,077 $ 12.70 51,029 $ 19.04 Granted 81,658 13.43 114,567 11.28 Vested (60,217 ) 15.26 (25,519 ) 19.04 Non-vested at end of the period 161,518 $ 12.49 140,077 $ 12.70 March 31,June 30, 2013 and December 31, 2012, there were $1.5$1.7 million and $1.1$1.1 million, respectively, of unrecognized compensation costs related to restricted share awards. As of March 31,June 30, 2013, these costs were expected to be recognized over a weighted–average period of approximately 1.3 years.1.7 years. For the three months ended March 31,June 30, 2013 and 2012, the Company recognized approximately $0.3$0.2 million and $0.2$0.2 million, respectively and for the six months ended June 30, 2013, and 2012, the Company recognized approximately $0.5 million and $0.4 million, respectively of expense related to the restricted share awards. This expense is included in general and administrative expenses in the accompanying consolidated statements of operations.$0.2$0.2 million and $0.2$0.2 million in compensation expense related to the LTIP Units for the three months ended March 31,June 30, 2013 and 2012, respectively and $0.4 million and $0.4 million in compensation expense related to the LTIP units for six months ended June 30, 2013 and 2012, respectively. As of March 31,June 30, 2013 and December 31, 2012, there was $1.6$1.4 million and $1.8$1.8 million, respectively, of total unrecognized compensation cost related to LTIP Units. This cost is expected to be recognized over approximately 2.11.8 years, which represents the weighted average remaining vesting period of the LTIP Units. As of March 31,June 30, 2013, none of the LTIP Units had reached parity.13.Commitments and Contingencies$7,000$7,000 per month when monthly occupancy is less than 85% and can increase up to$20,000$20,000 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%(2.5%).2104.2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of the garage and established reserves to fund for the cost of capital repairs.March 31,June 30, 2013, for the remainder of 2013 and for each of the next four calendar years and thereafter (in thousands): Amount $ 154 207 210 212 214 11,445 $ 12,442 Amount 2013 (remaining six months) $ 103 2014 207 2015 210 2016 212 2017 214 Thereafter 11,445 Total $ 12,391 ten-yearten-year term of each management agreement expires on February 28, 2017 and will renew automatically for successive one-yearone-year terms unless terminated by the TRS lessee or the manager by written notice to the other party no later than 90 days prior to the then current term’s expiration date. The management agreements may be terminated for cause, including the failure of the managed hotel operating performance to meet specified levels. If the Company were to terminate the management agreements during the first nine years of the term other than for breach or default by the manager, the Company would be responsible for paying termination fees to the manager.TheIHM, which is 90% owned by Mr. Fisher.IHM, which is 90% owned by Mr. Fisher.IHM. The management agreements with IHM have an initial term of five years and may be renewed for two five-yearfive-year periods at IHM’s option by written notice to us no later than 90 days prior to the then current term’s expiration date. The IHM management agreements provide for early termination at the Company’s option upon sale of any IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Management agreements with IHM provide for a base management fee of 3% of the managed hotel’s gross revenues for the Hampton Inn Houston, TX, Residence Inn Holtsville, NY, Residence Inn White Plains, NY, Residence Inn New Rochelle, NY, Homewood Suites Carlsbad, CA, Portland Hotel, and Houston CY Hotel and Pittsburgh Hotel and 2.5% of the managed hotel’s gross revenues for the Residence Inn Garden Grove, CA, Residence Inn San Diego, CA, Homewood Suites San Antonio, TX, DoubletreeWashington Guest Suites, Washington, DC and Residence Inn Tysons Corner, VA and 2% for the six hotels transitioned to IHM from Hilton. Management agreements with IHM also provide for accounting fees of $1,000up to $1,500 per month per hotel, revenue management fees up to $550$1,000 per month per hotel and, if certain financial thresholds are met or exceeded, an incentive management fee equal to 10% of the hotel’s net operating income less fixed costs, base management fees and a specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable calculation.are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $0.7$0.8 million and $0.6$0.7 million, respectively, for the three months ended March 31,June 30, 2013 and 2012 respectively., respectively and approximately $1.5 million and $1.3 million, respectively, for the six months ended June 30, 2013, and 2012.15-1815-18 years and will expire between 2025 and 2028.2028. These Hilton hotel franchise agreements provide for a franchise royalty fee up to 6% of the hotel’s gross room revenue and a program fee equal to 4% of the hotel’s gross room revenue. The Hilton franchise agreements provide that the franchisor may terminate the franchise agreement in the event that the applicable franchisee fails to cure an event of default, or in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable by Hilton at will. International, Inc., (“Marriott”), relating to six Residence Inn properties, two Courtyard properties and the SpringHill Suites property. These franchise agreements have initial terms ranging from 15 to 20 years and will expire between 2025 and 2031.2031. None of the agreements have a renewal option. The Marriott franchise agreements provide for franchise fees ranging from 5.0% to 5.5% of the hotel’s gross room sales and marketing fees ranging from2.0% to 2.5% of the hotel’s gross room sales. The Marriott franchise agreements are terminable by Marriott in the event that the applicable franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, are terminable by Marriott at will. The Marriott franchise agreements provide that, in the event of a proposed transfer of the hotel, its TRS Lessee’s interest in the agreement or more than a specified amount of the TRS Lessee to a competitor of Marriott, Marriott has the right to purchase or lease the hotel under terms consistent with those contained in the respective offer and may terminate if our TRS Lessee elects to proceed with such a transfer.CY Hotel has an initial term of approximately 10 years and expires on July 31, 2020.2020. The franchise agreement for the Portland Hotel has an initial term of approximately 20 years and expires on February 29, 2032.2032. The Hampton Inns franchise agreement provides for a monthly program fee equal to 4% of the hotel’s gross rooms revenue and a monthly royalty fees ranging from 5% to 6% of the hotel’s gross rooms revenue. None of the agreements have a renewal option. Hampton Inns may terminate the franchise agreement in the event that the franchisee fails to cure an event of default or, in certain circumstances such as the franchisee’s bankruptcy or insolvency, Hampton Inns may terminate the agreement at will.zerono costs, currently the hotel is operating as a Guest Suites and is expected to be re-branded as a Residence Inn by Marriott in MaySeptember 2013.are recorded within hotel other operating expenses on the consolidated statements of operations and totaled approximately $1.9$2.2 million and $1.7$2.0 million, respectively, for the three months ended March 31,June 30, 2013 and 2012 respectively., respectively and approximately $4.1 million and $3.7 million, respectively, for the six months ended June 30, 2013 and 2012. 14.Related Party TransactionsMarch 31,June 30, 2013, the Company hashad hotel management agreements with IHM to manage 1819 of its hotels, increased from agreements to manage 17hotels. As of the Company’s wholly-owned hotels as of December 31, 2012. Of the 54June 30, 2013 all 52 hotels owned by the Innkeepers JV, all are managed by IHM. Hotel and revenue management and accounting fees paid to IHM for the three months ended March 31,June 30, 2013 and 2012 were $0.7$0.7 million and $0.4$0.6 million, respectively and for the six months ended June 30, 2013 and 2012 were $1.4 million and $1.0 million, respectively. At March 31,June 30, 2013 and December 31, 2012, the amounts due to IHM were $0.4$0.4 million and $0.4$0.4 million, respectively.15.Subsequent EventsJanuary 10,LP and CRE Torrance Inn Member, LLCTrust entered into a joint venturean agreement to create Torranceacquire a Hampton Inn JV, LLC (the “Torrance JV”)and Suites in the northeastern United States for $15.2 million. The Company’s $1.6 million investment represents an approximate 5% interesttransaction is expected to close in the Torrance JVthird quarter of 2013, subject to satisfactory completion of due diligence and was funded fromcustomary closing conditions. The Company intends to fund the purchase price with available cash. On April 17, 2013,cash and borrowings under the Torrance JV acquired the Residence Inn by Marriott Torrance located at 3701 Torrance Blvd, Torrance, CA 90503, for $31.0 million, plus customary pro-rated amounts and closing costs. The hotel will be managed by Marriott International.On April 25, 2013, the Company obtained a $20.0 million mortgage loanCompany's secured by the Houston CY Hotel. The loan incurs interest at a raterevolving credit facility.2012.2012. In this report, we used the terms “the Company, “we” or “our” to refer to Chatham Lodging Trust and its subsidiaries, unless the context indicates otherwise. Summerfield Suites,, Courtyard by Marriott®, Hampton Inn® and Hampton Inn and Suites®.available credit facility, the incurrence or assumption of individually secured hotel debt or, potentially, proceeds from dispositions of assets or distributions from our 10.3% investment in INK Acquisition, LLC and Affiliatesaffiliates, a joint venture with Cerberus Capital Management (“Cerberus”), that owns 5452 hotels (the “JV”“Innkeepers JV”) or distributions from our 5.0% investment in a joint venture with Cerberus that owns the Residence Inn by Marriott in Torrance, CA (the "Torrance JV") as of March 31, 2013.June 30, 2013.itsto decline. As reported by Smith Travel Research, monthly industry RevPAR has been higher year over year since March 2010. As reported by Smith Travel Research, industry RevPAR in 2012 was up 6.8%8.0% and was up 6.4%5.6% year to date through March 31, 2013.June 30, 2013. Industry analysts such as Smith Travel Research and PKF Hospitality are projecting industry RevPAR to grow 5-6% in 2013 based on sustained economic growth, lack of new supply and increased business travel spending. Of the projected growth, most expect ADR growth to comprise most of the expected RevPAR growth. We are currently projecting RevPAR at our hotels to grow 4.5% in 2013 with ADR comprising most of our RevPAR growth. Most expect RevPar to continue to grow in 2013, albeit at levels less than what the industry experienced in 2011 and 2012.Three Months Ended March 31,three months ended June 30, 2013 (“2013”2013”) to the Three Months Ended March 31,three months ended June 30, 2012 (“2012”2012”)March 31,June 30, 2013 include the operating activities of our 2021 wholly-owned hotels and our investmentinvestments in the Innkeepers JV and the Torrance JV. We owned 18 hotels at March 31, 2012.June 30, 2012. Accordingly, the comparisons below are influenced by the fact that 2three hotels and the Torrance JV were not owned by us for the firstsecond quarter of 2012 whereas they were owned by us for all or part of the second quarter of 2012.March 31,June 30, 2013 and 2012 was up 6.4%5.0% and up 7.9%, for the comparative 3 months in the prior year, respectively. RevPAR at our hotels was up 4.2%3.5% and 12.5%6.9%, respectively, in the 2013 and 2012 periods. Our RevPAR performance in the firstsecond quarter of 2013 was adversely impacted by renovations that occurred at threetwo of our hotels, especially our Washington, D.C. hotel, which operated without a brand for twoduring the three months in the quarterended June 30, 2013, while we rebrand the hotel to a Residence Inn.$25.8$30.7 million for the quarter ended March 31,June 30, 2013 compared to total revenue of $22.8$26.4 million for the 2012 period. Total revenue related to three hotels not owned in the 2012 period.second quarter contributed $4.1 million of the$24.2$29.0 and $21.6$24.9 million for the quarters ended March 31,June 30, 2013 and 2012, respectively. ADR at our hotels was up 3.9% as was occupancy, which rose 0.3% for the quarter. For the three months ended
March 31, 2013 For the three months ended
March 31, 2012 76.3 % 76.0 % $ 132.17 $ 127.25 $ 100.83 $ 96.77 For the three months ended For the three months ended June 30, 2013 June 30, 2012 Occupancy 82.9 % 83.5 % ADR $ 139.27 $ 133.56 RevPar $ 115.46 $ 111.51 $0.8$1.1 million for the quarters ended March 31,June 30, 2013 and 2012, respectively. As a percentage of total revenue, other operating revenue was 4.6%3.9% and 3.7%4.1%, respectively, for the quarters ended March 31,June 30, 2013 and 2012.2012.March 31,June 30, 2013 and 2012, respectively.$1.7$2.3 million to $14.7$16.2 million for the three months ended March 31,June 30, 2013 compared to $13.0$13.9 million for the three months ended March 31, 2012.June 30, 2012. As a percentage of total revenue, hotel operating expenses were 57%53% for 2013 and 58%52% for 2012 which decrease is expected as ADR grows year over year. .$0.6$0.8 million from $5.0$5.3 million in 2012 to $5.6$6.1 million in 2013, or 24%20.1% and 22%19.7% of total revenue, for the three months ended March 31,June 30, 2012 and 2013, respectively. Other operating expenses, which include managementfranchise fees, insurance, utilities, repairs and maintenance, advertising and sales, and hotel general and administrative expensesbeverage expense increased $1.2$0.1 million, or 109.2%, from $8.0$0.1 million in 2012 to $9.2$0.2 million in 2013.Depreciation2013 due to the Hyatt Place Pittsburgh and AmortizationDepreciationHouston Courtyard hotels that were acquired in 2013 and amortizationhave food and beverage facilities.$0.5$0.05 million, or 24.9%, from $3.3$0.17 million for the three months ended March 31, in 2012 to $3.8$0.22 million for the three months ended March 31, 2013. The increase isin 2013 primarily due to the increased number of hotels owned duringin 2013.period.were $0.1 million of this increase.March 31,June 30, 2012 to $2.0 million for the three months ended March 31, 2013.June 30, 2013. The increase is due primarily to the increased number of hotels owned during the 2013 period, which accountaccounts for $0.3$0.2 million of the year over year increase.$0.4$0.5 million for the three months ended March 31,June 30, 2013 and 2012, respectively) increased $0.1 million, or 6.0% to $1.5 million in 2013 from $1.4 million in 2012.2012 with the increase due to salaries and technology costs.$0.1$1.1 million from $39 thousand for the three months ended March 31, 2012 to $0.2$0.0 million for the three months ended March 31, 2013.June 30, 2012 to $1.1 million for the three months ended June 30, 2013. Expenses during the 2013 period related to our acquisition of the Houston CY Hotel.and Pittsburgh HP Hotels. Acquisition-related costs are expensed when incurred.$0.4$0.3 million for the quarters ended March 31,June 30, 2013 and 2012, respectively.$4 thousand$0.1 million from $1 thousand$0.0 million for the three months ended March 31,June 30, 2012 to $5 thousand$0.1 million for the three months ended March 31, 2013.June 30, 2013. The increase is attributable to miscellaneous corporate refunds and asset management fees related to the Torrance JV.March 31,June 30, 2012 to $2.8 million for the three months ended March 31,June 30, 2013 due to reduced interest cost of $0.3$0.4 million on the three loans refinanced in the first quarter of 2013, $0.2$0.3 million saved due to our paying off the Washington, DCD.C. hotel loan on January 31, 2013, $0.3$0.2 million attributable to a lower interest rate on our senior secured revolving credit facility borrowings as a result of our amendment to the credit agreement in the fourth quarter of 2012 (which had weighted average borrowings of $81.4$80.2 million at 2.96%2.7% in 2013 compared to weighted average borrowings of $67.7$58.2 million at 5.25%5.5% in 2012), and $0.2$0.1 million less of loan amortization costs attributable to deferred expenses written off on the paid-off loans.Loss on early extinguishmentdebt increased $0.9 million from $0.0$0.7 million for the three months ended March 31,June 30, 2012 to $0.9a loss of $0.1 million for the three months ended March 31,June 30, 2013. The decrease is due to the write-offa decrease in gains on asset sales for four hotels of the deferred issuance costs related$0.7 million from 2012 to the debt that was refinanced or paid off.LossIncome tax expense decreased $88 thousand from Unconsolidated Real Estate EntitiesLoss from unconsolidated real estate entities remained the same from $0.6 milliona $133 thousand for the three months ended March 31,June 30, 2012 to $0.6 million$45 for the three months ended March 31, 2013.Income Tax BenefitJune 30, 2013Income tax benefit decreased $33 thousand from a benefit of $33 thousand expense for the three months ended March 31, 2012 to $0 for the three months ended March 31, 2013.. We are subject to income taxes based on the taxable income of our taxable REIT subsidiary holding companies at a combined federal and state tax rate of approximately 40%.(loss)Net loss was $1.6$2.2 million for the three months ended March 31,June 30, 2013, compared to a net lossincome of $1.7$1.2 million for the three months ended March 31, 2012.June 30, 2012. The decreaseincrease in our net lossincome was due to the factors discussed above. For the six months ended For the six months ended June 30, 2013 June 30, 2012 Occupancy 79.0 % 78.9 % ADR $ 135.86 $ 130.77 RevPar $ 107.39 $ 103.24 lossincome (loss) to FFO and Adjusted FFO for the three and six months ended March 31,June 30, 2013 and 2012 (in thousands, except share data): For the three months ended March 31, 2013 2012 $ (1,618 ) $ (1,731 ) 15 — 3,737 3,321 1,241 1,259 3,375 2,849 177 39 933 — 3 — $ 4,488 $ 2,888 17,212,124 13,794,986 17,408,275 13,866,145 For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Funds From Operations (“FFO”): Net income (loss) $ 2,176 $ 1,157 $ 557 $ (574 ) Loss (gain) on the sale of assets within the unconsolidated real estate entity 259 (670 ) 273 (670 ) Depreciation 4,003 4,104 7,739 7,424 Adjustments for unconsolidated real estate entity items 1,285 1,266 2,526 2,525 FFO 7,723 5,857 11,095 8,705 Hotel property acquisition costs and other charges 1,059 44 1,236 83 Loss on early extinguishment of debt — — 933 — Adjustments for unconsolidated real estate entity items 5 42 8 42 Adjusted FFO $ 8,787 $ 5,943 $ 13,272 $ 8,830 Weighted average number of common shares Basic 18,147,108 13,810,190 17,682,199 13,802,588 Diluted 18,383,626 13,915,313 17,897,255 13,891,792 lossincrease (loss) to EBITDA and Adjusted EBITDA for the three and six months ended March 31,June 30, 2013 and 2012 (in thousands): For the three months ended March 31, 2013 2012 $ (1,618 ) $ (1,731 ) 2,841 3,847 — (33 ) 15 — 3,756 3,339 2,736 2,666 7,730 8,088 177 39 933 — 3 — 548 450 $ 9,391 $ 8,577 For the three months ended For the six months ended June 30, June 30, 2013 2012 2013 2012 Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”): Net income (loss) $ 2,176 $ 1,157 $ 557 $ (574 ) Interest expense 2,817 3,829 5,658 7,676 Income tax expense 45 133 45 100 Loss (gain) on the sale of assets within the unconsolidated real estate entity 259 (670 ) 273 (670 ) Depreciation and amortization 4,026 4,123 7,778 7,462 Adjustments for unconsolidated real estate entity items 2,768 2,770 5,563 5,436 EBITDA 12,091 11,342 19,874 19,430 Hotel property acquisition costs and other charges 1,059 44 1,236 83 Loss on early extinguishment of debt — — 933 — Adjustments for unconsolidated real estate entity items 5 42 8 42 Share based compensation 531 517 1,080 967 Adjusted EBITDA $ 13,686 $ 11,945 $ 23,131 $ 20,522 March 31,June 30, 2013 and December 31, 2012, we had cash and cash equivalents of approximately $5.1$18.7 million and $4.5 million, respectively. Additionally, we had $18.5$84.5 million available under our $115.0 million senior secured revolving credit facility as of March 31, 2013.June 30, 2013.threesix months ended March 31,June 30, 2013, net cash flows provided by operations were $4.7$12.1 million, as our net lossincome of $1.6$0.6 million was due in significant part to non-cash expenses, including $4.1$8.4 million of depreciation and amortization, $0.9 million from the extinguishment of debt, $0.6$1.1 million of share-based compensation expense and $0.6$0.7 million from loss from unconsolidated entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts, payments for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net cash inflow of $0.1$0.4 million. Net cash flows used in investing activities were $37.2$82.4 million, primarily related to the purchase of the Houston CY Hotel and Pittsburgh Hotel of $34.8$74.8 million, capital improvements on our 2021 wholly owned hotels of $3.1$7.1 million, investment in the Torrance JV of $1.7 million, offset by $0.7$0.3 million related to the receipt of restricted cash for four of ourand $0.9 million net proceeds from mortgage loans which were either refinanced or paid off.financing. Net cash flows provided by financing activities were $33.1$84.5 million, comprised primarily of net borrowings on our secured credit facility of $17.0 million, $52.8$134.2 million raised from our January and June 2013 follow-on common share offering,offerings, and proceeds from the issuance of refinanced and new mortgage loans of $72.8$117.0 million, offset by net repayments on our secured credit facility of $49 million, principal payments on mortgage debt of $100.5$100.9 million, payments of deferred financing and offering costs of $3.7$7.7 million and distributions to shareholders of $5.3$9.1 million.threesix months ended March 31,June 30, 2012, net cash flows provided by operations were $36 thousand,$6.3 million, as our net loss of $1.7$0.6 million was due in significant part to non-cash expenses, including $3.8$8.4 million of depreciation and amortization, $0.4$1.0 million of share-based compensation expense and a $0.6$0.1 million impact from loss from unconsolidated entities. In addition, changes in operating assets and liabilities due to the timing of cash receipts, payments for real estate taxes, payments of corporate compensation and payments from our hotels resulted in net cash outflow of $3.0$2.4 million. Net cash flows provided by investing activities were $12.7$17.7 million, primarily related to the receipt of distributions from unconsolidated real estate entities of $13.1$19.2 million consisting(including $3.1 million attributable to cash from other activities and excess cash, $4.4 million from the sale of assets and $11.8 million net proceeds from mortgage financing and $1.3 million from cash generated from operationsactivities) and reimbursements from required escrows of $1.6$2.4 million, offset by additional capital improvements to the eighteen hotels of $2.0$3.9 million. Future distributions from unconsolidated real estate entities are contingent upon projected hotel operations and the possible sale of assets. Net cash flows used in financing activities were $8.6$20.2 million, comprised primarily of net repayments on our secured credit facility of $5.5$14.0 million, principal payment on mortgage debt of $0.6$0.9 million, payment of deferred financing and offering costs of $0.4 million and distributions to shareholders of $2.5$4.9 million. have paid regular quarterly dividends and distributions on common shares and LTIP units since the third quarter of 2010.2010 through 2012. Dividends for 2013 changed from a quarterly dividend to a monthly dividend in January 2013. Dividends and distributions for the first quarter of 2012 were $0.175 per common share and LTIP unit. Dividends and distributions for the second, third and fourth quarters of 2012 increased to $0.20 per common share and LTIP unit. Dividends for 2013 changed from a quarterly dividend to a monthly dividend. We declared total dividends of $0.21 per common share and LTIP unit for each of the first quarterand second quarters of 2013.March 31,June 30, 2013 and December 31, 2012, we had $96.5$30.5 million and $79.5$79.5 million, respectively, in borrowings under our senior secured revolving credit facility. At March 31,June 30, 2013, there were 11 properties in the borrowing base under the credit agreement and the maximum borrowing availability under the revolving credit facility was approximately $115.0 million. We also had mortgage debt on individual hotels aggregating $132.1$175.8 million and $159.7$159.7 million at March 31,June 30, 2013 and December 31, 2012, respectively.KeyOther key features of the credit facility are as follows:Facility amount $ 95 millionAccordion featureAdditional $20115 millionLIBOR floor None Interest rate applicable margin 200-300 basis points, based on leverage ratio Unused fee 25 basis points if less than 50% unused, 35 basis points if more than 50% unused Minimum fixed charge coverage ratio 1.5x March 31, 2013.June 30, 2013. We expect to meet all financial covenants in 2013 based upon our current projections.senior secured credit facility, including debt incurred to acquire the Portland Hotel and the Houston CY Hotel.declaredapproved a change in the frequency of our dividend payments to monthly in January, with a targeted monthly dividend of $0.07 per common share and LTIP unit for each month in 2013. The aggregate amount of dividends declared for the first quarterand second quarters were $0.21$0.42 per common share and LTIP unit.March 31,June 30, 2013 and 2012, we invested approximately $3.9$4.8 million and $2.7$1.8 million, respectively, and for the six months ended June 30, 2013 and 2012, we invested approximately $8.7 million and $4.9, respectively, on capital investments in our hotels. We expect to invest an additional $3.9$2.5 million on capital improvements on our existing hotels for the remainder of 2013 and approximately $3.7$2.5 million on the rebranding of our Washington, D.C hotel to a Residence Inn by Marriott.March 31,June 30, 2013, and the effect these obligations are expected to have on our liquidity and cash flow in future periods (in thousands). We had no other material off-balance sheet arrangements at March 31,June 30, 2013 other than non-recourse debt associated with the Innkeepers JV and the Torrance JV as discussed below. Payments Due by Period Total Less Than
One Year One to Three
Years Three to Five
Years More Than Five
Years $ 103 $ 39 $ 64 $ — $ — 105,048 2,931 102,117 — — 12,493 205 417 426 11,445 160,738 6,540 21,868 51,511 80,819 $ 278,382 $ 9,715 $ 124,466 $ 51,937 $ 92,264 Payments Due by Period Contractual Obligations Total Less Than
One Year One to Three
Years Three to Five
Years More Than Five
YearsCorporate office lease $ 84 $ 20 $ 64 $ — $ — Revolving credit facility, including interest (1) 33,764 1,119 32,645 — — Ground leases 12,391 103 417 426 11,445 Property loans, including interest (1) 220,824 5,694 27,204 56,846 131,080 $ 267,063 $ 6,936 $ 60,330 $ 57,272 $ 142,525 (1) March 31,June 30, 2013 and interest payments are based on the interest rate in effect as of March 31, 2013.June 30, 2013. See Note 8, “Debt” to our unaudited consolidated financial statements for additional information relating to our property loans.interestinterests in the Innkeepers JV isand the Torrance JV are subject to change in the event that either Chatham or Cerberus calls for additional capital contributions to the Innkeepers JV or the Torrance JV, as applicable, necessary for the conduct of itsthat JV's business, including contributions to fund costs and expenses related to capital expenditures. We manage the Innkeepers JV and the Torrance JV and will receive a promote interest in the applicable JV if the JVit meets certain return thresholds. Cerberus may also approve certain actions by theeither JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of theeither JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under theeither joint venture agreement.JV mortgage loans in either the Innkeepers JV or the Torrance JV, our Operating Partnership could be required to repay portions of the indebtedness, up to an amount commensurate with our 10.3% interest in theeach respective JV, in connection with certain customary non-recourse carve-out provisions such as environmental conditions, misuse of funds, and material misrepresentations.2012.a materialany impact on the Company’s condensed consolidated financial statements.March 31,June 30, 2013 and December 31, 2012 was $138.3$177.9 million and $168.2 million, respectively.March 31,June 30, 2013, our consolidated debt was comprised of floating and fixed interest rate debt. The fair value of our fixed rate debt indicates the estimated principal amount of debt having the same debt service requirements that could have been borrowed at the date presented, at then current market interest rates. The following table provides information about the maturities of our financial instruments that are sensitive to changes in interest rates (in thousands): 2013 2014 2015 2016 2017 Thereafter Total Fair Value $ 96,500 $ 96,500 $ 96,503 2.96 % 2.96 % $ 1,291 $ 1,871 $ 6,520 $ 39,961 $ 1,705 $ 80,772 $ 132,120 $ 138,340 5.07 % 5.06 % 5.61 % 5.93 % 4.84 % 4.78 % 5.18 % 2013 2014 2015 2016 2017 Thereafter Total Fair Value Floating rate: Debt $ 30,500 $ 30,500 $ 30,501 Average interest rate (1) 2.70 % 2.70 % Fixed rate: Debt $1,147 $2,547 $7,286 $ 40,731 $ 2,546 $121,585 $ 175,842 $ 177,988 Average interest rate 4.92 % 4.90 % 5.48 % 5.90 % 4.70 % 4.67 % 4.99 % (1) 0.210.20 % plus a margin of 2.75%2.50% at March 31, 2013.June 30, 2013.$1.0$0.3 million annually. This assumes that the amount outstanding under our floating rate debt remains at $96.5$30.5 million, the balance as of March 31, 2013.June 30, 2013.2012.2012. 10.1 Share Award Agreement, dated as of January 29,May 17, 2013, between Chatham Lodging Trust and Jeffrey H. Fisher (Performance-Based Share Awards).10.2 Share Award Agreement, dated as of January 29,May 17, 2013, between Chatham Lodging Trust and Dennis M. Craven (Performance-Based Share Awards).10.3 Share Award Agreement, dated as of January 29,May 17, 2013, between Chatham Lodging Trust and Peter Willis (Performance-Based Share Awards).10.4 Chatham Lodging Trust Equity Incentive Plan, Amended and Restated as of May 17, 2013 (incorporated by reference to the Company's Definitive Proxy Statement on Schedule 14A filed on April 15, 2013). 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. CHATHAM LODGING TRUST CHATHAM LODGING TRUSTDated: MayAugust 8, 2013 Dennis M. Craven Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 30