Company Results

Chesapeake Lodging Trust Fourth Quarter RevPAR Up 4.8%

Pro Forma Adjusted Hotel EBITDA Margin: 110 basis point increase for comparable 19-hotel portfolio over the same period in 2012.

Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported last week its financial results for the quarter ended December 31, 2013.

HIGHLIGHTS

  • Pro Forma RevPAR: 4.8% increase for comparable 19-hotel portfolio over the same period in 2012 (7.1% increase excluding the W Chicago – Lakeshore).
  • Pro Forma Adjusted Hotel EBITDA Margin: 110 basis point increase for comparable 19-hotel portfolio over the same period in 2012.
  • Dividends: Increased first quarter 2014 dividend by 15.4% to $0.30 per common share (4.6% annualized yield based on the closing price of the Trust’s common shares on February 19, 2014).

“We are encouraged by the strong performance of our hotel portfolio during the fourth quarter despite the impact of the government shutdown that occurred in October,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer. “We saw lodging demand re-accelerate towards the end of 2013 and we continue to see positive trends in hotel fundamentals as we begin 2014, giving us confidence to increase our quarterly dividend by 15%.”

Mr. Francis continued, “Our comprehensive renovation at the W Chicago – Lakeshore is progressing well and we continue to expect that it will be completed in the second quarter and within the budgeted cost. We are also very excited about the upcoming conversions of our hotel on 31st Street in midtown Manhattan to the Hyatt brand and our W New Orleans to the Le Meridien brand. We believe these projects will create tremendous value for our shareholders and provide outsized growth for our hotel portfolio starting later this year.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three months and year ended December 31, 2013 (in millions, except share and per share amounts):

Three months ended Year ended
December 31, December 31,
2013(1) 2012(2) 2013(3) 2012(4)
Total revenue $ 111.6 $ 85.1 $ 420.2 $ 278.3
Net income available to common shareholders $ 9.1 $ 7.5 $ 35.6 $ 22.8
Net income per diluted common share $ 0.18 $ 0.19 $ 0.75 $ 0.66
FFO available to common shareholders $ 21.5 $ 15.9 $ 79.7 $ 51.5
FFO per diluted common share $ 0.44 $ 0.40 $ 1.69 $ 1.51
AFFO available to common shareholders $ 21.6 $ 16.0 $ 84.2 $ 54.8
AFFO per diluted common share $ 0.44 $ 0.41 $ 1.78 $ 1.61
Corporate EBITDA $ 31.1 $ 23.8 $ 117.3 $ 77.6
Adjusted Corporate EBITDA $ 31.2 $ 24.0 $ 121.8 $ 80.9

Weighted-average number of common shares outstanding - basic and diluted

48,884,102 39,391,677 47,295,089 34,048,752

________________________________

(1) Includes results of operations of 20 hotels for the full period.
(2) Includes results of operations of 14 hotels for the full period and one hotel for part of the period.
(3) Includes results of operations of 15 hotels for the full period and five hotels for part of the period.
(4) Includes results of operations of 11 hotels for the full period and four hotels for part of the period.

HOTEL OPERATING RESULTS

Management assesses the operating performance of its hotels irrespective of the hotel owner during the periods compared. Included in the following table are comparisons, on a pro forma basis, of occupancy, average daily rate (ADR), room revenue per available room (RevPAR), Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin, the key operating metrics that management uses to assess the performance of its hotels. The key operating metrics include the hotel operating results of 19 of the Trust’s 20 hotels owned as of December 31, 2013. The key operating metrics do not include operating results for the Hyatt Place New York Midtown South, as the hotel does not have comparable prior year operating results given it was newly developed in 2013. The following is a summary of the key operating metrics for the three months and year ended December 31, 2013 (in thousands, except pro forma ADR and pro forma RevPAR):

Pro forma RevPAR increase for the fourth quarter 2013 was negatively impacted by displacement from a comprehensive renovation at the 520-room W Chicago – Lakeshore. Excluding the W Chicago – Lakeshore, pro forma RevPAR increase for the fourth quarter of 2013 was 7.1%.

Funds from operations (FFO), FFO available to common shareholders, Adjusted FFO (AFFO) available to common shareholders, net income before interest, income taxes, and depreciation and amortization (Corporate EBITDA), Adjusted Corporate EBITDA, Hotel EBITDA, Adjusted Hotel EBITDA and Adjusted Hotel EBITDA Margin are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

MAJOR REPOSITIONINGS

The comprehensive renovation at the 520-room W Chicago – Lakeshore, which commenced in the third quarter of 2013, is progressing in accordance with our budgeted cost of $38.0 million and scheduled completion in the second quarter of 2014.

The Trust continues to expect that the comprehensive renovation at the 410-room W New Orleans to reposition the hotel to the Le Meridien brand will cost approximately $29.0 million, commence in the second quarter of 2014, and be completed in the fourth quarter of 2014.

On February 5, 2014, the Trust announced that it had entered into a franchise agreement with a Hyatt affiliate to convert the 122-room Holiday Inn New York City Midtown – 31st Street to the Hyatt Herald Square. Conversion of the hotel is expected to occur following the completion of a comprehensive renovation, which the Trust expects will cost approximately $6.0 million. The hotel will be closed throughout the renovation, which is expected to commence and be completed in the third quarter of 2014.

CAPITAL MARKETS ACTIVITY

During the fourth quarter 2013, the Trust issued and sold 854,800 common shares at an average price of $23.64 per share under its continuous at-the-market (ATM) program, generating net proceeds of $19.9 million after deducting sales commissions and offering costs.

DIVIDENDS

On October 15, 2013, the Trust paid dividends in the amounts of $0.26 per share to its common shareholders and $0.484375 per share to its preferred shareholders, both of record as of September 30, 2013. On December 16, 2013, the Trust declared dividends in the amounts of $0.26 per share payable to its common shareholders and $0.484375 per share payable to its preferred shareholders, both of record as of December 31, 2013. Both dividends were paid on January 15, 2014.

On February 20, 2014, the Trust declared dividends in the amounts of $0.30 per share to its common shareholders and $0.484375 per share to its preferred shareholders, both of record as of March 31, 2014. The dividends will be paid on April 15, 2014.

2014 OUTLOOK

The Trust reaffirms its previously provided full year 2014 outlook and is incorporating its first quarter 2014 outlook as follows (in millions, except pro forma RevPAR and per share amounts):

First Quarter Full Year
2014 Outlook 2014 Outlook
Low High Low High
CONSOLIDATED:
Net income (loss) available to common shareholders $ (3.2 ) $ (2.3 ) $ 38.9 $ 43.7
Net income (loss) per diluted common share $ (0.07 ) $ (0.05 ) $ 0.79 $ 0.89
Adjusted Corporate EBITDA $ 15.7 $ 16.8 $ 131.2 $ 136.5
AFFO available to common shareholders $ 9.8 $ 10.7 $ 93.1 $ 97.9
AFFO per diluted common share $ 0.20 $ 0.22 $ 1.90 $ 2.00
Corporate general and administrative expense $ 3.6 $ 3.7 $ 14.0 $ 14.7
Weighted-average number of diluted common shares outstanding 49.0 49.0 49.0 49.0
HOTEL PORTFOLIO:

17-Hotel Portfolio(1)

RevPAR $ 135.00 $ 137.00 $ 167.00 $ 170.00
Pro forma RevPAR increase over 2013(2) 7.0 % 9.0 % 5.0 % 7.0 %
Adjusted Hotel EBITDA $ 18.7 $ 19.6 $ 128.0 $ 133.0
Adjusted Hotel EBITDA Margin 23.4 % 24.2 % 32.5 % 33.2 %
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 150 bps 225 bps 75 bps 150 bps

20-Hotel Portfolio

RevPAR $ 128.00 $ 131.00 $ 162.00 $ 165.00
Pro forma RevPAR increase over 2013(2) 3.5 % 5.5 % 3.5 % 5.5 %
Adjusted Hotel EBITDA $ 19.3 $ 20.5 $ 145.2 $ 151.2
Adjusted Hotel EBITDA Margin 21.1 % 21.9 % 31.4 % 32.1 %
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 25 bps 100 bps 25 bps 100 bps

___________________________

(1) Excludes the W Chicago – Lakeshore, the W New Orleans, and the Holiday Inn New York City Midtown – 31st Street, as these hotels will be undergoing comprehensive renovations during 2014.
(2) The comparable 2013 period includes operating results for certain hotels prior to their acquisition by the Trust in 2013.

The Trust’s 2014 outlook assumes no additional acquisitions, dispositions, or financing transactions. See the accompanying financial tables for quarterly pro forma hotel operating results for the 17-hotel and 20-hotel portfolios for 2013.

NON-GAAP FINANCIAL MEASURES

The Trust reports the following eight non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1) FFO, (2) FFO available to common shareholders, (3) AFFO available to common shareholders, (4) Corporate EBITDA, (5) Adjusted Corporate EBITDA, (6) Hotel EBITDA, (7) Adjusted Hotel EBITDA and (8) Adjusted Hotel EBITDA Margin. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included in the accompanying financial tables.

FFO – The Trust calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization, impairment charges, gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. By excluding the effect of depreciation and amortization and gains (losses) from sales of real estate, both of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, the Trust believes that FFO provides investors a useful financial measure to evaluate the Trust’s operating performance.

FFO available to common shareholders – The Trust reduces FFO for preferred share dividends and dividends declared on and earnings allocated to unvested time-based awards (consistent with adjustments required by GAAP in reporting net income available to common shareholders and related per share amounts). FFO available to common shareholders provides investors another financial measure to evaluate the Trust’s operating performance after taking into account the interests of holders of the Trust’s preferred shares and unvested time-based awards.

AFFO available to common shareholders – The Trust further adjusts FFO available to common shareholders for certain additional recurring and non-recurring items that are not in NAREIT’s definition of FFO. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and liabilities, including air rights contracts, ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that AFFO available to common shareholders provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

Corporate EBITDA – Corporate EBITDA is defined as net income before interest, income taxes, and depreciation and amortization. The Trust believes that Corporate EBITDA provides investors a useful financial measure to evaluate the Trust’s operating performance, excluding the impact of the Trust’s capital structure (primarily interest expense) and the Trust’s asset base (primarily depreciation and amortization).

Adjusted Corporate EBITDA – The Trust further adjusts Corporate EBITDA for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and liabilities, including air rights contracts, ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that Adjusted Corporate EBITDA provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

Hotel EBITDA – Hotel EBITDA is defined as total revenues less total hotel operating expenses. The Trust believes that Hotel EBITDA provides investors a useful financial measure to evaluate the Trust’s hotel operating performance.

Adjusted Hotel EBITDA – The Trust further adjusts Hotel EBITDA for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for non-cash amortization of intangible assets and liabilities, including ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that Adjusted Hotel EBITDA provides investors with another useful financial measure to evaluate the Trust’s hotel operating performance.

Adjusted Hotel EBITDA Margin – Adjusted Hotel EBITDA Margin is defined as Adjusted Hotel EBITDA as a percentage of total revenues. The Trust believes that Adjusted Hotel EBITDA Margin provides investors another useful financial measure to evaluate the Trust’s hotel operating performance.

ABOUT CHESAPEAKE LODGING TRUST

Chesapeake Lodging Trust is a self-advised lodging real estate investment trust (REIT) focused on investments primarily in upper-upscale hotels in major business and convention markets and, on a selective basis, premium select-service hotels in urban settings or unique locations in the United States. The Trust owns 20 hotels with an aggregate of 5,932 rooms in eight states and the District of Columbia.

CHESAPEAKE LODGING TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
2013 2012
ASSETS
Property and equipment, net $ 1,422,439 $ 1,107,722
Intangible assets, net 38,781 39,382
Cash and cash equivalents 28,713 33,194
Restricted cash 34,235 23,460
Accounts receivable, net 13,011 8,384
Prepaid expenses and other assets 10,478 14,056
Deferred financing costs, net 6,501 6,630
Total assets $ 1,554,158 $ 1,232,828
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 531,771 $ 405,208
Accounts payable and accrued expenses 45,982 34,868
Other liabilities 29,848 25,944
Total liabilities 607,601 466,020
Commitments and contingencies

Preferred shares, $.01 par value; 100,000,000 shares authorized; Series A Cumulative Redeemable Preferred Shares; 5,000,000 shares issued and outstanding ($127,422 liquidation preference)

50 50

Common shares, $.01 par value; 400,000,000 shares authorized; 49,574,005 shares and 39,763,930 shares issued and outstanding, respectively

496 398
Additional paid-in capital 991,417 799,278
Cumulative dividends in excess of net income (45,339 ) (32,089 )
Accumulated other comprehensive loss (67 ) (829 )
Total shareholders' equity 946,557 766,808
Total liabilities and shareholders' equity $ 1,554,158 $ 1,232,828
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended December 31, Year Ended December 31,
2013 2012 2013 2012
(unaudited)
REVENUE
Rooms $ 82,397 $ 61,871 $ 316,434 $ 210,265
Food and beverage 24,704 19,374 86,884 57,673
Other 4,462 3,855 16,859 10,338
Total revenue 111,563 85,100 420,177 278,276
EXPENSES
Hotel operating expenses:
Rooms 19,664 14,862 73,711 48,159
Food and beverage 17,798 13,928 65,090 41,678
Other direct 2,002 1,944 8,042 5,137
Indirect 37,635 27,628 138,120 90,868
Total hotel operating expenses 77,099 58,362 284,963 185,842
Depreciation and amortization 12,457 8,509 44,469 28,931
Air rights contract amortization 130 130 520 520
Corporate general and administrative 3,204 2,691 13,125 11,297
Hotel acquisition costs 27 77 4,222 2,994
Total operating expenses 92,917 69,769 347,299 229,584
Operating income 18,646 15,331 72,878 48,692
Interest income - 103 247 199
Interest expense (6,794 ) (5,361 ) (25,780 ) (20,976 )
Loss on early extinguishment of debt - - (372 ) -
Income before income taxes 11,852 10,073 46,973 27,915
Income tax expense (324 ) (186 ) (1,655 ) (738 )
Net income 11,528 9,887 45,318 27,177
Preferred share dividends (2,422 ) (2,422 ) (9,688 ) (4,413 )
Net income available to common shareholders $ 9,106 $ 7,465 $ 35,630 $ 22,764
Net income per common share - basic and diluted $ 0.18 $ 0.19 $ 0.75 $ 0.66

Weighted-average number of common shares outstanding - basic and diluted

48,884,102 39,391,677 47,295,089 34,048,752
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2013 2012
Cash flows from operating activities:
Net income $ 45,318 $ 27,177

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 44,469 28,931
Air rights contract amortization



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