Company Results

Chesapeake Lodging Trust First Quarter Adjusted FFO Per Share Increased 67%

RevPAR: 12.0% pro forma increase for the 17-hotel portfolio and 7.1% pro forma increase for the 20-hotel

Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported its financial results for the quarter ended March 31, 2014.

HIGHLIGHTS

  • RevPAR: 12.0% pro forma increase for the 17-hotel portfolio and 7.1% pro forma increase for the 20-hotel portfolio over the same period in 2013.
  • Adjusted Hotel EBITDA Margin: 320 basis point pro forma increase for the 17-hotel portfolio and 220 basis point pro forma increase for the 20-hotel portfolio over the same period in 2013.
  • Adjusted Hotel EBITDA: $21.9 million.
  • Adjusted Corporate EBITDA: $18.0 million.
  • Adjusted FFO: $12.2 million or $0.25 per diluted common share.
  • Dividends: Increased first quarter 2014 dividend by 15.4% to $0.30 per common share (4.5% annualized yield based on the closing price of the Trust’s common shares on April 29, 2014).

“We are off to a great start in 2014 with strong performance by our hotel portfolio during the first quarter. Our 17-hotel portfolio outperformed our expectations with a 12.0% pro forma increase in RevPAR and 320 basis points of pro forma margin expansion as a result of our concentration in strong markets and asset management initiatives. We are also pleased with the improvements we are seeing at the hotels acquired in 2013, driven by enhanced revenue management and operational changes we have instituted which have significantly improved margins,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, “We are also pleased to report that substantially all of the guestrooms at our W Chicago – Lakeshore have now been renovated and the lobby, restaurant and bar are expected to be completed in the next several weeks, all within our expected time frame and budgeted costs. Initial feedback from guests has been extremely positive and we couldn’t be more excited about the future prospects of the W Chicago – Lakeshore and the spectacular new product.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three months ended March 31, 2014 and 2013 (in millions, except share and per share amounts):

     

Three months ended March 31,

2014(1)

     

2013(2)

 
Total revenue $ 94.8 $ 70.6
 
Net loss available to common shareholders $ (0.2 ) $ (4.9 )
Net loss per diluted common share $ (0.01 ) $ (0.11 )
 
Adjusted Hotel EBITDA $ 21.9 $ 15.6
 
Adjusted Corporate EBITDA $ 18.0 $ 12.2
 
AFFO available to common shareholders $ 12.2 $ 6.8
AFFO per diluted common share $ 0.25 $ 0.15
 

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

48,961,556 44,493,165

HOTEL OPERATING RESULTS

Management assesses the operating performance of its hotels irrespective of the hotel owner during the periods compared. The Trust uses the term “pro forma” to refer to metrics that include, or comparison of metrics that are based on, the hotel operating results of previous ownership for either a portion of or the entire period. Since five of the Trust’s hotels owned as of March 31, 2014 were acquired at various times during 2013, the key operating metrics for the 17-hotel portfolio and the 20-hotel portfolio reflect the pro forma operating results of those five hotels for the first quarter 2013. Included in the following table are comparisons 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 for the three months ended March 31, 2014 and 2013 (in thousands, except ADR and RevPAR):

     
Three months ended March 31,
2014       2013(1)       Change

17-Hotel Portfolio(2)

Occupancy 78.6% 74.3% 430 bps
ADR $ 179.26 $ 169.36 5.8%
RevPAR $ 140.90 $ 125.79 12.0%
 
Adjusted Hotel EBITDA $ 20,948 $ 16,294 28.6%
Adjusted Hotel EBITDA Margin 25.1% 21.9% 320 bps
 

20-Hotel Portfolio

Occupancy 74.4% 72.7% 170 bps
ADR $ 178.51 $ 170.51 4.7%
RevPAR $ 132.80 $ 123.96 7.1%
 
Adjusted Hotel EBITDA $ 21,940 $ 18,492 18.6%
Adjusted Hotel EBITDA Margin 23.1% 20.9% 220 bps

Hotel EBITDA, Adjusted Hotel EBITDA, Adjusted Hotel EBITDA Margin, Corporate EBITDA, Adjusted Corporate EBITDA, FFO, FFO available to common shareholders and AFFO available to common shareholders 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 expected to be substantially completed in May 2014 and within the Trust’s budgeted cost of $38.0 million.

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 May 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 continues to expect 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

The Trust did not sell any common shares under the continuous at-the-market (ATM) program during the first quarter of 2014 and through the date of this release.

DIVIDENDS

On January 15, 2014, 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 December 31, 2013. On February 20, 2014, the Trust declared dividends in the amounts of $0.30 per share payable to its common shareholders and $0.484375 per share payable to its preferred shareholders, both of record as of March 31, 2014. Both dividends were paid on April 15, 2014.

2014 OUTLOOK

The Trust is increasing its 2014 outlook to incorporate its first quarter results and recent operating trends and fundamentals. The updated outlook assumes no additional acquisitions, dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

           

Second Quarter 2014

Outlook
Low High
CONSOLIDATED:
 
Net income available to common shareholders $ 15.7 $ 17.2
Net income per diluted common share $ 0.32 $ 0.35
 
Adjusted Corporate EBITDA $ 40.9 $ 42.6
 
AFFO available to common shareholders $ 29.0 $ 30.5
AFFO per diluted common share $ 0.59 $ 0.62
 
Corporate general and administrative expense $ 3.7 $ 3.8
 
Weighted-average number of diluted common shares outstanding 49.0 49.0
 
HOTEL PORTFOLIO:
 

17-Hotel Portfolio(1)

RevPAR $ 184.00 $ 188.00
Pro forma RevPAR increase over 2013(2) 5.0% 7.0%
Adjusted Hotel EBITDA $ 38.8 $ 40.3
Adjusted Hotel EBITDA Margin 36.0% 36.7%
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 100 bps 175 bps
 

20-Hotel Portfolio

RevPAR $ 179.00 $ 183.00
Pro forma RevPAR increase over 2013(2) 2.0% 4.0%
Adjusted Hotel EBITDA $ 44.6 $ 46.4
Adjusted Hotel EBITDA Margin 35.2% 35.9%
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 25 bps 100 bps
           

Full Year 2014

Updated Outlook Previous Outlook
Low       High Low       High
CONSOLIDATED:
 
Net income available to common shareholders $ 39.7 $ 44.5 $ 38.9 $ 43.7
Net income per diluted common share $ 0.81 $ 0.91 $ 0.79 $ 0.89
 
Adjusted Corporate EBITDA $ 132.7 $ 138.0 $ 131.2 $ 136.5
 
AFFO available to common shareholders $ 94.6 $ 99.4 $ 93.1 $ 97.9
AFFO per diluted common share $ 1.93 $ 2.03 $ 1.90 $ 2.00
 
Corporate general and administrative expense $ 14.5 $ 15.2 $ 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 $ 168.00 $ 171.00 $ 167.00 $ 170.00
Pro forma RevPAR increase over 2013(2) 5.5% 7.5% 5.0% 7.0%
Adjusted Hotel EBITDA $ 129.8 $ 134.8 $ 128.0 $ 133.0
Adjusted Hotel EBITDA Margin 32.7% 33.4% 32.5% 33.2%
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 100 bps 175 bps 75 bps 150 bps
 

20-Hotel Portfolio

RevPAR $ 163.00 $ 166.00 $ 162.00 $ 165.00
Pro forma RevPAR increase over 2013(2) 4.0% 6.0% 3.5% 5.5%
Adjusted Hotel EBITDA $ 147.2 $ 153.2 $ 145.2 $ 151.2
Adjusted Hotel EBITDA Margin 31.7% 32.4% 31.4% 32.1%
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 50 bps 125 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 are undergoing comprehensive renovations during 2014.
(2) The comparable 2013 period includes results of operations for certain hotels prior to their acquisition by the Trust.
 

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) Hotel EBITDA, (2) Adjusted Hotel EBITDA, (3) Adjusted Hotel EBITDA Margin, (4) Corporate EBITDA, (5) Adjusted Corporate EBITDA, (6) FFO, (7) FFO available to common shareholders and (8) AFFO available to common shareholders. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included in the accompanying financial tables.

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.

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.

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.

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)
 
 
March 31, 2014 December 31, 2013
(unaudited)
 
ASSETS
Property and equipment, net $ 1,431,589 $ 1,422,439
Intangible assets, net 38,631 38,781
Cash and cash equivalents 34,684 28,713
Restricted cash 33,841 34,235
Accounts receivable, net 18,061 13,011
Prepaid expenses and other assets 13,899 10,478
Deferred financing costs, net   5,782     6,501  
Total assets $ 1,576,487   $ 1,554,158  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt $ 564,239 $ 531,771
Accounts payable and accrued expenses 48,307 45,982
Other liabilities   31,714     29,848  
Total liabilities   644,260     607,601  
 
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; 50,033,997 shares and 49,574,005 shares issued and outstanding, respectively

501 496
Additional paid-in capital 992,308 991,417
Cumulative dividends in excess of net income (60,593 ) (45,339 )
Accumulated other comprehensive loss   (39 )   (67 )
Total shareholders' equity   932,227     946,557  
 
Total liabilities and shareholders' equity $ 1,576,487   $ 1,554,158  
 
 
 
SUPPLEMENTAL CREDIT INFORMATION:
 
Fixed charge coverage ratio(1) 2.60 2.67
Leverage ratio(1) 34.9 % 33.5 %
           
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
 
Three Months Ended March 31,
2014 2013
 
REVENUE
Rooms $ 70,839 $ 51,544
Food and beverage 20,268 15,912
Other   3,667     3,145  
Total revenue   94,774     70,601  
 
EXPENSES
Hotel operating expenses:
Rooms 18,619 14,019
Food and beverage 16,210 12,592
Other direct 1,781 1,771
Indirect   36,149     26,580  

Total hotel operating expenses

72,759 54,962
Depreciation and amortization 12,498 8,839
Air rights contract amortization 130 130
Corporate general and administrative 3,920 3,342
Hotel acquisition costs   -     2,899  
Total operating expenses   89,307     70,172  

 

 

 

 

 

Operating income 5,467 429
 
Interest income - 218
Interest expense   (6,686 )   (5,441 )
 
Loss before income taxes (1,219 ) (4,794 )
 
Income tax benefit   3,397     2,284  
 
Net income (loss) 2,178 (2,510 )
 
Preferred share dividends   (2,422 )   (2,422 )
 
Net loss available to common shareholders $ (244 ) $ (4,932 )
 
Net loss per common share - basic and diluted $ (0.01 ) $ (0.11 )

 

 

 

Weighted-average number of common shares outstanding - basic and diluted 48,961,556 44,493,165
 
           
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Three Months Ended March 31,
2014 2013
 
Cash flows from operating activities:
Net income (loss) $ 2,178 $ (2,510 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 12,498 8,839
Air rights contract amortization 130 130
Deferred financing costs amortization 719 619
Share-based compensation 1,326 1,133
Other (141 ) (131 )
Changes in assets and liabilities:
Accounts receivable, net (5,050 ) (4,710 )
Prepaid expenses and other assets (3,421 ) (2,697 )
Accounts payable and accrued expenses 2,135 3,021
Other liabilities   (7 )   (6 )
Net cash provided by operating activities   10,367     3,688  
 
Cash flows from investing activities:
Acquisition of hotels, net of cash acquired - (101,941 )
Receipt of deposit on hotel acquisition - 700
Improvements and additions to hotels (21,648 ) (4,572 )
Repayment of hotel construction loan - 7,810
Change in restricted cash   394     (1,057 )
Net cash used in investing activities   (21,254 )   (99,060 )
 
Cash flows from financing activities:
Proceeds from sale of common shares, net of underwriting fees - 166,083
Payment of offering costs related to sale of common shares - (169 )
Borrowings under revolving credit facility 35,000 5,000
Repayments under revolving credit facility - (55,000 )
Proceeds from issuance of mortgage debt - 67,000
Scheduled principal payments on mortgage debt (2,479 ) (800 )
Payment of deferred financing costs - (1,048 )
Deposit on loan application - (390 )
Payment of dividends to common shareholders (12,811 ) (8,748 )
Payment of dividends to preferred shareholders (2,422 ) (2,422 )
Repurchase of common shares   (430 )   (1,088 )
Net cash provided by financing activities   16,858     168,418  
Net increase in cash 5,971 73,046
Cash and cash equivalents, beginning of period   28,713     33,194  
Cash and cash equivalents, end of period $ 34,684   $ 106,240  
 
 
CHESAPEAKE LODGING TRUST
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(unaudited)
 
 

The following table calculates Hotel EBITDA, Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin for the 17-hotel portfolio and the 20-hotel portfolio for the three months ended March 31, 2014 and 2013:

                       
Three Months Ended March 31,

17-Hotel Portfolio(1)

20-Hotel Portfolio
2014

2013(2)

2014

2013(2)

 
Total revenue $ 83,409 $ 74,295 $ 94,774 $ 88,510
Less: Total hotel operating expenses   62,386     57,933     72,759     69,950  
Hotel EBITDA 21,023 16,362 22,015 18,560
 
Less: Non-cash amortization(3)   (75 )   (68 )   (75 )



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