Company Results

Chesapeake Lodging Trust Reports Second Quarter 2014 Results

RevPAR: 7.0% pro forma increase for the 17-hotel portfolio and 3.4% pro forma increase for the 20-hotel portfolio over the same period in 2013.

Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported today its financial results for the quarter ended June 30, 2014.

HIGHLIGHTS

  • RevPAR: 7.0% pro forma increase for the 17-hotel portfolio and 3.4% pro forma increase for the 20-hotel portfolio over the same period in 2013.
  • Adjusted Hotel EBITDA Margin: 250 basis point pro forma increase for the 17-hotel portfolio and 170 basis point pro forma increase for the 20-hotel portfolio over the same period in 2013.
  • Adjusted Hotel EBITDA: $47.1 million.
  • Adjusted Corporate EBITDA: $43.2 million.
  • Adjusted FFO: $31.2 million or $0.64 per diluted common share.
  • Financing: Subsequent to quarter end, refinanced an existing $60.0 million loan, replacing it with a $90.0 million, 10-year loan at 4.30%.

"We are pleased with the performance of our hotel portfolio in the second quarter. Our 17-hotel portfolio achieved an occupancy level of over 87% which allowed our hotel managers to increase daily rates resulting in RevPAR growth at the top end of our guidance range. With the ADR-driven RevPAR growth for the quarter and our continued focus on reducing or limiting increases in expenses, we were able to expand hotel EBITDA margins by 250 basis points, well exceeding our guidance range for the quarter," said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, "We are very proud of the renovated product at our W Chicago – Lakeshore, which we completed in the second quarter on-time and within budget. We have commenced the comprehensive renovations and rebrandings of the former W New Orleans and the former Holiday Inn New York City Midtown – 31st Street, which are scheduled to be completed in the Fall. We expect these three newly renovated hotels will provide outsized growth and add significant value to our overall hotel portfolio."

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three and six months ended June 30, 2014 and 2013 (in millions, except share and per share amounts):

           
Three months ended June 30, Six months ended June 30,
2014(1)       2013(2) 2014(1)       2013(3)
Total revenue $ 128.9 $ 115.6 $ 223.6 $ 186.2
 
Net income available to common shareholders $ 18.8 $ 14.6 $ 18.6 $ 9.7
Net income per diluted common share $ 0.38 $ 0.30 $ 0.37 $ 0.21
 
Adjusted Hotel EBITDA $ 47.1 $ 42.1 $ 69.0 $ 57.7
 
Adjusted Corporate EBITDA $ 43.2 $ 38.5 $ 61.2 $ 50.7
 
AFFO available to common shareholders $ 31.2 $ 26.6 $ 43.5 $ 33.5
AFFO per diluted common share $ 0.64 $ 0.56 $ 0.89 $ 0.72
 

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

48,977,876 47,862,652 48,969,761 46,187,216
___________

(1)

 

Includes results of operations of 20 hotels for the full period.

(2)

Includes results of operations of 17 hotels for the full period and three hotels 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.

 

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 comparisons of metrics that are based on, the operating results of hotels under previous ownership for either a portion of or the entire period. Since five of the Trust’s hotels owned as of June 30, 2014 were acquired at various times during 2013, the key operating metrics for the 17-hotel portfolio and 20-hotel portfolio reflect the pro forma operating results of three of those hotels for the three months ended June 30, 2013 and five of those hotels for the six months ended June 30, 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 and six months ended June 30, 2014 and 2013 (in thousands, except ADR and RevPAR):

           
Three months ended June 30, Six months ended June 30,
2014      

2013(1)

      Change 2014      

2013(1)

      Change

17-Hotel Portfolio(2)

Occupancy 87.2 % 86.5 % 70 bps 82.9 % 80.5 % 240 bps
ADR $ 215.52 $ 203.08 6.1 % $ 198.44 $ 187.82 5.7 %
RevPAR $ 188.00 $ 175.69 7.0 % $ 164.58 $ 151.21 8.8 %
 
Adjusted Hotel EBITDA $ 41,499 $ 36,544 13.6 % $ 62,447 $ 52,838 18.2 %
Adjusted Hotel EBITDA Margin 37.5 % 35.0 % 250 bps 32.2 % 29.5 % 270 bps
 

20-Hotel Portfolio

Occupancy 84.6 % 85.6 % (100) bps 79.5 % 79.2 % 30 bps
ADR $ 215.10 $ 205.64 4.6 % $ 198.08 $ 189.79 4.4 %
RevPAR $ 181.92 $ 175.93 3.4 % $ 157.49 $ 150.37 4.7 %
 
Adjusted Hotel EBITDA $ 47,104 $ 43,977 7.1 % $ 69,044 $ 62,469 10.5 %
Adjusted Hotel EBITDA Margin 36.6 % 34.9 % 170 bps 30.9 % 29.1 % 180 bps
__________

(1)

 

Includes results of operations for certain hotels prior to their acquisition by the Trust.

(2)

Excludes the W Chicago – Lakeshore, the Hotel New Orleans Downtown (formerly the W New Orleans), and the Hyatt Herald Square (formerly the Holiday Inn New York City Midtown – 31st Street), as these hotels have undergone or are undergoing comprehensive renovations during 2014.

 

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, was completed in the second quarter of 2014 with a total expected cost of approximately $38.0 million.

The comprehensive renovation at the former 410-room W New Orleans to reposition the hotel commenced in the second quarter of 2014. In July 2014, the Trust and its hotel manager, Starwood Hotels & Resorts Worldwide, Inc., agreed to remove the W brand from the hotel for the duration of the renovation and rename it the Hotel New Orleans Downtown. The Trust continues to expect the renovation will cost approximately $29.0 million and be completed in the fourth quarter of 2014, at which time the hotel will be re-branded as the Le Meridien New Orleans.

The comprehensive renovation at the former 122-room Holiday Inn New York City Midtown – 31st Street to reposition the hotel as the Hyatt Herald Square commenced in the third quarter of 2014 with the closure of the hotel on August 1, 2014. The Trust expects the renovation to be completed and the hotel to re-open by October 1, 2014 and that the renovation will cost approximately $6.5 million.

CAPITAL MARKETS

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

DIVIDENDS

On April 15, 2014, the Trust paid 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. On May 16, 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 June 30, 2014. Both dividends were paid on July 15, 2014.

FINANCING ACTIVITY

On July 3, 2014, the Trust completed the refinancing of its $60.0 million term loan secured by the Hyatt Herald Square (formerly the Holiday Inn New York City Midtown – 31st Street) and the Hyatt Place New York Midtown South. The term loan was refinanced with a new 10-year, $90.0 million, fixed-rate mortgage loan secured by the two hotels mentioned previously. The loan carries a fixed interest rate of 4.30% per annum and requires interest-only payments for the first two years and principal and interest payments thereafter based on a 30-year principal amortization. Excess proceeds from the refinancing were used to repay outstanding borrowings under the Trust’s revolving credit facility.

2014 OUTLOOK

The Trust is updating its 2014 outlook to incorporate its second quarter results, recent operating trends and fundamentals, and the refinancing of the $60.0 million term loan. The updated outlook assumes no additional acquisitions, dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

     

Third Quarter 2014

Outlook
Low       High
CONSOLIDATED:
 
Net income available to common shareholders $ 15.5 $ 17.0
Net income per diluted common share $ 0.32 $ 0.35
 
Adjusted Corporate EBITDA $ 40.5 $ 42.2
 
AFFO available to common shareholders $ 29.9 $ 31.4
AFFO per diluted common share $ 0.61 $ 0.64
 
Corporate general and administrative expense $ 3.5 $ 3.6
Weighted-average number of diluted common shares outstanding 49.0 49.0
 
HOTEL PORTFOLIO:
 

17-Hotel Portfolio(1)

RevPAR $ 193.00 $ 197.00
RevPAR increase over 2013 6.5 % 8.5 %
Adjusted Hotel EBITDA $ 40.4 $ 42.0
Adjusted Hotel EBITDA Margin 36.9 % 37.7 %
Adjusted Hotel EBITDA Margin increase over 2013 75 bps 150 bps
 

20-Hotel Portfolio

RevPAR $ 180.00 $ 184.00
RevPAR increase over 2013 3.0 % 5.0 %
Adjusted Hotel EBITDA $ 44.0 $ 45.8
Adjusted Hotel EBITDA Margin 35.0 % 35.7 %
Adjusted Hotel EBITDA Margin increase over 2013 0 bps 75 bps
_____________

(1)

 

Excludes the W Chicago – Lakeshore, the Hotel New Orleans Downtown (formerly the W New Orleans), and the Hyatt Herald Square (formerly the Holiday Inn New York City Midtown – 31st Street), as these hotels have undergone or are undergoing comprehensive renovations during 2014.

 
           

Full Year 2014

Updated Outlook Previous Outlook
Low       High Low       High
CONSOLIDATED:
 
Net income available to common shareholders $ 40.6 $ 44.5 $ 39.7 $ 44.5
Net income per diluted common share $ 0.83 $ 0.91 $ 0.81 $ 0.91
 
Adjusted Corporate EBITDA $ 134.0 $ 138.2 $ 132.7 $ 138.0
 
AFFO available to common shareholders $ 95.3 $ 99.3 $ 94.6 $ 99.4
AFFO per diluted common share $ 1.95 $ 2.03 $ 1.93 $ 2.03
 
Corporate general and administrative expense $ 14.8 $ 15.3 $ 14.5 $ 15.2
 
Weighted-average number of diluted common shares outstanding 49.0 49.0 49.0 49.0
 
HOTEL PORTFOLIO:
 

17-Hotel Portfolio(1)

RevPAR $ 169.00 $ 172.00 $ 168.00 $ 171.00
Pro forma RevPAR increase over 2013(2) 6.5 % 8.0 % 5.5 % 7.5 %
Adjusted Hotel EBITDA $ 131.9 $ 135.6 $ 129.8 $ 134.8
Adjusted Hotel EBITDA Margin 33.1 % 33.6 % 32.7 % 33.4 %
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 140 bps 190 bps 100 bps 175 bps
 

20-Hotel Portfolio

RevPAR $ 163.00 $ 166.00 $ 163.00 $ 166.00
Pro forma RevPAR increase over 2013(2) 4.0 % 6.0 % 4.0 % 6.0 %
Adjusted Hotel EBITDA $ 148.8 $ 153.5 $ 147.2 $ 153.2
Adjusted Hotel EBITDA Margin 32.1 % 32.5 % 31.7 % 32.4 %
Pro forma Adjusted Hotel EBITDA Margin increase over 2013(2) 90 bps 140 bps 50 bps 125 bps

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)
           
June 30, 2014 December 31, 2013
(unaudited)
ASSETS
Property and equipment, net $ 1,440,848 $ 1,422,439
Intangible assets, net 38,480 38,781
Cash and cash equivalents 40,047 28,713
Restricted cash 36,313 34,235
Accounts receivable, net 21,123 13,011
Prepaid expenses and other assets 15,362 10,478
Deferred financing costs, net 5,178   6,501  
Total assets $ 1,597,351   $ 1,554,158  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt $ 576,776 $ 531,771
Accounts payable and accrued expenses 51,440 45,982
Other liabilities 31,564   29,848  
Total liabilities 659,780   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; 50,048,154 shares and 49,574,005 shares issued and outstanding, respectively

501 496
Additional paid-in capital 993,801 991,417
Cumulative dividends in excess of net income (56,781 ) (45,339 )
Accumulated other comprehensive loss   (67 )
Total shareholders’ equity 937,571   946,557  
Total liabilities and shareholders’ equity $ 1,597,351   $ 1,554,158  
 
 
SUPPLEMENTAL CREDIT INFORMATION:
Fixed charge coverage ratio(1) 2.59 2.67
Leverage ratio(1) 35.9 % 33.5 %
 
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
           
Three Months Ended June 30, Six Months Ended June 30,
2014       2013 2014       2013
REVENUE
Rooms $ 98,118 $ 86,946 $ 168,957 $ 138,490
Food and beverage 26,063 24,313 46,331 40,225
Other 4,684   4,311   8,351   7,456  
Total revenue 128,865   115,570   223,639   186,171  
 
EXPENSES
Hotel operating expenses:
Rooms 21,326 19,167 39,945 33,186
Food and beverage 18,730 17,142 34,940 29,734
Other direct 1,998 1,936 3,779 3,707
Indirect 39,633   35,125   75,782   61,705  
Total hotel operating expenses 81,687 73,370 154,446 128,332
Depreciation and amortization 12,524 10,838 25,022 19,677
Air rights contract amortization 130 130 260 260
Corporate general and administrative 3,891 3,643 7,811 6,985
Hotel acquisition costs   1,237     4,136  
Total operating expenses 98,232   89,218   187,539   159,390  
 
Operating income 30,633 26,352 36,100 26,781
 
Interest income 25 243
Interest expense (6,828 ) (6,346 ) (13,514 ) (11,787 )
 
Income before income taxes 23,805 20,031 22,586 15,237
 
Income tax benefit (expense) (2,556 ) (2,974 ) 841   (690 )
 
Net income 21,249 17,057 23,427 14,547
 
Preferred share dividends (2,422 ) (2,422 ) (4,844 ) (4,844 )
Net income available to common shareholders $ 18,827   $ 14,635   $ 18,583   $ 9,703  
 
Net income per common share - basic and diluted $ 0.38 $ 0.30 $ 0.37 $ 0.21
 

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

48,977,876 47,862,652 48,969,761 46,187,216
 
 
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
     
Six Months Ended June 30,
2014       2013
Cash flows from operating activities:
Net income $ 23,427 $ 14,547

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

Depreciation and amortization 25,022 19,677
Air rights contract amortization 260 260
Deferred financing costs amortization 1,446 1,372
Share-based compensation 2,819 2,277
Other (282 ) (275 )
Changes in assets and liabilities:
Accounts receivable, net (8,112 ) (12,458 )
Prepaid expenses and other assets (2,769 ) (1,658



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