Chesapeake Lodging Trust Results

Chesapeake Lodging Trust Reports Third Quarter 2018 Results

Comparable RevPAR: 5.0% increase for the 20-hotel portfolio over the same period in 2017 - Comparable Adjusted Hotel EBITDAre Margin: 20 basis point increase to 33.4% for the 20-hotel portfolio over the same period in 2017

Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported its financial results for the quarter ended September 30, 2018.

HIGHLIGHTS

  • Comparable RevPAR: 5.0% increase for the 20-hotel portfolio over the same period in 2017.
  • Comparable Adjusted Hotel EBITDAre Margin: 20 basis point increase to 33.4% for the 20-hotel portfolio over the same period in 2017.
  • Adjusted Hotel EBITDAre: $52.4 million.
  • Adjusted Corporate EBITDAre: $48.0 million.
  • Net income available to common shareholders: $53.4 million or $0.89 per diluted common share.
  • Adjusted FFO: $38.7 million or $0.65 per diluted common share.
  • Disposition: Sold the 200-room Hyatt Centric Santa Barbara for a sale price of $90.0 million.

“Our hotel portfolio generated RevPAR growth of 5.0% during the third quarter, which met the high end of our provided outlook. We were, however, significantly impacted during the quarter in Chicago as a result of a two-week labor strike as well as significantly higher property tax reassessments than anticipated (which are currently under appeal). Excluding approximately $2.1 million of negative impact to hotel EBITDA as a result of these two items during the quarter, our margin growth would have been 140 basis points, which would have exceeded the high end of our provided outlook and showcases the significant efforts our asset management and hotel teams are making in mitigating cost increases throughout our portfolio. Overall, we are very pleased with our results and performance during the third quarter of 2018,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, “Our portfolio was led by continued strength in San Francisco during the third quarter with RevPAR growth of approximately 17% (or approximately 8% when excluding our JW Marriott San Francisco Union Square, which is experiencing a tailwind from its 2017 renovation). Our concentration in San Francisco continues to serve us well as we head into what is widely expected to be a record-setting 2019 in terms of city-wide room nights generated from the completion of the newly renovated and expanded Moscone Center. All four of our assets in San Francisco will be well positioned and in great condition following the expected completion of our renovation at the Hotel Adagio San Francisco, Autograph Collection in the fourth quarter of 2018.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three and nine months ended September 30, 2018 and 2017 (in millions, except share and per share amounts):

           

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018       2017 2018       2017
Total revenue $ 156.4 $ 158.3 $ 454.7 $ 455.6
 
Net income available to common shareholders $ 53.4 $ 14.1 $ 83.7 $ 38.9
Net income per diluted common share $ 0.89 $ 0.24 $ 1.39 $ 0.65
 
Adjusted Hotel EBITDAre(1) $ 52.4 $ 53.1 $ 149.2 $ 146.1
 
Adjusted Corporate EBITDAre(1) $ 48.0 $ 48.9 $ 134.7 $ 132.3
 
AFFO available to common shareholders(1) $ 38.7 $ 37.7 $ 107.3 $ 100.2
AFFO per diluted common share $ 0.65 $ 0.64 $ 1.79 $ 1.69
 
Weighted-average number of diluted common shares outstanding 59,875,427 59,287,812 59,821,327 59,244,803
_____________
(1)   See the discussion included in this press release for information regarding this non-GAAP financial measure.
 

HOTEL OPERATING RESULTS

The Trust uses the term "comparable" to refer to metrics that include only those hotels owned for the entirety of the two periods being compared. As of September 30, 2018, the Trust owned 20 hotels. Since the Hyatt Centric Santa Barbara was sold on July 26, 2018 and The Hotel Minneapolis, Autograph Collection was sold on November 8, 2017, they have been excluded from the comparable hotel portfolio metrics for the three and nine months ended September 30, 2018 and 2017. Included in the following table are comparisons of the key operating metrics for the comparable 20-hotel portfolio for the three and nine months ended September 30, 2018 and 2017 (in thousands, except for ADR and RevPAR):

           
Three Months Ended September 30, Nine Months Ended September 30,
2018       2017       Change 2018       2017       Change
Comparable Occupancy 89.7 % 88.3 % 140 bps 86.5 % 83.8 % 270 bps
Comparable ADR $ 234.51 $ 226.97 3.3 % $ 230.09 $ 227.18 1.3 %
Comparable RevPAR $ 210.28 $ 200.33 5.0 % $ 199.11 $ 190.48 4.5 %
Comparable Adjusted Hotel EBITDAre(1) $ 51,665 $ 49,537 4.3 % $ 146,245 $ 138,988 5.2 %
Comparable Adjusted Hotel EBITDAre Margin(1) 33.4 % 33.2 % 20 bps 32.8 % 32.1 % 70 bps
_____________
(1)   See the discussion included in this press release for information regarding this non-GAAP financial measure.
 

DISPOSITION ACTIVITY

On July 26, 2018, the Trust sold the 200-room Hyatt Centric Santa Barbara located in Santa Barbara, California for a sale price of $90.0 million, which resulted in a gain on sale of $33.1 million. The Trust acquired the Hyatt Centric Santa Barbara in June 2013 for $61.0 million, or approximately $305,000 per key. In April 2016, the Trust sold a separate five-room villa building and related land parcel at the Hyatt Centric Santa Barbara for $2.1 million to an unrelated buyer. The $90.0 million sale price, or approximately $450,000 per key, represented a 5.4% trailing twelve month NOI cap rate (after factoring in a required 2019 renovation estimated at $6.0 million, the sale price represented a 5.0% NOI cap rate) and produced a 15.3% unleveraged internal rate of return for the Trust over its ownership period. The net proceeds from the sale of the Hyatt Centric Santa Barbara were used to repay all outstanding borrowings under the Trust’s revolving credit facility.

DIVIDEND

On July 13, 2018, the Trust paid a dividend in the amount of $0.40 per share to its common shareholders of record as of June 29, 2018. On September 10, 2018, the Trust declared a dividend in the amount of $0.40 per share payable to its common shareholders of record as of September 28, 2018. The dividend was paid on October 15, 2018.

2018 OUTLOOK

The Trust is updating its previously provided 2018 outlook to incorporate its third quarter results and recent operating trends and fundamentals. The outlook assumes no future acquisitions, dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

     

Fourth Quarter 2018

Outlook
Low       High
CONSOLIDATED:
 
Net income available to common shareholders $ 10.5 $ 12.5
Net income per diluted common share $ 0.18 $ 0.21
 
Adjusted Corporate EBITDAre $ 36.9 $ 39.1
 
AFFO available to common shareholders $ 28.8 $ 30.8
AFFO per diluted common share $ 0.48 $ 0.52
 
Corporate cash general and administrative expense $ 2.8 $ 3.0
Corporate non-cash general and administrative expense $ 1.9 $ 1.9
 
Weighted-average number of diluted common shares outstanding 59.7 59.7
 
20-HOTEL PORTFOLIO:
 
Comparable RevPAR $ 181.00 $ 185.00
Comparable RevPAR change as compared to 2017 2.0 % 4.0 %
Comparable Adjusted Hotel EBITDAre $ 41.6 $ 44.0
Comparable Adjusted Hotel EBITDAre Margin 29.9 % 31.0 %
Comparable Adjusted Hotel EBITDAre Margin change as compared to 2017 0 bps 100 bps
 
           

Full Year 2018

Updated Outlook Previous Outlook
Low       High Low       High
CONSOLIDATED:
 
Net income available to common shareholders $ 93.9 $ 95.9 $ 94.6 $ 99.3
Net income per diluted common share $ 1.57 $ 1.61 $ 1.59 $ 1.67
 
Adjusted Corporate EBITDAre $ 171.6 $ 173.8 $ 173.1 $ 178.5
 
AFFO available to common shareholders $ 136.2 $ 138.2 $ 136.9 $ 141.6
AFFO per diluted common share $ 2.28 $ 2.32 $ 2.29 $ 2.37
 
Corporate cash general and administrative expense $ 11.7 $ 11.9 $ 11.3 $ 12.1
Corporate non-cash general and administrative expense $ 7.6 $ 7.6 $ 7.6 $ 7.6
 
Weighted-average number of diluted common shares outstanding 59.7 59.7 59.7 59.7
 
20-HOTEL PORTFOLIO:
 
Comparable RevPAR $ 195.00 $ 196.00 $193.00 $197.00
Comparable RevPAR change as compared to 2017 3.9 % 4.4 % 3.0 % 5.0 %
Comparable Adjusted Hotel EBITDAre $ 187.8 $ 190.2 $ 189.0 $ 195.0
Comparable Adjusted Hotel EBITDAre Margin 32.2 % 32.4 % 32.5 % 32.9 %
Comparable Adjusted Hotel EBITDAre Margin change as compared to 2017 60 bps 80 bps 90 bps 130 bps
 

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 6,279 rooms in eight states and the District of Columbia.

           
CHESAPEAKE LODGING TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
September 30, 2018 December 31, 2017
(unaudited)
 
ASSETS
Property and equipment, net $ 1,739,606 $ 1,823,217
Intangible assets, net 34,823 35,256
Cash and cash equivalents 68,865 44,314
Restricted cash 29,942 30,602
Accounts receivable, net 32,038 20,769
Prepaid expenses and other assets 25,404   21,202  
Total assets $ 1,930,678   $ 1,975,360  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt $ 754,599 $ 829,552
Accounts payable and accrued expenses 74,959 65,783
Other liabilities 31,219   31,597  
Total liabilities 860,777   926,932  
 
Commitments and contingencies
 
Preferred shares, $.01 par value; 100,000,000 shares

authorized; no shares issued and outstanding, respectively

Common shares, $.01 par value; 400,000,000 shares authorized;

60,394,154 and 59,941,088 shares issued and outstanding, respectively

604 599
Additional paid-in capital 1,194,774 1,190,250
Cumulative dividends in excess of net income (133,463 ) (144,734 )
Accumulated other comprehensive income 7,986   2,313  
Total shareholders’ equity 1,069,901   1,048,428  
Total liabilities and shareholders’ equity $ 1,930,678   $ 1,975,360  
 
 
SUPPLEMENTAL CREDIT INFORMATION:
Fixed charge coverage ratio(1) 3.29 3.00
Leverage ratio(1) 33.9 % 39.2 %
______________
(1)   Calculated as defined under the Trust’s revolving credit facility.
 
           
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018       2017 2018       2017
REVENUE
Rooms $ 122,716 $ 123,241 $ 348,846 $ 344,410
Food and beverage 25,396 27,172 83,590 89,620
Other 8,241   7,864   22,227   21,582  
Total revenue 156,353   158,277   454,663   455,612  
 
EXPENSES
Hotel operating expenses:
Rooms 27,865 28,132 80,623 80,822
Food and beverage 20,027 21,306 62,876 66,694
Other direct 1,369 1,480 3,721 4,136
Indirect 54,639   54,081   157,976   157,428  
Total hotel operating expenses 103,900 104,999 305,196 309,080
Depreciation and amortization 18,621 19,369 56,934 57,252
Air rights contract amortization 130 130 390 390
Corporate general and administrative 4,419   4,216   14,522   13,798  
Total operating expenses 127,070   128,714   377,042   380,520  
 
Operating income 29,283 29,563 77,621 75,092
 
Interest income 190 228
Interest expense (8,445 ) (9,020 ) (26,203 ) (24,989 )
Gain on sale of hotel 33,109

 

  33,109    
 
Income before income taxes 54,137 20,543 84,755 50,103
 
Income tax expense (758 ) (1,590 ) (1,017 ) (1,470 )
 
Net income 53,379 18,953 83,738 48,633
 
Preferred share dividends (430 ) (5,274 )
Write-off of issuance costs of redeemed preferred shares   (4,419 )   (4,419 )
Net income available to common shareholders $ 53,379   $ 14,104   $ 83,738   $ 38,940  
 
Net income per common share:
Basic $ 0.90 $ 0.24 $ 1.41 $ 0.65
Diluted $ 0.89 $ 0.24 $ 1.39 $ 0.65
 
Weighted-average number of common shares outstanding:
Basic 59,148,764 59,043,425 59,134,264 59,024,497
Diluted 59,875,427 59,287,812 59,821,327 59,244,803
 
     
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended September 30,
2018       2017
 
Cash flows from operating activities:
Net income $ 83,738 $ 48,633
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 56,934 57,252
Air rights contract amortization 390 390
Deferred financing costs amortization 1,211 1,248
Gain on sale of hotel (33,109 )
Share-based compensation 5,675 5,671
Other (226 ) (465 )
Changes in assets and liabilities:
Accounts receivable, net (11,785 ) (8,825 )
Prepaid expenses and other assets 1,212 (1,907 )
Accounts payable and accrued expenses 8,801 5,089
Other liabilities (104 ) 173  
Net cash provided by operating activities 112,737   107,259  
 
Cash flows from investing activities:
Disposition of hotel, net of cash sold 89,821
Improvements and additions to hotels (30,066 ) (41,952 )
Net cash provided by (used in) investing activities 59,755   (41,952 )
 
Cash flows from financing activities:
Redemption of preferred shares (125,000 )
Borrowings under revolving credit facility 55,000 300,000
Repayments under revolving credit facility (120,000 ) (250,000 )
Proceeds from issuance of unsecured term loan 225,000
Scheduled principal payments on mortgage debt (9,604 ) (134,435 )
Payment of deferred financing costs (1,560 ) (1,771 )
Payment of dividends to common shareholders (71,291 ) (72,168 )
Payment of dividends to preferred shareholders (7,320 )
Repurchase of common shares (1,146 ) (1,065 )
Net cash used in financing activities (148,601 ) (66,759 )
Net increase (decrease) in cash, cash equivalents, and restricted cash 23,891 (1,452 )
Cash, cash equivalents, and restricted cash, beginning of period 74,916   79,188  
Cash, cash equivalents, and restricted cash, end of period $ 98,807   $ 77,736  
 
 

CHESAPEAKE LODGING TRUST

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, except per share data)

(unaudited)

 

The following table reconciles net income to EBITDAre, Adjusted Corporate EBITDAre, Adjusted Hotel EBITDAre, and Adjusted Hotel EBITDAre Margin for the three and nine months ended September 30, 2018 and 2017:

           

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018       2017 2018       2017
Net income $ 53,379 $ 18,953 $ 83,738 $ 48,633
Add: Interest expense 8,445 9,020 26,203 24,989
Income tax expense 758 1,590 1,017 1,470
Depreciation and amortization 18,621 19,369 56,934 57,252
Less: Interest income (190 ) (228 )
Gain on sale of hotel (33,109 )   (33,109 )  
 

EBITDAre

47,904 48,932 134,555 132,344
Add: Non-cash amortization(1) 54   (25 ) 164   (76 )
 
Adjusted Corporate EBITDAre 47,958 48,907 134,719 132,268
Add: Corporate general and administrative 4,419   4,216   14,522   13,798  
 
Adjusted Hotel EBITDAre 52,377 53,123 149,241 146,066
Less: Adjusted Hotel EBITDAre of hotels sold(2) (712 ) (3,586 ) (2,996 ) (7,078 )
 
Comparable Adjusted Hotel EBITDAre $ 51,665   $ 49,537   $ 146,245   $ 138,988  
 
Total revenue $ 156,353 $ 158,277 $ 454,663 $ 455,612
Less: Total revenue of hotels sold(2) (1,662 ) (9,121 ) (9,411 ) (22,492 )
Comparable total revenue $ 154,691   $ 149,156   $ 445,252   $ 433,120  
 
Comparable Adjusted Hotel EBITDAre Margin 33.4 % 33.2 % 32.8 % 32.1 %

_____________

(1)       Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, unfavorable contract liability, and air rights contract.
(2) Reflects results of operations for the Hyatt Centric Santa Barbara, which was sold on July 26, 2018, and The Hotel Minneapolis, Autograph Collection, which was sold on November 8, 2017.
 
 
The following table reconciles net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three and nine months ended September 30, 2018 and 2017:
 
           

Three Months Ended

September 30,

Nine Months Ended

September 30,

 
2018       2017 2018       2017  
Net income $ 53,379 $ 18,953 $ 83,738 $ 48,633
Add: Depreciation and amortization 18,621 19,369 56,934 57,252
Less: Gain on sale of hotel (33,109 )   (33,109 )  
 
FFO 38,891 38,322 107,563 105,885
Less: Preferred share dividends (430 ) (5,274

)

Write-off of issuance costs of redeemed preferred shares (4,419 ) (4,419

)

Dividends declared on unvested time-based awards (118 ) (124 ) (358 ) (371

)

Undistributed earnings allocated to unvested time-based awards (147 )   (63 )  
 
FFO available to common shareholders 38,626 33,349 107,142 95,821
Add: Write-off of issuance costs of redeemed preferred shares 4,419 4,419
Non-cash amortization(1) 54   (25 ) 164   (76

)

 
AFFO available to common shareholders $ 38,680   $ 37,743   $ 107,306   $ 100,164
 
FFO per common share:
Basic $ 0.65 $ 0.56 $ 1.81 $ 1.62
Diluted $ 0.65 $ 0.56 $ 1.79 $ 1.62
 
AFFO per common share:
Basic $ 0.65 $ 0.64 $ 1.81 $ 1.70
Diluted $ 0.65 $ 0.64 $ 1.79 $ 1.69

_____________

(1)       Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, unfavorable contract liability, and air rights contract.
 

The following table reconciles forecasted net income to EBITDAre, Adjusted Corporate EBITDAre, Adjusted Hotel EBITDAre, and Adjusted Hotel EBITDAre Margin for the three months and year ending December 31, 2018:

           

Three Months Ending

December 31, 2018

Year Ending

December 31, 2018

Low       High Low       High
Net income $ 10,630 $ 12,580 $ 94,380 $ 96,330
Add: Interest expense 8,200 8,200 34,400 34,400
Income tax expense 200 1,020 1,220
Depreciation and amortization 18,270 18,270 75,200 75,200
Less: Interest income (250 ) (250 ) (480 ) (480 )
Gain on sale of hotel     (33,110 ) (33,110 )
 
EBITDAre 36,850 39,000 171,410 173,560
Add: Non-cash amortization(1) 50   50   210   210  
 
Adjusted Corporate EBITDAre 36,900 39,050 171,620 173,770
Add: Corporate general and administrative 4,700   4,900   19,220   19,420  
 
Adjusted Hotel EBITDAre 41,600 43,950 190,840 193,190
Less: Adjusted Hotel EBITDAre of hotel sold(2)     (3,000 ) (3,000 )
 
Comparable Adjusted Hotel EBITDAre $ 41,600   $ 43,950   $ 187,840   $ 190,190  
 
Total revenue $ 138,900 $ 142,000 $ 593,510 $ 596,660
Less: Total revenue of hotel sold(2)     (9,410 ) (9,410 )
Comparable total revenue $ 138,900   $ 142,000   $ 584,100   $ 587,250  
 
Comparable Adjusted Hotel EBITDAre Margin 29.9 % 31.0 % 32.2 % 32.4 %

_____________

(1)       Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, and air rights contract.
(2) Reflects results of operations for the Hyatt Centric Santa Barbara, which was sold on July 26, 2018.
 
The following table reconciles forecasted net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three months and year ending December 31, 2018:
           

Three Months Ending

December 31, 2018

Year Ending

December 31, 2018

Low       High Low       High
Net income $ 10,630 $ 12,580 $ 94,380 $ 96,330
Add: Depreciation and amortization 18,270 18,270 75,200 75,200
Less: Gain on sale of hotel     (33,110 ) (33,110 )
 
FFO 28,900 30,850 136,470 138,420
Less: Dividends declared on unvested time-based awards (120 ) (120 ) (480 ) (480 )
Undistributed earnings allocated to unvested time-based awards        
 
FFO available to common shareholders 28,780 30,730 135,990 137,940
Add: Non-cash amortization(1) 50   50   210   210  
 
AFFO available to common shareholders $ 28,830   $ 30,780   $ 136,200   $ 138,150  
 
FFO per common share:
Basic $ 0.49 $ 0.52 $ 2.30 $ 2.33
Diluted $ 0.48 $ 0.51 $ 2.28 $ 2.31
 
AFFO per common share:
Basic $ 0.49 $ 0.52 $ 2.30 $ 2.34
Diluted $ 0.48 $ 0.52 $ 2.28 $ 2.32
 
Weighted-average number of common shares outstanding:
Basic 59,204 59,204 59,150 59,150
Diluted 59,748 59,748 59,660 59,660
_____________

(1)

     

Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, and air rights contract.

 
                 

CHESAPEAKE LODGING TRUST

CURRENT HOTEL PORTFOLIO

 
 
Hotel Location Rooms Acquisition Date
1   Hyatt Regency Boston Boston, MA 502 March 18, 2010
2 Hilton Checkers Los Angeles Los Angeles, CA 193 June 1, 2010
3 Boston Marriott Newton Newton, MA 430 July 30, 2010
4 Le Meridien San Francisco San Francisco, CA 360 December 15, 2010
5 Homewood Suites Seattle Convention Center Seattle, WA 195 May 2, 2011
6 W Chicago – City Center Chicago, IL 403 May 10, 2011
7 Hotel Indigo San Diego Gaslamp Quarter San Diego, CA 210 June 17, 2011
8 Courtyard Washington Capitol Hill/Navy Yard Washington, DC 204 June 30, 2011
9 Hotel Adagio San Francisco, Autograph Collection San Francisco, CA 171 July 8, 2011
10 Hilton Denver City Center Denver, CO 613 October 3, 2011
11 Hyatt Herald Square New York New York, NY 122 December 22, 2011
12 W Chicago – Lakeshore Chicago, IL 520 August 21, 2012
13 Hyatt Regency Mission Bay Spa and Marina San Diego, CA 429 September 7, 2012
14 Hyatt Place New York Midtown South New York, NY 185 March 14, 2013
15 W New Orleans – French Quarter New Orleans, LA 97 March 28, 2013
16 Le Meridien New Orleans New Orleans, LA 410 April 25, 2013
17 Hyatt Centric Fisherman’s Wharf San Francisco, CA 316 May 31, 2013
18 JW Marriott San Francisco Union Square San Francisco, CA 344 October 1, 2014
19 Royal Palm South Beach Miami, a Tribute Portfolio Resort Miami Beach, FL 393 March 9, 2015
20 Ace Hotel and Theater Downtown Los Angeles Los Angeles, CA 182 April 30, 2015
6,279



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