Chesapeake Lodging Trust Results

Chesapeake Lodging Trust Reports Fourth Quarter 2018 Results

Comparable RevPAR: 3.7% increase 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 last week its financial results for the quarter ended December 31, 2018.

HIGHLIGHTS

  • Comparable RevPAR: 3.7% increase for the 20-hotel portfolio over the same period in 2017.
  • Comparable Adjusted Hotel EBITDAre Margin: 110 basis point increase to 31.1% for the 20-hotel portfolio over the same period in 2017.
  • Adjusted Hotel EBITDAre: $44.3 million.
  • Adjusted Corporate EBITDAre: $39.9 million.
  • Net income available to common shareholders: $13.2 million or $0.22 per diluted common share.
  • Adjusted FFO: $31.8 million or $0.54 per diluted common share.

“During the fourth quarter, our hotel portfolio generated RevPAR growth of 3.7%, which exceeded the midpoint of our provided outlook, and margin improvement of 110 basis points, which exceeded the high end of our provided outlook. We were successful in our appeals of property tax reassessments in Chicago during the quarter which contributed to 30 basis points of margin improvement. Overall, we are very pleased with our results and performance during the fourth quarter of 2018,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, “Our renovation at the Hotel Adagio San Francisco, Autograph Collection, was completed in the fourth quarter of 2018 and now our four hotels located in San Francisco, which contribute over 25% of our portfolio EBITDAre, are fully renovated and well positioned to take advantage for 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. The forecasted strength in San Francisco is expected to contribute significantly to our portfolio’s healthy RevPAR growth expected in 2019 despite (1) weaker city-wide convention calendars in several of our other markets, including Boston, Chicago, and Washington, DC and (2) negative impact, primarily in the first quarter, from guestroom renovations at three of our other hotels.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three months and year ended December 31, 2018 and 2017 (in millions, except share and per share amounts):

     

Three Months Ended

December 31,

     

Year Ended

December 31,

2018       2017 2018       2017
Total revenue $ 142.5 $ 142.7 $ 597.2 $ 598.3
 
Net income available to common shareholders $ 13.2 $ 27.6 $ 97.0 $ 66.5
Net income per diluted common share $ 0.22 $ 0.46 $ 1.62 $ 1.11
 
Adjusted Hotel EBITDAre(1) $ 44.3 $ 42.5 $ 193.6 $ 188.6
 
Adjusted Corporate EBITDAre(1) $ 39.9 $ 37.3 $ 174.6 $ 169.5
 
AFFO available to common shareholders(1) $ 31.8 $ 28.4 $ 139.2 $ 128.6
AFFO per diluted common share $ 0.54 $ 0.48 $ 2.34 $ 2.17
 
Weighted-average number of diluted common shares outstanding 59,415,590 59,311,061 59,390,839 59,255,244
_____________

(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 December 31, 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 months and year ended December 31, 2018 and 2017. Included in the following table are comparisons of the key operating metrics for the comparable 20-hotel portfolio for the three months and year ended December 31, 2018 and 2017 (in thousands, except for ADR and RevPAR):

     

Three Months Ended

December 31,

     

Year Ended

December 31,

2018       2017       Change 2018       2017       Change
Comparable Occupancy 82.3 % 80.7 % 160 bps 85.5 % 83.1 % 240 bps
Comparable ADR $ 223.86 $ 220.19 1.7% $ 228.58 $ 225.47 1.4%
Comparable RevPAR $ 184.26 $ 177.68 3.7% $ 195.37 $ 187.25 4.3%
Comparable Adjusted Hotel EBITDAre(1) $ 44,347 $ 41,305 7.4% $ 190,592 $ 180,293 5.7%
Comparable Adjusted Hotel EBITDAre Margin(1) 31.1 % 30.0 % 110 bps 32.4 % 31.6 % 80 bps
_____________
(1)   See the discussion included in this press release for information regarding this non-GAAP financial measure.

DIVIDEND

On October 15, 2018, the Trust paid a dividend in the amount of $0.40 per share to its common shareholders of record as of September 28, 2018. On December 18, 2018, the Trust declared a dividend in the amount of $0.40 per share payable to its common shareholders of record as of December 31, 2018. The dividend was paid on January 15, 2019.

2019 OUTLOOK

The Trust's 2019 outlook assumes no future acquisitions, dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

     

First Quarter

2019 Outlook

     

Full Year

2019 Outlook

Low       High Low       High
CONSOLIDATED:
 
Net income $ 6.1 $ 7.5 $ 66.6 $ 72.6
Net income per diluted common share $ 0.10 $ 0.12 $ 1.11 $ 1.21
 
Adjusted Corporate EBITDAre $ 30.4 $ 31.9 $ 174.8 $ 181.8
 
AFFO available to common shareholders $ 24.8 $ 26.1 $ 140.0 $ 146.0
AFFO per diluted common share $ 0.41 $ 0.44 $ 2.35 $ 2.45
 
Corporate cash general and administrative expense $ 3.0 $ 3.2 $ 11.0 $ 12.0
Corporate non-cash general and administrative expense $ 2.0 $ 2.0 $ 7.7 $ 7.7
 
Weighted-average number of diluted common shares outstanding 59.8 59.8 59.6 59.6
 
20-HOTEL PORTFOLIO:
 
RevPAR $ 175.00 $ 178.00 $

198.00

$

202.00

RevPAR change as compared to 2018(1) 1.0 % 3.0 % 1.5 % 3.5 %
Adjusted Hotel EBITDAre $ 35.3 $ 37.0 $ 193.5 $ 201.5
Adjusted Hotel EBITDAre Margin 26.7 % 27.5 % 32.3 % 33.0 %
Adjusted Hotel EBITDAre Margin change as compared to 2018(1) (125) bps (50) bps (15) bps 60 bps
_____________
(1)   The comparable 2018 period excludes results of operations for the Hyatt Centric Santa Barbara, which was sold on July 26, 2018.

The Trust’s 2019 outlook contemplates the expected revenue and Adjusted Hotel EBITDAre displacement from guestroom renovations taking place primarily during the first quarter at the 195-room Homewood Suites Seattle Convention Center, the 193-room Hilton Checkers Los Angeles and the 429-room Hyatt Regency Mission Bay Spa and Marina. The Trust estimates that the negative impact on RevPAR growth for the first quarter and full year 2019 will be approximately 200 basis points and 50 basis points, respectively, and the negative impact on Adjusted Hotel EBITDAre Margin growth for the first quarter and full year 2019 will be approximately 80 basis points and 20 basis points, respectively, resulting in Adjusted Hotel EBITDAre displacement of approximately $1.75 million and $2.0 million for the first quarter and full year 2019, respectively.

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)

 
December 31,
2018       2017
 
 
ASSETS
Property and equipment, net $ 1,732,154 $ 1,823,217
Intangible assets, net 34,678 35,256
Cash and cash equivalents 71,259 44,314
Restricted cash 31,614 30,602
Accounts receivable, net 18,360 20,769
Prepaid expenses and other assets 21,012   21,202  
Total assets $ 1,909,077   $ 1,975,360  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt $ 751,389 $ 829,552
Accounts payable and accrued expenses 72,555 65,783
Other liabilities 31,155   31,597  
Total liabilities 855,099   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;

60,263,670 shares and 59,941,088 shares issued and outstanding, respectively

603 599
Additional paid-in capital 1,193,455 1,190,250
Cumulative dividends in excess of net income (144,341 ) (144,734 )
Accumulated other comprehensive income 4,261   2,313  
Total shareholders’ equity 1,053,978   1,048,428  
Total liabilities and shareholders’ equity $ 1,909,077   $ 1,975,360  
 
 
SUPPLEMENTAL CREDIT INFORMATION:
Fixed charge coverage ratio(1) 3.33 3.00
Leverage ratio(1) 33.1 % 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)

 

Three Months Ended

December 31,

Year Ended

December 31,

2018       2017 2018       2017
(unaudited)
REVENUE
Rooms $ 106,441 $ 106,402 $ 455,287 $ 450,812
Food and beverage 28,906 29,095 112,496 118,715
Other 7,162   7,158   29,389   28,740  
Total revenue 142,509   142,655   597,172   598,267  
 
EXPENSES
Hotel operating expenses:
Rooms 26,351 26,361 106,974 107,183
Food and beverage 21,041 21,760 83,917 88,454
Other direct 1,213 1,321 4,934 5,457
Indirect 49,481   36,784   207,457   194,212  
Total hotel operating expenses 98,086 86,226 403,282 395,306
Depreciation and amortization 18,651 18,978 75,585 76,230
Air rights contract amortization 130 130 520 520
Corporate general and administrative 4,470   5,252   18,992   19,050  
Total operating expenses 121,337   110,586   498,379   491,106  
 
Interest income 330 558
Interest expense

(8,196

) (8,950 ) (34,399 ) (33,939 )
Gain on sale of hotels   6,102   33,109   6,102  
 
Income before income taxes 13,306 29,221 98,061 79,324
Income tax expense (78 ) (1,619 ) (1,095 ) (3,089 )
 
Net income 13,228 27,602 96,966 76,235
Preferred share dividends (5,274 )
Write-off of issuance costs of redeemed preferred shares       (4,419 )
Net income available to common shareholders $ 13,228   $ 27,602   $ 96,966   $ 66,542  
 
Net income per common share:
Basic $ 0.22 $ 0.47 $ 1.63 $ 1.12
Diluted $ 0.22 $ 0.46 $ 1.62 $ 1.11
 
Weighted-average number of common shares outstanding:
Basic 59,151,768 59,044,308 59,138,676 59,029,490
Diluted 59,415,590 59,311,061 59,390,839 59,255,244
     

CHESAPEAKE LODGING TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
Year Ended December 31,
2018       2017
 
Cash flows from operating activities:
Net income $ 96,966 $ 76,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 75,585 76,230
Air rights contract amortization 520 520
Write-off of unfavorable contract liability (11,815 )
Deferred financing costs amortization 1,588 1,682
Gain on sale of hotels (33,109 ) (6,102 )
Share-based compensation 7,562 7,497
Other (302 ) (593 )
Changes in assets and liabilities:
Accounts receivable, net 1,893 (1,093 )
Prepaid expenses and other assets 1,866 (1,976 )
Accounts payable and accrued expenses 6,765 1,283
Other liabilities (127 ) 1,667  
Net cash provided by operating activities 159,207   143,535  
 
Cash flows from investing activities:
Disposition of hotels, net of cash sold 89,821 45,991
Improvements and additions to hotels (41,898 ) (55,051 )
Net cash provided by (used in) investing activities 47,923   (9,060 )
 
Cash flows from financing activities:
Redemption of preferred shares (125,000 )
Borrowings under revolving credit facility 55,000 315,000
Repayments under revolving credit facility (120,000 ) (310,000 )
Proceeds from issuance of unsecured term loan 225,000
Scheduled principal payments on mortgage debt (13,188 ) (137,657 )
Payment of deferred financing costs (1,563 ) (1,783 )
Payment of dividends to common shareholders (95,069 ) (95,909 )
Payment of dividends to preferred shareholders (7,320 )
Repurchase of common shares (4,353 ) (1,078 )
Net cash used in financing activities (179,173 ) (138,747 )
Net increase (decrease) in cash, cash equivalents, and restricted cash 27,957 (4,272 )
Cash, cash equivalents, and restricted cash, beginning of period 74,916   79,188  
Cash, cash equivalents, and restricted cash, end of period $ 102,873   $ 74,916  

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 months and year ended December 31, 2018 and 2017:

      Three Months Ended

December 31,

      Year Ended

December 31,

2018       2017 2018       2017
Net income $ 13,228 $ 27,602 $ 96,966 $ 76,235
Add: Interest expense 8,196 8,950 34,399 33,939
Income tax expense 78 1,619 1,095 3,089
Depreciation and amortization 18,651 18,978 75,585 76,230
Less: Interest income (330 ) (558 )
Gain on sale of hotels   (6,102 ) (33,109 ) (6,102 )
 
EBITDAre 39,823 51,047 174,378 183,391
Add: Non-cash amortization(1) 54 2 218 (74 )
Less: Hilton Denver City Center change in management(2)   (13,769 )   (13,769 )
 
Adjusted Corporate EBITDAre 39,877 37,280 174,596 169,548
Add: Corporate general and administrative 4,470   5,252   18,992   19,050  
 
Adjusted Hotel EBITDAre 44,347 42,532 193,588 188,598
Less: Adjusted Hotel EBITDAre of hotels sold(3)   (1,227 ) (2,996 ) (8,305 )
 
Comparable Adjusted Hotel EBITDAre $ 44,347   $ 41,305   $ 190,592   $ 180,293  
 
Total revenue $ 142,509 $ 142,655 $ 597,172 $ 598,267
Less: Total revenue of hotels sold(3)   (4,743 ) (9,411 ) (27,235 )
 
Comparable total revenue $ 142,509   $ 137,912   $ 587,761   $ 571,032  
 
Comparable Adjusted Hotel EBITDAre Margin 31.1 % 30.0 % 32.4 % 31.6 %
_____________
(1)   Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, unfavorable contract liability, and air rights contract.
(2) Reflects (1) a non-cash write-off of an unfavorable contract liability, (2) a settlement gain, and (3) transition-related expenses, all of which are in connection with the change in management at the Hilton Denver City Center (formerly the Denver Marriott City Center).
(3) 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 months and year ended December 31, 2018 and 2017:

     

Three Months Ended

December 31,

     

Year Ended

December 31,

2018       2017 2018       2017
Net income $ 13,228 $ 27,602 $ 96,966 $ 76,235
Add: Depreciation and amortization 18,651 18,978 75,585 76,230
Less: Gain on sale of hotels   (6,102 ) (33,109 ) (6,102 )
 
FFO 31,879 40,478 139,442 146,363
Less: Preferred share dividends (5,274 )
Write-off of issuance costs of redeemed preferred shares (4,419 )
Dividends declared on unvested time-based awards (116 ) (123 ) (474 ) (494 )
Undistributed earnings allocated to unvested time-based awards   (20 ) (9 )  
 
FFO available to common shareholders 31,763 40,335 138,959 136,176
Add: Write-off of issuance costs of redeemed preferred shares 4,419
Tax Cuts and Jobs Act income tax adjustment 1,057 1,057
Non-cash amortization(1) 54 2 218 (74 )
Less: Hilton Denver City Center change in management(2)   (13,018 )   (13,018 )
 
AFFO available to common shareholders $ 31,817   $ 28,376   $ 139,177   $ 128,560  
 
FFO per common share:
Basic $ 0.54 $ 0.68 $ 2.35 $ 2.31
Diluted $ 0.53 $ 0.68 $ 2.34 $ 2.30
 
AFFO per common share:
Basic $ 0.54 $ 0.48 $ 2.35 $ 2.18
Diluted $ 0.54 $ 0.48 $ 2.34 $ 2.17
_____________
(1)   Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, unfavorable contract liability, and air rights contract.
(2) Reflects (1) a non-cash write-off of an unfavorable contract liability, (2) a settlement gain, and (3) transition-related expenses, all of which are in connection with the change in management at the Hilton Denver City Center (formerly the Denver Marriott City Center).

The following table reconciles forecasted net income to EBITDAre, Adjusted Corporate EBITDAre, Adjusted Hotel EBITDAre, and Adjusted Hotel EBITDAre Margin for the three months ending March 31, 2019 and year ending December 31, 2019:

     

Three Months Ending

March 31, 2019

     

Year Ending

December 31, 2019

Low       High Low       High
Net income $ 6,100 $ 7,450 $ 66,580 $ 72,580
Add: Interest expense 8,100 8,100 32,400 32,400
Income tax expense (benefit) (2,450 ) (2,250 ) 2,750 3,750
Depreciation and amortization 18,750 18,750 73,650 73,650
Less: Interest income (200 ) (200 ) (800 ) (800 )
 
EBITDAre 30,300 31,850 174,580 181,580
Add: Non-cash amortization(1) 50   50   220   220  
 
Adjusted Corporate EBITDAre 30,350 31,900 174,800 181,800
Add: Corporate general and administrative 4,900   5,100   18,700   19,700  
 
Adjusted Hotel EBITDAre $ 35,250   $ 37,000   $ 193,500   $ 201,500  
 
Total revenue $ 131,900 $ 134,650 $ 599,500 $ 610,500
 
Adjusted Hotel EBITDAre Margin 26.7 % 27.5 % 32.3 % 33.0 %
_____________
(1)   Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, and air rights contract.

The following table reconciles forecasted net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three months ending March 31, 2019 and year ending December 31, 2019:

     

Three Months Ending

March 31, 2019

     

Year Ending

December 31, 2019

Low       High Low       High
Net income $ 6,100 $ 7,450 $ 66,580 $ 72,580
Add: Depreciation and amortization 18,750   18,750   73,650   73,650  
 
FFO 24,850 26,200 140,230 146,230
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 24,730 26,080 139,750 145,750
Add: Non-cash amortization(1) 50   50   220   220  
 
AFFO available to common shareholders $ 24,780   $ 26,130   $ 139,970   $ 145,970  
 
FFO per common share:
Basic $ 0.42 $ 0.44 $ 2.35 $ 2.45
Diluted $ 0.41 $ 0.44 $ 2.34 $ 2.44
 
AFFO per common share:
Basic $ 0.42 $ 0.44 $ 2.36 $ 2.46
Diluted $ 0.41 $ 0.44 $ 2.35 $ 2.45
 
Weighted-average number of common shares outstanding:
Basic 59,393 59,393 59,418 59,418
Diluted 59,823 59,823 59,615 59,615
_____________
(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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