Chesapeake Lodging Trust Results

Chesapeake Lodging Trust Reports First Quarter 2018 Results

Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported today its financial results for the quarter ended March 31, 2018.

HIGHLIGHTS

  • Comparable RevPAR: 3.5% increase for the 21-hotel portfolio over the same period in 2017.
  • Comparable Adjusted Hotel EBITDAre Margin: 90 basis point increase to 27.9% for the 21-hotel portfolio over the same period in 2017.
  • Adjusted Hotel EBITDAre: $37.7 million.
  • Adjusted Corporate EBITDAre: $32.3 million.
  • Net income available to common shareholders: $6.5 million or $0.11 per diluted common share.
  • Adjusted FFO: $25.7 million or $0.43 per diluted common share.

“We are pleased with our results for the first quarter, which exceeded the high end of our provided outlook for all of our key operating metrics. Our hotel managers, working with our asset management team, did a terrific job managing and controlling expenses during the quarter, leading to a 90 basis point increase in our comparable hotel EBITDAre margin,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer.

Mr. Francis continued, “We have seen modest strengthening in lodging demand trends over the last few months. We remain cautiously optimistic that the pro-growth political agenda will continue to positively impact lodging demand as we proceed through the year.”

CONSOLIDATED FINANCIAL RESULTS

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

     

Three Months Ended March 31,

2018       2017
Total revenue

$ 135.0

$ 134.9

 
Net income available to common shareholders

$ 6.5

$ 5.6
Net income per diluted common share

$ 0.11

$ 0.09

 
Adjusted Hotel EBITDAre(1)

$ 37.7

$ 36.0

 
Adjusted Corporate EBITDAre(1)

$ 32.3

$ 31.1

 
AFFO available to common shareholders(1)

$ 25.7

$ 24.2
AFFO per diluted common share

$ 0.43

$ 0.41

 
Weighted-average number of diluted common shares outstanding

59,718,986

58,995,589

 
_____________

(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 March 31, 2018, the Trust owned 21 hotels. Since The Hotel Minneapolis, Autograph Collection was sold on November 8, 2017, it has been excluded from the hotel portfolio metrics for the three months ended March 31, 2017. Included in the following table are comparisons of the key operating metrics for the comparable 21-hotel portfolio for the three months ended March 31, 2018 and 2017 (in thousands, except for ADR and RevPAR):

     

Three Months Ended March 31,

2018       2017       Change
Comparable Occupancy

81.0 %

76.6 %

440 bps
Comparable ADR

$ 213.07

$ 217.57

(2.1 )%
Comparable RevPAR

$ 172.55

$ 166.68

3.5 %
Comparable Adjusted Hotel EBITDAre(1)

$ 37,664

$ 35,744

5.4 %
Comparable Adjusted Hotel EBITDAre Margin(1)

27.9 %

27.0 %

90 bps

 
_____________
(1)   See the discussion included in this press release for information regarding this non-GAAP financial measure.

 

DIVIDEND

On January 12, 2018, the Trust paid a dividend in the amount of $0.40 per share to its common shareholders of record as of December 29, 2017. On March 7, 2018, the Trust declared a dividend in the amount of $0.40 per share payable to its common shareholders of record as of March 29, 2018. The dividend was paid on April 13, 2018.

2018 OUTLOOK

The Trust reaffirms its previously provided full year 2018 outlook and is now providing its outlook for the second quarter 2018. The outlook assumes no future acquisitions, dispositions, or financing transactions (in millions, except RevPAR and per share amounts):

     

     

Second Quarter

Full Year

2018 Outlook

2018 Outlook

Low       High

Low       High
CONSOLIDATED:

 
Net income available to common shareholders

$ 22.4

$ 24.4

$ 62.9

$ 69.4

Net income per diluted common share

$ 0.37

$ 0.41

$ 1.06

$ 1.17

 
Adjusted Corporate EBITDAre

$ 52.6

$ 54.8

$ 175.5

$ 183.0

 
AFFO available to common shareholders

$ 41.4

$ 43.4

$ 138.1

$ 144.6

AFFO per diluted common share

$ 0.69

$ 0.73

$ 2.33

$ 2.43

 
Corporate cash general and administrative expense

$ 2.8

$ 3.0

$ 10.8

$ 11.8

Corporate non-cash general and administrative expense

$ 1.9

$ 1.9

$ 7.6

$ 7.6

 
Weighted-average number of diluted common shares outstanding

59.8

59.8

59.4

59.4

 
HOTEL PORTFOLIO:

 
RevPAR

$ 208.00

$ 212.00

$

193.00

$ 197.00

RevPAR change as compared to 2017(1)

2.5 %

4.5 %

3.0 %

5.0 %
Adjusted Hotel EBITDAre

$ 57.2

$ 59.6

$ 193.8

$ 202.3

Adjusted Hotel EBITDAre Margin

35.4 %

36.2 %

32.1 %

32.9 %
Adjusted Hotel EBITDAre Margin change as compared to 2017(1)

25 bps

100 bps

50 bps

125 bps

 
_____________
(1)   The comparable 2017 period excludes results of operations for The Hotel Minneapolis, Autograph Collection, which was sold on November 8, 2017.

 

NON-GAAP FINANCIAL MEASURES

The Trust reports the following seven non-GAAP financial measures (within the meaning of the rules of the Securities and Exchange Commission) that it believes are useful to investors as key measures of its operating performance: (1) EBITDAre, (2) Adjusted Corporate EBITDAre, (3) Adjusted Hotel EBITDAre, (4) Adjusted Hotel EBITDAre Margin, (5) FFO, (6) FFO available to common shareholders and (7) AFFO available to common shareholders. Effective January 1, 2018, the Trust began reporting EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). Adjusted Corporate EBITDAre, Adjusted Hotel EBITDAre, and Adjusted Hotel EBITDAre Margin are equivalent to the Trust's previously reported Adjusted Corporate EBITDA, Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin measures, respectively. Reconciliations of all non-GAAP financial measures to the most comparable GAAP measure are included in the accompanying financial tables.

EBITDAre — The Trust calculates EBITDAre in accordance with standards established by NAREIT, which defines EBITDAre as net income (calculated in accordance with GAAP) before interest, income taxes, depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, and adjustments for unconsolidated partnerships and joint ventures. The Trust believes that EBITDAre 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 EBITDAre — The Trust further adjusts EBITDAre for certain additional recurring and non-recurring items that are not in NAREIT’s definition of EBITDAre. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and liabilities, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that Adjusted Corporate EBITDAre provides investors another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

Adjusted Hotel EBITDAre — The Trust further adjusts Adjusted Corporate EBITDAre for corporate general and administrative expenses, which is a recurring item. The Trust believes that Adjusted Hotel EBITDAre provides investors a useful financial measure to evaluate the Trust’s hotel operating performance by excluding the impact of corporate-level expenses.

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

FFO — The Trust calculates FFO in accordance with standards established by NAREIT, which defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization, gains (losses) from sales of real estate, impairment charges of depreciated real estate, adjustments for unconsolidated partnerships and joint ventures, and the cumulative effect of changes in accounting principles. 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, write-off of issuance costs of redeemed preferred shares, 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, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that AFFO available to common shareholders provides investors 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 21 hotels with an aggregate of 6,479 rooms in eight states and the District of Columbia.

     

     

CHESAPEAKE LODGING TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

 

March 31, 2018

December 31, 2017

(unaudited)

 
ASSETS

Property and equipment, net

$ 1,813,771

$ 1,823,217

Intangible assets, net

35,112

35,256

Cash and cash equivalents

31,903

44,314

Restricted cash

30,067

30,602

Accounts receivable, net

25,365

20,769

Prepaid expenses and other assets

27,981  

21,202  
Total assets

$ 1,964,199  

$ 1,975,360  

 
LIABILITIES AND SHAREHOLDERS’ EQUITY

Long-term debt

$ 831,684

$ 829,552

Accounts payable and accrued expenses

65,968

65,783

Other liabilities

31,438  

31,597  
Total liabilities

929,090  

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;

60,381,164 and 59,941,088 shares issued and outstanding, respectively

604

599

Additional paid-in capital

1,191,047

1,190,250

Cumulative dividends in excess of net income

(162,337 )

(144,734 )
Accumulated other comprehensive income

5,795  

2,313  
Total shareholders’ equity

1,035,109  

1,048,428  
Total liabilities and shareholders’ equity

$ 1,964,199  

$ 1,975,360  

 

 
SUPPLEMENTAL CREDIT INFORMATION:

Fixed charge coverage ratio(1)

3.10

3.00

Leverage ratio(1)

39.1 %

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)
(unaudited)

 

Three Months Ended March 31,

2018       2017
REVENUE

Rooms

$ 100,613

$ 98,901

Food and beverage

27,633

29,312

Other

6,779  

6,661  
Total revenue

135,025  

134,874  

 
EXPENSES

Hotel operating expenses:

Rooms

25,286

25,322

Food and beverage

21,059

22,239

Other direct

1,148

1,356

Indirect

49,793  

49,815  

Total hotel operating expenses

97,286

98,732

Depreciation and amortization

19,208

18,787

Air rights contract amortization

130

130

Corporate general and administrative

5,378  

4,935  
Total operating expenses

122,002  

122,584  

 
Operating income

13,023

12,290

 
Interest expense

(8,844 )

(7,798 )

 
Income before income taxes

4,179

4,492

 
Income tax benefit

2,370  

3,527  

 
Net income

6,549

8,019

 
Preferred share dividends

 

(2,422 )
Net income available to common shareholders

$ 6,549  

$ 5,597  

 
Net income per common share—basic and diluted

$ 0.11

$ 0.09

 
Weighted-average number of common shares outstanding:

Basic

59,120,065

58,995,589

Diluted

59,718,986

58,995,589

 

     

CHESAPEAKE LODGING TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

Three Months Ended March 31,

2018       2017

 
Cash flows from operating activities:

Net income

$ 6,549

$ 8,019

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

Depreciation and amortization

19,208

18,787

Air rights contract amortization

130

130

Deferred financing costs amortization

424

407

Share-based compensation

1,948

1,990

Other

(75 )

(155 )
Changes in assets and liabilities:

Accounts receivable, net

(4,596 )

207

Prepaid expenses and other assets

(3,310 )

(4,429 )
Accounts payable and accrued expenses

208

(1,248 )
Other liabilities

(88 )

(13 )
Net cash provided by operating activities

20,398  

23,695  

 
Cash flows from investing activities:

Improvements and additions to hotels

(10,165 )

(16,389 )
Net cash used in investing activities

(10,165 )

(16,389 )

 
Cash flows from financing activities:

Borrowings under revolving credit facility

20,000

155,000

Repayments under revolving credit facility

(15,000 )

(10,000 )
Scheduled principal payments on mortgage debt

(3,292 )

(128,162 )
Payment of deferred financing costs

(36 )
Payment of dividends to common shareholders

(23,741 )

(24,693 )
Payment of dividends to preferred shareholders

(2,422 )
Repurchase of common shares

(1,146 )

(1,052 )
Net cash used in financing activities

(23,179 )

(11,365 )
Net decrease in cash, cash equivalents, and restricted cash

(12,946 )

(4,059 )
Cash, cash equivalents, and restricted cash, beginning of period

74,916  

79,188  
Cash, cash equivalents, and restricted cash, end of period

$ 61,970  

$ 75,129  

 
 

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 ended March 31, 2018 and 2017:

     

Three Months Ended March 31,

2018       2017
Net income

$ 6,549

$ 8,019

Add: Interest expense

8,844

7,798

Depreciation and amortization

19,208

18,787

Less: Income tax benefit

(2,370 )

(3,527 )
EBITDAre

32,231

31,077

Add: Non-cash amortization(1)

55  

(25 )
Adjusted Corporate EBITDAre

32,286

31,052

Add: Corporate general and administrative

5,378  

4,935  
Adjusted Hotel EBITDAre

37,664

35,987

Less: Adjusted Hotel EBITDAre of hotel sold(2)

 

(243 )
Comparable Adjusted Hotel EBITDAre(3)

$ 37,664  

$ 35,744  
Total revenue

$ 135,025

$ 134,874

Less: Total revenue of hotel sold(2)

 

(2,389 )
Comparable total revenue(3)

$ 135,025  

$ 132,485  

 
Comparable Adjusted Hotel EBITDAre Margin(3)

27.9 %

27.0 %

 
_____________
(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 Hotel Minneapolis, Autograph Collection, which was sold on November 8, 2017.
(3)

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.

 

The following table reconciles net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three months ended March 31, 2018 and 2017:

     

Three Months Ended March 31,

2018       2017
Net income

$ 6,549

$ 8,019

Add: Depreciation and amortization

19,208  

18,787  
FFO

25,757

26,806

Less: Preferred share dividends

(2,422 )
Dividends declared on unvested time-based awards

(121 )

(124 )
Undistributed earnings allocated to unvested time-based awards

 

 
FFO available to common shareholders

25,636

24,260

Add: Non-cash amortization(1)

55  

(25 )
AFFO available to common shareholders

$ 25,691  

$ 24,235  

 
FFO per common share—basic and diluted

$ 0.43

$ 0.41

 
AFFO per common share—basic and diluted

$ 0.43

$ 0.41

 
_____________
(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 ending June 30, 2018 and year ending December 31, 2018:

     

     

Three Months Ending

Year Ending

June 30, 2018

December 31, 2018

Low       High

Low       High
Net income

$ 22,520

$ 24,520

$ 63,380

$ 69,880

Add: Interest expense

8,940

8,940

35,600

35,600

Income tax expense

2,150

2,350

1,250

2,250

Depreciation and amortization

18,940  

18,940  

75,000  

75,000  
EBITDAre

52,550

54,750

175,230

182,730

Add: Non-cash amortization(1)

50  

50  

220  

220  
Adjusted Corporate EBITDAre

52,600

54,800

175,450

182,950

Add: Corporate general and administrative

4,600  

4,800  

18,300  

19,300  
Adjusted Hotel EBITDAre

$ 57,200  

$ 59,600  

$ 193,750  

$ 202,250  

 
Total revenue

$ 161,400

$ 164,700

$ 603,000

$ 615,250

 
Adjusted Hotel EBITDAre Margin

35.4 %

36.2 %

32.1 %

32.9 %

 
_____________
(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 June 30, 2018 and year ending December 31, 2018:

     

     

Three Months Ending

Year Ending

June 30, 2018

December 31, 2018

Low       High

Low       High
Net income

$ 22,520

$ 24,520

$ 63,380

$ 69,880

Add: Depreciation and amortization

18,940  

18,940  

75,000  

75,000  
FFO

41,460

43,460

138,380

144,880

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

41,340

43,340

137,900

144,400

Add: Non-cash amortization(1)

50  

50  

220  

220  
AFFO available to common shareholders

$ 41,390  

$ 43,390  

$ 138,120  

$ 144,620  
FFO per common share:

Basic

$ 0.70

$ 0.73

$ 2.33

$ 2.44

Diluted

$ 0.69

$ 0.73

$ 2.32

$ 2.43

 
AFFO per common share:

Basic

$ 0.70

$ 0.73

$ 2.34

$ 2.45

Diluted

$ 0.69

$ 0.73

$ 2.33

$ 2.43

 
Weighted-average number of common shares outstanding:

Basic

59,140

59,140

59,145

59,145

Diluted

59,779

59,779

59,394

59,394

 
_____________
(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

Hyatt Centric Santa Barbara

Santa Barbara, CA

200

June 27, 2013
19

JW Marriott San Francisco Union Square

San Francisco, CA

344

October 1, 2014
20

Royal Palm South Beach Miami, a Tribute Portfolio Resort

Miami Beach, FL

393

March 9, 2015
21

Ace Hotel and Theater Downtown Los Angeles

Los Angeles, CA

182

April 30, 2015

6,479



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