Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate
investment trust (REIT), reported today its financial results for
the quarter ended June 30, 2019.
CONSOLIDATED FINANCIAL RESULTS
The following is a summary of the consolidated financial results
for the three and six months ended June 30, 2019 and 2018 (in
millions, except share and per share amounts):
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Total revenue
$
159.0
$
163.3
$
292.7
$
298.3
Net income
$
18.2
$
23.8
$
26.5
$
30.4
Net income per diluted common share
$
0.30
$
0.40
$
0.44
$
0.50
Adjusted Hotel EBITDAre(1)
$
56.5
$
59.2
$
93.6
$
96.9
Adjusted Corporate EBITDAre(1)
$
52.0
$
54.5
$
84.3
$
86.8
AFFO available to common
shareholders(1)
$
41.4
$
42.9
$
68.2
$
68.5
AFFO per diluted common share
$
0.69
$
0.72
$
1.13
$
1.15
Weighted-average number of diluted common
shares outstanding
60,261,803
59,793,063
60,241,264
59,760,765
_____________
(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 June 30, 2019, the Trust owned 20 hotels.
Since the Hyatt Centric Santa Barbara was sold on July 26, 2018, it
has been excluded from the comparable hotel portfolio metrics for
the three and six months ended June 30, 2018. Included in the
following table are comparisons of the key operating metrics for
the comparable 20-hotel portfolio for the three and six months
ended June 30, 2019 and 2018 (in thousands, except for ADR and
RevPAR):
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
Change
2019
2018
Change
Comparable Occupancy
88.8
%
89.0
%
(20) bps
83.7
%
84.9
%
(120) bps
Comparable ADR
$
237.41
$
240.02
(1.1)%
$
230.64
$
227.72
1.3%
Comparable RevPAR
$
210.85
$
213.69
(1.3)%
$
193.13
$
193.43
(0.2)%
Comparable Adjusted Hotel EBITDAre(1)
$
56,496
$
57,801
(2.3)%
$
93,624
$
94,580
(1.0)%
Comparable Adjusted Hotel EBITDAre
Margin(1)
35.5
%
36.3
%
(80) bps
32.0
%
32.6
%
(60) bps
_____________
(1) See the discussion included in this
press release for information regarding this non-GAAP financial
measure.
Comparable RevPAR for the second quarter 2019 was negatively
impacted by the following items: (1) displacement from a guestroom
renovation at the Hyatt Regency Mission Bay Spa and Marina
(approximately 30 bps), (2) a mechanical fire at the Le Meridien
New Orleans in May resulting in the closure of the hotel for 11
days (approximately 80 bps) and (3) an adjustment to rooms revenue
related to Marriott loyalty program stays recognized in previous
periods at the Royal Palm South Beach Miami, a Tribute Portfolio
Resort (approximately 50 bps). Adjusting for these three items,
RevPAR for the second quarter 2019 would have increased 0.3%.
DIVIDEND
On April 15, 2019, the Trust paid a dividend in the amount of
$0.40 per share to its common shareholders of record as of March
29, 2019. On June 12, 2019, the Trust declared a dividend in the
amount of $0.40 per share payable to its common shareholders of
record as of June 28, 2019. The dividend was paid on July 15,
2019.
PENDING MERGER
On May 6, 2019, the Trust announced that it had entered into a
definitive merger agreement to be acquired by Park Hotels &
Resorts, Inc. (NYSE:PK)(“Park”). Under the terms of the merger
agreement, shareholders of the Trust will receive $11.00 in cash
and 0.628 of a share of Park common stock for each outstanding
common share of the Trust. The proposed merger remains subject to
receipt of the required approval of the Trust’s shareholders and
completion of other customary closing requirements and conditions.
A special meeting of the Trust’s shareholders to consider and vote
upon the proposed merger has been scheduled for September 10, 2019.
The Trust will not be holding earnings conference calls during the
pendency of the proposed merger.
On July 25, 2019, the Trust announced that it had entered into
an agreement to sell the 122-room Hyatt Herald Square New York and
the 185-room Hyatt Place New York Midtown South, both located in
New York, New York, for an aggregate sale price of $138.0 million,
or approximately $450,000 per key, subject to customary pro-rations
at closing. The proposed sale by the Trust of these New York hotels
is anticipated to occur in mid-to-late September 2019 prior to
completion of the Trust’s proposed merger with Park.
The Trust acquired the Hyatt Herald Square New York in December
2011 for $52.0 million, or $428,000 per key, and the Hyatt Place
New York Midtown South in March 2013 for $76.2 million, or $412,000
per key. The $138.0 million aggregate sale price represents a 5.9%
trailing twelve month NOI cap rate.
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.
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 the National Association of Real Estate
Investment Trusts ("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
operating lease right-of-use assets, intangible assets and
liabilities, deferred franchise costs, and deferred key money, all
of which are recurring items. For the three and six months ended
June 30, 2019, the Trust also adjusted for non-recurring costs
related to the Park merger. 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
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 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 operating lease
right-of-use assets, intangible assets and liabilities, deferred
franchise costs, and deferred key money, all of which are recurring
items. For the three and six months ended June 30, 2019, the Trust
also adjusted for non-recurring costs related to the Park merger.
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
20 hotels with an aggregate of 6,288 rooms in eight states and the
District of Columbia. Additional information can be found on the
Trust’s website at www.chesapeakelodgingtrust.com.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This communication contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements generally include statements
regarding the potential transaction between Park and the Trust,
including statements regarding the expected timetable for
completing the New York hotel sales and pending merger. These
statements are often, but not always, made through the use of words
or phrases such as “believe,” “expect,” “anticipate,” “should,”
“plan,” “will,” “may,” “intend,” “estimate,” “aim,” “target,”
“predict,” “project,” “seek,” “would,” “could,” “continue,”
“possible,” “potential” and similar expressions. All such
forward-looking statements are based on current expectations of
management and therefore involve estimates and assumptions that are
subject to risks, uncertainties and other factors that could cause
actual results to differ materially from the results expressed in
the statements. Key factors that could cause actual results to
differ materially from those projected in the forward-looking
statements include the ability to obtain the requisite approval of
the Trust’s shareholders; uncertainties as to the timing to
consummate the potential merger and sales of the New York hotels;
the risk that a condition to closing the potential merger or sales
of the New York hotels may not be satisfied; and the effects of
industry, market, economic, political or regulatory conditions
outside of Park’s or the Trust’s control. Other factors are
described in Park’s and the Trust’s respective filings with the
SEC, including Park’s and the Trust’s most recent Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K. The Trust assumes no obligation to update any
forward-looking statements, except as required by law. Readers are
cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date hereof.
ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND
WHERE TO FIND IT
This communication relates to the proposed transaction pursuant
to the terms of the Agreement and Plan of Merger, dated as of May
5, 2019, by and among Park, the Trust and the other entities party
thereto. In connection with the proposed transaction, Park has
filed with the SEC and attained effectiveness of a registration
statement on Form S-4 that includes a proxy statement of the Trust
and a prospectus of Park. Park and the Trust also plan to file
other relevant documents with the SEC regarding the proposed
transaction. A definitive proxy statement/prospectus has been sent
to the Trust’s shareholders. INVESTORS AND SECURITY HOLDERS ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, WHEN THEY BECOME AVAILABLE, BECAUSE
THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors may obtain a free copy of the definitive proxy
statement/prospectus and other relevant documents filed by Park and
the Trust with the SEC at the SEC’s website at www.sec.gov. Copies
of the documents filed by Park with the SEC are available free of
charge on Park’s website at http://www.pkhotelsandresorts.com or by
contacting Park’s Investor Relations at (571) 302-5591. Copies of
the documents filed by the Trust with the SEC are available free of
charge on the Trust’s website at
http://www.chesapeakelodgingtrust.com or by contacting the Trust at
(571) 349-9452.
The Trust and its trustees and executive officers and other
members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed transaction. Information about trustees and executive
officers of the Trust is available in its definitive proxy
statement filed with the SEC on April 30, 2019. Other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, is included in the definitive proxy
statement/prospectus and other relevant materials filed with the
SEC regarding the proposed transaction. Investors may obtain free
copies of these documents from Park or the Trust using the sources
indicated above.
This communication and the information contained herein shall
not constitute an offer to sell or the solicitation of an offer to
buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the U.S. Securities Act of 1933, as
amended.
CHESAPEAKE LODGING TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
data)
June 30, 2019
December 31, 2018
(unaudited)
ASSETS
Property and equipment, net
$
1,710,972
$
1,732,154
Operating lease right-of-use assets,
net
74,722
—
Intangible assets, net
31,278
34,678
Cash and cash equivalents
46,239
71,259
Restricted cash
35,748
31,614
Accounts receivable, net
28,363
18,360
Prepaid expenses and other assets
19,955
21,012
Total assets
$
1,947,277
$
1,909,077
LIABILITIES AND SHAREHOLDERS’ EQUITY
Long-term debt
$
745,547
$
751,389
Operating lease liabilities
71,793
—
Accounts payable and accrued expenses
68,895
72,555
Other liabilities
32,251
31,155
Total liabilities
918,486
855,099
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; 60,765,796 shares and 60,263,670 shares issued
and outstanding, respectively
608
603
Additional paid-in capital
1,196,084
1,193,455
Cumulative dividends in excess of net
income
(166,460
)
(144,341
)
Accumulated other comprehensive income
(loss)
(1,441
)
4,261
Total shareholders’ equity
1,028,791
1,053,978
Total liabilities and shareholders’
equity
$
1,947,277
$
1,909,077
SUPPLEMENTAL CREDIT INFORMATION:
Fixed charge coverage ratio(1)
3.31
3.33
Leverage ratio(1)
33.5
%
33.1
%
______________
(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 June 30,
Six Months Ended June 30,
2019
2018
2019
2018
REVENUE
Rooms
$
120,652
$
125,517
$
219,734
$
226,130
Food and beverage
30,156
30,561
57,621
58,194
Other
8,169
7,207
15,359
13,986
Total revenue
158,977
163,285
292,714
298,310
EXPENSES
Hotel operating expenses:
Rooms
27,366
27,472
52,216
52,758
Food and beverage
21,386
21,790
41,845
42,849
Other direct
1,257
1,204
2,344
2,352
Indirect
52,409
53,544
102,559
103,337
Total hotel operating expenses
102,418
104,010
198,964
201,296
Depreciation and amortization
18,782
19,105
37,419
38,313
Air rights contract amortization
130
130
260
260
Corporate general and administrative
4,490
4,725
9,359
10,103
Costs related to the Park merger
4,400
—
4,400
—
Total operating expenses
130,220
127,970
250,402
249,972
Interest income
234
38
490
38
Interest expense
(8,039
)
(8,914
)
(16,039
)
(17,758
)
Income before income taxes
20,952
26,439
26,763
30,618
Income tax expense
(2,711
)
(2,629
)
(271
)
(259
)
Net income
$
18,241
$
23,810
26,492
30,359
Net income per common share:
Basic
$
0.31
$
0.40
$
0.44
$
0.51
Diluted
$
0.30
$
0.40
$
0.44
$
0.50
Weighted-average number of common shares
outstanding:
Basic
59,394,134
59,133,648
59,392,327
59,126,894
Diluted
60,261,803
59,793,063
60,241,264
59,760,765
CHESAPEAKE LODGING TRUST
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
2019
2018
Cash flows from operating activities:
Net income
$
26,492
$
30,359
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
37,419
38,313
Air rights contract amortization
260
260
Deferred financing costs amortization
742
834
Share-based compensation
3,797
3,784
Other
(144
)
(150
)
Changes in assets and liabilities:
Accounts receivable, net
(10,003
)
(13,293
)
Prepaid expenses and other assets
(3,229
)
(2,236
)
Accounts payable and accrued expenses
(3,324
)
2,423
Other liabilities
—
(96
)
Net cash provided by operating
activities
52,010
60,198
Cash flows from investing activities:
Improvements and additions to hotels
(16,176
)
(18,906
)
Net cash used in investing activities
(16,176
)
(18,906
)
Cash flows from financing activities:
Borrowings under revolving credit
facility
10,000
40,000
Repayments under revolving credit
facility
(10,000
)
(30,000
)
Scheduled principal payments on mortgage
debt
(6,584
)
(6,545
)
Payment of deferred financing costs
—
(1,556
)
Payment of dividends to common
shareholders
(48,973
)
(47,513
)
Repurchase of common shares
(1,163
)
(1,146
)
Net cash used in financing activities
(56,720
)
(46,760
)
Net decrease in cash, cash equivalents,
and restricted cash
(20,886
)
(5,468
)
Cash, cash equivalents, and restricted
cash, beginning of period
102,873
74,916
Cash, cash equivalents, and restricted
cash, end of period
$
81,987
$
69,448
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 six months ended June 30, 2019
and 2018:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net income
$
18,241
$
23,810
$
26,492
$
30,359
Add: Interest expense
8,039
8,914
16,039
17,758
Income tax expense
2,711
2,629
271
259
Depreciation and amortization
18,782
19,105
37,419
38,313
Less: Interest income
(234
)
(38
)
(490
)
(38
)
EBITDAre
47,539
54,420
79,731
86,651
Add: Non-cash amortization(1)
67
55
134
110
Costs related to the Park merger
4,400
—
4,400
—
Adjusted Corporate EBITDAre
52,006
54,475
84,265
86,761
Add: Corporate general and
administrative
4,490
4,725
9,359
10,103
Adjusted Hotel EBITDAre
56,496
59,200
93,624
96,864
Less: Adjusted Hotel EBITDAre of hotel
sold(2)
—
(1,399
)
—
(2,284
)
Comparable Adjusted Hotel EBITDAre
$
56,496
$
57,801
$
93,624
$
94,580
Total revenue
$
158,977
$
163,285
$
292,714
$
298,310
Less: Total revenue of hotel sold(2)
—
(4,179
)
—
(7,749
)
Comparable total revenue
$
158,977
$
159,106
$
292,714
$
290,561
Comparable Adjusted Hotel EBITDAre
Margin
35.5
%
36.3
%
32.0
%
32.6
%
_____________
(1) Reflects non-cash amortization of operating lease
right-of-use assets, 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 net income to FFO, FFO available
to common shareholders, and AFFO available to common shareholders
for the three and six months ended June 30, 2019 and 2018:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net income
$
18,241
$
23,810
$
26,492
$
30,359
Add: Depreciation and amortization
18,782
19,105
37,419
38,313
FFO
37,023
42,915
63,911
68,672
Less: Dividends declared on unvested
time-based awards
(119
)
(119
)
(237
)
(240
)
Undistributed earnings allocated to
unvested time-based awards
—
—
—
—
FFO available to common shareholders
36,904
42,796
63,674
68,432
Add: Non-cash amortization(1)
67
55
134
110
Costs related to the Park merger
4,400
—
4,400
—
AFFO available to common shareholders
$
41,371
$
42,851
$
68,208
$
68,542
FFO per common share:
Basic
$
0.62
$
0.72
$
1.07
$
1.16
Diluted
$
0.61
$
0.72
$
1.06
$
1.15
AFFO per common share:
Basic
$
0.70
$
0.72
$
1.15
$
1.16
Diluted
$
0.69
$
0.72
$
1.13
$
1.15
_____________
(1) Reflects non-cash amortization of operating lease
right-of-use assets, 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
438
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
6,288
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190801005104/en/
Douglas W. Vicari, (571) 349-9452
Chesapeake Lodging (NYSE:CHSP)
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