Chesapeake Lodging Trust Reports Second Quarter Results

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 [phone]. 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 [phone].

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

 

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