Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment
trust (REIT), reported today its financial results for the quarter ended
June 30, 2012.
HIGHLIGHTS
- Pro Forma RevPAR ? 9.7% increase
- for comparable 10-hotel portfolio over the same period in 2011.
- Pro Forma Adjusted Hotel EBITDA Margin
- ? 240 basis point increase for comparable 10-hotel portfolio over the
- same period in 2011.
- Acquisitions?? Subsequent to quarter end, entered into a definitive agreement to acquire a full-service hotel located inSan Diego, California?for?$62 million.
- Preferred share offering?? Subsequent to quarter end, successfully completed a?$125 million?preferred share offering.
- Financings?? Subsequent to quarter end, closed on?$130 million?of secured financings taking further advantage of the attractive interest rate environment.
?We delivered another exceptional quarter of hotel operating performance, with industry-leading RevPAR growth and hotel EBITDA margin expansion,? said?James L. Francis, Chesapeake Lodging Trust?s President and Chief Executive Officer. ?Our hotel portfolio achieved over 83% occupancy in the second quarter which enabled our operators to aggressively increase room rates.?
?We were very pleased with the execution and pricing of the?$125 million?preferred share offering that closed in mid-July,? said Douglas W. Vicari, Chesapeake Lodging Trust?s Executive Vice President and Chief Financial Officer. ?With the additional capital raised through the preferred offering and given our targeted leverage levels, we expect our total investment in hotel real estate to reach?$1.25 billion.?
CONSOLIDATED FINANCIAL RESULTS
The following is a summary of the consolidated financial results for the three and six months ended?June 30, 2012?(in millions, except per share amounts):
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| 2012(1) | 2011(2) | 2012(3) | 2011(2) | |||||||||
| Total revenue | $ | 67.0 | $ | 40.3 | $ | 117.3 | $ | 64.3 | ||||
| Net income available to common shareholders | $ | 9.0 | $ | 2.0 | $ | 8.2 | $ | 0.2 | ||||
| Net income per diluted share | $ | 0.28 | $ | 0.06 | $ | 0.26 | $ | 0.01 | ||||
| FFO available to common shareholders | $ | 15.7 | $ | 5.7 | $ | 21.4 | $ | 7.0 | ||||
| FFO per diluted share | $ | 0.49 | $ | 0.18 | $ | 0.67 | $ | 0.26 | ||||
| AFFO available to common shareholders | $ | 15.9 | $ | 9.6 | $ | 22.0 | $ | 11.2 | ||||
| AFFO per diluted share | $ | 0.50 | $ | 0.30 | $ | 0.69 | $ | 0.41 | ||||
| Corporate EBITDA | $ | 22.3 | $ | 8.5 | $ | 31.5 | $ | 10.8 | ||||
| Adjusted Corporate EBITDA | $ | 22.5 | $ | 12.3 | $ | 32.1 | $ | 15.0 | ||||
| (1) | Includes results of operations of 12 hotels for the full period. | |
| (2) | Includes results of operations of five hotels for the full period and four hotels for part of the period. | |
| (3) | Includes results of operations of 11 hotels for the full period and one hotel for part of the period. | |
HOTEL OPERATING RESULTS
Management assesses the operating performance of its hotels irrespective of the hotel owner during the periods compared. Included in the following table are comparisons of, on a pro forma basis, occupancy, ADR, RevPAR,?Adjusted Hotel EBITDA, andAdjusted Hotel EBITDA Margin, the key operating metrics that management uses to assess the performance of its hotels. The key operating metrics include the hotel operating results of 10 of the Trust?s 12 hotels owned as of?June 30, 2012. The key operating metrics do not include operating results for the?Holiday Inn New York City Midtown?? 31st?Street, as the hotel opened for business on?January 19, 2012, and the?Hotel Adagio, as the hotel was under renovation during the period. The following is a summary of the key operating metrics for the three and six months ended?June 30, 2012?(in thousands, except pro forma ADR and pro forma RevPAR):
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||
| Pro forma occupancy | 83.2% | 82.7% | 50 bps | 78.1% | 75.6% | 250 bps | ||||||||||
| Pro forma ADR | $ | 199.12 | $ | 182.57 | 9.1% | $ | 184.90 | $ | 172.72 | 7.1% | ||||||
| Pro forma RevPAR | $ | 165.64 | $ | 151.05 | 9.7% | $ | 144.43 | $ | 130.52 | 10.7% | ||||||
| Pro forma Adjusted Hotel EBITDA | $ | 23,906 | $ | 20,887 | 14.5% | $ | 36,104 | $ | 30,101 | 19.9% | ||||||
| Pro forma Adjusted Hotel EBITDA Margin | 37.9% | 35.5% | 240 bps | 32.7% | 29.7% | 300 bps | ||||||||||
Funds from operations (FFO), Adjusted FFO (AFFO), net income before interest, income taxes, and depreciation and amortization (Corporate EBITDA), Adjusted Corporate EBITDA,?Hotel EBITDA,?Adjusted Hotel EBITDA?and?Adjusted Hotel EBITDA Margin?are non-GAAP financial measures within the meaning of the rules of the?Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.
DIVIDENDS
On?April 13, 2012, the Trust paid a dividend of?$0.22?per share to its common shareholders of record as of?March 31, 2012. OnMay 25, 2012, the Trust declared a dividend in the amount of?$0.22?per share payable to its common shareholders of record as of?June 30, 2012. The dividend was paid on?July 13, 2012.
POST-QUARTER ACTIVITY
On?July 3, 2012, the Trust closed on a?$60.0 million?two-year term loan. The loan was provided by?Wells Fargo Bank, N.A., and subject to certain customary conditions, provides for three one-year extensions. At the initial closing,?$25.0 million?was advanced by the lender and is secured by the 122-room?Holiday Inn New York City Midtown?? 31st?Street. The remaining?$35.0 million?is expected to be advanced by the lender upon closing on the acquisition of the Hyatt Place New York Midtown South and satisfaction of certain customary closing conditions. Following that subsequent closing, the entire?$60.0?million principal amount of the loan will be secured by both hotels. The loan bears interest equal to LIBOR, plus 3.25%. Contemporaneous with the closing of the term loan, the Trust entered into an interest rate swap to effectively fix the interest rate on the initial?$25.0 million?advance for the original two-year term at 3.75% per annum. Net proceeds from the initial advance under the loan were used to repay outstanding borrowings under the Trust?s revolving credit facility and for general business purposes.
On?July 17, 2012, the Trust completed an underwritten public offering of 5,000,000 of its 7.75% Series A Cumulative Redeemable Preferred Shares, including 600,000 shares sold pursuant to the underwriters? exercise of their over-allotment option. The Trust generated net proceeds of approximately?$120.8 million?after deducting underwriting fees and estimated offering costs. The Trust used the net proceeds of the offering to repay outstanding borrowings under the Trust?s revolving credit facility and for general business purposes.
On?July 27, 2012, the Trust closed on a?$70.0 million?fixed-rate mortgage loan. The loan is secured by the 613-room Denver Marriott City Center and was provided by?Western National Life Insurance Company. The loan has a term of 30 years, but is callable by the lender after 10 years, and the Trust expects the lender to call the loan at that time. The loan carries a fixed interest rate of 4.90% per annum, with principal and interest based on a 30-year amortization. Proceeds from the loan were used to repay the remaining outstanding borrowings under the Trust?s revolving credit facility and for general business purposes.
On?July 31, 2012, the Trust announced that it had entered into a definitive agreement to acquire a full-service hotel located in?San Diego, California?for?$62.0 million. The Trust intends to fund the acquisition with available cash and cash equivalents and by borrowing under its revolving credit facility. The Trust expects the acquisition to close in the third quarter 2012, subject to customary closing conditions, but can give no assurance that the acquisition will be consummated during that time period, or at all.
As of?July 31, 2012, after taking into consideration the recent preferred share offering and financing activity, and the pending acquisitions of the hotel in?San Diego, California?and the?Hyatt Place?New York Midtown South, the Trust had approximately?$200 million?of remaining investment capacity based on its targeted leverage levels. The Trust is currently negotiating to acquire a full-service hotel in the central business district of a major market for approximately?$125 million?and expects that the transaction would close in the third quarter 2012, but can give no assurance that the acquisition will be consummated during that time period, or at all.
2012 OUTLOOK
The Trust is updating its 2012 outlook to incorporate current operating trends and fundamentals, the recent preferred share offering and financing activity, the anticipated acquisition of two hotels in the third quarter 2012 described above, and the acquisition of the previously announced Hyatt Place New York Midtown South in the fourth quarter 2012 (in millions, except per share amounts):
| Updated Guidance | Previous Guidance | |||||||||||
| Low | High | Low | High | |||||||||
| Pro forma RevPAR increase over 2011(1) | 8.5% | 9.5% | 7.5% | 9.0% | ||||||||
| Net income available to common shareholders | $ | 15.8 | $ | 18.2 | $ | 20.5 | $ | 23.1 | ||||
| Adjusted Hotel EBITDA | $ | 88.9 | $ | 91.9 | $ | 83.2 | $ | 86.7 | ||||
| AFFO per diluted share | $ | 1.58 | $ | 1.66 | $ | 1.60 | $ | 1.69 | ||||
| (1) For the comparable 10-hotel portfolio owned as of June 30, 2012. | ||||||||||||
NON-GAAP FINANCIAL MEASURES
The Trust reports the following seven non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1)?FFO, (2)?AFFO, (3)?Corporate EBITDA, (4) Adjusted Corporate EBITDA, (5)?Hotel EBITDA, (6)Adjusted Hotel EBITDA?and (7)?Adjusted Hotel EBITDA Margin. A reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.
FFO ? The Trust calculates FFO in accordance with standards established by the?National Association of Real Estate Investment Trusts?(NAREIT), which defines FFO as net income (calculated in accordance with GAAP), excluding depreciation and amortization, impairment charges, gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, and adjustments for unconsolidated partnerships and joint ventures. 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.
AFFO ? The Trust further adjusts FFO 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 unfavorable contract liabilities. The Trust believes that AFFO provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.
Corporate EBITDA ? Corporate EBITDA is defined as net income before interest, income taxes, and depreciation and amortization. The Trust believes that Corporate EBITDA 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 EBITDA ? The Trust further adjusts Corporate EBITDA for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for hotel acquisition costs and non-cash amortization of intangible assets and unfavorable contract liabilities. The Trust believes that Adjusted Corporate EBITDA provides investors with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.
Hotel EBITDA???Hotel EBITDA?is defined as total revenues less total hotel operating expenses. The Trust believes that?Hotel EBITDA?provides investors a useful financial measure to evaluate the Trust?s hotel operating performance.
Adjusted Hotel EBITDA?? The Trust further adjusts?Hotel EBITDA?for certain additional recurring and non-recurring items. Specifically, the Trust adjusts for non-cash amortization of intangible assets and unfavorable contract liabilities. The Trust believes that?Adjusted Hotel EBITDA?provides investors with another useful financial measure to evaluate the Trust?s hotel operating performance.
Adjusted Hotel EBITDA Margin???Adjusted Hotel EBITDA Margin?is defined as?Adjusted Hotel EBITDA?as a percentage of total revenues. The Trust believes that?Adjusted Hotel EBITDA Margin?provides investors another useful financial measure to evaluate the Trust?s hotel operating performance.
CONFERENCE CALL
The Trust will host a conference call on?Tuesday, July 31, 2012?at?5:30 p.m. Eastern Time?to discuss its financial results. Interested individuals are invited to listen to the call by dialing (877) 683-0303 (U.S./Canadian callers) or (706) 643-5037 (International callers). The conference call ID is 99008039. A simultaneous webcast of the call will be available on the Trust?s website at?www.chesapeakelodgingtrust.com. It is recommended that participants call or log on 10 minutes ahead of the scheduled start time to ensure proper connection.
A replay of the conference call will be available two hours after the live call until midnight on?August 7, 2012. To access the replay, dial (855) 859-2056 (U.S./Canadian callers) or (404) 537-3406 (International callers). The conference call ID is 99008039. A webcast replay and transcript of the conference call will be archived and available on the Trust?s website for 12 months.