CHSP Chesapeake Lodging Trust

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), announced today that it is providing an update to its 2015 outlook and its board of trustees authorized a $100.0 million share repurchase program.

"We expect to achieve our previously provided outlook on RevPAR growth for our hotel portfolio for the third quarter and full year, however, we are adjusting our outlook for the second half of 2015 to primarily reflect (1) a change in expectations in the composition of our RevPAR growth which we now expect to be led by stronger occupancy growth and modestly lower ADR growth than previously expected, which negatively impacts profitability, (2) weaker than expected results in late August and early September as a result of the Labor Day shift and (3) a significantly larger than expected increase in property taxes at our two Chicago hotels,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer. "Reflecting our belief that lodging industry fundamentals will remain positive for the foreseeable future and our confidence in the positioning and growth potential of our existing portfolio, we have authorized a $100 million share repurchase program to provide the Trust with the ability to opportunistically use available capital to enhance returns for our shareholders.”

2015 OUTLOOK UPDATE

The Trust is updating its 2015 outlook to incorporate its recent operating trends and fundamentals. The updated outlook assumes no additional acquisitions, dispositions, or financing transactions (in millions, except per share amounts):

    Updated Outlook Previous Outlook Low   High Low   High

Third Quarter 2015

Pro forma RevPAR increase over 2014(1) 6.8 % 7.1 % 6.5 % 8.5 % Adjusted Hotel EBITDA $ 57.5 $ 58.5 $ 58.9 $ 61.4 Adjusted Hotel EBITDA Margin 35.0 % 35.3 % 35.8 % 36.6 % Pro forma Adjusted Hotel EBITDA Margin increase over 2014(1) 90 bps 125 bps 175 bps 250 bps Adjusted Corporate EBITDA $ 53.8 $ 54.6 $ 54.7 $ 57.0 AFFO per diluted common share $ 0.72 $ 0.74 $ 0.73 $ 0.77  

Full Year 2015

Pro forma RevPAR increase over 2014(1) 6.5 % 7.25 % 6.5 % 8.5 % Pro forma Adjusted Hotel EBITDA $ 197.7 $ 200.7 $ 200.2 $ 206.4 Pro forma Adjusted Hotel EBITDA Margin 32.6 % 32.8 % 32.8 % 33.3 % Pro forma Adjusted Hotel EBITDA Margin increase over 2014(1) 115 bps 140 bps 140 bps 190 bps Adjusted Corporate EBITDA $ 173.9 $ 176.5 $ 175.9 $ 181.6 AFFO per diluted common share $ 2.24 $ 2.28 $ 2.27 $ 2.35 ___________ (1) The comparable 2014 period includes results of operations for certain hotels prior to their acquisition by the Trust.  

SHARE REPURCHASE PROGRAM

On September 29, 2015, the Trust's board of trustees authorized a share repurchase program pursuant to which the Trust may acquire up to $100.0 million of its common shares using cash on hand and borrowings under its revolving credit facility.

The timing and volume of repurchases will be determined by the Trust's management based on its ongoing assessments of the capital needs of the business, prevailing market prices, general economic and market conditions and other considerations. The repurchase program authorizes the Trust to repurchase its common shares from time to time through open market purchases, negotiated transactions or other means, including Rule 10b5-1 trading plans, in accordance with applicable securities laws and other restrictions. No time limit has been set for the completion of the repurchase program, and the program may be suspended or discontinued at any time. The share repurchase program does not obligate the Trust to acquire any particular amount of its shares.

NON-GAAP FINANCIAL MEASURES

The Trust reports the following eight non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1) Hotel EBITDA, (2) Adjusted Hotel EBITDA, (3) Adjusted Hotel EBITDA Margin, (4) Corporate EBITDA, (5) Adjusted Corporate EBITDA, (6) FFO, (7) FFO available to common shareholders and (8) AFFO available to common shareholders. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included in the accompanying financial tables.

Hotel EBITDA – Hotel EBITDA is defined as net income before interest, income taxes, depreciation and amortization, air rights amortization, corporate general and administrative, and hotel acquisition costs. The Trust believes that Hotel EBITDA provides investors a useful financial measure to evaluate the Trust’s hotel operating performance, excluding the impact of the Trust’s capital structure (primarily interest), the Trust’s asset base (primarily depreciation and amortization), and the Trust’s corporate-level expenses (corporate general and administrative and hotel acquisition costs).

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 liabilities, including ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items. The Trust believes that Adjusted Hotel EBITDA provides investors with another useful financial measure to evaluate the Trust’s hotel operating performance, excluding the effect of these non-cash items.

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.

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 liabilities, including air rights contracts, ground lease assets and unfavorable contract liabilities, deferred franchise costs, and deferred key money, all of which are recurring items, and gains (losses) from sales of real estate, which is a non-recurring item. 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.

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 of depreciable real estate, 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.

FFO available to common shareholders – The Trust reduces FFO for preferred share dividends 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, including air rights contracts, ground lease assets and unfavorable contract 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 with another financial measure of its operating performance that provides for greater comparability of its core operating results between periods.

CONFERENCE INFORMATION

The Trust will provide a live webcast and dial-in for a presentation that it will be giving as part of its Institutional Investor and Security Analyst Conference starting at 12:30 p.m. Pacific Time on Tuesday, September 29, 2015 in San Francisco, California. Interested individuals are invited to listen to the presentation by dialing (877) 683-0303 (U.S./Canadian callers) or (706) 643-5037 (International callers). The conference call ID is 42926493. A simultaneous webcast of the presentation 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 presentation will be available two hours after the live presentation until midnight on October 6, 2015. To access the replay, dial (855) 859-2056 (U.S./Canadian callers) or (404) 537-3406 (International callers). The conference call ID is 42926493. A webcast replay of the presentation will be archived and available on the Trust’s website for 12 months.

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 22 hotels with an aggregate of 6,699 rooms in nine states and the District of Columbia. Additional information can be found on the Trust’s website at www.chesapeakelodgingtrust.com.

Note: This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “plan,” “predict,” “project,” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts, such as the Trust’s expectations regarding the future Hotel EBITDA and Adjusted Hotel EBITDA of its existing hotels and the Trust’s updated third quarter and full year 2015 outlook. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: U.S. economic conditions generally and the real estate market and the lodging industry specifically; management and performance of the Trust's hotels; supply and demand for hotel rooms in the Trust's markets; the Trust's competition; the Trust’s ability to continue to satisfy complex rules in order for it to remain a REIT for federal income tax purposes; and other risks and uncertainties associated with the Trust’s business described in its filings with the SEC. Although the Trust believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of September 29, 2015, and the Trust undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Trust’s expectations, except as required by law.

 

CHESAPEAKE LODGING TRUST

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, except per share data)

(unaudited)

 

The following table reconciles forecasted net income to Hotel EBITDA, Adjusted Hotel EBITDA, pro forma Adjusted Hotel EBITDA, and pro forma Adjusted Hotel EBITDA Margin for the three months ending September 30, 2015 and year ending December 31, 2015:

    Three Months Ending Year Ending September 30, 2015 December 31, 2015 Low   High Low   High Net income $ 27,400 $ 28,000 $ 70,430 $ 72,630

Add:

 

Interest expense

8,300 8,300 31,890 31,890 Income tax expense 100 300 2,000 2,400 Depreciation and amortization 17,960 17,960 68,790 68,790 Air rights contract amortization 130 130 520 520 Corporate general and administrative 3,700 3,900 16,890 17,290

 

Hotel acquisition costs

10   10   850   850   Hotel EBITDA 57,600 58,600 191,370 194,370  

Less:

Non-cash amortization(1)

(150 ) (150 ) (570 ) (570 ) Adjusted Hotel EBITDA 57,450 58,450 190,800 193,800  

Add:

Prior owner Hotel EBITDA(2)

—   —   6,900   6,900   Pro forma Adjusted Hotel EBITDA $ 57,450   $ 58,450   $ 197,700   $ 200,700     Total revenue $ 164,210 $ 165,450 $ 586,550 $ 591,050

Add:

Prior owner total revenue(2)

—   —   20,300   20,300   Pro forma total revenue $ 164,210   $ 165,450   $ 606,850   $ 611,350     Pro forma Adjusted Hotel EBITDA Margin 35.0 % 35.3 % 32.6 % 32.8 % _____________

(1)

 

Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, and unfavorable contract liability.

(2)

Reflects results of operations for certain hotels prior to our acquisition.

 

The following table reconciles forecasted net income to Corporate EBITDA and Adjusted Corporate EBITDA for the three months ending September 30, 2015 and year ending December 31, 2015:

    Three Months Ending   Year Ending September 30, 2015 December 31, 2015 Low   High Low   High Net income $ 27,400 $ 28,000 $ 70,430 $ 72,630

Add:

 

Interest expense

8,300 8,300 31,890 31,890 Income tax expense 100 300 2,000 2,400 Depreciation and amortization 17,960   17,960   68,790   68,790   Corporate EBITDA 53,760 54,560 173,110 175,710  

Add:

 

Hotel acquisition costs

10 10 850 850

Less:

 

Non-cash amortization(1)

(20 ) (20 ) (50 ) (50 ) Adjusted Corporate EBITDA $ 53,750   $ 54,550   $ 173,910   $ 176,510   ____________

(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 FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three months ending September 30, 2015 and year ending December 31, 2015:

    Three Months Ending   Year Ending September 30, 2015 December 31, 2015 Low   High Low   High Net income $ 27,400 $ 28,000 $ 70,430 $ 72,630

Add:

 

Depreciation and amortization

17,960   17,960   68,790   68,790   FFO 45,360 45,960 139,220 141,420  

Less:

Preferred share dividends

(2,420 ) (2,420 ) (9,690 ) (9,690 ) Dividends declared on unvested time-based awards (150 ) (150 ) (560 ) (560 ) Undistributed earnings allocated to unvested time-based awards (10 ) (10 ) —   —   FFO available to common shareholders 42,780 43,380 128,970 131,170  

Add:

Hotel acquisition costs

10 10 850 850

Less:

Non-cash amortization(1)

(20 ) (20 ) (50 ) (50 ) AFFO available to common shareholders $ 42,770   $ 43,370   $ 129,770   $ 131,970     FFO per common share: Basic $ 0.73 $ 0.74 $ 2.24 $ 2.28 Diluted $ 0.73 $ 0.74 $ 2.23 $ 2.26   AFFO per common share: Basic $ 0.73 $ 0.74 $ 2.26 $ 2.30 Diluted $ 0.72 $ 0.74 $ 2.24 $ 2.28   Weighted-average number of common shares outstanding: Basic 58,553 58,553 57,474 57,474 Diluted 58,998 58,998 57,915 57,915 ____________

(1)

 

Reflects non-cash amortization of ground lease asset, deferred franchise costs, deferred key money, unfavorable contract liability, 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 Denver Marriott 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 The Hotel Minneapolis, Autograph Collection Minneapolis, MN 222 October 30, 2012 15 Hyatt Place New York Midtown South New York, NY 185 March 14, 2013 16 W New Orleans – French Quarter New Orleans, LA 97 March 28, 2013 17 Le Meridien New Orleans New Orleans, LA 410 April 25, 2013 18 Hyatt Fisherman’s Wharf San Francisco, CA 316 May 31, 2013 19 Hyatt Santa Barbara Santa Barbara, CA 205 June 27, 2013 20 JW Marriott San Francisco Union Square San Francisco, CA 337 October 1, 2014 21 Royal Palm South Beach Miami, a Tribute Portfolio Resort Miami Beach, FL 393 March 9, 2015 22 Ace Hotel and Theater Downtown Los Angeles Los Angeles, CA 182 April 30, 2015 6,699

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Chesapeake Lodging TrustDouglas W. Vicari, 410-972-4142