Chesapeake Lodging Trust Reports Fourth Quarter Results; Announces Definitive Agreement to Acquire The James Royal Palm

Chesapeake Lodging Trust (NYSE:CHSP), a lodging real estate investment trust (REIT), reported today its financial results for the quarter ended December 31, 2014.

HIGHLIGHTS

• RevPAR: 7.5% pro forma increase for the 17-hotel portfolio and 4.9% pro forma increase for the 20-hotel portfolio over the same period in 2013.
• Adjusted Hotel EBITDA Margin: 70 basis point pro forma increase to 31.0% for the 17-hotel portfolio and 20 basis point pro forma increase to 30.5% for the 20-hotel portfolio over the same period in 2013.
• Adjusted Hotel EBITDA: $37.7 million.
• Adjusted Corporate EBITDA: $33.7 million.
• Adjusted FFO: $24.0 million or $0.44 per diluted common share.
• Acquisitions: Acquired the 337-room JW Marriott San Francisco Union Square for a purchase price of $147.2 million. Subsequent to quarter end, entered into a definitive agreement to acquire the 393-room James Royal Palm located in Miami Beach, Florida for a purchase price of $278.0 million.
• Dividends: Increased first quarter 2015 dividend by 17% to $0.35 per common share (3.8% annualized yield based on the closing price of the Trust’s common shares on February 18, 2015).

“We are very excited to announce our entrance into the highly desirable Miami South Beach market with the pending acquisition of The James Royal Palm,” said James L. Francis, Chesapeake Lodging Trust’s President and Chief Executive Officer. “The Royal Palm, which recently underwent a comprehensive renovation, has an irreplaceable oceanfront location at the intersection of Collins Avenue and 15th Street.” Mr. Francis continued, “We believe the hotel has significant upside potential in both revenue and profitability and we are happy to partner with both HEI Hotels & Resorts, as the new hotel manager, and Starwood Hotels & Resorts, as the franchisor, on this project.”

CONSOLIDATED FINANCIAL RESULTS

The following is a summary of the consolidated financial results for the three months and year ended December 31, 2014 and 2013 (in millions, except share and per share amounts):

HOTEL OPERATING RESULTS

As of December 31, 2014, the Trust owned 20 hotels. Management assesses the operating performance of its hotels irrespective of the hotel owner during the periods compared using the following key operating metrics: occupancy, ADR, RevPAR, Adjusted Hotel EBITDA, and Adjusted Hotel EBITDA Margin. The Trust uses the term "pro forma" to refer to metrics that include, or comparisons of metrics that are based on, the operating results of hotels under previous ownership for either a portion of or the entire period. Since one of our hotels owned as of December 31, 2014 was acquired during 2014 and five of our hotels owned as of December 31, 2014 were acquired at various times during 2013, the key operating metrics reflect the pro forma operating results for those hotels for all, or a certain period, of the years ended December 31, 2014 and 2013.

In addition to assessing the operating performance of its 20-hotel portfolio for the three months and year ended December 31, 2014, management also assesses the operating performance of a 17-hotel portfolio, which excludes the W Chicago – Lakeshore, the Le Meridien New Orleans, and the Hyatt Herald Square New York, as these hotels were undergoing comprehensive renovations during 2014. Included in the following table are comparisons of the key operating metrics for the 17-hotel portfolio and the 20-hotel portfolio for the three months and year ended December 31, 2014 and 2013 (in thousands, except for ADR and RevPAR):

Hotel EBITDA, Adjusted Hotel EBITDA, Adjusted Hotel EBITDA Margin, Corporate EBITDA, Adjusted Corporate EBITDA, FFO, FFO available to common shareholders and AFFO available to common shareholders 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.

ACQUISITIONS

On October 1, 2014, the Trust acquired the 337-room JW Marriott San Francisco Union Square located in San Francisco, California for $154.1 million, including an acquired FF&E reserve and working capital. The Trust assumed the existing management agreement with Marriott International, Inc., as well as the existing ground lease covering the property, which expires in January 2083.

On February 19, 2015, the Trust announced that it had entered into a definitive agreement to acquire the 393-room James Royal Palm located in Miami Beach, Florida for a purchase price of $278.0 million. The Trust expects the hotel will be managed by HEI Hotels & Resorts and be affiliated with Starwood Hotels and Resorts' new Collection brand. The Trust expects the acquisition to close in the first quarter 2015, subject to customary closing conditions, but can give no assurance that the acquisition will be consummated during that time period, or at all.

MAJOR REPOSITIONINGS

The comprehensive renovation at the former 410-room W New Orleans to reposition the hotel as the Le Meridien New Orleans, which commenced in the second quarter of 2014, was completed in the fourth quarter of 2014 with a total expected cost of approximately $26.0 million.

The comprehensive renovation at the former 122-room Holiday Inn New York City Midtown – 31st Street to reposition the hotel as the Hyatt Herald Square New York, which commenced in the third quarter of 2014, was completed in the fourth quarter of 2014 with a total expected cost of approximately $6.5 million.

CAPITAL MARKETS ACTIVITY

The Trust has not sold any common shares under its continuous at-the-market (ATM) program during 2014 and through the date of this release.

DIVIDENDS

On October 15, 2014, the Trust paid dividends in the amounts of $0.30 per share to its common shareholders and $0.484375 per share to its preferred shareholders, both of record as of September 30, 2014. On December 12, 2014, the Trust declared dividends in the amounts of $0.30 per share payable to its common shareholders and $0.484375 per share payable to its preferred shareholders, both of record as of December 31, 2014. Both dividends were paid on January 15, 2014.

On January 26, 2015, the Trust declared dividends in the amounts of $0.35 per share to its common shareholders and $0.484375 per share to its preferred shareholders, both of record as of March 31, 2015. The dividends will be paid on April 15, 2015.

2015 OUTLOOK

The Trust reaffirms its previously provided full year 2015 outlook and is incorporating its first quarter 2015 outlook as follows (in millions, except RevPAR and per share amounts):

The Trust’s 2015 outlook contemplates the expected revenue and Hotel EBITDA displacement from guestroom renovations taking place during the first quarter at the 502-room Hyatt Regency Boston, the 360-room Le Meridien San Francisco and the 313-room Hyatt Fisherman’s Wharf. The Trust estimates that the negative impact on RevPAR growth for the first quarter and full year 2015 will be approximately 650 basis points and 150 basis points, respectively, and the negative impact on Adjusted Hotel EBITDA Margin growth for the first quarter and full year 2015 will be approximately 200 basis points and 25 basis points, respectively, resulting in Hotel EBITDA displacement of approximately $3.25 million for the first quarter and full year 2015.

The Trust’s 2015 outlook also includes a 17% increase in estimated real estate tax expense as a result of actual and expected real estate reassessments at certain of its hotels for 2015. The Trust estimates that the negative impact on Adjusted Hotel EBITDA Margin growth for 2015 will be approximately 70 basis points.

The Trust’s 2015 outlook does not assume the pending acquisition of The James Royal Palm and related acquisition financing or any additional acquisitions, dispositions, or financing transactions. See the accompanying financial tables for quarterly pro forma hotel operating results for the 20-hotel portfolio for 2014.

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 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 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.

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 CALL

The Trust will host a conference call on Thursday, February 19, 2015 at 5:00 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 73149662. 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 February 26, 2015. To access the replay, dial (855) 859-2056 (U.S./Canadian callers) or (404) 537-3406 (International callers). The conference call ID is 73149662. A webcast replay and transcript of the conference call 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 20 hotels with an aggregate of 6,116 rooms in eight 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, the Trust's 2015 outlook, and the time for completing, if at all, the pending acquisition described. 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: 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 February 19, 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.

The following table calculates Hotel EBITDA and Adjusted Hotel EBITDA contributed by the Trust’s hotel portfolio for the three months and year ended December 31, 2014 and 2013:

The following table reconciles net income to Corporate EBITDA and Adjusted Corporate EBITDA for the three months and year ended December 31, 2014 and 2013:

The following table reconciles net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the three months and year ended December 31, 2014 and 2013:

The following table calculates forecasted Hotel EBITDA and Adjusted Hotel EBITDA for the three months ending March 31, 2015:

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

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 March 31, 2015:

The following table calculates forecasted Hotel EBITDA and Adjusted Hotel EBITDA for the year ending December 31, 2015:

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

The following table reconciles forecasted net income to FFO, FFO available to common shareholders, and AFFO available to common shareholders for the year ending December 31, 2015: