Six months after IPO, Chesapeake discusses financials

ANNAPOLIS, Md. -- Chesapeake Lodging Trust discussed its financial results for the quarter ended June 30, reporting a total revenue of $11.8 million and net income of $1.4 million, or $.15 per diluted share.

CONSOLIDATED FINANCIAL RESULTS

FFunds from operations (FFO) were $2.1 million, or $.23 per diluted share, and Adjusted FFO was $2.7 million, or $.30 per diluted share. Net income before interest, income taxes, and depreciation and amortization (Corporate EBITDA) was $2.1 million, or $.23 per diluted share, and Adjusted Corporate EBITDA was $2.7 million, or $.29 per diluted share.

For the six months ended June 30, 2010, Chesapeake Lodging Trust reported total revenue of $14.2 million and net income of $0.1 million, or $.01 per diluted share. FFO was $1.0 million, or $.11 per diluted share, and Adjusted FFO was $2.3 million, or $.25 per diluted share. Corporate EBITDA was $0.9 million, or $.10 per diluted share, and Adjusted Corporate EBITDA was $2.2 million, or $.24 per diluted share.

FFO, Adjusted FFO, Corporate EBITDA and Adjusted Corporate EBITDA 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.

ACQUISITION ACTIVITY

On June 1, 2010, the Company acquired the 188-room Hilton Checkers Los Angeles located in Los Angeles, California for approximately $45.9 million. The acquisition was funded by proceeds from the Company’s initial public offering (IPO) and concurrent private placements. The Company entered into an agreement with Crestline Hotels & Resorts, Inc. to operate the hotel under the Hilton flag.

BALANCE SHEET / LIQUIDITY

As of June 30, 2010, the Company had $11.2 million of cash and cash equivalents. Total assets were $175.3 million, including $158.6 million of real estate, and shareholders’ equity was $170.3 million.

For the six months ended June 30, 2010, the Company generated $3.8 million of cash flows from operating activities, used $161.7 million in net investing activities, including $159.0 million to acquire the Hyatt Regency Boston and Hilton Checkers Los Angeles, and obtained $169.1 million from net financing activities, including $169.4 million from the Company’s IPO and the concurrent private placements.

SUBSEQUENT EVENTS

On July 30, 2010, the Company entered into a credit agreement to obtain a $115 million, two-year secured revolving credit facility with a syndicate of banks. The facility is led by Wells Fargo Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as syndication agent. The amount that the Company can borrow under the revolving credit facility is based on the value of the Company’s hotel properties included in the borrowing base, as defined in the credit agreement. Borrowings under the revolving credit facility bear interest equal to LIBOR, plus 3.75%, subject to a LIBOR floor of 2.00%. The credit agreement contains standard financial covenants, including certain leverage ratios, coverage ratios, and a minimum tangible net worth requirement. Subject to certain conditions, the facility allows for a one-year extension.

Also on July 30, 2010, the Company acquired the 153-room Courtyard Anaheim at Disneyland Resort in Anaheim, California for approximately $25.1 million and the 430-room Boston Marriott Newton in Newton, Massachusetts for approximately $77.2 million. The Company entered into an agreement with Tarsadia Hotels to operate the Courtyard Anaheim at Disneyland Resort under the Courtyard by Marriott flag and entered into an agreement with TPG Hospitality, Inc. to operate the Boston Marriott Newton under the Marriott flag. The Courtyard Anaheim at Disneyland Resort and Boston Marriott Newton acquisitions were funded by a $105 million borrowing under the Company’s revolving credit facility.

RECAP OF FIRST SIX MONTHS

Approximately six months ago, the Company completed its IPO and concurrent private placements and commenced operations. Since that time, the Company has successfully executed the business plan it disclosed to prospective investors in January 2010. The Company has put in place a $115 million revolving credit facility with a reputable lending syndicate that will provide capital flexibility as it continues to grow. Deploying proceeds from the IPO, private placements, and the revolving credit facility, the Company has invested approximately $260.3 million in four high-quality hotel properties, $189.3 million or 73% of which was invested in the Boston market.

“We are very pleased with our Company’s accomplishments over the last six months,” said James L. Francis, Chesapeake’s President and Chief Executive Officer. “We are excited about our recent acquisitions, especially the Boston Marriott Newton which is our second hotel acquisition in the Boston market. The Boston market is recovering exceptionally well, with RevPAR in 2010 up 13.7% over 2009. We expect that our two Boston properties will drive significant EBITDA growth for our portfolio over the next few years. We expect to generate between $26.0 million and $28.6 million of Hotel EBITDA in 2011 for a yield on our $260.3 million of invested capital of 10% to 11%. As a result of the strong operating performance and limited capital needs of our portfolio, we expect to start paying a meaningful dividend in the second half of 2010.”

NON-GAAP FINANCIAL MEASURES

The Company reports the following five non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1) FFO, (2) Adjusted FFO, (3) Corporate EBITDA, (4) Adjusted Corporate EBITDA, and (5) Hotel EBITDA. A reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.

FFO – The Company 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, 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 Company believes that FFO provides investors a useful financial measure to evaluate the Company’s operating performance.