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EX-23.1 - EXHIBIT 23.1 - Chesapeake Lodging Trustdex231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 10, 2011

 

 

CHESAPEAKE LODGING TRUST

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   001-34572   27-0372343

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

1997 Annapolis Exchange Parkway, Suite 410

Annapolis, MD

  21401
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (410) 972-4140

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


This Form 8-K/A amends and supplements the registrant’s Form 8-K, as filed on May 10, 2011, to include the historical financial statements and pro forma financial information required by Item 9.01(a) and (b).

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

W Chicago – City Center

Independent Auditors’ Report

Balance Sheets as of March 31, 2011 (unaudited), December 31, 2010 and 2009

Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited) and for the years ended December 31, 2010 and 2009

Statements of Net Assets for the three months ended March 31, 2011 (unaudited) and for the years ended December 31, 2010 and 2009

Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited) and for the years ended December 31, 2010 and 2009

Notes to Financial Statements

(b) Pro forma financial information.

Chesapeake Lodging Trust

Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2011

Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2011

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2010

(d) Exhibits.

Incorporated by reference to the Exhibit Index filed herewith and incorporated herein by reference.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: July 26, 2011   CHESAPEAKE LODGING TRUST
  By:  

/s/ Graham J. Wootten

    Graham J. Wootten
    Senior Vice President and Chief Accounting Officer


Exhibit Index

 

Exhibit
Number

  

Exhibit Description

23.1    Consent of Ernst & Young LLP


Report of Independent Auditors

To the Owners of W Chicago – City Center

We have audited the accompanying balance sheets of W Chicago – City Center (the Hotel), as of December 31, 2010 and 2009, and the related statements of operations, net assets and cash flows for the years then ended. These financial statements are the responsibility of the Hotel’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Hotel’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hotel’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Hotel at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

June 30, 2011


W Chicago – City Center

Balance Sheets

 

     March  31,
2011
     December  31,
2010
     December  31,
2009
 
     (Unaudited)                

Assets

        

Real estate, net

   $ 68,327,387       $ 69,827,683       $ 70,555,899   

Cash and cash equivalents

     47,152         74,431         84,309   

Accounts receivable

     865,156         466,291         470,279   

Inventory

     116,622         115,767         99,236   

Prepaid expense and other assets

     260,992         153,015         219,059   

Due from affiliate

     99,813,973         97,150,392         79,654,142   
                          

Total assets

   $ 169,431,282       $ 167,787,579       $ 151,082,924   
                          

Liabilities and net assets

        

Liabilities:

        

Accounts payable

   $ 1,139,081       $ 863,342       $ 766,559   

Accrued expenses and other liabilities

     3,092,012         2,799,298         2,441,064   

Due to affiliate

     84,073,653         82,314,912         70,253,131   
                          

Total liabilities

     88,304,746         85,977,552         73,460,754   

Net assets

     81,126,536         81,810,027         77,622,170   
                          

Total liabilities and net assets

   $ 169,431,282       $ 167,787,579       $ 151,082,924   
                          

See accompanying notes.


W Chicago – City Center

Statements of Operations

 

     Three-Month Period Ended     Year Ended  
     March  31,
2011
    March  31,
2010
    December  31,
2010
     December  31,
2009
 
     (Unaudited)     (Unaudited)               

Departmental revenues:

         

Rooms

   $ 4,151,765      $ 3,454,887      $ 21,615,742       $ 17,277,073   

Food and beverage

     1,457,476        1,213,031        7,370,671         5,927,605   

Other

     147,905        134,194        970,056         817,030   
                                 

Total departmental revenues

     5,757,146        4,802,112        29,956,469         24,021,708   
                                 

Departmental expenses:

         

Rooms

     1,395,442        1,227,023        5,773,127         4,986,143   

Food and beverage

     1,387,861        1,219,655        5,945,882         5,373,349   

Other

     164,689        145,711        655,582         555,368   
                                 

Total departmental expenses

     2,947,992        2,592,389        12,374,591         10,914,860   
                                 

Operating expenses:

         

Administrative and general

     584,835        589,275        2,594,952         2,365,096   

Marketing and sales

     470,817        403,138        2,216,265         1,955,602   

Depreciation

     1,518,499        1,435,437        4,893,380         5,232,858   

Property operation and maintenance

     357,555        349,555        1,457,698         1,265,423   

Utilities

     154,419        148,655        686,853         807,099   

Real estate and other property taxes

     343,750        318,750        1,275,000         1,150,597   

Other fixed expense

     10,693        3,752        34,851         4,684   

Insurance

     52,077        49,311        235,022         186,055   
                                 

Total operating expenses

     3,492,645        3,297,873        13,394,021         12,967,414   
                                 

Net (loss) income

   $ (683,491   $ (1,088,150   $ 4,187,857       $ 139,434   
                                 

See accompanying notes.


W Chicago – City Center

Statements of Net Assets

 

Balance at January 1, 2009

   $  77,482,736   

Net income

     139,434   
        

Balance at December 31, 2009

     77,622,170   

Net income

     4,187,857   
        

Balance at December 31, 2010

     81,810,027   

Net loss

     (683,491
        

Balance at March 31, 2011 (unaudited)

   $ 81,126,536   
        

See accompanying notes.


W Chicago – City Center

Statements of Cash Flows

 

     Three-Month Period Ended     Year Ended  
     March 31,
2011
    March 31,
2010
    December 31,
2010
    December 31,
2009
 
     (Unaudited)     (Unaudited)              

Operating activities

        

Net (loss) income

   $ (683,491   $ (1,088,150   $ 4,187,857      $ 139,434   

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

        

Depreciation

     1,518,499        1,435,437        4,893,380        5,232,858   

Changes in operating assets and liabilities:

        

Accounts receivable

     (398,865     109,985        3,988        194,331   

Inventory

     (855     —          (16,531     1,503   

Prepaid expense and other assets

     (107,976     (29,188     66,044        (53,936

Accounts payable and accrued expenses

     568,452        (268,788     455,018        (896,506

Due to/from affiliate

     (904,840     (1,202,704     (5,434,469     15,773,223   
                                

Net cash (used in) provided by operating activities

     (9,076     (1,043,408     4,155,287        20,390,907   
                                

Investing activities

        

Building improvement costs and equipment (purchases) disposals

     (18,203     1,007,934        (4,165,165     (20,382,323
                                

Net cash (used in) provided by investing activities

     (18,203     1,007,934        (4,165,165     (20,382,323
                                

Net (decrease) increase in cash and cash equivalents

     (27,279     (35,474     (9,878     8,584   

Cash and cash equivalents at beginning of period

     74,431        84,309        84,309        75,725   
                                

Cash and cash equivalents at end of period

   $ 47,152      $ 48,835      $ 74,431      $ 84,309   
                                

See accompanying notes.


W Chicago – City Center

Notes to Financial Statements

March 31, 2011 (unaudited) and December 31, 2010 and 2009

1. Organization

The financial statements of W Chicago – City Center (the Hotel) present the financial position, results from operations and cash flows of the Hotel’s operations. The Hotel is a full-service, luxury property with 368 guest rooms located at 172 West Adams Street in the West Loop of Chicago, Illinois.

The Hotel is owned and operated by Starwood Chicago City Center Realty LLC (the Owner), a wholly owned subsidiary of Starwood Hotels & Resorts, Worldwide Inc. (Parent or Starwood).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared for purposes of enabling Chesapeake Lodging Trust to comply with certain requirements of the Securities and Exchange Commission. The financial statements of the Hotel are prepared in conformity with U.S. generally accepted accounting principles (GAAP). The financial statements present the assets, liabilities and results of operations of the Hotel, and not of a legal entity.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realizability of accounts receivable, useful lives of real estate for purposes of determining depreciation expense and assessments as to whether there is impairment in the value of long-lived assets. Actual results could differ from those estimates.


W Chicago – City Center

Notes to Financial Statements (continued)

 

2. Summary of Significant Accounting Policies (continued)

Real Estate

Real estate is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows:

 

Classification

   Years  

Building

     40   

Building improvements

     15   

Furniture, fixtures and equipment

     5–7   

Maintenance, minor repairs and replacements are expensed when incurred.

The Hotel reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposal is less than its carrying amount. No impairment loss has been identified or recorded in the three months ended March 31, 2011, or the years ended December 31, 2010 and 2009.

Cash and Cash Equivalents

Cash and cash equivalents include all cash on hand, cash held in financial institutions and other highly liquid investments with an initial maturity of three months or less when purchased. The cash balance may at times exceed federal depository insurance limits.

Revenue Recognition

Hotel income represents revenue derived from room, food, and beverage. Room revenue is recognized as room-stays occur. Food and beverage revenue are recognized when services have been provided. Deposits received for future services are recorded within accrued expenses and other liabilities and are recognized as revenue when the services are provided. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the


W Chicago – City Center

Notes to Financial Statements (continued)

 

portion of accounts receivable that is estimated to be uncollectible. The Hotel determined that no allowance for doubtful accounts was necessary as of March 31, 2011 (unaudited), and December 31, 2010 and 2009.

2. Summary of Significant Accounting Policies (continued)

Income Taxes

The Owner is a limited liability company (LLC) and under the existing provisions of the Internal Revenue Code, income and losses of the LLC flow through to the member of the LLC; accordingly, no provision for income taxes has been provided for in the accompanying financial statements of the Hotel.

Fair Value of Financial Instruments

As cash equivalents have maturities of less than three months, the carrying value of cash and cash equivalents approximates fair value. The fair values of the Hotel’s other financial instruments (including such items in the financial statement captions as accounts receivable, accounts payable and accrued expenses and other liabilities approximate their carrying values based on their nature and terms.

New Accounting Pronouncements

In May 2009, the FASB required the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The basis for the date through which the entity has evaluated subsequent events represents the date the financial statements were issued or were available to be issued. The adoption of the new guidance did not have a material impact on the financial statements.

Effective July 1, 2009, the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC or Codification) is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The adoption of the FASB ASC does not impact the Hotel’s financial statements; however, the references to accounting literature within these notes to financial statements reflect the Codification.

The Hotel adopted Statement of Financial Accounting Standard (FAS) No. 157 or ASC 820, on January 1, 2008, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting


W Chicago – City Center

Notes to Financial Statements (continued)

 

pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. The adoption did not have a material impact on the financial statements.

2. Summary of Significant Accounting Policies (continued)

The Hotel adopted FAS No. 141(R), or ASC 805, on January 1, 2009. This topic significantly changed how a reporting enterprise accounts for the acquisition of a business in fiscal years beginning after December 31, 2008. It applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which was the beginning of the 2009 fiscal year. The adoption of this topic did not have a material impact on the financial statements.

The Hotel adopted FAS No. 160 or ASC 820-10-65-1, on January 1, 2009, which establishes new accounting and reporting standards for noncontrolling interests, previously known as minority interests, in a subsidiary and for the deconsolidation of a subsidiary. This topic is applied prospectively for fiscal years and interim periods within those fiscal years, beginning with the current fiscal year, except for the presentation and disclosure requirements, which are applied retrospectively for all periods presented. The adoption of this topic did not have a material impact on the financial statements.

3. Real Estate

Real estate as of March 31, 2011 (unaudited) and December 31, 2010 and 2009, is comprised of the following:

 

     March  31,
2011
(Unaudited)
     December 31,
2010
     December 31,
2009
 

Land

   $ 5,075,000       $ 5,075,000       $ 5,075,000   

Building

     82,230,161         81,540,302         78,622,003   

Furniture, fixtures and equipment

     25,805,012         25,805,012         25,555,244   

Construction in progress

     70,112         741,768         323,374   
                          

Total real estate

     113,180,285         113,162,082         109,575,621   


W Chicago – City Center

Notes to Financial Statements (continued)

 

Accumulated depreciation

     (44,852,898     (43,334,399     (39,019,722
                        

Real estate, net

   $ 68,327,387      $ 69,827,683      $ 70,555,899   
                        

Depreciation expense related to real estate totaled $1,518,499 (unaudited) and $1,435,437 (unaudited) for the three months ended March 31, 2011 and 2010, respectively, and $4,893,380 and $5,232,858 for the years ended December 31, 2010 and 2009, respectively.

4. Related Party Transactions

Starwood sweeps all funds from operations into a centralized banking system and then funds cash for operations as needed. The Hotel incurs charges which are included in the accompanying statements of operations for services, programs and allocated costs from Starwood. Additionally, the Hotel reimburses Starwood for salary, related benefits and employment costs of Starwood employees who work for the Hotel. The financial statements reflect net due from affiliate balances as a result of these transactions of $15,740,320 (unaudited) as of March 31, 2011, and $14,835,480 and $9,401,011 as of December 31, 2010 and 2009, respectively.

5. Commitments and Contingencies

Litigation

The Hotel is subject to legal proceedings and claims that arise in the normal course of business. As of March 31, 2011 and December 31, 2010 and 2009, management is not aware of any asserted or pending litigation or claims against the Hotel that it expects to have a material adverse effect on the Hotel’s financial condition, results of operations or liquidity.

6. Subsequent Events

On May 4, 2011, the Owner entered into a purchase and sale agreement with Chesapeake Lodging Trust for the sale of the Hotel for $128.8 million. The sale closed on May 10, 2011.

The Hotel evaluated subsequent events through June 30, 2011, which is the date the financial statements were available to be issued, and has not identified any material events that would be required to be disclosed.


UNAUDITED PRO FORMA FINANCIAL INFORMATION OF CHESAPEAKE LODGING TRUST

Chesapeake Lodging Trust (the “Company”) was organized in the state of Maryland on June 12, 2009. On January 27, 2010, the Company completed its initial public offering (“IPO”). In conjunction with the IPO, the Company sold additional common shares through private placements and through the exercise of the underwriters’ overallotment option. The total net proceeds (after deducting underwriting fees and offering costs) generated from the IPO, private placements, and exercise of the underwriters’ overallotment option was approximately $169.4 million.

On March 18, 2010, the Company acquired its first hotel property, the 498-room Hyatt Regency Boston in Boston, Massachusetts for a purchase price of $112.0 million, plus customary pro-rated amounts and closing costs. The effective date of the Hyatt Regency Boston acquisition was March 1, 2010.

On June 1, 2010, the Company acquired the 188-room Hilton Checkers Los Angeles in Los Angeles, California for a purchase price of $46.0 million, plus customary pro-rated amounts and closing costs.

On July 30, 2010, the Company entered into a credit agreement to obtain a $115.0 million, two-year secured revolving credit facility with a syndicate of banks. Borrowings under the revolving credit facility bear interest equal to LIBOR plus 3.75%, subject to a LIBOR floor of 2.00%. On January 21, 2011, the Company amended its credit agreement to increase the maximum amounts the Company may borrow under the revolving credit facility from $115.0 million to $150.0 million, and to provide for the possibility of further future increases, up to a maximum of $200.0 million, in accordance with the terms of the amended credit agreement.

Also on July 30, 2010, the Company acquired the 153-room Courtyard Anaheim at Disneyland Resort in Anaheim, California for a purchase price of $25.0 million, plus customary pro-rated amounts and closing costs, and the 430-room Boston Marriott Newton in Newton, Massachusetts for a purchase price of $77.25 million, plus customary pro-rated amounts and closing costs.

On October 13, 2010, the Company completed a follow-on offering, which generated total net proceeds (after deducting underwriting fees and offering costs) of $140.4 million.

On December 15, 2010, the Company acquired the 360-room Le Meridien San Francisco in San Francisco, California for a purchase price of $143.0 million, plus customary pro-rated amounts and closing costs. In connection with the acquisition, the Company entered into a loan agreement to obtain a $60.0 million one-year term loan secured by the hotel.

On March 4, 2011, the Company completed another follow-on offering, which generated total net proceeds (after deducting underwriting fees and offering costs) of $229.9 million.

On May 10, 2011, the Company acquired the 368-room W Chicago – City Center in Chicago, Illinois for a purchase price of $128.8 million, plus customary pro-rated amounts and closing costs.

The unaudited pro forma balance sheet as of March 31, 2011 is based on the Company’s unaudited consolidated balance sheet and reflects the acquisition of the W Chicago – City Center as if the acquisition had occurred on March 31, 2011. The unaudited pro forma statement of operations for the three months ended March 31, 2011 and the year ended December 31, 2010 reflect the completion of the IPO, private placements, and follow-on offerings, and the acquisitions of the Hyatt Regency Boston, Hilton Checkers Los Angeles, Courtyard Anaheim at Disneyland Resort, Boston Marriott Newton, Le Meridien San Francisco, and W Chicago – City Center as if all transactions had been completed on January 1, 2010.

The unaudited pro forma financial information does not purport to represent what the Company’s results of operations or financial condition would actually have been if the completion of these transactions had in fact occurred at the beginning of the periods presented, or to project the Company’s results of operations or financial condition for any future period. In addition, the unaudited pro forma financial information is based upon available


information and upon assumptions and estimates, some of which are set forth in the notes to the unaudited pro forma financial statements, which the Company believes are reasonable under the circumstances. The unaudited pro forma financial information and accompanying notes should be read in conjunction with the Company’s audited financial statements included in its 2010 Annual Report on Form 10-K.


CHESAPEAKE LODGING TRUST

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2011

(in thousands, except share data)

 

     Historical
Chesapeake Lodging
Trust
    Acquisition of
W Chicago -
City Center (1)
    Pro Forma
Chesapeake Lodging
Trust
 

ASSETS

      

Property and equipment, net

   $ 362,127      $ 128,784      $ 490,911   

Intangible asset, net

     35,564        —          35,564   

Cash and cash equivalents

     187,180        (128,516     58,664   

Restricted cash

     3,503        —          3,503   

Accounts receivable, net

     4,298        650        4,948   

Prepaid expenses and other assets

     9,409        363        9,772   

Deferred financing costs

     2,642        —          2,642   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 604,723      $ 1,281      $ 606,004   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Long-term debt

   $ 60,000      $ —        $ 60,000   

Accounts payable and accrued expenses

     10,811        2,284        13,095   

Dividends payable

     6,418        —          6,418   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     77,229        2,284        79,513   
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Preferred shares, $.01 par value; 100,000,000 shares authorized; no shares issued and outstanding

     —          —          —     

Common shares, $.01 par value; 400,000,000 shares authorized; 32,156,120 shares issued and outstanding

     322        —          322   

Additional paid-in capital

     541,503        —          541,503   

Cumulative dividends in excess of net income

     (14,331     (1,003     (15,334
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     527,494        (1,003     526,491   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 604,723      $ 1,281      $ 606,004   
  

 

 

   

 

 

   

 

 

 

 

Footnotes:

 

(1) Reflects the acquisition of the W Chicago - City Center as if it had occurred on March 31, 2011 for $127,546. The acquisition was funded with available cash. The pro forma adjustment reflects the following:

Cash paid of $127,513, net of hotel cash acquired of $33;

Cash paid of $1,003 for hotel acquisition costs;

Purchase of land, building, and furniture, fixtures and equipment of $128,784; and

Assumption of net working capital deficit of $1,238.


CHESAPEAKE LODGING TRUST

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(in thousands, except share and per share data)

 

     Historical
Chesapeake  Lodging
Trust
    Acquisition of
W Chicago -
City Center (1)
    Pro Forma
Adjustments
    Pro Forma
Chesapeake Lodging
Trust
 

REVENUE

        

Rooms

   $ 17,269      $ 4,152      $ —        $ 21,421   

Food and beverage

     5,881        1,457        —          7,338   

Other

     837        148        —          985   
                                

Total revenue

     23,987        5,757        —          29,744   
                                

EXPENSES

        

Hotel operating expenses:

        

Rooms

     4,680        1,395        —          6,075   

Food and beverage

     4,796        1,388        —          6,184   

Other direct

     460        165        —          625   

Indirect

     9,105        1,974        —          11,079   
                                

Total hotel operating expenses

     19,041        4,922        —          23,963   

Depreciation and amortization

     2,984        1,518        (737 )(2)      3,765   

Intangible asset amortization

     130        —          —          130   

Corporate general and administrative:

        

Share-based compensation

     658        —          —          658   

Hotel property acquisition costs

     246        —          —          246   

Other

     1,683        —          —          1,683   
                                

Total operating expenses

     24,742        6,440        (737     30,445   
                                

Operating income (loss)

     (755     (683     737        (701

Interest income

     67        —          —          67   

Interest expense

     (2,027     —          —          (2,027
                                

Income (loss) before income taxes

     (2,715     (683     737        (2,661

Income tax benefit (expense)

     1,046        —          (17 )(3)      1,029   
                                

Net income (loss)

   $ (1,669   $ (683   $ 720      $ (1,632
                                

Net loss available per share—basic and diluted:

   $ (0.08       $ (0.05

Weighted-average number of common shares outstanding—basic and diluted:

     22,138,427            31,776,205 (4) 

Footnotes:

 

(1) Reflects the results of operations of the W Chicago - City Center for the three months ended March 31, 2011.
(2) Reflects adjustment to depreciation expense based on the Company’s cost basis in the acquired hotel property and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment.
(3) Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary as if the acquisition had occurred on January 1, 2010.
(4) Reflects number of common shares issued and outstanding as if the follow-on offering completed on March 4, 2011 had occurred on January 1, 2010.


CHESAPEAKE LODGING TRUST

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(in thousands, except share and per share data)

 

    Historical
Chesapeake Lodging
Trust
    Previous Hotel
Acquisitions
Adjustment (1)
    Acquisition of
W Chicago -
City Center (2)
    Pro Forma
Adjustments
    Pro Forma
Chesapeake Lodging
Trust
 

REVENUE

         

Rooms

  $ 38,530      $ 39,057      $ 21,616      $ —        $ 99,203   

Food and beverage

    13,758        13,195        7,370        —          34,323   

Other

    1,906        1,738        971        —          4,615   
                                       

Total revenue

    54,194        53,990        29,957        —          138,141   
                                       

EXPENSES

         

Hotel operating expenses:

         

Rooms

    9,104        10,791        5,773        —          25,668   

Food and beverage

    9,414        11,010        5,946        —          26,370   

Other direct

    1,053        877        656        —          2,586   

Indirect

    17,770        19,242        8,501        —          45,513   
                                       

Total hotel operating expenses

    37,341        41,920        20,876        —          100,137   

Depreciation and amortization

    4,793        8,116        4,893        (3,101 )(3)      14,701   

Intangible asset amortization

    411        32        —          73 (4)      516   

Corporate general and administrative:

         

Share-based compensation

    1,689        —          —          87 (5)      1,776   

Hotel property acquisition costs

    3,597        —          —          1,025 (6)      4,622   

Other

    5,396        —          —          292 (7)      5,688   
                                       

Total operating expenses

    53,227        50,068        25,769        (1,624     127,440   
                                       

Operating income

    967        3,922        4,188        1,624        10,701   

Interest income

    120        266        —          (266 )(8)      120   

Interest expense

    (2,344     (4,058     —          4,058 (9)      (2,344

Gain on derivatives

    —          420        —          (420 )(10)      —     
                                       

Income (loss) before income taxes

    (1,257     550        4,188        4,996        8,477   

Income tax benefit (expense)

    583        —          —          (423 )(11)      160   
                                       

Net income (loss)

  $ (674   $ 550      $ 4,188      $ 4,573      $ 8,637   
                                       

Net income (loss) available per share—basic and diluted:

  $ (0.07         $ 0.27   

Weighted-average number of common shares outstanding—basic and diluted:

    11,236,120              31,734,215 (12) 

Footnotes:

 

(1) Reflects the results of operations of the five hotels acquired in 2010 for the period prior to their acquisition.
(2) Reflects the results of operations of the W Chicago - City Center for the year ended December 31, 2010.
(3) Reflects adjustment to depreciation expense based on the Company’s cost basis in the acquired hotel properties and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment.
(4) Reflects adjustment to amortization of intangible asset expense based on the Company’s cost basis in an acquired long-term air rights contract associated with a 2010 hotel acquisition and its accounting policy for amortization. Intangible asset amortization is computed using the straight-line method over the term of the contract, which expires in 2079.
(5) Reflects adjustment to record full year of share-based compensation expense for the Company’s board of trustees and executives with management contracts as if the Company had commenced operations on January 1, 2010.
(6) Reflects adjustment to record transaction costs related to the acquisition of the W Chicago - City Center.
(7) Reflects adjustment to record full year of corporate general and administrative expenses, including employee payroll and benefits, board of trustees fees, investor relations costs, professional services fees, and other costs of being a public company as if the Company had commenced operations on January 1, 2010.
(8) Reflects removal of historical interest income related to a note receivable not assumed in conjunction with a 2010 hotel acquisition.
(9) Reflects removal of historical interest expense related to debt not assumed in conjunction with the 2010 hotel acquisitions.
(10) Reflects removal of historical gain on derivatives related to an interest rate swap contract not assumed in conjunction with a 2010 hotel acquisition.
(11) Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary as if all acquisitions had occurred on January 1, 2010.
(12) Reflects number of common shares issued and outstanding as if the Company’s IPO, private placements, and follow-on offerings had occurred on January 1, 2010.