LaSalle Hotel Properties (NYSE:LHO) reported net income to common shareholders of $61.5 million, or $1.53 per diluted share for the year ended December 31, 2007, compared to net income of $73.5 million, or $1.85 per diluted share for the prior year. Net income includes the $30.4 million net gain on sale of the LaGuardia Marriott and the $3.9 million write-off of the non-cash costs associated with the initial issuance of the Company's Series A Preferred Shares, which were redeemed by the Company in March 2007. Net income for 2006 includes the $38.4 million net gain on the sale of the Chicago Marriott Downtown.
For the year ended December 31, 2007, the Company generated funds from operations ('FFO') of $123.4 million versus $114.2 million for the same period of 2006. On a per diluted share basis, FFO for 2007 was $3.07 versus $2.87 for the prior year. FFO has been reduced by the $3.9 million non-cash write-off of the initial issuance costs of the Series A Preferred Shares due to their redemption in March 2007. Excluding these non-cash costs, FFO for 2007 would have been $127.3 million or $3.17 per diluted share.
The Company's earnings before interest, taxes, depreciation and amortization ('EBITDA') for 2007 was $237.8 million as compared to $225.2 million for 2006. EBITDA includes the $30.4 million net gain on sale of the LaGuardia Marriott in 2007 and the $38.4 million net gain on the sale of the Chicago Marriott Downtown in 2006. Excluding these gains, EBITDA would have been $207.4 million in 2007 versus $186.8 million in 2006, an increase of 11.0 percent.
'2007 was another excellent year for the Company,' said Jon Bortz, Chairman and Chief Executive Officer of LaSalle Hotel Properties. 'We achieved record FFO per diluted share and EBITDA, increased the monthly common dividend 21 percent and implemented the largest redevelopment program in our Company's history, with expected completion in April 2008.'
Room revenue per available room ('RevPAR') increased 5.4 percent in 2007 to $148.58 versus the previous year. Average daily rate ('ADR') climbed 4.7 percent to $200.78 from 2006, while occupancy grew 0.7 percent to 74.0 percent.
The Company's hotels generated $217.6 million of EBITDA for the year compared with $200.9 million last year. EBITDA margins across the Company's portfolio increased 118 basis points to 31.7 percent from the prior year. The EBITDA margin expansion was primarily attributable to ADR growth, guestroom and food and beverage cost controls, energy saving initiatives and aggressive asset management efforts to contain expense growth. Margin growth was partly offset by continued above-inflationary increases in property taxes, franchise fees and salaries and benefits.
'Lodging industry supply and demand growth were near parity in 2007 and pricing power remained strong with industry ADR increasing 5.9 percent, despite gradually weakening trends in the fourth quarter of 2007,' said Mr. Bortz. 'Our portfolio's performance in the face of the largest redevelopment and repositioning program in our history was impressive. Having assets located in the top performing U.S. lodging markets and strong performance from our previously repositioned assets led to RevPAR growth, FFO per share growth, EBITDA growth and margin expansion despite $8.0 million of EBITDA lost from the negative impact of construction and rooms out of service in 2007.'
2007 Highlights
In December 2006, the Company entered into an extensive internal capital investment program that called for over $200.0 million to be invested over an 18 month period. In 2007, $128.4 million of capital was invested throughout the portfolio primarily targeted to reposition, rebrand and redevelop properties acquired in 2005 and 2006, including $25.8 million for the rebranding and repositioning of the mid-scale Holiday Inn Thomas Circle to the luxury Donovan House in Washington, DC. Other major projects and capital invested in 2007:
• $21.3 million for repositioning the House of Blues Hotel to the luxurious Hotel Sax Chicago in Chicago, IL,
• $13.6 million for repositioning the Hilton San Diego Resort in San Diego, CA,
• $8.6 million for meeting space and restaurant renovations at the Westin Copley in Boston, MA,
• $8.0 million for repositioning the Alexis Hotel in Seattle, WA,
• $7.8 million for a guestrooms renovation at the Westin Michigan Avenue in Chicago, IL,
• $6.0 million for guestrooms, meeting space and public space renovations at the Indianapolis Marriott in Indianapolis, IN,
• $5.4 million to renovate the historic wing and create a luxury Newport, RI mansion experience at the Hotel Viking,
• $5.3 million for repositioning the mid-scale Holiday Inn Wall Street District to the stylish Gild Hall in New York, NY, and
• $4.8 million for repositioning the Holiday Inn on the Hill to the independent upper upscale The Liaison Capitol Hill in Washington, DC.
In April 2007, the Company successfully amended its $300.0 million senior unsecured credit facility by extending the term to April 2011 with an option to extend to April 2012 and reduced the pricing approximately 80 to 100 basis points. Additionally, LaSalle Hotel Lessee (LHL), the Company's taxable REIT subsidiary, also amended its $25.0 million revolver with terms similar to the amended senior unsecured credit facility.
Also in April 2007, the Company increased its monthly dividend distribution by 21 percent to $0.17 from $0.14 per common share. During 2007, the Company paid $1.95 in dividends per common share, but for tax purposes is recognizing eleven of the twelve dividend payments in 2007 or $1.78 per common share, which represents 93.2 percent ordinary income and 6.8 percent return of capital.
As of the end of the fourth quarter 2007, the Company had total outstanding debt of $875.2 million. The Company's senior unsecured credit facility had an outstanding balance of $56.0 million as of December 31, 2007. Total debt to trailing 12 month Corporate EBITDA (as defined by our senior unsecured credit facility) equaled 4.2 times as of December 31, 2007. Interest expense for the year was $44.9 million (excluding amortized financing expenses of $1.4 million). For the year, the Company's weighted average interest rate was 5.2 percent. As of December 31, 2007, based on the Company's bank covenants under its senior unsecured credit facility, the Company's EBITDA to interest coverage ratio was 4.3 times. At the end of the year, the Company also had $26.1 million of unrestricted cash and cash equivalents and $11.9 million of restricted cash on its balance sheet.
'As we look forward to an uncertain economic environment, we continue to manage our balance sheet with a focus on maintaining low leverage, mixing fixed and variable rate debt and staggering debt maturities,' advised Hans Weger, Chief Financial Officer of LaSalle Hotel Properties. 'As a result, we believe we have the balance sheet flexibility and capacity to weather a difficult economic environment and take advantage of future investment opportunities, as they may arise.'
Fourth Quarter Results
Net income to common shareholders was $6.3 million, or $0.16 per diluted share for the quarter ended December 31, 2007, compared to net income of $4.5 million, or $0.11 per diluted share for the prior year period.
For the quarter ended December 31, 2007, the Company generated FFO of $29.8 million versus $26.2 million for the same period of 2006. On a per diluted share basis, FFO for the fourth quarter was $0.74 versus $0.65 for the same period last year, an increase of 13.8 percent. The Company's EBITDA for the fourth quarter grew 6.1 percent to $48.5 million from $45.7 million during the prior year period.
RevPAR for the quarter ended December 31, 2007 versus the same period in 2006 increased 8.1 percent to $141.38. ADR rose to $204.20, a 5.6 percent improvement, while occupancy grew 2.4 percent to 69.2 percent from the prior year period.
The Company's hotels generated $52.3 million of EBITDA for the fourth quarter compared with $45.9 million for the same period last year. The fourth quarter portfolio-wide EBITDA margin was 30.8%, an improvement of 198 basis points from the prior year period.
Subsequent Events
On January 14, 2008, the Company announced it increased its senior unsecured credit facility to $450.0 million. The additional $150.0 million of commitments came from six banks that had previous commitments and one new bank. Terms and conditions of the Amended and Restated Senior Unsecured Credit Agreement were not modified.
On January 15, 2008, the Company announced monthly dividends of $0.17 per share of its common shares of beneficial interest for each of the months of January, February and March 2008. The January dividend was paid on February 15, 2008 to common shareholders of record on January 31, 2008, the February dividend will be paid on March 14, 2008 to common shareholders of record on February 29, 2008, and the March dividend will be paid on April 15, 2008 to common shareholders of record on March 31, 2008.
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