Company Results

LaSalle Hotel Properties Reports Second Quarter 2014 Results

For the six months ended June 30, 2014, RevPAR increased 7.8 percent to $177.10, with occupancy growth of 1.1 percent to 79.3 percent and ADR improvement of 6.7 percent to $223.44. The Company’s hotel EBITDA margin was 31.2 percent, which was flat compared to the same prior year period.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended June 30, 2014. The Company’s results include the following:

               
 
Second Quarter Year-to-Date
2014 2013 % Var. 2014 2013 % Var.
($'s in millions except per share/unit data)
 
RevPAR $ 207.94 $ 188.60 10.3 % $ 177.10 $ 164.25 7.8 %
EBITDA Margin 37.3 % 36.7 % 31.2

%

31.2 %
EBITDA Margin Growth 62 bps 1 bp
 
Total Revenue $ 313.1 $ 263.6 18.8 % $ 532.0 $ 455.3 16.8 %
EBITDA(1) $ 148.8 $ 91.6 62.4 % $ 191.7 $ 131.4 45.9 %
Adjusted EBITDA(1) $ 109.6 $ 93.1 17.7 % $ 154.5 $ 132.9 16.3 %
FFO(1) $ 81.6 $ 68.7 18.8 % $ 110.4 $ 94.4 16.9 %
Adjusted FFO(1) $ 86.0 $ 70.3 22.3 % $ 119.2 $ 96.0 24.2 %
FFO per diluted share/unit(1) $ 0.78 $ 0.72 8.3 % $ 1.06 $ 0.99 7.1 %
Adjusted FFO per diluted share/unit(1) $ 0.82 $ 0.73 12.3 % $ 1.14 $ 1.00 14.0 %
Net income attributable to common shareholders $ 85.6 $ 35.2 143.2 % $ 76.6 $ 27.8 175.5 %
Net income attributable to common shareholders per diluted share $ 0.82 $ 0.37 121.6 % $ 0.73 $ 0.29 151.7 %

(1) See tables later in press release, which list adjustments that reconcile net income to earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, funds from operations ("FFO"), FFO per share/unit, adjusted FFO, adjusted FFO per share/unit and hotel EBITDA. EBITDA, adjusted EBITDA, FFO, FFO per share/unit, adjusted FFO, adjusted FFO per share/unit and hotel EBITDA are non-GAAP financial measures. See further discussion of these non-GAAP measures and reconciliations to net income later in this press release.

Second Quarter Results and Activities

  • RevPAR: Room revenue per available room (“RevPAR”) for the quarter ended June 30, 2014 increased 10.3 percent to $207.94, as a result of a 6.6 percent increase in average daily rate (“ADR”) to $241.08 and a 3.4 percent improvement in occupancy to 86.3 percent.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the second quarter increased 62 basis points from the comparable prior year period to 37.3 percent, its highest-ever quarterly hotel EBITDA margin.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $109.6 million, an increase of 17.7 percent over the second quarter of 2013. Second quarter adjusted EBITDA was negatively impacted by an estimated $0.5 million of EBITDA as a result of the sale of Hilton Alexandria Old Town prior to the end of the quarter.
  • Adjusted FFO: The Company generated second quarter adjusted FFO of $86.0 million, or $0.82 per diluted share/unit, compared to $70.3 million or $0.73 per diluted share/unit for the comparable prior year period, an increase of 12.3 percent.
  • Hotel Acquisition: On April 2, the Company acquired the 200-room Hotel Vitale in San Francisco, CA for $130.0 million. Hotel Vitale is located on the Embarcadero, overlooking the San Francisco Bay.
  • Dividend: On April 23, the Company increased its dividend 34 percent to $0.375 per common share for the quarter ended June 30, 2014. The dividend represents an annual run rate of $1.50 per share and a 4.2 percent yield based on the closing share price on July 22, 2014.
  • Debt Repayment: On May 1, the Company repaid the $8.7 million outstanding mortgage, secured by Hotel Deca in Seattle, Washington. The Company has no remaining debt maturities in 2014.
  • Hotel Disposition: On June 17, the Company sold Hilton Alexandria Old Town for $93.4 million.
  • Preferred Redemption: During the second quarter, the Company announced that it would redeem all of its outstanding 7.25 percent Series G Preferred Shares for $58.7 million plus accrued dividends through the redemption date. The redemption closed on July 3.
  • Capital Investments: The Company invested $22.4 million of capital in its hotels, including the completion of the Terrace Lounge at WestHouse in New York and a lobby and lounge renovation at The Grafton on Sunset in Los Angeles.

“Our portfolio delivered very strong second quarter results,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “RevPAR and margins were above the high end of our outlook. Adjusted EBITDA and FFO also exceeded our outlook, despite impact from the sale of Hilton Alexandria Old Town.”

“Overall, the operating environment remains favorable. Industry demand growth has been robust and fundamentals remain strong.”

“In addition, the sale of Hilton Alexandria Old Town capped off a terrific investment for us, which generated a 13.5 percent unleveraged IRR over 10 plus years. We used a portion of the proceeds to redeem our outstanding Series G Preferred Shares, further reducing our cost of capital.”

Year-to-date Results

For the six months ended June 30, 2014, RevPAR increased 7.8 percent to $177.10, with occupancy growth of 1.1 percent to 79.3 percent and ADR improvement of 6.7 percent to $223.44. The Company’s hotel EBITDA margin was 31.2 percent, which was flat compared to the same prior year period.

Balance Sheet

As of June 30, 2014, the Company had total outstanding debt of $1.2 billion, including $197.0 million outstanding on its senior unsecured credit facility. Total net debt to trailing 12 month Corporate EBITDA (as defined in the Company’s senior unsecured credit facility) was 3.7 times as of June 30, 2014 and its fixed charge coverage ratio was 3.7 times. For the second quarter, the Company’s weighted average interest rate was 3.6 percent. As of June 30, 2014, the Company had capacity of $575 million available on its credit facilities.

2014 Outlook

The Company is updating its 2014 outlook to incorporate its recent activities and to reflect its performance-to-date. The sale of Hilton Alexandria Old Town has the impact of reducing our full year adjusted EBITDA outlook by approximately $4.0 million, of which $0.5 million occurred during the second quarter. The outlook is based on an economic environment that continues to improve and assumes no additional acquisitions, dispositions or capital markets activities. The Company’s RevPAR growth and financial expectations for 2014 are as follows:

           
Previous Outlook Current Outlook
Low-end   High-end Low-end   High-end

 

($'s in millions except per share/unit data)

($'s in millions except per share/unit data)
 
 
 
RevPAR growth 5.0% 8.5% 6.5% 8.0%
Hotel EBITDA Margin Change 0 bps 100 bps 25 bps 100 bps
 
Adjusted EBITDA $ 327.0 $ 348.0 $ 330.0 $ 342.0
Adjusted FFO $ 243.0 $ 265.0 $ 254.0 $ 265.0
Adjusted FFO per diluted share/unit $ 2.33 $ 2.54 $ 2.44 $ 2.54

Third Quarter 2014 Outlook

The Company expects third quarter RevPAR to increase 5.0 percent to 8.5 percent and hotel EBITDA margins to range from approximately flat to an increase of 125 basis points relative to the same prior year period. The Company expects its portfolio to generate adjusted EBITDA of $99.0 million to $105.0 million and adjusted FFO per share/unit of $0.73 to $0.79.

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 45 hotels. The properties are upscale, full-service hotels, totaling approximately 11,300 guest rooms in 14 markets in 10 states and the District of Columbia. The Company focuses on owning, redeveloping and repositioning upscale, full-service hotels located in urban, resort and convention markets. LaSalle Hotel Properties seeks to grow through strategic relationships with premier lodging companies, including Westin Hotels and Resorts, Hilton Hotels Corporation, Outrigger Lodging Services, Noble House Hotels & Resorts, Hyatt Hotels Corporation, Benchmark Hospitality, White Lodging Services Corporation, Commune Hotels and Resorts, Davidson Hotel Company, Denihan Hospitality Group, the Kimpton Hotel & Restaurant Group, LLC, Accor, Destination Hotels & Resorts, HEI Hotels & Resorts, JRK Hotel Group, Inc., Viceroy Hotel Group, Highgate Hotels and Access Hotels & Resorts.

 

 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share data)

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2014   2013 2014   2013
Revenues:
Hotel operating revenues:
Room $ 217,732 $ 179,089 $ 365,699 $ 306,077
Food and beverage 72,407 65,529 126,522 115,375
Other operating department 19,789   16,328   34,814   29,712  
Total hotel operating revenues 309,928 260,946 527,035 451,164
Other income 3,177   2,614   4,934   4,100  
Total revenues 313,105   263,560   531,969   455,264  
Expenses:
Hotel operating expenses:
Room 51,467 42,294 95,151 79,878
Food and beverage 50,144 42,681 91,844 79,985
Other direct 6,547 5,998 11,728 11,020
Other indirect 69,779   59,189   130,202   112,924  
Total hotel operating expenses 177,937 150,162 328,925 283,807
Depreciation and amortization 39,306 33,427 77,066 66,548
Real estate taxes, personal property taxes and insurance 14,378 12,780 29,332 25,134
Ground rent 3,807 2,791 6,740 5,286
General and administrative 6,034 5,564 11,526 10,711
Acquisition transaction costs 1,744 0 1,851 0
Other expenses 3,050   1,528   6,257   2,169  
Total operating expenses 246,256   206,252   461,697   393,655  
Operating income 66,849 57,308 70,272 61,609
Interest income 10 2,395 1,799 4,764
Interest expense (14,556 ) (13,763 ) (28,544 ) (27,780 )
Loss from extinguishment of debt 0   0   (2,487 ) 0  
Income before income tax (expense) benefit 52,303 45,940 41,040 38,593
Income tax (expense) benefit (4,883 ) (4,934 ) 1,509   83  
Income before gain on sale of property 47,420 41,006 42,549 38,676
Gain on sale of property 43,548   0   43,548   0  
Net income 90,968   41,006   86,097   38,676  
Net income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8 ) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership (266 ) (135 ) (260 ) (135 )
Net income attributable to noncontrolling interests (274 ) (143 ) (268 ) (143 )
Net income attributable to the Company 90,694 40,863 85,829 38,533
Distributions to preferred shareholders (4,142 ) (4,107 ) (8,249 ) (9,172 )
Issuance costs of redeemed preferred shares (942 ) (1,566 ) (942 ) (1,566 )
Net income attributable to common shareholders $ 85,610   $ 35,190   $ 76,638   $ 27,795  
 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share data)

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2014   2013 2014   2013
Earnings per Common Share - Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.82   $ 0.37   $ 0.74   $ 0.29  
Earnings per Common Share - Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.82   $ 0.37   $ 0.73   $ 0.29  
Weighted average number of common shares outstanding:
Basic 103,698,332 95,465,464 103,695,013 95,316,742
Diluted 104,024,472 95,630,066 104,036,397 95,473,859
 
Comprehensive Income:
Net income $ 90,968 $ 41,006 $ 86,097 $ 38,676
Other comprehensive (loss) income:
Unrealized (loss) gain on interest rate derivative instruments (3,116 ) 11,081   (4,088 ) 12,600  
Comprehensive income 87,852 52,087 82,009 51,276
Comprehensive income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership (257 ) (169 ) (248 ) (174 )
Comprehensive income attributable to noncontrolling interests (265 ) (177 ) (256 ) (182 )
Comprehensive income attributable to the Company $ 87,587   $ 51,910   $ 81,753   $ 51,094  
 
 
LASALLE HOTEL PROPERTIES

FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

 
For the three months ended For the six months ended
June 30, June 30,
2014   2013 2014   2013
Net income attributable to common shareholders $ 85,610 $ 35,190 $ 76,638 $ 27,795
Depreciation 39,200 33,322 76,858 66,333
Amortization of deferred lease costs 88 86 175 174
Noncontrolling interests:
Noncontrolling interests in consolidated entities 8 8 8 8
Noncontrolling interests of common units in Operating Partnership 266 135 260 135
Less: Net gain on sale of property (43,548 ) 0   (43,548 ) 0  
FFO $ 81,624 $ 68,741 $ 110,391 $ 94,445
Pre-opening, management transition and severance expenses 1,190 258 3,685 548
Preferred share issuance costs 942 1,566 942 1,566
Acquisition transaction costs 1,744 0 1,851 0
Loss from extinguishment of debt 0 0 2,487 0
Non-cash ground rent 501 327 825 654
Mezzanine loan discount amortization 0   (617 ) (986 ) (1,208 )
Adjusted FFO $ 86,001   $ 70,275   $ 119,195   $ 96,005  
Weighted Average number of common shares and units outstanding:
Basic 103,994,632 95,761,764 103,991,313 95,613,042
Diluted 104,320,772 95,926,366 104,332,697 95,770,159
FFO per diluted share/unit $ 0.78 $ 0.72 $ 1.06 $ 0.99
Adjusted FFO per diluted share/unit $ 0.82 $ 0.73 $ 1.14 $ 1.00
 
 
For the three months ended For the six months ended
June 30, June 30,
2014 2013 2014 2013
Net income attributable to common shareholders $ 85,610 $ 35,190 $ 76,638 $ 27,795
Interest expense 14,556 13,763 28,544 27,780
Loss from extinguishment of debt 0 0 2,487 0
Income tax expense (benefit) 4,883 4,934 (1,509 ) (83 )
Depreciation and amortization 39,306 33,427 77,066 66,548
Noncontrolling interests:
Noncontrolling interests in consolidated entities 8 8 8 8
Noncontrolling interests of common units in Operating Partnership 266 135 260 135
Distributions to preferred shareholders 4,142   4,107   8,249   9,172  
EBITDA $ 148,771 $ 91,564 $ 191,743 $ 131,355
Pre-opening, management transition and severance expenses 1,190 258 3,685 548
Preferred share issuance costs 942 1,566 942 1,566
Acquisition transaction costs 1,744 0 1,851 0
Net gain on sale of property (43,548 ) 0 (43,548 ) 0
Non-cash ground rent 501 327 825 654
Mezzanine loan discount amortization 0   (617 ) (986 ) (1,208 )
Adjusted EBITDA $ 109,600 $ 93,098 $ 154,512 $ 132,915
Corporate expense 8,124 7,805 15,615 14,211
Interest and other income (2,636 ) (4,531 ) (5,970 ) (8,386 )
Hotel level adjustments, net (2,564 ) 5,837   (3,672 ) 12,222  
Hotel EBITDA $ 112,524   $ 102,209   $ 160,485   $ 150,962  
 

With respect to Hotel EBITDA, the Company believes that excluding the effect of corporate-level expenses, non-cash items, and the portion of these items related to unconsolidated entities provides a more complete understanding of the operating results over which individual hotels and operators have direct control. We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

Hotel EBITDA includes all properties owned as of June 30, 2014 for the Company's period of ownership in 2014 and the comparable period in 2013.

 
LASALLE HOTEL PROPERTIES
Hotel Operational Data
Schedule of Property Level Results

(in thousands)

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2014   2013 2014   2013
Revenues:
Room $ 212,733 $ 192,801 $ 358,464 $ 332,360
Food and beverage 69,572 69,372 122,062 121,999
Other 19,550   16,664   34,100   29,840  
Total hotel revenues 301,855   278,837   514,626   484,199  
 
Expenses:
Room 50,432 45,696 93,625 86,582
Food and beverage 47,642 45,603 87,966 85,050
Other direct 6,291 6,196 11,371 11,341
General and administrative 22,174 20,306 41,921 39,094
Sales and marketing 17,977 16,700 34,187 32,078
Management fees 10,874 10,261 16,975 16,282
Property operations and maintenance 9,255 8,822 18,129 17,578
Energy and utilities 6,942 6,355 14,123 12,855
Property taxes 12,531 11,802 25,724 23,134
Other fixed expenses 5,213   4,887   10,120   9,243  
Total hotel expenses 189,331   176,628   354,141   333,237  
 
Hotel EBITDA $ 112,524   $ 102,209   $ 160,485   $ 150,962  
 
Hotel EBITDA Margin 37.3 % 36.7 % 31.2 % 31.2 %

Note:

This schedule includes the operating data for the three and six months ended June 30, 2014 for all properties owned by the Company as of June 30, 2014. Harbor Court, Triton, Serrano, and Southernmost are shown in 2013 for their comparative period of ownership in 2014. Vitale excludes April 2014 ownership and the comparative period of April 2013. Excludes all Old Town ownership and comparative period.

 
LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2014   2013 2014   2013
Total Portfolio
Occupancy 86.3 % 83.4 % 79.3 % 78.4 %
Increase 3.4 % 1.1 %
ADR $ 241.08 $ 226.17 $ 223.44 $ 209.47
Increase 6.6 % 6.7 %
RevPAR $ 207.94 $ 188.60 $ 177.10 $ 164.25
Increase 10.3 % 7.8 %

Note:

This schedule includes operating data for all properties owned as of June 30, 2014 for the Company's period of ownership in 2014 and the comparable period in 2013.

Non-GAAP Financial Measures

FFO, EBITDA and Hotel EBITDA

The Company considers the non-GAAP measures of FFO (including FFO per share/unit), EBITDA and hotel EBITDA to be key supplemental measures of the Company's performance and should be considered along with, but not as alternatives to, net income or loss as a measure of the Company's operating performance. 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 real estate industry investors consider FFO, EBITDA and hotel EBITDA to be helpful in evaluating a real estate company's operations.

The White Paper on FFO approved by NAREIT in April 2002, as revised in 2011, defines FFO as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of properties and items classified by GAAP as extraordinary, plus real estate-related depreciation and amortization (excluding amortization of deferred finance costs) and impairment writedowns, and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company computes FFO consistent with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company.

With respect to FFO, the Company believes that excluding the effect of extraordinary items, real estate-related depreciation and amortization and impairments, and the portion of these items related to unconsolidated entities, all of which are based on historical cost accounting and which may be of limited significance in evaluating current performance, can facilitate comparisons of operating performance between periods and between REITs, even though FFO does not represent an amount that accrues directly to common shareholders. However, FFO may not be helpful when comparing the Company to non-REITs.

With respect to EBITDA, the Company believes that excluding the effect of non-operating expenses and non-cash charges, and the portion of these items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and amortization, and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrues directly to common shareholders.

With respect to hotel EBITDA, the Company believes that excluding the effect of corporate-level expenses, non-cash items, and the portion of these items related to unconsolidated entities, provides a more complete understanding of the operating results over which individual hotels and operators have direct control. We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

FFO, EBITDA and hotel EBITDA do not represent cash generated from operating activities as determined by GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, EBITDA and hotel EBITDA are not measures of the Company's liquidity, nor are FFO, EBITDA and hotel EBITDA indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that have been and will be incurred. FFO, EBITDA and hotel EBITDA may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties. To compensate for this, management considers the impact of these excluded items to the extent they are material to operating decisions or the evaluation of the Company's operating performance.

Adjusted FFO and Adjusted EBITDA

The Company presents adjusted FFO (including adjusted FFO per share/unit) and adjusted EBITDA, which adjusts for certain additional items including gains on sale of property and impairment losses (to the extent included in EBITDA), acquisition transaction costs, costs associated with the departure of executive officers, costs associated with the recognition of issuance costs related to the calling of preferred shares and certain other items. The Company excludes these items as it believes it allows for meaningful comparisons with other REITs and between periods and is more indicative of the ongoing performance of its assets. As with FFO, EBITDA, and hotel EBITDA, the Company’s calculation of adjusted FFO and adjusted EBITDA may be different from similar adjusted measures calculated by other REITs.



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