Company Results

LaSalle Hotel Properties Reports Fourth Quarter RevPAR Increase of 7.7%

Room revenue per available room for the quarter ended December 31, 2014 increased 7.7 percent to $181.49, as a result of a 5.7 percent increase in average daily rate (“ADR”) to $235.04 and a 1.8 percent improvement in occupancy to 77.2 percent.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter and year ended December 31, 2014. The Company’s results include the following:

“These investments brought our five-year acquisition total to $2.0 billion, and we are excited that we were able to start off 2015 by acquiring our seventh hotel in San Francisco in January for $350.0 million.”

                                             
      Fourth Quarter     Year-to-Date
      2014     2013     % Var.     2014     2013     % Var.
      ($'s in millions except per share/unit data)
                                             
RevPAR     $ 181.49     $ 168.57     7.7%     $ 188.09     $ 172.81     8.8%
EBITDA Margin       32.0%       30.4%             33.2%       32.1%      
EBITDA Margin Growth    

 

163 bps

                 

 

101 bps

             
                                             
Total Revenue     $ 269.8     $ 252.0     7.1%     $ 1,109.8     $ 977.3     13.6%
EBITDA(1)     $ 79.4     $ 68.6     15.7%     $ 429.0     $ 290.7     47.6%
Adjusted EBITDA(1)     $ 80.5     $ 72.9     10.4%     $ 343.8     $ 300.1     14.6%
FFO(1)     $ 61.9     $ 51.5     20.2%     $ 259.9     $ 215.2     20.8%
Adjusted FFO(1)     $ 63.0     $ 55.8     12.9%     $ 270.5     $ 224.6     20.4%
FFO per diluted share/unit(1)     $ 0.58     $ 0.50     16.0%     $ 2.48     $ 2.21     12.2%
Adjusted FFO per diluted share/unit(1)     $ 0.59     $ 0.55     7.3%     $ 2.58     $ 2.30     12.2%
Net income attributable to common shareholders     $ 22.8     $ 14.7     55.1%     $ 197.6     $ 71.0     178.3%
Net income attributable to common shareholders per diluted share     $ 0.21     $ 0.14     50.0%     $ 1.88     $ 0.73     157.5%
                                             

(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.

Fourth Quarter Results and Activities

  • RevPAR: Room revenue per available room for the quarter ended December 31, 2014 increased 7.7 percent to $181.49, as a result of a 5.7 percent increase in average daily rate (“ADR”) to $235.04 and a 1.8 percent improvement in occupancy to 77.2 percent.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the fourth quarter increased 163 basis points from the comparable prior year period to 32.0 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $80.5 million, an increase of 10.4 percent over the fourth quarter of 2013.
  • Adjusted FFO: The Company generated fourth quarter adjusted FFO of $63.0 million, or $0.59 per diluted share/unit, compared to $55.8 million, or $0.55 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 7.3 percent.
  • Dividend: On December 15, the Company declared a fourth quarter 2014 dividend of $0.375 per common share of beneficial interest. The dividend represents an annual run rate of $1.50 per share and a 3.6 percent yield based on the closing share price on February 17, 2015.
  • Capital Markets: During the fourth quarter 2014, the Company sold 8,740,000 common shares of beneficial interest, including the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $39.90 per share, resulting in net proceeds of $348.5 million.

    The Company did not sell any shares under its ATM program during the fourth quarter or to date in the first quarter of 2015.

  • Capital Investments: The Company invested $40.0 million of capital in its hotels. The Company commenced renovations at Sofitel Washington, DC, The Grafton on Sunset in West Hollywood, Hilton San Diego Gaslamp Quarter, Villa Florence in San Francisco, Hyatt Boston Harbor and Westin Philadelphia.

“We were pleased to complete 2014 with another quarter of strong results, topping off a successful year for the Company,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “LaSalle had a solid year operationally and with respect to acquisitions and capital markets activities. We achieved new portfolio records for ADR, occupancy, RevPAR and hotel EBITDA margins. As a result, our corporate adjusted EBITDA grew 14.6 percent during 2014 and adjusted FFO per share was up 12.2 percent.”

“During 2014, we executed two meaningful acquisitions within highly sought after west coast markets, representing our sixth asset in San Francisco and our first hotel in Portland,” he continued. “These investments brought our five-year acquisition total to $2.0 billion, and we are excited that we were able to start off 2015 by acquiring our seventh hotel in San Francisco in January for $350.0 million.”

“In addition to our acquisitions activities, we sold two non-core assets, which were both excellent long-term investments for the Company. We owned the Hotel Viking for 15 years and it generated a 10.7 percent unleveraged IRR. We owned the Hilton Alexandria Old Town for 10 years and it produced a 13.5 percent unleveraged IRR.”

“U.S. lodging demand continued to exceed our expectations, with its growth rate accelerating during each successive quarter in 2014. Lodging industry ADR continued on its trajectory of strong growth as well, as supply growth remained constrained. We continue to make impactful investments in our hotel portfolio and are well-positioned to deliver another year of solid results.”

Full Year 2014 Results and Activities

  • RevPAR: RevPAR increased 8.8 percent to $188.09, as a result of a 7.4 percent increase in ADR to $231.53 and a 1.3 percent improvement in occupancy to 81.2 percent. In 2014, the Company achieved its highest-ever reported ADR, occupancy and RevPAR.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin was 33.2 percent, which was its highest-ever reported margin and represents an improvement of 101 basis points compared to 2013.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $343.8 million, an increase of 14.6 percent over 2013.
  • Adjusted FFO: The Company generated adjusted FFO of $270.5 million, or $2.58 per diluted share/unit, a per share/unit increase of 12.2 percent.
  • Hotel Acquisitions: The Company invested $194.3 million to acquire two assets. The 2014 acquisitions include the following:
    • Hotel Vitale in San Francisco, CA for $130.0 million on April 2; and
    • The Heathman Hotel in Portland, OR for $64.3 million on December 18.
  • Hotel Dispositions: The Company sold two non-core properties, resulting in $170.4 million in proceeds. The 2014 dispositions include the following:
    • Hilton Alexandria Old Town in Alexandria, VA for $93.4 million on June 17; and
    • Hotel Viking in Newport, RI for $77.0 million on September 10.
  • Mezzanine Loan Repayment: On February 10, 2014, the mezzanine loan on Casa del Mar and Shutters on the Beach was repaid by the borrower. The Company received repayment of the principal amount, which was $72.0 million. The Company acquired the mezzanine loan on July 13, 2012 for $67.4 million. Inclusive of interest payments, the Company’s net profit on its investment was $14.7 million over 19 months, which represented a 14.2 percent unleveraged IRR.
  • Capital Markets: The Company completed several capital markets initiatives during 2014, including the following:
    • During the first quarter 2014, the Company refinanced $1.05 billion of debt, reducing the interest cost on its $750.0 million senior unsecured credit facility and $300.0 million five-year term loan.
    • During the second quarter 2014, the Company repaid the $8.7 million outstanding mortgage, secured by Hotel Deca in Seattle, WA.
    • During the third quarter 2014, the Company redeemed all of its outstanding 7.25 percent Series G Preferred Shares for $58.7 million plus accrued dividends through the redemption date.
    • During the fourth quarter 2014, the Company sold 8,740,000 common shares of beneficial interest, including the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $39.90 per share, resulting in net proceeds of $348.5 million.
  • Capital Investments: The Company invested $102.1 million of capital in its hotels throughout the year, completing the renovation of Onyx Hotel in Boston, as well as Hotel George and The Donovan in Washington, DC. The Company’s 2014 capital expenditures also included the commencement of the renovations of the Sofitel Washington, DC, The Grafton on Sunset in West Hollywood, Hilton San Diego Gaslamp Quarter, Villa Florence in San Francisco, Hyatt Boston Harbor and Westin Philadelphia.

Balance Sheet

As of December 31, 2014, the Company had total outstanding debt of $1.0 billion, with no outstanding borrowings 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 2.9 times as of December 31, 2014 and its fixed charge coverage ratio was 4.2 times. After acquiring the Park Central San Francisco in January 2015, pro forma total net debt to trailing 12 month Corporate EBITDA was 3.5 times. For the fourth quarter, the Company’s weighted average interest rate was 3.9 percent. As of December 31, 2014, the Company had capacity of $772.4 million available on its credit facilities. As of February 18, 2015, the Company has approximately $500 million available on its credit facilities.

Subsequent Event

On January 23, 2015, the Company acquired the fee simple interest in the 681-room Westin Market Street in San Francisco for $350.0 million. At closing, the Company renamed the hotel Park Central San Francisco. Highgate Hotels will continue to manage the asset as an independent hotel on behalf of the Company.

2015 Outlook

The Company is providing its 2015 outlook, which 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 2015 are as follows:

       
      Current Outlook
      Low-end     High-end
      ($'s in millions except per share/unit data)
                 
                 
                 
RevPAR growth       4.5%    

 

6.5% *

Hotel EBITDA Margin Change    

 

50 bps

   

 

150 bps

                 
Adjusted EBITDA     $ 377.0     $ 395.0
Adjusted FFO     $ 304.0     $ 322.5
Adjusted FFO per diluted share/unit     $ 2.67     $ 2.84
                 
Income Tax Expense     $ 3.0     $ 6.0
                 
Capital Expenditures     $ 130.0     $ 175.0
                 

*As a note to the Company’s RevPAR Outlook, 2015 will be negatively affected by the short-term RevPAR impact associated with removing the Westin flag at Park Central San Francisco. The Company estimates this RevPAR impact will be 50 to 75 basis points for the full year, which is already included in the guidance above. Despite the RevPAR impact at Park Central San Francisco, EBITDA will be positively affected from the outset, based on expense savings from operating as an independent hotel and the implementation of the Company’s asset management best practices.

First Quarter 2015 Outlook

The Company expects first quarter RevPAR to increase 4.0 percent to 5.0 percent, which is negatively impacted by 100 to 125 basis points due to Park Central San Francisco, as mentioned above as a note to the Company’s RevPAR Outlook. The Company expects its portfolio to generate adjusted EBITDA of $51.0 million to $54.0 million and adjusted FFO per share/unit of $0.35 to $0.37.

 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share data)

(unaudited)

 
 
      For the three months ended     For the year ended
      December 31,     December 31,
      2014     2013     2014     2013
Revenues:                                        
Hotel operating revenues:                                        
Room     $ 186,096       $ 171,748       $ 773,801       $ 667,444  
Food and beverage       63,735         63,285         253,656         238,682  
Other operating department       17,895         15,229         74,000         63,230  
Total hotel operating revenues       267,726         250,262         1,101,457         969,356  
Other income       2,081         1,781         8,321         7,937  
Total revenues       269,807         252,043         1,109,778         977,293  
Expenses:                                        
Hotel operating expenses:                                        
Room       49,457         45,766         196,952         170,555  
Food and beverage       45,700         43,984         183,530         165,855  
Other direct       5,300         5,279         23,800         22,445  
Other indirect       64,584         62,341         264,508         237,386  
Total hotel operating expenses       165,041         157,370         668,790         596,241  
Depreciation and amortization       39,148         36,809         155,035         143,991  
Real estate taxes, personal property taxes and insurance       14,595         14,751         57,805         53,374  
Ground rent       3,648         2,582         14,667         11,117  
General and administrative       6,028         5,777         23,832         22,001  
Acquisition transaction costs       528         (41 )       2,379         2,646  
Other expenses       539         5,443         7,369         9,361  
Total operating expenses       229,527         222,691         929,877         838,731  
Operating income       40,280         29,352         179,901         138,562  
Interest income       11         2,467         1,812         9,679  
Interest expense       (13,585 )       (14,999 )       (56,628 )       (57,516 )
Loss from extinguishment of debt       0         0         (2,487 )       0  
Income before income tax (expense) benefit       26,706         16,820         122,598         90,725  
Income tax (expense) benefit       (818 )       2,011         (2,306 )       (470 )
Income before gain on sale of properties       25,888         18,831         120,292         90,255  
Gain on sale of properties       0         0         93,205         0  
Net income       25,888         18,831         213,497         90,255  
Net income attributable to noncontrolling interests:                                        
Noncontrolling interests in consolidated entities       (8 )       (9 )       (16 )       (17 )
Noncontrolling interests of common units in Operating Partnership       (79 )       (60 )       (636 )       (303 )
Net income attributable to noncontrolling interests       (87 )       (69 )       (652 )       (320 )
Net income attributable to the Company       25,801         18,762         212,845         89,935  
Distributions to preferred shareholders       (3,042 )       (4,107 )       (14,333 )       (17,385 )
Issuance costs of redeemed preferred shares       0         0         (951 )       (1,566 )
Net income attributable to common shareholders     $ 22,759       $ 14,655       $ 197,561       $ 70,984  
                                         
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share data)

(unaudited)

 
 
      For the three months ended     For the year ended
      December 31,     December 31,
      2014     2013     2014     2013
Earnings per Common Share - Basic:                                        
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares     $ 0.22       $ 0.14       $ 1.89       $ 0.73  
Earnings per Common Share - Diluted:                                        
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares     $ 0.21       $ 0.14       $ 1.88       $ 0.73  
Weighted average number of common shares outstanding:                                        
Basic       105,550,157         101,585,583         104,188,785         97,041,484  
Diluted       105,902,098         101,820,954         104,545,895         97,228,671  
                                         
Comprehensive Income:                                        
Net income     $ 25,888       $ 18,831       $ 213,497       $ 90,255  
Other comprehensive (loss) income:                                        
Unrealized (loss) gain on interest rate derivative instruments       (1,329 )       1,025         544         8,127  
Reclassification adjustment for amounts recognized in net income       (1,113 )       1,095         (4,410 )       4,248  
        23,446         20,951         209,631         102,630  
Comprehensive income attributable to noncontrolling interests:                                        
Noncontrolling interests in consolidated entities       (8 )       (9 )       (16 )       (17 )
Noncontrolling interests of common units in Operating Partnership       (72 )       (65 )       (625 )       (340 )
Comprehensive income attributable to noncontrolling interests       (80 )       (74 )       (641 )       (357 )
Comprehensive income attributable to the Company     $ 23,366       $ 20,877       $ 208,990       $ 102,273  
                                         

 

LASALLE HOTEL PROPERTIES

FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

 
 
      For the three months ended     For the year ended
      December 31,     December 31,
      2014     2013     2014     2013
Net income attributable to common shareholders     $ 22,759       $ 14,655       $ 197,561       $ 70,984  
Depreciation       39,012         36,706         154,585         143,560  
Amortization of deferred lease costs       86         86         347         355  
Noncontrolling interests:                                        
Noncontrolling interests in consolidated entities       8         9         16         17  
Noncontrolling interests of common units in Operating Partnership       79         60         636         303  
Less: Net gain on sale of properties       0         0         (93,205 )       0  
FFO     $ 61,944       $ 51,516       $ 259,940       $ 215,219  
Pre-opening, management transition and severance expenses       6         4,693         3,884         6,420  
Preferred share issuance costs       0         0         951         1,566  
Acquisition transaction costs       528         (41 )       2,379         2,646  
Loss from extinguishment of debt       0         0         2,487         0  
Non-cash ground rent       497         324         1,820         1,305  
Mezzanine loan discount amortization       0         (669 )       (986 )       (2,524 )
Adjusted FFO     $ 62,975       $ 55,823       $ 270,475       $ 224,632  
Weighted average number of common shares and units outstanding:                                        
Basic       105,846,457         101,881,883         104,485,085         97,337,784  
Diluted       106,198,398         102,117,254         104,842,195         97,524,971  
FFO per diluted share/unit     $ 0.58       $ 0.50       $ 2.48       $ 2.21  
Adjusted FFO per diluted share/unit     $ 0.59       $ 0.55       $ 2.58       $ 2.30  
                                         
                                         
                                         
      For the three months ended     For the year ended
      December 31,     December 31,
      2014     2013     2014     2013
Net income attributable to common shareholders     $ 22,759       $ 14,655       $ 197,561       $ 70,984  
Interest expense       13,585         14,999         56,628         57,516  
Loss from extinguishment of debt       0         0         2,487         0  
Income tax expense (benefit)       818         (2,011 )       2,306         470  
Depreciation and amortization       39,148         36,809         155,035         143,991  
Noncontrolling interests:                                        
Noncontrolling interests in consolidated entities       8         9         16         17  
Noncontrolling interests of common units in Operating Partnership       79         60         636         303  
Distributions to preferred shareholders       3,042         4,107         14,333         17,385  
EBITDA     $ 79,439       $ 68,628       $ 429,002       $ 290,666  
Pre-opening, management transition and severance expenses       6         4,693         3,884         6,420  
Preferred share issuance costs       0         0         951         1,566  
Acquisition transaction costs       528         (41 )       2,379         2,646  
Net gain on sale of properties       0         0         (93,205 )       0  
Non-cash ground rent       497         324         1,820         1,305  
Mezzanine loan discount amortization       0         (669 )       (986 )       (2,524 )
Adjusted EBITDA     $ 80,470       $ 72,935       $ 343,845       $ 300,079  
Corporate expense       6,761         7,842         29,056



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