LaSalle Hotel Properties Results

LaSalle Hotel Properties Q1 2015 Revenues Up 14.6%

The Company’s hotel EBITDA margin for the first quarter increased 245 basis points from the comparable prior year period to 25.2 percent, a first quarter record for the Company.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended March 31, 2015. The Company’s results include the following:

First Quarter Results and Activities

  • RevPAR: Room revenue per available room (“RevPAR”) for the quarter ended March 31, 2015 increased 5.4 percent to $159.96, as a result of a 4.6 percent increase in average daily rate (“ADR”) to $216.30 and a 0.8 percent improvement in occupancy to 74.0 percent.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the first quarter increased 245 basis points from the comparable prior year period to 25.2 percent, a first quarter record for the Company.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $57.2 million, an increase of 27.4 percent over the first quarter of 2014.
  • Adjusted FFO: The Company generated first quarter adjusted FFO of $45.3 million, or $0.40 per diluted share/unit, compared to $33.2 million, or $0.32 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 25.0 percent.
  • Hotel Acquisitions: The Company invested $446.3 million to acquire two assets during the first quarter, including the following:
    • Park Central San Francisco in San Francisco, CA for $350.0 million on January 23; and
    • The Marker Waterfront Resort in Key West, FL for $96.3 million on March 16.
  • Capital Markets: The Company did not sell any shares under its ATM program during the first quarter or to date in the second quarter of 2015.
  • Capital Investments: The Company invested $26.8 million of capital in its hotels. The Company completed 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, Westin Philadelphia and most of the first phase of the rooms renovation at Westin Michigan Avenue. During the quarter, the Company created 18 new rooms, including 14 rooms in San Francisco and four rooms in San Diego, which is a significant value enhancement to those hotels. The average development cost per room was approximately $200,000, which is a considerable discount to replacement cost, particularly in high barrier to entry West Coast markets.

  First Quarter
    2015   2014   % Var.
    ($'s in millions except per share/unit data)
             
RevPAR   $ 159.96     $ 151.70     5.4 %
EBITDA Margin     25.2 %     22.7 %    
EBITDA Margin Growth   245 bps        
               
Total Revenue   $ 250.8     $ 218.9     14.6 %
EBITDA(1)   $ 54.4     $ 43.0     26.5 %
Adjusted EBITDA(1)   $ 57.2     $ 44.9     27.4 %
FFO(1)   $ 42.5     $ 28.8     47.6 %
Adjusted FFO(1)   $ 45.3     $ 33.2     36.4 %
FFO per diluted share/unit(1)   $ 0.38     $ 0.28     35.7 %
Adjusted FFO per diluted share/unit(1)   $ 0.40     $ 0.32     25.0 %
Net loss attributable to common shareholders   $ (0.3 )   $ (9.0 )    
Net loss attributable to common shareholders per diluted share   $ 0.00     $ (0.09 )  

The Marker Waterfront Resort

The Marker Pool Deck

The Company acquired The Marker Waterfront Resort in Key West, Florida for $96.3 million on March 16. The Company funded the acquisition with borrowings from its senior unsecured credit facility.

The Marker, which opened in December 2014, is a 96-room resort ideally located on the end of the Historic Seaport in the Old Town neighborhood. The Historic Seaport is the main location for sunset cruises and fishing trips in Key West. The Marker is only three blocks from Duval Street, which is home to numerous shopping and dining destinations, museums, and theaters.

“We are thrilled to add The Marker to our portfolio of hotels,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “We believe the resort’s excellent location, high quality amenities and brand new construction will make it a popular destination for travelers to Key West. With very limited new supply available in Key West and consistently strong demand, we are excited about the outlook of our properties in this market.”

The Marker was purchased fee simple. The asset will be managed by Highgate Hotels, which also manages the Southernmost Hotel Collection in Key West on behalf of the Company.

Second Quarter 2015 Common Dividend

The Company’s Board of Trustees approved a 20 percent increase to the quarterly common dividend in the second quarter 2015 to $0.45 per diluted share, an annualized rate of $1.80 per diluted share.

“First quarter performance exceeded our expectations,” said Barnello. “RevPAR, adjusted EBITDA and adjusted FFO per share/unit each were above the high end of our outlook range. Overall, the operating environment remains favorable. Industry demand growth has been robust and fundamentals remain strong.”

“We are very pleased with the Board’s decision to increase the dividend by 20 percent in the second quarter. The increase reflects the strong growth our portfolio has delivered throughout the cycle. The dividend represents a 4.8 percent yield on our stock price as of yesterday’s close.”

Balance Sheet

As of March 31, 2015, the Company had total outstanding debt of $1.4 billion, including $342.0 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 3.6 times as of March 31, 2015 and its fixed charge coverage ratio was 4.4 times. For the first quarter, the Company’s weighted average interest rate was 3.7 percent. As of March 31, 2015, the Company had $17.4 million of cash and cash equivalents on its balance sheet and capacity of $430.4 million available on its credit facilities.

2015 Outlook

The Company is increasing its 2015 outlook to include its performance during the first quarter, updated margin expectations for the balance of the year and the acquisition of The Marker. The acquisition of The Marker has the impact of increasing full year adjusted EBITDA outlook by approximately $4.0 million, of which $0.3 million was recorded during the first quarter. The outlook is based on the current economic environment and assumes no additional acquisitions or dispositions. The Company’s RevPAR growth and financial expectations for 2015 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 4.5% 6.5% 4.5% 6.5%
Hotel EBITDA Margin Change 50 bps 150 bps 125 bps 175 bps
 
Adjusted EBITDA $ 377.0 $ 395.0 $ 391.0 $ 405.0
Adjusted FFO $ 304.0 $ 322.5 $ 316.0 $ 330.0
Adjusted FFO per diluted share/unit $ 2.67 $ 2.84 $ 2.78 $ 2.90
 

Second Quarter 2015 Outlook

The Company expects second quarter RevPAR to increase 4.5 percent to 5.5 percent. The Company expects its portfolio to generate adjusted EBITDA of $122.0 million to $125.0 million and adjusted FFO per share/unit of $0.86 to $0.89.

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 47 hotels. The properties are upscale, full-service hotels, totaling more than 12,000 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 Loss

(in thousands, except share data)

(unaudited)

 
For the three months ended

 

March 31,
2015   2014
Revenues:
Hotel operating revenues:
Room $ 170,591 $ 147,967
Food and beverage 60,915 54,115
Other operating department 18,017   15,025  
Total hotel operating revenues 249,523 217,107
Other income 1,280   1,757  
Total revenues 250,803   218,864  
Expenses:
Hotel operating expenses:
Room 48,721 43,684
Food and beverage 45,118 41,700
Other direct 3,920 5,181
Other indirect 70,002   60,423  
Total hotel operating expenses 167,761 150,988
Depreciation and amortization 42,878 37,760
Real estate taxes, personal property taxes and insurance 15,934 14,954
Ground rent 3,662 2,933
General and administrative 6,267 5,492
Acquisition transaction costs 447 107
Other expenses 2,345   3,207  
Total operating expenses 239,294   215,441  
Operating income 11,509 3,423
Interest income 6 1,789
Interest expense (13,645 ) (13,988 )
Loss from extinguishment of debt 0   (2,487 )
Loss before income tax benefit (2,130 ) (11,263 )
Income tax benefit 4,868   6,392  
Net income (loss) 2,738 (4,871 )
Noncontrolling interests of common units in Operating Partnership (15 ) 6  
Net income (loss) attributable to the Company 2,723 (4,865 )
Distributions to preferred shareholders (3,042 ) (4,107 )
Net loss attributable to common shareholders $ (319 ) $ (8,972 )
 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Loss - Continued

(in thousands, except share data)

(unaudited)

 
For the three months ended
March 31,
2015   2014
Earnings per Common Share - Basic:
Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.00   $ (0.09 )
Earnings per Common Share - Diluted:
Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.00   $ (0.09 )
Weighted average number of common shares outstanding:
Basic 112,647,715 103,691,657
Diluted 112,647,715 103,691,657
 
Comprehensive Loss:
Net income (loss) $ 2,738 $ (4,871 )
Other comprehensive loss:
Unrealized (loss) gain on interest rate derivative instruments (4,398 ) 111
Reclassification adjustment for amounts recognized in net income (loss) 1,070   (1,083 )
(590 ) (5,843 )
Noncontrolling interests of common units in Operating Partnership (6 ) 9  
Comprehensive loss attributable to the Company $ (596 ) $ (5,834 )
 
 
LASALLE HOTEL PROPERTIES
FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

 
For the three months ended
March 31,
2015   2014
Net loss attributable to common shareholders $ (319 ) $ (8,972 )
Depreciation 42,752 37,658
Amortization of deferred lease costs 75 87
Noncontrolling interests of common units in Operating Partnership 15   (6 )
FFO $ 42,523 $ 28,767
Pre-opening, management transition and severance expenses 1,847 2,495
Acquisition transaction costs 447 107
Loss from extinguishment of debt 0 2,487
Non-cash ground rent 493 324
Mezzanine loan discount amortization 0   (986 )
Adjusted FFO $ 45,310   $ 33,194  
Weighted average number of common shares and units outstanding:
Basic 112,944,015 103,987,957
Diluted 113,349,541 104,298,342
FFO per diluted share/unit $ 0.38 $ 0.28
Adjusted FFO per diluted share/unit $ 0.40 $ 0.32
 
 
For the three months ended
March 31,
2015 2014
Net loss attributable to common shareholders $ (319 ) $ (8,972 )
Interest expense 13,645 13,988
Loss from extinguishment of debt 0 2,487
Income tax benefit (4,868 ) (6,392 )
Depreciation and amortization 42,878 37,760
Noncontrolling interests of common units in Operating Partnership 15 (6 )
Distributions to preferred shareholders 3,042   4,107  
EBITDA $ 54,393 $ 42,972
Pre-opening, management transition and severance expenses 1,847 2,495
Acquisition transaction costs 447 107
Non-cash ground rent 493 324
Mezzanine loan discount amortization 0   (986 )
Adjusted EBITDA $ 57,180 $ 44,912
Corporate expense 6,986 7,491
Interest and other income (1,286 ) (3,334 )
Hotel level adjustments, net (665 ) 4,216  
Hotel EBITDA $ 62,215   $ 53,285  
 
 
LASALLE HOTEL PROPERTIES
Hotel Operational Data
Schedule of Property Level Results

(in thousands)

(unaudited)

 
For the three months ended
March 31,
2015   2014
Revenues:
Room $ 168,880 $ 160,074
Food and beverage 60,617 58,088
Other 17,475   16,156  
Total hotel revenues 246,972   234,318  
 
Expenses:
Room 48,289 47,858
Food and beverage 44,794 45,531
Other direct 3,878 5,576
General and administrative 23,642 21,210
Sales and marketing 19,592 18,050
Management fees 7,266 6,820
Property operations and maintenance 9,535 9,405
Energy and utilities 7,730 7,419
Property taxes 13,977 13,467
Other fixed expenses 6,054   5,697  
Total hotel expenses 184,757   181,033  
 
Hotel EBITDA $ 62,215   $ 53,285  
 
Hotel EBITDA Margin 25.2 % 22.7 %
 
 
LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels

(unaudited)

 
For the three months ended
March 31,
2015   2014
Total Portfolio
Occupancy 74.0 % 73.4 %
Increase 0.8 %
ADR $ 216.30 $ 206.75
Increase 4.6 %
RevPAR $ 159.96 $ 151.70
Increase 5.4 %
 
         
LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels - Continued

(unaudited)

 
 
Prior Year Operating Data (Entire Portfolio) - 2014 Comparable
 
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
2014 2014 2014 2014 2014
Occupancy 73 % 87 % 88 % 78 % 82 %
ADR $ 206.75 $ 241.90 $ 245.08 $ 235.70 $ 233.60
RevPAR $ 151.70 $ 211.14 $ 216.00 $ 184.52 $ 191.22
 
Hotel Revenues $ 234.3 $ 325.5 $ 326.7 $ 289.0 $ 1,175.5
Hotel EBITDA $ 53.3 $ 117.4 $ 119.0 $ 90.4 $ 380.1
Hotel EBITDA Margin 22.7 % 36.1 % 36.4 % 31.3 % 32.3 %
 

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 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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