LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports First Quarter 2016 Results

Achieves highest-ever first quarter hotel EBITDA and hotel EBITDA margin
Mason & Rook Hotel - Washington, DC
Mason & Rook Hotel - Washington, DC

LaSalle Hotel Properties (NYSE: LHO) yesterday announced results for the quarter ended March 31, 2016. The Company’s results include the following:

First Quarter Results

  • RevPAR: Room revenue per available room (“RevPAR”) for the quarter ended March 31, 2016 increased 2.1 percent to $167.56, driven by a 2.1 percent growth in occupancy to 75.8 percent and average daily rate (“ADR”) in line with the prior year at $221.03.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the first quarter expanded by 47 basis points from the comparable prior year period to 26.5 percent – a first quarter record for the Company.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $65.0 million, an increase of 13.6 percent over the first quarter of 2015.
  • Adjusted FFO: The Company generated first quarter adjusted FFO of $55.6 million, or $0.49 per diluted share/unit, compared to $45.3 million, or $0.40 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 22.5 percent.
           
First Quarter
2016 2015 % Var.
($'s in millions except per share/unit data)
 
RevPAR $ 167.56 $ 164.16 2.1%
Hotel EBITDA Margin(1) 26.5% 26.0%
Hotel EBITDA Margin Growth(1)

 

47 bps

 
Total Revenue $ 260.1 $ 250.8 3.7%
EBITDA(1) $ 62.9 $ 54.4 15.6%
Adjusted EBITDA(1) $ 65.0 $ 57.2 13.6%
FFO(1) $ 53.6 $ 42.5 26.1%
Adjusted FFO(1) $ 55.6 $ 45.3 22.7%
FFO per diluted share/unit(1) $ 0.47 $ 0.38 23.7%
Adjusted FFO per diluted share/unit(1) $ 0.49 $ 0.40 22.5%
Net income (loss) attributable to common shareholders $ 6.0 $ (0.3)
Net income attributable to common shareholders per diluted share $ 0.05 $ 0.00

 

(1) See tables later in press release, which list adjustments that reconcile net income (loss) attributable to common shareholders to earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, funds from operations attributable to common shareholders and unitholders (“FFO”), FFO per share/unit, adjusted FFO, adjusted FFO per share/unit and pro forma 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 (loss) later in this press release.

“Our Company delivered meaningful FFO per share growth, through improvements in our hotel EBITDA margin, ramp from last year’s acquisitions, and further enhancement of our balance sheet,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “Our asset management team and operators were able to keep hotel operating expenses flat compared to last year, while revenue improved, which led to record-breaking hotel EBITDA and hotel EBITDA margin, for the first quarter.”

“Meanwhile, we continue to develop excellent guest experiences, and we are particularly excited about the grand opening of the Mason & Rook Hotel, in Washington, DC. Mason & Rook debuted earlier this month at the former Hotel Helix, located in Washington’s 14th Street Corridor. The area has become an extremely popular destination in the District and, as such, has become one of the most densely populated sub-markets in the city, with numerous new high-end apartment buildings, restaurants, bars, and retail locations opening steadily over the last several years. With this renovation and repositioning, we significantly improved the asset, seizing an excellent opportunity to capitalize on the demand being generated in the surrounding neighborhood,” added Mr. Barnello.

Capital Investments

During the quarter, the Company invested $36.2 million of capital in its hotels. The Company completed renovations at the Chaminade Resort and Conference Center in Santa Cruz, Gild Hall in New York City, Hotel Solamar in San Diego, Hotel Amarano Burbank, The Liberty Hotel in Boston, Lansdowne Resort in Lansdowne, VA, Hotel Palomar, Washington, DC, the Mason & Rook Hotel in Washington, DC, and the second phase of the guestrooms at Westin Michigan Avenue in Chicago.

Balance Sheet and Capital Markets Activities

As of March 31, 2016, the Company had total outstanding debt of $1.47 billion, including $343.0 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, 2016 and its fixed charge coverage ratio was 5.3 times. As of March 31, 2016, the Company had $9.4 million of cash and cash equivalents on its balance sheet and capacity of $429.4 million available on its credit facilities.

During the quarter, the Company repaid $286.2 million of mortgage debt on three of its hotels. On January 4, 2016, the Company prepaid the mortgages on Westin Michigan Avenue in Chicago and Indianapolis Marriott Downtown, which had remaining balances of $131.3 million and $96.1 million, respectively. On February 11, 2016, the Company prepaid the mortgage on The Roger in New York City, which had a remaining balance of $58.8 million. There were no prepayment penalties incurred with the repayment of these three mortgages.

For the first quarter, the Company’s weighted average interest rate was 2.5 percent, compared to 3.7 percent during the same prior year period.

Dividend

On March 10, 2016, the Company declared a first quarter 2016 dividend of $0.45 per common share of beneficial interest. The dividend represents an annual run rate of $1.80 per share and a 7.4 percent yield based on the closing share price on April 20, 2016.

About LaSalle Hotel Properties

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 47 hotels and a mezzanine loan secured by two hotels in Santa Monica, California. 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, Destination Hotels, Davidson Hotel Company, the Kimpton Hotel & Restaurant Group, Accor, 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,
2016     2015
Revenues:
Hotel operating revenues:
Room $ 181,420 $ 170,591
Food and beverage 56,347 60,915
Other operating department   20,643     18,017  
Total hotel operating revenues 258,410 249,523
Other income   1,694     1,280  
Total revenues   260,104     250,803  
Expenses:
Hotel operating expenses:
Room 52,291 48,721
Food and beverage 42,908 45,118
Other direct 3,683 3,920
Other indirect   71,915     70,002  
Total hotel operating expenses 170,797 167,761
Depreciation and amortization 47,628 42,878
Real estate taxes, personal property taxes and insurance 16,191 15,934
Ground rent 3,813 3,662
General and administrative 5,830 6,267
Acquisition transaction costs 0 447
Other expenses   2,178     2,345  
Total operating expenses   246,437     239,294  
Operating income 13,667 11,509
Interest income 1,654 6
Interest expense   (11,867 )   (13,645 )
Income (loss) before income tax benefit 3,454 (2,130 )
Income tax benefit   5,620     4,868  
Net income 9,074 2,738
Noncontrolling interests of common units in Operating Partnership   (15 )   (15 )
Net income attributable to the Company 9,059 2,723
Distributions to preferred shareholders   (3,042 )   (3,042 )
Net income (loss) attributable to common shareholders $ 6,017   $ (319 )
 
 

LASALLE HOTEL PROPERTIES

Consolidated Statements of Operations and Comprehensive Loss - Continued

(in thousands, except share data)

(unaudited)

 
 
    For the three months ended
March 31,
2016     2015
Earnings per Common Share - Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.05   $ 0.00  
Earnings per Common Share - Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.05   $ 0.00  
Weighted average number of common shares outstanding:
Basic 112,748,492 112,647,715
Diluted 113,108,158 112,647,715
 
Comprehensive Loss:
Net income $ 9,074 $ 2,738
Other comprehensive loss:
Unrealized loss on interest rate derivative instruments (14,252 ) (4,398 )
Reclassification adjustment for amounts recognized in net income   1,780     1,070  
(3,398 ) (590 )
Noncontrolling interests of common units in Operating Partnership   1     (6 )
Comprehensive loss attributable to the Company $ (3,397 ) $ (596 )
 
 

LASALLE HOTEL PROPERTIES

FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

 
 
    For the three months ended
March 31,
2016     2015
Net income (loss) attributable to common shareholders $ 6,017 $ (319 )
Depreciation 47,494 42,752
Amortization of deferred lease costs 80 75
Noncontrolling interests of common units in Operating Partnership   15     15  
FFO attributable to common shareholders and unitholders $ 53,606 $ 42,523
Pre-opening, management transition and severance expenses 1,546 1,847
Acquisition transaction costs 0 447
Non-cash ground rent   477     493  
Adjusted FFO attributable to common shareholders and unitholders $ 55,629   $ 45,310  
Weighted average number of common shares and units outstanding:
Basic 112,893,715 112,944,015
Diluted 113,253,381 113,349,541
FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.47 $ 0.38
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.49 $ 0.40
 
 
 
For the three months ended
March 31,
2016 2015
Net income (loss) attributable to common shareholders $ 6,017 $ (319 )
Interest expense 11,867 13,645
Income tax benefit (5,620 ) (4,868 )
Depreciation and amortization 47,628 42,878
Noncontrolling interests of common units in Operating Partnership 15 15
Distributions to preferred shareholders   3,042     3,042  
EBITDA $ 62,949 $ 54,393
Pre-opening, management transition and severance expenses 1,546 1,847
Acquisition transaction costs 0 447
Non-cash ground rent   477     493  
Adjusted EBITDA $ 64,972 $ 57,180
Corporate expense 6,724 6,986
Interest and other income (3,349 ) (1,286 )
Pro forma hotel level adjustments, net(1)   (48 )   3,757  
Hotel EBITDA $ 68,299   $ 66,637  
 

(1) Pro forma to include the results of operations of the Park Central San Francisco and The Marker Waterfront Resort under previous ownership for the comparable period in 2015, and exclude the Mason & Rook Hotel for the period the hotel was closed for renovation in 2016 and the comparable period in 2015.

 

LASALLE HOTEL PROPERTIES

Hotel Operational Data

Schedule of Property Level Results - Pro Forma(1)

(in thousands)

(unaudited)

 
 
    For the three months ended
March 31,
2016     2015
Revenues:
Room $ 181,422 $ 175,604
Food and beverage 56,347 62,690
Other   20,266     18,013  
Total hotel revenues   258,035     256,307  
 
Expenses:
Room 52,290 49,465
Food and beverage 42,909 46,005
Other direct 3,661 3,806
General and administrative 20,182 19,969
Information and telecommunications systems 4,382 4,278
Sales and marketing 20,859 20,437
Management fees 7,631 7,679
Property operations and maintenance 9,829 9,826
Energy and utilities 7,271 7,748
Property taxes 14,379 14,130
Other fixed expenses   6,343     6,327  
Total hotel expenses   189,736     189,670  
 
Hotel EBITDA $ 68,299   $ 66,637  
 
Hotel EBITDA Margin 26.5 % 26.0 %
 

(1) This schedule includes the operating data for the three months ended March 31, 2016 for all properties owned by the Company as of March 31, 2016. Park Central San Francisco and The Marker Waterfront Resort are included for the full first quarter in both 2015 and 2016. Mason & Rook Hotel is excluded from the first quarter in both 2015 and 2016 because the hotel was closed for renovation during the entire first quarter of 2016.

 

LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma(1)

(unaudited)

 
 
    For the three months ended
March 31,
2016     2015
Total Portfolio
Occupancy 75.8 % 74.2 %
Increase 2.1 %
ADR $ 221.03 $ 221.10
Decrease 0.0 %
RevPAR $ 167.56 $ 164.16
Increase 2.1 %
 
 
 
For the three months ended March 31, 2016
Market Detail RevPAR Variance %
Los Angeles 19.3%
San Francisco 11.5%
New York 4.2%
Philadelphia 2.9%
Washington, DC 2.3%
Other(2) -2.0%
Seattle -3.3%
Chicago -5.9%
San Diego -6.4%
Boston -9.2%
 

(1) Pro forma to include the results of operations of the Park Central San Francisco and The Marker Waterfront Resort under previous ownership for the comparable period in 2015, and exclude the Mason & Rook Hotel for the period the hotel was closed for renovation in 2016 and the comparable period in 2015.

(2) Other includes Indianapolis, IN, Portland, OR, Santa Cruz, CA, Lansdowne, VA and Key West, FL.

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. The Company believes property-level results provide investors with supplemental information on the ongoing operational performance of its hotels and effectiveness of the third-party management companies operating its 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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