LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports Third Quarter 2016 Results

The Company’s RevPAR increased 4.3 percent to $224.98, primarily driven by a 3.9 percent growth in occupancy to 89.5 percent. Average daily rate rose by 0.4 percent to $251.26.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended September 30, 2016. The Company’s results include the following:

Third Quarter Results

  • Net Income: The Company’s net income attributable to common shareholders increased 242.6 percent to $152.1 million, due in part to a $104.8 million gain relating to the sale of the Indianapolis Marriott Downtown.
  • RevPAR: The Company’s RevPAR increased 4.3 percent to $224.98, primarily driven by a 3.9 percent growth in occupancy to 89.5 percent. Average daily rate (“ADR”) rose by 0.4 percent to $251.26.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 29 basis points from the comparable prior year period to 36.8 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $115.3 million, an increase of $0.7 million over the third quarter of 2015.
  • Adjusted FFO: The Company generated adjusted FFO of $96.4 million, or $0.85 per diluted share/unit, compared to $98.8 million, or $0.87 per diluted share/unit, for the comparable prior year period, a per share/unit decrease of 2.3 percent. The Company’s income taxes increased by $3.6 million, or $0.03 per diluted share/unit, from the comparable prior year period.

Year-to-Date Results

  • Net Income: The Company grew net income attributable to common shareholders by 113.5 percent to $213.3 million.
  • RevPAR: RevPAR increased 2.4 percent to $207.72, primarily driven by a 2.4 percent growth in occupancy to 85.0 percent. ADR was just above the prior year at $244.36.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 35 basis points from the comparable prior year period to 34.5 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $310.8 million, an increase of 4.6 percent over the first nine months of 2015.
  • Adjusted FFO: The Company generated adjusted FFO of $259.1 million, or $2.29 per diluted share/unit, compared to $246.7 million, or $2.18 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 5.0 percent.

Asset Sales

In July, the Company completed two non-core asset sales for $245.0 million. Proceeds from both transactions were used to reduce borrowings on the Company’s senior unsecured credit facility and for general corporate purposes.

  • On July 8, 2016, the Company sold its junior mezzanine loan (the “Mezzanine Loan”) secured by equity interests in two hotels: Shutters on the Beach and Casa Del Mar, in Santa Monica, California. The Mezzanine Loan sold for $80.0 million, which was the principal amount.
  • On July 14, 2016, the Company sold the Indianapolis Marriott Downtown for $165.0 million, generating a 13.7 percent unleveraged IRR. The Company acquired the hotel in February 2004 for $106.0 million.
 
    Third Quarter   Year-to-Date
    2016   2015   % Var.   2016   2015   % Var.
    ($'s in millions except per share/unit data)
                         
Net income attributable to common shareholders   $ 152.1     $ 44.4     242.6 %   $ 213.3     $ 99.9     113.5 %
Net income attributable to common shareholders per diluted share   $ 1.34     $ 0.39     243.6 %   $ 1.88     $ 0.88     113.6 %
                         
                         
RevPAR(1)   $ 224.98     $ 215.77     4.3 %   $ 207.72     $ 202.79     2.4 %
Hotel EBITDA Margin(1)     36.8 %     36.5 %         34.5 %     34.1 %    
Hotel EBITDA Margin Growth(1)   29 bps           35 bps        
                         
                         
Total Revenue   $ 326.9     $ 329.7     -0.8 %   $ 938.1     $ 921.9     1.8 %
EBITDA(1)   $ 219.1     $ 106.5     105.7 %   $ 409.6     $ 285.3     43.6 %
Adjusted EBITDA(1)   $ 115.3     $ 114.6     0.6 %   $ 310.8     $ 297.0     4.6 %
FFO(1)   $ 95.7     $ 90.7     5.5 %   $ 253.4     $ 235.0     7.8 %
Adjusted FFO(1)   $ 96.4     $ 98.8     -2.4 %   $ 259.1     $ 246.7     5.0 %
FFO per diluted share/unit(1)   $ 0.84     $ 0.80     5.0 %   $ 2.24     $ 2.07     8.2 %
Adjusted FFO per diluted share/unit(1)   $ 0.85     $ 0.87     -2.3 %   $ 2.29     $ 2.18     5.0 %
                         
(1) See tables later in this press release, which list adjustments that reconcile net income 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 later in this press release. Room revenue per available room ("RevPAR") is presented on a pro forma basis to reflect hotels in the Company's current portfolio. See "Statistical Data for the Hotels - Pro Forma" later in this press release.
 

“Our portfolio performed well in a slow growth operating environment, with softening demand and increasing hotel supply. We benefited from the recovery of business at Park Central Hotel New York and WestHouse Hotel New York, and we are proud that our teams continue to operate with best-in-class efficiency across the portfolio, as evidenced by expense growth being limited to less than one percent year-to-date, excluding Park Central Hotel New York and WestHouse Hotel New York,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties.

“Following the disposition of two non-core assets during the third quarter, the Company now has an even stronger balance sheet, with a low debt-to-EBITDA ratio, an excellent quality portfolio primarily in core locations, and a well-covered dividend providing a high yield,” added Mr. Barnello.

Park Central Hotel New York and WestHouse Hotel New York Recovery

Excluding Park Central Hotel New York and WestHouse Hotel New York from the third quarter 2016 and the comparable period in 2015, the Company’s third quarter RevPAR grew by 1.5 percent and its hotel EBITDA margin decreased by 50 basis points to 37.6 percent. During the third quarter, the Company regained $5.6 million of the $7.2 million of lost EBITDA from the comparable prior year period.

Capital Investments

During the quarter, the Company invested $17.5 million of capital in its hotels, which was primarily maintenance expenditures. A portion of the capital investment during the quarter was for deposits on upcoming room renovations at L’Auberge Del Mar and Embassy Suites Philadelphia Center City.

Balance Sheet

As of September 30, 2016, the Company had total outstanding debt of $1.1 billion. Total net debt to trailing 12 month Corporate EBITDA (as defined in the financial covenant section of the Company’s senior unsecured credit facility) was 2.8 times, as of September 30, 2016 and its fixed charge coverage ratio was 5.8 times. For the third quarter, the Company’s weighted average interest rate was 2.6 percent, compared to 3.0 percent during the same prior year period. As of September 30, 2016, the Company had $135.0 million of cash and cash equivalents on its balance sheet and capacity of $772.5 million available on its credit facilities.

The Company did not acquire any common shares during the third quarter of 2016 or to date during the fourth quarter of 2016. The Company has $69.8 million of capacity remaining in its share repurchase program.

Dividend

On September 15, 2016, the Company declared a third 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 7.2 percent yield based on the closing share price on October 18, 2016.

About LaSalle Hotel Properties

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 46 properties, which are upscale, full-service hotels, totaling approximately 11,450 guest rooms in 13 markets in nine 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 groups, including Hilton Hotels Corporation, Marriott International, Outrigger Lodging Services, Noble House Hotels & Resorts, Hyatt Hotels Corporation, Benchmark Hospitality, Two Roads Hospitality, Davidson Hotel Company, Kimpton Hotel & Restaurant Group, LLC, 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 Income

(in thousands, except share data)

(unaudited)

 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Revenues:                
Hotel operating revenues:                
Room   $ 237,757     $ 233,993     $ 664,463     $ 647,031  
Food and beverage   61,718     68,688     197,090     205,083  
Other operating department   25,892     24,472     70,992     64,049  
Total hotel operating revenues   325,367     327,153     932,545     916,163  
Other income   1,569     2,557     5,582     5,736  
Total revenues   326,936     329,710     938,127     921,899  
Expenses:                
Hotel operating expenses:                
Room   59,342     56,283     170,596     161,002  
Food and beverage   44,307     48,268     137,209     142,455  
Other direct   4,562     4,960     13,218     13,807  
Other indirect   78,734     78,070     230,932     226,949  
Total hotel operating expenses   186,945     187,581     551,955     544,213  
Depreciation and amortization   48,022     46,208     144,491     135,002  
Real estate taxes, personal property taxes and insurance   13,913     17,045     47,023     49,331  
Ground rent   4,570     4,491     12,491     12,164  
General and administrative   6,076     6,173     19,549     18,941  
Acquisition transaction costs   0     55     0     499  
Other expenses   1,007     9,149     5,512     12,753  
Total operating expenses   260,533     270,702     781,021     772,903  
Operating income   66,403     59,008     157,106     148,996  
Interest income   167     1,294     3,497     1,301  
Interest expense   (10,332 )   (13,250 )   (33,681 )   (40,790 )
Income before income tax (expense) benefit   56,238     47,052     126,922     109,507  
Income tax (expense) benefit   (3,109 )   490     (5,099 )   (216 )
Income before net gain on sale of property and sale of note receivable   53,129     47,542     121,823     109,291  
Net gain on sale of property and sale of note receivable   104,549     0     104,549     0  
Net income   157,678     47,542     226,372     109,291  
Net income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   0     0     (8 )   (8 )
Noncontrolling interests of common units in Operating Partnership   (203 )   (75 )   (299 )   (229 )
Net income attributable to noncontrolling interests   (203 )   (75 )   (307 )   (237 )
Net income attributable to the Company   157,475     47,467     226,065     109,054  
Distributions to preferred shareholders   (5,405 )   (3,043 )   (12,802 )   (9,127 )
Net income attributable to common shareholders   $ 152,070     $ 44,424     $ 213,263     $ 99,927  
                                 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share data)

(unaudited)

 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Earnings per Common Share - Basic:                
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares   $ 1.34     $ 0.39     $ 1.89     $ 0.88  
Earnings per Common Share - Diluted:                
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares   $ 1.34     $ 0.39     $ 1.88     $ 0.88  
Weighted average number of common shares outstanding:                
Basic   112,811,403     112,731,358     112,781,732     112,702,693  
Diluted   113,159,844     113,137,284     113,138,897     113,113,859  
                 
Comprehensive Income:                
Net income   $ 157,678     $ 47,542     $ 226,372     $ 109,291  
Other comprehensive income:                
Unrealized gain (loss) on interest rate derivative instruments   3,172     (4,245 )   (17,051 )   (8,617 )
Reclassification adjustment for amounts recognized in net income   1,637     1,071     5,147     3,210  
    162,487     44,368     214,468     103,884  
Comprehensive income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   0     0     (8 )   (8 )
Noncontrolling interests of common units in Operating Partnership   (209 )   (71 )   (284 )   (221 )
Comprehensive income attributable to noncontrolling interests   (209 )   (71 )   (292 )   (229 )
Comprehensive income attributable to the Company   $ 162,278     $ 44,297     $ 214,176     $ 103,655  
                                 
 
LASALLE HOTEL PROPERTIES
FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Net income attributable to common shareholders   $ 152,070     $ 44,424     $ 213,263     $ 99,927  
Depreciation   47,888     46,080     144,088     134,622  
Amortization of deferred lease costs   82     72     244     219  
Noncontrolling interests:                
Noncontrolling interests in consolidated entities   0     0     8     8  
Noncontrolling interests of common units in Operating Partnership   203     75     299     229  
Less: Gain on sale of property less costs associated with sale of note receivable   (104,549 )   0     (104,549 )   0  
FFO attributable to common shareholders and unitholders   $ 95,694     $ 90,651     $ 253,353     $ 235,005  
Pre-opening, management transition and severance expenses   231     7,562     4,295     9,712  
Acquisition transaction costs   0     55     0     499  
Non-cash ground rent   472     483     1,420     1,463  
Adjusted FFO attributable to common shareholders and unitholders   $ 96,397     $ 98,751     $ 259,068     $ 246,679  
Weighted average number of common shares and units outstanding:                
Basic   112,956,626     112,876,581     112,926,955     112,920,964  
Diluted   113,305,067     113,282,507     113,284,120     113,332,130  
FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.84     $ 0.80     $ 2.24     $ 2.07  
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.85     $ 0.87     $ 2.29     $ 2.18  
                                 
                                 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Net income attributable to common shareholders   $ 152,070     $ 44,424     $ 213,263     $ 99,927  
Interest expense   10,332     13,250     33,681     40,790  
Income tax expense (benefit)   3,109     (490 )   5,099     216  
Depreciation and amortization   48,022     46,208     144,491     135,002  
Noncontrolling interests:                
Noncontrolling interests in consolidated entities   0     0     8     8  
Noncontrolling interests of common units in Operating Partnership   203     75     299     229  
Distributions to preferred shareholders   5,405     3,043     12,802     9,127  
EBITDA   $ 219,141     $ 106,510     $ 409,643     $ 285,299  
Pre-opening, management transition and severance expenses   231     7,562     4,295     9,712  
Acquisition transaction costs   0     55     0     499  
Gain on sale of property less costs associated with sale of note receivable   (104,549 )   0     (104,549 )   0  
Non-cash ground rent   472     483     1,420     1,463  
Adjusted EBITDA   $ 115,295     $ 114,610     $ 310,809     $ 296,973  
Corporate expense   6,949     7,969     21,358     22,617  
Interest and other income   (1,736 )   (3,849 )   (8,862 )   (7,035 )
Pro forma hotel level adjustments, net(1)   (1,495 )   (4,136 )   (11,750 )   (10,375 )
Hotel EBITDA   $ 119,013     $ 114,594     $ 311,555     $ 302,180  
                                 
 
LASALLE HOTEL PROPERTIES
Hotel Operational Data

Schedule of Property Level Results - Pro Forma(1)

(in thousands)

(unaudited)

 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Revenues:                
Room   $ 237,183     $ 227,371     $ 648,721     $ 630,588  
Food and beverage   61,246     64,145     186,262     193,240  
Other   25,387     22,741     68,213     61,166  
Total hotel revenues   323,816     314,257     903,196     884,994  
                 
Expenses:                
Room   59,083     55,522     167,444     158,594  
Food and beverage   43,997     45,491     131,559     136,341  
Other direct   4,450     4,451     12,454     12,611  
General and administrative   21,986     20,711     63,619     61,164  
Information and telecommunications systems   4,237     4,232     12,792     12,363  
Sales and marketing   20,885     19,646     61,828     59,460  
Management fees   11,389     10,164     28,893     28,675  
Property operations and maintenance   9,863     9,735     28,926     28,780  
Energy and utilities   7,733     7,821     21,197     21,881  
Property taxes   13,895     14,889     42,471     42,946  
Other fixed expenses   7,285     7,001     20,458     19,999  
Total hotel expenses   204,803     199,663     591,641     582,814  
                 
Hotel EBITDA   $ 119,013     $ 114,594     $ 311,555     $ 302,180  
                 
Hotel EBITDA Margin   36.8 %   36.5 %   34.5 %   34.1 %
                         
 
LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma(1)

(unaudited)

 
    For the three months ended   For the nine months ended
    September 30,   September 30,
    2016   2015   2016   2015
Total Portfolio                
Occupancy   89.5 %   86.2 %   85.0 %   83.0 %
Increase   3.9 %       2.4 %    
ADR   $ 251.26     $ 250.29     $ 244.36     $ 244.20  
Increase   0.4 %       0.1 %    
RevPAR   $ 224.98     $ 215.77     $ 207.72     $ 202.79  
Increase   4.3 %       2.4 %    
                     
         
    For the three months   For the nine months
    ended September 30,   ended September 30,
    2016   2016
Market Detail   RevPAR Variance %
Boston   3.6%   0.3%
Chicago   1.9%   0.5%
Key West   9.0%   5.1%
Los Angeles   7.8%   14.2%
New York   29.9%   7.6%
Other(2)  

-1.4%

 

-4.1%

Philadelphia   16.5%   5.9%

San Diego Downtown

 

8.1%

 

1.2%

San Francisco   -7.7%   0.4%
Seattle   -7.1%   -3.6%
Washington, DC(3)   5.9%   2.9%
         
(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. Pro forma to exclude results of operations of the Indianapolis Marriott Downtown due to its sale in July 2016.

(2)  Other includes The Heathman Hotel in Portland, OR, Chaminade Resort in Santa Cruz, CA, Lansdowne Resort in Lansdowne, VA, L’Auberge Del Mar in Del Mar, CA, and Hilton San Diego Resort and Paradise Point Resort in San Diego, CA.

(3) For the three months ended September 30, 2016 and 2015, Washington, DC RevPAR includes the Mason & Rook Hotel. However, for the nine months ended September 30, 2016 and 2015, the Mason & Rook Hotel is excluded from the three months ended March 31, 2016 and 2015, due to the hotel closure and renovation in 2016.

 

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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