LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports Second Quarter 2017 Results

The Company’s second quarter RevPAR decreased 1.6% to $227.31, driven by a 0.5% decline in average daily rate to $257.86 and a 1.1% reduction in occupancy to 88.2%.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended June 30, 2017. The Company’s results include the following:

 

                       
                         
    Second Quarter   Year-to-Date
    2017   2016   % Var.   2017   2016   % Var.
    ($'s in millions except per share/unit data)
                         
Net income attributable to common shareholders(1)   $ 55.5   $ 55.2   0.5%   $ 131.6   $ 61.2   115.0%
Net income attributable to common shareholders per diluted share(1)   $ 0.49   $ 0.49   0.0%   $ 1.16   $ 0.54   114.8%
                         
                         
RevPAR(2)   $ 227.31   $ 231.02   -1.6%   $ 202.86   $ 203.27   -0.2%
Hotel EBITDA Margin(2)     38.2%     38.6%         33.5%     33.6%    
Hotel EBITDA Margin Growth(2)   -40 bps           -5 bps        
                         
                         
Total Revenues   $ 307.0   $ 351.1   -12.6%   $ 561.4   $ 611.2   -8.1%
EBITDA(1,2)   $ 118.5   $ 127.6   -7.1%   $ 254.1   $ 190.5   33.4%
Adjusted EBITDA(2)   $ 110.4   $ 130.5   -15.4%   $ 172.2   $ 195.5   -11.9%
Note: Adjusted EBITDA in the second quarter of 2016 included $15.6 million for assets that the Company sold between July 2016 and April 2017. Year-to-date adjusted EBITDA in 2016 included $23.0 million for assets that the Company sold between July 2016 and April 2017.
                         
FFO(2)   $ 88.5   $ 104.1   -15.0%   $ 137.5   $ 157.7   -12.8%
Adjusted FFO(2)   $ 91.5   $ 107.0   -14.5%   $ 142.8   $ 162.7   -12.2%
FFO per diluted share/unit(2)   $ 0.78   $ 0.92   -15.2%   $ 1.21   $ 1.39   -12.9%
Adjusted FFO per diluted share/unit(2)   $ 0.81   $ 0.95   -14.7%   $ 1.26   $ 1.44   -12.5%

(1)

 

2017 net income and EBITDA (as defined below) include $85.5 million of gains from the sales of the Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, and the Westin Philadelphia.

     

(2)

 

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.

“Despite softening RevPAR in the face of increasing hotel supply in our markets, we remain proud that our teams are operating with excellent efficiency across the portfolio, as evidenced by our 38.2% hotel EBITDA margin during the second quarter,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties.

Second Quarter Results

  • Net Income: The Company’s net income attributable to common shareholders was $55.5 million, which increased 0.5% from the second quarter of 2016.
  • RevPAR: The Company’s second quarter RevPAR decreased 1.6% to $227.31, driven by a 0.5% decline in average daily rate to $257.86 and a 1.1% reduction in occupancy to 88.2%.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin was 38.2%, which was 40 basis points below that of the comparable prior year period. The Company’s hotel expenses declined by 2.1% from the second quarter of 2016.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $110.4 million, a decrease of $20.1 million from the second quarter of 2016. Second quarter 2016 adjusted EBITDA included $15.6 million from six assets the Company sold between July 2016 and April 2017: Indianapolis Marriott Downtown, the mezzanine loan on Shutters on the Beach and Casa Del Mar, Hotel Deca, Lansdowne Resort, Alexis Hotel, and Hotel Triton.
  • Adjusted FFO: The Company generated adjusted FFO of $91.5 million, or $0.81 per diluted share/unit, compared to $107.0 million, or $0.95 per diluted share/unit, for the comparable prior year period.

Year-to-Date Results

  • Net Income: The Company’s net income attributable to common shareholders was $131.6 million, which increased 115.0% from the first half of 2016, due in part to $85.5 million in combined gains relating to the sales of Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, and Westin Philadelphia.
  • RevPAR: The Company’s RevPAR was approximately flat, decreasing 0.2% to $202.86. Average daily rate grew by 0.3% to $244.36 and was offset by a 0.5% decline in occupancy to 83.0%.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin was 33.5%, which was a 5 basis point drop from the comparable prior year period. The Company’s hotel expenses declined by 1.7% from the first half of 2016.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $172.2 million, a decrease of $23.3 million from the first half of 2016. First half 2016 adjusted EBITDA included $23.0 million from six assets the Company sold between July 2016 and April 2017.
  • Adjusted FFO: The Company generated adjusted FFO of $142.8 million, or $1.26 per diluted share/unit, compared to $162.7 million, or $1.44 per diluted share/unit, for the comparable prior year period.

Disposition and Investment Activity

  • Asset Sales: The Company completed two asset sales during the second quarter for $149.3 million, at an average 7.8% trailing net operating income (“NOI”) capitalization rate. The Company will use proceeds from the asset sales for general corporate purposes.

    • In April 2017, the Company sold its leasehold interest in Hotel Triton in San Francisco, California for $14.3 million, which reflected a 7.8% trailing NOI capitalization rate.
    • In June 2017, the Company sold the Westin in Philadelphia, Pennsylvania for $135.0 million, which reflected a 7.8% trailing NOI capitalization rate, adjusted for the approximate impact of the Democratic National Convention in July 2016.
  • Capital Investments: During the quarter, the Company invested $24.7 million of capital in its hotels, of which the majority was for upcoming renovations at the end of 2017. The two largest projects upcoming are lifecycle rooms renovations at Westin Copley Place in Boston, Massachusetts and Paradise Point Resort & Spa in San Diego, California.

Balance Sheet and Capital Markets Activities

  • Balance Sheet Summary as of June 30, 2017: The Company had total outstanding debt of $1.1 billion, and total net debt to trailing 12 month Corporate EBITDA (as defined in the financial covenant section of the Company’s senior unsecured credit facility, adjusted for all cash and cash equivalents on its balance sheet) was 1.9 times. The Company’s fixed charge coverage ratio was 5.8 times, and its weighted average interest rate for the second quarter was 2.8%. The Company had capacity of $772.5 million available on its credit facilities, in addition to $461.4 million of cash and cash equivalents on its balance sheet.
  • Series H Preferred Share Redemption: On May 4, 2017, the Company redeemed all 2,750,000 of its issued and outstanding 7.5% Series H Cumulative Redeemable Preferred Shares. The cash redemption price for the shares was $25.00 per share, plus accrued and unpaid dividends through the redemption date.
  • Share Repurchase: The Company did not acquire any common shares during the second quarter of 2017 or to date during the third quarter of 2017.

Dividend

On June 15, 2017, the Company declared a second quarter 2017 dividend of $0.45 per common share of beneficial interest. The dividend represents an annual run rate of $1.80 per share and a 5.9% yield based on the closing share price on July 18, 2017.

About LaSalle Hotel Properties

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 41 properties, which are upscale, full-service hotels, totaling approximately 10,400 guest rooms in 11 markets in seven 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, Access Hotels & Resorts, and Provenance Hotels. 

         

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,
    2017   2016   2017   2016
Revenues:                
Hotel operating revenues:                
Room   $ 222,385     $ 245,286     $ 400,750     $ 426,706  
Food and beverage   59,308     79,025     111,612     135,372  
Other operating department   22,118     24,457     42,485     45,100  
Total hotel operating revenues   303,811     348,768     554,847     607,178  
Other income   3,233     2,319     6,602     4,013  
Total revenues   307,044     351,087     561,449     611,191  
Expenses:                
Hotel operating expenses:                
Room   55,271     58,963     107,594     111,254  
Food and beverage   40,132     49,994     79,280     92,902  
Other direct   2,654     4,973     6,838     8,656  
Other indirect   73,177     80,283     142,833     152,198  
Total hotel operating expenses   171,234     194,213     336,545     365,010  
Depreciation and amortization   44,066     48,841     91,329     96,469  
Real estate taxes, personal property taxes and insurance   14,089     16,919     30,204     33,110  
Ground rent   3,823     4,108     7,208     7,921  
General and administrative   6,917     7,643     13,471     13,473  
Other expenses   1,559     2,327     3,477     4,505  
Total operating expenses   241,688     274,051     482,234     520,488  
Operating income   65,356     77,036     79,215     90,703  
Interest income   315     1,676     457     3,330  
Interest expense   (9,423 )   (11,482 )   (19,250 )   (23,349 )
Loss from extinguishment of debt   0     0     (1,706 )   0  
Income before income tax expense   56,248     67,230     58,716     70,684  
Income tax expense   (5,003 )   (7,610 )   (230 )   (1,990 )
Income before gain on sale of properties   51,245     59,620     58,486     68,694  
Gain on sale of properties   11,156     0     85,514     0  
Net income   62,401     59,620     144,000     68,694  
Net income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   (8 )   (8 )   (8 )   (8 )
Noncontrolling interests of common units in Operating Partnership   (83 )   (81 )   (193 )   (96 )
Net income attributable to noncontrolling interests   (91 )   (89 )   (201 )   (104 )
Net income attributable to the Company   62,310     59,531     143,799     68,590  
Distributions to preferred shareholders   (4,387 )   (4,355 )   (9,792 )   (7,397 )
Issuance costs of redeemed preferred shares   (2,401 )   0     (2,401 )   0  
Net income attributable to common shareholders   $ 55,522     $ 55,176     $ 131,606     $ 61,193  
         

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,
    2017   2016   2017   2016
Earnings per Common Share - Basic:                
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares   $ 0.49     $ 0.49     $ 1.16     $ 0.54  
Earnings per Common Share - Diluted:                
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares   $ 0.49     $ 0.49     $ 1.16     $ 0.54  
Weighted average number of common shares outstanding:                
Basic   112,951,714     112,784,976     112,937,794     112,766,734  
Diluted   113,342,151     113,113,253     113,347,580     113,119,556  
                 
Comprehensive Income:                
Net income   $ 62,401     $ 59,620     $ 144,000     $ 68,694  
Other comprehensive income:                
Unrealized loss on interest rate derivative instruments   (1,675 )   (5,971 )   (551 )   (20,223 )
Reclassification adjustment for amounts recognized in net income   498     1,730     1,483     3,510  
    61,224     55,379     144,932     51,981  
Comprehensive income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   (8 )   (8 )   (8 )   (8 )
Noncontrolling interests of common units in Operating Partnership   (82 )   (76 )   (194 )   (75 )
Comprehensive income attributable to noncontrolling interests   (90 )   (84 )   (202 )   (83 )
Comprehensive income attributable to the Company   $ 61,134     $ 55,295     $ 144,730     $ 51,898  
         

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,
    2017   2016   2017   2016
Net income attributable to common shareholders   $ 55,522     $ 55,176     $ 131,606     $ 61,193  
Depreciation   43,928     48,706     91,059     96,200  
Amortization of deferred lease costs   91     82     170     162  
Noncontrolling interests:                
Noncontrolling interests in consolidated entities   8     8     8     8  
Noncontrolling interests of common units in Operating Partnership   83     81     193     96  
Less: Gain on sale of properties   (11,156 )   0     (85,514 )   0  
FFO attributable to common shareholders and unitholders   $ 88,476     $ 104,053     $ 137,522     $ 157,659  
Pre-opening, management transition and severance expenses   169     2,518     251     4,064  
Issuance costs of redeemed preferred shares   2,401     0     2,401     0  
Loss from extinguishment of debt   0     0     1,706     0  
Non-cash ground rent   460     471     925     948  
Adjusted FFO attributable to common shareholders and unitholders   $ 91,506     $ 107,042     $ 142,805     $ 162,671  
Weighted average number of common shares and units outstanding:                
Basic   113,096,937     112,930,199     113,083,017     112,911,957  
Diluted   113,487,374     113,258,476     113,492,803     113,264,779  
FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.78     $ 0.92     $ 1.21     $ 1.39  
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.81     $ 0.95     $ 1.26     $ 1.44  
         
    For the three months ended   For the six months ended
    June 30,   June 30,
    2017   2016   2017   2016
Net income attributable to common shareholders   $ 55,522     $ 55,176     $ 131,606     $ 61,193  
Interest expense   9,423     11,482     19,250     23,349  
Loss from extinguishment of debt   0     0     1,706     0  
Income tax expense   5,003     7,610     230     1,990  
Depreciation and amortization   44,066     48,841     91,329     96,469  
Noncontrolling interests:                
Noncontrolling interests in consolidated entities   8     8     8     8  
Noncontrolling interests of common units in Operating Partnership   83     81     193     96  
Distributions to preferred shareholders   4,387     4,355     9,792     7,397  
EBITDA   $ 118,492     $ 127,553     $ 254,114     $ 190,502  
Pre-opening, management transition and severance expenses   169     2,518     251     4,064  
Issuance costs of redeemed preferred shares   2,401     0     2,401     0  
Gain on sale of properties   (11,156 )   0     (85,514 )   0  
Non-cash ground rent   460     471     925     948  
Adjusted EBITDA   $ 110,366     $ 130,542     $ 172,177     $ 195,514  
Corporate expense   8,536     7,685     17,168     14,409  
Interest and other income   (3,548 )   (3,777 )   (7,060 )   (7,126 )
Pro forma hotel level adjustments, net(1)   939     (13,566 )   (1,743 )   (18,724 )
Hotel EBITDA   $ 116,293     $ 120,884     $ 180,542     $ 184,073  
(1)  

Pro forma excludes Mason & Rook Hotel for the period the hotel was closed for renovation during the first quarter of 2016 and the comparable period in 2017. Pro forma excludes Hotel Deca, Lansdowne Resort, Alexis Hotel and Hotel Triton due to their dispositions in 2017 and Indianapolis Marriott Downtown due to its disposition in July 2016. Westin Philadelphia is included for all periods presented.

         

LASALLE HOTEL PROPERTIES

Hotel Operational Data

Schedule of Property Level Results - Pro Forma(1)

(in thousands)

(unaudited)

         
    For the three months ended   For the six months ended
    June 30,   June 30,
    2017   2016   2017   2016
Revenues:                
Room   $ 222,261     $ 225,827     $ 391,260     $ 394,045  
Food and beverage   59,228     66,750     106,771     116,197  
Other   22,728     20,338     40,833     38,263  
Total hotel revenues   304,217     312,915     538,864     548,505  
                 
Expenses:                
Room   55,061     54,963     104,748     104,472  
Food and beverage   40,298     43,693     76,015     82,109  
Other direct   2,702     2,662     5,213     5,116  
General and administrative   20,753     20,635     39,186     39,027  
Information and telecommunications systems   4,059     4,022     8,284     7,970  
Sales and marketing   20,046     20,088     38,423     38,209  
Management fees   10,938     9,857     17,722     16,631  
Property operations and maintenance   9,153     9,012     18,240     17,877  
Energy and utilities   6,348     6,264     12,801     12,559  
Property taxes   12,531     14,074     26,372     27,600  
Other fixed expenses(2)   6,035     6,761     11,318     12,862  
Total hotel expenses   187,924     192,031     358,322     364,432  
                 
Hotel EBITDA   $ 116,293     $ 120,884     $ 180,542     $ 184,073  
                 
Hotel EBITDA Margin   38.2 %   38.6 %   33.5 %   33.6 %
(1)   This schedule includes the operating data for the three and six months ended June 30, 2017 for all properties owned by the Company as of June 30, 2017. Mason & Rook Hotel is excluded from the first quarter in both 2016 and 2017 because the hotel was closed for renovation during the entire first quarter of 2016. Pro forma excludes the results of operations of Hotel Deca, Lansdowne Resort, Alexis Hotel and Hotel Triton due to their dispositions in 2017 and Indianapolis Marriott Downtown due to its disposition in July 2016. Pro forma includes Westin Philadelphia.
(2)   Other fixed expenses includes ground rent expense, but excludes ground rent payments for The Roger and Harbor Court in all periods due to the hotels being subject to capital leases of land and building under GAAP. At The Roger, the base ground rent payments were $100 and $199 for the three months and six months ended June 30, 2017 and 2016, respectively. At Harbor Court, the base and participating ground rent payments were $298 and $586 for the three and six months ended June 30, 2017, respectively, and $337 and $670 for the three and six months ended June 30, 2016, respectively.
         

LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma(1)

(unaudited)

         
    For the three months ended   For the six months ended
    June 30,   June 30,
    2017   2016   2017   2016
Total Portfolio                
Occupancy   88.2 %   89.1 %   83.0 %   83.4 %
Decrease   (1.1 )%       (0.5 )%    
ADR   $ 257.86     $ 259.23     $ 244.36     $ 243.72  
(Decrease) Increase   (0.5 )%       0.3 %    
RevPAR   $ 227.31     $ 231.02     $ 202.86     $ 203.27  
Decrease   (1.6 )%       (0.2 )%    
   

For the three months ended

June 30, 2017

 

For the six months ended

June 30, 2017

Market Detail   RevPAR Variance %
  Boston   5.8%   5.3%
  Chicago   (5.1)%   (3.2)%
  Key West   (2.9)%   (2.5)%
  Los Angeles   (2.1)%   (6.7)%
  New York   1.1%   (0.5)%
  Other(2)   0.7%   2.3%
  Philadelphia   4.6%   2.3%
  San Diego Downtown   1.3%   4.5%
  San Francisco   (14.2)%   (9.3)%
  Washington, DC(3)   0.0%   8.3%
  Total Portfolio   (1.6)%   (0.2)%
  Total Portfolio Excluding San Francisco   0.8%   1.9%
(1)   Pro forma excludes Mason & Rook Hotel for the period the hotel was closed for renovation during the first quarter of 2016 and the comparable period in 2017. Pro forma excludes Hotel Deca, Lansdowne Resort, Alexis Hotel and Hotel Triton due to their dispositions in 2017 and Indianapolis Marriott Downtown due to its disposition in July 2016. Pro forma includes Westin Philadelphia.
(2)   Other includes The Heathman Hotel in Portland, OR, Chaminade Resort in Santa Cruz, CA, L’Auberge Del Mar in Del Mar, CA and The Hilton San Diego Resort and Paradise Point Resort in San Diego, CA.
(3)   Mason & Rook Hotel is excluded for the period the hotel was closed for renovation during the first quarter of 2016 and the comparable period in 2017.
                     

LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma(1) - Continued

(in millions)

(unaudited)

 

 

Prior Year Operating Data (Excluding Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, Westin Philadelphia

and Indianapolis Marriott Downtown) - 2016 Comparable

                     
    First Quarter   Second Quarter   Third Quarter   Fourth Quarter   Full Year
    2016   2016   2016   2016   2016
Occupancy   77.6 %  

89.1

%

  90.1 %   80.8 %   84.4 %
ADR   $ 226.48     $ 259.75     $ 253.38     $ 244.77     $ 246.91  
RevPAR   $ 175.67     $ 231.49     $ 228.31     $ 197.81     $ 208.49  
                       
Total hotel revenues   $ 229.2     $ 304.6     $ 295.0     $ 263.1     $ 1,091.9  
Less: Total hotel expenses   168.0     187.4     187.1     179.4     721.9  
Hotel EBITDA   $ 61.2     $ 117.2     $ 107.9     $ 83.7     $ 370.0  
                       

Hotel EBITDA Margin

 

26.7

%  

38.5

%

  36.6 %   31.8 %   33.9 %
             

Current Year Operating Data (Excluding Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton and Westin

Philadelphia) - 2017 Comparable

             
    First Quarter   Second Quarter    
    2017   2017    
Occupancy   77.8 %   88.0 %    
ADR   $ 229.92     $ 257.94      
RevPAR   $ 178.81     $ 226.87      
               
Total hotel revenues   $ 233.6     $ 294.1      
Less: Total hotel expenses   169.6     182.2      
Hotel EBITDA   $ 64.0     $ 111.9      
               
Hotel EBITDA Margin   27.4 %   38.0 %    
(1)  

For prior year operating data, pro forma excludes the Mason & Rook Hotel during the first quarter for comparable purposes, due to the hotel being closed for renovation during the first quarter of 2016. Pro forma excludes the results of operations of Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton and Westin Philadelphia due to their dispositions in 2017 and Indianapolis Marriott Downtown due to its disposition in July 2016.

     
    For current year operating data, pro forma excludes the results of operations of Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton and Westin Philadelphia due to their dispositions in 2017.

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.

Trailing NOI Capitalization Rate

The Company calculates the weighted average capitalization rate by dividing the aggregate trailing 12-month net operating income of the subject hotels by the aggregate sales prices for such hotels. The Company defines net operating income as hotel revenues (room and other hotel operating revenues) less hotel expenses (hotel operating expenses, real estate and personal property taxes, insurance, ground rent, FF&E reserve, and other hotel expenses).



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