LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports Third Quarter 2017 Results

Excluding Key West, the Company’s third quarter RevPAR decreased 3.6% to $219.38, driven by a 3.6% decline in average daily rate to $243.31 and flat occupancy at 90.2%.

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended September 30, 2017. The Company’s hotel statistics are presented excluding third quarter results from its two resorts located in Key West, due to their temporary closure during and following Hurricane Irma in September 2017. The Company also provided its hotel statistics for all properties combined, including the results from the Key West resorts. The Company’s results are summarized below.

                       
Third 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) $ 31.1 $ 152.1 -79.6 % $ 162.7 $ 213.3 -23.7 %
Net income attributable to common shareholders per diluted share(1) $ 0.27 $ 1.34 -79.9 % $ 1.43 $ 1.88 -23.9 %
 

Excludes Key West in the Third Quarter for Both Years

RevPAR(2) $ 219.38 $ 227.69 -3.6 % $ 208.52 $ 211.70 -1.5 %
Hotel EBITDA Margin(2) 34.8% 36.4% 33.8% 34.5%
Hotel EBITDA Margin Change(2)

 

-162 bps

 

-62 bps

 

All Properties

RevPAR(2) $ 217.57 $ 228.31 -4.7 % $ 208.03 $ 212.10 -1.9 %
Hotel EBITDA Margin(2) 34.6% 36.6% 33.8% 34.5%
Hotel EBITDA Margin Change(2)

 

-193 bps

 

-75 bps

 
 
Total Revenues $ 285.9 $ 326.9 -12.5 % $ 847.3 $ 938.1 -9.7 %
EBITDA(1,2) $ 90.6 $ 219.1 -58.6 % $ 345.4 $ 409.6 -15.7 %
Adjusted EBITDA(2) $ 93.5 $ 115.3 -18.9 % $ 265.7 $ 310.8 -14.5 %
Note: Adjusted EBITDA in the third quarter of 2016 included $12.7 million for assets that the Company sold in 2016 and 2017. Year-to-date adjusted EBITDA in 2016 included $41.4 million for assets that the Company sold in 2016 and 2017.
 
FFO attributable to common shareholders and unitholders(2) $ 74.4 $ 95.7 -22.3 % $ 212.0 $ 253.4 -16.3 %
Adjusted FFO attributable to common shareholders and unitholders(2) $ 77.4 $ 96.4 -19.7 % $ 220.2 $ 259.1 -15.0 %
FFO attributable to common shareholders and unitholders per diluted share/unit(2) $ 0.66 $ 0.84 -21.4 % $ 1.87 $ 2.24 -16.5 %
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit(2) $ 0.68 $ 0.85 -20.0 % $ 1.94 $ 2.29 -15.3 %
 

(1)

 

Year-to-date 2017 net income and EBITDA (as defined below) included $85.5 million of gains from the sales of Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, and Westin Philadelphia. Third quarter and year-to-date 2016 net income and EBITDA included $104.8 million of gain from the sale of Indianapolis Marriott Downtown.

 

(2)

See tables later in this press release, which list adjustments that reconcile net income to earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, funds from operations (“FFO”), adjusted FFO and pro forma hotel EBITDA. EBITDA, adjusted EBITDA, FFO, adjusted FFO and pro forma 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.

 

“The third quarter included challenges, including growing hotel supply and less citywide demand in our markets,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “In particular, we faced a difficult citywide comparison in San Francisco and Philadelphia. Philadelphia’s results were also hurt by the comparison to the Democratic National Convention in July 2016. Hurricane Irma forced our two resorts in Key West to close for a period of time, which negatively impacted RevPAR change by 110 basis points. While the top line results are disappointing, we are proud of our operators and asset management team’s ability to find continued efficiencies.”

Third Quarter Results

  • Net Income: The Company’s net income attributable to common shareholders was $31.1 million, which decreased by $121.0 million from the third quarter of 2016, predominantly due to a $104.8 million gain relating to the sale of the Indianapolis Marriott Downtown in July 2016.
  • RevPAR: Excluding Key West, the Company’s third quarter RevPAR decreased 3.6% to $219.38, driven by a 3.6% decline in average daily rate to $243.31 and flat occupancy at 90.2%.
  • Hotel EBITDA Margin: Excluding Key West, the Company’s hotel EBITDA margin was 34.8%, which was 162 basis points below that of the comparable prior year period. The Company’s hotel expenses declined by 0.3% from the third quarter of 2016.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $93.5 million, a decrease of $21.8 million from the third quarter of 2016. Third quarter 2016 adjusted EBITDA included $12.7 million from seven assets the Company sold between July 2016 and September 2017 (the “Disposed Assets”): Indianapolis Marriott Downtown, the mezzanine loan on Shutters on the Beach and Casa Del Mar, Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, and Westin Philadelphia.
  • Adjusted FFO: The Company generated adjusted FFO of $77.4 million, or $0.68 per diluted share/unit, compared to $96.4 million, or $0.85 per diluted share/unit, for the comparable prior year period. As with adjusted EBITDA, the Disposed Assets provided approximately $12.7 million of adjusted FFO during the third quarter 2016.

Key West Impact Update: After both resorts closed on September 6, 2017 to comply with all mandatory evacuations of the island ahead of Hurricane Irma, the Southernmost Beach Resort Key West partially re-opened on September 15, 2017 and The Marker Waterfront Resort remains closed. The Company has not identified any significant structural damage at either of its resorts. While the Company is still assessing the condition of both properties, it currently believes that the damage is not significant and is primarily related to water intrusion. The Company expects The Marker Waterfront Resort will resume full operations by the end of October 2017. The Southernmost Beach Resort Key West is expected to fully re-open its remaining rooms in phases throughout the fourth quarter. The Company maintains property, flood, fire and business interruption insurance at its two resorts in Key West. For the combined properties, insurance is subject to deductibles of approximately $5.0 million in total, which encompasses both property and business interruption coverage.

Capital Investments

During the quarter, the Company invested $29.5 million of capital in its hotels, of which the majority was for ongoing and upcoming renovations at the end of 2017. The two largest projects are lifecycle rooms renovations at Westin Copley Place in Boston and Paradise Point Resort & Spa in San Diego. The Company will also be completing room renovations this winter at Chamberlain and Le Montrose in West Hollywood, Serrano Hotel and Harbor Court Hotel in San Francisco, and Heathman Hotel in Portland.

Year-to-date, the Company has invested $66.6 million of capital in its hotels, compared to its full year 2017 anticipated capital expenditures between $130.0 and $150.0 million. While the Company may not spend its full capital budget during calendar year 2017, it still expects to fund any remaining balance during the first quarter 2018, as it completes several ongoing renovations.

Balance Sheet and Capital Markets Activities

  • Balance Sheet Summary as of September 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 2.0 times. The Company’s fixed charge coverage ratio was 5.5 times, and its weighted average interest rate for the third quarter was 3.0%. The Company had capacity of $772.6 million available on its credit facilities, in addition to $444.3 million of cash and cash equivalents on its balance sheet.
  • Interest Rate Hedge: On July 25, 2017, the Company swapped the interest rate on its $300.0 million senior unsecured term loan to an all-in fixed rate of 3.23% through loan maturity in January 2022. The previous interest rate swap was set to mature on August 2, 2017.
  • Share Repurchase: The Company did not acquire any common shares during the third quarter of 2017 or to date during the fourth quarter of 2017.

Dividend

On September 15, 2017, the Company declared a third 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 October 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 nine months ended
September 30, September 30,
2017     2016 2017     2016
Revenues:
Hotel operating revenues:
Room $ 209,019 $ 237,757 $ 609,769 $ 664,463
Food and beverage 50,191 61,718 161,803 197,090
Other operating department   24,243     25,892     66,728     70,992  
Total hotel operating revenues 283,453 325,367 838,300 932,545
Other income   2,403     1,569     9,005     5,582  
Total revenues   285,856     326,936     847,305     938,127  
Expenses:
Hotel operating expenses:
Room 55,474 59,342 163,068 170,596
Food and beverage 37,628 44,307 116,908 137,209
Other direct 2,793 4,562 9,631 13,218
Other indirect   69,207     78,734     212,040     230,932  
Total hotel operating expenses 165,102 186,945 501,647 551,955
Depreciation and amortization 43,355 48,022 134,684 144,491
Real estate taxes, personal property taxes and insurance 16,663 13,913 46,867 47,023
Ground rent 4,788 4,570 11,996 12,491
General and administrative 6,475 6,076 19,946 19,549
Other expenses   3,179     1,007     6,656     5,512  
Total operating expenses   239,562     260,533     721,796     781,021  
Operating income 46,294 66,403 125,509 157,106
Interest income 951 167 1,408 3,497
Interest expense (10,026 ) (10,332 ) (29,276 ) (33,681 )
Loss from extinguishment of debt   0     0     (1,706 )   0  
Income before income tax expense 37,219 56,238 95,935 126,922
Income tax expense   (1,978 )   (3,109 )   (2,208 )   (5,099 )
Income before net gain on sale of properties and sale of note receivable 35,241 53,129 93,727 121,823
Net gain on sale of properties and sale of note receivable   31     104,549     85,545     104,549  
Net income   35,272     157,678     179,272     226,372  
Net income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities 0 0 (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership   (49 )   (203 )   (242 )   (299 )
Net income attributable to noncontrolling interests   (49 )   (203 )   (250 )   (307 )
Net income attributable to the Company 35,223 157,475 179,022 226,065
Distributions to preferred shareholders (4,116 ) (5,405 ) (13,908 ) (12,802 )
Issuance costs of redeemed preferred shares   0     0     (2,401 )   0  
Net income attributable to common shareholders $ 31,107   $ 152,070   $ 162,713   $ 213,263  
 
 

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,
2017     2016 2017     2016
Earnings per Common Share - Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.27   $ 1.34   $ 1.44   $ 1.89  
Earnings per Common Share - Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.27   $ 1.34   $ 1.43   $ 1.88  
Weighted average number of common shares outstanding:
Basic 113,007,475 112,811,403 112,961,365 112,781,732
Diluted 113,383,360 113,159,844 113,343,711 113,138,897
 
Comprehensive Income:
Net income $ 35,272 $ 157,678 $ 179,272 $ 226,372
Other comprehensive income:
Unrealized gain (loss) on interest rate derivative instruments 517 3,172 (34 ) (17,051 )
Reclassification adjustment for amounts recognized in net income   547     1,637     2,030     5,147  
36,336 162,487 181,268 214,468
Comprehensive income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities 0 0 (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership   (51 )   (209 )   (245 )   (284 )
Comprehensive income attributable to noncontrolling interests   (51 )   (209 )   (253 )   (292 )
Comprehensive income attributable to the Company $ 36,285   $ 162,278   $ 181,015   $ 214,176  
 
 

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,
2017     2016 2017     2016
Net income $ 35,272 $ 157,678 $ 179,272 $ 226,372
Depreciation 43,205 47,888 134,264 144,088
Amortization of deferred lease costs 104 82 274 244
Less: Gain on sale of properties less costs associated with sale of note receivable   (31 )   (104,549 )   (85,545 )   (104,549 )
FFO $ 78,550 $ 101,099 $ 228,265 $ 266,155
Distributions to preferred shareholders (4,116 ) (5,405 ) (13,908 ) (12,802 )
Issuance costs of redeemed preferred shares   0     0     (2,401 )   0  
FFO attributable to common shareholders and unitholders $ 74,434 $ 95,694 $ 211,956 $ 253,353
Pre-opening, management transition and severance expenses 126 231 377 4,295
Issuance costs of redeemed preferred shares 0 0 2,401 0
Loss from extinguishment of debt 0 0 1,706 0
Estimated hurricane related repairs and cleanup costs 2,338 0 2,338 0
Non-cash ground rent   459     472     1,384     1,420  
Adjusted FFO attributable to common shareholders and unitholders $ 77,357   $ 96,397   $ 220,162   $ 259,068  
Weighted average number of common shares and units outstanding:
Basic 113,152,698 112,956,626 113,106,588 112,926,955
Diluted 113,528,583 113,305,067 113,488,934 113,284,120
FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.66 $ 0.84 $ 1.87 $ 2.24
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.68 $ 0.85 $ 1.94 $ 2.29
 
 
For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
Net income $ 35,272 $ 157,678 $ 179,272 $ 226,372
Interest expense 10,026 10,332 29,276 33,681
Income tax expense 1,978 3,109 2,208 5,099
Depreciation and amortization   43,355     48,022     134,684     144,491  
EBITDA $ 90,631 $ 219,141 $ 345,440 $ 409,643
Pre-opening, management transition and severance expenses 126 231 377 4,295
Loss from extinguishment of debt 0 0 1,706 0
Estimated hurricane related repairs and cleanup costs 2,338 0 2,338 0
Gain on sale of properties less costs associated with sale of note receivable (31 ) (104,549 ) (85,545 ) (104,549 )
Non-cash ground rent   459     472     1,384     1,420  
Adjusted EBITDA $ 93,523 $ 115,295 $ 265,700 $ 310,809
Corporate expense 7,498 6,949 24,666 21,358
Interest and other income (3,354 ) (1,736 ) (10,414 ) (9,079 )
Pro forma hotel level adjustments, net(1)   567     (12,655 )   (7,091 )   (36,830 )
Hotel EBITDA for all properties $ 98,234 $ 107,853 $ 272,861 $ 286,258
Pro forma hotel level adjustment related to Key West(2)   (2,322 )   (4,559 )   (2,322 )   (4,559 )
Hotel EBITDA excluding Key West $ 95,912   $ 103,294   $ 270,539   $ 281,699  
 
 

(1)

Pro forma excludes (i) Mason & Rook Hotel for the first quarter in both 2016 and 2017 because the hotel was closed for renovation during the entire first quarter of 2016, and (ii) 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.
 

(2)

The Marker Waterfront Resort and Southernmost Beach Resort Key West are excluded from the third quarter in both 2016 and 2017 due to their closure during Hurricane Irma in early September 2017 and for a period following the storm due to subsequent building repairs and clean up.
 
 

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,
2017     2016 2017     2016
Revenues:
Room $ 209,195 $ 219,499 $ 590,193 $ 603,719
Food and beverage 50,209 53,817 152,720 165,605
Other   24,260     21,719     64,572     59,480  
Total hotel revenues   283,664     295,035     807,485     828,804  
 
Expenses:
Room 55,530 54,951 158,299 157,358
Food and beverage 37,624 39,230 111,332 118,847
Other direct 2,782 2,734 7,697 7,575
General and administrative 19,198 20,016 57,340 58,149
Information and telecommunications systems 3,979 3,858 12,065 11,618
Sales and marketing 18,330 19,166 54,974 55,771
Management fees 9,964 11,084 27,464 27,499
Property operations and maintenance 9,114 9,005 27,006 26,528
Energy and utilities 7,007 7,086 19,499 19,339
Property taxes 15,047 13,197 40,952 40,319
Other fixed expenses(2)   6,855     6,855     17,996     19,543  
Total hotel expenses   185,430     187,182     534,624     542,546  
 
Hotel EBITDA $ 98,234   $ 107,853   $ 272,861   $ 286,258  
 
Hotel EBITDA Margin 34.6 % 36.6 % 33.8 % 34.5 %
 
 

(1)

This schedule includes the operating data for the three and nine months ended September 30, 2017 for all properties owned by the Company as of September 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, Hotel Triton and Westin Philadelphia due to their dispositions in 2017 and Indianapolis Marriott Downtown due to its disposition in July 2016.
 

(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 $99 and $298 for the three and nine months ended September 30, 2017 and 2016, respectively. At Harbor Court, the base and participating ground rent payments were $335 and $921 for the three and nine months ended September 30, 2017, respectively, and $334 and $1,004 for the three and nine months ended September 30, 2016, respectively.
 
 

LASALLE HOTEL PROPERTIES

Hotel Operational Data

Schedule of Property Level Results - Pro Forma (Excludes Key West in the Third Quarter for Both Years)(1)

(in thousands)

(unaudited)

 
 
    For the three months ended     For the nine months ended
September 30, September 30,
2017     2016 2017     2016
Revenues:
Room $ 203,710 $ 211,425 $ 584,708 $ 595,645
Food and beverage 48,617 51,681 151,128 163,469
Other   23,268     20,485     63,579     58,246  
Total hotel revenues   275,595     283,591     799,415     817,360  
 
Expenses:
Room 54,062 53,149 156,831 155,557
Food and beverage 36,380 37,694 110,087 117,310
Other direct 2,685 2,588 7,600 7,429
General and administrative 18,542 19,202 56,684 57,335
Information and telecommunications systems 3,877 3,719 11,963 11,479
Sales and marketing 18,003 18,767 54,647 55,372
Management fees 9,636 10,608 27,137 27,024
Property operations and maintenance 8,630 8,494 26,522 26,017
Energy and utilities 6,727 6,820 19,219 19,072
Property taxes 14,786 12,921 40,691 40,043
Other fixed expenses(2)   6,355     6,335     17,495     19,023  
Total hotel expenses   179,683     180,297     528,876     535,661  
 
Hotel EBITDA $ 95,912   $ 103,294   $ 270,539   $ 281,699  
 
Hotel EBITDA Margin 34.8 % 36.4 % 33.8 % 34.5 %
 
 

(1)

This schedule includes the operating data for the three and nine months ended September 30, 2017 for all properties owned by the Company as of September 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. The Marker Waterfront Resort and Southernmost Beach Resort Key West are excluded from the third quarter in both 2016 and 2017 due to their closure during Hurricane Irma in early September 2017 and for a period following the storm due to subsequent building repairs and clean up. 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.
 

(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 $99 and $298 for the three and nine months ended September 30, 2017 and 2016, respectively. At Harbor Court, the base and participating ground rent payments were $335 and $921 for the three and nine months ended September 30, 2017, respectively, and $334 and $1,004 for the three and nine months ended September 30, 2016, respectively.
 
 

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,
2017     2016 2017     2016
Total Portfolio
Occupancy 90.2 % 90.2 % 85.3 % 85.7 %
Decrease 0.0 % (0.4 )%
ADR $ 243.31 $ 252.32 $ 244.35 $ 247.16
Decrease (3.6 )% (1.1 )%
RevPAR $ 219.38 $ 227.69 $ 208.52 $ 211.70
Decrease (3.6 )% (1.5 )%
 
 

For the three months ended

September 30, 2017

For the nine months ended

September 30, 2017

Market Detail RevPAR Variance %
Boston (3.3)% 1.9%
Chicago (8.0)% (5.1)%
Los Angeles (4.8)% (6.0)%
New York (1.0)% (0.7)%
Other(2) (0.4)% 0.8%
San Diego Downtown (1.2)% 2.4%
San Francisco (4.0)% (7.5)%
Washington, DC (6.7)% 3.5%
 
 

(1)

This schedule includes the statistical data for the three and nine months ended September 30, 2017 for all properties owned by the Company as of September 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. The Marker Waterfront Resort and Southernmost Beach Resort Key West are excluded from the third quarter in both 2016 and 2017 due to their closure during Hurricane Irma in early September 2017 and for a period following the storm due to subsequent building repairs and clean up. Pro forma excludes the results 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.
 

(2)

Other includes The Heathman Hotel in Portland, Chaminade Resort in Santa Cruz, Embassy Suites Philadelphia - Center City in Philadelphia, L’Auberge Del Mar in Del Mar, and The Hilton San Diego Resort and Paradise Point Resort in San Diego.
 

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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