LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports Net Income for 2017 Down by $60 Million from 2016

LaSalle Hotel Properties Reports Fourth Quarter 2017 Results

LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) yesterday announced results for the fourth quarter and year ended December 31, 2017. The Company presented its hotel statistics excluding third and fourth 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.

                 
    Fourth Quarter   Full Year
    2017   2016   % Var.   2017   2016   % Var.
    (dollars in millions except per share/unit data)
                         
Net income attributable to common shareholders(1)   $ 11.9     $ 21.3     -44.1 %   $ 174.6     $ 234.6     -25.6 %
Net income attributable to common shareholders per diluted share(1)   $ 0.10     $ 0.19     -47.4 %   $ 1.54     $ 2.07     -25.6 %
                         

Excludes Key West in the Third and Fourth Quarter for Both Years

                       
RevPAR(2)   $ 188.54     $ 194.27     -3.0 %   $ 203.55     $ 207.38     -1.8 %
Hotel EBITDA Margin(2)     30.3 %     31.0 %         33.0 %     33.7 %    
Hotel EBITDA Margin Change(2)   -70 bps           -64 bps        
                         

All Properties

                       
RevPAR(2)   $ 188.79     $ 197.81     -4.6 %   $ 203.16     $ 208.49     -2.6 %
Hotel EBITDA Margin(2)     31.0 %     31.8 %         33.1 %     33.9 %    
Hotel EBITDA Margin Change(2)   -84 bps           -77 bps        
                         
                         
Total Revenues   $ 257.5     $ 289.5     -11.1 %   $ 1,104.8     $ 1,227.6     -10.0 %
EBITDA(1,2)   $ 69.3     $ 85.4     -18.9 %   $ 414.8     $ 495.0     -16.2 %
Adjusted EBITDA(2)   $ 73.7     $ 86.0     -14.3 %   $ 339.4     $ 396.8     -14.5 %
Note: Adjusted EBITDA in the fourth quarter of 2016 included $8.0 million for assets that the Company sold in 2016 and 2017. Full year 2016 adjusted EBITDA included $49.5 million for assets that the Company sold in 2016 and 2017.
                                             
FFO attributable to common shareholders and unitholders(2)   $ 55.6     $ 69.2     -19.7 %   $ 267.5     $ 322.6     -17.1 %
Adjusted FFO attributable to common shareholders and unitholders(2)   $ 60.0     $ 69.8     -14.0 %   $ 280.1     $ 328.9     -14.8 %
FFO attributable to common shareholders and unitholders per diluted share/unit(2)   $ 0.49     $ 0.61     -19.7 %   $ 2.36     $ 2.85     -17.2 %
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit(2)   $ 0.53     $ 0.62     -14.5 %   $ 2.47     $ 2.90     -14.8 %
(1) Full year 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. Full year 2016 net income and EBITDA included $104.8 million of gain from the sale of Indianapolis Marriott Downtown.
(2) See the discussion of non-GAAP measures and the tables later in this press release for reconciliations from net income to such measures, including earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, funds from operations (“FFO”), adjusted FFO and pro forma hotel EBITDA. 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.
 

“During the fourth quarter, we began seven exciting room renovations and were able to re-open both of our resorts in Key West,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “We are grateful for all of the employees at Southernmost and Marker Key West for their hard work and dedication to re-opening for business, and it’s great to see the rest of Key West back to its pre-Irma vibrant lifestyle.”

“Key West results negatively impacted RevPAR change for our portfolio by 160 basis points during the fourth quarter and by 75 basis points for the full year. Other challenges we faced included incremental renovation displacement and growing hotel supply. Despite the soft top line results, we are proud of our operators and asset management team’s ability to find continued efficiencies.”

Full Year 2017 Results

  • Net Income: The Company’s net income attributable to common shareholders was $175 million, which decreased by $60 million from 2016.
  • RevPAR: Excluding Key West in the second half of the year, the Company’s 2017 RevPAR decreased 1.8% to $204, driven by a 1% reduction in average daily rate to $243 and an occupancy decline of 0.8% to 83.8%.
  • Hotel EBITDA Margin: Excluding Key West in the second half of the year, the Company’s hotel EBITDA margin was 33.0%, which was 64 basis points below full year 2016. The Company’s hotel expenses declined by 1.1% from 2016.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $339 million, a decrease of $57 million from 2016, which included $50 million from seven assets the Company sold between July 2016 and June 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.
     
    Full Year
    2017   2016   % Var.
    (dollars in millions)
             
Adjusted EBITDA   $ 339.4     $ 396.8     -14.5 %
Disposed Assets Hotel EBITDA     (7.1 )     (49.5 )    
Adjusted EBITDA for Comparable Portfolio   $ 332.3     $ 347.3     -4.3 %
             
  • Adjusted FFO: The Company generated adjusted FFO of $280 million, or $2.47 per diluted share/unit, compared to $329 million, or $2.90 per diluted share/unit, for full year 2016. Similar to adjusted EBITDA, the Disposed Assets provided approximately $47 million of adjusted FFO during 2016.

Key West Impact Update: Both of the Company’s resorts in Key West are now fully open, following repairs from Hurricane Irma in September 2017. The Marker Waterfront Resort resumed full operations at the end of October 2017, and the Southernmost Beach Resort Key West re-opened its rooms in phases throughout the fourth quarter, with all rooms available by the end of December 2017. 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 million in total, which encompasses both property and business interruption coverage. The Company did not record any business interruption proceeds in 2017 due to Hurricane Irma. The Company is currently in the process of filing business interruption claims for both of the Key West properties.

Disposition and Investment Activity

  • Asset Sales: The Company completed five asset sales during 2017 for $409 million ($405,000 per key) at an average 6.8% trailing net operating income capitalization rate. The asset sales included Hotel Deca, Lansdowne Resort, Alexis Hotel, the leasehold interest in Hotel Triton, and Westin Philadelphia.
  • Capital Investments: The Company invested $120 million of capital in its hotels throughout the year, completing renovations at L’Auberge Del Mar and Embassy Suites Philadelphia – Center City. During the fourth quarter, the Company invested $53 million of capital in its hotels, of which the majority was for ongoing renovations at the end of 2017 and into early 2018. The two largest projects are lifecycle rooms renovations at Westin Copley Place in Boston and Paradise Point Resort and Spa in San Diego. The Company will also be completing room renovations over the next few months at Chamberlain and Le Montrose in West Hollywood, Serrano Hotel and Harbor Court Hotel in San Francisco, and The Heathman Hotel in Portland.

    During 2018, the Company anticipates investing approximately $175 million of capital in its hotels, which includes some carryover from 2017 renovations and room renovations scheduled to begin in the fourth quarter of 2018.

Balance Sheet and Capital Markets Activities

  • Balance Sheet Summary as of December 31, 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 2.1 times. The Company’s fixed charge coverage ratio was 5.5 times, and its weighted average interest rate for the fourth quarter was 3.1%. The Company had capacity of $773 million available on its credit facilities, in addition to $401 million of cash and cash equivalents on its balance sheet.
  • Credit Facility Refinancing: In January 2017, the Company refinanced $1.05 billion of debt, reducing the interest cost on its $750 million revolver and $300 million five-year term loan and extending their maturities to January 2022 (including the exercise of extension options pursuant to certain conditions).
  • Share Repurchase Authorization: In February 2017, the Company’s Board of Trustees authorized an expanded share repurchase program to acquire up to an additional $500 million of the Company’s common shares. Including the previous authorization, the Company has $570 million of capacity remaining in its share repurchase program. The Company did not acquire any common shares during 2017 or to date during the first quarter of 2018.
  • Series H Preferred Share Redemption: In May 2017, the Company redeemed all 2,750,000 of its issued and outstanding 7.5% Series H Cumulative Redeemable Preferred Shares.
  • Interest Rate Hedge: In July 2017, the Company swapped the interest rate on its $300 million senior unsecured term loan to an all-in fixed rate of 3.23% through loan maturity in January 2022.

Full Year 2018 Base Case Outlook

The Company is providing a full year base case outlook for 2018. The outlook is based on the current economic environment and assumes no acquisitions, dispositions, or capital markets activity other than repayment of the bonds on Hyatt Regency Boston Harbor on March 1, 2018. The Company’s RevPAR, hotel EBITDA margin, and financial expectations for 2018 are shown in the table below:

     
Full Year 2018 Base Case
(dollars in millions except per share/unit data)
     
Net income   $ 68
     
RevPAR change     -2.0%
Hotel expenses change     2.0%
Hotel EBITDA margin     30.4%
Hotel EBITDA margin change   -275 bps
     
Adjusted EBITDA   $ 291
Adjusted FFO   $ 235
Adjusted FFO per diluted share/unit   $ 2.06
     

There are a few anomalies affecting the Company’s full year 2018 outlook. As a result, the Company has provided the following bridge to reconcile the impact of the Presidential inauguration, Hurricane Irma in Key West, San Francisco, renovation displacement versus prior year, and general market conditions.

 

Full Year 2017 and 2018 RevPAR Bridge

                             
    Inauguration(1)   Key West(2)  

San

Francisco(2)

 

Renovation

Displacement

 

Subtotal

Anomalies

 

Market

Conditions

  Full Year
                             
2017 RevPAR Impact   60 bps   -75 bps   -125 bps   -5 bps   -145 bps   -115 bps   -2.6%
2018 RevPAR Impact   -70 bps   40 bps   65 bps   -70 bps   -35 bps   -165 bps   -2.0%
 

(1) First quarter 2017 RevPAR (and the 2017 inauguration impact) did not include the results from Mason & Rook Hotel because it was not open for the first quarter of 2016. Mason & Rook Hotel is included in the full year 2018 outlook.

(2) Assumes the Company regains approximately half of the 2017 RevPAR impact in 2018.
 

First Quarter 2018 Base Case Outlook

The Company is providing a first quarter base case outlook for 2018, as shown in the following table.

     
First Quarter 2018 Base Case
(dollars in millions except per share/unit data)
     
Net loss   $ (7.8)
     
RevPAR change     -8.5%
     
Adjusted EBITDA   $ 41.5
Adjusted FFO   $ 31.0
Adjusted FFO per diluted share/unit   $ 0.27
       

There are a few anomalies affecting the Company’s first quarter 2018 outlook. As a result, the Company has provided the following bridge to reconcile the impact of the Presidential inauguration, renovation displacement versus prior year, and general market conditions.

                 

First Quarter 2017 and 2018 RevPAR Bridge

                     
    Inauguration(1)  

Renovation

Displacement

 

Subtotal

Anomalies

 

Market

Conditions

 

First

Quarter

                     
First Quarter 2017 RevPAR Impact   275 bps   100 bps   375 bps   -235 bps   1.4%
First Quarter 2018 RevPAR Impact   -330 bps   -265 bps   -595 bps   -255 bps   -8.5%
 

(1) First quarter 2017 RevPAR (and the 2017 inauguration impact) did not include the results from Mason & Rook Hotel because it was not open for the first quarter of 2016. Mason & Rook Hotel is included in the full year 2018 outlook.

 

If any of the foregoing estimates and assumptions prove to be inaccurate, actual results for the first quarter and full year 2018 may vary, and could vary significantly, from the amounts show above. Achievement of the anticipated results is subject to the risks discussed in the Company’s filings with the Securities and Exchange Commission.

Dividend

On December 15, 2017, the Company declared a fourth quarter 2017 dividend of $0.45 per common share of beneficial interest.

Since 2012, the Company has paid dividends of approximately 100% of its taxable income. In 2016 and 2017, the Company generated taxable gains of approximately $91 and $101 million, respectively, as a result of asset sales. These gains were included in the Company’s taxable income for each year. For both 2016 and 2017, the Company did not need to pay a special dividend, nor did it pay a dividend in excess of its normal requirement. Essentially, the Company distributed the gains from its asset sales to its shareholders through the regular payment of the dividend at $1.80 per common share.

The Company’s base case outlook for 2018 does not include any further dispositions or additional taxable gains. As such, if the 2018 base case materializes as expected, the Company is likely to reduce its annual dividend to a level that would continue to meet its REIT distribution requirements, which it currently estimates to be approximately $0.80 to $0.90 per common share. However, the actual dividend requirement will be impacted by several factors, including specific hotel performance, lessee income, and depreciation. The Company is not reducing its common dividend at this time and will continue to evaluate its options based on how the year progresses.

If the Company’s Board of Trustees does elect to reduce the dividend in this scenario, the Company would likely use the amount of cash equal to the dividend reduction to repurchase common shares under the share repurchase program.

The Company’s Board of Trustees has the sole discretion to determine the timing, form, and amount of any dividends. No assurance can be given that the Company will make dividends to shareholders at expected levels, or at all. In addition, the share repurchase program does not obligate the Company to repurchase any specific dollar amount or to acquire any specific number of shares, and may be suspended, modified, or terminated at any time for any reason without prior notice.

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 Access Hotels & Resorts, Accor, Benchmark Hospitality, Davidson Hotel Company, Evolution Hospitality, HEI Hotels & Resorts, Highgate Hotels, Hilton, Hyatt Hotels Corporation, IHG, JRK Hotel Group, Inc., Marriott International, Noble House Hotels & Resorts, Outrigger Lodging Services, Provenance Hotels, Two Roads Hospitality, and Viceroy Hotel Group.

 

LASALLE HOTEL PROPERTIES

Consolidated Balance Sheets

(in thousands, except share and per share data)

         
   

December 31,

2017

 

December 31,

2016

         
Assets:        
Investment in hotel properties, net   $ 3,265,615     $ 3,672,209  
Property under development   49,459     21,078  
Assets held for sale   0     23,283  
Cash and cash equivalents   400,667     134,652  
Restricted cash reserves   14,262     15,035  
Hotel receivables (net of allowance for doubtful accounts of $404 and $279, respectively)   35,916     35,403  
Debt issuance costs for borrowings under credit facilities, net   3,274     1,699  
Deferred tax assets   2,136     1,902  
Prepaid expenses and other assets   43,612     38,818  
Total assets   $ 3,814,941     $ 3,944,079  
Liabilities:        
Borrowings under credit facilities   $ 0     $ 0  
Term loans, net of unamortized debt issuance costs   853,195     852,758  
Bonds payable, net of unamortized debt issuance costs   42,494     42,455  
Mortgage loan, net of unamortized debt issuance costs   224,432     223,494  
Accounts payable and accrued expenses   134,216     171,965  
Liabilities of assets held for sale   0     247  
Advance deposits   26,625     33,232  
Accrued interest   2,383     2,209  
Distributions payable   55,135     56,360  
Total liabilities   1,338,480     1,382,720  
Commitments and contingencies        
Equity:        
Shareholders’ Equity:        
Preferred shares of beneficial interest, $0.01 par value (liquidation preference of $260,000 and $328,750, respectively), 40,000,000 shares authorized; 10,400,000 and 13,150,000 shares issued and outstanding, respectively   104     132  
Common shares of beneficial interest, $0.01 par value, 200,000,000 shares authorized; 113,251,427 shares issued and 113,209,392 shares outstanding, respectively, and 113,115,442 shares issued and 113,088,074 shares outstanding, respectively   1,132     1,131  
Treasury shares, at cost   (1,181 )   (739 )
Additional paid-in capital, net of offering costs of $82,842 and $85,223, respectively   2,767,924     2,830,740  
Accumulated other comprehensive income   10,880     2,365  
Distributions in excess of retained earnings   (305,708 )   (275,564 )
Total shareholders’ equity   2,473,151     2,558,065  
Noncontrolling Interests:        
Noncontrolling interests in consolidated entities   18     17  
Noncontrolling interests of common units in Operating Partnership   3,292     3,277  
Total noncontrolling interests   3,310     3,294  
Total equity   2,476,461     2,561,359  
Total liabilities and equity   $ 3,814,941     $ 3,944,079  
                 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share data)

(unaudited)

         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Revenues:                
Hotel operating revenues:                
Room   $ 181,518     $ 203,419     $ 791,287     $ 867,882  
Food and beverage   52,477     62,568     214,280     259,658  
Other operating department   20,587     22,080     87,315     93,072  
Total hotel operating revenues   254,582     288,067     1,092,882     1,220,612  
Other income   2,928     1,425     11,933     7,007  
Total revenues   257,510     289,492     1,104,815     1,227,619  
Expenses:                
Hotel operating expenses:                
Room   51,775     55,753     214,843     226,349  
Food and beverage   37,463     42,428     154,371     179,637  
Other direct   2,289     3,760     11,920     16,978  
Other indirect   66,036     74,333     278,076     305,265  
Total hotel operating expenses   157,563     176,274     659,210     728,229  
Depreciation and amortization   43,690     47,831     178,374     192,322  
Real estate taxes, personal property taxes and insurance   15,371     16,383     62,238     63,406  
Ground rent   3,722     3,696     15,718     16,187  
General and administrative   6,805     6,980     26,751     26,529  
Other expenses   5,894     771     12,550     6,283  
Total operating expenses   233,045     251,935     954,841     1,032,956  
Operating income   24,465     37,557     149,974     194,663  
Interest income   1,160     56     2,568     3,553  
Interest expense   (10,090 )   (10,094 )   (39,366 )   (43,775 )
Loss from extinguishment of debt   0     0     (1,706 )   0  
Income before income tax benefit (expense)   15,535     27,519     111,470     154,441  
Income tax benefit (expense)   509     (685 )   (1,699 )   (5,784 )
Income before net gain on sale of properties and sale of note receivable   16,044     26,834     109,771     148,657  
Net gain on sale of properties and sale of note receivable   0     (71 )   85,545     104,478  
Net income   16,044     26,763     195,316     253,135  
Net income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   (8 )   (9 )   (16 )   (17 )
Noncontrolling interests of common units in Operating Partnership   (24 )   (38 )   (266 )   (337 )
Net income attributable to noncontrolling interests   (32 )   (47 )   (282 )   (354 )
Net income attributable to the Company   16,012     26,716     195,034     252,781  
Distributions to preferred shareholders   (4,116 )   (5,404 )   (18,024 )   (18,206 )
Issuance costs of redeemed preferred shares   0     0     (2,401 )   0  
Net income attributable to common shareholders   $ 11,896     $ 21,312     $ 174,609     $ 234,575  
                                 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share and per share data)

(unaudited)

         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Earnings per Common Share - Basic:                

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares

  $ 0.10     $ 0.19     $ 1.54     $ 2.07  
Earnings per Common Share - Diluted:                
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares   $ 0.10     $ 0.19     $ 1.54     $ 2.07  
Weighted average number of common shares outstanding:                
Basic   113,016,763     112,821,939     112,975,329     112,791,839  
Diluted   113,372,555     113,185,883     113,364,092     113,164,599  
                 
Comprehensive Income:                
Net income   $ 16,044     $ 26,763     $ 195,316     $ 253,135  
Other comprehensive income:                
Unrealized gain (loss) on interest rate derivative instruments   5,849     12,891     5,815     (4,160 )
Reclassification adjustment for amounts recognized in net income   680     1,478     2,710     6,625  
    22,573     41,132     203,841     255,600  
Comprehensive income attributable to noncontrolling interests:                
Noncontrolling interests in consolidated entities   (8 )   (9 )   (16 )   (17 )
Noncontrolling interests of common units in Operating Partnership   (31 )   (56 )   (276 )   (340 )
Comprehensive income attributable to noncontrolling interests   (39 )   (65 )   (292 )   (357 )
Comprehensive income attributable to the Company   $ 22,534     $ 41,067     $ 203,549     $ 255,243  
                                 
         
LASALLE HOTEL PROPERTIES
FFO and EBITDA

(in thousands, except share/unit and per share/unit data)

(unaudited)

         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Net income   $ 16,044     $ 26,763     $ 195,316     $ 253,135  
Depreciation     43,536       47,703       177,800       191,791  
Amortization of deferred lease costs     113       76       387       320  
Less: Gain on sale of properties less costs associated with sale of note receivable     0       71       (85,545 )     (104,478 )
FFO   $ 59,693     $ 74,613     $ 287,958     $ 340,768  
Distributions to preferred shareholders     (4,116 )     (5,404 )     (18,024 )     (18,206 )
Issuance costs of redeemed preferred shares     0       0       (2,401 )     0  
FFO attributable to common shareholders and unitholders   $ 55,577     $ 69,209     $ 267,533     $ 322,562  
Pre-opening, management transition and severance expenses     200       123       577       4,418  
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     828       0       3,166       0  
Net loss from The Marker Waterfront Resort original development deficiencies     2,909       0       2,909       0  
Non-cash ground rent     458       470       1,842       1,890  
Adjusted FFO attributable to common shareholders and unitholders   $ 59,972     $ 69,802     $ 280,134     $ 328,870  
Weighted average number of common shares and units outstanding:                
Basic     113,161,986       112,967,162       113,120,552       112,937,062  
Diluted     113,517,778       113,331,106       113,509,315       113,309,822  
FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.49     $ 0.61     $ 2.36     $ 2.85  
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.53     $ 0.62     $ 2.47     $ 2.90  
         
         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Net income   $ 16,044     $ 26,763     $ 195,316     $ 253,135  
Interest expense     10,090       10,094       39,366       43,775  
Income tax (benefit) expense     (509 )     685       1,699       5,784  
Depreciation and amortization     43,690       47,831       178,374       192,322  
EBITDA   $ 69,315     $ 85,373     $ 414,755     $ 495,016  
Pre-opening, management transition and severance expenses     200       123       577       4,418  
Loss from extinguishment of debt     0       0       1,706       0  
Estimated hurricane related repairs and cleanup costs     828       0       3,166       0  
Net loss from The Marker Waterfront Resort original development deficiencies     2,909       0       2,909       0  
Gain on sale of properties less costs associated with sale of note receivable     0       71       (85,545 )     (104,478 )
Non-cash ground rent     458       470       1,842       1,890  
Adjusted EBITDA   $ 73,710     $ 86,037     $ 339,410     $ 396,846  
Corporate expense     9,013       7,866       33,679       29,224  
Interest and other income     (4,087 )     (1,480 )     (14,501 )     (10,559 )
Pro forma hotel level adjustments, net(1)     256       (8,683 )     (6,835 )     (45,513 )
Hotel EBITDA for all properties   $ 78,892     $ 83,740     $ 351,753     $ 369,998  
Pro forma hotel level adjustment related to Key West(2)     (4,522 )     (6,279 )     (6,844 )     (10,838 )
Hotel EBITDA excluding Key West   $ 74,370     $ 77,461     $ 344,909     $ 359,160  
                 
(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 and fourth 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 year ended
    December 31,   December 31,
    2017   2016   2017   2016
Revenues:                
Room   $ 181,517     $ 190,170     $ 771,710     $ 793,889  
Food and beverage   52,477     53,905     205,197     219,510  
Other   20,602     19,032     85,174     78,512  
Total hotel revenues   254,596     263,107     1,062,081     1,091,911  
                 
Expenses:                
Room   51,787     52,427     210,086     209,785  
Food and beverage   37,465     38,246     148,797     157,093  
Other direct   2,284     2,265     9,981     9,840  
General and administrative   19,284     19,813     76,624     77,962  
Information and telecommunications systems   3,951     3,995     16,016     15,613  
Sales and marketing   17,346     18,340     72,320     74,111  
Management fees   8,701     9,550     36,165     37,049  
Property operations and maintenance   8,724     8,859     35,730     35,387  
Energy and utilities   6,197     6,197     25,696     25,536  
Property taxes   13,887     14,025     54,839     54,344  
Other fixed expenses(2)   6,078     5,650     24,074     25,193  
Total hotel expenses   175,704     179,367     710,328     721,913  
                 
Hotel EBITDA   $ 78,892     $ 83,740     $ 351,753     $ 369,998  
                 
Hotel EBITDA Margin   31.0 %   31.8 %   33.1 %   33.9 %
                         
(1)   This schedule includes the operating data for the three months and year ended December 31, 2017 for all properties owned by the Company as of December 31, 2017. 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)   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 $397 for the three months and year ended December 31, 2017 and 2016, respectively. At Harbor Court, the base and participating ground rent payments were $251 and $1,172 for the three months and year ended December 31, 2017, respectively, and $275 and $1,279 for the three months and year ended December 31, 2016, respectively.
     
 
LASALLE HOTEL PROPERTIES
Hotel Operational Data

Schedule of Property Level Results - Pro Forma (Excludes Key West)(1)

(in thousands)

(unaudited)

         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Revenues:                
Room   $ 175,066     $ 180,391     $ 759,774     $ 776,036  
Food and beverage   50,589     51,605     201,717     215,074  
Other   19,865     17,913     83,444     76,159  
Total hotel revenues   245,520     249,909     1,044,935     1,067,269  
                 
Expenses:                
Room   50,642     50,642     207,473     206,199  
Food and beverage   36,174     36,700     146,261     154,010  
Other direct   2,181     2,133     9,781     9,562  
General and administrative   18,682     18,916     75,366     76,251  
Information and telecommunications systems   3,816     3,851     15,779     15,330  
Sales and marketing   17,108     17,920     71,755     73,292  
Management fees   8,941     8,941     36,078     35,965  
Property operations and maintenance   8,378     8,318     34,900     34,335  
Energy and utilities   5,972     5,963     25,191     25,035  
Property taxes   13,618     13,935     54,309     53,978  
Other fixed expenses(2)   5,638     5,129     23,133     24,152  
Total hotel expenses   171,150     172,448     700,026     708,109  
                 
Hotel EBITDA   $ 74,370     $ 77,461     $ 344,909     $ 359,160  
                 
Hotel EBITDA Margin   30.3 %   31.0 %   33.0 %   33.7 %
                         
(1)   This schedule includes the operating data for the three months and year ended December 31, 2017 for all properties owned by the Company as of December 31, 2017. 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, (ii) The Marker Waterfront Resort and Southernmost Beach Resort Key West for the third and fourth quarters 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, and (iii) 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 $397 for the three months and year ended December 31, 2017 and 2016, respectively. At Harbor Court, the base and participating ground rent payments were $251 and $1,172 for the three months and year ended December 31, 2017, respectively, and $275 and $1,279 for the three months and year ended December 31, 2016, respectively.
     
         
LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma (Excludes Key West)(1)

(unaudited)

         
    For the three months ended   For the year ended
    December 31,   December 31,
    2017   2016   2017   2016
Total Portfolio                
Occupancy   79.0 %   80.8 %   83.8 %   84.5 %
Decrease   (2.3 )%       (0.8 )%    
ADR   $ 238.62     $ 240.31     $ 243.00     $ 245.53  
Decrease   (0.7 )%       (1.0 )%    
RevPAR   $ 188.54     $ 194.27     $ 203.55     $ 207.38  
Decrease   (3.0 )%       (1.8 )%    
         
   

For the three months ended

December 31, 2017

 

For the year ended

December 31, 2017

Market Detail   RevPAR Variance %
Boston   (3.4)%   0.6%
Chicago   (9.8)%   (6.4)%
Los Angeles   (5.6)%   (6.0)%
New York   1.4%   0.0%
Other(2)   3.7%   1.4%
San Diego Downtown   (5.0)%   0.8%
San Francisco   (6.1)%   (7.2)%
Washington, DC   (2.0)%   2.1%
     
(1)   This schedule includes the statistical data for the three months and year ended December 31, 2017 for all properties owned by the Company as of December 31, 2017. 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, (ii) The Marker Waterfront Resort and Southernmost Beach Resort Key West for the third and fourth quarters 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, and (iii) 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.
                     
LASALLE HOTEL PROPERTIES

Current Year Operating Data - 2017 Comparable - Pro Forma(1)

(in millions)

(unaudited)

                     
    First Quarter   Second Quarter   Third Quarter   Fourth Quarter   Full Year
    2017   2017   2017   2017   2017
Occupancy   77.8 %   88.1 %   89.0 %   78.2 %   83.3 %
ADR   $ 229.92     $ 257.75     $ 243.77     $ 243.82     $ 244.28  
RevPAR   $ 178.81     $ 227.18     $ 216.95     $ 190.61     $ 203.52  
                     
Total hotel revenues   $ 233.6     $ 294.7     $ 282.7     $ 251.9     $ 1,062.9  
Less: Total hotel expenses   169.6     182.7     184.5     173.6     710.4  
Hotel EBITDA   $ 64.0     $ 112.0     $ 98.2     $ 78.3     $ 352.5  
                     
Hotel EBITDA Margin   27.4 %   38.0 %   34.7 %   31.1 %   33.2 %
     
(1)   For current year operating data, pro forma excludes Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton and Westin Philadelphia due to their dispositions in 2017.
     
LASALLE HOTEL PROPERTIES
RevPAR by Property - Pro Forma

(unaudited)

     
    For the year ended December 31,
Property Detail   2017   2016
Westin Copley Place(3)   $242.03   $243.91
The Liberty Hotel   $293.99   $283.81
Hyatt Regency Boston Harbor   $184.76   $183.04
Onyx Hotel   $207.81   $207.02
Westin Michigan Avenue   $140.41   $152.69
Hotel Chicago   $158.37   $163.32
Southernmost Beach Resort   $279.47   $330.12
The Marker Waterfront Resort   $226.79   $276.40
Chamberlain West Hollywood(3)   $220.25   $246.99
Le Montrose Suite Hotel(3)   $206.26   $223.27
The Grafton on Sunset   $183.02   $183.95
Le Parc Suite Hotel   $210.02   $229.24
Hotel Amarano Burbank   $206.88   $220.62
Viceroy Santa Monica   $331.91   $341.53
Park Central Hotel New York/WestHouse Hotel New York   $214.56   $216.64
The Roger   $227.70   $224.53
Gild Hall   $205.17   $195.17
Embassy Suites Philadelphia - Center City(2)   $143.98   $152.05
The Heathman Hotel(3)   $158.70   $160.99
San Diego Paradise Point Resort and Spa(4)   $155.28   $155.52
The Hilton San Diego Resort and Spa   $172.77   $171.41
L’Auberge Del Mar(2)  

$307.94

  $277.58
Hilton San Diego Gaslamp Quarter   $194.52   $194.54
Hotel Solamar   $174.95   $171.62
Park Central San Francisco   $231.94   $251.90
The Marker San Francisco   $207.42   $202.47
Harbor Court Hotel(3)   $202.07   $219.41
Serrano Hotel(3)   $155.54   $181.28
Villa Florence   $156.89   $180.16
Hotel Vitale   $331.10   $344.96
Chaminade Resort and Conference Center   $149.63   $135.56
Hotel Palomar, Washington, DC   $183.78   $181.77
Topaz Hotel   $170.43   $169.39
Hotel Madera   $181.55   $184.32
The Donovan   $185.31   $183.08
Hotel Rouge   $159.17   $165.71
Mason & Rook Hotel(1)   $192.10   $169.33
Hotel George   $229.83   $216.61
Sofitel Washington, DC Lafayette Square   $277.51   $276.85
The Liaison Capitol Hill   $160.38   $155.16
 
(1)   Mason & Rook Hotel closed for renovation in October 2015 and reopened in April 2016. As a result, RevPAR above excludes the first quarters of both 2016 and 2017.
(2)   Denotes a hotel that was under renovation in Q4 2016 - Q1 2017.
(3)   Denotes a hotel that was under renovation in Q4 2017.
(4)

 

Denotes a hotel that was under renovation in Q1 2017 - Q4 2017.
                           
LASALLE HOTEL PROPERTIES  
Hotel EBITDA by Property - Pro Forma  

(in millions)

 

(unaudited)

 
                           
Property Detail   2012   2013   2014   2015   2016   2017
Westin Copley Place(5)   $ 24.4     $ 25.8     $ 28.7     $ 32.7     $ 33.3     $ 31.5  
The Liberty Hotel   13.3     15.8     17.2     18.2     18.5     19.0  
Hyatt Regency Boston Harbor   7.3     7.7     9.3     11.1     10.8     10.8  
Onyx Hotel   2.6     2.6     3.1     3.6     3.6     3.8  
Westin Michigan Avenue   16.7     16.0     18.0     19.4     17.9     13.1  
Hotel Chicago(3)   7.3     8.4     8.5     10.4     12.4     12.3  
Southernmost Beach Resort Key West   10.8     14.1     17.6     19.9     21.1     17.9  
The Marker Waterfront Resort(1)               4.8     5.8     4.6  
Chaminade Resort and Conference Center   3.7     4.3     4.7     5.0     4.8     5.2  
Chamberlain West Hollywood(5)   3.8     4.1     4.8     4.8     5.2     4.4  
Le Montrose Suite Hotel(5)   4.2     5.5     5.9     5.9     6.5     5.9  
The Grafton on Sunset   2.2     2.0     1.5     0.9     2.8     2.8  
Le Parc Suite Hotel   4.7     5.3     5.6     6.1     7.0     6.1  
Hotel Amarano Burbank   3.3     4.2     4.7     4.4     5.7     5.4  
Viceroy Santa Monica   6.9     7.6     8.2     8.4     7.8     7.0  
Park Central Hotel New York/WestHouse Hotel New York   30.1     18.8     25.0     18.1     24.0     22.0  
The Roger   5.0     7.5     8.2     7.3     5.8     6.1  
Gild Hall   3.9     3.7     3.9     3.8     3.2     3.1  
Embassy Suites Philadelphia - Center City(4)   6.6     6.9     7.3     8.0     7.7     6.6  
The Heathman Hotel(5)   1.9     2.4     3.0     5.7     4.4     4.3  
San Diego Paradise Point Resort and Spa(6)   13.7     14.8     16.1     16.7     14.7     16.8  
The Hilton San Diego Resort and Spa   5.2     5.5     7.0     7.9     8.3     8.8  
L’Auberge Del Mar(4)   5.6     7.7     8.1     9.9     9.3     9.4  
Hilton San Diego Gaslamp Quarter   8.8     8.9     9.5     10.5     10.9     11.1  
Hotel Solamar   6.5     6.3     6.5     7.4     7.7     7.3  
Park Central San Francisco(1)   13.7     16.3     21.5     22.3     23.4     18.8  
The Marker San Francisco   5.7     6.9     7.7     7.6     5.9     6.8  
Harbor Court Hotel(5)   3.7     4.9     5.8     6.1     5.6     5.0  
Serrano Hotel(5)   3.5     4.4     6.3     6.2     6.5     5.7  
Villa Florence   7.4     8.3     9.3     8.8     9.4     7.7  
Hotel Vitale   7.4     7.3     8.6     11.0     10.3     9.8  
Hotel Palomar, Washington, DC   10.6     10.5     9.8     9.5     10.8     10.9  
Topaz Hotel   2.1     2.0     1.9     2.0     2.3     2.5  
Hotel Madera   2.2     2.0     2.1     2.5     2.7     2.3  
The Donovan   3.8     4.3     5.2     5.8     6.1     6.4  
Hotel Rouge   2.9     2.8     2.8     3.1     3.5     3.2  
Mason & Rook Hotel(2)   3.4     3.2     3.2     3.0     3.6     5.8  
Hotel George   4.1     4.1     4.3     5.2     5.7     6.3  
Sofitel Washington, DC Lafayette Square   7.5     8.5     8.7     8.3     10.0     10.3  
The Liaison Capitol Hill   9.1     8.6     4.4     6.9     6.8     7.7  
Total Portfolio(7)   $ 285.9     $ 300.2     $ 334.2     $ 359.2     $ 371.9     $ 354.4  
     
(1)   Pro forma to include operating results of the hotels under previous ownership. Results of the hotels for periods prior to the Company’s ownership were provided by prior owners and have not been adjusted by the Company or audited by its auditors.
(2)   Mason & Rook Hotel closed for renovation in October 2015 and reopened in April 2016.
(3)   Hotel EBITDA shown includes retail net operating income for Hotel Chicago.
(4)   Denotes a hotel that was under renovation in Q4 2016 - Q1 2017.
(5)   Denotes a hotel that was under renovation in Q4 2017.
(6)   Denotes a hotel that was under renovation in Q1 2017 - Q4 2017.
(7)   Totals may not foot due to rounding.
                         

LASALLE HOTEL PROPERTIES

Hotel EBITDA by Market - Pro Forma

(in millions)

(unaudited)

                         
Market Detail   2012   2013   2014   2015   2016   2017
  Boston   $ 47.7     $ 51.8     $ 58.3     $ 65.6     $ 66.2     $ 65.1
  Chicago   24.1     24.3     26.5     29.8     30.3     25.5
  Key West   10.8     14.1     17.6     24.7     26.9     22.5
  Los Angeles   25.1     28.8     30.7     30.6     35.1     31.8
  New York   39.1     30.0     37.1     29.2     33.1     31.1
  San Diego Downtown   15.3     15.2     15.9     17.9     18.6     18.3
  San Francisco   41.4     48.1     59.3     61.9     61.2     53.9
  Washington, DC   45.8     46.1     42.5     46.4     51.6     55.3
  Other(1)   36.7     41.7     46.2     53.2     49.1     51.1
  Total Portfolio(2)   $ 285.9     $ 300.2     $ 334.2     $ 359.2     $ 371.9     $ 354.4
(1)   Other includes The Heathman Hotel in Portland, OR, Chaminade Resort in Santa Cruz, CA, Embassy Suites Philadelphia - Center City in Philadelphia, L’Auberge Del Mar in Del Mar, CA, and The Hilton San Diego Resort and Paradise Point Resort in San Diego, CA.
(2)   Totals may not foot due to rounding.
     

LASALLE HOTEL PROPERTIES

Hotel EBITDA - Pro Forma(1)

(in thousands)

(unaudited)

     
    For the year ended December 31,
    2012   2013   2014   2015   2016   2017
Net income   $ 71,577     $ 90,255     $ 213,497     $ 135,829     $ 253,135     $ 195,316  
Interest expense   52,896     57,516     56,628     54,333     43,775     39,366  
Income tax expense (benefit)   9,062     470     2,306     (1,292 )   5,784     1,699  
Depreciation and amortization   124,363     143,991     155,035     180,855     192,322     178,374  
EBITDA   $ 257,898     $ 292,232     $ 427,466     $ 369,725     $ 495,016     $ 414,755  
Pre-opening, management transition and severance expenses   1,447     6,420     3,884     13,508     4,418     577  
Loss from extinguishment of debt   0     0     2,487     831     0     1,706  
Acquisition transaction costs   4,498     2,646     2,379     499     0     0  
Estimated hurricane related repairs and cleanup costs   0     0     0     0     0     3,166  
Net loss from The Marker Waterfront Resort original development deficiencies   0     0     0     0     0     2,909  
Gain on sale of properties less costs associated with sale of note receivable   0     0     (93,205 )   0     (104,478 )   (85,545 )
Non-cash ground rent   454     1,305     1,820     1,943     1,890     1,842  
Mezzanine loan discount amortization   (1,074 )   (2,524 )   (986 )   0     0     0  
Adjusted EBITDA   $ 263,223     $ 300,079     $ 343,845     $ 386,506     $ 396,846     $ 339,410  
Corporate expense   23,622     29,112     29,056     29,850     29,224     33,679  
Interest and other income   (9,212 )   (16,340 )   (8,685 )   (10,930 )   (10,559 )   (14,501 )
Pro forma hotel level adjustments, net   (2,818 )   (1,082 )   (8,077 )   (4,164 )   (13,014 )   (6,835 )
Hotel EBITDA as reported in respective year   $ 274,815     $ 311,769     $ 356,139     $ 401,262     $ 402,497     $ 351,753  
                         
Pro forma adjustments for acquisitions, dispositions and hotel closures   7,715     (15,014 )   (25,306 )   (44,410 )   (33,104 )   1,284  
Non-hotel other income adjustments(2)   3,362     3,423     3,383     2,382     2,537     1,381  
                         
Hotel EBITDA Pro Forma - all properties owned as of December 31, 2017 including prior to ownership   $ 285,892     $ 300,178     $ 334,216     $ 359,234     $ 371,930     $ 354,418  

(1)

  Pro forma to include the results of operations of certain hotels under previous ownership acquired during the periods presented and exclude the results of operations of any hotels sold or closed for renovations during the periods presented. Results for the hotels for periods prior to the Company’s ownership were provided by prior owners and have not been adjusted by the Company or audited by its auditors.
(2)   Hotel EBITDA shown includes retail net operating income for Hotel Chicago.
     

LASALLE HOTEL PROPERTIES

2018 Base Case Outlook - FFO and Adjusted FFO

(in millions, except per share/unit data)

(unaudited)

     
    Base Case
    For the three months ending   For the year ending
    March 31, 2018   December 31, 2018
Net (loss) income   $ (7.8 )   $ 67.8  
Depreciation and amortization   42.4     181.9  
FFO   $ 34.6     $ 249.7  
Distributions to preferred shareholders   (4.1 )   (16.5 )
FFO attributable to common shareholders and unitholders   $ 30.5     $ 233.2  
Non-cash ground rent   0.5     1.8  
Adjusted FFO attributable to common shareholders and unitholders   $ 31.0     $ 235.0  
         
         
Weighted average number of common shares and units outstanding (diluted)   113.7     113.9  
         
FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.27     $ 2.05  
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit   $ 0.27     $ 2.06  
     

LASALLE HOTEL PROPERTIES

2018 Base Case Outlook - EBITDA and Adjusted EBITDA

(in millions)

(unaudited)

     
    Base Case
    For the three months ending   For the year ending
    March 31, 2018   December 31, 2018
Net (loss) income   $ (7.8 )   $ 67.8
Interest expense and income tax benefit   6.4     39.4
Depreciation and amortization   42.4     182.0
EBITDA   $ 41.0     $ 289.2
Non-cash ground rent   0.5     1.8
Adjusted EBITDA   $ 41.5     $ 291.0
The Company’s full year 2018 base case outlook for hotel EBITDA margin of 30.4% is calculated using estimated total hotel revenue of $1,041 million.
 

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 capitalization rate by dividing the trailing 12-month net operating income of the subject hotels by the 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). The average capitalization rate is the simple average of the capitalization rates of the subject hotels.



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