LaSalle Hotel Properties Reports Third Quarter 2011 Results

2011-10-20

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LaSalle Hotel Properties Achieves 6.4 percent RevPAR growth (6.9 percent excluding Hurricane Irene impact) and Hotel EBITDA margin improvement of 208 basis points to 33.6 percent

LaSalle Hotel Properties (NYSE: LHO) announced results for the quarter ended September 30, 2011. The Company’s results include the following:

“We are very pleased with the performance of our portfolio during the quarter, despite the impact of Hurricane Irene on more than half of our hotels”


	Third Quarter				Year-to-Date
	2011		2010		2011		2010
	($'s in millions except per share data)

Total Revenue	$	199.1	$	164.7	$	540.0	$	438.6
Net income (loss) to common shareholders	$	14.9	$	10.1	$	12.4	$	(7.8	)
Net income (loss) to common shareholders per diluted share	$	0.18	$	0.14	$	0.15	$	(0.11	)
EBITDA⁽¹⁾	$	63.3	$	55.1	$	153.8	$	125.4
Adjusted EBITDA⁽¹⁾	$	62.8	$	50.0	$	155.2	$	121.8
FFO⁽¹⁾	$	41.9	$	8.5	$	95.0	$	45.8
Adjusted FFO⁽¹⁾	$	42.4	$	32.6	$	97.4	$	71.4
FFO per diluted share⁽¹⁾	$	0.49	$	0.12	$	1.18	$	0.67
Adjusted FFO per diluted share⁽¹⁾	$	0.50	$	0.46	$	1.21	$	1.04

Third Quarter Highlights

RevPAR: Room revenue per available room (“RevPAR”) for the quarter ended September 30, 2011 increased 6.4 percent to $166.09, as a result of a 5.0 percent increase in average daily rate (“ADR”) to $198.18 and a 1.4 percent increase in occupancy to 83.8 percent.
Impact of Hurricane Irene: Eighteen of the Company’s hotels are located on the east coast and were impacted by Hurricane Irene. While the Company’s properties did not sustain physical damage, we believe the storm caused revenue loss totaling approximately $0.8 million, including approximately $0.6 million of room revenue. Had Hurricane Irene not occurred, we believe RevPAR would have increased 6.9 percent.
Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the quarter ended September 30, 2011 was 33.6 percent, which was an improvement of 208 basis points compared to the comparable prior year period.
Adjusted EBITDA: The Company’s adjusted EBITDA was $62.8 million, an increase of 25.5 percent over the third quarter of 2010.
Adjusted FFO: The Company generated adjusted FFO of $42.4 million, or $0.50 per diluted share, compared to $32.6 million or $0.46 per diluted share in the third quarter of 2010, an increase of 8.7 percent.
Capital Markets: On August 29, the Company announced that its Board of Trustees authorized a share repurchase program to acquire up to $100.0 million of the Company’s common stock. Through October 19, 2011, the Company acquired 1,389,574 common shares through its share repurchase program at a cost of $24.5 million and an average purchase price of $17.63.
Capital Investments: The Company invested $10.6 million of capital in its hotels, including the continuation of the 33 guestroom expansion at Hotel Amarano Burbank and the commencement of a guestroom renovation at Liaison Capitol Hill and meeting space renovation at Westin Michigan Avenue.
Dividends: On September 15, 2011, the Company declared a third quarter 2011 dividend of $0.11 per common share of beneficial interest.

“We are very pleased with the performance of our portfolio during the quarter, despite the impact of Hurricane Irene on more than half of our hotels,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “RevPAR remained strong and our properties continue to benefit from meaningful improvements in average rate. Furthermore, our portfolio once again delivered exceptional EBITDA margins, as evidenced by the 208 basis point improvement in the third quarter.”

Subsequent Events

On October 5, the Company announced that it purchased the Villa Florence in San Francisco for $67.2 million. The 182-room full service urban hotel is located in the heart of the Union Square district, San Francisco’s most popular retail and visitor attraction.

Year-to-Date Highlights

For the nine months ended September 30, 2011, RevPAR increased 6.5 percent to $150.32, with ADR growth of 5.1 percent to $192.36 and an occupancy increase of 1.4 percent to 78.1 percent. The Company’s hotel EBITDA margin was 30.9 percent, an increase of 201 basis points compared to the comparable prior year period. The Company invested $30.6 million of capital in its hotels during the nine months ended September 30, 2011.

Balance Sheet

As of September 30, 2011, the Company had total outstanding debt of $687.2 million. At the end of the quarter, the Company had no borrowings on either of its credit facilities. Total net debt to trailing 12 month Corporate EBITDA was 2.4 times as of September 30, 2011. For the third quarter, the Company’s weighted average interest rate was 5.4 percent. As of September 30, 2011, the Company’s EBITDA to interest coverage ratio was 5.1 times and its fixed charge coverage ratio was 2.5 times. As of September 30, 2011, the Company had $217.4 million of cash and cash equivalents on its balance sheet and capacity of $473.2 million available on its credit facilities.

2011 Outlook

The Company has updated its RevPAR growth and financial expectations for the full year as follows:


	Low-end		High-end
	($'s in millions except per share data)

RevPAR growth		6.2%		6.6%
Adjusted EBITDA	$	200.0	$	204.0
Adjusted FFO	$	123.4	$	127.4
Adjusted FFO per diluted share	$	1.52	$	1.57

The Company’s full year RevPAR growth outlook of 6.2 percent to 6.6 percent is based on fourth quarter RevPAR growth expectations of 5.0 percent to 7.0 percent. The Company’s outlook includes the Villa Florence acquisition and excludes the pending Park Central acquisition. At this time, the Park Central acquisition is scheduled to close between December 20, 2011 and January 10, 2012.


LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)


	For the three months ended						For the nine months ended
	September 30,						September 30,
Revenues:	2011			2010			2011			2010
Hotel operating revenues:
Room	$	133,152		$	109,588		$	356,070		$	285,266
Food and beverage		50,554			41,388			142,999			115,812
Other operating department		14,256			12,210			37,374			32,753
Total hotel operating revenues		197,962			163,186			536,443			433,831
Other income		1,166			1,555			3,585			4,780
Total revenues		199,128			164,741			540,028			438,611
Expenses:
Hotel operating expenses:
Room		30,920			25,266			86,893			68,602
Food and beverage		34,669			28,952			99,249			81,147
Other direct		5,895			5,494			15,737			14,438
Other indirect		48,411			40,074			136,465			110,957
Total hotel operating expenses		119,895			99,786			338,344			275,144
Depreciation and amortization		27,765			26,054			83,572			78,129
Real estate taxes, personal property taxes and insurance		9,199			8,456			26,470			24,879
Ground rent		2,485			1,710			5,861			4,545
General and administrative		4,185			4,180			12,919			11,766
Acquisition transaction costs		153			555			574			2,026
Other expenses		668			798			1,749			2,540
Total operating expenses		164,350			141,539			469,489			399,029
Operating income		34,778			23,202			70,539			39,582
Interest income		8			26			22			78
Interest expense		(9,856	)		(8,871	)		(29,566	)		(26,369	)
Income before income tax expense and discontinued operations		24,930			14,357			40,995			13,291
Income tax expense		(3,125	)		(2,342	)		(5,670	)		(4,847	)
Income from continuing operations		21,805			12,015			35,325			8,444
Discontinued operations:
Income from operations of properties disposed of, including gain on sale and loss on impairment		760			4,272			441			2,815
Income tax (expense) benefit		(244	)		482			(112	)		1,021
Net income (loss) from discontinued operations		516			4,754			329			3,836
Net income		22,321			16,769			35,654			12,280
Redeemable noncontrolling interest in loss of consolidated entity		-			17			2			36
Net income attributable to the Company		22,321			16,786			35,656			12,316
Distributions to preferred shareholders		(7,402	)		(6,689	)		(22,550	)		(20,066	)
Issuance costs of redeemed preferred shares		-			-			(731	)		-
Net income (loss) attributable to common shareholders	$	14,919		$	10,097		$	12,375		$	(7,750	)




LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations - Continued
(in thousands, except share data)
(unaudited)


	For the three months ended						For the nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Earnings per Common Share - Basic:
Net income (loss) attributable to common shareholders before discontinued operations and excluding amounts attributable to unvested restricted shares	$	0.17		$	0.07		$	0.15		$	(0.17	)
Discontinued operations		0.01			0.07			-			0.06
Net income (loss) attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.18		$	0.14		$	0.15		$	(0.11	)


Earnings per Common Share - Diluted:
Net income (loss) attributable to common shareholders before discontinued operations and excluding amounts attributable to unvested restricted shares	$	0.17		$	0.07		$	0.15		$	(0.17	)
Discontinued operations		0.01			0.07			-			0.06
Net income (loss) attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	0.18		$	0.14		$	0.15		$	(0.11	)



Weighted average number of common shares outstanding:
Basic		84,640,196			71,246,259			80,392,686			68,531,224
Diluted		84,752,112			71,345,731			80,559,299			68,531,224


LASALLE HOTEL PROPERTIES
FFO and EBITDA
(in thousands, except share data)
(unaudited)


	For the three months ended						For the nine months ended
	September 30,						September 30,
	2011			2010			2011			2010

Net income (loss) attributable to common shareholders	$	14,919		$	10,097		$	12,375		$	(7,750	)
Depreciation⁽¹⁾		27,644			27,453			83,194			82,503
Amortization of deferred lease costs		69			86			225			278
Redeemable noncontrolling interest in consolidated entity		-			(17	)		(2	)		(36	)
Less: Net gain on sale of properties		(760	)		(29,168	)		(760	)		(29,168	)
FFO	$	41,872		$	8,451		$	95,032		$	45,827

Preferred share issuance costs		-			-			731			-
Acquisition transaction costs		153			555			574			2,026
Impairment loss related to sale of properties		-			23,568			-			23,568
Tax adjustment related to disposition		244			-			244			-
Costs associated with CFO departure		-			-			579			-
Non-cash ground rent		116			-			232			-
Adjusted FFO	$	42,385		$	32,574		$	97,392		$	71,421

Weighted average number of common shares and units outstanding:
Basic		84,640,196			71,246,259			80,392,686			68,531,224
Diluted		84,752,112			71,345,731			80,559,299			68,632,093

FFO per diluted share	$	0.49		$	0.12		$	1.18		$	0.67

Adjusted FFO per diluted share	$	0.50		$	0.46		$	1.21		$	1.04



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2011			2010			2011			2010

Net income (loss) attributable to common shareholders	$	14,919		$	10,097		$	12,375		$	(7,750	)
Interest expense⁽¹⁾		9,856			8,872			29,566			26,373
Income tax expense ⁽¹⁾		3,369			1,860			5,782			3,826
Depreciation and amortization⁽¹⁾		27,765			27,584			83,572			82,910
Redeemable noncontrolling interest in consolidated entity		-			(17	)		(2	)		(36	)
Distributions to preferred shareholders		7,402			6,689			22,550			20,066
EBITDA	$	63,311		$	55,085		$	153,843		$	125,389

Preferred share issuance costs		-			-			731			-
Acquisition transaction costs		153			555			574			2,026
Impairment loss related to sale of properties		-			23,568			-			23,568
Net gain on sale of properties		(760	)		(29,168	)		(760	)		(29,168	)
Costs associated with CFO departure		-			-			579			-
Non-cash ground rent		116			-			232			-
Adjusted EBITDA	$	62,820		$	50,040		$	155,199		$	121,815

Corporate expense		5,128			5,426			14,968			15,553
Interest and other income⁽¹⁾		(1,172	)		(1,602	)		(3,650	)		(4,904	)
Hotel level adjustments, net		(353	)		4,089			(1,229	)		12,054
Hotel EBITDA	$	66,423		$	57,953		$	165,288		$	144,518

⁽¹⁾ Includes amounts from discontinued operations.

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. We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

Hotel EBITDA includes the operating data for all properties for the three and nine months ended September 30, 2011, except those disposed of and the March 2011 period of ownership of Viceroy Santa Monica. Hotel EBITDA includes adjustments made for presentation of comparable information.


LASALLE HOTEL PROPERTIES
Hotel Operational Data
Schedule of Property Level Results
(in thousands)
(unaudited)


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues:
Room	$	133,152	$	125,111	$	355,406	$	333,616
Food and beverage		50,554		45,815		142,742		131,544
Other		13,849		12,796		36,017		34,272
Total hotel revenues		197,555		183,722		534,165		499,432

Expenses:
Room		30,920		29,611		86,604		82,368
Food and beverage		34,669		32,656		99,023		93,368
Other direct		5,674		5,630		15,334		15,248
General and administrative		14,785		14,325		41,782		40,334
Sales and marketing		13,101		12,347		37,691		36,152
Management fees		6,985		6,879		18,508		17,816
Property operations and maintenance		6,782		6,487		19,608		18,838
Energy and utilities		5,889		5,713		16,143		16,092
Property taxes		8,346		8,255		23,956		24,595
Other fixed expenses		3,981		3,866		10,228		10,103
Total hotel expenses		131,132		125,769		368,877		354,914

Hotel EBITDA	$	66,423	$	57,953	$	165,288	$	144,518

Note:

This schedule includes the operating data for the three and nine months ended September 30, 2011 for all properties owned by the Company as of September 30, 2011. Sofitel, Monaco, Westin Philadelphia, Embassy Suites Philadelphia, Hotel Roger Williams and Chamberlain West Hollywood are shown in 2010 for their comparative period of ownership in 2011. Viceroy Santa Monica operating data is included for the three and six months ended September 30, 2011 and its comparative period of ownership in 2010. Both 2010 and 2011 exclude Sheraton Bloomington, and 2010 excludes Westin City Center Dallas and Seaview Resort.


LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels
(unaudited)


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2011		2010		2011		2010

Occupancy		83.8%		82.6%		78.1%		77.1%
Increase		1.4%				1.4%
ADR	$	198.18	$	188.83	$	192.36	$	183.04
Increase		5.0%				5.1%
RevPAR	$	166.09	$	156.06	$	150.32	$	141.10
Increase		6.4%				6.5%

Note:

Non-GAAP Financial Measures

FFO, EBITDA and Hotel EBITDA

The Company considers the non-GAAP measures of FFO (including FFO per share), 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 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 (excluding amortization of deferred finance costs) 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 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. We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

FFO, EBITDA and hotel EBITDA do not represent cash generated from operating activities determined by GAAP and should not be considered as alternatives to net income, 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) and adjusted EBITDA, which adjusts for certain additional items including gains on sale of property (to the extent included in FFO or EBITDA), impairment losses, 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.

Logos, product and company names mentioned are the property of their respective owners.

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