LaSalle Hotel Properties Results

LaSalle Hotel Properties Reports Second Quarter 2016 Results

Completes Two Asset Sales in July 2016, Resulting in $245 Million Gross Proceeds

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

 

 
    Second Quarter   Year-to-Date
    2016   2015   % Var.   2016   2015   % Var.
    ($'s in millions except per share/unit data)
                             
Net income attributable to common shareholders   $ 55.2     $ 55.8     -1.1 %   $ 61.2     $ 55.5     10.3 %
Net income attributable to common shareholders per diluted share   $ 0.49     $ 0.49     0.0 %   $ 0.54     $ 0.49     10.2 %
                             
RevPAR   $ 223.13     $ 219.31     1.7 %   $ 195.56     $ 192.11     1.8 %
Hotel EBITDA Margin(1)     38.6 %     38.3 %         33.4 %     33.0 %    
Hotel EBITDA Margin Growth(1)   31 bps             45 bps          
                             
Total Revenue   $ 351.1     $ 341.4     2.8 %   $ 611.2     $ 592.2     3.2 %
EBITDA(1)   $ 127.6     $ 124.4     2.6 %   $ 190.5     $ 178.8     6.5 %
Adjusted EBITDA(1)   $ 130.5     $ 125.2     4.2 %   $ 195.5     $ 182.4     7.2 %
FFO(1)   $ 104.1     $ 101.8     2.3 %   $ 157.7     $ 144.4     9.2 %
Adjusted FFO(1)   $ 107.0     $ 102.6     4.3 %   $ 162.7     $ 147.9     10.0 %
FFO per diluted share/unit(1)   $ 0.92     $ 0.90     2.2 %   $ 1.39     $ 1.27     9.4 %
Adjusted FFO per diluted share/unit(1)   $ 0.95     $ 0.91     4.4 %   $ 1.44     $ 1.31     9.9 %
                           

 

“During the second quarter, our team and operators continued to execute at record levels, delivering hotel EBITDA growth and a best-in-class 38.6 percent hotel EBITDA margin,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “Concurrently, we have been able to further strengthen the Company through a preferred equity raise and by completing two non-core asset dispositions.”

“The preferred equity offering boasts the lowest-ever coupon for a lodging REIT. The sale of Indianapolis Marriott Downtown capped off an excellent long-term investment for us. We owned the hotel for 12 years and it generated a 13.7 percent unleveraged IRR. We also sold our non-core junior mezzanine loan on Shutters on the Beach and Casa Del Mar at par. Each of these transactions has reduced our debt, and as a result our debt-to-EBITDA ratio, further bolstering our already solid balance sheet,” added Mr. Barnello.

Second Quarter Results

  • Net Income: The Company’s net income attributable to common shareholders was $55.2 million.
  • RevPAR: Room revenue per available room (“RevPAR”) increased 1.7 percent to $223.13, primarily driven by a 2.0 percent growth in occupancy to 88.7 percent. Average daily rate (“ADR”) was just below the prior year at $251.58.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 31 basis points from the comparable prior year period to 38.6 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $130.5 million, an increase of 4.2 percent over the second quarter of 2015.
  • Adjusted FFO: The Company generated adjusted FFO of $107.0 million, or $0.95 per diluted share/unit, compared to $102.6 million, or $0.91 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 4.4 percent.

Year-to-Date Results

  • Net Income: The Company grew net income attributable to common shareholders by 10.3 percent to $61.2 million.
  • RevPAR: RevPAR increased 1.8 percent to $195.56, primarily driven by a 2.0 percent growth in occupancy to 82.3 percent. ADR was just below the prior year at $237.62.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 45 basis points from the comparable prior year period to 33.4 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $195.5 million, an increase of 7.2 percent over the first half of 2015.
  • Adjusted FFO: The Company generated adjusted FFO of $162.7 million, or $1.44 per diluted share/unit, compared to $147.9 million, or $1.31 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 9.9 percent.

Subsequent Events: Asset Sales

On July 8, 2016, the Company sold its junior mezzanine loan (the “Mezzanine Loan”) secured by equity interests in two hotels: Shutters on the Beach and Casa Del Mar, in Santa Monica, California. The Mezzanine Loan sold for $80.0 million, which was the principal amount. The Company originally provided the Mezzanine Loan on July 20, 2015.

On July 14, 2016, the Company sold the Indianapolis Marriott Downtown for $165.0 million, generating a 13.7 percent unleveraged IRR. The Company acquired the hotel in February 2004 for $106.0 million. For RevPAR, hotel EBITDA, and hotel EBITDA margin detail for this hotel for the trailing four quarters, please refer to the supporting table at the end of this release.

Proceeds from both transactions were used to reduce borrowings on the Company’s senior unsecured credit facility and for general corporate purposes.

Capital Markets Activities

During the quarter, the Company issued 6,000,000 6.3 percent Series J Cumulative Redeemable Preferred Shares for gross proceeds of $150.0 million. The 6.3 percent coupon is the lowest-ever for a lodging REIT.

Capital Investments

During the quarter, the Company invested $21.2 million of capital in its hotels. As a result of fewer planned renovations at the end of 2016 and the sale of Indianapolis Marriott Downtown, the Company is lowering its 2016 anticipated capital expenditures to a range of $110.0 million to $130.0 million. Previously, the Company anticipated investing between $130.0 million and $170.0 million of capital in its hotels during 2016.

Balance Sheet

As of June 30, 2016, the Company had total outstanding debt of $1.3 billion, including $190.0 million outstanding on its senior unsecured credit facility. Total net debt to trailing 12 month Corporate EBITDA (as defined in the financial covenant section of the Company’s senior unsecured credit facility) was 3.2 times as of June 30, 2016 and its fixed charge coverage ratio was 5.6 times. For the second quarter, the Company’s weighted average interest rate was 2.5 percent, compared to 3.3 percent during the same prior year period. As of June 30, 2016, the Company had $43.1 million of cash and cash equivalents on its balance sheet and capacity of $582.4 million available on its credit facilities.

Pro forma for the sale of Indianapolis Marriott Downtown and the Mezzanine Loan, the Company’s total net debt to trailing 12 month Corporate EBITDA is 2.9 times, with $98.1 million of cash and cash equivalents on its balance sheet and capacity of $772.4 million available on its credit facilities.

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

Dividend

On June 15, 2016, the Company declared a second quarter 2016 dividend of $0.45 per common share of beneficial interest. The dividend represents an annual run rate of $1.80 per share and a 7.0 percent yield based on the closing share price on July 19, 2016.

Appointment of Kenneth G. Fuller as Chief Financial Officer

On April 25, 2016, Kenneth G. Fuller was appointed as the Company’s Executive Vice President, Chief Financial Officer, Secretary, and Treasurer. Mr. Fuller returned to the Company after founding Vine Investment Partners (“Vine”) – a real estate company focused on acquiring and developing multi-family residential properties and hotels. Prior to founding Vine, Mr. Fuller served the Company in various positions dating back to 2000, including most recently as Treasurer from 2011 to 2015.

About LaSalle Hotel Properties

LaSalle Hotel Properties is a leading multi-operator real estate investment trust. The Company owns 46 properties, which are upscale, full-service hotels, totaling approximately 11,450 guest rooms in 13 markets in nine states and the District of Columbia. The Company focuses on owning, redeveloping and repositioning upscale, full-service hotels located in urban, resort and convention markets. LaSalle Hotel Properties seeks to grow through strategic relationships with premier lodging groups, including Hilton Hotels Corporation, Marriott International, Starwood Hotels & Resorts Worldwide, Outrigger Lodging Services, Noble House Hotels & Resorts, Hyatt Hotels Corporation, Benchmark Hospitality, Commune Hotels and Resorts, Destination Hotels, Davidson Hotel Company, Kimpton Hotel & Restaurant Group, LLC, Accor, HEI Hotels & Resorts, JRK Hotel Group, Inc., Viceroy Hotel Group, Highgate Hotels and Access Hotels & Resorts.

 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share data)

(unaudited)

 
  For the three months ended   For the six months ended
June 30, June 30,
2016   2015 2016   2015
Revenues:
Hotel operating revenues:
Room $ 245,286 $ 242,447 $ 426,706 $ 413,038
Food and beverage 79,025 75,480 135,372 136,395
Other operating department   24,457     21,560     45,100     39,577  
Total hotel operating revenues 348,768 339,487 607,178 589,010
Other income   2,319     1,899     4,013     3,179  
Total revenues   351,087     341,386     611,191     592,189  
Expenses:
Hotel operating expenses:
Room 58,963 55,998 111,254 104,719
Food and beverage 49,994 49,069 92,902 94,187
Other direct 4,973 4,927 8,656 8,847
Other indirect   80,283     78,877     152,198     148,879  
Total hotel operating expenses 194,213 188,871 365,010 356,632
Depreciation and amortization 48,841 45,916 96,469 88,794
Real estate taxes, personal property taxes and insurance 16,919 16,352 33,110 32,286
Ground rent 4,108 4,011 7,921 7,673
General and administrative 7,643 6,501 13,473 12,768
Acquisition transaction costs 0 (3 ) 0 444
Other expenses   2,327     1,259     4,505     3,604  
Total operating expenses   274,051     262,907     520,488     502,201  
Operating income 77,036 78,479 90,703 89,988
Interest income 1,676 1 3,330 7
Interest expense   (11,482 )   (13,895 )   (23,349 )   (27,540 )
Income before income tax expense 67,230 64,585 70,684 62,455
Income tax expense   (7,610 )   (5,574 )   (1,990 )   (706 )
Net income   59,620     59,011     68,694     61,749  
Net income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8 ) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership   (81 )   (139 )   (96 )   (154 )
Net income attributable to noncontrolling interests   (89 )   (147 )   (104 )   (162 )
Net income attributable to the Company 59,531 58,864 68,590 61,587
Distributions to preferred shareholders   (4,355 )   (3,042 )   (7,397 )   (6,084 )
Net income attributable to common shareholders $ 55,176   $ 55,822   $ 61,193   $ 55,503  
 
 
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations and Comprehensive Income - Continued

(in thousands, except share data)

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2016   2015 2016   2015
Earnings per Common Share - Basic:

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

$ 0.49   $ 0.49   $ 0.54   $ 0.49  
Earnings per Common Share - Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.49   $ 0.49   $ 0.54   $ 0.49  
Weighted average number of common shares outstanding:
Basic 112,784,976 112,728,085 112,766,734 112,688,122
Diluted 113,113,253 113,141,908 113,119,556 113,094,640
 
Comprehensive Income:
Net income $ 59,620 $ 59,011 $ 68,694 $ 61,749
Other comprehensive income:
Unrealized (loss) gain on interest rate derivative instruments (5,971 ) 26 (20,223 ) (4,372 )
Reclassification adjustment for amounts recognized in net income   1,730     1,069     3,510     2,139  
55,379 60,106 51,981 59,516
Comprehensive income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8 ) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership   (76 )   (144 )   (75 )   (150 )
Comprehensive income attributable to noncontrolling interests   (84 )   (152 )   (83 )   (158 )
Comprehensive income attributable to the Company $ 55,295   $ 59,954   $ 51,898   $ 59,358  
 
 
LASALLE HOTEL PROPERTIES
FFO and EBITDA

(in thousands, except share/unit data)

(unaudited)

   
For the three months ended For the six months ended
June 30, June 30,
2016   2015 2016   2015
Net income attributable to common shareholders $ 55,176 $ 55,822 $ 61,193 $ 55,503
Depreciation 48,706 45,790 96,200 88,542
Amortization of deferred lease costs 82 72 162 147
Noncontrolling interests:
Noncontrolling interests in consolidated entities 8 8 8 8
Noncontrolling interests of common units in Operating Partnership   81     139     96     154  
FFO attributable to common shareholders and unitholders $ 104,053 $ 101,831 $ 157,659 $ 144,354
Pre-opening, management transition and severance expenses 2,518 303 4,064 2,150
Acquisition transaction costs 0 (3 ) 0 444
Non-cash ground rent   471     487     948     980  
Adjusted FFO attributable to common shareholders and unitholders $ 107,042   $ 102,618   $ 162,671   $ 147,928  
Weighted average number of common shares and units outstanding:
Basic 112,930,199 112,943,036 112,911,957 112,943,523
Diluted 113,258,476 113,356,859 113,264,779 113,350,041
FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.92 $ 0.90 $ 1.39 $ 1.27
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.95 $ 0.91 $ 1.44 $ 1.31
 
 
For the three months ended For the six months ended
June 30, June 30,
2016 2015 2016 2015
Net income attributable to common shareholders $ 55,176 $ 55,822 $ 61,193 $ 55,503
Interest expense 11,482 13,895 23,349 27,540
Income tax expense 7,610 5,574 1,990 706
Depreciation and amortization 48,841 45,916 96,469 88,794
Noncontrolling interests:
Noncontrolling interests in consolidated entities 8 8 8 8
Noncontrolling interests of common units in Operating Partnership 81 139 96 154
Distributions to preferred shareholders   4,355     3,042     7,397     6,084  
EBITDA $ 127,553 $ 124,396 $ 190,502 $ 178,789
Pre-opening, management transition and severance expenses 2,518 303 4,064 2,150
Acquisition transaction costs 0 (3 ) 0 444
Non-cash ground rent   471     487     948     980  
Adjusted EBITDA $ 130,542 $ 125,183 $ 195,514 $ 182,363
Corporate expense 7,685 7,656 14,409 14,642
Interest and other income (3,777 ) (1,900 ) (7,126 ) (3,186 )
Pro forma hotel level adjustments, net(1)   15     (1,625 )   (33 )   2,132  
Hotel EBITDA $ 134,465   $ 129,314   $ 202,764   $ 195,951  
 
 

LASALLE HOTEL PROPERTIES

Hotel Operational Data

Schedule of Property Level Results - Pro Forma(1)

(in thousands)

(unaudited)

 
 
    For the three months ended     For the six months ended
June 30, June 30,
2016     2015 2016     2015
Revenues:
Room $ 245,286 $ 240,959 $ 426,708 $ 416,563
Food and beverage 79,025 74,970 135,372 137,660
Other   24,336     22,121     44,602     40,134  
Total hotel revenues   348,647     338,050     606,682     594,357  
 
Expenses:
Room 58,963 56,175 111,253 105,640
Food and beverage 49,992 49,492 92,901 95,497
Other direct 4,854 4,860 8,515 8,666
General and administrative 22,426 21,768 42,608 41,737
Information and telecommunications systems 4,581 4,250 8,963 8,528
Sales and marketing 23,153 22,157 44,012 42,594
Management fees 10,926 11,541 18,557 19,220
Property operations and maintenance 9,907 9,817 19,736 19,643
Energy and utilities 7,180 7,300 14,451 15,048
Property taxes 15,275 14,579 29,654 28,709
Other fixed expenses   6,925     6,797     13,268     13,124  
Total hotel expenses   214,182     208,736     403,918     398,406  
 
Hotel EBITDA $ 134,465   $ 129,314   $ 202,764   $ 195,951  
 
Hotel EBITDA Margin 38.6 % 38.3 % 33.4 % 33.0 %
 
 

LASALLE HOTEL PROPERTIES

Statistical Data for the Hotels - Pro Forma(1)

(unaudited)

 
 
    For the three months ended     For the six months ended
June 30, June 30,
2016     2015 2016     2015
Total Portfolio
Occupancy 88.7 % 87.0 % 82.3 % 80.7 %
Increase 2.0 % 2.0 %
ADR $ 251.58 $ 252.14 $ 237.62 $ 238.05
Decrease (0.2 )% (0.2 )%
RevPAR $ 223.13 $ 219.31 $ 195.56 $ 192.11
Increase 1.7 % 1.8 %
 
 
 

For the three months

ended June 30, 2016

For the six months

ended June 30, 2016

Market Detail RevPAR Variance %
Boston 3.2% -1.8%
Chicago 2.4% -0.4%
Key West 7.8% 3.7%
Los Angeles 17.0% 18.1%
New York -6.5% -2.8%
Other(2) 9.3% 3.1%
Philadelphia -1.3% 0.2%
San Diego -2.6% -4.4%
San Francisco -0.5% 5.1%
Seattle 1.2% -0.7%
Washington, DC(3) 1.3% 1.6%
Washington, DC excluding Mason & Rook Hotel 2.8% 2.5%
 

(1) Pro forma to include the results of operations of the Park Central San Francisco and The Marker Waterfront Resort under previous ownership for the comparable period in 2015, and exclude the Mason & Rook Hotel for the period the hotel was closed for renovation in 2016 and the comparable period in 2015.

 

(2) Other includes Indianapolis, IN, Portland, OR, Santa Cruz, CA and Lansdowne, VA.

 

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

 
                   

LASALLE HOTEL PROPERTIES

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

(in millions)

(unaudited)

 

Prior Year Operating Data (Excluding Indianapolis Marriott Downtown) - 2016 Comparable

 
First Quarter Second Quarter Third Quarter Fourth Quarter Full Year
2015 2015 2015 2015 2015
Occupancy 74.7 % 87.9 % 86.2 % 77.8 % 81.7 %
ADR $ 223.82 $ 255.01 $ 250.34 $ 242.07 $ 243.70
RevPAR $ 167.22 $ 224.26 $ 215.77 $ 188.34 $ 199.18
 
Total hotel revenues $ 245.5 $ 325.2 $ 314.3 $ 279.0 $ 1,164.0
Less: Total hotel expenses   182.4     200.8     199.6     190.7     773.5  
Hotel EBITDA $ 63.1   $ 124.4   $ 114.7   $ 88.3   $ 390.5  
 
Hotel EBITDA Margin 25.7 % 38.3 % 36.5 % 31.6 % 33.5 %
 
 

Indianapolis Marriott Downtown: Actual Trailing 4 Quarters Selected Statistics

 
    Q3 2015     Q4 2015     Q1 2016     Q2 2016     Trailing 4Q
RevPAR $ 110.29 $ 121.14 $ 117.37 $ 150.64 $ 124.76
 
Total hotel revenues $ 11.3 $ 13.1 $ 11.7 $ 15.6 $ 51.7
Less: Total hotel expenses   10.3     11.2     8.8     10.3     40.6  
Net income 1.0 1.9 2.9 5.3 11.1
Interest expense 1.5 1.5 0.0 0.0 3.0
Depreciation   1.0     1.0     1.0     1.0     4.0  
Hotel EBITDA $ 3.5   $ 4.4   $ 3.9   $ 6.3   $ 18.1  
 
Hotel EBITDA Margin 31.0 % 33.6 % 33.3 % 40.4 % 35.0 %
 

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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