LaSalle Hotel Properties Reports Adjusted EBITDA Growth of 12.8% for First Quarter 2014
The Company’s adjusted EBITDA was $44.9 million, an increase of 12.8 percent over the first quarter of 2013.
LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended March 31, 2014. The Company’s results include the following:
| First Quarter | |||||||||||
| 2014 | 2013 | % Var. | |||||||||
| ($’s in millions except per share/unit data) | |||||||||||
|
Entire Portfolio (Including Park Central Hotel) |
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| RevPAR | $ | 144.40 | $ | 138.81 | 4.0 | % | |||||
| Total Revenue | $ | 218.9 | $ | 191.7 | 14.2 | % | |||||
| EBITDA(1) | $ | 43.0 | $ | 39.8 | 8.0 | % | |||||
| Adjusted EBITDA(1) | $ | 44.9 | $ | 39.8 | 12.8 | % | |||||
| FFO(1) | $ | 28.8 | $ | 25.7 | 12.1 | % | |||||
| Adjusted FFO(1) | $ | 33.2 | $ | 25.7 | 29.2 | % | |||||
| FFO per diluted share/unit(1) | $ | 0.28 | $ | 0.27 | 3.7 | % | |||||
| Adjusted FFO per diluted share/unit(1) | $ | 0.32 | $ | 0.27 | 18.5 | % | |||||
| Net loss attributable to common shareholders | $ | (9.0 | ) | $ | (7.4 | ) | 21.6 | % | |||
| Net loss attributable to common shareholders per diluted share | $ | (0.09 | ) | $ | (0.08 | ) | 11.6 | % | |||
First Quarter Results and Activities
Entire Portfolio Results
- RevPAR: Room revenue per available room (“RevPAR”) for the quarter ended March 31, 2014 increased 4.0 percent to $144.40, as a result of a 6.2 percent increase in average daily rate (“ADR”) to $201.36 and a 2.0 percent decrease in occupancy to 71.7 percent. RevPAR for the portfolio excluding Park Central and WestHouse increased 3.6 percent.
- Hotel EBITDA Margin: The Company’s hotel EBITDA margin for the first quarter was 22.7 percent, a 125 basis point decline compared to the comparable prior year period.
Excluding Park Central and WestHouse, the Company’s hotel EBITDA margin for the first quarter was flat relative to the same period last year. First quarter results were also impacted by increases in property taxes and energy costs. Excluding these cost increases, the Company’s hotel EBITDA margin increased 71 basis points.
First quarter hotel EBITDA margin results were in line with the Company’s expectations and did not result in any change to the Company’s full year 2014 outlook.
- Adjusted EBITDA: The Company’s adjusted EBITDA was $44.9 million, an increase of 12.8 percent over the first quarter of 2013.
- Adjusted FFO: The Company generated first quarter adjusted FFO of $33.2 million, or $0.32 per diluted share/unit, compared to $25.7 million or $0.27 per diluted share/unit for the comparable prior year period.
- Capital Markets: In January 2014, the Company refinanced $1.05 billion of debt, reducing the interest cost on its $750.0 million revolver and $300.0 million five-year term loan. The maturities were extended to January 2019, including two six-month extension options for the revolver, subject to certain conditions. The revolver and term loan include accordion features which, subject to certain conditions, entitle the Company to request additional lender commitments, allowing for total commitments up to $1.05 billion for the revolver and $500.0 million for the term loan.
The interest rate for the new revolver is based on a pricing grid with a range of 170 to 245 basis points over LIBOR, based on the Company’s leverage ratio and is currently LIBOR plus 170 basis points, or 1.86 percent. Pricing for the term loan is LIBOR plus 160 to 235 basis points, based on the Company’s leverage ratio. The term loan remains swapped, locking in LIBOR through August 2017, resulting in a current interest rate of 2.38 percent.
The Company did not sell any shares under its ATM program during the first quarter or to date during the second quarter.
- Mezzanine Loan Repayment: On February 10, 2014, the mezzanine loan on Casa del Mar and Shutters on the Beach was repaid by the borrower. The Company received repayment of the principal amount, which was $72.0 million. The Company acquired the mezzanine loan on July 13, 2012 for $67.4 million. Inclusive of interest payments, the Company’s net profit on its investment was $14.7 million, over 19 months, which represented a 14.2 percent unleveraged IRR. Proceeds from the repayment were used to reduce the outstanding balance on the Company’s revolver.
- Capital Investments: The Company invested $16.4 million of capital in its hotels, including the completion of renovations at Onyx Hotel in Boston, Hilton Alexandria Old Town, as well as Hotel George and Donovan House in Washington, DC.
- Dividends: On March 14, 2014, the Company declared a first quarter 2014 dividend of $0.28 per common share of beneficial interest.
Second Quarter 2014 Common Dividend
The Company’s Board of Trustees has declared that it has increased the quarterly common dividend in the second quarter 2014 by 34 percent to $0.375 per diluted share, an annualized rate of $1.50 per diluted share.
“First quarter performance was in line with our expectations,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties. “RevPAR was above the midpoint of our outlook despite several winter storms that impacted our properties in the northeast and Chicago. Our first quarter RevPAR was also impacted by tough comparisons in Washington, DC, due to the inauguration last year and New York, which benefited from post Hurricane Sandy related business.”
“Adjusted EBITDA was towards the high-end of our range and increased 12.8 percent from the first quarter of 2013. Adjusted FFO per share/unit increased 18.5 percent over last year.”
“We are very pleased with the Board’s decision to substantially increase the dividend by 34 percent to an annualized rate of $1.50 per share in the second quarter. The increase reflects the strong growth our portfolio has delivered throughout the recovery and our expectation that there remains growth in the cycle. The dividend represents a 4.6 percent yield on our stock price as of yesterday’s close.”
Balance Sheet
As of March 31, 2014, the Company had total outstanding debt of $1.2 billion, including $196.0 million outstanding on its senior unsecured credit facility. Total net debt to trailing 12 month Corporate EBITDA (as defined in the Company’s senior unsecured credit facility) was 3.9 times as of March 31, 2014 and its fixed charge coverage ratio was 3.5 times. For the first quarter, the Company’s weighted average interest rate was 3.7 percent. As of March 31, 2014, the Company had $16.9 million of cash and cash equivalents on its balance sheet and capacity of $576 million available on its credit facilities.
Subsequent Events
On April 2, the Company closed on its acquisition of Hotel Vitale in San Francisco for $130 million. Hotel Vitale is a 200-room hotel located on the Embarcadero. The Company funded the acquisition with borrowings from its senior unsecured credit facility.
“We are very excited to have acquired Hotel Vitale in San Francisco,” said Mr. Barnello. “The quality of the physical asset is outstanding, as is its location on the Embarcadero in the heart of the Financial District. San Francisco is one of the strongest lodging markets in the United States and this acquisition increases our presence in the market to 10 percent of our EBITDA.”
2014 Outlook
The Company’s 2014 outlook is unchanged from the outlook included in its fourth quarter 2013 earnings release, with the exception that it includes the acquisition of Hotel Vitale. The outlook is based on an economic environment that continues to improve and assumes no additional acquisitions and no capital markets activities. The Company’s RevPAR growth and financial expectations for 2014 are as follows:
Second Quarter 2014 Outlook
The Company expects second quarter RevPAR to increase 7.0 percent to 9.5 percent and hotel EBITDA margins to range from approximately flat to an increase of 50 basis points relative to the same prior year period. The Company expects its portfolio to generate adjusted EBITDA of $103.0 million to $109.0 million and adjusted FFO per share/unit of $0.77 to $0.81.
| LASALLE HOTEL PROPERTIES | ||||||||
| Consolidated Statements of Operations and Comprehensive Loss | ||||||||
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(in thousands, except share data) |
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|
(unaudited) |
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| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Revenues: | ||||||||
| Hotel operating revenues: | ||||||||
| Room | $ | 147,967 | $ | 126,988 | ||||
| Food and beverage | 54,115 | 49,846 | ||||||
| Other operating department | 15,025 | 13,384 | ||||||
| Total hotel operating revenues | 217,107 | 190,218 | ||||||
| Other income | 1,757 | 1,486 | ||||||
| Total revenues | 218,864 | 191,704 | ||||||
| Expenses: | ||||||||
| Hotel operating expenses: | ||||||||
| Room | 43,684 | 37,584 | ||||||
| Food and beverage | 41,700 | 37,304 | ||||||
| Other direct | 5,181 | 5,022 | ||||||
| Other indirect | 60,423 | 53,735 | ||||||
| Total hotel operating expenses | 150,988 | 133,645 | ||||||
| Depreciation and amortization | 37,760 | 33,121 | ||||||
| Real estate taxes, personal property taxes and insurance | 14,954 | 12,354 | ||||||
| Ground rent | 2,933 | 2,495 | ||||||
| General and administrative | 5,492 | 5,147 | ||||||
| Acquisition transaction costs | 107 | 0 | ||||||
| Other expenses | 3,207 | 641 | ||||||
| Total operating expenses | 215,441 | 187,403 | ||||||
| Operating income | 3,423 | 4,301 | ||||||
| Interest income | 1,789 | 2,369 | ||||||
| Interest expense | (13,988 | ) | (14,017 | ) | ||||
| Loss from extinguishment of debt | (2,487 | ) | 0 | |||||
| Loss before income tax benefit | (11,263 | ) | (7,347 | ) | ||||
| Income tax benefit | 6,392 | 5,017 | ||||||
| Net loss | (4,871 | ) | (2,330 | ) | ||||
| Noncontrolling interests of common units in Operating Partnership | 6 | 0 | ||||||
| Net loss attributable to the Company | (4,865 | ) | (2,330 | ) | ||||
| Distributions to preferred shareholders | (4,107 | ) | (5,065 | ) | ||||
| Net loss attributable to common shareholders | $ | (8,972 | ) | $ | (7,395 | ) | ||
| LASALLE HOTEL PROPERTIES | ||||||||
| Consolidated Statements of Operations and Comprehensive Loss – Continued | ||||||||
|
(in thousands, except share data) |
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|
(unaudited) |
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| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Earnings per Common Share – Basic: | ||||||||
| Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | (0.09 | ) | $ | (0.08 | ) | ||
| Earnings per Common Share – Diluted: | ||||||||
| Net loss attributable to common shareholders excluding amounts attributable to unvested restricted shares | $ | (0.09 | ) | $ | (0.08 | ) | ||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | 103,691,657 | 95,166,029 | ||||||
| Diluted | 103,691,657 | 95,166,029 | ||||||
| Comprehensive Loss: | ||||||||
| Net loss | $ | (4,871 | ) | $ | (2,330 | ) | ||
| Other comprehensive (loss) income: | ||||||||
| Unrealized (loss) gain on interest rate derivative instruments | (972 | ) | 1,519 | |||||
| Comprehensive loss | (5,843 | ) | (811 | ) | ||||
| Noncontrolling interests of common units in Operating Partnership | 9 | (5 | ) | |||||
| Comprehensive loss attributable to the Company | $ | (5,834 | ) | $ | (816 | ) | ||
| LASALLE HOTEL PROPERTIES | ||||||||
| FFO and EBITDA | ||||||||
|
(in thousands, except share/unit data) |
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|
(unaudited) |
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| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net loss attributable to common shareholders | $ | (8,972 | ) | $ | (7,395 | ) | ||
| Depreciation | 37,658 | 33,011 | ||||||
| Amortization of deferred lease costs | 87 | 88 | ||||||
| Noncontrolling interests of common units in Operating Partnership | (6 | ) | 0 | |||||
| FFO | $ | 28,767 | $ | 25,704 | ||||
| Pre-opening, management transition and severance expenses | 2,495 | 290 | ||||||
| Acquisition transaction costs | 107 | 0 | ||||||
| Loss from extinguishment of debt | 2,487 | 0 | ||||||
| Non-cash ground rent | 324 | 327 | ||||||
| Mezzanine loan discount amortization | (986 | ) | (591 | ) | ||||
| Adjusted FFO | $ | 33,194 | $ | 25,730 | ||||
| Weighted Average number of common shares and units outstanding: | ||||||||
| Basic | 103,987,957 | 95,462,329 | ||||||
| Diluted | 104,298,342 | 95,615,525 | ||||||
| FFO per diluted share/unit | $ | 0.28 | $ | 0.27 | ||||
| Adjusted FFO per diluted share/unit | $ | 0.32 | $ | 0.27 | ||||
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net loss attributable to common shareholders | $ | (8,972 | ) | $ | (7,395 | ) | ||
| Interest expense | 13,988 | 14,017 | ||||||
| Loss from extinguishment of debt | 2,487 | 0 | ||||||
| Income tax benefit | (6,392 | ) | (5,017 | ) | ||||
| Depreciation and amortization | 37,760 | 33,121 | ||||||
| Noncontrolling interests of common units in Operating Partnership | (6 | ) | 0 | |||||
| Distributions to preferred shareholders | 4,107 | 5,065 | ||||||
| EBITDA | $ | 42,972 | $ | 39,791 | ||||
| Pre-opening, management transition and severance expenses | 2,495 | 290 | ||||||
| Acquisition transaction costs | 107 | 0 | ||||||
| Non-cash ground rent | 324 | 327 | ||||||
| Mezzanine loan discount amortization | (986 | ) | (591 | ) | ||||
| Adjusted EBITDA | $ | 44,912 | $ | 39,817 | ||||
| Corporate expense | 7,491 | 6,406 | ||||||
| Interest and other income | (3,334 | ) | (3,855 | ) | ||||
| Hotel level adjustments, net | (137 | ) | 7,617 | |||||
| Hotel EBITDA | $ | 48,932 | $ | 49,985 | ||||
| LASALLE HOTEL PROPERTIES | ||||||||
| Hotel Operational Data | ||||||||
| Schedule of Property Level Results | ||||||||
|
(in thousands) |
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|
(unaudited) |
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| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Revenues: | ||||||||
| Room | $ | 147,967 | $ | 142,253 | ||||
| Food and beverage | 53,244 | 53,472 | ||||||
| Other | 14,740 | 13,341 | ||||||
| Total hotel revenues | 215,951 | 209,066 | ||||||
| Expenses: | ||||||||
| Room | 43,684 | 41,436 | ||||||
| Food and beverage | 40,828 | 40,003 | ||||||
| Other direct | 5,097 | 5,172 | ||||||
| General and administrative | 20,048 | 19,119 | ||||||
| Sales and marketing | 16,610 | 15,828 | ||||||
| Management fees | 6,164 | 6,091 | ||||||
| Property operations and maintenance | 8,988 | 8,877 | ||||||
| Energy and utilities | 7,260 | 6,597 | ||||||
| Property taxes | 13,414 | 11,575 | ||||||
| Other fixed expenses | 4,926 | 4,383 | ||||||
| Total hotel expenses | 167,019 | 159,081 | ||||||
| Hotel EBITDA | $ | 48,932 | $ | 49,985 | ||||
| Hotel EBITDA Margin | 22.7 | % | 23.9 | % | ||||
| LASALLE HOTEL PROPERTIES | ||||||||
| Statistical Data for the Hotels | ||||||||
|
(unaudited) |
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| For the three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Total Portfolio | ||||||||
| Occupancy | 71.7 | % | 73.2 | % | ||||
| Decrease | (2.0 | )% | ||||||
| ADR | $ | 201.36 | $ | 189.64 | ||||
| Increase | 6.2 | % | ||||||
| RevPAR | $ | 144.40 | $ | 138.81 | ||||
| Increase | 4.0 | % | ||||||
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 (excluding amortization of deferred finance costs) 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. 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 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.