The Company’s net income attributable to common shareholders was $32 million, which decreased by $24 million from the same period in 2017. The second quarter 2017 benefited from $11 million of gains from the sale of two assets last year.

LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended June 30, 2018. The Company’s results are summarized below.

 

 
  Second Quarter   Year-to-Date
2018   2017   % Var. 2018   2017   % Var.
(dollars in millions except per share/unit data)
 
Net income attributable to common shareholders(1) $ 31.6 $ 55.5 -43.1 % $ 20.5 $ 131.6 -84.4 %
Net income attributable to common shareholders per diluted share(1) $ 0.28 $ 0.49 -42.9 % $ 0.18 $ 1.16 -84.5 %
 
RevPAR(2) $ 230.96 $ 227.18 1.7 % $ 198.28 $ 203.13 -2.4 %
Hotel EBITDAre Margin(2) 37.4 % 38.0 % 31.6 % 33.3 %
 
Adjusted EBITDAre(2) $ 107.9 $ 110.4 -2.3 % $ 155.5 $ 172.2 -9.7 %
Note: Second quarter 2017 included $3.7 million and year-to-date 2017 included $7.3 million of adjusted EBITDAre for assets that the Company sold in 2017.
 
Adjusted FFO attributable to common shareholders and unitholders(2) $ 88.3 $ 91.5 -3.5 % $ 125.6 $ 142.8 -12.0 %
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit(2) $ 0.80 $ 0.81 -1.2 % $ 1.12 $ 1.26 -11.1 %
 

 

(1) 2017 year-to-date net income included $85.5 million of gains from the sales of Hotel Deca, Lansdowne Resort, Alexis Hotel, Hotel Triton, and Westin Philadelphia.
(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 for real estate (“EBITDAre”), adjusted funds from operations (“FFO”), and pro forma hotel EBITDAre. 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.
 

 

Michael D. Barnello, President and Chief Executive Officer of LaSalle said, “Our second quarter results exceeded our expectations, as the industry and our portfolio benefitted from strong lodging demand. LaSalle took an important step this quarter to maximize shareholder value by entering into a definitive agreement to be acquired by Blackstone in an all-cash transaction. The transaction followed a thorough review of strategic alternatives and we believe it represents a compelling opportunity for LaSalle’s shareholders, delivering a significant premium with immediate and certain cash value.”

 

Second Quarter 2018 Results

 

  • Net Income: The Company’s net income attributable to common shareholders was $32 million, which decreased by $24 million from the same period in 2017. The second quarter 2017 benefited from $11 million of gains from the sale of two assets last year.
  • RevPAR: The Company’s second quarter 2018 RevPAR grew 1.7% to $231, driven by a 1.1% increase in average daily rate (“ADR”) to $261 and an occupancy growth of 0.6% to 88.6%. Excluding the Company’s hotels managed by Kimpton and Marriott, RevPAR increased 3.7% versus last year. For reference, Kimpton has been working on systems integration with the IHG platform throughout 2018, and Marriott has been doing the same with Starwood’s former systems.
  • Hotel EBITDAre Margin: The Company’s hotel EBITDAre margin was 37.4%.
  • Adjusted EBITDAre: The Company’s adjusted EBITDAre was $108 million, which declined $2 million year-over-year. In the second quarter 2017, the Company earned $4 million of adjusted EBITDAre from assets sold in 2017.
  • Adjusted FFO: The Company generated adjusted FFO of $88 million, or $0.80 per diluted share/unit, compared to $92 million, or $0.81 per diluted share/unit, for the second quarter 2017.

Year-to-Date 2018 Results

 

  • Net Income: The Company’s net income attributable to common shareholders was $20 million, which decreased by $111 million from the same period in 2017. During the first half of 2017, the Company sold five assets for a combined gain of $86 million, which distorts this comparison year-over-year.
  • RevPAR: The Company’s first half 2018 RevPAR decreased 2.4% to $198, driven by a 1.0% reduction in ADR to $242 and an occupancy decline of 1.4% to 81.8%. Excluding the Company’s hotels managed by Kimpton and Marriott, RevPAR was flat to last year.
  • Hotel EBITDAre Margin: The Company’s hotel EBITDAre margin was 31.6%.
  • Adjusted EBITDAre: The Company’s adjusted EBITDAre was $155 million, a decrease of $17 million from the first half of 2017. In the first half of 2017, the Company earned $7 million of adjusted EBITDAre from assets sold in 2017, negatively impacting the year-over-year comparison.
  • Adjusted FFO: The Company generated adjusted FFO of $126 million, or $1.12 per diluted share/unit, compared to $143 million, or $1.26 per diluted share/unit, for the first half of 2017.

Capital Investments: The Company invested $42 million of capital in its hotels in the second quarter. Since March, the Company has completed guestroom renovations at San Diego Paradise Point Resort & Spa, Hotel Spero, Harbor Court Hotel, The Heathman Hotel, Chamberlain West Hollywood, Montrose West Hollywood, and Westin Copley Place. The Company also completed lobby or restaurant renovations at Hotel Spero, Harbor Court Hotel, The Heathman Hotel, Chamberlain West Hollywood, Montrose West Hollywood, and Sofitel Washington, DC Lafayette Square. Additionally, the Company renovated its meeting space at Hotel Chicago and Hyatt Regency Boston Harbor.

 

Balance Sheet and Capital Markets Activities

 

  • Balance Sheet Summary as of June 30, 2018: 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 2.6 times. The Company’s fixed charge coverage ratio was 5.2 times, and its weighted average interest rate for the second quarter was 3.3%. The Company had capacity of $773 million available on its credit facilities, in addition to $221 million of cash and cash equivalents on its balance sheet.
  • Share Repurchase Program: The Company has not repurchased any common shares under its share repurchase program since March 5, 2018.

Key West Impact Update: In the second quarter’s adjusted EBITDAre, the Company recorded $1.3 million of business interruption proceeds related to losses in 2017 and 2018 following Hurricane Irma. Year-to-date through the second quarter, the Company collected $2.6 million of business interruption proceeds relating to Hurricane Irma. The Company will continue to process business interruption claims for both of the Key West properties.

 

Dividend: On June 15, 2018, the Company declared a second quarter 2018 dividend of $0.225 per common share.

 

Blackstone Transaction: As previously announced on May 21, 2018, LaSalle entered into a definitive agreement with affiliates of Blackstone Real Estate Partners VIII (“Blackstone”), under which Blackstone would acquire all outstanding common shares of LaSalle for $33.50 per share in an all-cash transaction valued at $4.8 billion (the “Blackstone Merger Agreement”). The transaction was unanimously approved by LaSalle’s Board of Trustees after careful consideration of multiple proposals received. The Company remains committed to completing the transaction with Blackstone, which is subject to customary closing conditions, including the approval of LaSalle’s shareholders. The LaSalle Board recommends that shareholders vote “FOR” the proposal to approve the merger and other transactions contemplated by the Blackstone Merger Agreement in advance of the special meeting of shareholders, which will be held on September 6, 2018. The transaction is expected to close within a week of the special meeting and is not contingent on receipt of financing.

 

 

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 10,452 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)

 
  June 30,  

December 31,
2018 2017
(unaudited)

Assets:
Investment in hotel properties, net $ 3,288,558 $ 3,265,615
Property under development 14,781 49,459
Cash and cash equivalents 220,771 400,667
Restricted cash reserves 14,025 14,262
Hotel receivables (net of allowance for doubtful accounts of $357 and $404, respectively) 43,904 35,916
Debt issuance costs for borrowings under credit facilities, net 2,729 3,274
Deferred tax assets 2,136 2,136
Prepaid expenses and other assets 64,634   43,612  
Total assets $ 3,651,538   $ 3,814,941  
Liabilities:
Borrowings under credit facilities $ 0 $ 0
Term loans, net of unamortized debt issuance costs 853,488 853,195
Bonds payable, net of unamortized debt issuance costs 0 42,494
Mortgage loan, net of unamortized debt issuance costs 224,915 224,432
Accounts payable and accrued expenses 147,953 134,216
Advance deposits 32,084 26,625
Accrued interest 2,295 2,383
Distributions payable 28,984   55,135  
Total liabilities 1,289,719   1,338,480  
Commitments and contingencies
Equity:
Shareholders’ Equity:
Preferred shares of beneficial interest, $0.01 par value (liquidation preference of $260,000), 40,000,000 shares authorized; 10,400,000 shares issued and outstanding 104 104
Common shares of beneficial interest, $0.01 par value, 200,000,000 shares authorized; 113,251,427 shares issued and 110,382,519 shares outstanding, and 113,251,427 shares issued and 113,209,392 shares outstanding, respectively 1,132 1,132
Treasury shares, at cost (71,658 ) (1,181 )
Additional paid-in capital, net of offering costs of $82,865 and $82,842, respectively 2,766,809 2,767,924
Accumulated other comprehensive income 22,042 10,880
Distributions in excess of retained earnings (359,894 ) (305,708 )
Total shareholders’ equity 2,358,535   2,473,151  
Noncontrolling Interests:
Noncontrolling interests in consolidated entities 16 18
Noncontrolling interests of common units in Operating Partnership 3,268   3,292  
Total noncontrolling interests 3,284   3,310  
Total equity 2,361,819   2,476,461  
Total liabilities and equity $ 3,651,538   $ 3,814,941  
 

 

 
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 six months ended
June 30, June 30,
2018   2017 2018   2017
Revenues:
Hotel operating revenues:
Room $ 219,666 $ 222,385 $ 375,088 $ 400,750
Food and beverage 56,977 59,308 100,609 111,612
Other operating department 24,521   22,118   44,628   42,485  
Total hotel operating revenues 301,164 303,811 520,325 554,847
Other income 3,445   3,233   7,307   6,602  
Total revenues 304,609   307,044   527,632   561,449  
Expenses:
Hotel operating expenses:
Room 55,885 55,271 105,071 107,594
Food and beverage 39,265 40,132 74,081 79,280
Other direct 3,439 2,654 6,372 6,838
Other indirect 71,053   73,177   133,247   142,833  
Total hotel operating expenses 169,642 171,234 318,771 336,545
Depreciation and amortization 46,857 44,066 92,172 91,329
Real estate taxes, personal property taxes and insurance 16,308 14,089 32,336 30,204
Ground rent 4,245 3,823 8,074 7,208
General and administrative 6,667 6,917 13,183 13,471
Costs related to the Mergers and unsolicited takeover offers 8,680 0 11,331 0
Other expenses 1,589   1,559   2,809   3,477  
Total operating expenses 253,988   241,688   478,676   482,234  
Operating income 50,621 65,356 48,956 79,215
Interest income 569 315 1,403 457
Interest expense (10,458 ) (9,423 ) (20,618 ) (19,250 )
Loss from extinguishment of debt 0   0   0   (1,706 )
Income before income tax expense 40,732 56,248 29,741 58,716
Income tax expense (4,993 ) (5,003 ) (966 ) (230 )
Income before gain on sale of properties 35,739 51,245 28,775 58,486
Gain on sale of properties 0   11,156   0   85,514  
Net income 35,739   62,401   28,775   144,000  
Net income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8 ) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership (61 ) (83 ) (59 ) (193 )
Net income attributable to noncontrolling interests (69 ) (91 ) (67 ) (201 )
Net income attributable to the Company 35,670 62,310 28,708 143,799
Distributions to preferred shareholders (4,115 ) (4,387 ) (8,231 ) (9,792 )
Issuance costs of redeemed preferred shares 0   (2,401 ) 0   (2,401 )
Net income attributable to common shareholders $ 31,555   $ 55,522   $ 20,477   $ 131,606  
 

 

 
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 six months ended
June 30, June 30,
2018   2017 2018   2017
Earnings per Common Share - Basic:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.29   $ 0.49   $ 0.18   $ 1.16  
Earnings per Common Share - Diluted:
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $ 0.28   $ 0.49   $ 0.18   $ 1.16  
Weighted average number of common shares outstanding:
Basic 110,115,770 112,951,714 111,134,064 112,937,794
Diluted 110,552,220 113,342,151 111,552,469 113,347,580
 
Comprehensive Income:
Net income $ 35,739 $ 62,401 $ 28,775 $ 144,000
Other comprehensive income:
Unrealized gain (loss) on interest rate derivative instruments 3,677 (1,675 ) 11,886 (551 )
Reclassification adjustment for amounts recognized in net income (703 ) 498   (709 ) 1,483  
38,713 61,224 39,952 144,932
Comprehensive income attributable to noncontrolling interests:
Noncontrolling interests in consolidated entities (8 ) (8 ) (8 ) (8 )
Noncontrolling interests of common units in Operating Partnership (65 ) (82 ) (74 ) (194 )
Comprehensive income attributable to noncontrolling interests (73 ) (90 ) (82 ) (202 )
Comprehensive income attributable to the Company $ 38,640   $ 61,134   $ 39,870   $ 144,730  

 

 

 
LASALLE HOTEL PROPERTIES
FFO, EBITDA and EBITDAre

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

(unaudited)
 
  For the three months ended   For the six months ended
June 30, June 30,
2018   2017 2018   2017
Net income $ 35,739 $ 62,401 $ 28,775 $ 144,000
Depreciation 46,695 43,928 91,849 91,059
Amortization of deferred lease costs 123 91 243 170
Gain on sale of properties 0   (11,156 ) 0   (85,514 )
FFO $ 82,557 $ 95,264 $ 120,867 $ 149,715
Distributions to preferred shareholders (4,115 ) (4,387 ) (8,231 ) (9,792 )
Issuance costs of redeemed preferred shares 0   (2,401 ) 0   (2,401 )
FFO attributable to common shareholders and unitholders $ 78,442 $ 88,476 $ 112,636 $ 137,522
Pre-opening, management transition and severance expenses 927 169 1,135 251
Costs related to the Mergers and unsolicited takeover offers 8,680 0 11,331 0
Issuance costs of redeemed preferred shares 0 2,401 0 2,401
Loss from extinguishment of debt 0 0 0 1,706
Hurricane property insurance proceeds, net of related repairs and cleanup costs (197 ) 0 (552 ) 0
Loss from The Marker Waterfront Resort original development deficiencies 0 0 145 0
Non-cash ground rent 449   460   903   925  
Adjusted FFO attributable to common shareholders and unitholders $ 88,301   $ 91,506   $ 125,598   $ 142,805  
Weighted average number of common shares and units outstanding:
Basic 110,260,993 113,096,937 111,279,287 113,083,017
Diluted 110,697,443 113,487,374 111,697,692 113,492,803
FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.71 $ 0.78 $ 1.01 $ 1.21
Adjusted FFO attributable to common shareholders and unitholders per diluted share/unit $ 0.80 $ 0.81 $ 1.12 $ 1.26
 

 

 
  For the three months ended   For the six months ended
June 30, June 30,
2018   2017 2018   2017
Net income $ 35,739 $ 62,401 $ 28,775 $ 144,000
Interest expense 10,458 9,423 20,618 19,250
Income tax expense 4,993 5,003 966 230
Depreciation and amortization 46,857   44,066   92,172   91,329  
EBITDA $ 98,047 $ 120,893 $ 142,531 $ 254,809
Gain on sale of properties 0   (11,156 ) 0   (85,514 )
EBITDAre $ 98,047 $ 109,737 $ 142,531 $ 169,295
Pre-opening, management transition and severance expenses 927 169 1,135 251
Costs related to the Mergers and unsolicited takeover offers 8,680 0 11,331 0
Loss from extinguishment of debt 0 0 0 1,706
Hurricane property insurance proceeds, net of related repairs and cleanup costs (197 ) 0 (552 ) 0
Loss from The Marker Waterfront Resort original development deficiencies 0 0 145 0
Non-cash ground rent 449   460   903   925  

Adjusted EBITDAre

 $ 107,906 $ 110,366 $ 155,493 $ 172,177
Corporate expense 7,787 8,536 15,798 17,168
Interest and other income (4,012 ) (3,548 ) (8,710 ) (7,060 )
Pro forma hotel level adjustments, net(1) 1,268   (3,364 ) 2,570   (6,253 )

Hotel EBITDAre

 $ 112,949   $ 111,990   $ 165,151   $ 176,032  
 

 

 
(1)

Pro forma includes all properties owned by the Company as of June 30, 2018.
 

 

 
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,
2018   2017 2018   2017
Revenues:
Room $ 219,666 $ 216,061 $ 375,088 $ 384,236
Food and beverage 56,977 56,227 100,609 103,272
Other 25,555   22,400   46,647   40,784  

Total hotel revenues

 302,198   294,688   522,344   528,292  
 
Expenses:
Room 55,885 53,970 105,071 103,734
Food and beverage 39,265 38,833 74,081 74,453
Other direct 3,434 2,544 6,365 4,941
General and administrative 20,521 19,958 38,736 38,533
Information and telecommunications systems 3,910 4,053 7,920 8,233
Sales and marketing 19,263 19,051 36,807 36,826
Management fees 10,635 11,055 16,589 17,806
Property operations and maintenance 8,901 8,920 17,824 17,986
Energy and utilities 6,253 6,124 12,505 12,590
Property taxes 14,573 12,302 29,060 26,087
Other fixed expenses(2) 6,609   5,888   12,235   11,071  
Total hotel expenses 189,249   182,698   357,193   352,260  
 
Hotel EBITDAre $ 112,949   $ 111,990   $ 165,151   $ 176,032  
 
Hotel EBITDAre Margin 37.4 % 38.0 % 31.6 % 33.3 %
 

 

 
(1)

This schedule includes the operating data for the three and six months ended June 30, 2018 and 2017 for all properties owned by the Company as of June 30, 2018.
(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 $100 and $199 for the three and six months ended June 30, 2018 and 2017, respectively. At Harbor Court, the base and participating ground rent payments were $330 and $565 for the three and six months ended June 30, 2018, respectively, and $298 and $586 for the three and six months ended June 30, 2017, respectively.
 

 

 
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,
2018   2017 2018   2017
Total Portfolio
Occupancy 88.6 % 88.1 % 81.8 % 83.0 %

Increase (Decrease)

 0.6 % (1.4 )%
ADR $ 260.57 $ 257.75 $ 242.39 $ 244.78
Increase (Decrease) 1.1 % (1.0 )%
RevPAR $ 230.96 $ 227.18 $ 198.28 $ 203.13
Increase (Decrease) 1.7 % (2.4 )%
 

 

 
 

For the three months ended

 

For the six months ended

June 30, 2018

June 30, 2018
Market Detail RevPAR Variance %
Boston (2.0)% (4.0)%
Chicago 0.6% 1.3%
Key West (3.7)% (6.8)%
Los Angeles (9.1)% (8.7)%
New York 6.3% 4.9%
Other(2) 0.6% 2.6%
San Diego Downtown 3.9% 0.0%
San Francisco 14.8% 3.5%
Washington, DC (1.2)% (11.8)%
Kimpton and Marriott Integration Impact Detail
Kimpton and Marriott managed hotels (2.9)% (8.7)%
All other hotels 3.7% 0.0%
 

 

 
(1)

Pro forma includes the statistical data for all properties owned by the Company as of June 30, 2018.
(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.