LaSalle Hotel Properties Reports 2006 Results
FFO Per Diluted Share Increases 27.9 Percent; RevPAR Increases 10.1 Percent
BETHESDA, Md.- | LaSalle Hotel Properties (NYSE:LHO - News) today reported net income to common shareholders of $73.5 million, or $1.85 per diluted share for the year ended December 31, 2006, compared to net income of $20.8 million, or $0.67 per diluted share for the prior year. Net income for 2006 includes the $38.4 million net gain on the sale of the Chicago Marriott Downtown.
For the year ended December 31, 2006, the Company generated funds from operations ("FFO") of $114.2 million versus $70.5 million for 2005, an increase of 62.0 percent. On a per diluted share basis, FFO for 2006 rose to $2.87 versus $2.25 a year ago, an increase of 27.9 percent.
The Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year increased 105.0 percent to $225.2 million from $109.9 million for 2005. EBITDA for 2006 includes the $38.4 million net gain on the sale of the Chicago Marriott Downtown.
Net Income, FFO and EBITDA include a contingent litigation expense of $0.8 million in 2006 and $1.0 million in 2005 associated with the Company's ongoing litigation with Lehman Brothers (formerly the Meridien litigation).
Room revenue per available room ("RevPAR") increased 10.1 percent in 2006 to $140.78 versus the previous year. Average daily rate ("ADR") climbed 9.1 percent to $190.42 from 2005, while occupancy grew 0.9 percent to 73.9 percent.
"2006 was an excellent year for the economy, the lodging industry and for LaSalle Hotel Properties," said Jon Bortz, Chairman and Chief Executive Officer of LaSalle Hotel Properties. "The Company surpassed its previous peak in FFO per diluted share, EBITDA per diluted share and RevPAR. We took advantage of the favorable economic and lodging industry trends, making new acquisitions in our core major urban markets and investing significant capital in our existing and acquisition properties to provide growth in the future. Strong increases in our cash flow coupled with our optimistic view of the fundamentals of the industry, led to our decision to increase our monthly dividend by 40 percent in 2006."
The Company's hotels generated $194.9 million of EBITDA for the year compared with $170.1 million last year. EBITDA margins across the Company's portfolio increased 155 basis points from the prior year. The EBITDA margin expansion was primarily attributable to ADR growth, guestroom and food and beverage cost controls and aggressive asset management efforts to restrain increases in undistributed expenses. Margin growth was partly offset by continued above-inflationary increases in energy costs, property taxes, property and casualty insurance, general liability insurance and operator incentive fees, which grew due to increases in property-level EBITDA.
"Lodging industry fundamentals remained strong in 2006, with supply increasing only 0.6 percent and room demand up 1.1 percent, providing rising occupancies, market compression and an ability to substantially increase rates," said Mr. Bortz. "The Company's favorable performance in 2006 can be attributed to our consistent, focused and disciplined acquisition strategy, aggressive asset management and the benefits we continue to receive from our substantial pipeline of current and recent renovation, repositioning and re-branding projects."
2006 Highlights
The Company acquired seven hotels in 2006 for a total purchase price of $588 million. Our 2006 acquisitions are ideally located in major urban markets, including two in downtown Chicago, two in West Los Angeles (West Hollywood and Burbank), one in downtown Seattle, one in downtown San Diego and one in New York City. At three of the seven properties, we immediately changed the management company. Four of the seven properties are currently under renovation or repositioning and the Holiday Inn Wall Street in lower Manhattan will be renovated and repositioned as a luxury independent hotel by early 2008. Acquiring hotels in great locations in the top performing urban and resort markets in the U.S., with the opportunity to renovate, reposition, and re-brand the hotels, continues to be an important part of our overall strategy.
During 2006, the Company invested $63.2 million of capital throughout our portfolio, including $10.6 million for renovation of the meeting facilities, guestroom carpets and creation of a shared laundry facility at Paradise Point Resort in San Diego. Other major projects included: $6.4 million for the completion of the repositioning of Lansdowne Resort including development of the Shark Bite, a 9 hole executive course scheduled to open in May 2007; $5.2 million for the Chicago House of Blues Hotel renovation, repositioning and infrastructure improvements; $4.9 million for the Hilton San Diego Resort renovation and repositioning; $4.4 million for completion of the first phase of the Chaminade Resort renovation and repositioning in Santa Cruz; and $4.0 million for the guestroom renovation and junior ballroom addition at the Harborside Hyatt in Boston.
During 2006, the Company paid $1.56 in dividends per common share, which represents 52.3 percent ordinary income, 20.7 percent capital gain and 27.0 percent Unrecaptured Section 1250 Gain for tax purposes. In April 2006, the Company increased its monthly dividend distribution by 40 percent to $0.14 from $0.10 per common share.
As of year-end 2006, LaSalle Hotel Properties had total outstanding debt of $809.0 million, with the Company's $300.0 million unsecured credit facility fully available for future use. Interest expense for the year was $40.0 million (excluding amortized financing expenses of $2.6 million). For the year, the Company's weighted average interest rate was a low 5.3 percent. As of December 31, 2006, based on the Company's bank covenants under its senior unsecured credit facility, the Company's EBITDA to interest coverage ratio was 4.4 and debt to EBITDA ratio was 3.8, one of the lowest in the lodging industry. At the end of the year, the Company also had $63.0 million of unrestricted cash and cash equivalents on its balance sheet and $18.4 million of restricted cash.
"We continue to manage our balance sheet with a focus on maintaining low leverage, mixing fixed and variable rate debt and staggering debt maturities," advised Hans Weger, Chief Financial Officer of LaSalle Hotel Properties. "As a result, we believe we have the balance sheet flexibility and capacity to take advantage of future investment opportunities, as they may arise."
Fourth Quarter Results
For the fourth quarter 2006, LaSalle Hotel Properties reported net income applicable to common shareholders of $4.5 million, or $0.11 per diluted share, compared with net income of $2.0 million, or $0.06 per diluted share, for the prior year fourth quarter.
FFO improved 51.9 percent to $26.2 million versus $17.2 million for the fourth quarter 2005. On a per diluted share basis, fourth quarter 2006 FFO was $0.65 versus $0.51 for the prior year's quarter, a 26.8 percent increase. EBITDA increased by 57.0 percent to $45.7 million in the fourth quarter 2006 from $29.1 million in the same quarter of 2005.
RevPAR for the fourth quarter 2006 rose 8.5 percent compared with the prior year's quarter. ADR increased 8.0 percent from 2005 to $192.16 and occupancy grew 0.5 percent to 68.3 percent. Fourth quarter performance was led by the Company's hotels located in major urban markets including Chicago, West Hollywood and San Diego.
During the fourth quarter, the Company's portfolio-wide hotel EBITDA margins increased 282 basis points from the prior year quarter to 28.7 percent. EBITDA margin improvement in the quarter was a result of a $14.18 increase in ADR and a healthy 8.2 percent increase in other revenues, coupled with effective departmental and overhead expense controls and a reduction in energy costs, partly offset by greater than inflationary increases in property taxes, insurance and operator incentive fees.
Subsequent Events
On January 12, 2007, the Company announced its monthly dividend of $0.14 per share of its common shares of beneficial interest for each of the three months of January, February and March 2007. The January dividend was paid on February 15, 2007 to common shareholders of record on January 31, 2007; the February dividend will be paid on March 15, 2007 to common shareholders of record on February 28, 2007; and the March dividend will be paid on April 13, 2007 to common shareholders of record on March 30, 2007. This represents a 3.6 percent annualized yield based on the Company's closing share price on February 22, 2007.
On January 17, 2007, the Company announced the redemption of the 10 1/4% Series A Preferred Shares. The redemption date is March 6, 2007 at a cash redemption price of $25.00 per share, plus accrued and unpaid dividends. The Company expects to recognize $4.0 million of non-cash initial offering costs associated with the preferred shares.
On January 26, 2007, the Company sold the 438-room LaGuardia Marriott Hotel for $69.0 million, resulting in an approximate gain on sale of $31.1 million. The Company utilized the sale of the hotel as the disposition property in the reverse 1031 exchange established in conjunction with the Hotel Solamar acquisition in August 2006. As a result, the Company's gain will be deferred for tax purposes.
The Company's annual meeting of shareholders will be held on Thursday April 19, 2007, at 8:00A.M. EST at the Topaz Hotel, 1733 N Street, N.W. Washington, DC 20036.
2007 Outlook
The Company expects to recognize a $31.1 million gain from the sale of the LaGuardia Marriott in the first quarter. The Company also anticipates redeeming the Series A Preferred Shares and expects to recognize $4.0 million of non-cash initial offering costs associated with the preferred shares. The Company's outlook for 2007 remains unchanged from our January 29, 2007 press release. Assuming current economic growth levels and travel trends continue, our outlook is as follows:
Net Income | $63.8 million - $67.0 million ($1.58 - $1.66 per diluted share); FFO | $121.7 million - $124.9 million ($3.00 - $3.08 per diluted share); and EBITDA | $240.0 million - $243.2 million.
Excluding the $31.1 million gain on sale and the $4.0 million non-cash offering costs, the Company's outlook for 2007 is as follows:
Net Income | $36.7 million - $39.9 million ($0.91 - $0.99 per diluted share); FFO | $125.7 million - $128.9 million ($3.10 - $3.18 per diluted share); and EBITDA | $208.9 million - $212.1 million.
This 2007 outlook is based on the following major assumptions:
- Portfolio RevPAR growth of 7.5% to 8.5% over 2006;
- Portfolio hotel EBITDA margins increasing 100 to 125 basis points over 2006;
- Corporate general and administrative expenses of $15.0 million;
- Total capital investments of $120.0 million to $130.0 million;
- Non-cash income tax expense of $2.7 million to $3.2 million;
- Weighted average outstanding debt of approximately $870.0 million;
- Interest expense (excluding amortization of financing expenses) of $47.0 million to $47.5 million;
- No acquisitions; and
- Weighted average fully diluted shares/units of 40.5 million.
LASALLE HOTEL PROPERTIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
For the three months
ended For the year ended
December 31, December 31,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues:
Hotel operating
revenues:
Room revenue $95,210 $62,678 $381,497 $225,920
Food and beverage
revenue 45,516 35,453 168,314 115,699
Other operating
department revenue 11,951 8,642 45,591 30,605
----------- ----------- ----------- -----------
Total hotel
operating
revenues 152,677 106,773 595,402 372,224
Participating lease
revenue 4,761 4,015 25,401 21,527
Other income 2,002 54 6,050 862
----------- ----------- ----------- -----------
Total revenues 159,440 110,842 626,853 394,613
----------- ----------- ----------- -----------
Expenses:
Hotel operating
expenses:
Room 22,102 15,369 86,591 54,138
Food and beverage 29,826 23,651 114,539 78,828
Other direct 5,345 4,396 23,067 17,177
Other indirect 43,153 31,600 166,484 106,525
----------- ----------- ----------- -----------
Total hotel
operating
expenses 100,426 75,016 390,681 256,668
Depreciation and
amortization 21,725 15,151 78,966 48,850
Real estate taxes,
personal property
taxes and insurance 8,328 4,704 29,242 15,792
Ground rent 1,508 962 6,433 3,986
General and
administrative 3,056 2,130 12,442 10,301
Lease termination
expenses - - 800 1,000
Other expenses 1,084 (8) 3,010 185
----------- ----------- ----------- -----------
Total operating
expenses 136,127 97,955 521,574 336,782
----------- ----------- ----------- -----------
Operating income 23,313 12,887 105,279 57,831
Interest income 688 358 1,996 788
Interest expense (11,688) (7,948) (42,409) (24,354)
----------- ----------- ----------- -----------
Income before income
tax benefit, minority
interest, equity in
earnings of joint
venture and
discontinued
operations 12,313 5,297 64,866 34,265
Income tax benefit 746 2,140 401 2,123
Minority interest of
common units in
Operating Partnership (34) (17) (142) (300)
Minority interest of
preferred units in
Operating Partnership (1,292) (1,064) (4,485) (1,419)
Equity in earnings of
joint venture 9 292 38,420 753
----------- ----------- ----------- -----------
Income from continuing
operations 11,742 6,648 99,060 35,422
----------- ----------- ----------- -----------
Discontinued
operations:
Loss from operations
of properties
disposed of - - - (45)
Income tax benefit - - - 19
----------- ----------- ----------- -----------
Net loss from
discontinued
operations - - - (26)
----------- ----------- ----------- -----------
Net income 11,742 6,648 99,060 35,396
Distributions to
preferred shareholders (7,255) (4,619) (25,604) (14,629)
----------- ----------- ----------- -----------
Net income applicable
to common shareholders $4,487 $2,029 $73,456 $20,767
=========== =========== =========== ===========
For the three months
ended For the year ended
December 31, December 31,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Earnings per Common
Share - Basic:
Income applicable to
common shareholders
before discontinued
operations and after
dividends paid on
unvested restricted
shares $0.11 $0.06 $1.86 $0.67
Discontinued
operations - - - -
----------- ----------- ----------- -----------
Net income applicable
to common
shareholders after
dividends paid on
unvested restricted
shares $0.11 $0.06 $1.86 $0.67
=========== =========== =========== ===========
Earnings per Common
Share - Diluted:
Income applicable to
common shareholders
before discontinued
operations $0.11 $0.06 $1.85 $0.67
Discontinued
operations - - - -
----------- ----------- ----------- -----------
Net income applicable
to common
shareholders $0.11 $0.06 $1.85 $0.67
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding:
Basic 39,788,311 32,964,510 39,356,881 30,637,644
Diluted 40,094,149 33,393,874 39,667,917 31,104,290
LASALLE HOTEL PROPERTIES
FFO and EBITDA
(Dollars in thousands, except share data)
(Unaudited)
For the three months
ended For the year ended
December 31, December 31,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Funds From Operations
(FFO):
Net income applicable
to common shareholders $4,487 $2,029 $73,456 $20,767
Depreciation 21,545 14,955 78,280 48,494
Equity in depreciation
of joint venture - 198 178 811
Amortization of
deferred lease costs 129 43 497 79
Minority interest:
Minority interest of
common units in
Operating
Partnership 34 17 142 300
Less: Equity in gain on
sale of property (9) - (38,402) -
----------- ----------- ----------- -----------
FFO $26,186 $17,242 $114,151 $70,451
=========== =========== =========== ===========
Weighted average number
of common shares and
units outstanding:
Basic 39,856,080 33,107,600 39,409,631 30,896,022
Diluted 40,161,918 33,536,964 39,720,667 31,362,668
For the three months
ended For the year ended
December 31, December 31,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Earnings Before
Interest, Taxes,
Depreciation and
Amortization (EBITDA):
Net income applicable
to common shareholders $4,487 $2,029 $73,456 $20,767
Interest 11,688 7,948 42,409 24,354
Equity in interest
expense of joint
venture - 231 317 787
Income tax benefit:
Income tax benefit (746) (2,140) (401) (2,123)
Income tax benefit
from discontinued
operations - - - (19)
Depreciation and
amortization 21,725 15,151 78,966 48,850
Equity in depreciation/
amortization of joint
venture - 220 201 900
Minority interest:
Minority interest of
common units in
Operating
Partnership 34 17 142 300
Minority interest of
preferred units in
Operating
Partnership 1,292 1,064 4,485 1,419
Distributions to
preferred shareholders 7,255 4,619 25,604 14,629
----------- ----------- ----------- -----------
EBITDA $45,735 $29,139 $225,179 $109,864
=========== =========== =========== ===========
LASALLE HOTEL PROPERTIES
Hotel Operational Data
Schedule of Property Level Results
(Dollars in thousands)
(Unaudited)
For the three
months ended For the year ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues
Room $104,495 $96,533 $417,331 $378,527
Food & beverage 50,543 47,820 182,894 172,702
Other 12,396 11,458 48,529 45,663
--------- --------- --------- ---------
Total hotel sales 167,434 155,811 648,754 596,892
--------- --------- --------- ---------
Expenses
Room 23,951 23,311 92,844 88,366
Food & beverage 32,872 32,180 123,726 117,938
Other direct 5,950 5,767 24,736 22,355
General & administrative 12,878 13,516 49,467 48,610
Sales & marketing 11,767 11,317 44,868 41,819
Management fees 8,237 7,176 28,520 25,609
POM 6,750 6,757 26,232 25,002
Energy 6,055 6,280 24,251 21,459
Property taxes 7,065 6,038 24,853 22,632
Other fixed expenses 3,777 3,070 14,314 12,979
--------- --------- --------- ---------
Total hotel expenses 119,302 115,412 453,811 426,769
--------- --------- --------- ---------
EBITDA $48,132 $40,399 $194,943 $170,123
========= ========= ========= =========
Notes:
This schedule includes the operating data for all properties leased to
LHL, and to third parties as of December 31, 2006, including the Le
Parc Suite Hotel, House of Blues Hotel, Westin Michigan Avenue,
Alexis Hotel, Hotel Solamar and Holiday Inn Wall Street for the
Company's period of ownership but excluding December for Chaminade
Resort (closed for renovations), DC Thomas Circle (closed for
renovations) and Graciela Burbank due to partial month ownership. The
Onyx Hotel, Westin Copley Place, Hotel Deca, Hilton San Diego Resort,
Le Parc Suite Hotel, House of Blues Hotel, Westin Michigan Avenue,
Alexis Hotel, Hotel Solamar and Holiday Inn Wall Street are shown in
2005 for their comparative period of ownership in 2006.
LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels
(Unaudited)
For the three
months ended For the year ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
TOTAL PORTFOLIO
Occupancy 68.3% 68.0% 73.9% 73.3%
Increase/(Decrease) 0.5% 0.9%
ADR $192.16 $177.98 $190.42 $174.49
Increase/(Decrease) 8.0% 9.1%
REVPAR $131.26 $120.99 $140.78 $127.83
Increase/(Decrease) 8.5% 10.1%
Note:
This schedule includes the operating data for all properties leased to
LHL, and to third parties as of December 31, 2006, including the Le
Parc Suite Hotel, House of Blues Hotel, Westin Michigan Avenue,
Alexis Hotel, Hotel Solamar and Holiday Inn Wall Street for the
Company's period of ownership but excluding December for Chaminade
Resort (closed for renovations), DC Thomas Circle (closed for
renovations) and Graciela Burbank due to partial month ownership. The
Onyx Hotel, Westin Copley Place, Hotel Deca, Hilton San Diego Resort,
Le Parc Suite Hotel, House of Blues Hotel, Westin Michigan Avenue,
Alexis Hotel, Hotel Solamar and Holiday Inn Wall Street are shown in
2005 for their comparative period of ownership in 2006.
LASALLE HOTEL PROPERTIES
Statistical Data for the Hotels
(Unaudited)
Prior Year Operating Data
1Q'2006 2Q'2006 3Q'2006 4Q'2006 Full Year 2006
-------- -------- -------- -------- --------------
Occupancy 68.3% 78.8% 79.2% 67.6% 73.5%
ADR $171.65 $199.06 $200.07 $193.36 $191.74
REVPAR $117.18 $156.88 $158.51 $130.74 $140.91
Note:
This schedule includes historical operating data for the owned hotels
open and operating as of January 31, 2007 (excludes the DC Thomas
Circle). Historical data is included in 2006 for each hotel's
comparative period of ownership in 2007.