LaSalle Hotel Properties Reports 2005 Results
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LaSalle Hotel Properties Reports 2005 Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-02-23
LaSalle Hotel Properties (NYSE:LHO) today reported net income to common shareholders of $20.8 million, or $0.67 per diluted share for the year ended December 31, 2005, compared to net income of $10.7 million, or $0.39 per diluted share for the prior year. Prior year net income includes the $2.6 million net gain on the sale of the Omaha Marriott.
For the year ended December 31, 2005, the Company generated funds from operations ("FFO") of $70.5 million versus $48.4 million for the same period of 2004, an increase of 45.4 percent. On a per diluted share/unit basis, FFO for 2005 rose to $2.25 versus $1.74 a year ago. FFO includes a contingent litigation expense of $1.0 million in 2005 and $0.9 million in 2004 associated with the Company's ongoing litigation with Meridien and related affiliates.
The Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year increased 43.9 percent to $109.9 million from $76.3 million for 2004. EBITDA for the prior year includes the $2.6 million net gain on the sale of the Omaha Marriott.
Room revenue per available room ("RevPAR") increased 11.2 percent in 2005 to $121.49 versus the previous year. Average daily rate ("ADR") increased 7.8 percent to $170.43 from 2004, while occupancy grew 3.2 percent to 71.3 percent.
"We are extremely pleased with our overall performance in 2005," said Jon Bortz, Chairman and Chief Executive Officer of LaSalle Hotel Properties. "The year was terrific, with strong travel by business transient, group and leisure customers. Demand well outpaced supply, occupancies increased, we raised prices and our margins continued to recover. Overall performance was beyond our expectations. FFO per share/unit increased 29 percent, we raised our common dividend by 25 percent and our total return to common shareholders was 19 percent for the year."
The Company's hotels generated $118.4 million of EBITDA for the year compared with $100.8 million for the same period last year. EBITDA margins across the Company's portfolio increased 192 basis points ("bps") from the prior year. The EBITDA margin expansion is primarily attributable to ADR growth, food and beverage cost controls and property insurance premium reductions during the year, which were partly offset by continued above-inflationary increases in energy costs, wages, health benefits and property taxes.
"The lodging industry's fundamentals improved significantly in 2005, with supply up only 0.4 percent and demand up 3.3 percent, providing market compression and an ability to increase ADRs. Our strategy of owning high quality properties in high barrier to entry markets enabled us to exploit these positive fundamentals, thus providing greater profits and returns for our shareholders," said Mr. Bortz. "The Company's strong performance in 2005 can be attributed to the lodging industry's recovery, the benefits we continue to achieve from our substantial pipeline of current and recent renovation, repositioning and re-branding projects, our consistent, focused and disciplined acquisition strategy, aggressive asset management, strategic relationships with numerous operators and our conservatively managed balance sheet."
2005 Highlights
The Company acquired seven hotels in 2005, marking the busiest acquisition year in its history. The hotels acquired in 2005 are well-located properties in major high barrier to entry urban and resort markets, including two in downtown Boston, one in downtown Washington, D.C., one in the University District of Seattle, a new market for the Company, one in downtown San Diego, one in Los Angeles (West Hollywood) and a resort in Mission Bay San Diego.
A number of the acquired hotels will undergo major repositionings and renovations. The 212-room Holiday Inn Downtown in Washington, D.C. was de-flagged at the time of acquisition, recently closed, and following a $21 million renovation, will reopen in 2007 as a high-style, upscale independent hotel, the Company's sixth independent hotel in Washington, D.C. The recently acquired 357-room Hilton San Diego Resort will be renovated during the winters of 2006/07 and 2007/08, in a manner similar to the successful repositioning of our other Mission Bay resort in San Diego, Paradise Point Resort and Spa. The 158-room Seattle hotel, which at the time of acquisition was a Best Western, was de-flagged, made independent, and will also be substantially improved.
"These renovations, repositionings and re-brandings will continue to be an important part of our overall strategy and a way to add significant long-term cash flow growth and value on an ongoing basis," said Mr. Bortz. "We continue to benefit from the numerous major projects completed in prior years due to the many years it typically takes for renovated and repositioned hotels to reach stabilization."
During 2005, the Company also completed numerous capital transactions to maintain a conservative balance sheet, stagger debt maturities and tactically allocate its capitalization among corporate debt, common equity and preferred equity, including: issued operating partnership preferred units with a coupon rate of 7.25% and assumed a $210.0 million newly arranged secured loan at a fixed annual interest rate of 5.28%, each in conjunction with the Westin Copley Place acquisition; amended and extended the senior unsecured credit facility, reducing the borrowing cost by approximately 50bps; issued, in an underwritten public offering, $79.3 million of Series D cumulative redeemable preferred shares at a coupon rate of 7.5%; and issued, in two separate underwritten public offerings, 5,650,000 common shares.
During 2005, the Company invested $59.3 million of capital throughout its portfolio, including $29.0 million for redevelopment, repositioning and expansion of Lansdowne Resort, including the completion of the Greg Norman designed championship golf course, new 43,000 square foot clubhouse and resort pool complex, and the renovation of all guestrooms and suites, lobby and public areas. Other major capital investments during the year included $3.9 million at the 407-room Westin City Center Dallas Hotel for meeting space, guest bathroom and fire and life safety renovations; $3.9 million for the Plaza Tower guestrooms, South Tower guestrooms and public space renovations at the 564-room Sheraton Bloomington Hotel in Minneapolis; $2.3 million for the completion of the new ballroom at the 297-room Seaview Resort & Spa located outside Atlantic City; and $2.2 million for the renovation of 38 guest suites, lobby, meeting space and restaurant at the 133-suite Le Montrose Suite Hotel located in West Hollywood.
During 2005, the Company paid $1.08 in dividends per common share, which represents 87.79 percent ordinary income, 10.34 percent non-taxable distributions and 1.87 percent capital gains for tax purposes. In July 2005, the Company increased its monthly dividend distribution by 25 percent to $0.10 from $0.08 per common share.
As of year-end 2005, LaSalle had total outstanding debt of approximately $576.5 million, including its $14.3 million portion of the joint venture debt related to the Chicago Marriott Downtown. The Company's $300.0 million unsecured credit facility had $30.0 million outstanding as of December 31, 2005. Interest expense for the year was approximately $21.8 million (excluding amortized financing expenses of $2.5 million). For the year, the Company's weighted average interest rate was a low 4.9 percent. As of December 31, 2005, based on the Company's bank covenants under its senior unsecured credit facility, the Company's EBITDA to interest coverage ratio was approximately 4.8 and debt to EBITDA ratio was approximately 4.0, one of the lowest in the lodging industry. At the end of the year, the Company also had $10.2 million of unrestricted cash and cash equivalents on its balance sheet and $20.8 million of restricted cash.
"We continue to structure our balance sheet within our corporate goals and objectives focused on maintaining low leverage, mixing fixed and floating 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 2005, LaSalle Hotel Properties reported net income applicable to common shareholders of $2.0 million, or $0.06 per diluted share, compared with a net loss of ($0.3) million, or ($0.01) per diluted share, for the prior year fourth quarter.
FFO improved 68.1 percent to $17.2 million versus $10.3 million for the fourth quarter 2004. On a per diluted share/unit basis, fourth quarter 2005 FFO was $0.51 versus $0.35 for the prior year's quarter. EBITDA increased by 99.1 percent to $29.1 million in the fourth quarter 2005 from $14.6 million in the same quarter of 2004.
RevPAR for the fourth quarter 2005 rose 13.0 percent compared with the prior year's quarter. ADR increased 8.7 percent from 2004 to $176.55. Occupancy increased 4.0 percent to 66.9 percent, due to improved lodging demand. Fourth quarter performance was led by the Company's hotels located in major urban markets including Dallas, Washington, D.C., New York and Los Angeles.
During the fourth quarter, the Company's portfolio-wide hotel EBITDA margins increased 283bps from the prior year quarter to 25.6 percent. EBITDA margin improvement in the quarter was a result of a $14.12 increase in ADR and a healthy 9.4 percent increase in food and beverage revenues, coupled with effective departmental expense controls and property insurance premium reductions, partly offset by a 30 percent jump in energy costs.
Subsequent Events
On January 13, 2006, the Company announced its monthly dividend of $0.10 per share of its common shares of beneficial interest for each of the three months of January, February and March 2006. The January dividend was paid on February 15, 2006 to common shareholders of record on January 31, 2006; the February dividend will be paid on March 15, 2006 to common shareholders of record on February 28, 2006; and the March dividend will be paid on April 14, 2006 to common shareholders of record on March 31, 2006. This represents a 3.1 percent annualized yield based on the Company's closing share price on February 22, 2006.
On January 27, 2006, the Company acquired the Le Parc Suite Hotel for $47.0 million. The independent upscale full-service hotel is located in the heart of West Hollywood. The 154 spacious suites range from 650 to 950 square feet and include a private balcony, living area, dining area, kitchenette and fireplace. The $47.0 million purchase price included the Company's assumption of a $15.7 million loan secured by the hotel. The hotel is managed by Outrigger Lodging Services.
On February 7, 2006, the Company, in an underwritten public offering, sold 3,250,000 common shares. After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $119.8 million. The Company also granted the underwriters a 30-day option to purchase up to an additional 487,500 shares to cover over-allotments, if any. The over-allotment option has not been exercised.
On February 8, 2006, the Company sold, in an underwritten public offering, 3,050,000 Series E Cumulative Redeemable Preferred Shares with a distribution rate of 8.0 percent per year and an aggregate liquidation preference of approximately $76.3 million. On February 16, 2006, upon exercise by the underwriter of the over-allotment option, the Company issued an additional 450,000 shares. After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $85.3 million from the offering, including the over-allotment option.
On February 15, 2006, the Company successfully remarketed the $42.5 million Massachusetts Port Authority special project revenue bonds related to the Harborside Hyatt with new supporting letters of credit provided by Royal Bank of Scotland. The annual cost of the letters of credit was reduced from 2.0% to 1.35%, creating annual interest savings of approximately $400,000.
On February 21, 2006, the Company closed the Washington Grande Hotel, formerly the Holiday Inn Downtown, for future renovations. Upon completion of the Company's $21 million renovation and repositioning program in 2007, we will reopen the property as a luxury high-style independent hotel.
The Company's annual meeting of shareholders will be held on Thursday April 20, 2006, at 8:00a.m. EST at the Hotel George, 15 E Street, N.W. Washington, DC 20001.
Potential Acquisitions
On January 30, 2006, LaSalle Hotel Properties announced it had signed an agreement to acquire the Westin Michigan Avenue in Chicago, Illinois for $215.0 million. The AAA Four Diamond, full-service hotel is located in the heart of Chicago's Magnificent Mile. The 751-room hotel includes underground parking, three retail stores and a full-service restaurant. The property will continue to be managed by Starwood Hotels & Resorts Worldwide, Inc.
On February 22, 2006, the Company announced it had signed an agreement to acquire the House of Blues Hotel and related Marina City retail and parking facilities in downtown Chicago, Illinois for $114.5 million. The AAA Four Diamond, full-service hotel is located at 329 N. Dearborn, along the Chicago River, in the River North area. The 367-room hotel includes 34 suites and 333 guestrooms uniquely decorated with a mix of Gothic, Moroccan and East Indian influences using rich vibrant colors, patterns and finishes. As part of the transaction, the Company is also acquiring over 115,000 square feet of retail space at Marina City and 896 parking spaces encompassing the first 17 floors of the two adjacent Marina City residential towers. Major retail tenants include Smith & Wollensky Steakhouse, Crunch Gym, BIN 36 Restaurant, 10Pin Bowling Lounge and Bank One.
The potential acquisitions of the Westin Michigan Avenue and the House of Blues Hotel and Marina City retail and parking facilities are subject to customary closing conditions and requirements and the Company makes no assurances that either of these transactions will close.
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