LaSalle Hotel Properties | February 23, 2017

BETHESDA, Md.–LaSalle Hotel Properties (NYSE: LHO) today announced results for the quarter ended December 31, 2016. The Company’s results include the following:

Fourth Quarter Year-to-Date 2016 2015 % Var. 2016 2015 % Var. ($'s in millions except per share/unit data) Net income attributable to common shareholders $ 21.3 $ 23.5 -9.4% $ 234.6 $ 123.4 90.1% Net income attributable to common shareholders per diluted share $ 0.19 $ 0.21 -9.5% $ 2.07 $ 1.09 89.9% RevPAR(1) $ 193.10 $ 188.34 2.5% $ 204.08 $ 199.18 2.5% Hotel EBITDA Margin(1) 32.1% 31.6% 33.9% 33.5% Hotel EBITDA Margin Growth(1) 42 bps 37 bps Total Revenues $ 289.5 $ 294.7 -1.8% $ 1,227.6 $ 1,216.6 0.9% EBITDA(1) $ 85.4 $ 85.3 0.1% $ 495.0 $ 370.6 33.6% Adjusted EBITDA(1) $ 86.0 $ 89.5 -3.9% $ 396.8 $ 386.5 2.7% FFO(1) $ 69.2 $ 69.3 -0.1% $ 322.6 $ 304.3 6.0% Adjusted FFO(1) $ 69.8 $ 74.4 -6.2% $ 328.9 $ 321.1 2.4% FFO per diluted share/unit(1) $ 0.61 $ 0.61 0.0% $ 2.85 $ 2.69 5.9% Adjusted FFO per diluted share/unit(1) $ 0.62 $ 0.66 -6.1% $ 2.90 $ 2.83 2.5%

(1) See tables later in this press release, which list adjustments that reconcile net income attributable to common shareholders to earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, funds from operations attributable to common shareholders and unitholders (“FFO”), FFO per share/unit, adjusted FFO, adjusted FFO per share/unit and pro forma hotel EBITDA. EBITDA, adjusted EBITDA, FFO, FFO per share/unit, adjusted FFO, adjusted FFO per share/unit and hotel EBITDA are non-GAAP financial measures. See further discussion of these non-GAAP measures and reconciliations to net income later in this press release. 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.

“Throughout 2016, our portfolio performed well in a slow growth operating environment, with softening industry demand and increasing hotel supply. We are proud that our teams continue to operate with excellent efficiency across the portfolio, as evidenced by limited annual expense growth and our highest-ever reported annual EBITDA margin,” said Michael D. Barnello, President and Chief Executive Officer of LaSalle Hotel Properties.

“Following our opportunistic preferred share issuance with a record low coupon, the disposition of three assets since July, and our newly refinanced credit facility, the Company now has an even stronger balance sheet, with a low debt-to-EBITDA ratio, an excellent quality portfolio primarily in core locations, and a well-covered dividend providing a high yield,” added Mr. Barnello.

Fourth Quarter Results

  • Net Income: The Company’s net income attributable to common shareholders was $21.3 million – a decrease of 9.4 percent from the fourth quarter of 2015.
  • RevPAR: The Company’s RevPAR increased 2.5 percent to $193.10, driven by a 3.7 percent growth in occupancy to 80.7 percent. Average daily rate (“ADR”) decreased by 1.1 percent to $239.34.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 42 basis points from the comparable prior year period to 32.1 percent.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $86.0 million, a decrease of $3.5 million from the fourth quarter of 2015, which included $6.1 million of adjusted EBITDA from two assets the Company sold in July 2016: Indianapolis Marriott Downtown and the mezzanine loan on Shutters on the Beach and Casa Del Mar (collectively, the “2016 Asset Sales”).
  • Adjusted FFO: The Company generated adjusted FFO of $69.8 million, or $0.62 per diluted share/unit, compared to $74.4 million, or $0.66 per diluted share/unit, for the comparable prior year period, a per share/unit decrease of 6.1 percent. The Company’s income taxes increased by $2.2 million, or $0.02 per diluted share/unit, from the comparable prior year period.

Year-to-Date Results

  • Net Income: The Company grew net income attributable to common shareholders by 90.1 percent to $234.6 million, due in part to a $104.8 million gain relating to the sale of the Indianapolis Marriott Downtown.
  • RevPAR: RevPAR increased 2.5 percent to $204.08, driven by a 2.7 percent growth in occupancy to 83.9 percent. ADR was just below the prior year at $243.12.
  • Hotel EBITDA Margin: The Company’s hotel EBITDA margin expanded by 37 basis points from the comparable prior year period to 33.9 percent – a new full year record for the Company.
  • Adjusted EBITDA: The Company’s adjusted EBITDA was $396.8 million, an increase of 2.7 percent over 2015. Excluding adjusted EBITDA associated with the 2016 Asset Sales from both years, the Company’s adjusted EBITDA was $381.6 million, an increase of 3.9 percent over 2015.
  • Adjusted FFO: The Company generated adjusted FFO of $328.9 million, or $2.90 per diluted share/unit, compared to $321.1 million, or $2.83 per diluted share/unit, for the comparable prior year period, a per share/unit increase of 2.5 percent.

Park Central Hotel New York and WestHouse Hotel New York Recovery

Excluding Park Central Hotel New York and WestHouse Hotel New York from the fourth quarter 2016 and the comparable period in 2015, the Company’s fourth quarter RevPAR grew by 1.9 percent and its hotel EBITDA margin increased by 18 basis points to 31.7 percent. During the fourth quarter, the Company regained $1.3 million of the $2.0 million of lost hotel EBITDA from the comparable prior year period. For the third quarter and fourth quarter combined, the Company regained $6.9 million of the $9.2 million of lost hotel EBITDA from the comparable prior year period.

Disposition and Investment Activity

  • Asset Sales: In July, the Company completed two non-core asset sales for $245.0 million. Proceeds from both transactions were used to reduce borrowings on the Company’s senior unsecured credit facility and for general corporate purposes.

    • 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.
    • On July 14, 2016, the Company sold the Indianapolis Marriott Downtown for $165.0 million, generating a 13.7 percent unleveraged Internal Rate of Return (“IRR”). The Company acquired the hotel in February 2004 for $106.0 million.
  • Capital Investments: The Company invested $102.1 million of capital in its hotels throughout the year, completing renovations at the Chaminade Resort and Conference Center in Santa Cruz, Gild Hall in New York City, Hotel Solamar in San Diego, Hotel Amarano Burbank, The Liberty Hotel in Boston, Lansdowne Resort in Lansdowne, VA, Hotel Palomar, Washington, DC, the Mason & Rook Hotel in Washington, DC, and the second phase of the rooms renovation at Westin Michigan Avenue in Chicago. During the quarter, the Company invested $27.2 million of capital in its hotels. The Company commenced room renovations at L’Auberge Del Mar and Embassy Suites Philadelphia – Center City. Both renovations are now complete. During 2017, the Company anticipates investing between $130.0 million and $170.0 million of capital in its hotels.

Balance Sheet and Capital Markets Activities

  • Current Balance Sheet Summary: As of December 31, 2016, the Company had total outstanding debt of $1.1 billion. 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 2.8 times, as of December 31, 2016 and its fixed charge coverage ratio was 6.0 times. For the fourth quarter, the Company’s weighted average interest rate was 2.7 percent, compared to 3.1 percent during the same prior year period. As of December 31, 2016, the Company had $134.7 million of cash and cash equivalents on its balance sheet and capacity of $772.5 million available on its credit facilities.
  • Mortgage Repayment: During the first quarter of 2016, the Company repaid $286.2 million of mortgage debt on three of its hotels. On January 4, 2016, the Company prepaid the mortgages on Westin Michigan Avenue in Chicago and Indianapolis Marriott Downtown, which had remaining balances of $131.3 million and $96.1 million, respectively. On February 11, 2016, the Company prepaid the mortgage on The Roger in New York City, which had a remaining balance of $58.8 million.
  • Preferred Share Issuance: On May 25, 2016, 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.

Dividend

On December 15, 2016, the Company declared a fourth 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 6.0 percent yield based on the closing share price on February 21, 2017.

Subsequent Events

  • Credit Facility Refinancing: On January 10, 2017, 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 and extending their maturities to January 2022 (including the exercise of extension options pursuant 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 of up to $1.25 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 150 to 225 basis points over LIBOR, based on the Company’s leverage ratio and is currently LIBOR plus 150 basis points, or 2.28 percent. Pricing for the term loan is LIBOR plus 145 to 220 basis points, based on the Company’s leverage ratio. The term loan remains swapped, fixing LIBOR until August 2017, resulting in a current interest rate of 2.23 percent.
  • Hotel Deca Sale: Also in January 2017, the Company sold Hotel Deca in Seattle, Washington for $55.0 million. The Company acquired the hotel in December 2005 for $26.4 million. This investment generated an unleveraged IRR of 12.3 percent and an average cash-on-cash yield of 8.8 percent over 11 years. Proceeds from the asset sale were used for general corporate purposes.
  • Share Repurchase Authorization: The Company’s Board of Trustees has authorized an expanded share repurchase program to acquire up to $500.0 million of the Company’s common shares. Including the previous authorization, the Company now has $569.8 million of capacity remaining in its share repurchase program. The Board of Trustees authorized the expanded program to increase the Company’s flexibility to execute opportunistic repurchases when it believes share buybacks are an accretive use of funds that will enhance shareholder value. The program does not obligate the Company to acquire any specific number of shares and, as a result, there is no guarantee as to the number of shares that will be repurchased (if any) or the timing of such repurchases. The Company did not acquire any common shares during the fourth quarter of 2016 or to date during the first quarter of 2017.

To view full financial release and corresponding tables please click the PDF icon or visit: http://phx.corporate-ir.net/phoenix.zhtml?c=63030&p=irol-news1&nyo=0