LaSalle Hotel Properties (LHO)

Q1 2010 Earnings Call

April 22, 2010 9:00 AM EST

Executives

Michael Barnello – Chairman and CEO

Hans Weger – CFO

Analysts

Bill Crow – Raymond James & Associates

Dan Donlan – Janney Montgomery Scott

David Loeb – Robert W. Baird

Ryan Meliker – Morgan Stanley

Michael Salinsky – RBC Capital Markets

Patrick Scholes – FBR Capital Markets

Jeff Donnelly – Wells Fargo

Chris Woronka – Deutsche Bank

Josh Attie – Citi

Presentation

Operator

Good day and welcome to the LaSalle Hotel Properties first quarter 2010 earnings call. This call is being recorded. At this time, I would like to turn the call over to Mr. Michael Barnello, Chairman and Chief Executive Officer, please go ahead, sir.

Michael Barnello

Thank you, operator. Good morning, everyone, and welcome to the first quarter earnings call and webcast for LaSalle Hotel Properties. Here with me today is Hans Weger, our Chief Financial Officer.

In addition to providing the financial results of our first quarter, Hans and I will discuss the company's activities in the quarter, the performance of our assets and the trends affecting that. We will also discuss our outlook for the remainder of 2010 for the industry and for our company. We will then open up the call to questions and answers. Hans?

Hans Weger

Thanks Mike, good morning. Before we begin, I would first like to make the following remarks. Any statements that we make today about future results and performance or plans and objectives are forward-looking statements as results may differ as a result of factors, risks and uncertainties over which the company may have no control.

Factors that may cause actual results to differ materially are discussed in the company's 10-K for 2009, quarterly reports and its other reports filed with the SEC. The company disclaims any obligation or undertaking to update or revise any forward-looking statements.

Our SEC report as well as our press releases are available at our website, www.lasallehotels.com. Our most recent 8-K in yesterday's press release include reconciliations of non-GAAP measures such as funds from operations to the most comparable GAAP measures.

First quarter funds from operations or FFO was $1.5 million as compared to $8.6 million in the prior year. FFO per diluted share was $0.02 compared to $0.21 in the first quarter of 2009. EBITDA for the quarter decreased to $14.8 million from $21.3 million in the prior year period. FFO and EBITDA include $1.5 million of transaction cost related to the Sofitel acquisition.

RevPAR for the total portfolio decreased 9.8% in the first quarter. The RevPAR decrease was a result of an 11.1% decline in ADR to $154.96 and a 1.4% increase in occupancy to 61.9%. Excluding the impact of the inauguration in 2009, RevPAR for the portfolio decreased 6.4% in the first quarter of 2010. Our hotel portfolio generated $19.2 million of EBITDA in the first quarter of 2010 versus EBITDA of $26.1 million for the same period of 2009, a decline of 26.6%.

The portfolio-wide hotel EBITDA margin in the first quarter was 16.3% and was limited to a decline of 395 basis points compared to the prior year despite a 9.8% drop in RevPAR.

Our hotel management team were able to reduce operating expenses 4%, despite the 1.4% increase in occupancy, demonstrating their continuing to find ways to reduce cost. This highlights that the reductions we have seen should continue if the fundamentals improve, which will provide for stronger earnings growth.

As of the end of the first quarter, the company had total outstanding debt of $635.6 million at an average interest rate for the quarter of 5.1%. The company has an aggregate $462 million available on our combined credit facilities.

As of March 31 st, 2009 total debt to trailing 12-month corporate EBITDA as defined in our senior unsecured credit facility equaled 3.8 times and trailing 12-month corporate EBITDA to interest coverage ratio was 4.4 times.

On February 1 st, 2010 the company retired the $12.8 million mortgage on the Montrose hotel using proceeds from our line of credit. On February 2 nd, the company and LaSalle Investment Management mutually agreed to terminate a joint venture, originally signed in 2008. The joint venture had not acquired any hotels and had no assets or liabilities.

On March 1 st, we acquired the 237 rooms Sofitel Washington DC, Lafayette Square. Opened in 2002, the Sofitel is in excellent physical condition. The purchase price of $95 million equates to $400,000 per room and represents the multiple of 14.8 times 2009 EBITDA.

In March, the company sold a total of 6.2 million common shares including the exercise of the underwriting over allotment option, resulting in net proceeds of a $109.1 million. This equity offering was used to pay down debt which provides a company capacity for future acquisitions. On March 15 th, we announced a quarterly dividend of $0.01 per common share for first quarter of 2010. The first quarter dividend was paid on April 15 th, 2010 to common shareholders of records on March 31 st, 2010.

On April 21 st, the company registered an at-the-market equity program. Currently, there is no immediate plan to utilize the program. We do this as an additional source of liquidity and as a possible out turn as to future underwritten equity offerings. If the program is used, the proceeds would be used for acquisitions, retirement of debt, redemption of preferred shares or other general corporate purposes.

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