Lasalle Hotel Properties (LHO)

Q2 2010 Earnings Call Transcript

July 22, 2010 9:00 am ET

Executives

Michael Barnello – President and CEO

Hans Weger – CFO

Analysts

Shaun Kelley – Bank of America

Jeffrey Donnelly – Wells Fargo

Josh Attie – Citi

Bill Crow – Raymond James

Michael Salinsky – RBC Capital Markets

Dan Donlan – Janney Capital Markets

Damian Brewer [ph] – JPMorgan

Chris Woronka – Deutsche Bank

Presentation

Operator

Good day and welcome to the LaSalle Hotel Properties second quarter 2010 conference 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, Katie. Good morning, everyone, and welcome to the second 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 second quarter, Hans and I will discuss the company's activities in the quarter, the performance of our assets and the trend affecting them. We will also discuss our outlook for the remainder of 2010 for the industry and for our company. We will then open 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 reports as well as our press releases are available at our website, www.lasallehotels.com. Our most recent 8-K and the yesterday's press release included reconciliations of non-GAAP measures such as funds from operations to the most comparable GAAP measures.

Second quarter funds from operations or FFO was $35.9 million as compared to $35.6 million in the prior year. FFO per diluted share was $0.52 compared to $0.70 in the second quarter of 2009. FFO for the prior year included $5.7 million in after-tax income for the recognition of prior termination cure payments from the previous manager of the company’s Seaview Resort and a $1 million fee for exchanging Series C Cumulative Redeemable Preferred Shares of Beneficial Interest for Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, the Preferred Share Exchange.

EBITDA for the second quarter decreased to $55.5 million from $59.5 million in the prior year period. EBITDA for the prior year included $9.5 million of pretax income related to Seaview and a $1 million fee for the Preferred Share Exchange.

RevPAR for the total portfolio increased 7.4% in the second quarter. The RevPAR increase was a result of 2.1% growth in ADR to $185.44 and 5.2% improvement in occupancy to 79.1%. Our hotel portfolio generated $58.5 million of EBITDA in the second quarter of 2010 versus EBITDA of $53.6 million for the same period of 2009, an increase of 9.2%. Portfolio-wide hotel EBITDA margin for the second quarter was 32.5%, an increase of 53 basis points.

For the six months ended June 30, 2010, FFO was $37.4 million compared to $44.2 million for the same period in 2009, or $0.56 per diluted share compared to $0.96 per diluted share for the same prior year period. FFO for the six months ended June 30, 2010 was reduced by $1.5 million for the transaction costs related to the acquisition of Sofitel Washington DC, Lafayette Square. FFO for the prior year included $5.7 million in after-tax income related to Seaview and the $1 million fee by the Preferred Share Exchange.

EBITDA for the six months ended June 30, 2010 decreased to $70.3 million from $80.8 million for the prior year period. EBITDA for the six months ended June 30, 2010 included the $1.5 million of transaction costs related to the Sofitel acquisition. EBITDA for the prior year included $9.5 million of pretax income related to Seaview and the $1.0 million fee for Preferred Share Exchange.

Room revenue per available room, RevPAR, was $121.60 for the six months ended June 30, 2010, which was flat compared to last year. The RevPAR result was due to the ADR decrease of 3.4% to $172.28 and occupancy increase of 3.5% to 70.6%. For the six months ended June 30, 2010, the company’s hotel has generated $77.7 million of EBITDA compared with $79.7 million for the same period last year, a decrease of 2.5%.

As of the end of the second quarter, the company had total outstanding debt of $624.6 million at an average interest rate for the quarter of 5.3%. Our $450 million senior unsecured credit facility had no outstanding balance. The company had in aggregate $472.9 million available on our combined credit facilities. As of June 30, 2010, total debt to trailing 12-month corporate EBITDA as defined in our senior unsecured credit facility equaled 3.9 times, and trailing 12-month corporate EBITDA to interest coverage ratio was 4.4 times.

On April 21, the company registered an after-market equity program. No shares have been issued under this program. We view this as an additional source of liquidity and as a possible alternative 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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