UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-14045
LASALLE HOTEL PROPERTIES
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4219376
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
220 East 42nd Street, New York, New York 10017
- ----------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 212/661-6161
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [ X ]
Indicate the number of common shares of beneficial interest of each class
outstanding as of the latest practicable date.
Outstanding at
Class June 8, 1998
----- --------------
Common Stock ($0.01 par value) 15,224,580
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 25
Item 2. Changes in Securities and Use of Proceeds . . . . . 25
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 27
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA SALLE HOTEL PROPERTIES AND
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
COMBINED BALANCE SHEET
MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands)
<CAPTION>
LRP Bloomington LaSalle
Limited Hotel Combined
Partnership Properties Total
--------------- ------------ ---------
<S> <C> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 1,401 1 1,402
Guest and trade receivables, less allowance
for doubtful accounts of $48. . . . . . . . . . . 1,611 -- 1,611
Inventories . . . . . . . . . . . . . . . . . . . . 282 -- 282
Prepaid expenses and other current assets . . . . . 759 -- 759
-------- -------- --------
Total current assets. . . . . . . . . . . . 4,053 1 4,054
-------- -------- --------
Investment in hotel, at cost. . . . . . . . . . . . . 35,757 -- 35,757
Less: accumulated depreciation. . . . . . . . . . . . (6,956) -- (6,956)
-------- -------- --------
Net investment in hotel property. . . . . . 28,801 -- 28,801
-------- -------- --------
Deferred charges, net of accumulated
amortization of $159. . . . . . . . . . . . . . . . 182 -- 182
Restricted cash reserves. . . . . . . . . . . . . . . 632 -- 632
-------- -------- --------
Total assets. . . . . . . . . . . . . . . . $ 33,668 1 33,669
======== ======== ========
<PAGE>
LA SALLE HOTEL PROPERTIES AND
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
COMBINED BALANCE SHEET - CONTINUED
MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands, except per share data)
LRP Bloomington LaSalle
Limited Hotel Combined
Partnership Properties Total
--------------- ------------ ---------
LIABILITIES AND
SHAREHOLDERS' EQUITY
- --------------------
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . $ 811 -- 811
Accrued expenses and other liabilities. . . . . . . 1,437 -- 1,437
Current installments of long-term debt. . . . . . . 900 -- 900
-------- -------- --------
Total current liabilities . . . . . . . . . . 3,148 -- 3,148
-------- -------- --------
Long-term debt, excluding current installments. . . . 23,416 -- 23,416
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . 26,564 -- 26,564
-------- -------- --------
Preferred shares, $.01 par value; 20,000,000
shares authorized; no shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . -- -- --
Common shares, $.01 par value; 100,000,000
shares authorized; 100 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . -- -- --
Additional paid-in-capital. . . . . . . . . . . . . . -- 1 1
Retained earnings . . . . . . . . . . . . . . . . . . 7,104 -- 7,104
-------- -------- --------
Total liabilities and
shareholders' equity. . . . . . . . . . . . $ 33,668 1 33,669
======== ======== ========
<FN>
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
<TABLE>
LA SALLE HOTEL PROPERTIES AND
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
COMBINED STATEMENT OF OPERATIONS
(Unaudited, Dollar Amounts in Thousands)
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
1998 1997
--------- --------
<S> <C> <C>
Revenues:
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,976 2,747
Food and beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,443 2,394
Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 93
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 331
-------- --------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,889 5,565
-------- --------
Expenses:
Departmental Expenses:
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768 739
Food and beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712 1,698
Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 64
Other operating departments . . . . . . . . . . . . . . . . . . . . . . . . 226 214
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . 386 378
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 281
Real estate and personal property taxes . . . . . . . . . . . . . . . . . . . 320 298
Property operations and management. . . . . . . . . . . . . . . . . . . . . . 296 286
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 222
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 205
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 110
Other fixed expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 65
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 602
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 899 749
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 40
-------- --------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,190 5,951
-------- --------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (301) (386)
======== ========
<FN>
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
<TABLE>
LA SALLE HOTEL PROPERTIES AND
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
COMBINED STATEMENT OF CASH FLOWS
(Unaudited, Dollar Amounts in Thousands)
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (301) (386)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 899 749
Changes in assets and liabilities:
Guest and trade receivables, net. . . . . . . . . . . . . . . . . . . . . (634) (4)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (4)
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . (319) (90)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 60
Accrued expenses and other liabilities. . . . . . . . . . . . . . . . . . 267 248
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . 231 573
-------- --------
Cash flows from investing activities:
Funding of restricted cash reserves . . . . . . . . . . . . . . . . . . . . . (143) 81
Capital improvement expenditures. . . . . . . . . . . . . . . . . . . . . . . (218) (363)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (361) (282)
-------- --------
Cash flows from financing activities:
Capitalization of LaSalle Hotel Properties. . . . . . . . . . . . . . . . . . 1 --
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . (213) (188)
-------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . . . (212) (188)
-------- --------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (342) 103
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . 1,744 346
-------- --------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . $ 1,402 449
======== ========
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 634 602
======== ========
<FN>
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
LASALLE HOTEL PROPERTIES AND
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
Readers of this quarterly report should refer to the audited Balance
Sheet of LaSalle Hotel Properties as of January 15, 1998 (date of
formation) and the audited financial statements of LRP Bloomington Limited
Partnership as of December 31, 1997 and 1996 and for the period from
December 1, 1995 (date of formation) through December 31, 1995 and the
years ended December 31, 1996 and 1997, which are included in the
Prospectus which constitutes a part of the Registrant's Registration
Statement on Form S-11 (333-45647) filed with the Securities and Exchange
Commission, as certain footnote disclosures, which would substantially
duplicate those contained in such audited balance sheet and financial
statements, have been omitted from this report.
(1) ORGANIZATION - LASALLE HOTEL PROPERTIES
LaSalle Hotel Properties (the Company) was formed on January 15, 1998
to own hotel properties and to continue and expand the hotel investment
activities of LaSalle Partners Incorporated and certain of its affiliates
(collectively LaSalle). The Company will be managed and advised by LaSalle
Hotel Advisors, Inc. (the Advisor), a wholly owned subsidiary of LaSalle.
The Company intends to qualify as a real estate investment trust (REIT) and
complete an initial public offering (the Initial Offering) on April 23,
1998. Upon completion of the Initial Offering, the Company will own,
through an approximate 82.6% interest in an operating partnership (the
Operating Partnership), interests in ten upscale and luxury full service
hotels (the Initial Hotels). All of the Initial Hotels will be leased under
participating leases (Participating Leases) which provide for rent based on
hotel revenues and will be managed by independent hotel operators (Hotel
Operators).
The Initial Hotels were previously owned by various limited and
general partnerships (the Existing Partnerships) in which LaSalle was the
general partner (except with respect to the LaGuardia Airport Marriott).
LaSalle and its limited and other general partners will contribute their
respective interests in the Initial Hotels in exchange for shares of the
REIT or units of the Operating Partnership. The remaining Initial Hotels
(excluding the LaGuardia Airport Marriott) are referred to as the Acquired
Hotels.
The Initial Hotels consist of the following:
NUMBER OF
PROPERTY NAME LOCATION ROOMS
- ------------- --------- ----------
Predecessor:
Radisson Hotel South and
Plaza Tower (owned by LRP
Bloomington Limited Partnership). Bloomington, MN 580
Acquired Hotels:
Le Montrose All Suite
De Gran Luxe. . . . . . . . . . . West Hollywood, CA 128
Holiday Inn Plaza Park. . . . . . . Visalia, CA 257
Radisson Hotel Tampa at
Sabal Park. . . . . . . . . . . . Tampa, FL 265
Omaha Marriott Hotel. . . . . . . . Omaha, NE 301
Le Meridien New Orleans . . . . . . New Orleans, LA 494
Holiday Inn Beachside Resort. . . . Key West, FL 222
Le Meridien Dallas. . . . . . . . . Dallas, TX 396
Marriott Seaview Resort . . . . . . Galloway Township
(Atlantic City), NJ 300
<PAGE>
NUMBER OF
PROPERTY NAME LOCATION ROOMS
- ------------- --------- ----------
LaGuardia Airport Marriott:
(The LaGuardia Airport Marriott
will be acquired shortly after
the closing of the Initial
Offering.). . . . . . . . . . . . . New York, NY 436
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF ACCOUNTING
In conjunction with the Initial Offering and the related formation
transactions described in the Company's Initial Offering Registration
Statement (Formation Transactions), the Acquired Hotels and LaGuardia
Airport Marriott will be purchased from their Existing Partnerships and
these acquisitions will be accounted for as a purchase transaction. The
Existing Partnership that retains the largest number and percentage of
voting rights of the Company after the Formation Transactions, LRP
Bloomington Limited Partnership, will be designated as the acquirer or
Predecessor for accounting purposes.
The Predecessor acquired the Radisson Hotel South and Plaza Tower (the
Bloomington Hotel), on December 1, 1995 and has operated the Bloomington
Hotel since that date.
Since the Initial Offering will be completed subsequent to March 31,
1998, the balance sheets of the Company and LRP Bloomington Limited
Partnership or Predecessor have been presented on a combined basis in the
accompanying financial statements, and since the Company had no significant
operations from date of Formation to March 31, 1998, the results of
operations of the Predecessor are presented for the three months ended
March 31, 1998 and 1997. For a complete presentation of the Company, as if
the Initial Offering had occurred January 1, 1997, see note 10 - PRO FORMA
FINANCIAL INFORMATION.
The combined financial statements as of March 31, 1998 and for the
three month periods ended March 31, 1998 and 1997 are unaudited; however,
in the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the combined
financial statements for these interim periods have been included. The
results for the interim periods ended March 31, 1998 and 1997 are not
necessarily indicative of the results to be obtained for the full fiscal
year.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, all highly liquid
investments with a maturity of three months or less when purchased are
considered to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. Silver, china, linens, and glassware inventories are recorded at
amortized cost.
INVESTMENT IN HOTEL
Depreciation of property and equipment for financial statement
purposes is calculated using the straight-line method over the estimated
useful lives of the related assets as follows:
Building. . . . . . . . . . . . . . . . . . . . 30 years
Furniture and equipment . . . . . . . . . . . . 5 years
<PAGE>
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent liabilities at the
balance sheet dates and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to its
shareholders as directed by the Board of Trustees. The Company's ability to
pay distributions will be dependent on the receipt of distributions from
the Operating Partnership.
INCOME TAXES
The Company intends to qualify as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986. A REIT will generally not be
subject to federal income taxation on that portion of its income that
qualifies as REIT taxable income to the extent that it distributes at least
95% of its taxable income to its shareholders and complies with certain
other requirements.
(3) DESCRIPTION OF CAPITAL STRUCTURE
COMMON SHARES
The Board of Trustees is authorized to reclassify any unissued Common
Shares into other classes or series of classes and to establish the number
of shares in each class and to set the preferences for each. At March 31,
1998, 100 Common Shares are issued and outstanding to LaSalle Partners
Incorporated, an affiliate of the Advisor.
PREFERRED SHARES
The Board of Trustees is authorized to classify any unissued Preferred
Shares and to reclassify any previously classified but unissued Preferred
Shares of any series. No Preferred Shares are outstanding as of March 31,
1998.
(4) DEBT
Outstanding long-term debt at March 31, 1998 consists of first and
second mortgages payable, secured by the Bloomington Hotel, in the amounts
of $18,705,129 and $5,611,538, respectively. Both mortgages were to bear
interest at the rate of LIBOR plus 4.25% (approximately 9.93% at March 31,
1998), pay principal and interest in monthly installments and mature in
December 2000. Both mortgages will be paid off in conjunction with the
Initial Offering.
The Company has obtained a commitment for an unsecured $200 million
line of credit (Line of Credit) which is intended primarily to fund future
acquisitions, renovations, and expansions of hotel properties and for
working capital.
(5) ADVISORY AGREEMENTS
The Predecessor was subject to an advisory arrangement with an
affiliate of LaSalle which required payments of acquisition, asset
management, and incentive advisory fees, as defined. In conjunction with
the Initial Offering, this arrangement will be terminated.
<PAGE>
The Company will enter into an advisory agreement with the Advisor
which provides for payment of an annual base fee equal to 5% of net
operating income (as defined) and an annual incentive advisory fee equal to
25% of the increase in funds from operations (FFO), if any, above a
threshold equal to 7% growth in FFO per share (as defined). The sum of the
base and incentive advisory fee shall not exceed 6% of net operating income
(as defined) in 1998.
(6) SHARE OPTION AND INCENTIVE PLAN
The Board of Trustees will adopt, and the shareholders will approve
the 1998 Share Option and Incentive Plan (the "Share Option Plan"). On and
after the closing of the Initial Offering, the Share Option Plan will be
administered by the Compensation Committee of the Board of Trustees. The
Advisor and its employees and operators of the Company's hotels and their
employees generally will be eligible to participate in the Share Option
Plan. Non-employee Trustees are eligible to receive options to purchase
Common Shares under the Share Option Plan on a limited basis.
Any options granted to the Advisor under the Share Option Plan are
expected to be recorded at fair value in accordance with FASB Statement
NO. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION.
(7) MANAGEMENT AGREEMENT
The Bloomington Hotel is managed by the Radisson Hotel Corporation
(Hotel Operator). Pursuant to the terms of the Operator Agreement, the
Hotel Operator is to manage the Hotel for a base management fee equal to a
percentage of gross revenue (as defined), plus an incentive fee equal to a
percentage of certain measures of profitability (as defined). In addition,
certain provisions of the Operator Agreement call for the payment of
Corporate Fees, as defined, equal to a percentage of gross operating
income, as defined, contingent upon the achievement of certain return
hurdles, as defined. The Operator Agreement will be modified in conjunction
with the Initial Offering.
(8) COMMITMENTS AND CONTINGENCIES
The nature of the operations of the Hotel exposes it to the risk of
claims and litigation in the normal course of its business. Although the
outcome of these matters cannot be determined, management believes that the
ultimate resolution of these matters will not have a material adverse
effect on the financial position, operations or liquidity of the Hotel.
On behalf of the Company, the Advisor is currently exploring the
purchase of additional full service hotel properties located in convention,
resort and major urban business markets. From time to time, the Company
may enter into purchase contracts for the acquisition of hotel properties.
The consummation of each acquisition will be subject to satisfactory
completion of due diligence.
(9) SUBSEQUENT EVENTS
On May 1, 1998, the Company completed its acquisition of the LaGuardia
Airport Marriott, as contemplated in the Registration Statement.
On June 1, 1998, the Company acquired the 44-acre San Diego Princess
Resort for a cash purchase price of $73 million. The Company renamed the
property the San Diego Paradise Point Resort (Resort). The Resort, located
in the heart of Mission Bay on Vacation Island, has nearly one mile of
beachfront and 462 guest rooms in 129 unique, single-story villas. In
conjunction with this purchase, 112,458 common shares of the Company were
issued to Westgroup San Diego Associates, Ltd. (an affiliate of the
operator of the Resort) in consideration of $2,000,000. A Form 8-K with
respect to this acquisition will be filed.
<PAGE>
(10) PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed combined statements of income give
effect to (1) the consummation of the Initial Offering, the related
Formation Transactions and the funding of the Line of Credit, (2) the
acquisition of the Acquired Hotels, (3) the acquisition of the LaGuardia
Airport Marriott and (4) the application of the net proceeds of the Initial
Offering as if these events had occurred on January 1, 1997 and all the
Hotels had been leased pursuant to the Participating Leases as of that date
and carried forward through March 31, 1998. The pro forma condensed
combined balance sheet gives effect to (1) the acquisition of the Acquired
Hotels, (2) the acquisition of the LaGuardia Airport Marriott and (3) the
consummation of the Initial Offering, the Formation Transactions, the
funding of the Line of Credit and the application of the net proceeds
therefrom as if these events had occurred on March 31, 1998.
The pro forma adjustments are based upon available information and
certain assumptions that the management of the Company believes are
reasonable. The pro forma condensed combined financial statements are not
necessarily indicative of what the actual financial position and results of
operations would have been as of March 31, 1998 and for each of the three
month periods ended March 31, 1998 and 1997 had the Company completed the
Initial Offering and the Formation Transactions, the acquisition of the
Acquired Hotels and the acquisition of the LaGuardia Airport Marriott as of
the dates indicated nor does it purport to represent the future financial
positions or results of operations of the Company.
<PAGE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(Unaudited, Dollar amounts in Thousands)
Historical (A)
-----------------------------
LaSalle
Hotel
Properties
and Acquired
Predecessor Hotels
----------- ----------
ASSETS
Investment in hotel properties, net $ 28,801 193,176
Investment in Affiliated Lessee . . -- --
Notes receivable. . . . . . . . . . -- --
Cash and cash equivalents . . . . . 1,402 5,138
Accounts receivable . . . . . . . . 1,611 4,792
Inventories, prepaid expenses
and other assets. . . . . . . . . 1,041 3,063
Deferred expenses . . . . . . . . . 182 1,768
Restricted cash reserves. . . . . . 632 9,229
-------- --------
Total assets. . . . . . . . . . $ 33,669 217,166
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes payable. . . . . . . $ 24,316 174,984
Borrowings against Line of Credit . -- --
Accounts payable, accrued expenses
and other liabilities . . . . . . 2,248 10,460
Minority interest in partnership. . -- --
-------- --------
Total liabilities . . . . . . . 26,564 185,444
-------- --------
SHAREHOLDERS' EQUITY
Common shares . . . . . . . . . . . -- --
Additional paid-in capital. . . . . 1 --
Retained earnings (deficit) . . . . 7,104 31,722
-------- --------
Total shareholders' equity . . . 7,105 31,722
-------- --------
Total liabilities and
Shareholders' equity . . . . . $ 33,669 217,166
======== ========
<PAGE>
<TABLE>
LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET - CONTINUED
<CAPTION>
Pro Forma Adjustments
------------------------------------------
(C)
(B) Purchase Total
LaGuardia Accounting Pro Forma
Acquisition Adjustment Other Adjustments Pro Forma
----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in hotel
properties, net . . . . . . . $ 45,099 73,925 (820) 118,204 340,181
Investment in Affiliated
Lessee. . . . . . . . . . . . -- -- -- -- -- (D)
Notes receivable. . . . . . . . 300 -- 4,263 4,563 4,563
Cash and cash equivalents . . . 601 -- (3,155) (2,554)(E) 3,986
Accounts receivable . . . . . . -- -- (6,403)(F) (6,403)(F) --
Inventories, prepaid expenses
and other assets. . . . . . . -- -- (4,104)(F) (4,104)(F) --
Deferred expenses . . . . . . . -- -- (251)(G) (251)(G) 1,699
Restricted cash . . . . . . . . -- -- (8,672) (8,672) 1,189
-------- -------- -------- -------- --------
Total assets. . . . . . . . $ 46,000 73,925 (19,142) 100,783 351,618
======== ======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes payable. . . . . $ -- -- (199,300) (199,300) --
Borrowings against
Line of Credit. . . . . . . . 46,000 -- 15,400 61,400 (H) 61,400
Accounts payable, accrued ex-
penses and other liabilities. -- -- (12,708)(F) (12,708)(F) --
Minority interest . . . . . . . -- -- 50,498 (I) 50,498 (I) 50,498
-------- -------- -------- -------- --------
Total liabilities . . . . . 46,000 -- (146,110) (100,110) 111,898
-------- -------- -------- -------- --------
SHAREHOLDERS' EQUITY
Common shares . . . . . . . . . -- -- 151 151 (J) 151
Additional paid-in capital. . . -- 73,925 168,931 242,856 (K) 242,857 (H)
Retained equity (deficit) . . . -- -- (42,114) (42,114) (3,288)(K)
-------- -------- -------- -------- --------
Total shareholders' equity . -- 73,925 126,968 200,893 239,720
-------- -------- -------- -------- --------
Total liabilities and
Shareholders' equity . . . $ 46,000 73,925 (19,142) 100,783 351,618
======== ======== ======== ======== ========
<FN>
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands Except per Share Data)
(A) Reflects the historical balance sheets of LaSalle Hotel Properties
and the Predecessor and the Acquired Hotels, as of March 31, 1998. The
acquisition of the Acquired Hotels and the LaGuardia Airport Marriott from
certain Existing Partnerships will be accounted for as a purchase
transaction. The Existing Partnership that will retain the largest number
and percentage of voting rights of the Company after the Formation
Transactions will be designated the acquirer or Predecessor for accounting
purposes.
(B) Represents the purchase of the LaGuardia Airport Marriott.
(C) The purchase accounting adjustment was calculated as follows:
Cash purchase price paid to contributors. . . $ 45,182
Fair value of units, shares and stock
purchase rights issued to contributors. . . 76,686
Retirement of mortgage notes payable. . . . . 198,783
Transfer from restricted cash
reserves. . . . . . . . . . . . . . . . . . (7,961)
Adjustment required to reflect the
accounting acquirer's basis at
historical cost . . . . . . . . . . . . . . (16,788)
Less: Historical book value . . . . . . . . . (221,977)
--------
Purchase accounting adjustment. . . . . . . . $ 73,925
========
(D) Represents a 9% investment in the Affiliated Lessee accounted for
under the equity method.
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands Except per Share Data)
(E) Net decrease in cash reflects the following formation
transactions:
Gross proceeds of the Offering. . . . . . . . . . $ 255,600
Expenses of the Offering. . . . . . . . . . . . . (19,242)
Proceeds from borrowing against Line of Credit. . 61,400
Debt issuance costs related to the Line of
Credit (See Note G) . . . . . . . . . . . . . . (1,699)
Retirement of mortgage notes payable. . . . . . . (192,528)
Prepayment penalties on retirement of mortgage
notes payable . . . . . . . . . . . . . . . . . (3,288)
Cash purchase price of Initial Hotel
acquisitions. . . . . . . . . . . . . . . . . . (45,182)
Other Offering costs. . . . . . . . . . . . . . . (2,751)
Cash provided to Lessees in exchange for
notes receivable. . . . . . . . . . . . . . . . (2,980)
Partner distributions prior to Formation
Transactions. . . . . . . . . . . . . . . . . . (6,022)
Investment in Affiliated Lessee . . . . . . . . . --
Payment of transfer taxes and other direct
costs of acquiring Initial Hotels . . . . . . . (763)
--------
42,545
Acquisition of LaGuardia Airport Marriott . . . . (45,099)
--------
Net decrease to cash. . . . . . . . . . . . . . . $ (2,554)
========
(F) Decrease reflects assets and liabilities of the Predecessor,
Acquired Hotels, and LaGuardia Airport Marriott which are not being
purchased.
(G) Decrease reflects writeoff of deferred financing costs of $1,950
in conjunction with the repayment of mortgage notes secured by the Initial
Hotels and $1,699 of debt issuance costs incurred related to the Line of
Credit.
(H) The Company has an unsecured $200 million revolving Line of
Credit. The adjustment represents borrowings under the Line of Credit of
$61,400.
(I) Represents the recognition of minority interest in the Operating
Partnership that will not be owned by the Company.
The manner in which the value assigned to minority interest was
determined as follows:
Total equity. . . . . . . . . . . . . . . . . . . $290,218
Minority interest percentage. . . . . . . . . . . 17.4%
--------
$ 50,498
========
(J) Issuance of approximately 15,112,000 common shares
at $0.01 par value. $ 151
========
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands Except per Share Data)
(K) Balance reflects the following:
Gross proceeds of the Offering. . . . . . . . . . $255,600
Expenses of the Offering. . . . . . . . . . . . . (19,242)
Other Offering costs. . . . . . . . . . . . . . . (2,751)
Transfer of balance of common shares. . . . . . . (151)
Recognition of minority interest. . . . . . . . . (50,498)
Fair value of units, shares and stock purchase
rights issued to contributors . . . . . . . . . 76,686
Adjustment required to reflect the accounting
acquirer's basis at historical cost . . . . . . (16,788)
Initial funding of LaSalle Hotel Properties . . . 1
--------
$242,857
========
(L) Balance represents prepayment penalties of $3,288.
(M) The Company is expected to sell certain furniture, fixtures, and
equipment to certain lessees at its book value in exchange for promissory
notes receivable (FF&E Notes) of $1,583. The FF&E Notes are expected to
bear interest at 6.0% and 5.6% per annum, respectively, and will be payable
in installments of interest only. The FF&E Notes are expected to have an
initial term of five years unless extended at the Company's option.
Additionally, the Company is expected to provide working capital to each of
the Lessees in the aggregate amount of $2,980 in exchange for notes
receivable (Working Capital Loans). The Working Capital Loans are expected
to bear interest at 6.0% and 5.6% per annum, respectively, and will be
payable in monthly installments of interest only. The term of each note is
expected to be identical to the term of the related Participating Lease.
Payments of interest income made under both of these notes will be used to
offset the related Participating Lease payments by an equal amount.
<PAGE>
<TABLE> LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited, Dollar Amounts in Thousands Except Per Share Data)
<CAPTION>
Pro Forma Adjustments
------------------------------------
(A) LaGuardia
(A) Acquired Airport
Predecessor Hotels Marriott Other Pro Forma
----------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Participating lease revenue (A):
Affiliated Lessee . . . . . . . . . . . $ -- 1,310 1,451 -- 2,761
Other Lessees . . . . . . . . . . . . . 1,487 8,262 -- -- 9,749
Interest income (H):
Affiliated Lessee . . . . . . . . . . . -- 12 4 -- 16
Other Lessees . . . . . . . . . . . . . 21 27 -- -- 48
Other income. . . . . . . . . . . . . . -- 30 17 -- 47
-------- -------- -------- -------- --------
Total revenues. . . . . . . . . . . . 1,508 9,641 1,472 -- 12,621
EXPENSES:
Depreciation. . . . . . . . . . . . . . . 511 2,959 447 -- 3,917 (B)
Real estate and personal property taxes,
property and casualty insurance . . . . 314 870 340 5 1,529 (C)
General and administrative. . . . . . . . -- -- -- 175 175 (D)
Interest expense. . . . . . . . . . . . . -- -- -- 1,019 1,019 (E)
Amortization of deferred financing costs. -- -- -- 142 142
Advisory fees . . . . . . . . . . . . . . -- -- -- 648 648 (F)
Other . . . . . . . . . . . . . . . . . . -- -- -- 130 130
-------- -------- -------- -------- --------
Expenses before minority interest . . $ 825 3,829 787 2,119 $ 7,560
======== ======== ======== ========
Minority interest . . . . . . . . . . . 881 (G)
--------
Total expenses and minority interest. 8,441
--------
Net income applicable to common
shareholders. . . . . . . . . . . . $ 4,180
========
Basic and diluted net income
per common share. . . . . . . . . . $ 0.28
========
Weighted average number of
Common Shares outstanding . . . . . 15,112 (I)
========
<FN>
See Notes to Pro Forma Condensed Combined Statements of Income.
</TABLE>
<PAGE>
<TABLE> LASALLE HOTEL PROPERTIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited, Dollar Amounts in Thousands Except Per Share Data)
<CAPTION>
Pro Forma Adjustments
------------------------------------
(A) LaGuardia
(A) Acquired Airport
Predecessor Hotels Marriott Other Pro Forma
----------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Participating lease revenue (A):
Affiliated Lessee . . . . . . . . . . . $ -- 1,343 1,300 -- 2,643
Other Lessees . . . . . . . . . . . . . 1,319 7,027 -- -- 8,346
Interest income (H):
Affiliated Lessee . . . . . . . . . . . -- 12 4 -- 16
Other Lessees . . . . . . . . . . . . . 21 27 -- -- 48
Other income. . . . . . . . . . . . . . -- 30 10 -- 40
-------- -------- -------- -------- --------
Total revenues. . . . . . . . . . . . 1,340 8,439 1,314 -- 11,093
EXPENSES:
Depreciation. . . . . . . . . . . . . . . 511 2,959 447 -- 3,917 (B)
Real estate and personal property taxes,
property and casualty insurance . . . . 325 910 167 5 1,407 (C)
General and administrative. . . . . . . . -- -- -- 175 175 (D)
Interest expense. . . . . . . . . . . . . -- -- -- 1,019 1,019 (E)
Amortization of deferred financing costs. -- -- -- 142 142
Advisory fees . . . . . . . . . . . . . . -- -- -- 563 563 (F)
Other . . . . . . . . . . . . . . . . . . -- -- -- 129 129
-------- -------- -------- -------- --------
Expenses before minority interest . . $ 836 3,869 614 2,033 $ 7,352
======== ======== ======== ========
Minority interest . . . . . . . . . . . 651 (G)
--------
Total expenses and minority interest. 8,003
--------
Net income applicable to common
shareholders. . . . . . . . . . . . $ 3,090
========
Basic and diluted net income
per common share. . . . . . . . . . $ 0.20
========
Weighted average number of
Common Shares outstanding . . . . . 15,112 (I)
========
<FN>
See Notes to Pro Forma Condensed Combined Statements of Income.
</TABLE>
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (CONTINUED)
(Unaudited, Dollars Amounts in Thousands Except Per Share Data)
(A) Represents lease payments from the initial lessees calculated by
applying the rent provisions of the Participating Leases to the revenues of
the respective Initial Hotels as though they were acquired January 1, 1997
and leased since that date. Interest payments on the FF&E and Working
Capital Notes (Note H) is used to offset the related Participating Lease
payments. Revenue is recognized as earned on an accrual basis.
(B) Represents depreciation of the Initial Hotels. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 25-39 years for buildings and improvements and five years
for furniture and equipment. These estimated useful lives are based on
management's knowledge of the properties and the hotel industry in general.
The Company's pro forma net investment in hotel properties consists of
the following:
Initial Hotels
----------------------------------
LaGuardia
Acquired Airport
Predecessor Hotels Marriott Total
----------- -------- --------- --------
Land . . . . . . . . . . . . $ 8,251 32,604 11,416 52,271
Buildings and improvements . 11,251 210,545 29,683 251,479
Furniture and equipment. . . 8,346 24,085 4,000 36,431
-------- -------- -------- --------
Total. . . . . . . . . . . $ 27,848 267,234 45,099 340,181
======== ======== ======== ========
(C) Represents real estate and personal property taxes, property and
casualty insurance paid by the Initial Hotels. Such amounts were derived
from actual invoices and historical amounts paid by the Initial Hotels.
(D) Represents estimated annual general and administrative expenses
to be paid or reimbursed to the Company by the Operating Partnership as
follows:
Annual
------
Professional fees . . . . . . . . . . . $ 58
Directors and officers insurance. . . . 50
Directors' fees and expenses. . . . . . 38
Other expenses. . . . . . . . . . . . . 29
----
Total . . . . . . . . . . . . . . . $175
====
(E) The Company has an unsecured $200 million revolving Line of
Credit with a variable rate based on LIBOR. Interest expense is calculated
based on (i) the terms of the agreement (7.056% at March 31, 1998) assuming
$61,400 of pro forma borrowings against the Line of Credit in connection
with the completion of the Formation Transactions, and (ii) a charge of
approximately $69,000 calculated as 20 basis points times the amount of the
unutilized Line of Credit.
(F) Represents Advisory Fees to be paid to the Advisor for
management, advisory and administrative services to be provided to the
Company. The Advisor will receive an annual base fee up to 5% of the
Company's net operating income and an annual incentive fee which prior to
January 1, 1999 will be limited to 1% of the Company's net operating income
calculated as follows:
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (CONTINUED)
(Unaudited, Dollars Amounts in Thousands Except Per Share Data)
1998 1997
------- -------
Net operating income. . . . . . . . . . $10,787 9,382
6% 6%
------- -------
648 563
Less: Base advisory fee calculated
as 5% of net operating income . . . . (540) (469)
------- -------
Incentive advisory fee. . . . . . . . . $ 108 94
======= =======
(G) Minority interest represents the interest in the Operating
Partnership that will not be owned by the Company and is calculated at
17.4% of the Pro Forma net income of the Operating Partnership.
(H) The Company is expected to sell certain furniture, fixtures, and
equipment to certain lessees in exchange for promissory notes receivable
(FF&E Notes) of $1,583. The FF&E Notes are expected to bear interest at
6.0% and 5.6% per annum, respectively, and will be payable in installments
of interest only. The FF&E Notes are expected to have an initial term of
five years unless extended at the Company's option. Additionally, the
Company is expected to provide working capital to each of the Lessees in
the aggregate amount of $2,980 in exchange for notes receivable (Working
Capital Loans). The Working Capital Loans are expected to bear interest at
6.0% and 5.6% per annum, respectively, and will be payable in monthly
installments of interest only. The term of each note is expected to be
identical to the term of the related Participating Lease. Payments of
interest income made under both of these notes will be used to reduce the
related Participating Lease payments by an equal amount. The total of the
interest income payments and Participating Lease payments will be equal to
the amounts calculated by applying the rent provisions of the Participating
Leases to the revenues of the Initial Hotels.
(I) The amount does not reflect common shares issued in conjunction
with the purchase of the San Diego Princess Resort (see note 9 of the notes
to combined financial statements).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LaSalle Hotel Properties and LRP Bloomington Limited Partnership
(Predecessor) are referred to herein collectively as the "Company".
However, since the Company had no significant operations until completion
of the Initial Offering on April 23, 1998, the historical discussion
relates primarily to the operation of the Predecessor, which owned the
Bloomington Hotel. As a result, a discussion of the pro forma operating
results of the Company has been included. See notes 1 and 10 to the
financial statements included in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1997.
HISTORICAL COMBINED RESULTS
Total revenues increased from $5.6 million to $5.9 million for the
three months ended March 31, 1998, for a 5.8% increase or $0.3 million.
This increase was primarily a result of a $0.2 million increase in rooms
revenue in 1998 due to a higher average daily rates (ADR) and occupancy.
Departmental and operating expenses increased from $4.6 million to
$4.7 million for the three months ended March 31, 1998, for a 1.2% increase
or $0.1 million. This increase was primarily a result of the increase in
revenues noted above.
Income before depreciation, amortization and interest expense grew
27.3%, from $1.0 million in 1997 to $1.2 million in 1998. The increase was
primarily caused by the increase in revenues noted above, partially offset
by the increase in departmental and operating expenses.
Depreciation expense increased $0.2 million between periods. The
increase was primarily caused by capital expenditures made during 1997.
Net loss decreased 22.0% to $0.3 million for the three months ended
March 31, 1998 from $0.4 million for the three months ended March 31, 1997.
This decrease was primarily caused by the reasons indicated above.
PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY FOR THE THREE MONTHS
ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997
For the three months ended March 31, 1998, the Company's pro forma
total revenues would have been $12.6 million, representing a $1.5 million,
or 13.8%, increase over pro forma total revenues for the three months ended
March 31, 1997 of $11.1 million. The increase for 1998 over 1997 is
primarily the result of increases in the ADR and improvements in average
occupancy rates experienced at the Initial Hotels.
Pro forma expenses before minority interest, consisting principally of
depreciation, property taxes, insurance, advisory fees, general and
administrative expenses and interest expense would have been $7.6 million
for 1998, representing a $.3 million, or 2.8% increase over 1997 expenses
of $7.3 million. The principal factors for this increase are attributable
to property taxes, insurance and advisory fees. Property taxes and
insurance would have increased from $1.4 million in 1997 to $1.5 million in
1998, or 8.7%, primarily because of inflation and the reassessment of
certain Initial Hotels acquired in 1997. Advisory fees would have
increased $85,000 in 1998 compared to 1997, or 15.1%, primarily the result
of an increase in net operating income.
Pro forma depreciation, general and administrative expenses and
interest expense would have remained relatively unchanged.
<PAGE>
Pro forma net income of the Company would have been $4.2 million and
$3.1 million for the three months ended March 31, 1998 and 1997,
respectively. As a percentage of total revenues, net income would have
been 33.2% and 27.9% in the first quarter of 1998 and 1997, respectively.
PRO FORMA FUNDS FROM OPERATIONS (FFO)
The Company believes that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund other cash
needs. The White Paper on FFO approved by the Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 defines FFO as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items
related to unconsolidated entities and joint ventures. The Company
computes FFO in accordance with standards established by NAREIT which may
not be comparable to FFO reported by other REITs that do not define the
term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. FFO does not
represent cash generated from operating activities determined by GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. FFO may include funds that may not
be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties. The following is a
reconciliation between pro forma net income and pro forma FFO for the three
months ended March 31, 1998 and 1997, respectively (in thousands):
Three Months Ended
March 31,
------------------------
1998 1997
---------- ----------
Pro forma net income applicable
to common shareholders. . . . . $ 4,180 3,090
Pro forma depreciation. . . . . . 3,917 3,917
Pro forma minority interest . . . 881 651
---------- ----------
Pro forma FFO . . . . . . . . . . $ 8,978 7,658
========== ==========
Pro forma FFO per common share
and unit. . . . . . . . . . . . .49 .42
========== ==========
Pro forma weighted average
common shares and units
outstanding . . . . . . . . . . 18,293,845 18,293,845
========== ==========
Pro forma FFO for the three months ended March 31, 1998 would have
increased $1.3 million, or 17.2%, to $9.0 million compared to $7.7 million
in the three months ended March 31, 1997. The increase in pro forma FFO in
1998 is primarily attributable to the increase in participating lease
revenues.
<PAGE>
THE INITIAL HOTELS
The following table sets forth historical comparative information with
respect to Occupancy, average daily rate (ADR) and room revenue per
available room (RevPAR) for the ten Initial Hotels, regardless of
ownership, for the three months ended March 31, 1998 and March 31, 1997.
This information is useful in understanding the underlying changes in the
pro forma participating rent for the Company during the pro forma periods
presented.
Three Months Ended
March 31,
-------------------
1997 1998 Variance
------- ------- --------
Occupancy . . . . . . . . . . . 70.4% 72.2% 2.6%
ADR . . . . . . . . . . . . . . $113.02 $120.62 6.7%
RevPAR. . . . . . . . . . . . . $ 79.58 $ 87.04 9.4%
The Initial Hotels experienced an increase in RevPAR of $7.46, or
9.4%, for the three months ended March 31, 1998 compared to the same period
in 1997. This increase was led by significant RevPAR percentage increases
at the Le Meridien Dallas, the Le Meridien New Orleans and the Marriott
Seaview Resort of 18.9%, 13.2% and 17.3%, respectively. This increased
RevPAR is a result of increases in demand for hotel rooms due to continued
favorable economic conditions which have resulted in increased business and
leisure travel throughout the United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, will be its share of the Operating
Partnership's cash flow. The Operating Partnership's principal source of
revenue will be rent payments under the Participating Leases. Except for
the security deposits required under the Participating Leases, the Lessees'
obligations under the Participating Leases are unsecured and the Lessees'
abilities to make rent payments to the Operating Partnership under the
Participating Leases, and the Company's liquidity, including its ability to
make distributions to shareholders, will be dependent on the Lessees'
abilities to generate sufficient cash flow from the operations of the
Initial Hotels.
The Company has entered into an unsecured $200 million Line of Credit,
the borrowings from which will be utilized primarily for the acquisition
and renovation of additional hotels, the renovation and expansion of
certain of the Initial Hotels and for working capital requirements. The
Line of Credit is not secured by the Initial Hotels or any other assets of
the Company. While the Line of Credit permits borrowings of up to $200
million, the Company's aggregate advances under the Line of Credit may not
exceed an amount equal to 50% of the "Borrowing Base," as defined in the
Credit Agreement.
Upon the completion of the Initial Offering, the Formation
Transactions and the acquisition of the LaGuardia Airport Marriott, the
Company had approximately $138.6 million available under the Line of Credit
after an initial borrowing of approximately $61.4 million. Except for
borrowings under the Line of Credit, the Company and its subsidiaries may
not incur any additional unsecured debt in excess of $50 million in the
aggregate.
The Company believes that it will have sufficient capital resources to
satisfy its obligations during the twelve month period following completion
of the Initial Offering. The Company expects that capital needs will be
met through a combination of net cash provided by operations, additional
borrowings and additional equity issuances.
<PAGE>
The Company is obligated to make funds available to the Initial Hotels
for capital expenditure reserves, as determined in accordance with the
Participating Leases, which call for increases to the reserve ranging from
4.0% to 5.5% of the total revenues for the Initial Hotels. The Company
intends to use the capital expenditure reserves for capital improvements to
the Initial Hotels and refurbishment and replacement of FF&E, but may make
other uses of amounts in the reserves that it considers appropriate from
time to time. To the extent such reserves are insufficient for capital
expenditures, the Operating Partnership, as lessor, will be obligated to
fund the shortfall. Purchase orders totaling approximately $2.1 million
have been issued for the renovation of 317 guest rooms and 13 corridors at
Le Meridien Dallas and purchase orders totaling $1.4 million have been
issued for the renovation of 240 guest rooms and 10 corridors at Le
Meridien New Orleans. The Company anticipates making similar arrangements
with respect to future hotels that it may acquire or develop.
INFLATION
The Company's revenues initially will be based on the Participating
Leases, which will result in changes in the Company's revenues based on
changes in the underlying Initial Hotels' revenues. Therefore, the Company
initially will be relying entirely on the performance of the Initial Hotels
and the lessees' abilities to increase revenues to keep pace with
inflation. Operators of hotels in general, and the lessees, can change room
rates quickly, but competitive pressures may limit the lessees' and their
operators abilities to raise rates faster than inflation. The average
annual growth rate in ADR for the Initial Hotels for the three years ended
December 31, 1997 was approximately 4.9%, which was higher than the rate of
inflation as measured by the Consumer Price Index for such period. However,
according to industry statistics, industry-wide annual increases in ADR
failed to keep pace with inflation from 1987 to 1992.
The Company's variable expenses are subject to inflation. These
variable expenses (real estate and personal property taxes, property and
casualty insurance and ground rent) are expected to grow with the general
rate of inflation.
SEASONALITY
The Initial Hotels' operations historically have been seasonal. Six of
the Initial Hotels maintain higher occupancy rates during the second and
third quarters. The Marriott Seaview Resort generates a large portion of
its revenue from golf related business and, as a result, revenues fluctuate
according to the season and the weather. Holiday Inn Beachside Resort,
Radisson Hotel Tampa at Sabal Park and Le Meridien New Orleans experience
their highest occupancies in the first quarter. This seasonality pattern
can be expected to cause fluctuations in the Company's quarterly lease
revenue under the Participating Leases.
YEAR 2000 COMPLIANCE
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the year 2000 from the
year 1900 (commonly known as the "Year 2000 Problem"). Like other
organizations, the Company could be adversely affected if the computer
systems used by it or service providers do not properly address this
problem prior to January 1, 2000. Currently, the Company does not
anticipate that the transition to the 21st century will have any material
impact on its performance. In addition, the Company has sought assurances
from the Lessees and other service providers that they are taking all
necessary steps to ensure that their computer systems will accurately
reflect the year 2000, and the Company will continue to monitor the
situation. At this time, however, no assurance can be given that the
Company's other service providers have anticipated every step necessary to
avoid any adverse effects on the Company attributable to the Year 2000
Problem.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Neither the Company nor the Operating Partnership is currently
involved in any litigation the ultimate resolution of which, in the opinion
of the Company, is expected to have a material adverse effect on the
financial position, operations or liquidity of the Company and the
Operating Partnership.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 15, 1998, the Company was capitalized with the issuance of
100 common shares of beneficial interest, par value $.01 per share ("Common
Shares") to LaSalle Partners Incorporated for an aggregate purchase price
of $1,000. The issuance of such Common Shares was effected in reliance on
an exemption from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
Also in January 1998, the Operating Partnership was capitalized with
the issuance of a limited partnership interest to Jon E. Bortz, as initial
limited partner, for an aggregate purchase price of $100. The issuance of
such limited partnership interest was effected in reliance on an exemption
from registration under Section 4(2) of the Securities Act.
In connection with the closing of the Initial Offering, pursuant to
the terms of Contribution Agreements entered into by owners of interests in
the Initial Hotels, Units and, in certain circumstances, Common Shares were
issued to owners of interests in the Initial Hotels (other than the
LaGuardia Airport Marriott). The issuance of such Units and Common Shares
was effected in reliance on an exemption from registration under Section
4(2) of the Securities Act.
On April 23, 1998, the Company's Registration Statement on Form S-11
(333-45647) relating to 16,330,000 of the Company's Common Shares,
including 2,130,000 Common Shares subject to an over-allotment option
granted to the underwriters by the Company, was declared effective by the
Securities and Exchange Commission. The offering of 14,200,000 (not
including the 2,130,000 Common Shares subject to the over-allotment option,
which option was not exercised and has expired) Common Shares at $18.00 per
share ($255.6 million in aggregate) was completed on April 29, 1998. The
managing underwriters for the offering were Prudential Securities
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Legg
Mason Wood Walker, Incorporated, Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC and Raymond James & Associates, Inc.
Total underwriting discounts and commissions paid by the Company were $16.0
million, and financial advisory fees paid to one of the underwriters were
$2.0 million. The Company estimates the other costs and expenses incurred
in connection with the Initial Offering, including those incurred in
connection with the formation of the Company, to be approximately $4.1
million. In connection with the Formation Transactions described in the
Company's Registration Statement (No. 333-45647), the Company contributed
the net proceeds of $233.5 million from the initial public offering to the
Operating Partnership, and the Operating Partnership borrowed $61.4 million
under the its Line of Credit. The Operating Partnership used the net
proceeds of the offering and the initial borrowings under the Line of
Credit as follows:
. $195.3 million (including repayment fees aggregating
approximately $3.3 million) was used to repay certain mortgage and other
indebtedness related to the Initial Hotels and held by third-parties;
. $45.9 million was used to acquire the ownership interests
in the Initial Hotels (excluding the LaGuardia Airport Marriott) from third
parties;
<PAGE>
. $45.1 million was used to acquire the LaGuardia Airport
Marriott;
. $3.0 million in Working Capital Loans were advanced to the
lessees and operators of the Company's Hotels; and
. $1.7 million was used for fees and expenses involved in
obtaining the Line of Credit.
. $3.9 million was used for working capital.
No offering expenses were paid, and none of the net proceeds of the
offering were paid, directly or indirectly, to directors or officers of the
Company, persons owning ten percent or more of the Common Shares or
affiliates of the Company, except that the Company reimbursed LaSalle
Partners Incorporated for certain expenses which it had paid on behalf of
the Company prior to the Initial Offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Immediately prior to the Company's initial public offering, all of the
Common Shares of the Company were owned by LaSalle Partners Incorporated.
Pursuant to written consents of the stockholder dated as of April 22, 1998,
(i) the Company's 1998 Share Option and Incentive Plan was approved, (ii)
the Company's Articles of Amendment and Restatement of Declaration of Trust
were approved and (iii) the following persons were elected Trustees of the
Company: Stuart L. Scott (Class III Trustee), Jon E. Bortz (Class I
Trustee), Darryl Hartley-Leonard (Class II Trustee - elected effective
April 29, 1998), George F. Little, II (Class III Trustee - elected
effective April 29, 1998), Donald S. Perkins (Class III Trustee - elected
effective April 29, 1998), Shimon Topor (Class II Trustee - elected
effective April 29, 1998) and Donald A. Washburn (Class I Trustee - elected
effective April 29, 1998). These persons are all of the Trustees of the
Company, and Messrs. Scott and Bortz served as Trustees prior to, and
continued as Trustees following, this election.
ITEM 5. OTHER MATTERS.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: Certain statements in this filing and elsewhere (such as in
other filings by the Company with the Securities and Exchange Commission,
press releases, presentations and communications by the Company or its
management and written and oral statements) constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance, achievements, plans and objectives of the Company to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in the Company's Registration
Statement (No. 333-45647), under "Risk Factors" and elsewhere, and in other
reports filed by the Company with the Securities and Exchange Commission
and include, among other things, the following: (i) dependence upon rental
payments from lessees of the Company's Hotels for all of the Company's
income, (ii) dependence upon the ability of the lessees and operators to
manage the Company's Hotels, (iii) the possibility that the Company may be
required to fund distributions to shareholders from working capital or
borrowings or reduce such distributions, (iv) the lack of appraisals for
the Hotels contributed to the Company in connection with the formation of
<PAGE>
the Company and the possibility that the price paid for the interests in
those Hotels may have exceeded their market value, (v) the potential for
conflicts of interest between the Company and (a) the Advisor and its
affiliates and (b) certain Trustees and officers of the Company who are
also officers, directors and stockholders of the Advisor and its
affiliates, (vi) competition for guests, increases in operating costs due
to inflation and other factors, dependence on business, commercial and
leisure travelers, seasonality of business, potential loss of franchise or
brand licenses, the possible need for expenditures in excess of those
budgeted for capital improvements and replacement of furniture, fixtures
and equipment and other risks that may affect the hotel industry generally
or the Company's Hotels specifically, (vii) the Company's lack of an
operating history and employees and its dependence on the Advisor for its
management and administration, (viii) the use of debt financing, (ix) the
potential unavailability of adequate financing to fund acquisitions and
development activities, (x) the dependence of the Company's performance and
value on real estate industry conditions and the condition of the economy
in general, (xi) taxation of the Company as a corporation if it fails to
qualify as a REIT and the taxation of the Operating Partnership as a
corporation if it were deemed not to be a partnership for income tax
purposes, (xii) provisions of the Company's organizational documents,
including restrictions on ownership of more than 9.8% of the outstanding
Common Shares, which may make a change in control of the Company more
difficult to achieve and (xiii) the effect of market interest rates on the
price of the Company's Common Shares. The Company expressly disclaims any
obligation or undertaking to update or revise any forward-looking
statements to reflect any change in events or circumstances or in the
Company's expectations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. A list of exhibits is set forth in the Exhibit
Index which immediately precedes the exhibits and which is incorporated by
reference herein.
(b) Reports of Form 8-K. No reports on Form 8-K have been
filed for the quarter ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LASALLE HOTEL PROPERTIES
Dated: June 8, 1998 BY: /S/ JON E. BORTZ
------------------------------
Jon E. Bortz
President and
Chief Executive Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH
REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,402
<SECURITIES> 0
<RECEIVABLES> 1,659
<ALLOWANCES> (48)
<INVENTORY> 282
<CURRENT-ASSETS> 4,054
<PP&E> 35,757
<DEPRECIATION> (6,956)
<TOTAL-ASSETS> 33,669
<CURRENT-LIABILITIES> 3,148
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 7,104
<TOTAL-LIABILITY-AND-EQUITY> 33,669
<SALES> 0
<TOTAL-REVENUES> 5,889
<CGS> 0
<TOTAL-COSTS> 6,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 634
<INCOME-PRETAX> (301)
<INCOME-TAX> 0
<INCOME-CONTINUING> (301)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (301)
<EPS-PRIMARY> 0
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