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, 2000
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)
4800 Montgomery Lane, Suite M25, Bethesda, MD 20814
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 301/941-1500
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 [ X ] No [ ]
Indicate the number of common shares of beneficial interest of each class
outstanding as of the latest practicable date.
Outstanding at
Class May 1, 2000
----- ----------------
Common Shares of Beneficial 16,900,495
Interest ($0.01 par value)
<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 . . . . . . . . . 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities and Use of Proceeds . . . . . . 20
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 20
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 21
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
------
Investment in hotel properties, net. . . . . . $ 509,518 $ 501,191
Investment in Affiliated Lessee. . . . . . . . (48) 36
Investment in Joint Ventures . . . . . . . . . 5,685 --
Cash and cash equivalents. . . . . . . . . . . 1,548 1,612
Restricted cash reserves . . . . . . . . . . . 9,294 12,883
Rent receivable from lessees:
Affiliated Lessee. . . . . . . . . . . . . . 1,493 1,675
Other Lessees. . . . . . . . . . . . . . . . 5,454 3,744
Notes receivable:
Affiliated Lessee. . . . . . . . . . . . . . 3,900 3,900
Other Lessees. . . . . . . . . . . . . . . . 3,617 3,617
Other. . . . . . . . . . . . . . . . . . . . 450 442
Deferred financing costs, net. . . . . . . . . 1,401 1,623
Prepaid expenses and other assets. . . . . . . 1,894 1,349
---------- ----------
Total assets . . . . . . . . . . . . $ 544,206 $ 532,072
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Borrowings under credit facility . . . . . . . $ 178,400 $ 164,900
Bonds payable, net . . . . . . . . . . . . . . 41,257 41,571
Mortgage loan. . . . . . . . . . . . . . . . . 46,156 46,306
Due to JLL . . . . . . . . . . . . . . . . . . 716 1,123
Due to Affiliated Lessee . . . . . . . . . . . -- 30
Accounts payable and accrued expenses. . . . . 9,989 6,147
Distributions payable. . . . . . . . . . . . . -- 7,000
Minority interest in Operating Partnership . . 22,880 22,417
Minority interest in other partnerships. . . . 10 10
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred shares of beneficial interest,
$.01 par value, 20,000,000 shares author-
ized, no shares issued and outstanding . . -- --
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized 16,900,495 and 16,863,052
shares issued and outstanding at
March 31, 2000 and December 31, 1999,
respectively . . . . . . . . . . . . . . . 169 169
Additional paid-in capital . . . . . . . . . 255,865 255,329
Retained earnings. . . . . . . . . . . . . . -- --
Distributions in excess of
Retained Earnings. . . . . . . . . . . . . (11,236) (12,930)
---------- ----------
Total shareholders' equity . . . . . 244,798 242,568
---------- ----------
Total liabilities and
shareholders' equity . . . . . . . $ 544,206 $ 532,072
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
------------- -------------
Revenues:
Participating lease revenue:
Affiliated Lessee. . . . . . . . . $ 4,566 $ 4,599
Other Lessees. . . . . . . . . . . 12,311 11,507
Interest income:
Affiliated Lessee. . . . . . . . . 57 57
Other Lessees. . . . . . . . . . . 50 50
Other. . . . . . . . . . . . . . . 183 134
Equity in income (loss) of
Affiliated Lessee . . . . . . . . . (53) (114)
Equity in income (loss) from
Joint Ventures. . . . . . . . . . (24) --
Other income . . . . . . . . . . . . 56 --
---------- ----------
Total revenues . . . . . . . 17,146 16,233
---------- ----------
Expenses:
Depreciation and other amortization. 6,971 5,742
Real estate, personal property
taxes and insurance. . . . . . . . 1,953 1,997
Ground rent. . . . . . . . . . . . . 586 651
General and administrative . . . . . 293 355
Interest . . . . . . . . . . . . . . 4,454 3,505
Amortization of deferred financing
costs. . . . . . . . . . . . . . . 259 241
Advisory fee . . . . . . . . . . . . 769 661
Other. . . . . . . . . . . . . . . . 4 21
---------- ----------
Total expenses . . . . . . . 15,289 13,173
---------- ----------
Income before minority interest. . . . 1,857 3,060
Minority interest in Operating
Partnership. . . . . . . . . . . . . 163 552
---------- ----------
Net income . . . . . . . . . . . . . . $ 1,694 $ 2,508
========== ==========
Net income per weighted average
common share outstanding
- basic . . . . . . . . . . . . . . $ 0.10 $ 0.16
- diluted . . . . . . . . . . . . . $ 0.10 $ 0.16
Weighted average number of
common shares outstanding
- basic . . . . . . . . . . . . . . 16,881,979 15,230,052
- diluted . . . . . . . . . . . . . 16,894,833 15,230,052
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
(Unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
------------- -------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 1,694 $ 2,508
Adjustments to reconcile net
income to net cash flow provided
by operating activities:
Depreciation and other
amortization . . . . . . . . . . 6,971 5,742
Amortization of deferred
financing costs. . . . . . . . . 259 241
Bond premium amortization. . . . . (314) (314)
Minority interest in
Operating Partnership. . . . . . 163 552
Options granted to Advisor . . . . 53 --
Equity in (income) loss of
Affiliated Lessee. . . . . . . . 53 114
Equity in (income) loss of
Joint Ventures . . . . . . . . . 24 --
Changes in assets and liabilities:
Rent receivable from lessees . . . (1,528) (3,326)
Prepaid expenses and other
assets . . . . . . . . . . . . . (1,318) 2,950
Due to JLL . . . . . . . . . . . . 5 23
Accounts payable and accrued
expenses . . . . . . . . . . . . (305) 21
---------- ----------
Net cash flow provided
by operating activities. . 5,757 8,511
---------- ----------
Cash flows from investing activities:
Investment in Joint Ventures . . . . (4,784) --
Distributions from Affiliated
Lessee . . . . . . . . . . . . . . 31 --
Improvements and additions to
hotel properties . . . . . . . . . (11,007) (7,410)
Funding of notes receivable. . . . . -- (400)
Funding of restricted cash
reserves . . . . . . . . . . . . . (2,027) (5,004)
Proceeds from restricted cash
reserves . . . . . . . . . . . . . 5,616 6,753
---------- ----------
Net cash flow used in
investing activities . . . (12,171) (6,061)
---------- ----------
<PAGE>
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands, except per share data)
(Unaudited)
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
------------- -------------
Cash flows from financing
activities:
Borrowings under credit facility . . 16,200 8,500
Repayments under credit facility . . (2,700) (4,000)
Mortgage loan repayments . . . . . . (150) --
Payment of deferred financing
costs. . . . . . . . . . . . . . . -- (427)
Offering costs paid. . . . . . . . . -- (26)
Distributions. . . . . . . . . . . . (7,000) (6,902)
---------- ----------
Net cash flow provided by
(used in) financing
activities . . . . . . . . 6,350 (2,855)
---------- ----------
Net change in cash and
cash equivalents . . . . . . . . . . (64) (405)
Cash and cash equivalents
at beginning of period . . . . . . . 1,612 1,570
---------- ----------
Cash and cash equivalents
at end of period . . . . . . . . . . $ 1,548 $ 1,165
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Dollars in thousands, expect per share data)
(Unaudited)
1. ORGANIZATION
LaSalle Hotel Properties ("the Company") was organized in the state of
Maryland on January 15, 1998. The Company is a real estate investment
trust ("REIT") as defined in the Internal Revenue Code. The Company had no
operations prior to April 29, 1998, at which time, the Company completed an
initial public offering (the "IPO").
The Company's operations are conducted primarily through LaSalle Hotel
Operating Partnership, L.P., (the "Operating Partnership") of which the
Company is the sole general partner with an approximate 91.5% ownership
interest at March 31, 2000. Minority interest in the Company represents
the approximate 8.5% aggregate partnership interest in the Operating
Partnership held by the limited partners thereof.
As of March 31, 2000, the Company owned interests in 14 hotels with
approximately 5,500 suites/rooms (the "Hotels") located in 11 states. The
Company owns 100% equity interests in 12 hotels, a 95.1% equity interest in
a partnership which owns one hotel and a 9.9% equity interest in the
Chicago Hotel Venture (as defined in Note 4) which also owns one hotel.
All of the Hotels are leased under participating leases ("Participating
Leases") which provide for rent based on hotel revenues and are managed by
independent hotel operators ("Hotel Operators"). Nine of the Hotels are
leased to unaffiliated lessees (affiliates of whom also operate these
hotels) and four of the Hotels are leased to LaSalle Hotel Lessee, Inc.
(the "Affiliated Lessee"). The Hotel which is owned by the Chicago Hotel
Venture is leased to Chicago 540 Lessee (as defined in Note 4) in which the
Company also has a 9.9% equity interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial statements and related
notes have been prepared in accordance with the financial information and
accounting policies described in the Company's 1999 Form 10-K and should be
read in conjunction with such financial statements and related notes. The
following notes to these interim financial statements highlight significant
changes to the notes included in the December 31, 1999 audited financial
statements included in the Company's 1999 form 10-K and present interim
disclosures as required by the Securities and Exchange Commission.
In the opinion of management, all adjustments consist of normal
recurring adjustments necessary to present fairly the financial position of
the Company as of March 31, 2000 and the results of its operations and its
cash flows for the three months ended March 31, 2000 and for the three
months ended March 31, 1999.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and its consolidated subsidiaries and
partnerships. All significant intercompany balances and transactions have
been eliminated.
<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 assets and liabilities
at the balance sheet date and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVESTMENT IN JOINT VENTURES
Investment in Joint Ventures represents the Company's 9.9% equity
interest in Chicago Hotel Venture and Chicago 540 Lessee (as defined in
Note 4). The Company accounts for its Investment in Joint Ventures under
the equity method of accounting. Accordingly, the Company carries its
investment at cost, plus its equity in net earnings, less distributions
received since the date of acquisition. In addition, pursuant to the joint
venture agreement, the Company earns a priority preferred return based on
the net operating cash flow of Chicago Hotel Venture.
RECLASSIFICATION
Certain 1999 items have been reclassified to conform to the 2000
presentation.
3. EARNINGS PER SHARE
The limited partners' outstanding units in the Operating Partnership
("Units") have been excluded from the diluted earnings per share
calculation as there would be no effect on the amounts since the minority
interests' share of income would also be added back to net income. The
computation of basic and diluted EPS is presented below:
Three months Three months
ended ended
March 31, March 31,
2000 1999
------------- -------------
NUMERATOR:
Net income . . . . . . . . . . . . . . $ 1,694 $ 2,508
========== ==========
DENOMINATOR:
Weighted average number of common
shares -
Basic . . . . . . . . . . . . . . . 16,881,979 15,230,052
Effect of Dilutive Securities:
Common Stock Options. . . . . . . 12,854 --
---------- ----------
Weighted average number of common
shares -
Diluted . . . . . . . . . . . . . . 16,894,833 15,230,052
========== ==========
BASIC EPS:
Net income per weighted average
common share. . . . . . . . . . . . . $ 0.10 $ 0.16
========== ==========
DILUTED EPS:
Net income per weighted average
common share . . . . . . . . . . . . $ 0.10 $ 0.16
========== ==========
<PAGE>
4. JOINT VENTURE
On January 25, 2000, the Company entered into a joint venture
arrangement (the "Chicago Hotel Venture") with an institutional investor to
acquire the 1,176-room Chicago Marriott Downtown (the "Chicago Property")
in Chicago, Illinois. The Company, through the Operating Partnership, owns
a 9.9% equity interest in the Chicago Hotel Venture. The Company receives
a preferred return in addition to its pro rata share of annual cash flow.
The Company will also have the opportunity to earn an incentive
participation in net sale proceeds based upon the achievement of certain
overall investment returns, in addition to its pro rata share of net sale
or refinancing proceeds.
The Chicago Property is leased to Chicago 540 Lessee, Inc., ("Chicago
540 Lessee") in which the Company also owns a 9.9% equity interest. The
institutional investor owns a 90.1% controlling interest in both the
Chicago Hotel Venture and Chicago 540 Lessee. Marriott International
continues to operate and manage the Chicago Property.
5. REAL ESTATE HELD FOR SALE
Holiday Inn Plaza Park is being actively marketed for sale by the
Company. Accordingly, the asset has been classified as held for sale since
December 31, 1999 and is no longer being depreciated. Based on initial
pricing expectations, the net book value of the asset was reduced by $2,000
to $5,508 in 1999. There can be no assurance that real estate held for
sale will be sold.
Results of operations for Holiday Inn Plaza Park are as follows:
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
------------- -------------
Total Revenues. . . . . . . . . $277,409 $444,604
Total Expenses. . . . . . . . . 29,863 94,786
-------- --------
Income from Operations. . . . . $247,546 $349,818
======== ========
6. LONG-TERM DEBT
CREDIT FACILITY
In 1998, the Company obtained a three-year commitment for a $235
million senior unsecured revolving credit facility (the "1998 Amended
Credit Facility") to be used for acquisitions, capital improvements,
working capital and general corporate purposes. Borrowings under the 1998
Amended Credit Facility bear interest at floating rates equal to LIBOR plus
an applicable margin or an "Adjusted Base Rate" plus an applicable margin,
at the election of the Company. For the three months ended March 31, 2000,
the weighted average interest rate was approximately 7.6%. The Company did
not have any Adjusted Base Rate borrowings outstanding at March 31, 2000.
Additionally, the Company is required to pay an unused commitment fee which
is variable, determined from a ratings based pricing matrix and is
currently set at 25 basis points. The Company has incurred an unused
commitment fee of approximately $37 for the three months ended March 31,
2000. As of March 31, 2000, the Company had outstanding borrowings against
the 1998 Amended Credit Facility of $178,400.
<PAGE>
BONDS PAYABLE
At March 31, 2000, the Company had outstanding bonds payable of
$41,257 of which $40,000 represents the principal balance of the bonds and
the remaining $1,257 million represents unamortized premium. The bonds
bear interest at a fixed rate of 10% per annum. Interest expense, net of
the premium amortization, for the three months ended March 31, 2000 totaled
$686.
Pursuant to the bond agreement, certain cash reserves are required to
be held in trust for payments of interest, credit enhancement fees and
ground rent. As of March 31, 2000, these reserves totaled $4,232 and are
included in Restricted Cash Reserves.
MORTGAGE LOAN
In 1999, the Company, through the newly formed LHO Financing
Partnership I, L.P. (the "Financing Partnership"), entered into a $46,500
mortgage loan (the "1999 Mortgage Loan"). The 1999 Mortgage Loan is
secured by the Radisson Convention Hotel located in Bloomington, Minnesota
and the Le Meridien Dallas. The loan matures on July 31, 2009 and does not
allow for prepayment prior to January 31, 2009, without penalty. The loan
bears interest at a fixed rate of 8.1% and requires interest and principal
payments based on a 25-year amortization schedule. The loan agreement
requires the Financing Partnership to hold funds in escrow for the payment
of one half year's insurance and real estate taxes. The 1999 Mortgage Loan
also requires the Financing Partnership to maintain a certain debt service
coverage ratio. At March 31, 2000, the 1999 Mortgage Loan had a principal
balance of $46,156.
7. SHAREHOLDERS' EQUITY
On January 14, 2000, Company paid its regular fourth quarter
distribution of $0.38 per share/unit on its Common Shares and Units.
On February 14, 2000, pursuant to the advisory agreement, the Company
issued 31,318 Common Shares to the Advisor for the incentive portion of the
1999 advisory fee, in lieu of the $412, which would have otherwise been due
to the Advisor.
8. SHARE OPTION AND INCENTIVE PLAN
On January 18, 2000, the Company granted 300,000 non-qualified stock
options at a strike price of $11.63. Options granted to employees of the
Advisor vest over three years and expire seven years from the date of
grant. Options which were granted to the Advisor on January 18, 2000
vested immediately and have a seven year life. In conjunction with the
options granted to the Advisor, the Company recognized $53 in options
expense.
On February 14, 2000, the Company issued 6,125 Common Shares to its
Board of Trustees for 1999 compensation. The Common Shares were issued in
lieu of cash, at the trustee's election. These Common Shares were issued
from the 1998 Share Option and Incentive Plan (the "1998 SIP").
At March 31, 2000, 808,680 Common Shares were available for future
grant.
<PAGE>
9. AFFILIATED LESSEE
A significant portion of the Company's participating lease revenue is
derived from the Participating Leases with the Affiliated Lessee. The
Affiliated Lessee is owned as follows: 9.0% by the Company, 45.5% by JLL
and 45.5% by LPI Charities, a charitable organization organized under the
laws of the state of Illinois. Certain condensed financial information,
related to the Affiliated Lessee's income statement, is as follows:
Three months Three months
ended ended
March 31, March 31,
2000 1999
------------ ------------
Total revenues . . . . . . . . . . . . $ 18,507 $ 18,124
Participating lease expense. . . . . . 4,566 4,599
Net income (loss). . . . . . . . . . . (586) (1,271)
10. COMMITMENTS AND CONTINGENCIES
The Company is obligated to make funds available to the Hotels for
capital expenditures (the "Reserve Funds"), as determined in accordance
with the Participating Leases. The Reserve Funds have not been recorded on
the books and records of the Company as such amounts will be capitalized as
incurred. The amounts obligated under the Reserve Funds are subject to
increases ranging from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds is approximately $8,820 at March 31, 2000 of which $3,749 is
available in restricted cash reserves for future capital expenditures.
Purchase orders and letters of commitment totaling approximately $9,503
have been issued for renovations at the Hotels.
The nature of the operations of the Hotels expose them to the risk of
claims and litigation in the normal course of their business. Although the
outcome of these matters cannot be determined, management does not expect
the ultimate resolution of these matters to have a material adverse effect
on the financial position, operations or liquidity of the Hotels.
On behalf of the Company, the Advisor seeks opportunities for the
purchase of additional full service hotel properties located primarily in
convention, resort, urban and major 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.
11. RELATED PARTY TRANSACTIONS
At March 31, 2000, the Company had a payable to JLL of $716 for the
first quarter base advisory fee.
12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
For the For the
three months three months
ended ended
March 31, March 31,
2000 1999
------------ ------------
Interest paid, net of capitalized
interest . . . . . . . . . . . . . . $ 5,389 $ 4,367
======= =======
Interest capitalized . . . . . . . . . . $ 591 $ 70
======= =======
Issuance of Units in conjunction with
the investment in Chicago Hotel
Venture. . . . . . . . . . . . . . . . $ 300 $ --
======= =======
<PAGE>
13. SUBSEQUENT EVENT
On April 14, 2000, the Company declared its first quarter distribution
of $0.38 per share/unit on its Common Shares and Units. The distribution
is payable on May 15, 2000 to shareholders and unitholders of record at the
close of business on April 28, 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-Q.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE
MONTHS ENDED MARCH 31, 1999
For the quarter ended March 31, 2000, the Company earned participating
lease revenue of $16.9 million compared to participating lease revenue of
$16.1 million for the quarter ended March 31, 1999. This $0.8 million
increase is primarily attributable to increased revenues at the Radisson
Convention Hotel and LeMeridien New Orleans. These hotels benefitted from
strong group demand in the first three months of 2000. Offsetting these
increases were decreases in participating lease revenue caused by decreased
revenues at the Harborside Hyatt Conference Center & Hotel ("Harborside
Hyatt") and the LeMontrose All-Suite Hotel ("LeMontrose"). First quarter
revenues were down at these hotels due to the renovations which took place
at the hotels. Harborside Hyatt underwent a complete soft goods renovation
of all guestrooms and hallways, while LeMontrose underwent a complete
exterior and guestroom renovation.
Depreciation expense increased to $7.0 million for the quarter ended
March 31, 2000 compared to $5.7 million for the quarter ended March 31,
1999. This $1.3 million increase is attributable to additional
depreciation on capital expenditures incurred and placed into service
subsequent to March 31, 1999. In addition, depreciation expense for the
quarter ended March 31, 2000 includes depreciation expense taken on the
Hotel Viking, which was acquired on June 2, 1999.
Real estate and personal property taxes, insurance and ground rent was
$2.5 million for the quarter ended March 31, 2000 compared to $2.6 million
for the quarter ended March 31, 1999. This decrease is primarily
attributable to decreased ground rent at the Harborside Hyatt and the San
Diego Paradise Point Resort.
General and administrative expense was $0.3 million for the quarter
ended March 31, 2000 compared to $0.4 million for the quarter ended
March 31, 1999. This $0.1 million decrease is attributable to lower annual
report costs and a decrease in general legal expense.
Interest expense increased $1.0 million to $4.5 million for the
quarter ended March 31, 2000 compared to interest expense of $3.5 million
for the quarter ended March 31, 1999. The increase is attributable to a
greater amount of debt outstanding during the first quarter 2000 compared
to the first quarter 1999. The increase in debt outstanding is a result of
the purchase of the Hotel Viking on June 2, 1999, which was financed with a
borrowing under the 1998 Amended Credit Facility, as well as additional
borrowings under the 1998 Amended Credit Facility to finance capital
improvements during the remainder of 1999 and through the first quarter of
2000. In addition, interest rates were higher in the first quarter 2000
compared to the first quarter 1999. The increase in interest expense was
offset by $0.6 million of capitalized interest, which was a result of the
renovation of the Hotel Viking in the first quarter 2000.
Advisory fees for the quarter ended March 31, 2000 increased $0.1
million to $0.8 million from $0.7 million for the quarter ended March 31,
1999. This increase is partially a result of increased net operating
income for the quarter ended March 31, 2000, as well as options expense
recognized during the first quarter 2000 for options granted to the Advisor
in January 2000.
<PAGE>
Minority interest for the quarter ended March 31, 2000 was $0.2
million compared to $0.6 million for the quarter ended March 31, 1999. The
$0.4 million decrease is a result of lower income before minority interest
of $1.2 million for the quarter ended March 31, 2000. In addition, fewer
Operating Partnership Units ("Units") were outstanding during the quarter
ended March 31, 2000 as a result of two conversions of Units to Common
Shares during 1999. At March 31, 2000, approximately 1.6 million Units
were outstanding, compared to approximately 3.2 million Units at March 31,
1999.
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 October
1999 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 net income and FFO (in thousands, except share
data):
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
------------- -------------
Net income applicable to
common shareholders. . . . . . . . . . $ 1,694 $ 2,508
Depreciation . . . . . . . . . . . . . . 6,969 5,741
Equity in depreciation of
Chicago Hotel Venture. . . . . . . . . 150 --
Minority interest. . . . . . . . . . . . 163 552
---------- ----------
FFO. . . . . . . . . . . . . . . . . . . $ 8,976 $ 8,801
========== ==========
Weighted average number of common
shares and units outstanding:
- basic. . . . . . . . . . . . . . . . 18,453,485 18,411,775
- diluted. . . . . . . . . . . . . . . 18,466,339 18,411,775
<PAGE>
THE 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 comparable Hotels, the non-comparable
Hotels and the total Hotel portfolio for the three month periods ended
March 31, 2000 and 1999.
For the three months ended
March 31,
---------------------------
2000 1999 Variance
---- ---- --------
COMPARABLE HOTELS (1)
Occupancy 73.0% 75.2% (2.9%)
ADR $137.18 $131.40 4.4%
REVPAR $100.19 $ 98.87 1.3%
NON-COMPARABLE HOTELS (1)
Occupancy 59.5% 58.5% 1.7%
ADR $136.60 $133.58 2.3%
REVPAR $81.29 $78.15 4.0%
TOTAL PORTFOLIO
Occupancy 67.5% 68.3% (1.3%)
ADR $136.97 $132.17 3.6%
REVPAR $ 92.42 $90.33 2.3%
(1) Non-Comparable hotels include the following:
For the three months ended March 31: Le Montrose, Hotel Viking,
Harborside Hyatt, Radisson Convention Hotel, Marriott Seaview Resort and
San Diego Paradise Point Resort.
Comparable hotels include all Hotels excluding those in Non-
Comparable hotels.
For the quarter ended March 31, 2000, the Company experienced RevPAR
growth of 2.3% for its portfolio compared to the quarter ended March 31,
1999. The Company's Hotels benefitted from their locations in high barrier
to entry resort, convention and urban markets, the renovations which took
place during 1999 and demand which improved throughout the first quarter of
2000. During the first quarter 2000, the Company substantially completed
its $9 million renovation and expansion of the Hotel Viking. The Company
also completed the full guestroom renovation of the Harborside Hyatt, the
guestsuite improvement and renovation at LeMontrose and made significant
progress in completing Phase Two of the three-year, approximately $24
million renovation and repositioning of the San Diego Paradise Point
Resort.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its pro rata share of the
Operating Partnership's cash flow from 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, 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 Hotels.
<PAGE>
In 1998, the Company entered into a $235 million senior unsecured
revolving credit facility (the "1998 Amended Credit Facility") to be used
for acquisitions, capital improvements, working capital and general
corporate purposes. Borrowings under the 1998 Amended Credit Facility bear
interest at floating rates equal to LIBOR plus an applicable margin or an
"Adjusted Base Rate" plus an applicable margin, at the election of the
Company. For the three months ended March 31, 2000, the weighted average
interest rate was approximately 7.6%. The Company did not have any
Adjusted Base Rate borrowings outstanding at March 31, 2000. Additionally,
the Company is required to pay an unused commitment fee which is variable,
determined from a ratings or leverage based pricing matrix and is currently
set at 25 basis points. The Company incurred an unused commitment fee of
approximately $37 for the three months ended March 31, 2000. The 1998
Amended Credit Facility matures on April 30, 2001 and contains certain
financial covenants relating to debt service coverage, market value net
worth and total funded indebtedness.
In June 1998, the Company acquired the Harborside Hyatt subject to $40
million principal amount of special project revenue bonds ("Massport
Bonds") previously issued under the loan and trust agreement with the
Massachusetts Port Authority ("Massport"), as amended ("Massport Bond
Agreement"). In conjunction with the Massport Bonds, the Company recorded
a premium of $3.5 million of which $1.3 million remains unamortized at
March 31, 2000. The Massport Bonds are collateralized by the leasehold
improvements and bear interest at 10% per annum through the date of
maturity, March 1, 2026. Interest payments are due semiannually on March 1
and September 1. Interest expense, net of the premium amortization, for
the three months ended March 31, 2000 totaled $0.7 million. The Massport
Bonds shall be redeemed in part commencing March 1, 2001 and annually until
March 1, 2026, at which time the remaining principal and any accrued
interest thereon is due in full. The Company has the option to prepay the
Massport Bonds in full beginning March 1, 2001 subject to a prepayment
penalty which varies depending on the date of prepayment.
In 1999, the Company entered into a $46.5 million mortgage loan (the
"1999 Mortgage Loan"). The loan is subject to a fixed interest rate of
8.1%, matures on July 31, 2009, and requires interest and principal
payments based on a 25-year amortization schedule. The 1999 Mortgage Loan
is collateralized by the Radisson Convention hotel located in Bloomington,
Minnesota and the LeMeridien Dallas. Interest expense for the three months
ended March 31, 2000 was $0.9 million. The 1999 Mortgage Loan had a
balance of $46.2 million at March 31, 2000.
On March 31, 2000, the Company had $1.6 million of cash and cash
equivalents and had $178.4 million outstanding under its 1998 Amended
Credit Facility.
Net cash provided by operating activities was approximately $5.8
million for the three months ended March 31, 2000, primarily due to the
collections of Participating Lease revenues, which was offset by payments
for real estate taxes, personal property taxes, insurance, ground rent and
the fourth quarter 1999 base advisory fees.
Net cash used in investing activities was approximately $12.2 million
for the three months ended March 31, 2000 due primarily to outflows for
improvements and additions at the Hotels and outflows for the investment in
Joint Venture.
Net cash provided by financing activities was approximately $6.4
million for the three months ended March 31, 2000 attributable to
borrowings under the 1998 Amended Credit Facility to finance the investment
in the Joint Ventures and the extensive renovations at the Hotels. These
inflows were offset by repayments under the 1998 Amended Credit Facility,
as well as the payment of the fourth quarter 1999 distribution.
<PAGE>
During the three months ended March 31, 2000, the Company granted
300,000 stock options from the 1998 SIP at a strike price of $11.63. The
options which were granted to employees of the Advisor vest over three
years, while the options granted to the Advisor vested on the date of
grant. All options granted during the quarter expire seven years from the
date of grant.
The Company is obligated to make funds available to the Hotels for
capital expenditures (the Reserve Funds), as determined in accordance with
the Participating Leases. The Reserve Funds have not been recorded on the
books and records of the Company as such amounts will be capitalized as
incurred. The amounts obligated under the Reserve Funds are subject to
increases ranging from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds is approximately $8.8 million at March 31, 2000, of which $3.8
million is available in restricted cash reserves for future capital
expenditures. Purchase orders and letters of commitment totaling
approximately $9.5 million have been issued for renovations at the Hotels.
The Company's debt policy is to incur debt only if upon such
incurrence the Company's total funded indebtedness would not exceed 50% of
"Aggregate Asset Value." For purposes of this policy, Aggregate Asset Value
is defined as the sum of (a) for all the Company's properties owned for
more than four quarters ("Seasoned Properties"), the EBITDA (reduced by the
aggregate FF&E reserves for the relevant period in respect of the Seasoned
Properties) of the Seasoned Properties for the proceeding four quarters
times 10, and (b) for all Properties owned for less than four quarters
("New Properties"), the investment amount (which shall include the purchase
price, including assumed indebtedness, and all acquisition costs) of the
New Properties and 95% of all the capital expenditures with respect to the
New Properties. The Board of Trustees can change this policy at any time
without the approval of the shareholders.
The Company has considered its short-term (one year or less) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that
its principal short-term liquidity needs are to fund normal recurring
expenses, debt service requirements and the minimum distribution required
to maintain the Company's REIT qualification under the Code. The Company
anticipates that these needs will be met with cash flows provided by
operating activities. The Company has also considered capital improvements
and property acquisitions as short-term needs that will be funded either
with cash flows provided by operating activities, under the 1998 Amended
Credit Facility or other indebtedness, or the issuance of additional equity
securities.
The Company expects to meet long-term (greater than one year)
liquidity requirements such as property acquisitions, scheduled debt
maturities, major renovations, expansions and other nonrecurring capital
improvements through long-term unsecured and secured indebtedness and the
issuance of additional equity securities. The Company will acquire or
develop additional hotel properties only as suitable opportunities arise,
and the Company will not undertake acquisition or development of properties
unless stringent acquisition criteria have been achieved.
INFLATION
The Company's revenues come primarily from the Participating Leases,
which will result in changes in the Company's revenues based on changes in
the underlying Hotels' revenues. Therefore, the Company relies entirely on
the performance of the Hotels and the lessees' abilities to increase
revenues to keep pace with inflation. Hotel Operators can change room
rates quickly, but competitive pressures may limit the Lessees' and the
Hotel Operators abilities to raise rates faster than inflation or even at
the same rate.
<PAGE>
The Company's expenses are subject to inflation. These expenses (real
estate and personal property taxes, property and casualty insurance and
ground rent) are expected to grow with the general rate of inflation,
except for instances in which the properties are subject to periodic real
estate tax reassessments.
SEASONALITY
The Hotels' operations historically have been seasonal. Eight of the
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. Radisson Hotel Tampa and Le
Montrose experience their highest occupancies in the first quarter, while
Key West Beachside Resort and Le Meridien New Orleans experience their
highest occupancies in the first and second quarters. This seasonality
pattern can be expected to cause fluctuations in the Company's quarterly
lease revenue under the Participating Leases.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, effective for fiscal
years beginning after June 15, 2000, establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement also requires that the changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are
met. Currently, the pronouncement has no impact on the Company, as the
Company has not utilized derivative instruments or entered into any hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". The Staff determined that a lessor should defer recognition
of contingent rental income until the specified target that triggers the
contingent rental income is achieved. The Company recognizes lease revenue
on an accrual basis pursuant to the terms of the respective Participating
Leases in which Participating Rent is calculated using quarterly
thresholds. Accordingly, SAB No. 101 will not have an impact on the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
The Company's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve these objectives, the Company borrows
at a combination of fixed and variable rates.
In 1998, the Company obtained the 1998 Amended Credit Facility, which
provides for a maximum borrowing amount of up to $235 million. Borrowings
under the 1998 Amended Credit Facility bear interest at variable market
rates. At March 31, 2000, the Company's outstanding borrowings under the
1998 Amended Credit Facility were $178.4 million. The weighted average
interest rate under the facility for the three months ended March 31, 2000
was 7.6%. A .25% change in interest rates would have changed interest
expense by $0.1 million for the quarter ended March 31, 2000. This change
is based upon the weighted average borrowings under the 1998 Amended Credit
Facility for the quarter ended March 31, 2000, which were $176.1 million.
<PAGE>
At March 31, 2000, the Company also had outstanding bonds payable of
$41.3 million, of which $40.0 million represents the principal balance of
the bonds and the remaining $1.3 million represents unamortized premium.
The bonds bear interest at a fixed rate. For fixed rate debt, changes in
interest rates generally affect the fair value of the debt, but not the
earnings or cash flows of the Company. Changes in the fair market value of
fixed rate debt generally will not have a significant impact on the
Company, unless the Company is required to refinance such debt. At
March 31, 2000, the carrying value of the bonds approximated their fair
value.
In 1999, the Company entered into a $46.5 million mortgage loan (the
"1999 Mortgage Loan"). The loan is subject to a fixed interest rate of
8.1%, matures on July 31, 2009 and requires interest and principal payments
based on a 25-year amortization schedule. At March 31, 2000, the 1999
Mortgage Loan had a balance of $46.2 million. At March 31, 2000, the
carrying value of the 1999 Mortgage Loan approximated its fair value.
<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.
NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE.
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 under "Business", Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Quantitative and Qualitative Disclosure about Market Risk" and elsewhere
in the Company's annual report on Form 10-K for the year ended December 31,
1999, under "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Quantitative and Qualitative Disclosure About
Market Risk" and elsewhere in this report, under "Certain Relationships and
Related Transactions" and elsewhere in the Company's proxy statement with
respect to the annual meeting of shareholders to be held on May 17, 2000,
"Risk Factors" and elsewhere in the Company's Registration Statement (No.
333-77371), and in other reports filed by the Company with the Securities
and Exchange Commission. 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.
<PAGE>
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.
A report on Form 8-K dated January 24, 2000 was filed
on January 25, 2000. The report includes the Company's press release,
dated January 24, 2000, which reported earnings for the quarter and year
ended December 31, 1999.
A report on Form 8-K dated January 25, 2000 was filed
on January 25, 2000. The report includes the Company's press release,
dated January 25, 2000, which announced the acquisition of the Chicago
Marriott Downtown in a joint venture with The Carlyle Group.
<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: May 2, 2000 BY: /s/ HANS S. WEGER
------------------------------
Hans S. Weger
Executive Vice President,
Treasurer and Chief
Financial Officer
(Authorized Officer and
Principal Financial and
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, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,842
<SECURITIES> 0
<RECEIVABLES> 6,947
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,683
<PP&E> 562,768
<DEPRECIATION> 53,250
<TOTAL-ASSETS> 544,206
<CURRENT-LIABILITIES> 10,705
<BONDS> 41,257
<COMMON> 169
0
0
<OTHER-SE> 244,629
<TOTAL-LIABILITY-AND-EQUITY> 544,206
<SALES> 0
<TOTAL-REVENUES> 17,146
<CGS> 0
<TOTAL-COSTS> 15,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,454
<INCOME-PRETAX> 1,694
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,694
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
