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 SEPTEMBER 30, 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 October 31, 2000
----- ------------------
Common Shares of Beneficial 16,982,416
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 . . . . . . . . . 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 23
Item 2. Changes in Securities and Use of Proceeds . . . . . . 23
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 23
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 24
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
------
Investment in hotel properties, net. . . . . . $ 500,535 $ 501,191
Investment in Affiliated Lessee. . . . . . . . 72 36
Investment in Joint Ventures . . . . . . . . . 6,010 --
Cash and cash equivalents. . . . . . . . . . . 1,477 1,612
Restricted cash reserves . . . . . . . . . . . 10,797 12,883
Rent receivable from lessees:
Affiliated Lessee. . . . . . . . . . . . . . 5,411 1,675
Other Lessees. . . . . . . . . . . . . . . . 7,546 3,744
Notes receivable:
Affiliated Lessee. . . . . . . . . . . . . . 3,900 3,900
Other Lessees. . . . . . . . . . . . . . . . 3,518 3,617
Other. . . . . . . . . . . . . . . . . . . . 506 442
Deferred financing costs, net. . . . . . . . . 2,800 1,623
Prepaid expenses and other assets. . . . . . . 1,885 1,349
---------- ----------
Total assets . . . . . . . . . . . . $ 544,457 $ 532,072
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Borrowings under credit facility . . . . . . . $ 110,000 $ 164,900
Bonds payable, net . . . . . . . . . . . . . . 40,628 41,571
Mortgage loans . . . . . . . . . . . . . . . . 120,301 46,306
Due to JLL . . . . . . . . . . . . . . . . . . 1,151 1,123
Due to Affiliated Lessee . . . . . . . . . . . -- 30
Accounts payable and accrued expenses. . . . . 5,880 6,147
Distributions payable. . . . . . . . . . . . . -- 7,000
Minority interest in Operating Partnership . . 22,728 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, 16,937,662 and 16,863,052
shares issued and outstanding at
September 30, 2000 and December 31, 1999,
respectively . . . . . . . . . . . . . . . 169 169
Additional paid-in capital . . . . . . . . . 256,324 255,329
Retained earnings. . . . . . . . . . . . . . -- --
Distributions in excess of
Retained Earnings. . . . . . . . . . . . . (12,734) (12,930)
---------- ----------
Total shareholders' equity . . . . . 243,759 242,568
---------- ----------
Total liabilities and
shareholders' equity . . . . . . . $ 544,457 $ 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 nine For the nine
months ended months ended
September 30, September 30,
2000 1999
------------- -------------
Revenues:
Participating lease revenue:
Affiliated Lessee. . . . . . . . . $ 23,643 $ 21,846
Other Lessees. . . . . . . . . . . 40,879 37,786
Interest income:
Affiliated Lessee. . . . . . . . . 171 171
Other Lessees. . . . . . . . . . . 154 153
Other. . . . . . . . . . . . . . . 585 392
Equity in income of
Affiliated Lessee . . . . . . . . . 67 73
Equity in income of
Joint Ventures. . . . . . . . . . 821 --
Other income . . . . . . . . . . . . 56 11
---------- ----------
Total revenues . . . . . . . 66,376 60,432
---------- ----------
Expenses:
Depreciation and other amortization. 21,676 18,562
Real estate, personal property
taxes and insurance. . . . . . . . 6,615 6,118
Ground rent. . . . . . . . . . . . . 2,611 2,545
General and administrative . . . . . 717 949
Interest . . . . . . . . . . . . . . 15,427 11,558
Amortization of deferred financing
costs. . . . . . . . . . . . . . . 826 733
Advisory fee . . . . . . . . . . . . 2,874 3,034
Other. . . . . . . . . . . . . . . . 15 123
---------- ----------
Total expenses . . . . . . . 50,761 43,622
---------- ----------
Income before minority interest and
writedown of property held for
sale . . . . . . . . . . . . . . . . 15,615 16,810
Writedown of property held for sale. . 1,266 --
---------- ----------
Income before minority interest. . . . 14,349 16,810
Minority interest in Operating
Partnership. . . . . . . . . . . . . 1,217 2,869
---------- ----------
Net income . . . . . . . . . . . . . . $ 13,132 $ 13,941
========== ==========
Net income per weighted average
common share outstanding
- basic . . . . . . . . . . . . . . $ 0.78 $ 0.91
- diluted . . . . . . . . . . . . . $ 0.77 $ 0.91
Weighted average number of
common shares outstanding
- basic . . . . . . . . . . . . . . 16,903,187 15,262,241
- diluted . . . . . . . . . . . . . 16,952,020 15,271,024
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
September 30, September 30,
2000 1999
------------- -------------
Revenues:
Participating lease revenue:
Affiliated Lessee. . . . . . . . . $ 10,512 $ 9,722
Other Lessees. . . . . . . . . . . 15,282 13,512
Interest income:
Affiliated Lessee. . . . . . . . . 57 57
Other Lessees. . . . . . . . . . . 52 52
Other. . . . . . . . . . . . . . . 229 144
Equity in income of
Affiliated Lessee . . . . . . . . . 45 68
Equity in income of
Joint Ventures. . . . . . . . . . 413 --
Other income . . . . . . . . . . . . -- 21
---------- ----------
Total revenues . . . . . . . 26,590 23,576
---------- ----------
Expenses:
Depreciation and other amortization. 7,442 6,604
Real estate, personal property
taxes and insurance. . . . . . . . 2,281 2,165
Ground rent. . . . . . . . . . . . . 1,103 1,033
General and administrative . . . . . 183 247
Interest . . . . . . . . . . . . . . 5,671 4,372
Amortization of deferred financing
costs. . . . . . . . . . . . . . . 308 253
Advisory fee . . . . . . . . . . . . 1,151 1,336
Other. . . . . . . . . . . . . . . . 3 118
---------- ----------
Total expenses . . . . . . . 18,142 16,128
---------- ----------
Income before minority interest. . . . 8,448 7,448
Minority interest in Operating
Partnership. . . . . . . . . . . . . 716 1,249
---------- ----------
Net income . . . . . . . . . . . . . . $ 7,732 $ 6,199
========== ==========
Net income per weighted average
common share outstanding
- basic . . . . . . . . . . . . . . $ 0.46 $ 0.40
- diluted . . . . . . . . . . . . . $ 0.45 $ 0.40
Weighted average number of
common shares outstanding
- basic . . . . . . . . . . . . . . 16,925,815 15,315,174
- diluted . . . . . . . . . . . . . 17,007,337 15,340,057
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 nine For the nine
months ended months ended
September 30, September 30,
2000 1999
------------- -------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 13,132 $ 13,941
Adjustments to reconcile net
income to net cash flow provided
by operating activities:
Depreciation and other
amortization . . . . . . . . . . 21,676 18,562
Amortization of deferred
financing costs. . . . . . . . . 826 733
Bond premium amortization. . . . . (942) (943)
Minority interest in
Operating Partnership. . . . . . 1,217 2,869
Options granted to Advisor . . . . 372 --
Writedown of property held for
sale . . . . . . . . . . . . . . 1,266 --
Equity in income (loss) of
Affiliated Lessee. . . . . . . . (67) (73)
Equity in (income) loss of
Joint Ventures . . . . . . . . . (821) --
Changes in assets and liabilities:
Rent receivable from lessees . . . (7,620) (7,394)
Prepaid expenses and other
assets . . . . . . . . . . . . . (1,340) 3,227
Notes receivable . . . . . . . . . (57) --
Due to JLL . . . . . . . . . . . . 440 769
Accounts payable and accrued
expenses . . . . . . . . . . . . 26 754
---------- ----------
Net cash flow provided
by operating activities. . 28,108 32,445
---------- ----------
Cash flows from investing activities:
Investment in Joint Ventures . . . . (4,784) --
Acquisition of hotel properties. . . -- (28,233)
Distributions from Joint Ventures. . 521 --
Distributions from Affiliated
Lessee . . . . . . . . . . . . . . 31 --
Improvements and additions to
hotel properties . . . . . . . . . (26,772) (21,918)
Funding of notes receivable. . . . . -- (400)
Funding of restricted cash
reserves . . . . . . . . . . . . . (11,304) (14,411)
Proceeds from restricted cash
reserves . . . . . . . . . . . . . 13,389 13,633
Proceeds from sale of investment
in hotel properties. . . . . . . . 4,473 --
---------- ----------
Net cash flow used in
investing activities . . . (24,446) (51,329)
---------- ----------
<PAGE>
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands, except per share data)
(Unaudited)
For the nine For the nine
months ended months ended
September 30, September 30,
2000 1999
------------- -------------
Cash flows from financing
activities:
Borrowings under credit facility . . 39,300 66,530
Repayments under credit facility . . (94,200) (73,130)
Proceeds from mortgage loans . . . . 74,500 46,500
Mortgage loan repayments . . . . . . (505) (48)
Payment of deferred financing
costs. . . . . . . . . . . . . . . (1,891) (809)
Offering costs paid. . . . . . . . . -- (57)
Proceeds from exercise of stock
options. . . . . . . . . . . . . . 141 --
Distributions. . . . . . . . . . . . (21,142) (20,810)
---------- ----------
Net cash flow provided by
(used in) financing
activities . . . . . . . . (3,797) 18,176
---------- ----------
Net change in cash and
cash equivalents . . . . . . . . . . (135) (708)
Cash and cash equivalents
at beginning of period . . . . . . . 1,612 1,570
---------- ----------
Cash and cash equivalents
at end of period . . . . . . . . . . $ 1,477 $ 862
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
LASALLE HOTEL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Dollars in thousands, except 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 September 30, 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 September 30, 2000, the Company owned interests in 13 hotels
with approximately 5,300 suites/rooms ("the Hotels") located in 11 states.
The Company owns 100% equity interests in 11 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"). Eight 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"). As more fully described in
footnote 4 below, the Hotel which is owned by the Chicago Hotel Venture is
leased to Chicago 540 Lessee 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 September 30, 2000, the results of its operations for the
three and nine months ended September 30, 2000 and September 30, 1999 and
its cash flows for the nine months ended September 30, 2000 and
September 30, 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:
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
NUMERATOR:
Net income . . $ 13,132 $ 13,941 $ 7,732 $ 6,199
========== ========== ========== ==========
DENOMINATOR:
Weighted
average
number of
common
shares -
Basic . . . . 16,903,187 15,262,241 16,925,815 15,315,174
Effect of
Dilutive
Securities:
Common
Stock
Options . . 48,833 8,783 81,522 24,883
---------- ---------- ---------- ----------
Weighted
average
number of
common
shares -
Diluted. . . 16,952,020 15,271,024 17,007,337 15,340,057
========== ========== ========== ==========
<PAGE>
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
BASIC EPS:
Net income
per weighted
average
common share . $ 0.78 $ 0.91 $ 0.46 $ 0.40
========== ========== ========== ==========
DILUTED EPS:
Net income
per weighted
average
common share . $ 0.77 $ 0.91 $ 0.45 $ 0.40
========== ========== ========== ==========
4. JOINT VENTURES
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 SOLD
On August 16, 2000, the Company sold Holiday Inn Plaza Park for
$4,600. The asset had been classified as held for sale since December 31,
1999 and was 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. As of June 30, 2000, a purchase and sale agreement had
been entered into with an expected net sales proceeds of $4,242. As a
result, the Company recognized an additional writedown of $1,266 in the
second quarter of 2000, which included $358 of estimated accrued closing
costs.
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 either (i) floating rates equal to
LIBOR plus an applicable margin or (ii) an "Adjusted Base Rate" plus an
applicable margin, at the election of the Company. For the three and nine
months ended September 30, 2000, the weighted average interest rate was
approximately 8.5% and 8.0%, respectively. The Company did not have any
Adjusted Base Rate borrowings outstanding at September 30, 2000.
Additionally, the Company is required to pay an unused commitment fee which
<PAGE>
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 $63 and $133 for the three and nine months
ended September 30, 2000, respectively. As of September 30, 2000, the
Company had $110,000 outstanding under the 1998 Amended Credit Facility.
BONDS PAYABLE
At September 30, 2000, the Company had outstanding bonds payable of
$40,628 of which $40,000 represents the principal balance of the bonds and
the remaining $628 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 and nine months ended September 30, 2000
totaled $686 and $2,058 respectively. The 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 bonds in full beginning March 1,
2001 subject to a prepayment penalty which varies depending on the date of
prepayment.
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 September 30, 2000, these reserves totaled $4,840 and
are included in Restricted Cash Reserves.
MORTGAGE LOANS
On July 29, 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 September 30, 2000, the 1999 Mortgage Loan had a
principal balance of $45,849.
On July 27, 2000, the Company, through three newly formed
partnerships, LHO Hollywood LM, L.P., LHO New Orleans LM, L.P., and LHO Key
West HI, L.P. (the "2000 Financing Partnerships"), entered into three ten-
year mortgage loans totaling $74,500 (the "2000 Mortgage Loans"). The 2000
Mortgage Loans are secured by the Le Montrose All-Suite Hotel located in
West Hollywood, California, Le Meridien New Orleans and the Key West
Beachside Resort located in Key West, Florida. The loans bear interest at a
fixed rate of 8.08% and require interest and principal payments based on a
27-year amortization schedule. The loan agreements require the 2000
Financing Partnerships to hold funds in escrow for the payment of one half
year's insurance and real estate taxes and one month's ground rent. The
2000 Mortgage loans also require the 2000 Financing Partnerships to
maintain certain debt service coverage ratios. At September 30, 2000, the
2000 Mortgage Loans had a principal balance of $74,452.
7. SHAREHOLDERS' EQUITY
On January 14, 2000, the Company paid its regular fourth quarter
distribution of $0.38 per Common Share and Unit.
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
payable to the Advisor.
<PAGE>
On May 15, 2000, the Company paid its regular first quarter
distribution of $0.38 per Common Share and Unit.
On August 14, 2000, the Company paid its regular second quarter
distribution of $0.385 per Common Share and Unit.
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 the
non-affiliated members of 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 under the 1998 Share Option and Incentive
Plan (the "1998 SIP").
At September 30, 2000, 802,013 Common Shares were available for future
grant under the 1998 SIP.
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:
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
Total revenues . $ 81,819 $ 76,594 $ 32,950 $ 30,623
Participating
lease expense . 23,643 21,846 10,512 9,722
Net income . . . 748 815 506 757
On July 28, 2000, the Operating Partnership, reached a definitive
agreement with the shareholders of LaSalle Hotel Lessee, Inc., ("LHL"), to
purchase all of the issued and outstanding shares of capital stock of LHL
for $500. LHL leases four of the Company's owned hotels, including
Marriott Seaview Resort, Marriott LaGuardia, Omaha Marriott and Harborside
Hyatt. This transaction is expected to be effective January 1, 2001. Once
acquired, LHL will be a 100% owned subsidiary of the Company as provided
for under the taxable-REIT subsidiary provisions. It is currently
anticipated that the full acquisition price for LHL will be expensed in the
first quarter of 2001. All of the Company's remaining owned hotels are,
and are currently expected to continue to be, leased directly to the
current operators of those respective hotels.
<PAGE>
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 $10,128 at September 30, 2000 of which $3,689 is
available in restricted cash reserves for future capital expenditures.
Purchase orders and letters of commitment totaling approximately $7,855
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 September 30, 2000, the Company had a payable to JLL of $1,151 for
the third quarter base advisory fee.
12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
For the For the
nine months nine months
ended ended
September 30, September 30,
2000 1999
------------- -------------
Interest paid, net of capitalized
interest . . . . . . . . . . . . . . $17,014 $13,301
======= =======
Interest capitalized . . . . . . . . . . $ 699 $ 152
======= =======
Issuance of Units in conjunction with
the investment in Chicago Hotel
Venture. . . . . . . . . . . . . . . . $ 300 $ --
======= =======
In conjunction with the hotel acquisi-
tions, the Company assumed the
following assets and liabilities:
Purchase of real estate. . . . . . . . $ -- $28,052
Note receivable. . . . . . . . . . . . -- 167
Other assets purchased . . . . . . . . -- 14
------- -------
Acquisition of hotel properties. . . $ -- $28,233
======= =======
13. SUBSEQUENT EVENT
On October 16, 2000, the Company declared its third quarter
distribution of $0.385 per Common Share and Unit. The distribution is
payable on November 15, 2000 to shareholders and unitholders of record at
the close of business on October 30, 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 SEPTEMBER 30, 2000 TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1999
For the quarter ended September 30, 2000, the Company earned
participating lease revenue of $25.8 million compared to participating
lease revenue of $23.2 million for the quarter ended September 30, 1999.
This $2.6 million increase is primarily attributable to increased revenues
at the San Diego Paradise Point Resort and LaGuardia Airport Marriott. The
San Diego Paradise Point Resort benefitted from room renovations completed
in the second quarter of 2000, while LaGuardia Marriott benefitted from
strong business and leisure demand in the third quarter of 2000. Partly
offsetting these increases were decreases in participating lease revenue
caused by decreased occupancy at Omaha Marriott and Le Meridien New Orleans
and the sale of Holiday Inn Plaza Park during the third quarter. Third
quarter revenues were down at Omaha Marriott due to a moderate decline in
business demand and at Le Meridian New Orleans due to reduced citywide
group demand.
Depreciation expense increased to $7.4 million for the quarter ended
September 30, 2000 compared to $6.6 million for the quarter ended
September 30, 1999. This $0.8 million increase is attributable to
additional depreciation on capital expenditures incurred and placed into
service subsequent to September 30, 1999.
Real estate and personal property taxes, insurance and ground rent
increased to $3.4 million for the quarter ended September 30, 2000 compared
to $3.2 million for the quarter ended September 30, 1999. This $0.2
million increase is primarily attributable to an increase in real estate
taxes at the Hotels.
General and administrative expense decreased to $0.2 million for the
quarter ended September 30, 2000 compared to $0.3 million for the quarter
ended September 30, 1999. This $.01 million decrease is attributable to a
decrease in general corporate expense.
Interest expense increased to $5.7 million for the quarter ended
September 30, 2000 compared to $4.4 million for the quarter ended
September 30, 1999. The increase of $1.3 million is attributable to a
higher weighted average debt outstanding of $278.3 million during the third
quarter 2000 compared to $245.7 million for the third quarter 1999. The
increase in debt outstanding is a result of the investment in the Chicago
Hotel Venture as well as additional borrowings under the 1998 Amended
Credit Facility to finance capital improvements during the remainder of
1999 and through the third quarter of 2000. In addition, the weighted
average interest rate increased to 8.1% for the quarter ended September 30,
2000 compared to 6.9% for the quarter ended September 30, 1999.
Advisory fees for the quarter ended September 30, 2000 were relatively
unchanged compared to the quarter ended September 30, 1999.
Minority interest for the quarter ended September 30, 2000 was $0.7
million compared to $1.3 million for the quarter ended September 30, 1999.
The $0.5 million decrease was due to fewer Operating Partnership Units
("Units") outstanding during the quarter ended September 30, 2000 as a
result of two conversions of Units to Common Shares, which occurred in
1999. This decrease was offset by an increase in income before minority
interest of approximately $1.0 million for the quarter ended September 30,
<PAGE>
2000 compared to the quarter ended September 30, 1999. At September 30,
2000, approximately 1.6 million Units were outstanding, compared to
approximately 3.0 million Units at September 30, 1999.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
For the nine months ended September 30, 2000, the Company earned
participating lease revenue of $64.5 million compared to participating
lease revenue of $59.6 million for the nine months ended September 30,
1999. This $4.9 million increase is primarily attributable to increased
revenues at the San Diego Paradise Point Resort and LaGuardia Airport
Marriott. These hotels benefitted from strong group and leisure demand in
the first nine months of 2000. Partly offsetting these increases were
decreases in participating lease revenue caused by decreased occupancy at
Le Meridien Dallas due to reduced citywide group demand and the sale of
Holiday Inn Plaza Park during the third quarter 2000.
Depreciation expense increased to $21.7 million for the nine months
ended September 30, 2000 compared to $18.6 million for the nine months
ended September 30, 1999. This $3.1 million increase is attributable to
additional depreciation on capital expenditures incurred and placed into
service subsequent to September 30, 1999. In addition, depreciation
expense for the nine months ended September 30, 2000 includes depreciation
expense taken on the Hotel Viking for the entire period. Depreciation
expense for the nine months ended September 30, 1999 includes depreciation
expense for the Hotel Viking since its date of acquisition, June 2, 1999.
Real estate and personal property taxes, insurance and ground rent
increased to $9.2 million for the nine months ended September 30, 2000
compared to $8.7 million for the nine months ended September 30, 1999.
This $0.5 increase is primarily attributable to an increase in real estate
taxes at the Hotels.
General and administrative expense decreased to $0.7 million for the
nine months ended September 30, 2000 compared to $0.9 million for the nine
months ended September 30, 1999. This $0.2 million decrease is
attributable to lower annual report costs and a decrease in general legal
expense.
Interest expense increased to $15.4 million for the nine months ended
September 30, 2000 compared to $11.6 million for the nine months ended
September 30, 1999. The $3.8 million increase is attributable to a higher
weighted average debt outstanding of $267.8 million during the first nine
months of 2000 compared to $226.1 million during first nine months of 1999.
The increase in debt outstanding is a result of the purchase of the Hotel
Viking on June 2, 1999 and the investment in the Chicago Hotel Venture
which were financed with borrowings 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 nine months of 2000. In addition, the weighted average interest rate
increased to 7.8% for the nine months ended September 30, 2000 compared to
6.8% for the nine months ended September 30, 1999. The increase in interest
expense was offset by $0.7 million of capitalized interest, which was
primarily a result of the $9.5 million renovation and expansion of the
Hotel Viking and the continuing renovation of the San Diego Paradise Point
Resort during the first nine months of 2000.
Advisory fees decreased to $2.9 million for the nine months ended
September 30, 2000 compared to $3.0 million for the nine months ended
September 30, 1999. This decrease is a result of no incentive fees being
earned for the nine months ended September 30, 2000.
On August 16, 2000, the Company sold Holiday Inn Plaza Park for $4.6
million. Based on an expected net sales proceeds of $4.2 million the
Company recorded an additional write-down of $1.3 million for the quarter
ended June 30, 2000. This write-down is not included in the results of
operations for the nine months ended September 30, 1999.
<PAGE>
Minority interest for the nine months ended September 30, 2000 was
$1.2 million compared to $2.9 million for the nine months ended
September 30, 1999. The $1.7 million decrease is a result of lower income
before minority interest of $2.5 million for the nine months September 30,
2000. In addition, fewer Units were outstanding during the nine months
ended September 30, 2000 as a result of two conversions of Units to Common
Shares which occurred in 1999. At September 30, 2000, approximately 1.6
million Units were outstanding, compared to approximately 3.0 million Units
at September 30, 1999.
FUNDS FROM OPERATIONS AND EBITDA
The Company considers Funds From Operations ("FFO") and earnings
before interest, taxes, depreciation and amortization ("EBITDA") to be key
measures of a REIT's performance and should be considered along with, but
not as an alternative to, net income and cash flow as a measure of the
Company's operating performance and liquidity.
The Company believes that FFO and EBITDA are 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 and EBITDA do
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 and EBITDA 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 For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
Net income
applicable
to common
shareholders. . $ 13,132 $ 13,941 $ 7,732 $ 6,199
Depreciation . . 21,669 18,557 7,440 6,602
Equity in
depreciation
of Chicago
Hotel Venture . 568 -- 212 --
Writedown
property held
for sale. . . . 1,266 -- -- --
Minority
interest. . . . 1,217 2,869 716 1,249
---------- ---------- ---------- ----------
<PAGE>
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
FFO. . . . . . . $ 37,852 $ 35,367 $ 16,100 $ 14,050
========== ========== ========== ==========
Weighted
average
number of
common shares
and units
outstanding:
- basic. . . . 18,477,628 18,418,821 18,501,716 18,422,286
- diluted. . . 18,526,461 18,427,604 18,583,238 18,447,169
The following is a reconciliation between net income and EBITDA (in
thousands):
For the For the For the For the
nine months nine months three months three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ -------------
EBITDA:
Net income . . . $ 13,132 $ 13,941 $ 7,732 $ 6,199
Interest . . . . 15,427 11,558 5,671 4,372
Depreciation
and amorti-
zation. . . . . 22,502 19,295 7,750 6,857
Equity in
depreciation/
amortization of
Joint Venture . 607 -- 226 --
Equity in
interest ex-
pense of
Joint Venture . 751 -- 288 --
Minority
interest. . . . 1,217 2,869 716 1,249
Writedown of
assets held
for sale. . . . 1,266 -- -- --
----------- ----------- ----------- -----------
EBITDA . . . $ 54,902 $ 47,663 $ 22,383 $ 18,677
=========== =========== =========== ===========
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 and nine months ended
September 30, 2000 and 1999.
<PAGE>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 Variance 2000 1999 Variance
---- ---- -------- ---- ---- --------
COMPARABLE
HOTELS (1)
Occupancy 77.3% 77.0% 0.4% 76.5% 76.3% 0.3%
ADR $163.32 $149.70 9.1% $153.39 $143.68 6.8%
REVPAR $126.20 $115.30 9.5% $117.34 $109.62 7.0%
NON-COMPARABLE
HOTELS (1)
Occupancy 81.3% 78.1% 4.1% 65.7% 64.6% 1.7%
ADR $ 84.98 $ 84.93 0.1% $140.44 $133.89 4.9%
REVPAR $ 69.07 $ 66.34 4.1% $ 92.26 $ 86.50 6.7%
TOTAL
PORTFOLIO
Occupancy 77.5% 77.1% 0.5% 74.2% 73.8% 0.5%
ADR $158.87 $146.10 8.7% $150.94 $141.84 6.4%
REVPAR $123.11 $112.62 9.3% $111.99 $104.68 7.0%
(1) Non-Comparable hotels include the following:
Three months ended September 30 includes Key West.
Nine months ended September 30 includes Le Montrose, Hotel
Viking, Harborside Hyatt, Radisson Convention Hotel, Marriott Seaview, and
San Diego Paradise Point Resort for the first quarter; Hotel Viking and San
Diego Paradise Point Resort for the second quarter; Key West for the third
quarter.
Comparable hotels include all Hotels excluding those in Non-
Comparable hotels.
For the quarter ended September 30, 2000, the Company experienced
RevPAR growth of 9.3% for its portfolio compared to the quarter ended
September 30, 1999. The Company's Hotels benefitted from strong continued
demand from business and leisure travelers, their locations in high barrier
to entry resort, convention and urban markets and renovations that took
place during 1999 and 2000. During the second quarter 2000, the Company
completed its approximately $9.5 million renovation and expansion of the
Hotel Viking in Newport, Rhode Island and its room renovations at 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.
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
<PAGE>
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 and nine months ended September 30, 2000, the
weighted average interest rate was approximately 8.5% and 8.0%,
respectively. The Company did not have any Adjusted Base Rate borrowings
outstanding at September 30, 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 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 $0.6 million remains unamortized at
September 30, 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 and nine months ended September 30, 2000 totaled $0.7 million and
$2.1 million, respectively. 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.
On July 29, 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 Le Meridien Dallas. Interest expense for the three and
nine months ended September 30, 2000 was $0.9 and $2.8 million,
respectively. The 1999 Mortgage Loan had a balance of $45.8 million at
September 30, 2000.
On July 27, 2000, the Company, entered into three ten-year mortgage
loans totaling $74.5 million (the "2000 Mortgage Loans"). The loans are
subject to a fixed interest rate of 8.08% and require interest and
principal payments based on a 27-year amortization schedule. The 2000
Mortgage Loans are secured by the Le Montrose All-Suite Hotel located in
West Hollywood, California, Le Meridien New Orleans and the Key West
Beachside Resort located in Key West, Florida. Interest expense for the
three and nine months ended September 30, 2000 was $1.1 million. The 2000
Mortgage Loans had a balance of $74.5 million at September 30, 2000.
On September 30, 2000, the Company had approximately $1.5 million of
cash and cash equivalents and had approximately $110.0 million outstanding
under its 1998 Amended Credit Facility.
Net cash provided by operating activities was approximately $28.1
million for the nine months ended September 30, 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 second quarter base advisory fee.
Net cash used in investing activities was approximately $24.4 million
for the nine months ended September 30, 2000 due primarily to outflows for
improvements and additions at the Hotels and outflows for the investment in
Joint Venture, offset by proceeds from the sale of hotel properties.
<PAGE>
Net cash used in financing activities was approximately $3.8 million
for the nine months ended September 30, 2000 attributable to net borrowings
under the 1998 Amended Credit Facility to finance the investment in the
Joint Ventures and the extensive renovations at the Hotels, offset by the
payment of the fourth quarter 1999, first quarter 2000 and second quarter
2000 distribution to shareholders and unitholders.
During the nine months ended September 30, 2000, the Company granted
333,500 stock options from the 1998 SIP at strike prices ranging between
$11.50 and $14.38. The options granted to employees of the Advisor vest
over three years, while the options granted to the Advisor vested on the
date of grant. The options granted during 2000 have lives between seven
and ten 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 $10.1 million at September 30, 2000, of which $3.7
million is available in restricted cash reserves for future capital
expenditures. Purchase orders and letters of commitment totaling
approximately $7.9 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 Internal Revenue
Code of 1986, as amended (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 the 1998 Amended Credit Facility, 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.
<PAGE>
On July 28, 2000, the Operating Partnership, reached a definitive
agreement with the shareholders of LaSalle Hotel Lessee, Inc., ("LHL"), to
purchase all of the issued and outstanding shares of capital stock of LHL
for $500. LHL leases four of the Company's owned hotels, including
Marriott Seaview Resort, Marriott LaGuardia, Omaha Marriott and Harborside
Hyatt. This transaction is expected to be effective January 1, 2001. Once
acquired, LHL will be a 100% owned subsidiary of the Company as provided
for under the taxable-REIT subsidiary provisions. It is currently
anticipated that the full acquisition price for LHL will be expensed in
the first quarter of 2001. On a per share/unit basis, this acquisition
is expected to be $0.00-$0.01 accretive in 2001, and $0.02-$0.03
accretive each year thereafter. All of the Company's remaining owned
hotels are, and are expected to continue to be, leased directly to
the current operators of those respective hotels.
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. The 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.
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 significant impact on the
Company, as the Company has not typically 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.
<PAGE>
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 September 30, 2000, the Company's outstanding borrowings under
the 1998 Amended Credit Facility were $110 million. The weighted average
interest rate under the facility for the three and nine months ended
September 30, 2000 was 8.5% and 8.0%, respectively. A .25% change in
interest rates would have changed interest expense by $0.3 million for the
nine months ended September 30, 2000. This change is based upon the
weighted average borrowings under the 1998 Amended Credit Facility for the
nine months ended September 30, 2000, which were $165.1 million.
At September 30, 2000, the Company also had outstanding bonds payable
of $40.6 million, of which $40.0 million represents the principal balance
of the bonds and the remaining $0.6 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
September 30, 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 September 30, 2000, the 1999
Mortgage Loan had a balance of $45.8 million. At September 30, 2000, the
carrying value of the 1999 Mortgage Loan approximated its fair value.
On July 2000, the Company entered into three ten-year mortgage loans
totaling $74.5 million (the "2000 Mortgage Loans"). The loans are subject
to a fixed interest rate of 8.08% and require interest and principal
payments based on a 27-year amortization schedule. At September 30, 2000,
the 2000 Mortgage Loans had a balance of $74.5 million. At September 30,
2000, the carrying value of the 2000 Mortgage Loans 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 the Company's quarterly reports on Form 10-Q
for the quarters ended March 31, 2000 and June 30, 2000, under "Certain
Relationships and Related Transactions" and elsewhere in the Company's
proxy statement with respect to the annual meeting of shareholders held on
May 17, 2000, under "Risk Factors" and elsewhere in the Company's
Registration Statement (No. 333-77371), 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,
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 July 31, 2000 was filed on
July 31, 2000. The report includes the Company's press release, dated July
14, 2000, which reported earnings for the quarter ended June 30, 2000.
<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: November 8, 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
