UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
[ ] 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
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(Exact name of registrant as specified in its charter)
Maryland 36-4219376
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(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
4800 Montgomery Lane, Suite M25, Bethesda, Maryland 20814
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 301/941-1500
Securities Registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class on which registered
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Common Shares of New York Stock Exchange, Inc.
Beneficial Interest
($.01 par value)
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive or
proxy information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ]
As of March 21, 2001, there were 18,250,024 shares of the Registrant's
Common Shares issued and outstanding. The aggregate market value of the
Registrant's Common Shares held by non-affiliates of the Registrant
(17,698,214 shares) at March 21, 2001 was approximately $281.6 million. The
aggregate market value was calculated by using the closing price of the
stock as of that date on the New York Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be held on May 16, 2001 are incorporated by reference in
Part III of this report.
LASALLE HOTEL PROPERTIES
INDEX
FORM 10-K
REPORT
ITEM NO. PAGE
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PART I
1. Business. . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties. . . . . . . . . . . . . . . . . . . . . . 10
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 17
4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . 17
PART II
5. Market for Registrant's Common Shares and
Related Shareholder Matters . . . . . . . . . . . . . 17
6. Selected Financial Data . . . . . . . . . . . . . . . 19
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 22
7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . . . 32
8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . . 32
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure. . . . . . . . 33
PART III
10. Trustees and Executive Officers of the Registrant . . 33
11. Executive Compensation. . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . 33
13. Certain Relationships and Related Transactions. . . . 33
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . 34
The "Company" means LaSalle Hotel Properties, a Maryland real estate
investment trust, and one or more of its subsidiaries (including LaSalle
Hotel Operating Partnership, L.P.), and the predecessor thereof or, as the
context may require, LaSalle Hotel Properties only or LaSalle Hotel
Operating Partnership, L.P. only.
INFORMATION CONTAINED IN THIS FINANCIAL REPORT CONTAINS "FORWARD-
LOOKING STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC
PERFORMANCE, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND
PROJECTIONS OF REVENUE AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECT," "ANTICIPATE," "ESTIMATE" OR "FACTORS THAT MAY INFLUENCE RESULTS
AND ACCURACY OF FORWARD LOOKING STATEMENTS" AND ELSEWHERE IDENTIFY
IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS (dollars in thousands)
GENERAL
The Company was organized as a Maryland real estate investment trust
on January 15, 1998 to own hotel properties and to continue and expand the
hotel investment activities of Jones Lang LaSalle Incorporated (formerly
LaSalle Partners Incorporated) and certain of its affiliates (collectively
"JLL"). From its inception through December 31, 2000, JLL acted as an
external advisor providing management, acquisition, advisory and
administration services pursuant to an Advisory Agreement and Employee
Lease Agreement (collectively the "Advisory Agreement"). Effective
January 1, 2001, the Company terminated the Advisory Agreement and
relationship with LaSalle Hotel Advisors, Inc. (the "Advisor"), a wholly
owned subsidiary of JLL and became self-managed. As of January 1, 2001,
all of the management and staff of the Advisor have become employees of the
Company. As of December 31, 2000, the Company owned interests in 13 hotels
with approximately 5,300 guest rooms (the "Hotels") located in eleven
states. All of the Hotels are leased under participating leases
("Participating Leases") which provide for rent equal to the greater of
base rent ("Base Rent") or participating rent ("Participating Rent") which
is based on fixed percentages of gross hotel revenues. All of the Hotels
are managed by independent hotel operators ("Hotel Operators"). The Company
is a real estate investment trust ("REIT") as defined in the Internal
Revenue Code of 1986, as amended (the "Code").
Substantially all of the Company's assets are held by, and all of its
operations are conducted through LaSalle Hotel Operating Partnership, L.P.
(the "Operating Partnership"). The Company is the sole general partner
with an approximate 91.6% ownership at December 31, 2000. At December 31,
2000, continuing investors held, in the aggregate, 1,539,147 Units or an
8.4% limited partnership interest in the Operating Partnership. The
outstanding Units are redeemable at the option of the holder for a like
number of Common Shares of the Company, or, at the option of the Company,
for the cash equivalent thereof. On January 1, 2001, JLL and its
affiliates redeemed 964,334 Units resulting in only 574,813 Units or 3.1%
of the Operating Partnership not held by LHO.
The hotel industry is highly competitive. Each of the Company's
Hotels is located in a developed area that includes other hotel properties.
The number of competitive hotel properties in a particular area could have
a material adverse effect on occupancy, average daily rate ("ADR") and room
revenue per available room ("RevPAR") of the Hotels.
The Company may be competing for investment opportunities with
entities that have substantially greater financial resources than the
Company including lodging companies and other REITs. These entities
generally may be able to accept more risk than the Company can prudently
manage, including risks with respect to the creditworthiness of a hotel
operator or the geographic proximity of its investments. Competition
generally may reduce the number of suitable investment opportunities
offered to the Company and increase the bargaining power of property owners
seeking to sell.
The Company's principal offices are located at 4800 Montgomery Lane,
Suite M25, Bethesda, MD 20814.
FORMATION, INITIAL PUBLIC OFFERING AND SUBSEQUENT ACQUISITIONS/DISPOSITIONS
The Company completed its initial public offering (the "IPO") on
April 29, 1998. In connection with the IPO, the Company raised gross
proceeds of $255.6 million and net proceeds (after deducting underwriting
discounts and offering expenses) of approximately $234.1 million. The
Company contributed all of the net proceeds of the IPO to LaSalle Hotel
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), in exchange for an approximate 82.6% general and limited
partnership interest in the Operating Partnership. The Operating
Partnership used the net proceeds from the Company, the issuance of an
additional 0.9 million Common Shares, the issuance of 1.3 million rights to
purchase Common Shares and the issuance of 3.2 million limited partnership
interests ("Units"), representing approximately 17.4% of the Operating
Partnership, to acquire ten upscale and luxury full service hotels (the
"Initial Hotels").
The Company completed the acquisition of two additional hotel
properties during 1998. On June 1, 1998, the Company acquired a 95.1%
interest in the 457-room San Diego Paradise Point Resort for an aggregate
purchase price of $73.0 million. On June 24, 1998, the Company acquired a
100% interest in the 270-room Harborside Hyatt Conference Center & Hotel
for an aggregate purchase price of $73.5 million.
On June 2, 1999, the Company acquired a 100% interest in the 182-room
Hotel Viking and the adjacent 12-room inn in Newport, Rhode Island (the
"Newport Property") through an indirect subsidiary, LHO Viking Hotel,
L.L.C. (the "Viking Subsidiary LLC"). The Viking Subsidiary LLC is a
limited liability company, of which the Operating Partnership is the sole
member. The Newport Property was acquired from Bellevue Properties Inc.
("Bellevue"), for an aggregate purchase price of $28.0 million funded with
proceeds from a borrowing under the Company's 1998 Amended Credit Facility.
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 will
receive an annual 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 was leased to
Chicago 540 Lessee, Inc., in which the Company also owns a 9.9% equity
interest. The institutional investor owns a 90.1% controlling interest in
both the Chicago 540 Hotel Venture and Chicago 540 Lessee, Inc. Marriott
International continues to operate and manage the Chicago Property.
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, LaGuardia Airport Marriott, Omaha Marriott and
Harborside Hyatt Conference Center and Hotel. Effective January 1, 2001,
LHL is a 100% owned subsidiary of the Company as provided for under the
taxable-REIT subsidiary provisions. It is currently anticipated that the
cost associated with the transaction will be expensed in the first quarter
of 2001.
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.
On November 15, 2000, the Company announced its Board of Trustees
voted to become a self-managed company effective January 1, 2001 and
terminate its advisory relationship with the Advisor. In connection with
the termination, the Advisor will receive $600 for 2001 transition services
and the Company will purchase assets used to operate the Company at book
value. The entire management team has become employees of LHO and
continues to oversee and manage all activities of the Company under the new
self-managed structure.
Prior to January 1, 2001, the effective date of the REIT Modernization
Act, in order for the Company to satisfy certain requirements for
qualifications as a REIT, neither it nor the Operating Partnership could
lease or operate any of the hotels in which it invested. Accordingly, four
of the Company's Hotels were leased to LHL. The Company owned a 9%
interest in LHL in which the Company together with JLL and LPI Charities, a
charitable corporation organized under the laws of the state of Illinois,
made all material decisions concerning the LHL's business affairs and
operations. The remaining nine Hotels were and will continue to be leased
to unaffiliated lessees (affiliates of whom also operate these Hotels).
THE ADVISOR
Upon completion of the IPO, the Company entered into the Advisory
Agreement with the Advisor to provide acquisition, management, advisory and
administrative services to the Company. The initial term of the Advisory
Agreement extended through December 31, 1999, subject to successive,
automatic one year renewals unless terminated according to the terms of the
Advisory Agreement. The Company's Board of Trustees approved the renewal
of the Advisory Agreement through December 31, 2000. Under the agreement,
the Company had the ability to terminate the Advisory Agreement without
termination fees or penalties upon notice given of at least 180 days. On
November 15, 2000, the Company's Board of Trustee's approved the early
termination of the Advisory Agreement and voted to become a self-managed
REIT effective January 1, 2001. The Company will pay the Advisor $600 for
2001 transition services including waiving the termination notice period,
and providing support and advice through the first quarter of 2001. In
addition, the Company will purchase at book value, the assets used to
operate the Company.
GROWTH STRATEGIES
The Company's primary objectives are to provide a stable stream of
income to its shareholders through increases in distributable cash flow and
to increase long-term total returns to shareholders through appreciation in
the value of its Common Shares. To achieve these objectives, the Company
seeks to (i) enhance the return from, and the value of, the Company's
Hotels and any additional hotels and (ii) invest in or acquire additional
hotel properties on favorable terms.
The Company seeks to achieve revenue growth principally through
(i) renovations and/or expansions at certain of the Company's Hotels,
(ii) acquisitions of full service hotel properties located in convention,
resort, urban and major business markets in the U.S. and abroad, especially
upscale and luxury full service hotels in such markets where the Company
perceives strong demand growth or significant barriers to entry, and (iii)
selective development of hotel properties, particularly upscale and luxury
full service properties in high demand markets where development economics
are favorable.
The Company intends to acquire additional hotel properties in targeted
markets, consistent with the growth strategies outlined above and which
may:
. possess unique competitive advantages in the form of location,
physical facilities or other attributes;
. be available at significant discounts to replacement cost, including
when such discounts result from reduced competition for properties with
long-term management and/or franchise agreements;
. benefit from brand or franchise conversion, new management,
renovations or redevelopment or other active and aggressive asset
management strategies; or
. have expansion opportunities.
The Company believes its acquisition capabilities are enhanced by its
considerable experience, resources and relationships in the hotel industry
specifically and the real estate industry generally. Additionally, the
Company believes that having multiple independent Hotel Operators creates a
network that will continue to generate significant acquisition
opportunities.
RECENT DEVELOPMENTS
The Company is actively marketing Radisson Hotel Tampa for sale.
Accordingly, the asset was classified as held for sale on December 6, 2000
and depreciation was suspended as of that date. Based on initial pricing
expectations, the Company recognized a writedown of $11,030, reducing the
net book value of the asset to $17,027 in 2000, which included $200 of
estimated accrued closing costs. There can be no assurance that real
estate held for sale will be sold.
On February 26, 2001, the Company terminated the operating lease on
the Hotel Viking with Bellevue Properties, Inc. and entered into a lease
with LHL on essentially the same terms. Bellevue Properties, Inc. received
$840 in payment relating to termination, tax settlement due under the
Purchase and Sale Agreement and other items. Noble House Hotel and Resorts
replaced Bellevue Properties, Inc. as manager for the property.
On March 1, 2001, the Company redeemed the $40.0 million tax-exempt
Massport Bonds, which had a 10.0% coupon. Proceeds for the redemption were
derived from $37.1 million of tax exempt and $5.4 million of taxable bonds,
each having a 17-year maturity, bearing interest based on a weekly floating
rate and having no principal reductions for the life of the bonds. Due to
the nature of these bonds, they can be redeemed at any time without
penalty. The new bonds are secured by letters of credit issued by GE
Capital Corporation. The letters of credit are collateralized by the
Harborside Hyatt Conference Center and Hotel. The excess proceeds of
approximately $5,900 were used to pay down borrowings on the 1998 Second
Amended Credit facility.
On March 8, 2001, the Company acquired a 100% interest in four full-
service hotels with a total of 502 guest rooms in Washington, D.C. for an
aggregate purchase price of approximately $44.0 million. Each of the four
hotels will be fully renovated, improved and repositioned as unique high-
end, independent boutique hotels. The Company will undertake the
redevelopment program, currently projected at a total of approximately
$30.0 million, in conjunction with the Kimpton Hotel & Restaurant Group,
LLC who was also retained to manage and operate the hotel collection.
These four hotels have operated as the 99-room Canterbury Hotel, located at
1733 N Street, NW; the 82-room Clarion Hampshire House Hotel at 1310 New
Hampshire Avenue, NW; the 137-room Quality Hotel and Suites Downtown at
1315 16th Street, NW; and the 184-room Howard Johnson Plaza Hotel and
Suites, 1430 Rhode Island Avenue, NW. Originally constructed as apartment
buildings, each hotel features either large rooms or suites. Upon
completion of the redevelopment program, LaSalle intends to rename each
property and the Kimpton Group will operate each as independent, non-
branded boutique hotels.
HOTEL RENOVATIONS
The Company believes that its regular program of capital improvements
at its Hotels, including replacement and refurbishment of furniture,
fixtures, and equipment ("FF&E"), helps maintain and enhance their
competitiveness and maximizes revenue growth under the Participating
Leases. During the year ended December 31, 2000, the Company spent
approximately $32.5 million on renovations and additional capital
improvements at the Hotels. Additionally, the Company is planning to spend
approximately $14.0 to $16.0 million on renovations and additional capital
improvements at the Hotels during 2001.
Under the Participating Leases, the Company established a reserve for
capital improvements at the Hotels (the "Reserve Funds"). 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 range from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds was approximately $10.5 million at December 31, 2000, of which $3.4
million is available in restricted cash reserves for future capital
expenditures.
TAX STATUS
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code. As a result, the Company
generally will not be subject to corporate income tax on that portion of
its net income that is currently distributed to shareholders. A REIT is
subject to a number of highly technical and complex organizational and
operational requirements, including requirements with respect to the nature
of its gross income and assets and a requirement that it currently
distribute at least 90% of its taxable income. The Company may, however,
be subject to certain state and local taxes on its income and property.
Effective January 1, 2001, LHL, a 100% owned subsidiary of the
Company, is a taxable-REIT subsidiary ("TRS") and as such is required to
pay income taxes at the applicable rates.
SEASONALITY
The Hotels' operations are seasonal. Eight of the Company's 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 All Suite
Hotel and Le Meridien Dallas experience their highest occupancies in the
first quarter, while Holiday Inn 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.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
liable for the costs of removal or remediation of certain hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances,
or the failure to remediate such contaminated property properly, may
adversely affect the owner's ability to borrow using such property as
collateral. Furthermore, a person who arranges for the disposal or
treatment of a hazardous or toxic substance at a property owned by another,
or who transports such substance to such property, may be liable for the
costs of removal or remediation of such substance released into the
environment at the disposal or treatment facility. The costs of
remediation or removal of such substances may be substantial, and the
presence of such substances, may adversely affect the owner's ability to
sell such real estate or to borrow using such real estate as collateral.
In connection with the ownership and operation of the Hotels, the Company,
the Operating Partnership, or the Lessee, as the case may be, may be
potentially liable for such costs.
Phase I environmental site assessments ("ESAs") have been performed on
all of the Hotels by a qualified independent environmental engineer. The
purpose of the Phase I ESAs is to identify potential sources of
contamination for which the Company may be responsible and to assess the
status of environmental regulatory compliance. The Phase I ESAs include
historical reviews of the Hotels, reviews of certain public records,
preliminary investigations of the sites and surrounding properties,
screening for the presence of asbestos-containing materials,
polychlorinated biphenyls, underground storage tanks, and the preparation
and issuance of a written report. The Phase I ESA's do not include
invasive procedures, such as soil sampling or ground water analysis.
The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on
the Company's business, assets, results of operations, or liquidity, nor is
the Company aware of any material environmental liability or concerns.
Nevertheless, it is possible that the Phase I ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company
is currently unaware. Moreover, no assurance can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Hotels will
not be affected by the condition of the properties in the vicinity of the
Hotels (such as the presence of leaking underground storage tanks) or by
third parties unrelated to the Operating Partnership or the Company.
The Company believes that its Hotels are in compliance, in all
material respects, with all federal, state and local environmental
ordinances and regulations regarding hazardous or toxic substances and
other environmental matters, the violation of which would have a material
adverse effect on the Company. The Company has not been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matters in
connection with any of its present properties.
EMPLOYEES
Effective January 1, 2001, the Company has 19 employees. Prior to
January 1, 2001, the date the Company became self-managed, the Company had
no employees. The Advisor managed the day-to-day operations of the
Company. All persons employed in the day-to-day operations of the
Company's Hotels are employees of the management companies engaged by the
Lessees to operate such hotels.
ITEM 2. PROPERTIES
HOTEL PROPERTIES
At December 31, 2000, the Company owned interests in the following 13
hotel properties:
Number of
Guest
Property Rooms Location
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Radisson Convention Hotel 565 Bloomington, MN
Le Meridien New Orleans 494 New Orleans, LA
Le Meridien Dallas 407 Dallas, TX
Marriott Seaview Resort 297 Absecon, NJ
(Atlantic City)
Holiday Inn Beachside Resort 222 Key West, FL
San Diego Paradise Point Resort 457 San Diego, CA
LaGuardia Airport Marriott 438 New York, NY
Omaha Marriott Hotel 299 Omaha, NE
Radisson Hotel Tampa 269 Tampa, FL
Le Montrose All Suite Hotel 132 West Hollywood, CA
Harborside Hyatt Conference
Center & Hotel 270 Boston, MA
Hotel Viking 237 Newport, RI
Chicago Marriott Downtown 1,176 Chicago, IL
RADISSON CONVENTION HOTEL. Radisson Convention Hotel is an upscale
full service convention hotel located at the intersection of Interstate 494
and Highway 100, approximately 15 minutes from the Minneapolis/St. Paul
International Airport, and five miles from the Mall of America. The hotel
is leased to and operated by affiliates of Radisson Group, Inc.
("Radisson").
LE MERIDIEN NEW ORLEANS. Le Meridien New Orleans is a luxury full
service convention oriented hotel located in downtown New Orleans, a major
convention city. The hotel is centrally located across the street from the
French Quarter and near the central business district, the Ernest N. Morial
Convention Center and the New Orleans Superdome. The hotel has received
the AAA Four Diamond award for 15 consecutive years. The hotel is subject
to a 99-year ground lease, which expires May 2081. The hotel is leased to
and operated by affiliates of Le Meridien Hotels & Resorts ("Meridien").
LE MERIDIEN DALLAS. Le Meridien Dallas is an upscale full service
convention oriented hotel located in downtown Dallas, approximately 25
minutes from the Dallas/Fort Worth International Airport, in the heart of
the city's arts and financial districts. The hotel is conveniently located
near the City Convention Center, four stops away on the new Dallas light
rail system, with a DART station adjacent to the hotel. The hotel is
leased to and operated by Meridien.
MARRIOTT SEAVIEW RESORT. Marriott Seaview Resort is a luxury golf and
conference resort located in Brigantine Bay, approximately nine miles north
of Atlantic City, New Jersey. The hotel is leased to LHL and operated by
Marriott International, Inc. ("Marriott") pursuant to a long-term
incentive-based operating agreement. The resort received the AAA four
diamond award at the beginning of 2001.
HOLIDAY INN BEACHSIDE RESORT. Holiday Inn Beachside Resort is an
upscale full service resort comprised of several one, two and three-story
buildings, located on an approximately 7.8 acre parcel north of U.S. 1 on
the beach facing the gulf of Mexico. The resort is located on the island
of Key West, considered to have the most consistent weather in Florida, and
benefits from the island's reputation as a popular tourist destination.
The hotel is leased to and operated by affiliates of Crestline Hotel &
Resorts.
SAN DIEGO PARADISE POINT RESORT. San Diego Paradise Point Resort is a
luxury resort that lies on 44 acres and has nearly one mile of beachfront
and is located in the heart of Mission Bay on Vacation Island, a 4,600-acre
aquatic park in southwest San Diego County. The resort is minutes away
from the San Diego International Airport and convenient to many major San
Diego tourist attractions including Sea World, Old Town, Downtown San
Diego, the San Diego Convention Center, Qualcomm Stadium and the San Diego
Zoo. The hotel is subject to a 50-year ground lease, which expires June
2049. The hotel is leased to and operated by WestGroup San Diego
Associates, Ltd ("WestGroup"), an affiliate of Noble House Hotels and
Resorts.
LAGUARDIA AIRPORT MARRIOTT. LaGuardia Airport Marriott is an upscale
full service urban/major business hotel located directly across from New
York's LaGuardia Airport. The hotel is five minutes from Shea Stadium and
the USTA National Tennis Center and 20 minutes from Manhattan. The hotel
is leased to LHL and operated by Marriott pursuant to a long-term incentive
based operating agreement.
OMAHA MARRIOTT HOTEL. Omaha Marriott Hotel is an upscale full service
major business hotel located in the western suburbs of Omaha at one of the
city's busiest intersections (I-680 and West Dodge Road). The hotel is
located in the Regency Office Park, a mixed use development containing over
865,000 square feet of office and retail space, and directly across West
Dodge Road from Westroads Shopping Center, the largest shopping mall in
Omaha. The hotel is leased to LHL and operated by Marriott pursuant to a
long-term incentive based operating agreement.
RADISSON HOTEL TAMPA. The Radisson Hotel Tampa is an upscale full
service major business hotel located in east suburban Tampa, Florida. The
hotel is situated at the entrance to Sabal Business Park, a three million
square foot office complex. The hotel is near Busch Gardens and Raymond
James Stadium, 50 minutes from Walt Disney World in Orlando, and a 35
minute drive to Tampa International Airport. The hotel is leased to and
operated by Radisson. The Company is actively marketing Radisson Hotel
Tampa for sale. Accordingly, the asset was classified as held for sale on
December 6, 2000 and deprecation was suspended as of that date.
LE MONTROSE ALL SUITE HOTEL. Le Montrose All Suite Hotel is a five-
story, luxury full-service hotel located in West Hollywood, California, two
blocks east of Beverly Hills and one block south of the "Sunset Strip".
The hotel is within walking distance of many of the area's finest
restaurants, retail shops and night clubs. The hotel attracts short and
long-term guests and small groups primarily from the recording, film and
design industries. The hotel is leased to and operated by OLS.
HARBORSIDE HYATT CONFERENCE CENTER & HOTEL. Harborside Hyatt
Conference Center & Hotel is a full-service luxury conference and airport
hotel located adjacent to Boston's Logan International Airport along the
Boston waterfront. The property features 19,000 square feet of meeting
space and is directly across from Boston's central business district and
next to the Ted Williams tunnel, providing convenient access to downtown
Boston. The property is subject to a long-term ground lease from Massport,
Logan International Airport's owner and operating authority. The hotel is
leased by LHL and operated by Hyatt pursuant to a long-term incentive-based
operating agreement.
THE HOTEL VIKING. The Hotel Viking is a full-service upscale resort
located on Bellevue Avenue in Newport, RI, a resort area that is rapidly
becoming a year round hotel market. The Hotel offers 29,000 square feet of
meeting space, a restaurant, a lounge and a rooftop bar. The property also
includes the fully restored Kay Chapel and Trinity Parish House, both
adjacent to the Hotel. The hotel was leased and operated by Viking Hotel
Corporation, an affiliate of Bellevue Properties Inc. On February 26,
2001, the Company terminated the operating lease with Bellevue Properties,
Inc. and entered into a lease with LHL. Noble House Hotel and Resorts
replaced Bellevue Properties, Inc. as manager for the property.
CHICAGO MARRIOTT DOWNTOWN. The Chicago Marriott Downtown is a full-
service, upscale convention hotel located at the intersection of North
Michigan Avenue and Ohio Street in the heart of downtown Chicago's world
famous "Magnificent Mile". The property has over 60,000 square feet of
meeting space, five food and beverage outlets, a health club and sports
center, a business center and a gift shop. The Chicago Marriott Downtown
has superb visibility and allows guests convenient access to a variety of
attractions. A world-renowned shopping destination, the "Magnificent Mile"
is home to such retailers as Neiman Marcus, Saks Fifth Avenue, Marshall
Fields, and Niketown. The hotel is operated and managed by Marriott.
THE PARTICIPATING LEASES
Prior to January 1, 2001, the effective date for the REIT
Modernization Act, in order for the Company to qualify as a REIT, neither
the Company nor the Operating Partnership was able to or could operate
hotels or related properties. The Operating Partnership leased the Hotels
to certain lessees ("Lessees") for terms of between six and 11 years (from
commencement) pursuant to separate Participating Leases that provide for
rent equal to the greater of Base Rent or Participating Rent and which set
forth the Lessees' required capitalization and certain other matters.
Unless otherwise noted, each Participating Lease contains the provisions
described below.
PARTICIPATING LEASE TERMS. The Participating Leases have an average
term of approximately 10 years, with expiration dates staggered between the
years 2004 and 2009, subject to earlier termination upon the occurrence of
certain contingencies described in the Participating Leases (including,
particularly, the provisions summarized below under the captions "Damage to
Hotels," "Condemnation of Hotels," "Termination of Participating Leases for
Failure to Meet Performance Goals" and "Termination of Participating Leases
upon Disposition of Hotels"). The variation of the lease terms is intended
to provide the Company with protection from the risk inherent in
simultaneous lease expirations and to align the expiration of certain of
the Participating Leases with the expiration of the applicable franchise
license.
BASE RENT; PARTICIPATING RENT; ADDITIONAL CHARGES. Each Participating
Lease requires the applicable Lessee to pay (x) the greater of (i) Base
Rent in a fixed amount (ii) Participating Rent based on certain percentages
of room revenue, food and beverage revenue and telephone and other revenue
at the applicable Hotel, and (y) certain other amounts, including utility
charges, certain impositions and insurance premiums, and interest accrued
on any late payments or charges ("Additional Charges"). Each lease year,
the Base Rent and Participating Rent thresholds are increased to reflect
any increase in the applicable Consumer Price Index published by the Bureau
of Labor Statistics of the United States of America Department of Labor,
U.S. City Average, Urban Wage Earners and Clerical Workers ("CPI").
Lessees are required to pay Base Rent monthly in arrears by the first day
of each calendar month, and Participating Rent is payable quarterly in
arrears by the twentieth day of each fiscal quarter, except for the Hotels
operated by Marriott, the Hotel operated by Hyatt and Hotel Viking, whose
rents are due in accordance with their respective Participating Leases, as
defined. Participating Rent is calculated based on the year-to-date
departmental receipts as of the end of the preceding fiscal quarter, plus
the prorated amount of each of the applicable departmental thresholds for
the fiscal quarter, or portion thereof, minus the cumulative Participating
Rent previously paid for such fiscal year and the cumulative Base Rent paid
for such fiscal year as of the end of the preceding fiscal quarter.
Other than real estate and personal property taxes, casualty insurance
including business interruption insurance, ground lease payments, capital
impositions and capital replacements and refurbishments (determined in
accordance with generally accepted accounting principles ("GAAP")), which
are obligations of the Company, the Participating Leases require the
Lessees to pay rent, condominium dues, certain insurance, all costs and
expenses, and all utility and other charges incurred in the operation of
the Hotels. The Participating Leases also provide for rent reductions and
abatements in the event of damage or destruction or a partial taking of any
Hotel as described under "Damage to Hotels" and "Condemnation of Hotels."
The Company has sold certain FF&E to the Lessees of Radisson
Convention Hotel and Le Meridien Dallas at its book value in exchange for
promissory notes receivable ("FF&E Notes") of approximately $1.0 million
and $.6 million, respectively. The FF&E Notes bear interest at 6.0% and
5.6% per annum, respectively, and are payable in monthly installments of
interest only. These FF&E Notes have an initial term of five years unless
extended at the Company's option. Additionally, the Company provided
working capital to each of the Lessees in the aggregate amount of $5.8
million in exchange for a note receivable ("Working Capital Notes"). The
Working Capital Notes bear interest at either 5.6% or 6.0% per annum, and
are payable in monthly installments of interest only. The term of each
Working Capital Note is identical to the term of the related Participating
Lease. Payments made under the FF&E Notes and the Working Capital Notes are
used to reduce the related Participating Lease payments by an equal amount.
The total of the interest income payments and Participating Lease payments
will be equal to the amounts calculated by applying the rent provisions of
the Participating Leases to the revenues of the Hotels.
RESERVES. The Participating Leases for the Hotels obligate the
Company to make funds available for capital improvements at the Hotels
(including the periodic replacement or refurbishment of FF&E)in amounts
ranging from 4.0% to 5.5% of total revenue from the Hotels, with the amount
of such reserve with respect to each hotel representing projected capital
requirements of each hotel. The Company's obligation to make funds
available for capital improvements has not been recorded on the books and
records of the Company as such amounts are and will be capitalized as
incurred. Any unexpended amounts will remain the property of the Company
upon termination of the Participating Leases. The reserve requirements for
the hotels operated by Marriott and Hyatt are contained in certain non-
cancelable operating agreements, which require the reserves for the hotels
operated by Marriott and Hyatt to be maintained through restricted cash
escrows ("FF&E Escrows"). The amounts maintained in the FF&E escrows have
been recorded on the books and records of the Company. Otherwise, the
Lessees are required, at their expense, to maintain the Hotels in good
order and repair, subject to ordinary wear and tear, and to make all
necessary and appropriate nonstructural, foreseen and unforeseen, and
ordinary and extraordinary repairs (other than capital repairs) which may
be necessary and appropriate to keep the Hotels in good order and repair.
The Lessees are not obligated to bear the cost of any capital
improvements or capital repairs to the Hotels. With the consent of the
Company, however, the Lessees may utilize funds from the capital
expenditure reserves to make capital additions, modifications or
improvements to the Hotels. All such alterations, replacements and
improvements are subject to all the terms and provisions of the
Participating Leases and will become the property of the Company upon
termination of the Participating Leases. The Company owns substantially all
personal property (other than FF&E which has been sold to the Lessees of
Radisson Convention Hotel and Le Meridien Dallas, inventory, linens and
other nondepreciable personal property) not affixed to, or deemed a part
of, the real estate or improvements on the Hotels, except to the extent
that ownership of such personal property would cause any portion of the
rents under the Participating Leases not to qualify as "rents from real
property" for REIT income test purposes.
INSURANCE AND PROPERTY TAXES. The Company is responsible for paying
(i) real estate and personal property taxes on the Hotels, (ii) any ground
lease payments on the Hotels, (iii) casualty insurance on the Hotels, and
(iv) business interruption insurance on the Hotels. The Lessees are
required to pay for or reimburse the Company for all liability insurance on
the Hotels, with extended coverage, including comprehensive general public
liability, workers' compensation and other insurance appropriate and
customary for properties similar to the Hotels and naming the Company as an
additional insured, where permitted by law.
EVENTS OF DEFAULT. Events of Default under the Participating Leases
include, among others, the following:
(i) the failure by a Lessee to pay Base or Participating Rent
within ten days after same is due; or with respect to Radisson Convention
Hotel, ten days after notice of non-payment;
(ii) the failure of a Lessee to observe or perform any other term of
a Participating Lease and the continuation of such failure beyond any
applicable cure or grace period;
(iii) the failure of a Lessee to pay for required insurance;
(iv) the failure of a Lessee to maintain the Required Minimum Net
Worth or the security deposit, as applicable;
(v) should a Lessee or Operator file a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or consent to the appointment of a custodian, receiver,
trustee or other similar office with respect to it or any substantial part
of its assets, or take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Lessee
or Operator, a custodian, receiver, trustee or other similar officer with
respect to the Lessee or Operator or any substantial part of its assets, or
if an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of the Lessee or Operator, or if any
petition for any such relief shall be filed against the Lessee or Operator
and such petition shall not be dismissed within 120 days;
(vi) should a Lessee or Operator cause a default beyond applicable
grace periods, if any, under any Franchise Agreement or Operator Agreement
relating to any Hotel; or
(vii) should a Lessee or Operator voluntarily cease operations of the
Leased Property for more than three (3) days other than by reason of
casualty, condemnation or force majeure.
In addition, an Event of Default will result in a cross-default of all
other Participating Leases to which the Lessee is a party; except with
respect to a default at Radisson Hotel Tampa, which would not result in a
cross default of Radisson Convention Hotel.
INDEMNIFICATION. Under each of the Participating Leases, the Lessees
will indemnify, and are obligated to hold harmless, the Company, the
Advisor and their officers and trustees, from and against all liabilities,
costs and expenses (including reasonable attorneys' fees and expenses)
incurred by, imposed upon or asserted against the Company or any of them on
account of, among other things, (i) any accident or injury to persons or
property on or about the Hotels, (ii) any misuse by the applicable Lessee
or any of its agents of the leased property, (iii) any environmental
liability caused or resulting from any action or negligence of the Lessee
or Operator (see "Environmental Matters"); (iv) taxes and assessments in
respect of the Hotels (other than real estate and personal property taxes
and income taxes of the Company on income attributable to the Hotels and
capital impositions); (v) the sale or consumption of alcoholic beverages on
or in the real property or improvements thereon; or (vi) the failure to
comply with the terms of the Participating Leases by the Lessee; provided,
however, that such indemnification will not be construed to require the
Lessee to indemnify the Company against the Company's own negligent acts or
misconduct.
ASSIGNMENT AND SUBLEASING. The Lessees are not permitted to sublet
all or any part of the Hotels or assign their interest under any of the
Participating Leases, other than to affiliates of certain of the applicable
Lessees, without the prior written consent of the Company. No assignment or
subletting will release a Lessee from any of its obligations under the
Participating Leases unless the Company expressly agrees that the Lessee
shall be released from any of its obligations under the Participating
Leases.
DAMAGE TO HOTELS. In the event of damage to or destruction of any
hotel covered by insurance which then renders the leased property
unsuitable for its intended use and occupancy as a hotel, the Participating
Lease shall terminate, and the Company shall generally be entitled to
retain the proceeds of insurance. In the event that damage to or
destruction of a hotel which is covered by insurance does not render the
leased property unsuitable for its intended use and occupancy as a hotel,
the Company generally will be obligated to repair or restore the hotel to
substantially the same condition as existed immediately prior to such
damage. In the event of damage to or destruction of any hotel that is not
covered by insurance, the Company generally, may either repair, rebuild or
restore the hotel (at the Company's expense) to substantially the same
condition as existed immediately prior to such damage, or terminate the
Participating Lease on the terms and conditions set forth in such
Participating Lease.
CONDEMNATION OF HOTELS. In the event of a total condemnation of a
hotel, the relevant Participating Lease will terminate with respect to such
hotel as of the date of taking, and the Company will be entitled to all of
the condemnation award in accordance with the provisions of the
Participating Lease. In the event of a partial taking which does not render
the property unsuitable for its intended use as a hotel, then the Company
generally will be obligated to restore the untaken portion of the property,
and the Company shall contribute the condemnation award to the cost of such
restoration.
TERMINATION OF PARTICIPATING LEASES. The Company has the right to
terminate the Participating Lease for a hotel if the hotel fails to meet
certain performance goals, as defined. Additionally, in the event the
Company enters into an agreement to sell or otherwise transfer a hotel, the
Company, at its option, may terminate the Participating Lease upon 30 days'
notice to the applicable Lessee, subject to certain provisions.
Additionally, in the event that changes in federal income tax laws allow
the Company or a subsidiary or affiliate to directly operate hotels, the
Company will have the right to terminate all, but not less than all,
Participating Leases with the Lessees.
OTHER LEASE COVENANTS. Each Lessee has agreed that during the term of
its Participating Lease, the Lessee will not engage in any unrelated
business activities. The owners of each Lessee and their parent entities
have agreed that, for the term of its Participating Lease, any sale of
their interest in such Lessee, or of their hotel management businesses in
general, will subject their interest in the Lessee to a limited fair market
value acquisition right in favor of a designee of the Company. In the event
that the Company exercises this right, any nonselling partner of the Lessee
will have the right to put its interest in the Lessee to the Company's
designee at a price equal to the fair market value of such interest. The
Participating Leases require each Lessee to make available to the Company
unaudited monthly and quarterly and audited annual operating information
for each Hotel leased by such Lessee.
INVENTORY. All inventory required in the operation of the hotels is
owned by the applicable Lessee. Upon termination of a related Participating
Lease, the Lessee shall surrender the related hotel together with all such
inventory to the Company.
ITEM 3. LEGAL PROCEEDINGS
Each of the Company and the Operating Partnership is not aware of any
material pending or threatened legal proceedings to which the Company or
the Operating Partnership, or any of their subsidiaries is a party or of
which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
shareholders during the fourth quarter of the year covered by this Annual
Report on Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The Common Shares of the Company began trading on the New York Stock
Exchange ("NYSE") on April 24, 1998 under the symbol "LHO". The following
table sets forth for the indicated periods the high and low sales for the
Common Shares and the cash distributions declared per share:
High Low Distributions
---- --- -------------
2000
- ----
First quarter $13-3/8 $11-3/16 $0.380
Second quarter $15-1/8 $12-1/2 $0.385
Third quarter $15-1/8 $13-3/4 $0.385
Fourth quarter $15-7/8 $14 $0.385
1999
- ----
First quarter $13-11/16 $10-1/2 $0.375
Second quarter $15-15/16 $12-7/16 $0.380
Third quarter $16-1/8 $12-3/4 $0.380
Fourth quarter $13 $10-13/16 $0.380
SHAREHOLDER INFORMATION
As of March 14, 2001, there were 223 record holders of the Company's
Common Shares, including shares held in "street name" by nominees who are
record holders, and approximately 7,500 beneficial holders.
In order to comply with certain requirements related to qualification
of the Company as a REIT, the Company's Amended and Restated Declaration of
Trust limits the number of Common Shares that may be owned by any single
person or affiliated group to 9.8% of the outstanding Common Shares.
DISTRIBUTION INFORMATION
In 2000, the Company paid $1.535 per Common Share in distributions, of
which 82.25% represented ordinary income and 17.75% represented return of
capital for tax purposes.
The Company currently anticipates that it will maintain at least the
distribution rates experienced over the past two years in the near term,
unless actual results of operations, economic conditions or other factors
differ from its current expectations. The declaration of distributions by
the Company is in the sole discretion of the Company's Board of Trustees
and depends on the actual cash flow of the Company, its financial
condition, capital expenditure requirements for the Company's Hotels, the
annual distribution requirements under the REIT provisions of the Code and
such other factors as the Board of Trustees deems relevant.
UNITS
In conjunction with the IPO, 3,181,723 Units were issued on April 29,
1998 (inception). On August 24, 1999, November 29, 1999 and October 24,
2000, 180,636, 1,441,853, and 36,754 Units were converted to Common
Shares, respectively. On January 25, 2000, 16,667 Units were issued in
connection with the Chicago Hotel Venture. At December 31, 2000, there
were 1,539,147 Units outstanding. On January 1, 2001, JLL and its
affiliates converted 964,334 Units to Common Shares. Unitholders receive
distributions per unit in the same manner as distributions distributed on a
per share basis to the common shareholders.
SALES OF UNREGISTERED SECURITIES
On June 1, 1998, in conjunction with the purchase of the San Diego
Paradise Point Resort, the Company sold 112,458 Common Shares to WestGroup
for cash consideration of approximately $2.0 million. This sale was not
registered under the Securities Act of 1933, as amended (the "Securities
Act") in reliance upon the exemption from the registration requirements
thereof provided by Section 4(2) of the Securities Act.
On January 25, 2000, in conjunction with the Chicago Hotel Venture and
the acquisition of the Chicago Property, the Company issued 16,667 Units to
Buck 540 Hotel Company LLC for consideration of approximately $300. This
sale was not registered under the Securities Act of 1933, as amended, in
reliance upon the exemption from the registration requirements thereof
provided by Section 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
The following tables set forth selected historical operating and
financial data for the Company and selected historical financial data for
LRP Bloomington Limited Partnership, which is the predecessor of the
Company (the "Predecessor"). The selected historical financial data for
the Company for the years ended December 31, 2000 and 1999 and for the
period from April 29, 1998 (inception) through December 31, 1998, and the
selected historical financial data for the Predecessor for the period from
January 1, 1998 through April 28, 1998, the years ended December 31, 1997
and 1996 have been derived from the historical financial statements of the
Company and the Predecessor, respectively. The following selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and all of the financial statements and notes thereto included elsewhere in
this Form 10-K.
LASALLE HOTEL PROPERTIES
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(Unaudited, Dollars in thousands, except share data)
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
OPERATING DATA:
REVENUE:
Participating lease
revenue . . . . . . . . . . $ 83,772 $ 76,843 $ 46,464
Interest income. . . . . . . 1,271 988 567
Equity in income (loss) of
Affiliated Lessee . . . . . 85 57 (59)
Equity in income (loss) of
Joint Venture . . . . . . . 1,067 -- --
Other income . . . . . . . . 56 66 21
---------- ---------- ---------
Total revenue. . . . . . . 86,251 77,954 46,993
EXPENSES:
Depreciation and
other amortization . . . . 29,078 25,378 13,666
Real estate, personal
property taxes,
and insurance. . . . . . . 8,462 8,205 5,047
Ground rent. . . . . . . . . 3,574 3,351 1,886
General and administrative . 952 1,342 459
Interest . . . . . . . . . . 21,052 16,181 8,474
Amortization of deferred
financing costs . . . . . . 1,139 992 514
Advisory fee (1) . . . . . . 3,840 3,670 2,134
Other expense. . . . . . . . 19 140 13
Minority interest in
Operating Partnership . . . 488 2,706 2,567
Writedown of property
held for sale . . . . . . . 12,296 2,000 --
---------- ---------- ----------
Total expenses,
minority interest
and writedown . . . . . . 80,900 63,965 34,760
---------- ---------- ----------
Net income applicable to
common shareholders . . . . . $ 5,351 $ 13,989 $ 12,233
========== ========== ==========
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Net income per common share
- basic . . . . . . . . . . . $ 0.32 $ 0.91 $ 0.80
- diluted . . . . . . . . . . $ 0.32 $ 0.91 $ 0.80
========== ========== ==========
Weighted average number of
common shares outstanding -
- basic . . . . . . . . . . . 16,920,596 15,432,667 15,209,555
- diluted . . . . . . . . . . 16,982,962 15,432,667 15,209,555
========== ========== ==========
As of December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
BALANCE SHEET DATA:
Investment in hotel
properties, net . . . . . . . $ 486,184 $ 501,191 $ 467,552
Total assets . . . . . . . . . 531,893 532,072 496,338
Borrowings under the
credit facility . . . . . . . 113,500 164,900 164,700
Bonds payable, net . . . . . . 40,314 41,571 42,828
Mortgage loans . . . . . . . . 119,964 46,306 --
Minority interest in
Operating Partnership . . . . 20,288 22,417 47,694
Shareholders' equity . . . . . 223,528 242,568 228,384
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
OTHER DATA:
Funds from operations (2). . $ 47,984 $ 44,065 $ 28,466
Cash provided by operating
activities. . . . . . . . . 40,835 45,923 21,280
Cash used in investing
activities. . . . . . . . . (31,797) (63,660) (406,732)
Cash provided by (used in)
financing activities. . . . (9,236) 17,779 387,022
Distributions declared . . . 28,405 27,910 18,590
LRP BLOOMINGTON LIMITED PARTNERSHIP (3)
SELECTED PREDECESSOR HISTORICAL FINANCIAL DATA
(Unaudited, Dollars in thousands)
For the
period from Year Ended
January 1, December 31,
1998 through ------------------
April 28, 1998 1997 1996
-------------- ------- -------
OPERATING DATA:
REVENUES:
Room revenue . . . . . . . . . . . $ 4,285 $13,863 $13,419
Food and beverage revenue. . . . . 3,459 10,214 9,276
Telephone revenue. . . . . . . . . 124 491 523
Other revenue. . . . . . . . . . . 537 1,649 1,399
------- ------- -------
Total revenue. . . . . . . . . . 8,405 26,217 24,617
OPERATING EXPENSES:
Departmental and
operating expenses . . . . . . . 5,712 17,404 16,462
Management fees. . . . . . . . . . 336 1,111 1,053
Property taxes . . . . . . . . . . 405 1,240 1,191
Interest expense . . . . . . . . . 833 2,658 2,601
Depreciation and amortization. . . 1,196 3,123 2,718
Advisory fees. . . . . . . . . . . 53 159 159
------- ------- -------
Total expenses . . . . . . . . . 8,535 25,695 24,184
------- ------- -------
Net income (loss). . . . . . . . . . $ (130) $ 522 $ 433
======= ======= =======
(1) Represents advisory fee paid to the Advisor for acquisition,
management, advisory and administrative services provided to the Company.
The Advisor received an annual base fee up to 5% of the Company's net
operating income, as defined in the Advisory Agreement, and an annual
incentive fee, which prior to January 1, 1999, was limited to 1% of the
Company's prorated pro forma net operating income based on growth in Funds
from Operations ("FFO") per share.
(2) FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), represents net income applicable to common shareholders
(computed in accordance with GAAP), excluding gains (losses) from debt
restructuring and sales of property (including furniture and equipment),
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent
cash generated from operating activities in accordance with GAAP, is not
necessarily indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income as an indication of
performance or to cash flow as a measure of liquidity. The Company
considers FFO to be an appropriate measure of the performance of an equity
REIT in that such calculation is a measure used by the Company to evaluate
its performance against its peer group and is a basis for making the
determination as to the allocation of its resources and reflects the
Company's ability to meet general operating expenses. Although FFO has
been computed in accordance with the current NAREIT definition, FFO as
presented may not be comparable to other similarly titled measures used by
other REIT's. 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.
(3) The Predecessor was formed on December 1, 1995 for the purpose of
acquiring and operating the Radisson Convention Hotel. On April 29, 1998,
the Predecessor contributed the Radisson Convention Hotel to the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this report that address activities, events
or developments that the Company expects, believes or anticipates will or
may occur in the future, including such matters as future capital
expenditures, distributions and acquisitions (including the amount and
nature thereof), expansion and other development trends of the real estate
industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the
Company in light of their experience and perceptions of historical trends,
current conditions, expected future developments and other factors they
believe are appropriate. Such statements are subject to a number of
assumptions, risks and uncertainties, general economic and business
conditions, the business opportunities that may be presented to and pursued
by the Company, changes in laws or regulations and other factors, many of
which are beyond the control of the Company. Any such statements are not
guarantees of future performance and actual results or developments may
differ materially from those anticipated in the forward-looking statements.
GENERAL BACKGROUND
The following discusses: (i) the Company's actual results of
operations for the year ended December 31, 2000 compared to the Company's
actual results of operations for the year ended December 31, 1999, and (ii)
the Company's actual results of operations for the year ended December 31,
1999 compared to the Company's pro forma results of operations for the year
ended December 31, 1998. This discussion should be read in conjunction
with the consolidated financial statements and notes thereto appearing
elsewhere in this form 10-K. The Company has not included a discussion of
the Predecessor, as its financial information would not be deemed
comparable to the Company. However, the Predecessor's financial
information has been included in the notes to the consolidated financial
statements.
The pro forma financial information of the Company is presented as if
(i) the IPO and the related formation transactions and the acquisitions of
the Hotel Viking had been consummated as of January 1, 1999 and (ii) the
acquisition of the Chicago Marriott Downtown had been consummated as of
January 1, 1999. The pro forma financial information is not necessarily
indicative of what actual results of operations of the Company would have
been assuming (i) the IPO and the related formation transactions and the
subsequent acquisitions of the Hotel Viking had been consummated and the
twelve Hotels had been leased as of January 1, 1999, and (ii) the
acquisition of the Chicago Marriott Downtown had been consummated and the
hotel subsequently leased as of January 1, 1999 nor does it purport to
represent the results of operations for future periods.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED
DECEMBER 31, 1999
For the year ended December 31, 2000, participating lease revenue
earned by the Company increased by approximately $7.0 million from $76.8
million to $83.8 million. This increase is primarily attributable to
increased revenues at the San Diego Paradise Point Resort, LaGuardia
Airport Marriott and Radisson Convention Hotel. These hotels benefitted
from strong group and leisure demand during the year. San Diego Paradise
Point Resort also benefitted from significant renovations, which were
completed in 1999. Partly offsetting these increases were decreases in
participating lease revenue caused by decreased occupancy at Le Meridien
Dallas due to reduced citywide demand and the sale of Holiday Inn Plaza
Park during the third quarter of 2000.
Equity in income from Joint Venture was approximately $1.1 million for
the year ended December 31, 2000. There was no equity income from Joint
Venture in the results of operations for 1999.
Depreciation expense increased by approximately $3.7 million from
$25.4 million to $29.1 million due primarily to additional depreciation on
capital improvements which were placed into service during 2000. In
addition, depreciation expense for the year ended December 31, 2000
includes depreciation taken on the Hotel Viking for the entire year while
for the year ended December 31, 1999 depreciation is included since its
date of acquisition, June 2, 1999.
Real estate and personal property taxes, insurance and ground rent
increased by approximately $0.4 million from $11.6 million to $12.0
million. This increase is due primarily to increased real estate taxes at
the Hotels and ground rent for Harborside Hyatt Conference Center & Hotel
and the San Diego Paradise Point Resort. The increase in ground rent is
attributable to higher revenues at the properties as the ground rent at the
Harborside Hyatt Conference Center and Hotel and the San Diego Paradise
Point Resort is a percentage of revenues.
General and administrative expense decreased by approximately $0.3
million from $1.3 million to $1.0 million due primarily to lower annual
report costs and a decrease in general legal expense.
Interest expense increased by approximately $4.9 million from $16.2
million to $21.1 million primarily due to an increase in weighted average
debt outstanding from $234.6 million for 1999 to $273.0 million for 2000.
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 Second Amended Credit
Facility, as well as additional borrowings under the 1998 Second Amended
Credit Facility to finance capital improvements during 2000. In addition,
the weighted average interest rate increased from 6.9% for 1999 to 7.9% for
2000. The increase in interest expense was offset by $0.7 million of
capitalized interest, which was primarily a result of the renovation and
expansion of the Hotel Viking and the continuing renovation of the San
Diego Paradise Point Resort during 2000.
Advisory fees increased by approximately $0.1 million from $3.7
million to $3.8 million due primarily to an increase in base fee for 2000,
offset by a decrease attributable to higher incentive fees for 1999.
Advisory fees also include $53 and $12 of expense for options granted to
the Advisor for 2000 and 1999, respectively.
On August 16, 2000, the Company sold Holiday Inn Plaza Park for $4.6
million. Based on 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. At December 31, 1999, Holiday Inn Plaza Park was held for sale by
the Company. Based on initial pricing expectations, the net book value of
the asset was reduced by $2.0 million. In addition, Radisson Tampa was
held for sale by the company on December 6, 2000. Based on initial pricing
expectations, the Company recognized a writedown of $11.0 million reducing
the net book value of the asset to $17.0 million for the quarter ended
December 31, 2000, which included $0.2 million of estimated accrued closing
costs.
Minority interest decreased $2.2 million from $2.7 million to $0.5
million due primarily to a decrease in income before minority interest from
$16.7 million for 1999 to $5.8 million for 2000. In addition, the weighted
average number of Units outstanding decreased from approximately 3.0
million Units for 1999 to 1.6 million Units for 2000.
As a result of the foregoing items, net income to common shareholders
decreased approximately $8.6 million from $14.0 million for 1999 to $5.4
million for 2000.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE PRO FORMA YEAR ENDED
DECEMBER 31, 1998
The Company earned approximately $76.8 million in participating lease
revenue during the year ended December 31, 1999. For the pro forma year
ended December 31, 1998, participating lease revenues would have been $75.0
million. This increase is due to increases in participating lease revenues
from the Le Meridien Dallas and Le Meridien New Orleans, which had
increased hotel revenues for the year ended December 31, 1999. The
Le Meridien hotels benefitted from the renovations, which took place at
each of the respective hotels during 1998. Participating lease revenues
for the Harborside Hyatt Conference Center and Hotel also increased due to
strong rate and occupancy at the hotel. These increases were offset by a
decrease in participating lease revenues at the San Diego Paradise Point
Resort in 1999 due to decreased occupancy levels at the hotel resulting
from the significant renovations taking place at the property during the
year ended December 31, 1999.
Depreciation expense increased to $25.4 million or 13.4% for the year
ended December 31, 1999, compared to depreciation expense for the pro forma
year ended December 31, 1998, which would have been $22.4 million. This
increase is attributable to the additional depreciation expense incurred on
capital improvements, which were placed into service during 1999.
Real estate and personal property taxes, insurance and ground rent
increased $0.7 million to $11.6 million for the year ended December 31,
1999 from $10.9 million for the pro forma year ended December 31, 1998.
This increase is primarily attributable to increased real estate taxes at
the hotels.
General and administrative expense increased to $1.3 million for the
year ended December 31, 1999, compared to pro forma general and
administrative expense for the year ended December 31, 1999, which would
have been $ 0.7 million. This increase is attributable to additional
administrative costs incurred for the year ended December 31, 1999.
Interest expense was $16.2 million for the year ended December 31,
1999 and the pro forma year ended December 31, 1998.
Amortization of deferred financing costs increased to $1.0 million for
the year ended December 31, 1999, compared to the comparable pro forma
period in 1998, in which amortization costs would have been $0.8 million.
This $0.2 million increase is attributable to the amortization in 1999 of
costs incurred in late 1998 for the amendment to the credit facility, as
well as the amortization of financing costs related to 1999 Mortgage Loan
(hereinafter defined). These costs would not have been incurred in the pro
forma year ended December 31, 1998.
Advisory fees for the year ended December 31, 1999 were $3.7 million
compared to $3.8 million for the pro forma year ended December 31, 1998.
This decrease is attributable to a higher incentive fee for the pro forma
year ended December 31, 1998, offset by an increase in the base fee for the
year ended December 31, 1999. Advisory fees for the year ended
December 31, 1999 also include $12 of expense for options granted to the
Advisor during 1999.
At December 31, 1999, Holiday Inn Plaza Park was held for sale by the
Company. Based on initial pricing expectations, the net book value of the
asset was reduced by $ 2.0 million. This writedown is not included in the
results of operations for the pro forma year ended December 31, 1998.
Minority interest was $2.7 million for the year ended December 31,
1999 compared to $3.6 million for the pro forma year ended December 31,
1998. This decrease is primarily attributable to lower income before
minority interest of $4.1 million for the year ended December 31, 1999
versus the pro forma year ended December 31, 1998.
Net income decreased approximately $3.1 million to $14.0 million for
the year ended December 31, 1999 compared to net income of $17.1 million
for the pro forma year ended December 31, 1998.
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,
they provide 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
(excluding amortization of deferred finance cost) 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 are they 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 for the
years ended December 31, 2000 and 1999 and for the period from April 29,
1998 (inception) through December 31, 1998 (in thousands, except share
data):
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Net income applicable to
common shareholders. . . . . $ 5,351 $ 13,989 $ 12,233
Depreciation . . . . . . . . . 29,064 25,370 13,666
Equity in depreciation of
Joint Venture. . . . . . . . 785 -- --
Minority interest. . . . . . . 488 2,706 2,567
Writedown of properties
held for sale. . . . . . . . 12,296 2,000 --
---------- ---------- ----------
FFO. . . . . . . . . . . . . . $ 47,984 $ 44,065 $ 28,466
========== ========== ==========
Weighted average common
shares and units
outstanding
- basic . . . . . . . . . . . 18,488,475 18,419,694 18,391,278
- diluted . . . . . . . . . . 18,550,841 18,419,694 18,391,278
========== ========== ==========
The following is a reconciliation between net income and EBITDA (in
thousands):
For the
period from
April 29, 1998
For the For the (inception)
year ended year ended through
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
EBITDA:
Net income . . . . . . . . $ 5,351 $ 13,989 $ 12,233
Interest . . . . . . . . . 21,052 16,181 8,474
Depreciation and
amortization . . . . . . 30,217 26,370 14,180
Equity in depreciation/
amortization of
Joint Venture. . . . . . 839 -- --
Equity in interest
expense of
Joint Venture. . . . . . 1,038 -- --
Minority interest. . . . . 488 2,706 2,567
Writedown of assets
held for sale. . . . . . 12,296 2,000 --
----------- ----------- -----------
EBITDA . . . . . . . . $ 71,281 $ 61,246 $ 37,454
=========== =========== ===========
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 total Hotel portfolio for the years ended December 31, 2000 and
1999.
Year Ended December 31,
-------------------------------------
2000 1999 Variance
------- ------- --------
COMPARABLE HOTELS (a)
Occupancy. . . . . . . . . . 74.5% 74.2% 0.4%
ADR. . . . . . . . . . . . . $156.20 $145.97 7.0%
RevPAR . . . . . . . . . . . $116.33 $108.34 7.4%
NON-COMPARABLE HOTELS (b)
Occupancy. . . . . . . . . . 66.3% 64.6% 2.6%
ADR. . . . . . . . . . . . . $137.57 $129.48 6.2%
RevPAR . . . . . . . . . . . $ 91.21 $ 83.58 9.1%
TOTAL PORTFOLIO
Occupancy. . . . . . . . . . 72.5% 72.0% 0.7%
ADR. . . . . . . . . . . . . $152.19 $142.51 6.8%
RevPAR . . . . . . . . . . . $110.40 $102.55 7.7%
(a) Comparable Hotels include all Hotels excluding those in Non-
Comparable.
(b) Non-Comparable Hotels represent Hotels which underwent significant
renovations and include the following:
The Hotel Viking, Harborside Hyatt, Radisson Convention Hotel,
Marriott Seaview Resort, and San Diego Paradise Point Resort in Quarter 1,
The Hotel Viking and San Diego Paradise Point Resort in Quarter 2, Key West
Beachside Resort in Quarter 3, and Key West Beachside Resort, Radisson
Tampa, LeMontrose All-Suite Hotel, The Hotel Viking and San Diego Paradise
Point Resort in Quarter 4.
The Company's total portfolio RevPAR growth of 7.7% in 2000
significantly outperformed the overall market. In 2000, the Company saw
substantial RevPAR gains from the hotels which were renovated during 1998
and 1999. The Company continues to benefit from its ownership of high
quality hotels located in strong markets with high barriers to entry and
its continuing refurbishment and repositioning programs.
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 April 1998, the Company entered into a $200 million senior
unsecured revolving credit facility (the "1998 Credit Facility") to be used
for acquisitions, capital improvements, working capital and general
corporate purposes. The Company amended its 1998 Credit Facility on
October 30, 1998. Under the Amended and Restated Senior Unsecured Credit
Agreement, as amended (the "1998 Amended Credit Facility"), the total
commitment was increased by $35 million, from $200 million to $235 million.
On November 13, 2000, the Company amended the 1998 Amended Credit Facility.
Under the Second Amended and Restated Senior Unsecured Credit Agreement
(the "1998 Second Amended Credit Facility"), the total commitment was
reduced by $35 million, from $235 million to $200 million. Borrowings
under the 1998 Second 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 year
ended December 31, 2000, the weighted average interest rate for borrowings
under the 1998 Second Amended Credit Facility was approximately 8.1%. The
Company did not have any Adjusted Base Rate borrowings outstanding at
December 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, currently set at 25 basis points. The Company
incurred an unused commitment fee of approximately $0.2 million for each of
the years ended December 31, 2000 and December 31, 1999. The 1998 Second
Amended Credit Facility matures on December 31, 2003 and contains certain
financial covenants relating to debt service coverage, market value net
worth and total funded indebtedness.
In conjunction with the June 1998 acquisition of the Harborside Hyatt
Conference Center and Hotel, the Company assumed $40 million 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 $0.3
million remains unamortized at December 31, 2000. The Massport Bonds are
collateralized by the leasehold improvements and bear interest at 10.0% 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 totaled $2.7 million for each of the years ended
December 31, 2000 and December 31, 1999. 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 March 1, 2001, the Company
redeemed the $40.0 million tax-exempt Massport Bonds, which had a 10.0%
coupon. Proceeds for the redemption were derived from $37.1 million of tax
exempt and $5.4 million of taxable bonds, each having a 17-year maturity,
bearing interest based on a weekly floating rate and having no principal
reductions for the life of the bonds. Due to the nature of these bonds,
they can be redeemed at any time without penalty. The new bonds are
secured by letters of credit issued by GE Capital Corporation. The letters
of credit are collateralized by the Harborside Hyatt Conference Center and
Hotel. The excess proceeds of approximately $5,900 were used to pay down
borrowings on the 1998 Second Amended Credit facility.
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% and requires interest and principal payments based on a 25-
year amortization schedule. The 1999 Mortgage Loan matures on July 31,
2009 and is collateralized by the Radisson Convention Hotel located in
Bloomington, Minnesota and the Le Meridien Dallas. Interest expense for
the year ended December 31, 2000 and for the period from July 29, 1999
through December 31, 1999 was $3.7 and $1.6 million, respectively. The
1999 Mortgage Loan had a balance of $45.7 million at December 31, 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. Interest expense for the period from July 27, 2000
through December 31, 2000 was $2.6 million. The 2000 Mortgage Loans had a
balance of $74.3 million at December 31, 2000.
At December 31, 2000, the Company had approximately $1.4 million of
cash and cash equivalents and had $113.5 million outstanding under its 1998
Second Amended Credit Facility.
Net cash provided by operating activities was approximately $40.1
million for the year ended December 31, 2000 primarily due to the
collections of Participation Lease revenues during 2000, which was offset
by payments for real estate taxes, personal property taxes, interest
expense, insurance, ground rent and the Advisory Fee.
Net cash used in investing activities was approximately $31.8 million
for the year ended December 31, 2000 primarily due to capital improvement
expenditures at the Hotels.
Net cash used in financing activities was approximately $9.2 million
for the year ended December 31, 2000 primarily attributable to repayments
on borrowings under the 1998 Second Amended Credit Facility and the payment
of distributions to the common shareholders and unit holders, offset by net
proceeds from the 2000 Mortgage Loans and borrowings under the 1998 Second
Amended Credit Facility.
The Company's 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 preceding four quarters times 10, (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,
(c) liquid investments, and (d) investments in unconsolidated entities.
The Board of Trustees can change this policy at any time without the
approval of the common 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, utilizing availability
under the 1998 Second Amended Credit Facility, 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 estimated cash flows from operations, 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/development criteria have been achieved.
RESERVE FUNDS
The Company is obligated to maintain Reserve Funds for capital
expenditures at the Hotels, as determined in accordance with the
Participating Leases. The majority of 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 range 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 $10.5
million at December 31, 2000, of which $3.4 million is available in
restricted cash reserves for future capital expenditures. Purchase orders
and letters of commitment totaling approximately $3.0 million have been
issued for renovations at the Hotels. The Company has committed to these
projects and anticipates making similar arrangements with the existing
Hotels or any future hotels that it may acquire.
SUBSEQUENT EVENT
On January 1, 2001, JLL and its affiliates redeemed 964,334 Units
resulting in 574,813 Units or 3.1% of the Operating Partnership not held by
LHO.
Effective January 1, 2001, the Company became a self-managed REIT.
The Company terminated its advisory relationship with the Advisor in
accordance with the Termination and Services Agreement dated December 28,
2000. In connection with the termination, the Advisor will receive $600
for 2001 transition services. The Company purchased assets used to operate
the Company at book value of approximately $302 and paid $50 for
informational technology services. The entire management team has become
employees of LHO and continues to oversee and manage all activities of the
Company under the new self-managed structure.
Effective January 1, 2001, the Company purchased all of the issued and
outstanding shares of capital stock of LHL for $500 in accordance with the
Stock Purchase Agreement dated July 28, 2000. LHL leases four of the
Company's owned hotels, including Marriott Seaview Resort, LaGuardia
Airport Marriott, Omaha Marriott and Harborside Hyatt Conference Center and
Hotel. Effective January 1, 2001, LHL is a 100% owned subsidiary of the
company as provided for under the taxable-REIT subsidiary provisions. It
is currently anticipated that the cost associated with the transaction will
be expensed in the first quarter of 2001.
On January 15, 2001, the Company paid its regular fourth quarter
distribution of $0.385 per share/unit on its Common Shares and Units.
On February 1, 2001, an affiliate of the Advisor exercised 300,000
options. Proceeds from the options were used to reduce outstanding
borrowings on the 1998 Second Amended Credit Facility.
On February 26, 2001, the Company terminated the operating lease on
the Viking Hotel with Bellevue Properties, Inc. and entered into a lease
with LHL on essentially the same terms. Bellevue Properties, Inc. received
$840 in payment relating to termination, tax settlement due under the
Purchase and Sale Agreement and other items. Noble House Hotel and Resorts
replaced Bellevue Properties, Inc. as manager for the property.
On March 1, 2001, the Company redeemed the $40.0 million tax-exempt
Massport Bonds, which had a 10.0% coupon. Proceeds for the redemption were
derived from $37.1 million of tax exempt and $5.4 million of taxable bonds,
each having a 17-year maturity, bearing interest based on a weekly floating
rate and having no principal reductions for the life of the bonds. Due to
the nature of these bonds, they can be redeemed at any time without
penalty. The new bonds are secured by letters of credit issued by GE
Capital Corporation. The letters of credit are collateralized by the
Harborside Hyatt Conference Center and Hotel. The excess proceeds of
approximately $5,900 were used to pay down borrowings on the 1998 Second
Amended Credit facility.
On March 8, 2001, the Company acquired a 100% interest in four full-
service hotels with a total of 502 guest rooms in Washington, D.C. for an
aggregate purchase price of approximately $44.0 million. Each of the four
hotels will be fully renovated, improved and repositioned as unique high-
end, independent boutique hotels. The Company will undertake the
redevelopment program, currently projected at a total of approximately
$30.0 million, in conjunction with the Kimpton Hotel & Restaurant Group,
LLC who was also retained to manage and operate the hotel collection.
These four hotels have operated as the 99-room Canterbury Hotel, located at
1733 N Street, NW; the 82-room Clarion Hampshire House Hotel at 1310 New
Hampshire Avenue, NW; the 137-room Quality Hotel and Suites Downtown at
1315 16th Street, NW; and the 184-room Howard Johnson Plaza Hotel and
Suites, 1430 Rhode Island Avenue, NW. Originally constructed as apartment
buildings, each hotel features either large rooms or suites. Upon
completion of the redevelopment program, LaSalle intends to rename each
property and the Kimpton Group will operate each as independent, non-
branded boutique hotels.
INFLATION
The Company's revenues come primarily from the Participating Leases,
thus the Company's revenues will vary based on changes in the revenues at
the Hotels. Therefore, the Company relies entirely on the performance of
the Hotels and the lessees' abilities to increase revenues to keep pace
with inflation. Operators of hotels can change room rates quickly, but
competitive pressures may limit the Lessees' and their Operators abilities
to raise rates faster than inflation or even at the same rate.
The Company's expenses are subject to inflation. These expenses
(primarily real estate and personal property taxes and property and
casualty insurance) 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities" ("SFAS 133"),
subsequently amended by SFAS No. 137 and SFAS No. 138. This statement,
effective for fiscal years beginning after June 15, 2000, establishes new
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded on 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 does not have any derivative
instruments nor has entered into any hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition
in Financial Statements". In June 2000, the SEC staff amended SAB 101 to
provide registrants with additional time to implement SAB 101. The SEC
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
The Company's policy is to manage interest rates through the use of a
combination of fixed and variable rate debt. 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 Second Amended Credit Facility,
which provides for a maximum borrowing amount of up to $200 million.
Borrowings under the 1998 Second Amended Credit Facility bear interest at
variable market rates. At December 31, 2000, the Company's outstanding
borrowings under the 1998 Second Amended Credit Facility were $113.5
million. The weighted average interest rate under the facility for the
years ended December 31, 2000 and December 31, 1999 was 8.1% and 6.8%
respectively. A .25% change in interest rates would have changed interest
expense by $0.4 million for the year ended December 31, 2000. This change
is based upon the weighted average borrowings under the 1998 Second Amended
Credit Facility for the year ended December 31, 2000, which were $154.4
million.
At December 31, 2000, the Company also had outstanding bonds payable
of $40.3 million, of which $40.0 million represents the principal balance
of the bonds and the remaining $0.3 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
December 31, 2000, the carrying value of the bonds approximated their fair
value. On March 1, 2001, the Company redeemed the $40.0 million tax-exempt
Massport Bonds, which had a 10.0% coupon. Proceeds for the redemption were
derived from $37.1 million of tax-exempt and $5.4 million of taxable bonds,
each having a 17-year maturity, bearing interest based on a weekly floating
rate and having no principal reductions for the life of the bonds. Due to
the nature of these bonds, they can be redeemed at any time without
penalty. The new bonds are secured by letters of credit issued by GE
Capital Corporation. The letters of credit are collateralized by the
Harborside Hyatt Conference Center and Hotel. The excess proceeds of
approximately $5,900 were used to pay down borrowings on the 1998 Second
Amended Credit Facility.
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 December 31, 2000, the 1999
Mortgage Loan had a balance of $45.7 million. At December 31, 2000, the
carrying value of the 1999 Mortgage Loan approximated its fair value.
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. At
December 31, 2000, the 2000 Mortgage Loans had a balance of $74.3 million.
At December 31, 2000, the carrying value of the 2000 Mortgage Loans
approximated its fair value.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to the Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the material in the Company's Proxy Statement for the 2001 Annual Meeting
of Shareholders (the Proxy Statement) under the captions "Election of
Trustees".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Principal and
Management Shareholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
Included herein at pages F-1 through F-44
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included
herein at pages F-31 through F-33.
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in
Regulation S-X are either not required to be included herein under the
related instructions or are inapplicable or the related information is
included in the footnotes to the applicable financial statement and,
therefore, have been omitted.
3. EXHIBITS
The following exhibits are filed as part of this Annual
Report on Form 10-K:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10(i) Stock Purchase Agreement dated July 28, 2000
by and among LaSalle Hotel Operating Partnership, L.P. and LaSalle Hotel
Co-Investment, Inc., LPI Charities and LaSalle Hotel Properties.
10(ii) Second Amended and Restated Senior Unsecured
Credit Agreement dated November 13, 2000 by and among Societe Generale Bank
of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating
Partnership, L.P.
10(iii) Environmental Indemnification Agreement dated
November 13, 2000 by and among Societe Generale, Bank of Montreal, Deutsche
Banc. Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
10(iv) Guaranty and Contribution Agreement dated
November 13, 2000 by and among Societe Generale, Bank of Montreal, Deutche
Banc Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
10(v) Termination and Services Agreement dated
December 28, 2000 by and among LaSalle Hotel Properties, and LaSalle Hotel
Advisors, Inc. and LaSalle Investment Management, Inc.
10(vi) Revolving Credit Note dated January 3, 2001
between LaSalle Hotel Lessee, Inc. and Firstar Bank, National Association.
10(vii) Guaranty dated January 3, 2001 between
LaSalle Hotel Lessee, Inc. and Firstar Bank, National Association.
21 List of subsidiaries
23 Consent of KPMG LLP
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated November 14, 2000 was filed on
November 15, 2000 reporting other events under Item 5. The report includes
the Company's press release dated November 14, 2000, announcing that it had
renewed and extended its bank credit facility. The report also includes
the Company's press release announcing that its Board of Trustees voted for
the Company to become a self-managed REIT, beginning January 1, 2001.
A report on Form 8-K dated October 30, 2000 was filed on
November 1, 2000 reporting other events under Item 5. The report includes
the Company's press release dated October 30, 2000, which reports earnings
for the quarter and nine months ended September 30, 2000.
A report on Form 8-K dated October 26, 2000 was filed on
October 26, 2000 reporting a Regulation FD Disclosure Item 9. The report
announces the Company's conference call to be held on October 31, 2000 to
discuss the Company's results for the quarter and nine months ended
September 30, 2000 and its outlook for the fourth quarter 2000 and the year
2001.
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: March 23, 2001 BY: /S/ HANS S. WEGER
------------------------------
Hans S. Weger
Executive Vice President,
Treasurer and Chief
Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
trustees of LaSalle Hotel Properties, hereby severally constitute Jon E.
Bortz, Michael D. Barnello and Hans S. Weger, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Form
10-K filed herewith and any and all amendments to said Form 10-K, and
generally to do all such things in our names and in our capacities as
officers and trustees to enable LaSalle Hotel Properties to comply with the
provisions of the Securities Exchange Act of 1934, as amended and all
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys,
or any of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and dates indicated.
DATE SIGNATURE TITLE
---- --------- -----
March 23, 2001 /s/ Jon E. Bortz Chairman and
-------------------------- Chief Executive Officer
Jon E. Bortz
March 23, 2001 /s/ Stuart L. Scott
-------------------------- Trustee
Stuart L. Scott
March 23, 2001 /s/ Darryl Hartley-Leonard Trustee
--------------------------
Darryl Hartley-Leonard
March 23, 2001 /s/ George F. Little, II Trustee
--------------------------
George F. Little, II
March 23, 2001 /s/ William S. McCalmont Trustee
--------------------------
William S. McCalmont
DATE SIGNATURE TITLE
---- --------- -----
March 23, 2001 /s/ Donald S. Perkins Trustee
--------------------------
Donald S. Perkins
March 23, 2001 /s/ Donald A. Washburn Trustee
--------------------------
Donald A. Washburn
March 23, 2001 /s/ Michael D. Barnello Chief Operating Officer and
-------------------------- Executive Vice President
Michael D. Barnello of Acquisitions
LASALLE HOTEL PROPERTIES
INDEX TO FINANCIAL STATEMENTS
LASALLE HOTEL PROPERTIES
Report of Independent Accountants. . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 . . . F-3
Consolidated Statements of Operations for the years ended
December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 . . . . . . F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000 and 1999 and for the period
from April 29, 1998 (inception) through December 31, 1998. . . . F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-10
Schedule III - Real Estate and Accumulated Depreciation. . . . . . F-31
LASALLE HOTEL LESSEE, INC.
Report of Independent Accountants. . . . . . . . . . . . . . . . . F-34
Balance Sheets as of December 31, 2000 and 1999. . . . . . . . . . F-35
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 . . . . . . . . . . . . . . . . F-36
Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 2000, 1999 and 1998 . . . . . . . . . . F-37
Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . F-38
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-39
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
LaSalle Hotel Properties:
We have audited the consolidated financial statements of LaSalle Hotel
Properties as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
LaSalle Hotel Properties as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for the years ended December 31,
2000 and 1999 and for the period from April 29, 1998 (inception) through
December 31, 1998 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
January 22, 2001, except as to Note 19,
which is as of March 8, 2001.
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
------
Investment in hotel properties, net. . . $ 486,184 $ 501,191
Investment in Affiliated Lessee. . . . . 13 36
Investment in Joint Venture. . . . . . . 5,647 --
Cash and cash equivalents. . . . . . . . 1,414 1,612
Restricted cash reserves . . . . . . . . 14,640 12,883
Rent receivable from lessees:
Affiliated lessee. . . . . . . . . . . 2,344 1,675
Other lessees. . . . . . . . . . . . . 6,816 3,744
Notes receivable:
Affiliated lessee. . . . . . . . . . . 3,900 3,900
Other lessees. . . . . . . . . . . . . 3,517 3,617
Other. . . . . . . . . . . . . . . . . 506 442
Deferred financing costs, net. . . . . . 4,415 1,623
Prepaid expenses and other assets. . . . 2,497 1,349
---------- ----------
Total assets . . . . . . . . . $ 531,893 $ 532,072
========== ==========
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
December 31, December 31,
2000 1999
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Borrowings under credit facility . . . . $ 113,500 $ 164,900
Bonds payable, net . . . . . . . . . . . 40,314 41,571
Mortgage loans . . . . . . . . . . . . . 119,964 46,306
Due to JLL . . . . . . . . . . . . . . . 966 1,123
Due to Affiliated Lessee . . . . . . . . 756 30
Accounts payable and accrued expenses. . 5,436 6,147
Distributions payable. . . . . . . . . . 7,131 7,000
---------- ----------
Total liabilities. . . . . . . 288,067 267,077
Minority interest in Operating
Partnership. . . . . . . . . . . . . . 20,288 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
authorized, no shares issued and
outstanding at December 31, 2000
and 1999 . . . . . . . . . . . . . . -- --
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 16,982,416 and 16,863,052
shares issued and outstanding at
December 31, 2000 and 1999,
respectively . . . . . . . . . . . . 170 169
Additional paid-in capital . . . . . . 256,950 255,329
Distributions in excess of
Retained Earnings. . . . . . . . . . (33,592) (12,930)
---------- ----------
Total shareholders' equity . . 223,528 242,568
---------- ----------
Total liabilities and
shareholders' equity . . . . $ 531,893 $ 532,072
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Revenues:
Participating lease revenue:
Affiliated Lessee. . . . . $ 30,963 $ 28,290 $ 19,436
Other lessees. . . . . . . 52,809 48,553 27,028
Interest income:
Affiliated lessee. . . . . 228 228 54
Other lessees. . . . . . . 205 205 135
Other. . . . . . . . . . . 838 555 378
Equity in income (loss) of
Affiliated Lessee . . . . . 85 57 (59)
Equity in income of
Joint Venture . . . . . . . 1,067 -- --
Other income . . . . . . . . 56 66 21
---------- ---------- ----------
Total revenues . . . . 86,251 77,954 46,993
---------- ---------- ----------
Expenses:
Depreciation and other
amortization. . . . . . . . 29,078 25,378 13,666
Real estate, personal
property taxes and
insurance . . . . . . . . . 8,462 8,205 5,047
Ground rent. . . . . . . . . 3,574 3,351 1,886
General and administrative . 952 1,342 459
Interest . . . . . . . . . . 21,052 16,181 8,474
Amortization of deferred
financing costs. . . . . . 1,139 992 514
Advisory fee . . . . . . . . 3,840 3,670 2,134
Other expenses . . . . . . . 19 140 13
---------- ---------- ----------
Total expenses . . . . 68,116 59,259 32,193
---------- ---------- ----------
Income before minority
interest and writedown of
property held for sale. . . . 18,135 18,695 14,800
Writedown of properties
held for sale . . . . . . . . 12,296 2,000 --
---------- ---------- ----------
Income before minority
interest. . . . . . . . . . . 5,839 16,695 14,800
Minority interest in
Operating Partnership . . . . 488 2,706 2,567
---------- ---------- ----------
Net income applicable to
common shareholders . . . . . $ 5,351 $ 13,989 $ 12,233
========== ========== ==========
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(Dollars in thousands, except per share data)
For the
For the year ended period from
December 31, April 29, 1998
---------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Net income applicable to
common shareholders per
weighted average common
share outstanding
- basic . . . . . . . . . . . $ 0.32 $ 0.91 $ 0.80
- diluted . . . . . . . . . . $ 0.32 $ 0.91 $ 0.80
========== ========== ==========
Weighted average number of
common shares outstanding
- basic . . . . . . . . . . . 16,920,596 15,432,667 15,209,555
- diluted . . . . . . . . . . 16,982,962 15,432,667 15,209,555
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Distribu-
tions in
Additional Excess of
Common Paid-In Retained Retained
Shares Capital Earnings Earnings Total
------ --------- -------- --------- --------
Initial funding. . . $ -- $ 1 $ -- $ -- $ 1
Net proceeds from
issuance of common
shares. . . . . . . 142 234,052 -- -- 234,194
Issuance of
restricted common
shares. . . . . . . 9 16,409 -- -- 16,418
Proceeds from
issuance of
common shares . . . 1 1,999 -- -- 2,000
Issuance of rights
and options to
purchase shares . . -- 2,997 -- -- 2,997
Adjustment required
to reflect pre-
decessor's basis. . -- (24,082) -- -- (24,082)
Distributions
declared ($1.01
per common share) . -- -- (12,233) (3,144) (15,377)
Net income . . . . . -- -- 12,233 -- 12,233
---- -------- -------- -------- --------
Balance,
December 31,
1998. . . . . . . . 152 231,376 -- (3,144) 228,384
Offering costs . . . -- (106) -- -- (106)
Issuance of shares . 1 216 -- -- 217
Options granted
to Advisor. . . . . -- 12 -- -- 12
Unit conversions . . 16 23,831 -- -- 23,847
Distributions
declared ($1.515
per common share) . -- -- (13,989) (9,786) (23,775)
Net income . . . . . -- -- 13,989 -- 13,989
---- -------- -------- -------- --------
Balance,
December 31,
1999. . . . . . . . 169 255,329 -- (12,930) 242,568
Issuance of Shares . -- 482 -- -- 482
Options granted
to advisor. . . . . -- 53 -- -- 53
Options exercised. . 1 560 -- -- 561
Unit conversions . . -- 526 -- -- 526
Distributions
declared ($1.535
per common share) . -- -- (5,351) (20,662) (26,013)
Net income . . . . . -- -- 5,351 -- 5,351
---- -------- -------- -------- --------
Balance,
December 31,
2000. . . . . . . . $170 $256,950 $ -- $(33,592) $223,528
==== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
For the
For the year ended period from
December 31, April 29, 1998
-------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Cash flows from operating
activities:
Net income . . . . . . . . . . $ 5,351 $ 13,989 $ 12,233
Adjustments to reconcile
net income to net cash
flow provided by operating
activities:
Depreciation and other
amortization . . . . . . . 29,078 25,378 13,666
Amortization of deferred
financing fees . . . . . . 1,139 992 514
Bond premium amortization. . (1,257) (1,257) (652)
Minority interest in
Operating Partnership. . . 488 2,706 2,567
Options granted to
Advisor. . . . . . . . . . 53 12 --
Writedown of properties
held for sale. . . . . . . 12,296 2,000 --
Equity in (income) loss
of Affiliated Lessee . . . (85) (57) 59
Equity in (income) loss
of Joint Venture . . . . . (1,067) -- --
Changes in assets and
liabilities:
Rent receivable from
lessees. . . . . . . . . . (3,823) (2,249) (3,088)
Prepaid expenses and
other assets . . . . . . . (1,969) 3,442 (3,952)
Notes receivable . . . . . . (56) -- --
Due to JLL . . . . . . . . . 255 392 811
Due to LHL . . . . . . . . . 756 -- --
Accounts payable and
accrued expenses . . . . . (324) 575 (878)
---------- ---------- ----------
Net cash flow
provided by operat-
ing activities . . . . 40,835 45,923 21,280
---------- ---------- ----------
Cash flows from investing
activities:
Improvements and additions
to hotel properties. . . . . (30,965) (31,912) (9,309)
Acquisitions of hotel
properties . . . . . . . . . -- (28,233) (380,250)
Investment in Joint Venture. . (4,785) -- --
Distributions from
Joint Venture. . . . . . . . 1,129 -- --
Advances to Affiliated
Lessee . . . . . . . . . . . -- -- (2,405)
Distributions from Affiliated
Lessee . . . . . . . . . . . 108 -- --
Funding of notes receivable. . -- (421) (4,951)
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the
For the year ended period from
December 31, April 29, 1998
-------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Funding of restricted
cash reserves. . . . . . . . (15,901) (18,997) (14,385)
Proceeds from restricted
cash reserves. . . . . . . . 14,144 15,903 4,596
Proceeds from minority
interest in other
partnerships . . . . . . . . -- -- 10
Proceeds from sale of
investments in hotel
properties . . . . . . . . . 4,473 -- --
Capital contribution to
affiliated lessee. . . . . . -- -- (38)
---------- ---------- ----------
Net cash flow used in
investing
activities . . . . . . (31,797) (63,660) (406,732)
---------- ---------- ----------
Cash flows from financing
activities:
Borrowings under credit
facility . . . . . . . . . . 50,300 86,830 164,700
Repayments under credit
facility . . . . . . . . . . (101,700) (86,630) --
Proceeds from mortgage loans . 74,500 46,500 --
Mortgage loan repayments . . . (842) (194) --
Payment of deferred
financing costs. . . . . . . (3,781) (811) (2,190)
Proceeds from issuance of
common shares. . . . . . . . -- -- 257,601
Proceeds from exercise of
stock options. . . . . . . . 561 -- --
Offering costs . . . . . . . . -- (106) (21,401)
Distributions. . . . . . . . . (28,274) (27,810) (11,688)
---------- ---------- ----------
Net cash flow provided
by (used in) financ-
ing activities . . . . (9,236) 17,779 387,022
---------- ---------- ----------
Net change in cash and
cash equivalents . . . . . . . (198) 42 1,570
Cash and cash equivalents at
beginning of period. . . . . . 1,612 1,570 --
---------- ---------- ----------
Cash and cash equivalents at
end of period . . . . . . . . . $ 1,414 $ 1,612 $ 1,570
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
LASALLE HOTEL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, expect per share data)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
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 was
formed to own hotel properties and to continue and expand the hotel
investment activities of Jones Lang LaSalle Incorporated (formerly LaSalle
Partners Incorporated) and certain of its affiliates (collectively "JLL").
On April 23, 1998, the Company's Registration Statement on Form S-11 was
declared effective. The Company had no operations prior to April 29, 1998.
On April 29, 1998, the Company completed an initial public offering (the
"IPO") of 14,200,000 common shares of beneficial interest (the "Common
Shares"). The offering price of all Common Shares sold was $18 per common
share, resulting in gross proceeds of $255,600 and net proceeds (less the
underwriters' discount and offering expenses) of $234,138. The Company
contributed all of the net proceeds of the IPO to LaSalle Hotel Operating
Partnership, L.P., a limited partnership (the "Operating Partnership"), in
exchange for an approximate 82.6% general partnership interest in the
Operating Partnership. The Operating Partnership used the net proceeds
from the Company, the issuance of additional Common Shares of the Company,
the issuance of rights to purchase Common Shares and the issuance of
limited partnership interests ("Units"), representing an approximate 17.4%
interest in the Operating Partnership, to acquire ten upscale and luxury
full service hotels (the "Initial Hotels").
As of December 31, 2000, the Company owned interests in 13 hotels with
approximately 5,300 guest rooms (the "Hotels") located in eleven states.
The Company owns 100% equity interests in 11 of the hotels and a 95.1%
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. ("LHL"). As more fully described in Note 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
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.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
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 date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is determined by using available market information and
appropriate valuation methodologies. The Company's financial instruments
include cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, borrowings against the 1998 Second Amended Credit
Facility, borrowings under the 1999 Mortgage Loan and borrowings under the
2000 Mortgage Loans (all defined in Note 7). Due to their short
maturities, cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are carried at amounts which reasonably
approximate fair value. As borrowings under the 1998 Second Amended Credit
Facility bear interest at variable market rates, carrying value
approximates market value at December 31, 2000 and 1999. At December 31,
2000, the carrying value of the 1999 Mortgage Loan and 2000 Mortgage Loans
approximated fair value, as the interest rates associated with the
borrowings approximated current market rates.
INVESTMENT IN HOTEL PROPERTIES
Hotel properties are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from 27.5-30 years
for buildings and improvements and 5 years for furniture, fixtures and
equipment.
The Company periodically reviews the carrying value of each Hotel to
determine if circumstances exist indicating an impairment in the carrying
value of the investment in the hotel or that depreciation periods should be
modified. If facts or circumstances support the possibility of impairment,
the Company will prepare a projection of the undiscounted future cash
flows, without interest charges, of the specific hotel and determine if the
investment in such hotel is recoverable based on the undiscounted future
cash flows. If impairment is indicated, an adjustment will be made to the
carrying value of the hotel based on discounted future cash flows. In
1999, the Company recorded a writedown of $2,000 for the Holiday Inn Plaza.
In 2000, the Company recorded an additional writedown of $1,266 for the
Holiday Inn Plaza Park and $11,030 for the Radisson Hotel Tampa (see Note
6). The Company does not believe that there are any factors or
circumstances indicating impairment of any of its investments in the
remaining twelve Hotels.
Hotel properties are considered held for sale when actively marketed
and sale is expected to occur within one year.
INVESTMENTS IN JOINT VENTURE
Investment in Joint Venture 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.
INVESTMENT IN LHL
The Company owned a 9% interest in LHL in which the Company together
with JLL and LPI Charities, a charitable corporation organized under the
laws of the state of Illinois, made all material decisions concerning the
business affairs and operations. Accordingly, the Company did not control
LHL and carried its investment at cost, plus its equity in net earnings,
less distributions received since the date of inception.
On July 28, 2000, the Operating Partnership reached a definitive
agreement with the shareholders of 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, LaGuardia
Airport Marriott, Omaha Marriott and Harborside Hyatt Conference Center and
Hotel. Effective January 1, 2001, LHL is a 100% owned subsidiary of the
Company as provided for under the taxable-REIT subsidiary provisions. It
is currently anticipated that the cost associated with the transaction will
be expensed in the first quarter of 2001.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
DEFERRED FINANCING FEES
Deferred financing fees are recorded at cost and are amortized over
the three-year term of the 1998 Second Amended Credit Facility and over the
ten-year terms of the 1999 Mortgage Loan and 2000 Mortgage Loans.
Accumulated amortization at December 31, 2000, 1999 and 1998 was $2,304,
$1,316 and $474, respectively.
DISTRIBUTIONS
The Company pays regular quarterly distributions to its shareholders
as directed by the Board of Trustees. The Company's ability to pay
distributions is dependent on the receipt of distributions from the
Operating Partnership.
REVENUE RECOGNITION
The Company recognizes lease revenue on an accrual basis pursuant to
the terms of the respective Participating Leases. Base and participating
rent is recognized based on quarterly thresholds, pursuant to the lease
agreements (see Note 10).
MINORITY INTEREST
Minority interest in the Operating Partnership represents the limited
partners' proportionate share of the equity in the Operating Partnership.
At December 31, 2000, the aggregate partnership interest held by the
limited partners in the Operating Partnership was approximately 8.4%.
Income is allocated to minority interest based on the weighted average
percentage ownership throughout the year. On January 1, 2001, JLL and its
affiliates redeemed 964,334 Units resulting in 574,813 Units or 3.1%
partnership interest held by the limited partners.
Minority interest in the San Diego Subsidiary Partnership (as defined
in Note 4) represents the limited partner's proportionate share of the
equity in the San Diego Subsidiary Partnership. Income is allocated to
minority interest based on the terms of the partnership agreement.
INCOME TAXES
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code (the "Code"). As a result, the
Company generally will not be subject to Federal corporate income tax on
that portion of its net income that is currently distributed to
shareholders. Accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements.
Effective January 1, 2001, LHL, a 100% owned subsidiary of the Company
is a taxable-REIT subsidiary ("TRS") and as such is required to pay income
taxes at the applicable rates.
For federal income tax purposes, the cash distributions paid to
shareholders may be characterized as ordinary income, return of capital
(generally non-taxable) or capital gains. For 2000, 82.25% of the
Company's distributions were fully taxable as ordinary income, while 17.75%
represented a return of capital. For 1999, 91.10% of the Company's
distributions were fully taxable as ordinary income, while 8.90%
represented a return of capital. For 1998, the Company's distributions
were fully taxable as ordinary income.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based on the weighted average number of common shares outstanding plus the
effect of in-the-money stock options.
3. NOTES RECEIVABLE
The Company provided working capital to the Affiliated Lessee and the
other lessees in the aggregate amount of $5,834 in exchange for notes
receivable ("Working Capital Notes"). In addition, the Company sold
certain furniture, fixtures and equipment to two of its unaffiliated
lessees in exchange for notes receivable ("FF&E Notes") of $1,583. Both
the Working Capital Notes and the FF&E Notes are payable in monthly
installments of interest only. The Working Capital Notes bear interest at
either 5.6% or 6% per annum and have terms identical to the terms of the
related Participating Lease. The FF&E Notes bear interest at 5.6% and 6.0%
per annum and have an initial term of five years unless extended at the
Company's option.
4. ACQUISITION/DISPOSITION OF HOTEL PROPERTIES
The Initial Hotels were previously owned by various limited and
general partnerships (the "Existing Partnerships"). In conjunction with
the IPO and the related formation transactions, the Initial Hotels, except
for Radisson Convention Hotel (previously owned by LRP Bloomington Limited
Partnership), were purchased by the Company from their Existing
Partnerships and were accounted for as purchase transactions. LRP
Bloomington Limited Partnership, the Existing Partnership that retained the
largest number and percentages of voting rights of the Company after the
formation transactions, was designated as the predecessor (the
"Predecessor") for accounting purposes. Therefore, the Company recorded a
purchase accounting adjustment in order to account for the Radisson
Convention Hotel using the historical basis of accounting.
In June 1998, the Company acquired an interest in the San Diego
Princess Resort (the "San Diego Property") through a subsidiary
partnership, LHO Mission Bay Hotel, L.P. (the "San Diego Subsidiary
Partnership"). The San Diego Subsidiary Partnership is a limited
partnership of which the Operating Partnership holds an approximate 95.1%
general partnership interest. The 457-room San Diego Property was renamed
the San Diego Paradise Point Resort.
The San Diego Property was acquired for an aggregate purchase price of
$73.0 million funded with proceeds from a borrowing under the Company's
1998 Credit Facility (as defined in Note 7) and from the proceeds of the
sale of 112,458 Common Shares to the limited partner of the San Diego
Subsidiary Partnership who operates the San Diego Property pursuant to the
terms of a participating lease.
Also in June 1998, the Company acquired a 100% interest in the 270-
room Harborside Hyatt Conference Center & Hotel in Boston (the "Boston
Property") through an indirect subsidiary, LHO Harborside Hotel, L.L.C.
(the "Harborside Subsidiary LLC"). The Harborside Subsidiary LLC is a
limited liability company, of which the Operating Partnership is the sole
member.
The Boston Property was acquired for an aggregate purchase price of
$73.5 million, which included $40.0 million of tax exempt industrial
revenue bonds to which the Boston Property is no longer subject to. The
remainder of the purchase price was funded with proceeds from a borrowing
under the Company's 1998 Credit Facility. Hyatt Hotels Corporation
continues to operate the Boston Property under an existing management
agreement.
On June 2, 1999, the Company acquired a 100% interest in the 182-room
Hotel Viking and the adjacent 12-room inn in Newport, Rhode Island (the
"Newport Property") through an indirect subsidiary, LHO Viking Hotel,
L.L.C. (the "Viking Subsidiary LLC"). The Viking Subsidiary LLC is a
limited liability company, of which the Operating Partnership is the sole
member. The Newport Property was acquired from Bellevue Properties Inc.
("Bellevue"), for an aggregate purchase price of $28 million funded with
proceeds from a borrowing under the Company's 1998 Amended Credit Facility.
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 will
receive an annual 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 was leased to
Chicago 540 Lessee, Inc., in which the Company also owns a 9.9% equity
interest. The institutional investor owns a 90.1% controlling interest in
both the Chicago 540 Hotel Venture and Chicago 540 Lessee, Inc. Marriott
International continues to operate and manage the Chicago Property.
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 at which time depreciated was suspended. 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.
5. INVESTMENT IN HOTEL PROPERTIES
Investment in hotel properties as of December 31, 2000 and 1999
consists of the following:
December 31, December 31,
2000 1999
------------ ------------
Land . . . . . . . . . . . . . . . . $ 46,384 $ 49,308
Buildings and improvements . . . . . 427,114 421,134
Furniture, fixtures and equipment. . 87,548 77,030
-------- --------
561,046 547,472
Accumulated depreciation . . . . . . (74,862) (46,281)
-------- --------
$486,184 $501,191
======== ========
The Hotels are located in California (2), Florida (2), Illinois,
Louisiana, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Rhode
Island and Texas.
6. REAL ESTATE HELD FOR SALE
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 at which time depreciated was suspended. 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.
The Company is actively marketing Radisson Hotel Tampa for sale.
Accordingly, the asset was classified as held for sale on December 6, 2000
and will no longer be depreciated subsequent to this date. Based on
initial pricing expectations, the Company recognized a writedown of $11,030
reducing the net book value of the asset to $17,027 in 2000, which included
$200 of estimated accrued closing costs. There can be no assurance that
real estate held for sale will be sold.
Results of operations for the Radisson Hotel Tampa and Holiday Inn
Plaza Park are as follows:
For the
For the year ended period from
December 31, April 29, 1998
-------------------- (inception) through
2000 1999 December 31, 1998
---------- ---------- -------------------
Total Revenues . . . . . . . . . $ 3,548 $ 4,299 $ 2,558
Total Expenses . . . . . . . . . 2,121 2,185 1,240
Income from Operations . . . . . $ 1,427 $ 2,114 $ 1,318
7. LONG-TERM DEBT
CREDIT FACILITY
In April 1998, the Company obtained a three-year commitment for a $200
million senior unsecured revolving credit facility (the "1998 Credit
Facility") to be used for acquisitions, capital improvements, working
capital and general corporate purposes. The Company amended the 1998
Credit Facility on October 30, 1998. Under the Amended and Restated Senior
Unsecured Credit Agreement, as amended (the "1998 Amended Credit
Facility"), the commitment was increased by an additional $35 million,
bringing the total commitment under the facility to $235 million. On
November 13, 2000, the Company amended the 1998 Amended Credit Facility.
Under the Second Amended and Restated Senior Unsecured Credit Agreement, as
amended (the "1998 Second Amended Credit Facility"), the commitment was
reduced by $35 million, bringing the total commitment under the facility to
$200 million. The reduction was based on anticipated usage over the life
of the facility. Borrowings under the 1998 Second 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 years ended December 31, 2000 and December 31, 1999, the
weighted average interest rate on borrowings under the 1998 Second Amended
Credit Facility was 8.1% and 6.8%, respectively. The Company did not have
any Adjusted Base Rate borrowings outstanding at December 31, 2000 or 1999.
Additionally, the Company is required to pay an unused commitment fee which
is variable, determined from a ratings based pricing matrix, currently set
at 25 basis points. The Company incurred an unused commitment fee of
approximately $200 and $162 for the years ended December 31, 2000 and
December 31, 1999, respectively. The 1998 Second Amended Credit Facility
matures on December 31, 2003 and contains certain financial covenants
relating to debt service coverage, market value net worth and total funded
indebtedness. At December 31, 2000 and 1999, the Company had outstanding
borrowings against the 1998 Second Credit Facility of $113,500 and
$164,900, respectively.
BONDS PAYABLE
On June 24, 1998 the Company, through the Harborside Subsidiary LLC,
acquired the Boston Property subject to $40,000 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 $3,480, of which $314 remains unamortized at
December 31, 2000. The Massport Bonds are collateralized by the leasehold
improvements and bear interest at 10.0% 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 years ended December 31, 2000 and December 31, 1999 totaled $2,743 for
both periods. 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. Future principal payments are as follows:
2001. . . . . . . . . . . . . $ 400
2002. . . . . . . . . . . . . 400
2003. . . . . . . . . . . . . 400
2004. . . . . . . . . . . . . 500
2005. . . . . . . . . . . . . 500
Thereafter. . . . . . . . . . 37,800
-------
$40,000
=======
Under the terms of the Massport Bond Agreement, certain cash reserves
are required to be held in trust for payments of interest, credit
enhancement fees and ground rent. As of December 31, 2000 and 1999, these
reserves totaled $7,864 and $7,311, respectively, and are included in
Restricted Cash Reserves.
In addition, the Massport Bond Agreement was supplemented by a credit
enhancement agreement (the "Massport Credit Enhancement Agreement").
Pursuant to the Massport Credit Enhancement Agreement, certain funds have
been set aside by Massport to provide additional deficit funding if the
amounts held in trust by the Company are not sufficient to cover the debt
service requirements on the outstanding Massport Bonds. In consideration
for the Massport Credit Enhancement Agreement, the Company is required to
pay an annual enhancement fee of $150, payable March 1 and September 1.
On March 1, 2001, the Company redeemed the $40.0 million tax-exempt
Massport Bonds, which had a 10.0% coupon. Proceeds for the redemption were
derived from $37.1 million of tax exempt and $5.4 million of taxable bonds,
each having a 17-year maturity, bearing interest based on a weekly floating
rate and having no principal reductions for the life of the bonds. Due to
the nature of these bonds, they can be redeemed at any time without
penalty. The new bonds are secured by letters of credit issued by GE
Capital Corporation. The letters of credit are collateralized by the
Harborside Hyatt Conference Center and Hotel. The excess proceeds of
approximately $5,900 were used to pay down borrowings on the 1998 Second
Amended Credit facility.
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 Financing Partnership is
effectively wholly owned by the Company. The 1999 Mortgage Loan is secured
by the Radisson Convention Hotel and 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.
The 1999 Mortgage Loan had principal balances of $45,690 and $46,306
at December 31, 2000 and December 31, 1999, respectively. Future scheduled
debt principal payments at December 31, 2000 are as follows (in thousands):
2001. . . . . . . . . . . . . $ 667
2002. . . . . . . . . . . . . 723
2003. . . . . . . . . . . . . 784
2004. . . . . . . . . . . . . 850
2005. . . . . . . . . . . . . 922
Thereafter. . . . . . . . . . 41,744
-------
$45,690
=======
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. 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.
The 2000 Mortgage Loans had a principal balance of $74,274 at
December 31, 2000. Future scheduled debt principal payments at
December 31, 2000 are as follows (in thousands):
2001. . . . . . . . . . . . . $ 735
2002. . . . . . . . . . . . . 798
2003. . . . . . . . . . . . . 864
2004. . . . . . . . . . . . . 921
2005. . . . . . . . . . . . . 1,016
Thereafter. . . . . . . . . . 69,940
-------
$74,274
=======
8. SHAREHOLDERS' EQUITY
COMMON SHARES OF BENEFICIAL INTEREST
In connection with the acquisition of the Initial Hotels, the Company
issued 912,122 restricted Common Shares to JLL. The Common Shares were
valued at $18.00 per share or $16,418. The Company also granted 1,280,569
rights mainly to purchase Common Shares at the exercise price of $18.00 per
share in connection with the acquisition of the Initial Hotels. Among the
rights which were granted, 457,346 were granted to the Advisor (as defined
in Note 11). The Advisor may exercise its rights to purchase Common Shares
or Units, at the option of the Company. The Company has recorded these
rights in shareholders' equity at their fair value on the date of grant,
which was $2,997. All rights have a one year vesting period and a 10 year
term. At December 31, 2000, all of the rights were exercisable.
In connection with the purchase of the San Diego Property (see
Note 4), the sole limited partner in the San Diego Subsidiary Partnership
(which is an affiliate of the hotel operator) acquired 112,458 Common
Shares, from the Company for a purchase price of $2,000. The purchase and
sale of the Common Shares was a condition to the selection of the affiliate
of the limited partner as operator of the San Diego Property, and the
Common Shares have been pledged to the Operating Partnership to secure the
limited partner's obligations under the related Participating Lease.
On February 22, 1999, the Company issued 4,995 Common Shares to the
Board of Trustees for their 1998 Compensation. The annual fee paid to the
Board of Trustees is paid 50% in cash and 50% in Common Shares. Each
trustee may elect to receive Common Shares in lieu of receiving 50% of
their annual fee in cash.
On March 4, 1999, pursuant to the advisory agreement, the Company
issued 10,988 Common Shares to the Advisor for the incentive portion of the
1998 advisory fee, in lieu of the $155, which would have otherwise been due
to the Advisor.
On May 13, 1999, the Company's registration statement on Form S-3
under the Securities Act of 1933 (the "Securities Act"), as amended,
registering $200,000 of Common Shares, Common Share Warrants, Preferred
Shares of Beneficial Interest (the "Preferred Shares") and Depository
Shares representing Preferred Shares was declared effective.
In connection with the Chicago Hotel Venture and the acquisition of
the Chicago Property (See Note 4), the Company issued 16,667 Units to an
affiliate of the previous owner of the Hotel for consideration valued at
approximately $300.
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").
On February 15, 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.
As of December 31, 2000, the Company has reserved 1,500,000 Common
Shares for future issuance under the 1998 SIP (as defined in Note 12). The
Company has also reserved a total of 1,280,569 Common Shares for future
issuance pursuant to rights which have been issued and 1,539,147 Common
Shares for issuance upon the conversion of the Units, both of which were
issued in connection with the IPO, the acquisition of the Initial Hotels
and the formation of the Company.
During 2000, the Company granted options to the Advisor under the 1998
SIP. In conjunction with this grant, the Company recorded an expense of
$53 for the year ended December 31, 2000, which is included in Advisory Fee
in the accompanying statements of operations. These options vested on
January 18, 2000.
OPERATING PARTNERSHIP UNITS
The outstanding Units are redeemable at the option of the holder for a
like number of Common Shares of the Company or, at the option of the
Company, for the cash equivalent thereof.
On October 24, 2000, 36,754 Units were converted to Common Shares. At
December 31, 2000, 1,539,147 Units were outstanding. On January 1, 2001,
JLL and its affiliates redeemed 964,334 Units resulting in 574,813 Units
outstanding.
9. 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 following table sets forth the computation of basic and diluted
EPS:
For the
period from
April 29, 1998
For the For the (inception)
Year Ended Year Ended through
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ -------------
Numerator:
Net income . . . . . . $ 5,351 $ 13,989 $ 12,233
========== ========== ==========
DENOMINATOR:
Weighted average
number of common
shares - Basic . . . 16,920,596 15,432,667 15,209,555
Effect of Dilutive
Securities Common
Stock Options. . . . 62,366 -- --
---------- ---------- ----------
Weighted average
number of common
shares - Diluted . . 16,982,962 15,432,667 15,209,555
---------- ---------- ----------
BASIC EPS:
Net income per
weighted average
common shares. . . . $ 0.32 $ 0.91 $ 0.80
========== ========== ==========
DILUTED EPS:
Net income per
weighted average
common shares. . . . $ 0.32 $ 0.91 $ 0.80
========== ========== ==========
10. PARTICIPATING LEASES
The Participating Leases have noncancelable terms ranging from six to
eleven years (from commencement), subject to earlier termination on the
occurrence of certain contingencies, as defined. The rent due under each
Participating Lease is the greater of base rent, as defined, or
participating rent. Participating rent applicable to room and other hotel
revenues varies by lease and is calculated by multiplying fixed percentages
by the total amounts of such revenues over specified threshold amounts.
Both the base rent and the participating rent thresholds used in computing
percentage rents applicable to room and other hotel revenues, including
food and beverage revenues, are subject to annual adjustments based on
increases in the United States Consumer Price Index ("CPI") published by
the Bureau of Labor Statistics of the United States of America Department
of Labor, U.S. City Average, Urban Wage Earners and Clerical Workers.
Participating Lease revenues for the years ended December 31, 2000 and 1999
and for the period from April 29, 1998 (inception) through December 31,
1998 were $83,772, $76,843 and $46,464, of which $30,751, $25,271 and
$15,256 was in excess of base rent, respectively.
Future minimum rentals (without reflecting future CPI increases) to be
received by the Company pursuant to the Participating Leases for each of
the years in the period 2000 to 2004 and in total thereafter are as
follows:
2001 . . . . . . . . . . . . . . . . $ 54,568
2002 . . . . . . . . . . . . . . . . 54,568
2003 . . . . . . . . . . . . . . . . 54,816
2004 . . . . . . . . . . . . . . . . 54,816
2005 . . . . . . . . . . . . . . . . 54,816
Thereafter . . . . . . . . . . . . . 139,701
11. ADVISORY AGREEMENT
Upon completion of the IPO, the Company entered into an advisory
agreement with LaSalle Hotel Advisors, Inc. (the "Advisor"), a wholly owned
subsidiary of JLL. From its inception through December 31, 2000, JLL acted
as an external advisor providing management, acquisition, advisory and
administration services pursuant to an Advisory Agreement and Employee
Lease Agreement (collectively the "Advisory Agreement"). The initial term
of the Advisory Agreement extended through December 31, 1999, subject to
successive, automatic one year renewals unless terminated according to the
terms of the Advisory Agreement. On October 25, 1999, the Company's Board
of Trustees approved the renewal of the Advisory Agreement through December
31, 2000.
On November 15, 2000, the Company's Board of Trustees approved the
termination of the Advisory Agreement and voted to become a self-managed
REIT effective January 1, 2001. The Company will pay the Advisor $600 for
2001 transition services including waiving the termination notice period,
and providing support and advice through the first quarter of 2001. In
addition, the Company will purchase assets to operate the Company at book
value.
The Advisory Agreement provided for payment of a base fee, payable
quarterly, starting at 5% of the first $100.0 million of net operating
income ("NOI") (as defined). The percentage of NOI used to calculate the
base fee is reduced by .2% for every incremental $125.0 million of NOI
above $100.0 million until $600.0 million, at which point any excess NOI
above $600.0 million is subject to a base fee of 4%.
In addition, the Advisory Agreement provided for payment of an annual
incentive fee to be paid by the Company in arrears. The annual incentive
fee is equal to 25% of the product of (i) the amount by which the funds
from operations ("FFO") per common share/Unit (as defined) for the calendar
year then ended (the "Measurement Year") exceeded a growth rate of 7% per
annum of the FFO per common share/Unit for the prior calendar year and (ii)
the common shares/Units outstanding for the Measurement Year. For partial
years, the incentive fee was calculated on a pro rata basis for only that
portion of the year that the Advisory Agreement was in effect. Payment of
the incentive fee was in common shares or Units at the option of the
Advisor.
12. SHARE OPTION AND INCENTIVE PLAN
In April 1998, the Board of Trustees adopted and the then current
shareholder, approved the Share Option and Incentive Plan (the "1998 SIP")
which is currently administered by the Compensation, Contract and
Governance Committee (the "Compensation Committee") of the Board of
Trustees. The Advisor and its employees and the Hotel Operators and their
employees generally are eligible to participate in the 1998 SIP.
Independent Trustees continuing in office after an annual meeting of
shareholders of the Company receive automatic annual grants of options to
purchase 1,000 Common Shares at a per share exercise price equal to fair
market value of a Common Share on the date of the meeting.
The 1998 SIP authorizes, among other things: (i) the grant of share
options that qualify as incentive options under the Code; (ii) the grant of
share options that do not so qualify; (iii) the grant of share options in
lieu of cash Trustees' fees; (iv) grants of Common Shares in lieu of cash
compensation; and (v) the making of loans to acquire Common Shares in lieu
of compensation. The exercise price of share options is determined by the
Compensation Committee, but may not be less than 100% of the fair market
value of the Common Shares on the date of grant. Options under the plan
vest over a period determined by the Compensation Committee, which is
generally a three year period. The duration of each option is also
determined by the Compensation Committee, however, the duration of each
option shall not exceed 10 years from date of grant.
On May 19, 1999, the common shareholders approved an amendment to the
1998 SIP, increasing the number of Common Shares authorized for issuance
under the SIP from 757,000 to 1,500,000. Accordingly, at December 31, 2000
and 1999, 1,500,000 shares were authorized for issuance under the 1998 SIP.
On February 1, 2001, an affiliate of the Advisor exercised 300,000
options. Proceeds from the options were used to reduce outstanding
borrowings on the 1998 Second Amended Credit Facility.
Stock option transactions are summarized as follows:
2000 1999 1998
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------ -------- ------ --------
Outstanding
at beginning
of the year . 380,200 $13.84 81,000 $16.22 -- $ --
Options
granted . . . 333,500 11.81 310,700 13.20 81,000 16.22
Options
exercised . . (45,167) 12.41 -- -- -- --
Options
forfeited . . (27,666) 15.19 (11,500) 13.25 -- --
------- ------ ------- ------ ------ ------
Outstanding
at end of
year. . . . . 640,867 $12.83 380,200 $13.84 81,000 $16.22
======= ====== ======= ====== ======= ======
Exercisable
at end of
the year. . . 395,740 43,667
Available for
future grant
at year end . 802,846 1,114,805 676,000
Weighted
average per
share fair
value of
options
granted during
the year. . . $ 1.32 $ 1.55 $ 0.94
Options Outstanding Options Exercisable
--------------------------------- ----------------------
Number Weighted Weighted Number Weighted
Range of Outstand- Average Average Outstand- Average
Exercise ing at Remaining Exercise ing at Exercise
Prices 12/31/00 Life Price 12/31/00 Price
- ------------- --------- --------- --------- ----------- --------
$11.63-$18.00 640,867 5.6 years $12.83 395,740 $12.99
The fair value of each stock option granted is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
2000 1999 1998
------ ------ -------
Expected Life. . . . . . . . . 7.2 7.2 7.9
Expected Volatility. . . . . . 23.8% 32.0% 13.4%
Risk-free Interest Rate. . . . 4.7% 4.8% 4.7%
Dividend Yield . . . . . . . . 11.8% 10.9% 9.3%
PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE
The Company has applied Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for the 1998 SIP. Accordingly, no
compensation costs have been recognized, except $53 and $12 for the options
granted to the Advisor during 2000 and 1999, respectively, which were
accounted for under the method required by Statement of Financial
Accounting Standards ("SFAS") No. 123. Had compensation cost for all of
the options granted under the Company's 1998 SIP been determined in
accordance with the method required by SFAS No. 123, the Company's net
income and net income per common share for 2000, 1999 and 1998 would
approximate the pro forma amounts below (in thousands, except per share
data).
2000 1999 1998
------------------ ----------------- -----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- -------- -------- --------
Net income . . $ 5,351 $ 5,215 $ 13,989 $ 13,886 $ 12,233 $ 12,229
======== ======== ======== ======== ======== ========
Net income
per common
share:
Basic. . . . $ 0.32 $ 0.31 $ 0.91 $ 0.90 $ 0.80 $ 0.80
======== ======== ======== ======== ======== ========
Diluted. . . $ 0.32 $ 0.31 $ 0.91 $ 0.90 $ 0.80 $ 0.80
======== ======== ======== ======== ======== ========
13. LHL
A significant portion of the Company's participating lease revenue is
derived from the Participating Leases with LHL. Certain condensed
financial information, related to the LHL's financial statements, is as
follows:
December 31, December 31,
2000 1999
------------ ------------
Balance Sheet Information:
Cash and cash equivalents. . . . . . . . $ 6,208 $ 5,494
Due from LaSalle Hotel Properties. . . . 756 30
Total assets . . . . . . . . . . . . . . 12,887 11,176
Notes payable to LaSalle Hotel
Properties . . . . . . . . . . . . . . 3,900 3,900
Total liabilities. . . . . . . . . . . . 12,834 10,777
Stockholders' equity (deficit) . . . . . 53 399
Total liabilities and stockholders'
equity (deficit) . . . . . . . . . . . 12,887 11,176
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
Statement of Operations
Information:
Total revenues . . . . . . . . $107,991 $100,700 $ 66,335
Participating lease expense. . 30,963 28,290 19,436
Net income (loss). . . . . . . 862 633 (659)
At December 31, 2000, 1999 and 1998, the Company owed LHL $756, $30
and $614, respectively, for reimbursement of capital improvements, which
were paid by LHL.
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, LaGuardia Airport Marriott, Omaha Marriott and
Harborside Hyatt Conference Center and Hotel. Effective January 1, 2001,
LHL is a 100% owned subsidiary of the Company as provided for under the
taxable-REIT subsidiary provisions. It is currently anticipated that the
cost associated with the transaction will be expensed in the first quarter
of 2001.
14. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
Interest paid,
net of capitalized interest. . $ 22,300 $ 17,652 $ 7,325
======== ======== ========
Interest capitalized . . . . . . $ 699 $ 174 $ 57
======== ======== ========
Supplemental schedule of non-
cash investing and financing
activities:
Issuance of Units in conjunc-
tion with the investment
in Chicago Hotel Venture . . $ 300 $ -- $ --
======== ======== ========
Advances to Affiliated Lessee
converted to notes
receivable . . . . . . . . . $ -- $ 2,400 $ --
======== ======== ========
Distributions payable. . . . . $ 7,131 $ 7,000 $ 6,902
======== ======== ========
Exchange of Units for
Common Shares:
Minority interest. . . . . . . $ (526) $(23,847) $ --
Common stock . . . . . . . . . -- 16 --
Additional paid in capital . . 526 23,831 --
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
In conjunction with the hotel
acquisitions, the Company
assumed the following assets
and liabilities:
Purchase of real estate. . . . $ -- $ 28,052 $470,859
Adjustment required to reflect
predecessor's basis. . . . . -- -- 33,012
Note receivable. . . . . . . . -- 167 --
Other assets purchased . . . . -- 14 --
Liabilities, net of other
assets . . . . . . . . . . . -- -- (3,455)
Bonds payable. . . . . . . . . -- -- (43,480)
Issuance of shares/units . . . -- -- (76,686)
-------- -------- --------
Acquisitions of
hotel properties . . . . . . $ -- $ 28,233 $380,250
======== ======== ========
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
In conjunction with the hotel
disposition, the Company
disposed of the following
assets and liabilities:
Sale of real estate. . . . . . $ (4,580) $ -- $ --
Note receivable. . . . . . . . (100) -- --
Other assets disposed. . . . . (110) -- --
Liabilities. . . . . . . . . . 317 -- --
-------- -------- --------
Disposition of
hotel properties . . . . . . $ (4,473) $ -- $ --
======== ======== ========
15. COMMITMENTS AND CONTINGENCIES
Three of the Hotels are subject to ground leases under noncancelable
operating leases with terms ranging out to May 2081. Total lease expense
for the years ended December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 was $3,574, $3,351 and
$1,886, respectively. Future minimum lease payments are as follows:
2001. . . . . . . . . . . . . . . . . $ 2,364
2002. . . . . . . . . . . . . . . . . 2,364
2003. . . . . . . . . . . . . . . . . 2,364
2004. . . . . . . . . . . . . . . . . 2,364
2005. . . . . . . . . . . . . . . . . 2,364
Thereafter. . . . . . . . . . . . . . 131,869
--------
$143,689
========
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 range 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 $10,521 at
December 31, 2000, of which $3,387 available in restricted cash reserves
for future capital expenditures. Purchase orders and letters of commitment
totaling approximately $3,000 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
that the ultimate resolution of these matters will have a material adverse
effect on the financial position, operations or liquidity of the Hotels.
16. RELATED PARTY TRANSACTIONS
At December 31, 2000, 1999 and 1998, the Company had a payable to JLL
of $966, $1,123 and $886, respectively, primarily for the advisory fee.
For the years ended December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998, the total advisory
fee was $3,840, $3,670 and $2,134, of which $125, $412 and $155 represented
the incentive portion of the advisory fee, respectively.
On November 15, 2000, the Company announced its Board of Trustees
voted to become a self-managed company effective January 1, 2001 and
terminate its advisory relationship with Advisor. In connection with the
termination, the Advisor will receive $600 for 2001 transition services and
the Company will purchase assets used to operate the Company at book value.
The entire management team has become employees of LHO and continues to
oversee and manage all activities of the Company under the new self-managed
structure.
17. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information set forth below is presented as if
the acquisitions of the Hotel Viking and Chicago Marriott Downtown as
discussed in Note 4 had been consummated and leased as of January 1, 1999.
The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming the
acquisitions had been consummated and all the Hotels had been leased as of
January 1, 1999, nor does it purport to represent the results of operations
for future periods.
For the
Year Ended
December 31,
----------------------
2000 1999
---------- ----------
Total revenues . . . . . . . . . . . . . . . . . $ 86,172 $ 78,760
---------- ----------
Depreciation . . . . . . . . . . . . . . . . . . 29,078 25,786
Real estate and personal property taxes and
insurance. . . . . . . . . . . . . . . . . . . 8,462 8,271
General and administrative . . . . . . . . . . . 952 1,342
Interest expense . . . . . . . . . . . . . . . . 21,076 17,261
Amortization of deferred financing costs . . . . 1,139 992
Advisory fees. . . . . . . . . . . . . . . . . . 3,836 3,707
Ground rent. . . . . . . . . . . . . . . . . . . 3,574 3,351
Other expense. . . . . . . . . . . . . . . . . . 19 140
---------- ----------
Income before Minority Interest and
writedown of property held for sale . . . . . . 18,036 17,910
Writedown of property held for sale. . . . . . . 12,296 2,000
---------- ----------
Income before minority interest. . . . . . . . . 5,740 15,910
Minority interest. . . . . . . . . . . . . . . . 480 2,583
---------- ----------
Net income applicable to common shareholders . . $ 5,260 $ 13,327
========== ==========
Net income applicable to common shareholders per
weighted average common share outstanding
- basic. . . . . . . . . . . . . . . . . . . $ 0.31 $ 0.86
========== ==========
- diluted. . . . . . . . . . . . . . . . . . $ 0.31 $ 0.86
========== ==========
Weighted average number of common
shares outstanding
- basic. . . . . . . . . . . . . . . . . . . 16,920,596 15,432,667
========== ==========
- diluted. . . . . . . . . . . . . . . . . . 16,982,962 15,432,667
========== ==========
18. PREDECESSOR INFORMATION
Pursuant to SEC regulations which require the presentation of
predecessor financial information for corresponding periods of the
preceding year, the following information represents condensed statements
of operations and cash flow information of LRP Bloomington Limited
Partnership, which is considered to be the predecessor of the Company, for
the period from January 1, 1998 through April 28, 1998.
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands)
For the
period from
January 1, 1998
through
April 28, 1998
----------------
REVENUES
Rooms. . . . . . . . . . . . . . . . . . . . . . . $ 4,285
Food & beverage. . . . . . . . . . . . . . . . . . 3,459
Telephone. . . . . . . . . . . . . . . . . . . . . 124
Other. . . . . . . . . . . . . . . . . . . . . . . 537
--------
Total Revenue . . . . . . . . . . . . . . . . 8,405
--------
EXPENSES
Departmental expenses:
Rooms. . . . . . . . . . . . . . . . . . . . . . 1,096
Food & beverage. . . . . . . . . . . . . . . . . 2,379
Telephone. . . . . . . . . . . . . . . . . . . . 88
Other operating departments. . . . . . . . . . . 307
General & administrative . . . . . . . . . . . . . 571
Sales and marketing. . . . . . . . . . . . . . . . 435
Real estate and personal property taxes. . . . . . 405
Property operations and management . . . . . . . . 400
Management fees. . . . . . . . . . . . . . . . . . 336
Energy . . . . . . . . . . . . . . . . . . . . . . 292
Insurance. . . . . . . . . . . . . . . . . . . . . 71
Other fixed expenses . . . . . . . . . . . . . . . 73
Interest expense . . . . . . . . . . . . . . . . . 833
Depreciation and amortization. . . . . . . . . . . 1,196
Advisory fees. . . . . . . . . . . . . . . . . . . 53
--------
Total Expenses. . . . . . . . . . . . . . . . 8,535
--------
Net Loss . . . . . . . . . . . . . . . . . . . . . $ (130)
========
LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)
STATEMENT OF CASH FLOWS
(Unaudited, Dollar Amounts in Thousands)
For the
period from
January 1, 1998
through
April 28, 1998
----------------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $ (130)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 1,196
Changes in assets and liabilities:
Guest and trade receivables, net. . . . . . . (284)
Inventories . . . . . . . . . . . . . . . . . 8
Prepaid expenses. . . . . . . . . . . . . . . (367)
Accounts payable. . . . . . . . . . . . . . . (133)
Accrued expenses and other liabilities. . . . 515
--------
Net cash provided by operating activities. 805
-------
Cash flows from investing activities:
Proceeds from restricted cash reserves . . . . . 148
Capital expenditures . . . . . . . . . . . . . . (611)
--------
Net cash used in investing activities . . . (463)
--------
Cash flows from financing activities:
Principal payments on long-term debt . . . . . . (145)
--------
Net cash used in financing activities . . . (145)
--------
Increase in cash and cash equivalents. . . . . . . 197
Cash and cash equivalents, beginning of period . 1,744
--------
Cash and cash equivalents, end of period . . . . $ 1,941
========
Cash paid for interest . . . . . . . . . . . . . . $ 833
========
19. SUBSEQUENT EVENTS
Effective January 1, 2001, the Company became a self-managed REIT.
The Company terminated its Advisor relationship with the Advisory in
accordance with the Termination and Services Agreement dated December 28,
2000. In connection with the termination, the Advisor will receive $600
for 2001 transition services. The Company purchased assets used to operate
the Company at book value of approximately $302 and paid $50 for
informational technology services. The entire management team has become
employees of LHO and continues to oversee and manage all activities of the
Company under the new self-managed structure.
Effective January 1, 2001, the Company purchased all of the issued and
outstanding shares of capital stock of LHL for $500 in accordance with the
Stock Purchase Agreement dated July 28, 2000. LHL leases four of the
Company's owned hotels, including Marriott Seaview Resort, LaGuardia
Airport Marriott, Omaha Marriott and Harborside Hyatt Conference Center and
Hotel. Effective January 1, 2001, LHL is a 100% owned subsidiary of the
company as provided for under the taxable-REIT subsidiary provisions. It
is currently anticipated that the cost associated with the transaction will
be expensed in the first quarter of 2001.
On January 1, 2001, JLL and its affiliates redeemed 964,334 Units
resulting in 574,813 Units or 3.1% partnership interest held by the limited
partners.
On January 15, 2001, the Company paid its regular fourth quarter
distribution of $0.385 per share/unit on its Common Shares and Units.
On February 1, 2001, an affiliate of the Advisor exercised 300,000
options. Proceeds from the options were used to reduce outstanding
borrowings on the 1998 Second Amended Credit Facility.
On February 26, 2001, the Company terminated the operating lease on
the Viking Hotel with Bellevue Properties, Inc. and entered into lease with
LHL on essentially the same terms. Bellevue Properties, Inc. received $840
in payment relating to termination, tax settlement due under the Purchase
and Sale Agreement and other items. Noble House Hotel and Resorts replaced
Bellevue Properties, Inc. as manager for the property.
On March 1, 2001, the Company redeemed the $40.0 million tax-exempt
Massport Bonds, which had a 10.0% coupon. Proceeds for the redemption were
derived from $37.1 million of tax exempt and $5.4 million of taxable bonds,
each having a 17-year maturity, bearing interest based on a weekly floating
rate and having no principal reductions for the life of the bonds. Due to
the nature of these bonds, they can be redeemed at any time without
penalty. The new bonds are secured by letters of credit issued by GE
Capital Corporation. The letters of credit are collateralized by the
Harborside Hyatt Conference Center and Hotel. The excess proceeds of
approximately $5,900 were used to pay down borrowings on the 1998 Second
Amended Credit facility.
On March 8, 2001, the Company acquired a 100% interest in four full-
service hotels with a total of 502 guest rooms in Washington, D.C. for an
aggregate purchase price of approximately $44.0 million. Each of the four
hotels will be fully renovated, improved and repositioned as unique high-
end, independent boutique hotels. The Company will undertake the
redevelopment program, currently projected at a total of approximately
$30.0 million, in conjunction with the Kimpton Hotel & Restaurant Group,
LLC who was also retained to manage and operate the hotel collection.
These four hotels have operated as the 99-room Canterbury Hotel, located at
1733 N Street, NW; the 82-room Clarion Hampshire House Hotel at 1310 New
Hampshire Avenue, NW; the 137-room Quality Hotel and Suites Downtown at
1315 16th Street, NW; and the 184-room Howard Johnson Plaza Hotel and
Suites, 1430 Rhode Island Avenue, NW. Originally constructed as apartment
buildings, each hotel features either large rooms or suites. Upon
completion of the redevelopment program, LaSalle intends to rename each
property and the Kimpton Group will operate each as independent, non-
branded boutique hotels.
20. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the
years ended December 31, 2000 and 1999 (in thousands, except per share
data). In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of quarterly results
have been reflected in the data. It is also management's opinion, however,
that quarterly operating data for hotel enterprises are not indicative of
results to be achieved in succeeding quarters or years.
Year Ended December 31, 2000
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Total Revenues . . . . . $ 17,146 $ 22,639 $ 26,590 $ 19,875
Total Expenses . . . . . 15,452 18,933 18,858 27,656
---------- ---------- ---------- ----------
Net Income (Loss). . . . $ 1,694 $ 3,706 $ 7,732 $ (7,781)
========== ========== ========== ==========
Net Income (Loss)
Applicable to Common
Shareholders per
Weighted Average Common
Shares Outstanding:
Basic. . . . . . . . . $ 0.10 $ 0.22 $ 0.46 $ (0.46)
========== ========== ========== ==========
Diluted. . . . . . . . $ 0.10 $ 0.22 $ 0.45 $ (0.46)
========== ========== ========== ==========
Weighted Average
Number of Common
Shares outstanding:
Basic. . . . . . . . . 16,881,979 16,901,514 16,925,815 16,972,445
========== ========== ========== ==========
Diluted. . . . . . . . 16,894,833 16,972,049 17,007,337 17,071,733
========== ========== ========== ==========
Year Ended December 31, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Total Revenues . . . . . $ 16,212 $ 20,644 $ 23,576 $ 17,522
Total Expenses . . . . . 13,704 15,410 17,377 17,474
---------- ---------- ---------- ----------
Net Income . . . . . . . $ 2,508 $ 5,234 $ 6,199 $ 48
========== ========== ========== ==========
Net Income Applicable to
Common Shareholders per
Weighted Average Common
Shares Outstanding:
Basic. . . . . . . . . $ 0.16 $ 0.34 $ 0.40 $ --
========== ========== ========== ==========
Diluted. . . . . . . . $ 0.16 $ 0.34 $ 0.40 $ --
========== ========== ========== ==========
Weighted Average
Number of Common
Shares outstanding:
Basic. . . . . . . . . 15,230,052 15,240,563 15,315,174 15,938,385
========== ========== ========== ==========
Diluted. . . . . . . . 15,230,052 15,260,923 15,340,057 15,938,385
========== ========== ========== ==========
LASALLE HOTEL PROPERTIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 2000
Costs Capitalized
Subsequent to Gross Amounts at Which
Initial Cost Acquisition Carried At Close of Period
--------------------------- ---------------------------- ---------------------------
Building Building Building
and and and
Improve- Improve- Improve-
Land ments FF&E Land ments FF&E Land ments FF&E
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Radisson Convention
Hotel . . . . . . . . $ 8,172 $11,258 $13,811 $ -- $ 1,564 $ 4,841 $ 8,172 $ 12,822 $18,652
Le Meridien
New Orleans . . . . . -- 60,062 6,554 -- 344 2,834 -- 60,406 9,388
Le Meridien
Dallas. . . . . . . . 2,452 20,847 2,166 -- 157 3,065 2,452 21,004 5,231
Marriott Seaview
Resort. . . . . . . . 7,415 40,337 2,339 182 1,490 7,832 7,597 41,827 10,171
Holiday Inn
Beachside Resort. . . 5,505 14,702 1,901 -- 447 795 5,505 15,149 2,696
San Diego
Paradise Point. . . . -- 69,639 3,665 -- 15,962 7,041 -- 85,601 10,706
LaGuardia Airport
Marriott. . . . . . . 8,127 32,139 3,976 -- 1,012 2,236 8,127 33,151 6,212
Omaha Marriott
Hotel . . . . . . . . 4,268 22,405 3,086 -- 403 1,371 4,268 22,808 4,457
Radisson Hotel
Tampa . . . . . . . . 4,383 20,223 2,166 -- 1,185 3,805 4,383 21,408 5,971
Holiday Inn
Plaza Park. . . . . . 1,663 5,335 396 -- 212 392 1,663 5,547 788
Le Montrose
All Suite Hotel . . . 5,004 19,752 2,951 -- 896 1,386 5,004 20,648 4,337
Harborside Hyatt
Conference Center
& Hotel . . . . . . . -- 66,159 5,246 -- 522 2,967 -- 66,681 8,213
Hotel Viking . . . . . 2,504 25,183 365 77 8,059 2,641 2,581 33,242 3,006
-------- -------- -------- ------ ------- ------- ------- -------- -------
Totals . . . . . . . . $ 49,493 $408,041 $ 48,622 $ 259 $32,253 $41,206 $49,752 $440,294 $89,828
======== ======== ======== ====== ======= ======= ======= ======== =======
LASALLE HOTEL PROPERTIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
As of December 31, 2000
Life On Which
Write- Date of Depreciation In
down/Sale Accumulated Net Original Date of Income Statement
of Assets Depreciation Book Value Construction Acquisition is Computed
--------- ------------ ---------- ------------ ----------- ----------------
Radisson Conven-
tion Hotel. . . . . $ -- $ 12,585 $ 27,061 1969 12/01/95 5 - 30 years
Le Meridien
New Orleans . . . . -- 9,778 60,016 1984 04/29/98 5 - 30 years
Le Meridien
Dallas. . . . . . . -- 4,199 24,488 1980 04/29/98 5 - 30 years
Marriott Seaview
Resort. . . . . . . -- 7,549 52,046 1912 04/29/98 5 - 30 years
Holiday Inn
Beachside Resort. . -- 2,597 20,753 1960 04/29/98 5 - 30 years
San Diego
Paradise Point. . . -- 10,387 85,920 1962 06/01/98 5 - 30 years
LaGuardia Airport
Marriott. . . . . . -- 5,578 41,912 1981 05/01/98 5 - 30 years
Omaha Marriott
Hotel . . . . . . . -- 4,080 27,453 1982 04/29/98 5 - 30 years
Radisson Hotel
Tampa . . . . . . . 10,830(a) 3,905 17,027 1987 04/29/98 5 - 30 years
Holiday Inn
Plaza Park. . . . . 7,998(b) -- -- 1976 04/29/98 5 - 30 years
Le Montrose
All Suite Hotel . . -- 3,637 26,352 1976 04/29/98 5 - 30 years
Harborside Hyatt
Conference Center
& Hotel . . . . . . -- 8,584 66,310 1993 06/24/98 5 - 30 years
Hotel Viking . . . . -- 1,983 36,846 1850 06/02/99 5 - 30 years
------- ------- --------
Totals . . . . . . . $18,828 $74,862 $486,184
======= ======= ========
<FN>
(a) In 2000, the Company recorded a writedown of $10,830 (net of $200 accrued closing costs), on Radisson Hotel
Tampa, which was held for sale as of December 6, 2000. See Note 6 in Notes to Consolidated Financial
Statements.
(b) The Company recorded writedowns of $2,000 and $931 (net of $358 accrued closing costs), for 2000 and 1999,
respectively, on Holiday Inn Plaza Park, which was held for sale as of December 31, 1999. The Company
completed the sale of Holiday Inn Plaza Park during 2000. See Note 6 in Notes to Consolidated Financial
Statements.
LASALLE HOTEL PROPERTIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
As of December 31, 2000
Reconciliation of real estate and accumulated depreciation:
Reconciliation of Real Estate:
Balance at April 29, 1998 . . . . . . . . . . . . . . $ 33,241
Acquisitions of hotel properties. . . . . . . . . . 444,863
Improvements and additions to hotel properties. . . 10,359
--------
Balance at December 31, 1998. . . . . . . . . . . . . 488,463
Acquisition of hotel. . . . . . . . . . . . . . . . . 28,052
Improvements and additions to hotel properties. . . . 32,957
Writedown of hotel. . . . . . . . . . . . . . . . . . (2,000)
--------
Balance at December 31, 1999. . . . . . . . . . . . . 547,472
Improvements and additions to hotel properties. . . . 30,402
Writedown of hotels . . . . . . . . . . . . . . . . . (11,761)
Disposal of hotel . . . . . . . . . . . . . . . . . . (5,067)
--------
Balance at December 31, 2000. . . . . . . . . . . . . $561,046
========
Reconciliation of Accumulated Depreciation:
Balance at April 29, 1998 . . . . . . . . . . . . . . $ 7,245
Depreciation. . . . . . . . . . . . . . . . . . . . 13,666
--------
Balance at December 31, 1998. . . . . . . . . . . . . 20,911
Depreciation. . . . . . . . . . . . . . . . . . . . 25,370
--------
Balance at December 31, 1999. . . . . . . . . . . . . 46,281
Depreciation. . . . . . . . . . . . . . . . . . . . 29,064
Disposal of hotel . . . . . . . . . . . . . . . . . (483)
--------
Balance at December 31, 2000. . . . . . . . . . . . . $ 74,862
========
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LaSalle Hotel Lessee, Inc.
We have audited the accompanying balance sheets of LaSalle Hotel
Lessee, Inc. (the Company) as of December 31, 2000 and 1999 and the related
statements of operations, stockholders' equity (deficit), and cash flows
for the years ended December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of LaSalle Hotel
Lessee, Inc. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 2000 and
1999 and for the period from April 29, 1998 (inception) through
December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Chicago, Illinois
March 23, 2001
LASALLE HOTEL LESSEE, INC.
BALANCE SHEETS
(Dollars in Thousands)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and cash equivalents. . . . . . . $ 6,208 $ 5,494
Accounts receivable - trade,
net of allowance for doubtful
accounts of $118 and $108,
respectively. . . . . . . . . . . . . 4,375 3,689
Inventories. . . . . . . . . . . . . . 609 789
Prepaid expenses and other assets. . . 939 1,174
Due from LaSalle Hotel Properties. . . 756 30
-------- --------
Total assets. . . . . . . . . . . . $ 12,887 $ 11,176
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Due to LaSalle Hotel Properties. . . . $ 2,344 $ 1,675
Accounts payable
Trade. . . . . . . . . . . . . . . . 2,278 1,254
Advance deposits . . . . . . . . . . 1,192 1,368
Accrued expenses
Accrued sales, use and
occupancy taxes. . . . . . . . . . 544 542
Other accrued liabilities. . . . . . 2,576 2,038
Notes Payable to LaSalle Hotel
Properties . . . . . . . . . . . . . 3,900 3,900
-------- --------
Total liabilities. . . . . . . . 12,834 10,777
-------- --------
Stockholders' equity (deficit)
Common stock . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . 425 425
Retained deficit . . . . . . . . . . (372) (26)
-------- --------
Total stockholders' equity
(deficit). . . . . . . . . . . 53 399
-------- --------
Total liabilities and
stockholders' equity
(deficit). . . . . . . . . . . $ 12,887 $ 11,176
======== ========
The accompanying notes are an integral
part of these financial statements.
LASALLE HOTEL LESSEE, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
REVENUES
Room revenue . . . . . . . . . $ 61,809 $ 57,515 $ 36,643
Telephone revenue. . . . . . . 2,050 1,874 1,124
Food and beverage revenue. . . 34,501 31,855 20,897
Golf revenue . . . . . . . . . 5,777 6,422 5,680
Other revenue. . . . . . . . . 3,635 2,920 1,949
Interest income. . . . . . . . 219 114 42
-------- -------- --------
Total revenues . . . . . 107,991 100,700 66,335
-------- -------- --------
EXPENSES
Departmental expenses of hotels
Rooms. . . . . . . . . . . . 14,215 13,373 8,736
Telephone. . . . . . . . . . 1,147 1,057 607
Food and beverage. . . . . . 24,950 23,550 15,640
Golf . . . . . . . . . . . . 3,838 3,952 3,231
Other. . . . . . . . . . . . 1,598 1,670 1,212
Repairs and maintenance. . . . 4,243 4,097 2,577
Utilities. . . . . . . . . . . 2,739 2,444 1,618
Sales and marketing. . . . . . 6,001 5,564 3,384
General and administrative . . 7,388 7,367 4,940
Insurance. . . . . . . . . . . 723 730 360
Management and incentive fees. 8,138 7,397 4,975
Participation rent . . . . . . 30,963 28,290 19,436
Interest on notes payable. . . 228 228 54
Other expenses . . . . . . . . 336 373 224
-------- -------- --------
Total expenses . . . . 106,507 100,092 66,994
-------- -------- --------
Net income (loss) before
taxes. . . . . . . . . . . . 1,484 608 (659)
Income tax (provision) benefit . (622) 25 --
-------- -------- --------
Net income (loss). . . $ 862 $ 633 $ (659)
======== ======== ========
The accompanying notes are an integral
part of these financial statements.
LASALLE HOTEL LESSEE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
APIC -
Common Common Retained
Stock Stock Deficit Total
---------- ---------- ---------- ---------
Initial proceeds
from stock
issuance. . . . . $ -- $ 425 $ -- $ 425
Net loss . . . . . -- -- (659) (659)
---------- ---------- ---------- ---------
Balance at
December 31,
1998. . . . . . . -- 425 (659) (234)
Net income . . . . -- -- 633 633
---------- ---------- ---------- ---------
Balance at
December 31,
1999. . . . . . . -- 425 (26) 399
Distributions. . . -- -- (1,208) (1,208)
Net income . . . . -- -- 862 862
---------- ---------- ---------- ---------
Balance at
December 31,
2000. . . . . . . $ -- $ 425 $ (372) $ 53
========== ========== ========== =========
The accompanying notes are an integral
part of these financial statements.
LASALLE HOTEL LESSEE, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss). . . . . . . $ 862 $ 633 $ (659)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Bad debts. . . . . . . . . . 98 86 94
Changes in operating assets
and liabilities
Accounts receivable. . . . (784) 30 (3,656)
Inventories. . . . . . . . 180 (48) (663)
Prepaid expenses and
other assets . . . . . . 236 (105) (721)
Accounts payable and
accrued expenses . . . . 1,330 963 2,642
-------- -------- --------
Net cash provided by
(used in) operating
activities . . . . . . 1,922 1,559 (2,963)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from notes payable. . -- -- 1,500
Capital contributions. . . . . -- 193 232
Proceeds from prorations . . . -- -- 2,568
Advances from LaSalle
Hotel Properties . . . . . . -- -- 2,405
Distributions. . . . . . . . . (1,208) -- --
-------- -------- --------
Net cash provided by
(used in) financing
activities . . . . . . (1,208) 193 6,705
-------- -------- --------
Increase in cash and
cash equivalents . . . . . . . 714 1,752 3,742
Cash and cash equivalents
at beginning of period . . . . 5,494 3,742 --
-------- -------- --------
Cash and cash equivalents
at end of period . . . . . . . $ 6,208 $ 5,494 $ 3,742
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS:
Cash paid for interest . . . . $ 228 $ 213 $ 54
======== ======== ========
Advances from the Company
converted to notes payable . $ -- $ 2,400 $ --
======== ======== ========
The accompanying notes are an integral
part of these financial statements.
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. ORGANIZATION
LaSalle Hotel Lessee, Inc. was formed on March 24, 1998 as an Illinois
Corporation, (the "Affiliated Lessee") by Jones Lang LaSalle Incorporated
(formerly LaSalle Partners Incorporated) ("JLL") in connection with the
initial public offering of LaSalle Hotel Properties (the "Company") to
serve as lessee for three of the initial hotels owned by the Company. The
Affiliated Lessee was owned as follows: 9.0% by the Company, 45.5% by JLL
and 45.5% by LPI Charities, a charitable corporation organized under the
laws of the state of Illinois. Accordingly, the stockholders shared in the
profits and losses of the Affiliated Lessee in accordance with their
respective ownership interests. In addition, any cash deficits would have
been funded by the stockholders in proportion to their ownership interests.
The Affiliated Lessee had no operations prior to April 29, 1998. On June
24, 1998, the Affiliated Lessee leased Harborside Hyatt Conference Center
and Hotel (the "Boston Property") from the Company pursuant to the
Company's acquisition of the Boston Property.
The owners capitalized the Affiliated Lessee with cash contributions
totaling $425, which were received during 1999 and 1998. In connection
with the formation of the Affiliated Lessee and the subsequent lease of the
Boston Property, the Affiliated Lessee assumed certain assets and
liabilities of the four hotels. The net liability totaling $2,568 was paid
to the Affiliated Lessee by the Company. All four hotels (the "hotels")
are leased under participating leases ("Participating Leases") which
provide for rent based on hotel revenues and are managed by independent
hotel operators (the "Operators").
On July 28, 2000, the Affiliated Lessee entered into a Stock Purchase
Agreement (the "Sale Agreement") with LaSalle Hotel Operating Partnership,
L.P. (the "Operating Partnership"), to sell all of the issued and
outstanding shares of capital stock of the Affiliated Lessee for $500.
Effective January 1, 2001, the Affiliated Lessee is a 100% owned subsidiary
of the Company as provided for under the taxable-REIT subsidiary
provisions.
The following hotels are leased to the Affiliated Lessee by the
Company:
PROPERTY NAME LOCATION
- ------------- --------
LaGuardia Airport Marriott New York, NY
Omaha Marriott Hotel Omaha, NE
Marriott Seaview Resort Absecon, NJ (Atlantic City)
Harborside Hyatt
Conference Center and Hotel Boston, MA
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Affiliated Lessee is operated on a calendar year basis. However,
the Marriott hotels are operated on a fiscal year basis. The Marriott
fiscal year ends on the Friday closest to December 31. The 2000 and 1999
fiscal years for Marriott ended on December 29, 2000 and December 31, 1999,
respectively. Both Marriott fiscal years are reflected in the accompanying
financial statements.
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
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.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is determined by using available market information and
appropriate valuation methodologies. The Affiliated Lessee's financial
instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, which due to their short maturities,
are carried at amounts which reasonably approximate fair value.
INVENTORIES
Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of cost or market.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are
performed and an allowance for potential credit losses is provided against
the portion of accounts receivable which is estimated to be uncollectible.
Such losses have been within management's expectations.
MEMBERSHIP FEES
Golf course membership fees are recognized as revenue using the
straight-line method over the membership period.
3. PARTICIPATING LEASES
The Participating Leases are operating leases with noncancelable terms
of 10 years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The rent due under each Participating Lease is
the greater of base rent, as defined, or participating rent. Participating
rent applicable to room and other hotel revenues varies by lease and is
calculated by multiplying fixed percentages by the total amounts of such
revenues over specified quarterly threshold amounts. Both the base rent
and the participating rent thresholds used in computing percentage rents
applicable to room and other hotel revenues, including food and beverage
revenues, are subject to annual adjustments based on increases in the
applicable Consumer Price Index ("CPI"). Participating Lease expense for
the years ended December 31, 2000 and 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 was $30,963, $28,290
and $19,436 of which approximately $11,941, $9,923 and $7,125 was in excess
of base rent, respectively.
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Future minimum rentals (without reflecting future CPI increases) to be
paid by the Affiliated Lessee pursuant to the Participating Leases for the
years 2001 to 2005 and in total thereafter are as follows:
2001 . . . . . . . $ 19,825
2002 . . . . . . . 19,825
2003 . . . . . . . 19,825
2004 . . . . . . . 19,825
2005 . . . . . . . 19,825
Thereafter . . . . 46,948
--------
Total. . . . . . $146,073
========
Other than real estate and personal property taxes, ground rent,
casualty insurance and capital improvements which are obligations of the
Company, the Percentage Leases require the Affiliated Lessee to pay rent,
liability insurance premiums, all costs, expenses, utilities and other
charges incurred in the operation of the leased hotels. At December 31,
2000 and 1999, the Affiliated Lessee had an outstanding receivable of $756
and $30, respectively, from the Company for the reimbursement of capital
improvements, which were paid by the Affiliated Lessee.
The Affiliated Lessee is required to indemnify the Company against all
liabilities, costs and expenses incurred by or asserted against the Company
in the normal course of operating the hotels.
4. ADVISORY AGREEMENT
On April 29, 1998, the Affiliated Lessee entered into an advisory
agreement (the "Advisory Agreement") with LaSalle Hotel Advisors, Inc. (the
"Advisor"), a wholly owned subsidiary of JLL, to provide all management,
administrative and accounting services for the Affiliated Lessee. The
Advisory Agreement will remain in effect until either party gives notice of
termination. This agreement was not renewed for 2001. The Advisory
Agreement provided for an annual fee, prorated for any partial year the
Advisory Agreement is in effect. The advisory fee increased 2% annually
and increased by $2,500 with each additional hotel leased by the Company to
the Affiliated Lessee.
The advisory fee for the years ended December 31, 2000 and 1999 and
for the period from April 29, 1998 (inception) through December 31, 1998
was $27, $26 and $17, respectively.
5. INCOME TAXES
The components of the income tax expense (benefit) were as follows:
2000 1999
-------- --------
Federal
Current. . . . . . . . . . . . . $ 451 $ 11
Deferred . . . . . . . . . . . . -- (33)
State and Local
Current. . . . . . . . . . . . . 171 9
Deferred . . . . . . . . . . . . -- (12)
-------- --------
Total income tax expense
(benefit). . . . . . . . . . . $ 622 $ (25)
======== ========
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to pretax income as a result of the following differences:
For the
For the year ended period from
December 31, April 29, 1998
------------------- (inception) through
2000 1999 December 31, 1998
-------- -------- -------------------
Computed "Expected" tax
expense (benefit)
(2000 and 1999 at 34%,
1998 at 25%). . . . . . . . . . $ 505 $ 207 $ (165)
State income taxes,
net of federal income
tax effect. . . . . . . . . . . 113 51 (35)
Change in valuation
allowance . . . . . . . . . . . -- (292) 200
Other, net . . . . . . . . . . . 4 9 --
-------- -------- --------
Income tax expense
(benefit). . . . . . . . . $ 622 $ (25) $ --
======== ======== ========
The components of the Affiliated Lessee's deferred tax assets as of
December 31 were as follows:
2000 1999
-------- --------
Deferred tax assets:
Operating loss carryforward. . . . $ -- $ --
Gift certificate liability . . . . -- --
Allowance for doubtful accounts. . 45 45
-------- --------
Gross deferred tax assets. . . . . . 45 45
Less: valuation allowance . . . . -- --
-------- --------
Deferred tax assets. . . . . . . . . $ 45 $ 45
======== ========
The deferred tax asset and corresponding valuation allowance existing
at December 31, 1998 were subsequently adjusted to $292 to account for the
final tax loss carryforwards reflected in the 1998 tax returns. Due to the
profitability of the Company in 1999 and the use of available loss
carryforwards, the adjusted valuation allowance of $292 is no longer
necessary, and has been credited in the 1999 tax provision. The deferred
tax asset of $45 at December 31, 2000 is considered realizable given
estimates of future income.
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
6. OPERATOR AGREEMENTS
The hotels have entered into separate management agreements ("Operator
Agreements") with the Operators. Pursuant to the terms of the Operator
Agreements, the Operators are to manage the hotels for a base management
fee ranging from 3.0% to 4.0% of gross revenues plus an incentive fee equal
to a percentage of certain measures of profitability, as defined. For the
year ended December 31, 2000, base and incentive management fees totaled
$3,493 and $4,645, respectively. For the year ended December 31, 1999,
base and incentive management fees totaled $3,171 and $4,226, respectively.
For the period from April 29, 1998 (inception) through December 31, 1998,
base and incentive management fees totaled $2,045 and $2,930, respectively.
Management fees of approximately $57 and $49 were payable on December 31,
2000 and December 31, 1999, respectively. In addition, pursuant to the
terms of the Operator Agreements, the Operators provide the hotels with
various services and supplies, including marketing, reservations, and
insurance.
7. CONTINGENCIES
The nature of the operations of the hotels exposes 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
that the ultimate resolution of these matters to have a material adverse
effect on the financial position, operations or liquidity of the hotels.
8. NOTES PAYABLE
The Company provided working capital to the Affiliated Lessee in the
aggregate amount of $3,900 in exchange for notes payable. The notes bear
interest at 5.6% or 6.0% per annum and are payable in monthly installments
of interest only. The term of each note is identical to the term of the
related participating lease (see Note 11). Interest expense totaled $228,
$228 and $54 for the years ended December 31, 2000 and 1999 and for the
period from April 29, 1998 (inception) through December 31, 1998,
respectively.
9. CONCENTRATION OF RISK
The profitability of the hotels is dependent upon business and leisure
travelers and in certain circumstances, golf tourism. Consequently demand
may fluctuate and be seasonal. Unfavorable economic or weather conditions
could adversely affect the results of operations.
10. DISTRIBUTIONS
In accordance with the Sale Agreement, the Affiliated Lessee made a
remaining capital distribution of $73 and an estimated retained earnings
distribution of $783 to the owners on December 28, 2000. A distribution
adjustment based on actual retained earnings will be made by March 30,
2001.
LASALLE HOTEL LESSEE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
11. SUBSEQUENT EVENTS
Effective January 1, 2001, the Company waived all security deposits
with the Affiliated Lessee for its Participating Leases for as long as the
Affiliated Lessee remains a 100% owned subsidiary of the Company. As a
result, on January 5, 2001, $370 of security deposits was returned to the
Affiliated Lessee.
On January 3, 2001, the Affiliated Lessee obtained a three-year
commitment for a $5,000 senior unsecured revolving credit facility (the
"2001 Credit Facility") to be used for working capital and general
corporate purposes. Borrowings under the 2001 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
Affiliated Lessee. The Affiliated Lessee is required to pay an unused
commitment fee which is variable, determined from a ratings based pricing
matrix, currently set at 25 basis points.
On January 17, 2001, the $3,900 note payable due to the Company was
paid from cash and cash equivalents and borrowings under the 2001 Credit
Facility.
On February 26, 2001, the Company entered into a lease with the
Affiliated Lessee for The Hotel Viking, a 237-room historic luxury hotel
located in Newport, Rhode Island. Noble House Hotel and Resorts was hired
as manager for the property.
On March 8, 2001, the Company acquired a 100% interest in four full-
service hotels with a total of 502 guestrooms in Washington, D.C. for an
aggregate purchase price of approximately $44.0 million. The Company
leases these hotels to the Affiliated Lessee. Each of the four hotels will
be fully renovated, improved and repositioned as unique high-end,
independent boutique hotels. The Company will undertake the redevelopment
program, currently projected at a total of approximately $30.0 million, in
conjunction with the Kimpton Hotel & Restaurant Group, LLC who was also
retained to manage and operate the hotel collection. These four hotels
have operated as the 99-room Canterbury Hotel, located at 1733 N Street,
NW; the 82-room Clarion Hampshire House Hotel at 1310 New Hampshire Avenue,
NW; the 137-room Quality Hotel and Suites Downtown at 1315 16th Street, NW;
and the 184-room Howard Johnson Plaza Hotel and Suites, 1430 Rhode Island
Avenue, NW. Originally constructed as apartment buildings, each hotel
features either large rooms or suites. Upon completion of the
redevelopment program, LaSalle intends to rename each property and the
Kimpton Group will operate each as independent, non-branded boutique
hotels.