UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-14045
LASALLE HOTEL PROPERTIES
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4219376
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
4800 Montgomery Lane, Suite M25, Bethesda, MD 20814
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 301/941-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of common shares of beneficial interest of each class
outstanding as of the latest practicable date.
Outstanding at
Class May 14, 2001
----- --------------
Common Shares of Beneficial 18,307,468
Interest ($0.01 par value)
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 26
Item 2. Changes in Securities and Use of Proceeds . . . . . . 26
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 26
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 26
Item 5. Other Information . . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 27
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
------
Investment in hotel properties, net. . . . . . $ 526,782 $ 486,184
Investment in Affiliated Lessee. . . . . . . . -- 13
Investment in Joint Venture. . . . . . . . . . 5,190 5,647
Cash and cash equivalents. . . . . . . . . . . 6,843 1,414
Restricted cash reserves . . . . . . . . . . . 5,828 14,640
Rent receivable from lessees:
Affiliated Lessee. . . . . . . . . . . . . . -- 2,344
Other Lessees. . . . . . . . . . . . . . . . 7,256 6,816
Notes receivable:
Affiliated Lessee. . . . . . . . . . . . . . -- 3,900
Other. . . . . . . . . . . . . . . . . . . . 3,924 4,023
Hotel receivables (net of allowance for
doubtful accounts of $119) . . . . . . . . . 3,752 --
Deferred financing costs, net. . . . . . . . . 4,857 4,415
Prepaid expenses and other assets. . . . . . . 6,797 2,497
---------- ----------
Total assets . . . . . . . . . . . . $ 571,229 $ 531,893
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Borrowings under credit facilities . . . . . . $ 150,361 $ 113,500
Bonds payable, net . . . . . . . . . . . . . . 42,500 40,314
Mortgage loans . . . . . . . . . . . . . . . . 119,604 119,964
Due to JLL . . . . . . . . . . . . . . . . . . -- 966
Due to Affiliated Lessee . . . . . . . . . . . -- 756
Accounts payable and accrued expenses. . . . . 10,285 3,692
Advance deposits . . . . . . . . . . . . . . . 1,635 --
Accrued interest . . . . . . . . . . . . . . . 1,656 1,744
Distributions payable. . . . . . . . . . . . . -- 7,131
---------- ----------
Total liabilities. . . . . . . . . . 326,041 288,067
Minority interest in Operating Partnership . . 7,503 20,288
Minority interest in other partnerships. . . . 10 10
Commitments and contingencies
LASALLE HOTEL PROPERTIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands, except per share data)
March 31, December 31,
2001 2000
------------- ------------
(Unaudited)
SHAREHOLDERS' EQUITY:
Preferred shares of beneficial interest,
$.01 par value, 20,000,000 shares author-
ized, no shares issued and outstanding . . -- --
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 18,250,024 and 16,900,495
shares issued and outstanding at
March 31, 2001 and December 31, 2000,
respectively . . . . . . . . . . . . . . . 182 170
Additional paid-in capital . . . . . . . . . 273,420 256,950
Distributions in excess of
Retained Earnings. . . . . . . . . . . . . (35,927) (33,592)
---------- ----------
Total shareholders' equity . . . . . 237,675 223,528
---------- ----------
Total liabilities and
shareholders' equity . . . . . . . $ 571,229 $ 531,893
========== ==========
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)
(Unaudited)
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
Revenues:
Hotel operating revenue:
Room revenue . . . . . . . . . . . $ 11,654 $ --
Food and beverage revenue. . . . . 5,924 --
Other operating department
revenue. . . . . . . . . . . . . 1,436 --
Participating lease revenue:
Affiliated Lessee. . . . . . . . . -- 4,566
Other Lessees. . . . . . . . . . . 14,034 12,311
Interest income:
Affiliated Lessee. . . . . . . . . -- 57
Other. . . . . . . . . . . . . . . 276 233
Equity in (loss) of
Affiliated Lessee. . . . . . . . . -- (53)
Equity in (loss) of
Joint Ventures. . . . . . . . . . (119) (24)
Other income . . . . . . . . . . . . 91 56
---------- ----------
Total revenues . . . . . . . 33,296 17,146
---------- ----------
Expenses:
Hotel operating expenses:
Room . . . . . . . . . . . . . . . 3,248 --
Food and beverage. . . . . . . . . 4,880 --
Other direct . . . . . . . . . . . 1,110 --
Other indirect . . . . . . . . . . 6,379 --
Depreciation and other amortization. 7,338 6,971
Real estate, personal property
taxes and insurance. . . . . . . . 2,378 1,953
Ground rent. . . . . . . . . . . . . 907 586
General and administrative . . . . . 1,406 293
Interest . . . . . . . . . . . . . . 5,337 4,454
Amortization of deferred financing
costs. . . . . . . . . . . . . . . 350 259
Advisory fee . . . . . . . . . . . . -- 769
Lease termination, advisory trans-
action and subsidiary purchase
expenses . . . . . . . . . . . . . 1,919 --
Other expenses . . . . . . . . . . . 2 4
---------- ----------
Total expenses . . . . . . . 35,254 15,289
---------- ----------
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(Dollars in thousands, except per share data)
(Unaudited)
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
Income (loss) before minority
interest, extraordinary item and
provision for income taxes . . . . . (1,958) 1,857
Minority interest in Operating
Partnership. . . . . . . . . . . . . 74 (163)
---------- ----------
Income (loss) before extraordinary
item and provision for
income taxes . . . . . . . . . . . . (1,884) 1,694
Extraordinary item . . . . . . . . . . (1,227) --
---------- ----------
Income (loss) before provision for
income taxes . . . . . . . . . . . . (3,111) 1,694
Provision for income tax benefit . . . 776 --
---------- ----------
Net income (loss) applicable to
common shareholders. . . . . . . . . $ (2,335) $ 1,694
========== ==========
Earnings per Common Share - Basic:
Net income (loss) before
extraordinary item . . . . . . . . $ (0.06) $ 0.10
Extraordinary item . . . . . . . . . (0.07) --
---------- ----------
Net income (loss). . . . . . . . . . $ (0.13) $ 0.10
========== ==========
Earnings per Common Share - Diluted:
Net income (loss) before
extraordinary item . . . . . . . . $ (0.06) $ 0.10
Extraordinary item . . . . . . . . . (0.07) --
---------- ----------
Net income . . . . . . . . . . . . . $ (0.13) $ 0.10
========== ==========
Weighted average number of
common shares outstanding:
- basic . . . . . . . . . . . . . . 18,144,419 16,881,979
- diluted . . . . . . . . . . . . . 18,231,594 16,894,833
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)
(Unaudited)
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . $ (2,335) $ 1,694
Adjustments to reconcile net
income to net cash flow provided
by (used in) operating activities:
Depreciation and other
amortization . . . . . . . . . . 7,338 6,971
Amortization of deferred
financing fees . . . . . . . . . 350 259
Bond premium amortization. . . . . (314) (314)
Minority interest in
Operating Partnership. . . . . . (74) 163
Options granted to Advisor . . . . -- 53
Loss on investment in
Affiliated Lessee. . . . . . . . 8 --
Income tax benefit . . . . . . . . (776) --
Equity in loss of
Affiliated Lessee. . . . . . . . -- 53
Equity in loss of
Joint Ventures . . . . . . . . . 119 24
Cost of early extinguishment
of debt. . . . . . . . . . . . . 1,227 --
Changes in assets and liabilities:
Rent receivable from lessees . . . 1,844 (1,528)
Prepaid expenses and other
assets . . . . . . . . . . . . . 5,626 (1,318)
Due to JLL . . . . . . . . . . . . (966) 5
Accounts payable and accrued
expenses . . . . . . . . . . . . (5,894) (305)
---------- ----------
Net cash flow provided by
operating activities . . . 6,153 5,757
---------- ----------
Cash flows from investing activities:
Improvements and additions to
hotel properties . . . . . . . . . (4,940) (11,007)
Acquisition of hotel properties. . . (42,471) --
Acquisition of Affiliated Lessee . . (53) --
Investment in Joint Ventures . . . . -- (4,784)
Distributions from Joint Ventures. . 339 --
Distributions from Affiliated
Lessee . . . . . . . . . . . . . . 5 31
Purchase of office furniture
and equipment. . . . . . . . . . . (405) --
Repayment of notes receivable. . . . 4,065 --
Funding of notes receivable. . . . . (66) --
Funding of restricted cash
reserves . . . . . . . . . . . . . (1,705) (2,027)
Proceeds from restricted
cash reserves. . . . . . . . . . . 10,832 5,616
---------- ----------
Net cash flow used in
investing activities . . . (34,399) (12,171)
---------- ----------
LASALLE HOTEL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands, except per share data)
(Unaudited)
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
Cash flows from financing activities:
Borrowings under credit facility . . 51,125 16,200
Repayments under credit facility . . (14,264) (2,700)
Proceeds from issuance of bonds. . . 42,500 --
Repayments under bond issues . . . . (40,000) --
Cost of early extinguishment
of debt. . . . . . . . . . . . . . (1,227) --
Mortgage loans repayments. . . . . . (361) (150)
Payment of deferred financing costs. (692) --
Proceeds from exercise of
stock options. . . . . . . . . . . 3,725 --
Distributions. . . . . . . . . . . . (7,131) (7,000)
---------- ----------
Net cash flow provided by
financing activities . . . 33,675 6,350
---------- ----------
Net change in cash and
cash equivalents . . . . . . . . . . 5,429 (64)
Cash and cash equivalents,
beginning of period. . . . . . . . . 1,414 1,612
---------- ----------
Cash and cash equivalents,
end of period. . . . . . . . . . . . $ 6,843 $ 1,548
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
LASALLE HOTEL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Dollars in thousands, except per share data)
(Unaudited)
1. ORGANIZATION
LaSalle Hotel Properties ("the Company") was organized as a Maryland
real estate investment trust under the laws of the state of Maryland on
January 15, 1998. The Company is a real estate investment trust ("REIT")
as defined in the Internal Revenue Code. The Company had no operations
prior to April 29, 1998, at which time, the Company completed its initial
public offering (the "IPO").
The Company's operations are conducted primarily through LaSalle Hotel
Operating Partnership, L.P., (the "Operating Partnership") of which the
Company is the sole general partner with an approximate 96.9% ownership
interest at March 31, 2001. Minority interest in the Company represents
the approximate 3.1% aggregate partnership interest in the Operating
Partnership held by the limited partners thereof.
Effective January 1, 2001, the Company became a self-managed REIT.
The Company terminated its advisory relationship with LaSalle Hotel
Advisors, Inc. (the "Advisor") in accordance with the Termination and
Services Agreement dated December 28, 2000. In connection with the
termination, the Advisor received $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 of the Advisor has become employees of the Company
and continues to oversee and manage all activities of the Company under the
new self-managed structure.
As of March 31, 2001, the Company owned interests in 17 hotels with
approximately 5,800 suites/rooms ("the Hotels") located in eleven states
and the District of Columbia. The Company owns 100% equity interests in 15
hotels, a 95.1% equity interest in a partnership which owns one hotel and a
9.9% equity interest in the Chicago Hotel Venture (as defined in Note 4)
which also owns one hotel. All of the Hotels are leased under
participating leases ("Participating Leases") which provide for rent based
on hotel revenues and are managed by independent hotel operators ("Hotel
Operators"). Seven of the Hotels are leased to unaffiliated lessees
(affiliates of whom also operate these hotels) and nine of the Hotels are
leased to LaSalle Hotel Lessee, Inc. ("LHL") (see note 10). As more fully
described in footnote 4 below, the Hotel which is owned by the Chicago
Hotel Venture is leased to Chicago 540 Lessee in which the Company also has
a 9.9% equity interest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial statements and related
notes have been prepared in accordance with the financial information and
accounting policies described in the Company's annual report on Form 10-K
for the year ended December 31, 2000 (the "2000 Form 10-K") and should be
read in conjunction with such financial statements and related notes. The
following notes to these interim financial statements highlight significant
changes to the notes included in the December 31, 2000 audited financial
statements included in the Company's 2000 Form 10-K and present interim
disclosures as required by the Securities and Exchange Commission.
In the opinion of management, all adjustments consist of normal
recurring adjustments necessary to present fairly the financial position of
the Company as of March 31, 2001, the results of its operations for the
three months ended March 31, 2001 and 2000 and its cash flows for the three
months ended March 31, 2001 and 2000.
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 balance sheet date and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT IN JOINT VENTURES
Investment in Joint Ventures represents the Company's 9.9% equity
interest in Chicago Hotel Venture and Chicago 540 Lessee (as defined in
Note 4). The Company accounts for its Investment in Joint Ventures under
the equity method of accounting. Accordingly, the Company carries its
investment at cost, plus its equity in net earnings, less distributions
received since the date of acquisition. In addition, pursuant to the joint
venture agreement, the Company earns a priority preferred return based on
the net operating cash flow of Chicago Hotel Venture.
RECLASSIFICATION
Certain 2000 items have been reclassified to conform to the 2001
presentation.
3. EARNINGS PER SHARE
The limited partners' outstanding units in the Operating Partnership
("Units") have been excluded from the diluted earnings per share
calculation as there would be no effect on the amounts since the minority
interests' share of income would also be added back to net income. The
computation of basic and diluted EPS is presented below:
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
NUMERATOR:
Income (loss) before extraordinary
item . . . . . . . . . . . . . . . $ (1,108) $ 1,694
Extraordinary item . . . . . . . . . (1,227) --
---------- ----------
Net income (loss). . . . . . . . . . $ (2,335) $ 1,694
========== ==========
DENOMINATOR:
Weighted average number of
common shares - Basic. . . . . . . . 18,144,419 16,881,979
Effect of Dilutive Securities:
Common Stock Options. . . . . . . . 87,175 12,854
---------- ----------
Weighted average number of
common shares - Diluted. . . . . . . 18,231,594 16,894,833
========== ==========
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
BASIC EPS:
Net income (loss) per weighted
average common share . . . . . . . . $ (0.13) $ 0.10
========== ==========
DILUTED EPS:
Net income (loss) per weighted
average common share . . . . . . . . $ (0.13) $ 0.10
========== ==========
4. INCOME TAXES
The components of the income tax benefit were as follows:
For the
three months
ended
March 31, 2001
--------------
Federal
Current . . . . . . . . . . . . . . . . . . . . . $678
State and local
Current . . . . . . . . . . . . . . . . . . . . . 98
----
Total income tax benefit. . . . . . . . . . . $776
====
The tax deferred asset represents a component for allowance for
doubtful accounts. The tax-deferred asset of $45 at March 31, 2001 is
considered realizable given estimates of future income.
5. JOINT VENTURES
On January 25, 2000, the Company entered into a joint venture
arrangement (the "Chicago Hotel Venture") with an institutional investor to
acquire the 1,176-room Chicago Marriott Downtown (the "Chicago Property")
in Chicago, Illinois. The Company, through the Operating Partnership, owns
a 9.9% equity interest in the Chicago Hotel Venture. The Company receives
a preferred return in addition to its pro rata share of annual cash flow.
The Company will also have the opportunity to earn an incentive
participation in net sale proceeds based upon the achievement of certain
overall investment returns, in addition to its pro rata share of net sale
or refinancing proceeds.
The Chicago Property is leased to Chicago 540 Lessee, Inc., ("Chicago
540 Lessee") in which the Company also owns a 9.9% equity interest. The
institutional investor owns a 90.1% controlling interest in both the
Chicago Hotel Venture and Chicago 540 Lessee. Marriott International
continues to operate and manage the Chicago Property.
6. ACQUISITION OF HOTEL PROPERTIES
On March 8, 2001, the Company acquired a 100% interest in four full-
service hotels ("DC Boutique Collection") with a total of 502 guestrooms in
Washington, D.C. for a net purchase price of approximately $42.5 million.
The Company leases these hotels to LHL. Each of the four hotels will be
fully renovated, improved and repositioned as a unique high-end,
independent boutique hotel. 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 as independent, non-
branded, boutique hotels. These four hotels were originally constructed as
apartment buildings. Each hotel features either large rooms or suites.
7. REAL ESTATE SOLD
The Company is actively marketing the 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. Hotel properties are considered held for
sale when actively marketed and sale is expected to occur within one year.
There can be no assurance that real estate held for sale will be sold.
8. LONG-TERM DEBT
CREDIT FACILITY
In 1998, the Company obtained a three-year commitment for a $235
million senior unsecured revolving credit facility (the "1998 Credit
Facility") to be used for acquisitions, capital improvements, working
capital and general corporate purposes. 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 three months ended March 31, 2001 and March 31, 2000, the weighted
average interest rate on borrowings under the 1998 Second Amended Credit
Facility was 7.8% and 7.6%, respectively. The Company did not have any
Adjusted Base Rate borrowings outstanding at March 31, 2001. 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 $48
and $37 for the three months ended March 31, 2001 and 2000, 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 March 31, 2001
and December 31, 2000, the Company had outstanding borrowings against the
1998 Second Credit Facility of $149,700 and $113,500, respectively.
On January 3, 2001, LHL obtained a three-year commitment for a $5,000
senior unsecured revolving credit facility (the "LHL Credit Facility") to
be used for working capital and general corporate purposes. Borrowings
under the LHL 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 LHL. LHL is required to pay an
unused commitment fee which is variable, determined from a ratings based
pricing matrix, currently set at 25 basis points. For the three months
ended March 31, 2001, the weighted average interest rate on borrowings
under the LHL Credit Facility was 7.7%. At March 31, 2001, the Company had
outstanding borrowings against the LHL Credit Facility of $661.
BONDS PAYABLE
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. A call
premium of $792 and an interest expense of $435 associated with the escrows
were incurred and is classified as an extraordinary item in the
accompanying financial statements. 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 $1,900 and the $4,000 reserve fund
from the original bonds 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 1999 Mortgage Loan is
secured by the Radisson Convention Hotel located in Bloomington, Minnesota
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 $45,529
and $46,156 at March 31, 2001 and 2000, respectively.
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 with respect to Le Meridien New Orleans, 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 $74,075 at March 31, 2001.
9. SHAREHOLDERS' EQUITY
On January 1, 2001, the Advisor and its affiliates converted 964,334
Units into a similar number of Common Shares. As of March 31, 2001, the
Operating Partnership has 574,813 Units outstanding, representing a 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.
10. SHARE OPTION AND INCENTIVE PLAN
On March 5, 2001, the Company issued 3,107 Common Shares to the non-
affiliated members of its Board of Trustees for 2000 compensation. The
Common Shares were issued in lieu of cash, at the trustee's election.
These Common Shares were issued under the 1998 Share Option and Incentive
Plan (the "1998 SIP").
At March 31, 2001, 795,115 Common Shares were available for future
grant under the 1998 SIP.
11. LHL
A significant portion of the Company's revenue is a result of hotel
operating revenues from LHL. Included in other indirect hotel operating
expenses are the following items related to LHL:
For the three
months ended
March 31, 2001
--------------
General and administrative . . . . . . . . . . . . . . $ 2,006
Sales and marketing. . . . . . . . . . . . . . . . . . 1,371
Repairs and maintenance. . . . . . . . . . . . . . . . 1,097
Utilities and insurance. . . . . . . . . . . . . . . . 1,099
Management and incentive fee . . . . . . . . . . . . . 660
Other expenses . . . . . . . . . . . . . . . . . . . . 146
--------
Total other indirect expenses. . . . . . . . . $ 6,379
========
Prior to January 1, 2001, LHL was owned as follows: 9.0% by the
Company, 45.5% by JLL and 45.5% by LPI Charities, a charitable organization
organized under the laws of the state of Illinois. 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. Effective January 1, 2001, LHL became a
100% owned subsidiary of the Company as provided for under the taxable-REIT
subsidiary provisions. The cost associated with the transaction was
expensed during the first quarter of 2001 and is classified as an operating
expense in the accompanying financial statements. LHL leases the following
nine hotels owned by the Company:
Marriott Seaview Resort
LaGuardia Airport Marriott
Omaha Marriott
Harborside Hyatt Conference Center and Hotel
Hotel Viking
DC Boutique Collection (4 hotels)
All of the Company's remaining owned hotels are, and are currently
expected to continue to be, leased directly to affiliates of the current
operators of those respective hotels.
Effective January 1, 2001, the Company waived all security deposits
with LHL for its Participating Leases for as long as LHL remains a 100%
owned subsidiary of the Company. As a result, on January 5, 2001, $370 of
security deposits were returned to LHL.
On January 17, 2001, the $3,900 note payable due to the Company was
paid from cash and cash equivalents and borrowings under the LHL 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. Of this amount, $785 was
expensed and classified as other expense on the accompanying financial
statements. Noble House Hotel and Resorts replaced Bellevue Properties,
Inc. as manager for the property.
12. COMMITMENTS AND CONTINGENCIES
The Company is obligated to make funds available to the Hotels for
capital expenditures (the "Reserve Funds"), as determined in accordance
with the Participating Leases. The Reserve Funds have not been recorded on
the books and records of the Company as such amounts will be capitalized as
incurred. The amounts obligated under the Reserve Funds are subject to
increases ranging from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds is approximately $11,385 at March 31, 2001 of which $3,558 is
available in restricted cash reserves for future capital expenditures.
Purchase orders and letters of commitment totaling approximately $12,422
have been issued for renovations at the Hotels.
The nature of the operations of the Hotels expose them to the risk of
claims and litigation in the normal course of their business. Although the
outcome of these matters cannot be determined, management does not expect
the ultimate resolution of these matters to have a material adverse effect
on the financial position, operations or liquidity of the Hotels.
13. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
Interest paid, net of capitalized
interest . . . . . . . . . . . . . $ 6,511 $ 5,389
========== ==========
Interest capitalized . . . . . . . . . $ 19 $ 591
========== ==========
Issuance of Units in conjunction with
the investment in Chicago Hotel
Venture. . . . . . . . . . . . . . . $ -- $ 300
========== ==========
Issuance of Common Shares for
Board of Directors compensation. . . $ 46 $ 70
========== ==========
Exchange of Units for Common Shares
Minority interest. . . . . . . . . . $ (12,711) $ --
Common stock . . . . . . . . . . . . 10 --
Additional paid in capital . . . . . 12,701 --
---------- ----------
$ -- $ --
========== ==========
In conjunction with the hotel acquisi-
tions, the Company assumed the
following assets and liabilities:
Purchase of real estate. . . . . . . $ 43,202 $ --
Other assets purchased . . . . . . . -- --
Liabilities, net of other assets . . (731) --
---------- ----------
Acquisition of hotel properties. . $ 42,471 $ --
========== ==========
In conjunction with the LHL acqui-
sition, the Company assumed the
following assets and liabilities:
Accounts receivable, net . . . . . $ 4,375 --
Other assets purchased . . . . . . 8,512 --
Liabilities. . . . . . . . . . . . (12,834) --
---------- ----------
Total assets . . . . . . . . . $ 53 --
========== ==========
14. SUBSEQUENT EVENTS
On April 6, the Company entered into a two-year, nine-month fixed
interest rate swap at 4.87 percent for $30.0 million of the $149.7 million
currently outstanding on its 1998 Second Amended Credit Facility, which
currently fixes the interest rate at 6.87 percent including the Company's
current spread, which varies with its leverage ratio.
On April 12, 2001, the Company declared its first quarter distribution
of $0.385 per Common Share and Unit. The distribution is payable on
May 15, 2001 to shareholders and unitholders of record at the close of
business on April 30, 2001.
On April 12, 2001, the Company and LHL, as the owner/lessee,
respectively, of the Marriott Seaview Hotel (the "Hotel"), Marriott
Ownership Resorts, Inc. ("MORI"), as the developer of timeshare units
adjacent to the Hotel (the "Villas"), and certain Marriott entities related
to MORI, entered into a Comprehensive Restructuring Agreement ("CRA"),
Integration Agreement, and Fourth Amendment to Management Agreement
(collectively, with the CRA, the "Agreements"), all effective as of
December 30, 2000, which, in part, provide for the integration of the
operations of the Hotel and the Villas. Pursuant to the terms of the
Agreements, the Company will receive, along with the benefits of the
integration of both facilities, three percent (3%) of timeshare sales at
the Villas, five percent (5%) of transient rental income from the rental of
the Villas, and a performance guarantee which will be in place for a
minimum of seven (7) years. In exchange, the Company will, in accordance
with the CRA, conditionally release a six night minimum stay provision at
the Villas contained in (i) the management agreement, (ii) the ground lease
for the "Pines Golf Course", and (iii) the deed for the Villas.
On April 24, 2001, the Company granted 52,500 non-qualified stock
options at a strike price of $15.50 to its employees. The options granted
vest over three years and expire on January 30, 2011.
On April 24, 2001, the Company granted 57,444 restricted shares of
common stock to the Company's executive officers. The restricted shares
granted vest over three years. The Company measures compensation cost for
restricted shares based upon the fair market value of its common stock at
the grant date. A portion is expensed in the year of the award and the
portion relating to future service is amortized over the vesting period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-Q.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE
MONTHS ENDED MARCH 31, 2000
For the quarter ended March 31, 2001, total revenues increased by
approximately $16.2 million from $17.1 million to $33.3 million.
Approximately $14.4 million of this increase is due to the impact of
consolidating LHL's operations as a result of becoming a 100% owned
subsidiary on January 1, 2001. Participating lease revenue from
unaffiliated lessees increased by approximately $1.7 million from $12.3
million to $14.0 million. This increase is primarily attributable to
increased revenues at the San Diego Paradise Point Resort and Le Meridien
New Orleans. San Diego Paradise Point Resort experienced increased
occupancy and benefitted from renovations, which were substantially
completed in 2000. Le Meridien New Orleans benefitted from strong citywide
group demand in the first quarter. 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.
Hotel operating expenses was approximately $15.6 million for the three
months ended March 31, 2001. This is due to the impact of consolidating
LHL's operation as a result of becoming a 100% owned subsidiary on
January 1, 2001. There was no consolidation of LHL's operations for 2000.
Depreciation expense increased by approximately $0.3 million from $7.0
million to $7.3 million due primarily to additional depreciation on capital
improvements incurred and placed into service subsequent to March 31, 2000
and the acquisition of the four full-service hotels in Washington D.C. on
March 8, 2001. Partly offsetting the increase is Radisson Tampa, which was
classified as held for sale on December 6, 2000 and accordingly is no
longer being depreciated.
Real estate and personal property taxes, insurance and ground rent
increased by approximately $0.8 million from $2.5 million to $3.3 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 increased by approximately $1.1
million from $0.3 million to $1.4 million due primarily to incurring
corporate expenses as a self-managed REIT effective January 1, 2001.
General and administrative expenses were incurred by the advisor in 2000.
Interest expense increased by approximately $0.8 million from $4.5
million to $5.3 million primarily due to an increase in weighted average
debt outstanding from $261.3 million for the quarter ended March 31, 2000
to $285.1 million for the quarter ended March 31, 2001. The increase in
debt outstanding is a result of the investment in the Chicago Hotel Venture
and acquisition of four full-service hotels in Washington, D.C., 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 the remainder of 2000 and the first
quarter of 2001. Partly offsetting the increase was a decrease in the
weighted average interest rate to 7.5% for the quarter ended March 31, 2001
from 7.6% for the quarter ended March 31, 2000. The increase in interest
expense for the quarter ended March 31, 2000 was offset by $0.6 million of
capitalized interest, which was a result of the renovation of the Hotel
Viking in the first quarter of 2000.
There were no Advisory fees for the first quarter of 2001 compared to
$0.8 million for the first quarter of 2000. This is due to the Company
becoming self-managed effective January 1, 2001 and terminating the
advisory relationship with the Advisor.
Other expense of $1.9 million for the quarter includes LHL acquisition
costs, one-time expenses associated with becoming a self-managed REIT, and
the cost of terminating the Hotel Viking lease. These costs were not
incurred in 2000.
Extraordinary item of $1.2 million for the quarter represents the
costs related to the redemption of the Massport Bonds on March 1, 2001.
Minority interest for the quarter ended March 31, 2001 was $(0.1)
million compared to $0.2 million for the quarter ended March 31, 2000. The
$0.3 million decrease was primarily due to a decrease in income before
minority interest of approximately $4.3 million for the first quarter of
2001 compared to the first quarter of 2000. In addition, fewer Operating
Partnership Units ("Units") were outstanding during the quarter ended
March 31, 2001 as a result of approximately 1.0 million Units converting to
Common Shares subsequent to March 31, 2000. The weighted average number of
Units outstanding decreased from approximately 1.6 million Units for first
quarter of 2000 to 0.6 million Units for the first quarter of 2001.
As a result of the foregoing items, net income to common shareholders
decreased approximately $4.0 million from $1.7 million for the first
quarter of 2000 to $(2.3) million for the first quarter of 2001.
COMPARABLE FUNDS FROM OPERATIONS AND COMPARABLE EBITDA
The Company considers Comparable Funds From Operations ("Comparable
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 Funds From Operations ("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.
Comparable FFO is defined as FFO before one-time items including the
purchase of LHL, the transition expenses associated with becoming a self-
managed REIT, and the costs associated with terminating the Hotel Viking
lease with Bellevue Properties, Inc. Comparable EBITDA is defined as
earnings before interest, taxes, depreciation, amortized expenses, the
write-down of properties held for disposition, extraordinary items and one-
time charges related to the acquisition of LHL, transition costs associated
with becoming a self-managed REIT, and the termination costs associated
with the Hotel Viking lease.
The following is a reconciliation between net income and Comparable
FFO (in thousands, except share data):
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
COMPARABLE FUNDS FROM OPERATIONS (FFO):
Net income (loss). . . . . . . . . . . $ (2,335) $ 1,694
Depreciation . . . . . . . . . . . . . 7,313 6,969
Equity in depreciation of
Joint Venture . . . . . . . . . . . . 228 150
Amortization of deferred lease costs . 19 --
Extraordinary item . . . . . . . . . . 1,227 --
Minority interest. . . . . . . . . . . (74) 163
---------- ----------
FFO. . . . . . . . . . . . . . . . 6,378 8,976
Advisory transition expense. . . . . . 600 --
Lease termination expense. . . . . . . 785 --
Subsidiary purchase cost . . . . . . . 455 --
---------- ----------
Comparable FFO . . . . . . . . . . $ 8,218 $ 8,976
========== ==========
Weighted average number of common
shares and units outstanding:
- Basic. . . . . . . . . . . . . . 18,719,232 18,453,485
- Diluted. . . . . . . . . . . . . 18,806,407 18,466,339
The following is a reconciliation between net income (loss) and
Comparable EBITDA (in thousands):
For the three months ended
March 31,
----------------------------
2001 2000
---------- ----------
COMPARABLE EBITDA:
Net income (loss). . . . . . . . . . . $ (2,335) $ 1,694
Interest . . . . . . . . . . . . . . . 5,337 4,454
Depreciation and other amortization. . 7,338 6,971
Amortization of deferred financing
costs. . . . . . . . . . . . . . . . 350 259
Equity in depreciation/amortization
of Joint Venture . . . . . . . . . . 243 161
Equity in interest expense of
Joint Venture. . . . . . . . . . . . 255 191
Income tax provision . . . . . . . . . (776) --
Minority interest. . . . . . . . . . . (74) 163
---------- ----------
EBITDA . . . . . . . . . . . . . . 10,338 13,893
Advisory transition expense. . . . . . 600 --
Lease termination expense. . . . . . . 785 --
Subsidiary purchase cost . . . . . . . 455 --
---------- ----------
Comparable EBITDA. . . . . . . . . $ 12,178 $ 13,893
========== ==========
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 total Hotel portfolio for the three months
ended March 31, 2001 and 2000.
For the three months ended
March 31,
----------------------------------
2001 2000 Variance
------- ------- --------
TOTAL PORTFOLIO
Occupancy 69.1% 68.9% 0.3%
ADR $146.01 $138.67 5.3%
REVPAR $100.87 $ 95.53 5.6%
For the quarter ended March 31, 2001, the Company experienced RevPAR
growth of 5.6% for its portfolio compared to the quarter ended March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its pro rata share of the
Operating Partnership's cash flow from the Participating Leases. Except for
the security deposits required under the Participating Leases, the Lessees'
obligations under the Participating Leases are unsecured and the Lessees'
abilities to make rent payments to the Operating Partnership, and the
Company's liquidity, including its ability to make distributions to
shareholders, will be dependent on the Lessees' abilities to generate
sufficient cash flow from the operations of the Hotels.
In 1998, the Company entered into a $235 million senior unsecured
revolving credit facility (the "1998 Amended Credit Facility") to be used
for acquisitions, capital improvements, working capital and general
corporate purposes. 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 three months ended March 31, 2001, the weighted average
interest rate was approximately 7.8%. The Company did not have any
Adjusted Base Rate borrowings outstanding at March 31, 2001. Additionally,
the Company is required to pay an unused commitment fee which is variable,
determined from a ratings or leverage based pricing matrix and is currently
set at 25 basis points. The 1998 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.
On January 3, 2001, LHL obtained a three-year commitment for a $5
million senior unsecured revolving credit facility (the "LHL Credit
Facility") to be used for working capital and general corporate purposes.
Borrowings under the LHL 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 LHL. At March 31, 2001, the
Company's outstanding borrowings under the LHL Credit Facility were $0.7
million. The weighted average interest rate under the facility for the
three months ended March 31, 2001 was 7.7%. LHL is required to pay an
unused commitment fee which is variable, determined from a ratings based
pricing matrix, currently set at 25 basis points.
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"). The Massport Bonds were to 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 was
due in full. The Company had the option to prepay the Massport Bonds in
full beginning March 1, 2001 subject to a prepayment penalty which varied
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. A call premium of $792 was incurred
and is classified as an extraordinary item in the accompanying financial
statements. Interest expense, net of the premium amortization for the
three months ended March 31, 2001 and 2000 was $0.5 million and $0.7
million, respectively. 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 $1,900 and the $4,000 reserve fund from
the original bonds 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%, matures on July 31, 2009, and requires interest and principal
payments based on a 25-year amortization schedule. The 1999 Mortgage Loan
is collateralized by the Radisson Convention hotel located in Bloomington,
Minnesota and the Le Meridien Dallas. Interest expense for the three
months ended March 31, 2001 and 2000 was $0.9 million each period. The
1999 Mortgage Loan had a balance of $45.5 million at March 31, 2001.
On July 27, 2000, the Company, entered into three ten-year mortgage
loans totaling $74.5 million (the "2000 Mortgage Loans"). The loans are
subject to a fixed interest rate of 8.08% and require interest and
principal payments based on a 27-year amortization schedule. The 2000
Mortgage Loans are secured by the Le Montrose All-Suite Hotel located in
West Hollywood, California, Le Meridien New Orleans and the Key West
Beachside Resort located in Key West, Florida. Interest expense for the
three months ended March 31, 2001 was $1.5 million. The 2000 Mortgage
Loans had a balance of $74.1 million at March 31, 2001.
On March 31, 2001, the Company had approximately $6.7 million of cash
and cash equivalents and had approximately $150.3 million outstanding under
its 1998 Second Amended Credit Facility and LHL Credit Facility.
Net cash provided by operating activities was approximately $6.2
million for the three months ended March 31, 2001, primarily due to the
collections of Participating Lease revenues, which was offset by payments
for real estate taxes, personal property taxes, insurance, ground rent and
the fourth quarter 2000 base and incentive advisory fee.
Net cash used in investing activities was approximately $34.4 million
for the three months ended March 31, 2001 due primarily to outflows for the
acquisition of hotel properties and improvements and additions at the
Hotels, offset by proceeds from restricted cash reserves and the payment of
notes receivable.
Net cash provided by financing activities was approximately $33.7
million for the three months ended March 31, 2001 attributable to net
borrowings under the 1998 Second Amended Credit Facility to finance the
acquisition of hotel properties and renovations at the Hotels, proceeds
from the issuance of bonds, offset by the payment of the fourth quarter
2000 distribution to shareholders and unitholders.
The Company is obligated to make funds available to the Hotels for
capital expenditures (the Reserve Funds), as determined in accordance with
the Participating Leases. The Reserve Funds have not been recorded on the
books and records of the Company as such amounts will be capitalized as
incurred. The amounts obligated under the Reserve Funds are subject to
increases ranging from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds is approximately $11.4 million at March 31, 2001, of which $3.5
million is available in restricted cash reserves for future capital
expenditures. Purchase orders and letters of commitment totaling
approximately $12.4 million have been issued for renovations at the Hotels.
The Company's debt policy is to incur debt only if upon such
incurrence the Company's total funded indebtedness would not exceed 50% of
"Aggregate Asset Value." For purposes of this policy, Aggregate Asset Value
is defined as the sum of (a) for all the Company's properties owned for
more than four quarters ("Seasoned Properties"), the EBITDA (reduced by the
aggregate FF&E reserves for the relevant period in respect of the Seasoned
Properties) of the Seasoned Properties for the proceeding four quarters
times 10, (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 shareholders.
The Company has considered its short-term (one year or less) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that
its principal short-term liquidity needs are to fund normal recurring
expenses, debt service requirements and the minimum distribution required
to maintain the Company's REIT qualification under the Internal Revenue
Code of 1986, as amended (the "Code"). The Company anticipates that these
needs will be met with cash flows provided by operating activities. The
Company has also considered capital improvements and property acquisitions
as short-term needs that will be funded either with cash flows provided by
operating activities, under the 1998 Second Amended Credit Facility or
other indebtedness, or the issuance of additional equity securities.
The Company expects to meet long-term (greater than one year)
liquidity requirements such as property acquisitions, scheduled debt
maturities, major renovations, expansions and other nonrecurring capital
improvements through the 1998 Second Amended Credit Facility, long-term
unsecured and secured indebtedness and the issuance of additional equity
securities. The Company will acquire or develop additional hotel
properties only as suitable opportunities arise, and the Company will not
undertake acquisition or development of properties unless stringent
acquisition criteria have been achieved.
LHL was owned as follows: 9.0% by the Company, 45.5% by JLL and 45.5%
by LPI Charities, a charitable organization organized under the laws of the
state of Illinois. 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.
Effective January 1, 2001, LHL is a 100% owned subsidiary of the company as
provided for under the taxable-REIT subsidiary provisions. The cost
associated with the transaction was expensed during the first quarter of
2001 and is classified as an operating expense in the accompanying
financial statements. LHL leases the following nine hotels owned by the
Company:
Marriott Seaview Resort
LaGuardia Airport Marriott
Omaha Marriott
Harborside Hyatt Conference Center and Hotel
Hotel Viking
DC Boutique Collection (4 hotels)
All of the Company's remaining owned hotels are, and are currently
expected to continue to be, leased directly to affiliates of the current
operators of those respective hotels.
INFLATION
The Company's revenues come primarily from hotel operating revenue
from LHL and the Participating Leases, which will result in changes in the
Company's revenues based on changes in the underlying Hotels' revenues.
Therefore, the Company relies entirely on the performance of the Hotels and
the lessees' abilities to increase revenues to keep pace with inflation.
The hotel operators can change room rates quickly, but competitive
pressures may limit the Lessees' and the Hotel Operators abilities to raise
rates faster than inflation or even at the same rate.
The Company's expenses are subject to inflation. These expenses (real
estate and personal property taxes, property and casualty insurance) are
expected to grow with the general rate of inflation, except for instances
in which the properties are subject to periodic real estate tax
reassessments.
SEASONALITY
The Hotels' operations historically have been seasonal. Eight of the
Hotels maintain higher occupancy rates during the second and third
quarters. The Marriott Seaview Resort generates a large portion of its
revenue from golf related business and, as a result, revenues fluctuate
according to the season and the weather. Radisson Hotel Tampa and
Le Montrose 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, effective for fiscal
years beginning after June 15, 2000, establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement also requires that the changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are
met. Currently, the pronouncement has no impact on the Company, since as
of December 31, 2000 and for the three months ended March 31, 2001, the
Company has not utilized derivative instruments or entered into any hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". The Staff determined that a lessor should defer recognition
of contingent rental income until the specified target that triggers the
contingent rental income is achieved. The Company recognizes lease revenue
on an accrual basis pursuant to the terms of the respective Participating
Leases in which Participating Rent is calculated using quarterly
thresholds. Accordingly, SAB No. 101 is not expected to have an impact on
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
The Company's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve these objectives, the Company borrows
at a combination of fixed and variable rates.
In 1998, the Company obtained the 1998 Second Amended Credit Facility,
which provides for a maximum borrowing amount of up to $200 million.
Borrowings under the 1998 Amended Credit Facility bear interest at variable
market rates. At March 31, 2001, the Company's outstanding borrowings
under the 1998 Second Amended Credit Facility were $149.7 million. The
weighted average interest rate under the facility for the three months
ended March 31, 2001 was approximately 7.8%. A .25% change in interest
rates would have changed interest expense by $0.1 million for the three
months ended March 31, 2001. This change is based upon the weighted
average borrowings under the 1998 Second Amended Credit Facility for the
three months ended March 31, 2001, which were $123.3 million.
On January 3, 2001, LHL obtained a three-year commitment for a $5
million senior unsecured revolving credit facility (the "LHL Credit
Facility") to be used for working capital and general corporate purposes.
Borrowings under the LHL 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 LHL. At March 31, 2001, the
Company's outstanding borrowings under the LHL Credit Facility were $0.7
million. The weighted average interest rate under the facility for the
three months ended March 31, 2001 was approximately 7.7%. A .25% change
would have an immaterial change in interest expense for the three months
ended March 31, 2001. This change is based upon the weighted average
borrowings under the LHL Credit Facility for the three months ended March
31, 2001, which were $0.3 million.
At March 31, 2001, the Company also had outstanding bonds payable of
$42.5 million. The bonds bear interest based on weekly floating rates and
have no principal reductions for the life of the bonds. The weighted
average rate for all bonds that were outstanding during three months ended
March 31, 2001 was 4.6%. A .25% change in the interest rates would have an
immaterial change on interest expense by an amount significantly less than
$0.1 million for the three months ended March 31, 2001. This change is
based upon the weighted average borrowings under the bonds for the three
months ended March 31, 2001, which were $41.8 million.
In 1999, the Company entered into a $46.5 million mortgage loan (the
"1999 Mortgage Loan"). The loan is subject to a fixed interest rate of
8.1%, matures on July 31, 2009 and requires interest and principal payments
based on a 25-year amortization schedule. At March 31, 2001, the 1999
Mortgage Loan had a balance of $45.5 million. At March 31, 2001, the
carrying value of the 1999 Mortgage Loan approximated its fair value.
On July 2000, the Company entered into three ten-year mortgage loans
totaling $74.5 million (the "2000 Mortgage Loans"). The loans are subject
to a fixed interest rate of 8.08% and require interest and principal
payments based on a 27-year amortization schedule. At March 31, 2001, the
2000 Mortgage Loans had a balance of $74.1 million. At March 31, 2001, the
carrying value of the 2000 Mortgage Loans approximated its fair value.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Neither the Company nor the Operating Partnership is currently
involved in any litigation the ultimate resolution of which, in the opinion
of the Company, is expected to have a material adverse effect on the
financial position, operations or liquidity of the Company and the
Operating Partnership.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: Certain statements in this filing and elsewhere (such as in
other filings by the Company with the Securities and Exchange Commission,
press releases, presentations and communications by the Company or its
management and written and oral statements) constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance, achievements, plans and objectives of the Company to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed under "Business", Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Quantitative and Qualitative Disclosure about Market Risk" and elsewhere
in the Company's annual report on Form 10-K for the year ended December 31,
2000, under "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Quantitative and Qualitative Disclosure About
Market Risk" and elsewhere in this report, under "Certain Relationships and
Related Transactions" and elsewhere in the Company's proxy statement with
respect to the annual meeting of shareholders held on May 16, 2001, under
"Risk Factors" and elsewhere in the Company's Registration Statement (No.
333-77371), under "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Quantitative and Qualitative
Disclosure About Market Risk" and elsewhere in this Report, and in other
reports filed by the Company with the Securities and Exchange Commission.
The Company expressly disclaims any obligation or undertaking to update or
revise any forward-looking statements to reflect any change in events or
circumstances or in the Company's expectations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports of Form 8-K.
A report on Form 8-K dated January 22, 2001 was filed
on January 22, 2001 reporting a Regulation FD Disclosure under Item 9. The
report announced the Company's conference call to be held on January 24,
2001, to discuss the Company's results for the quarter ended December 31,
2000 and its outlook for the year 2001.
A report on Form 8-K dated January 23, 2001 was filed
on January 25, 2001 reporting other events under Item 5. The report
included the Company's press release dated January 23, 2001, which reported
earnings for the quarter ended December 31, 2000 and its outlook for the
year 2001.
A report on Form 8-K dated March 8, 2001 was filed on
March 8, 2001 reporting a Regulation FD Disclosure under Item 9. The
report announces the Company's acquisition of four full-service hotels in
Washington, D.C. and that the Radisson Tampa Hotel is no longer under
contract for sale.
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 15, 2001 BY: /s/ HANS S. WEGER
------------------------------
Hans S. Weger
Executive Vice President,
Treasurer and Chief
Financial Officer
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