Despite Record EBITDA Margins, Doubts About LaSalle’s Performance Remain

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Unlike most real estate businesses, hotels are evaluated in terms of rooms, food, drinks and other amenities that generate cash. LaSalle Hotel Properties (NYSE:LHO) has been managing well, and Q2 2015 results have been no different; in fact, industry fundamentals have been performing well. According to the company, during the second quarter of 2015, the U.S. lodging industry demand increased 2.7 percent, as opposed to a 1.1 percent supply increase. Consequently, ADR, RevPAR and occupancy grew 4.8, 6.5 and 1.6 percent respectively.

LaSalle’s ADR and RevPAR, respectively, grew 4.4 and 4.1 percent, while occupancy fell 30 basis points to 87 percent. While occupancy in urban hotels advanced 0.6 percent, that in conventions decreased 3 percent respectively. With regard to cities, occupancy declined in Boston (the Boston Marathon caused a high Q2 2014 occupancy base) and West Hollywood (due to client repositioning).

Despite the slight occupancy decline, LaSalle’s portfolio hotel EBITDA margin grew impressively —248 basis points to 38.5 percent, its highest reported quarterly margin ever.

FFO- and AFFO-per-share increased 15 and 11 percent respectively, and dividends had already increased 20 percent this year. On the day of the earnings call, however, share price dropped 8 percent since Evercore ISI and Cowen & Company downgraded their views on the stock. LHO is now trading at 12.5× price-to-FFO, below its 5-year historic norm. Dividend yield has also been 5.2 percent, above the 4.2 percent sector median.

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Source: LaSalle Hotel Properties, Fast Graphs

Written by Heli Brecailo

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