- The Washington Times - Monday, June 23, 2003

Shares of LaSalle Hotel Properties showed little change this week despite the recent purchase of a local luxury resort.

The Bethesda real estate investment trust (REIT), which owns 16 hotels in 10 states, bought the Lansdowne Resort in Lansdowne, Va., near Leesburg, last week for $115.8 million from the Stone Group, a group of private investors.

Raymond Martz, vice president for finance and investor relations, said LaSalle picked the destination resort because of its draw for leisure travelers, who had fueled a small recovery in the hotel industry.

“Plus, the resort is at a great location near Washington, Baltimore and Philadelphia and easily accessible to New York and Boston because of its proximity to [Washington Dulles International] Airport,” he said.

LaSalle plans to add another golf course and a 35,000-square-foot clubhouse to the 296-suite resort on the Potomac River by mid-2005.

In the Washington area, the company has focused on developing high-end, upscale hotels because of their distinction from the current hotel market, Mr. Martz said.

For example, LaSalle recently completed renovations at its Capitol Hill Holiday Inn.

The company’s stock has held up well because of a selective portfolio, said Rod Petrik, a lodging analyst with Legg Mason Wood Walker.

“Their portfolio is made up of a unique collection of lucrative assets, whereas many REITs have gotten into trouble by buying a lot of properties and having to sell many that operate on losses,” he said, rating the company a “buy.”

For the last year, the stock has fluctuated from $10 to $16 per share, ranging around $14 to $15 for the last week. LaSalle stock closed yesterday at $14.64 per share on the New York Stock Exchange, down 4 percent from a week earlier at $15.30.

Several analysts said the Lansdowne acquisition was part of the company’s plan to reinvest profits from selling the New Orleans Grande Hotel in April to CNL Hospitality for $91.5 million.

“This acquisition is consistent with the company’s past property purchases, which have been appealing to investors,” said William Crow, a lodging analyst with Raymond James Financial Inc. Mr. Crow, who does not own any LaSalle stock, rated LaSalle as outperforming the market.

But some investors were cautious about investing in lodging REITs that operate their properties through independent companies. At Lansdowne Resort, Benchmark Hospitality will continue to manage operations as it has since the 1991 opening.

“It’s a very passive investment in an active business,” Mr. Petrik said.

The drop in travel because of health and domestic-terrorism scares has caused lodging REITs to reduce and suspend dividend payments, Mr. Crow added.

James Sullivan, a research analyst with Prudential Securities Inc., lowered his rating of the company from “buy” to “hold” last week after the trading price dipped down below his target price of $15.

In a report, Mr. Sullivan noted that LaSalle remains in litigation with Meridien Hotels Inc. regarding lease terminations and $2 million in unpaid rent to LaSalle.

“As Meridien faces the possibility of filing bankruptcy, there is some risk that LaSalle may not collect on these intercompany receivables,” Mr. Sullivan said in the report. He does not own any shares of LaSalle.

In the first quarter ended March 31, LaSalle said, the Meridien litigation had added to losses, which rose to $6.3 million (34 cents per diluted share) from $3.1 million (17 cents) the previous year. Diluted earnings per share reflect the value of convertible warrants and stock options.

Funds from operations for the quarter fell to $2.4 million (13 cents) from $5.7 million (30 cents) a year earlier. Funds from operations are regarded as the best gauge of a REIT’s performance.

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