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Secondary Offering by LaSalle Hotel


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In a concerted move to increase its liquidity, LaSalle Hotel Properties (LHO - Snapshot Report), a real estate investment trust (REIT), has recently announced a secondary offering of 8.0 million shares at $23.70 each. The company will also grant the underwriters an option to purchase an additional 1.2 million shares to cover any over-allotments.

Citigroup, Inc. (C - Analyst Report) and Raymond James Financial Inc. (RJF - Analyst Report) are acting as joint book-running managers for the equity offer. LaSalle intends to utilize the proceeds from the offering to fund its just-concluded acquisition of L’Auberge Del Mar in Del Mar, California. The remainder of the proceeds would be used to reduce debt under its unsecured credit facility and for general corporate purposes.

Incidentally, LaSalle had acquired the 120-room full service luxury resort in California for $76.9 million. Set on 4.5 acres overlooking the picturesque Pacific Ocean, the hotel is strategically placed in close proximity to several leisure and business demand drivers of the region. These include the Del Mar Beach, Torrey Pines Golf Course and the Del Mar Racetrack & Fairgrounds, besides other upscale shopping and dining hotspots. In addition, the hotel is also close to the University of California, San Diego, which is one of the leading research universities in the U.S.

LaSalle presently expects a RevPAR (revenue per available room) growth of 4.0% - 4.3% for full year 2012. Adjusted EBITDA is expected to be in the range of $259.0 million – $261.0 million, while adjusted FFO (funds from operations) is expected to vary in the range of $175.3 million and $176.3 million. On a per share basis, adjusted FFO is pegged at $2.04 – $2.05, while the current Zacks Consensus Estimate is static at $2.05.

LaSalle owns luxury and upper-upscale hotels in high barriers-to-entry markets throughout the U.S. The company specifically focuses on owning, redeveloping and repositioning upscale full-service hotels in urban, resort and convention markets. LaSalle currently owns 10,300 guest rooms in 13 markets in 9 states in the U.S. and the District of Columbia.

We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank that translates into a short-term Hold rating.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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