LaSalle Hotel In 'Penalty Box,' Credit Suisse Warns

• LaSalle Hotel Properties LHO shares are down 29 percent year-to-date, and are trading close to the lower end of their 52-week range of $27.70 - $43.56.
• Credit Suisse’s Ian Weissman downgraded the rating on the company from Outperform to Neutral, while reducing the price target from $37 to $31.
• The company’s shares could be under pressure due to the forced closure of two San Francisco hotels, Weissman mentioned.

LaSalle Hotel is witnessing significant pressure from the unions, and is being forced to close the Park Central and WestHouse hotels for almost 9 weeks. These two hotels constitute 8 percent of the company’s room count and the closure represents a temporary displacement of $7.2 million in EBITDA, analyst Ian Weissman stated.

“In the end, LHO agreed that two of its San Fran hotels will be subject to card check neutrality, which could mean unionized labor over the next 2+ years,” the analyst wrote.

Weissman mentioned the main opinions related to the latest news:

1. Management appears to have made “a huge mistake” in failing to disclose this information to investors. Although this represents only a one-time impact to FFO, “investors need to make capital allocation decisions with full disclosure - hiding issues almost never goes over well.”
2. While the 2 San Francisco hotels may not go union, in the event they do, margins may contract “several hundred” basis points, adversely impacting valuations.
3. LaSalle Hotel’s shares may be down as much as 10 percent in Friday trading. Weissman added, however, that in view of “the strong bid for real estate,” the floor could be around $28.

In the report Credit Suisse noted, “While LHO has been correct on the souring of fundamentals these last few months (kudos to them for being the first raise the cautionary flag on RevPAR), this latest snafu will likely place the stock in a penalty box for a while.”