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Jon Bortz - Chief ExecutiveOfficer

Hans Weger - ChiefFinancial Officer

William Truelove - UBS

Charles Scholes - JPMorgan

Bill Crow - Raymond James

Dennis Forst - Keybanc CapitalMarkets

David Loeb - Robert W. Baird & Company

LaSalle Hotel Properties (LHO) Q3 2007 Earnings ConferenceCall October 19, 2007 ET

Operator

Good day and welcome to LaSalle Hotel Properties thirdquarter 2007 conference call.

At this time, I would like to turn the call over to Mr.Jon Bortz, President and Chief Executive Officer. Please go ahead sir.

Jon Bortz

Good morning, everyone and welcome to the ThirdQuarter 2007 Earnings Call and webcast for LaSalle Hotel Properties. Here with me today is Hans Weger, our ChiefFinancial Officer.

As is our custom, in addition to providing thefinancial results of our third quarter, Hans and I will discuss the company'sactivities in the quarter, the performance of our assets and the trendsaffecting them, the status of our ongoing reinvestment program, and our outlookfor the remainder of 2007 on both a macro basis for the lodging industry andfor LaSalle Hotel Properties.

Hans Weger

Good morning. Beforewe begin, I would like to first make the following remarks. Any statements that we make today aboutfuture results and performance or plans and objectives are forward-lookingstatements. Actual results may differ asa result of factors, risks and uncertainties of which the company may have nocontrol. Factors that may cause actualresults to differ materially are discussed in the company's 10-K for 2006,quarterly report and its other reports filed with the SEC. The company disclaims any obligation orundertaking to update or revise any forward-looking statements.

Yesterday, we reported net income of $20.2 million or$0.50 per diluted share for the third quarter of 2007. Compared to net income of $17.3 million or$0.43 per diluted share for the prior year period. For the quarter ended September 30, 2007, our funds fromoperations or FFO rose to $43.7 million or $1.09 per diluted share.

From $37.8 million or $0.94 per diluted share for theprior year third quarter, an increase of 15.5%. Corporate EBITDA in the third quarter increased to $65.5 million from$57.9 million in the prior year period, an increase of 13.1%.

RevPAR for the total portfolio grew 6% in the thirdquarter. The RevPAR gain was attributableo an ADR increase of 3% to $206.07 with occupancy increasing 3% to 81.6%.

Our hotel portfolio generated $67 million of EBITDAfor the quarter ended September 30, 2007, which was up 7.9% over prior year EBITDA of $62.1million. Portfolio-wide hotel EBITDAmargins improved 121 basis points from the prior year period. For the nine months ended September 30, 2007, net income decreased to$55.3 million from $69 million for the prior year period.

EBITDA increased to $189.3 million from $179.4 millionfor the prior year period. Net incomeand EBITDA for the nine months ended September 30, 2007 include the $30.3million gain on the sale of the LaGuardia Marriott and a $3.9 million write-offof the non-cash cost associated with the initial issuance of the company'sseries A preferred shares.

Net income and EBITDA for the nine months ended September 30, 2006 include the $38.4million gain on the sale of the Chicago Marriott and the $800,000.00 contingentlitigation expense associated with Meridian litigation.

For the nine months ended September 30, 2007, FFO increased to $93.6 million from $88 million or$2.33 per diluted share from $2.22 per diluted share for the prior year period. FFO for 2007 includes the negative impactfrom the $3.9 million non-cash write-off of the initial issuance cost of theSeries A preferred shares due to their redemption in March of 2007 and FFO for2006 includes the $800,000.00 contingent litigation expense associated with theMeridian litigation.

For the first nine months of 2007, RevPAR increased4.6% to $151.02. ADR increased 4.4% to$199.72 and occupancy increased 0.2% to 75.6%. For the nine months ended September 30, 2007, hotel EBITDA increased 6.7% to $165.3 million from$155 million.

As of the end of the third quarter of 2007, thecompany had total outstanding debt of $844.7 million. The company's $300 million credit facilityhad $28 million outstanding as of September 30, 2007. As of September 30, 2007, total debt to trailing12-monthcorporate EBITDA equaled 4.2 times, one of the lowest debt-to-EBITDA ratios inthe industry.

Subsequent to the end of the third quarter, on October15, the Board of Trustees declared the fourth quarter dividend of $0.17 permonth for October, November and December 2007. Our dividend represents a 4.6% annualized yield based on yesterday'sclosing price.

I would now like to turn the call over to Jon todiscuss the recently completed quarter as well as our outlook for the remainderof 2007.

Jon Bortz

In the third quarter of 2007, while the economystruggled under the weight of the housing recession and the credit marketturmoil, we saw a healthy recovery in lodging demand that led to increases inindustry occupancy levels.

Both business travel and leisure travel industry-widesaw an improvement in the quarter both as compared to last year and as comparedto the second quarter. Overall industrydemand rose 2.5% for the three months ending in August. We believe demand in September moderated to1.5% growth rate primarily because both Jewish holidays fell on September thisyear versus only one in September last year.

As a result of these healthy levels of demand growthand high levels of industry-wide occupancy, pricing power remained generallystrong across the industry. Compared toour industry forecast, the third quarter, like the two earlier quarters, playedout pretty much as projected. TheLaSalle Hotel Properties, we saw similar patterns of strength in the demandgrowth, particularly transient, and continuing pricing power in the thirdquarter.

However, our performance came in below the industrydue to several property and market-specific factors. In general, group business came in belowexpectations at a number of our convention and resort properties and theseshortfalls in group pace at the beginning of the quarter were not replaced byshort-term group pickup, or in some cases they were replaced by transientbusiness but at significantly lower rates.

In addition, food and beverage revenues were negativelyimpacted by group shortfalls resulting in a decline for the second quarter lastyear.

RevPAR portfolio-wide, without regard for rooms out ofservice, rose 6% in the quarter. Roomsout service in the third quarter were relatively minor, with 5,000 room nightsunavailable, which reduced total revenues by $800,000.00, room revenue by$700,000.00 and EBITDA by $500,000.00. Theonly property with more nights out of service than forecasted was the Alexis,with completion of the room renovation extending into September.

While only a few rooms were out of service across theportfolio, many of our repositioned properties are just beginning their ramp up. On a monthly basis, for our portfolio as awhole, RevPAR rose 4.8% in July, 7.2% in August, and 6.2% in September. July's results reflect a particularly weakconvention calendar and group business pace at our convention hotels, which sawRevPAR increase only 0.5% in the month.

September was negatively impacted by weaker thenexpected demand around Labor Day and both Jewish holidays, only one of whichwas in September last year. EarlyOctober RevPAR was stronger as a result.

Our urban hotels delivered the best RevPAR growth inthe quarter with strong demand growth and limited group shortfalls. RevPAR rose 9% with ADR up 4.7% and occupancyimproving 4.1%.

Our resorts, a couple of which were impacted by poorperformance in the group segment, delivered 5.9% RevPAR growth with rate up2.1% to $245.72 and occupancy up 3.7% to 84.4%. RevPAR increased 3.3% at our convention hotels, which suffered disproportionatelyfrom a lack of success with group.

By major market for our portfolio, West L.A. and Washington, D.C. were our strongest markets. Our four West L.A. hotels benefited from strong levels of activity in the movie and TVproduction businesses as evidenced by their 19.2% RevPAR growth in the quarter. Occupancy rose 8.7% to 86.1% with ADRclimbing 9.6% to $205.95. Washington, D.C. continues to benefit from an act of CongressionalCalendar, high levels of overall government business and a return of theleisure traveler enhanced by a weak dollar that has increased inboundinternational travel.

Our seven D.C. urban hotels grew RevPAR by 13% in thequarter with occupancy up 8.7% and ADR up 4%. Supply growth continues to be minimal in D.C. and demand continues torecover, up over 4% in the CBD year-to-date through August.

San Diego also saw healthy demand growth, though a meaningfulportion was lower rated, price sensitive leisure. RevPAR from our four San Diego properties rose 7.3% with occupancy up 5.9% to a verystrong 89.5% and ADR up 1.3% to $243.99. With a healthy June through August, demand in the San Diego CBD is nowup 2.1% through August compared to last year. Boston continues to see very strong demand growth in 2007. Demand rose to 6.1% in the CBD airport marketfrom June through August and it is up 4.4% year-to-date.

Supply growth has pushed occupancies down slightly inthe market, although our properties managed grow occupancy by 2.5% to 87.3%. RevPAR for our three hotels increased 6.2%with ADR up 3.6% to $238.15.

Our weakest major market was Chicago. A softconvention calendar and poor group pace at our two Chicago hotels led to much worse than expected performance. RevPAR was +0.1%, essentially flat withoccupancy down 2.3% to 83.6% and ADR up 2.4%.

Our best performing properties for the quarter, asmeasured by RevPAR growth, were Le Parc and Le Montrose in West Hollywood, theGeorge, the Topaz and Rouge in D.C. and the Viking in Newport, all with RevPARgrowth in excess of 20%. Hilton Old Town. San DiegoHilton Resort, Holiday Inn Wall Street,Graciela in Burbank, Chaminade Resort in Santa Cruz and the Helix in D.C. were also very strong, all withRevPAR growth between 15% and 20% in the quarter. That is 12 properties with RevPAR growth at15% or higher and 19 of 30 hotels achieved occupancies of 80% or better.

Despite all of this strength, our disappointment inthe quarter came primarily from our larger properties, which had a significantimpact on our overall performance. TheLansdowne resort with extremely poor group business in the quarter saw a RevPARdecline of 10.5%. The lack of key salesand marketing leadership and staff from late last year to spring of this yearcould not be remedied through short-term pickup by the new sales team.

All key positions at Lansdowne are now filled withexperienced individuals, so we expect that our disappointing results that thisproperty should remain limited to the third quarter. Currently, group pace is up for balance ofthe year and for 2008 at Lansdowne. Golfmembership sales have paced very well this year, with 79 sold year-to-datebringing current membership to 370 golf members.

In Dallas,at the Westin, the citywide calendar compared extremely unfavorably to lastyear's third quarter and we were unable to replace the business with eithergroup or transient. As a result,occupancy declined 6.2% with RevPAR up 1.6% due to an 8.3% increase in ADR. Fourth quarter pace is also poor due to alack of conventions and pickup has been weak. On the positive side, group pace in Dallas for 2008 is up, due to a more favorable conventioncalendar.

In Chicago,as mentioned earlier, both Westin Michigan Avenue and Hotel Sax under performed. Convention calendar in Chicago and our booking pace at both properties continues tobe weak and worse than we would have expected for the fourth quarter. For 2008, Chicago convention calendar is a little better than 2007 withroughly 10% more rooms on the books. Atour properties, Westin Michigan Avenuegroup grew nine paces up 1% and Hotel Sax is up 17% for next year.

At the Holiday Inn on the Hill, despite a strong thirdquarter in D.C., our transition to a new management company to reposition theproperty to an upscale independent hotel led to some disruption that negativelyimpacted our group sales efforts. As aresult, third quarter performance suffered badly with an 11.9% drop inoccupancy and a 2.5% drop in RevPAR, significantly worse than we forecasted. We expect some bleed over andunderperformance in the fourth quarter while the new executive and sales teamsat the property get up to speed.

I thought I would also take a few moments to commenton the topline progress at a few of our recently repositionee hotels not yetmentioned. As discussed in prior calls,we have 16 properties that are ramping up to full market penetration, whichoften takes as long as three to four years for physical completion.

Overall, the customer response has been extremelyfavorable and it shows in the performance of the hotels. Of those hotels, we have two hotels the Onyxand the Solamar, which were a year old when we acquired them. Both are ramping up nicely, gaining significantRevPAR penetration. The Onyx is up 8.5%in RevPAR year-to-date, significantly better than downtown Boston, which is up 3.3% year-to-date. And in San Diego, the Solamar's RevPAR is up 10.5% year-to-date, alsosignificantly better than downtown San Diego's 2.8% increase.

In West Hollywood, the repositioningat Le Montrose has been extremely successfully. RevPAR year-to-date is up 14.6%, as compared to 8.6% for its market. Chaminade Resort, where we completed roomsrenovation in the second quarter last year, is also seeing good success. RevPAR year-to-date has increased 12.1% whilethe property's competitors have seen RevPAR decline 1.1%. The second phase of the repositioning isscheduled to get underway next month. Aftercompleting the renovation at the Hotel Viking, RevPAR in the third quarterincreased 20.5%, substantially better than its competitors.

At the Hilton Resort in San Diego, where we have completed the first phase of therepositioning, which included the rooms and the spa, RevPAR increased 18.7% inthe quarter, substantially better than its market's 3.2% increase. In Seattle, at the Hotel Deca following its conversion from aBest Western RevPAR is up 10% year-to-date. This compares favorably to its competitor's 6.6% increase year-to-datethrough August.

At the Alexis, on the other hand, we continue tostruggle with the completion of the rooms renovation and the lack of fullinventory. As a result, RevPAR fell23.6% in the quarter with a drop of 19.3% in occupancy, significantly worsethan we had forecasted. The good news isthat we now have all of our rooms back in service, including the 12 rooms weadded, and the lobby and meeting space were completed last week.

Portfolio wide non-room revenues for the quarter werevery disappointing. Food and beveragerevenues actually declined by 1.2% from last year's third quarter due primarilyto a 5.7% decline in group rooms across the portfolio. Total revenues portfolio-wide rose 4.2% inthe quarter.

On the expense side, expenses with very wellcontrolled in quarter. Total hotelexpenses portfolio-wide were limited to a 2.3% increase from last year. We are particularly pleased with thisperformance given the 3% increase in occupancy in the quarter.

Departmental expenses were extremely well controlled,increasing only 0.2%. Undistributedexpenses rose 5.6% with significant increases in franchise fees, which are tiedto our revenues and our branded properties. And sales and marketing costs and general and administrative expenses,which were up due to additional efforts to pursue and attract transientbusiness to replace our group's shortfalls.

Fixed expenses also grew faster than total expenses,increasing 7.2% due primarily to a 16.3% increase in property taxes. While we expect property taxes to continue tobe under upward pressure due to increases in property valuations, we expect therate of increase to moderate significantly as the reassessments due to ouracquisitions last year burned off.

These fixed expense increases were partially offset bya significant lowering of our property insurance costs, which declined 16.5% inthe quarter due to reductions achieved through re-bidding the policy upon itsexpiration on March 31st.

In addition, a yearlong effort to consolidate thegeneral liability insurance, traditionally obtained by our operators into apolicy that we successfully obtained corporately has resulted in a significantreduction in our overall premiums.

In the quarter, general liability insurance costsdeclined by 14.6%. Of additional note,energy and utility cost portfolio-wide rose just 1.1%, with material reductionsachieved due to significant energy saving capital investments over the last 12months and the ongoing implementation of best operating practices from ourvarious operators.

Portfolio-wide hotel EBITDA grew 7.9% on a 4.2%increase in total revenues, resulting in an EBITDA margin increase of 121 basispoints in the quarter. Year-to-dateportfolio-wide revenues are up 3.6%; total expenses are up just 2.2%, leavingEBITDA up 6.7% and our EBITDA margin up 93 basis points.

We are proud of this healthy margin improvement, particularlygiven our relatively small 3.6% total revenue gain and a large amount ofrenovation impact during the first half of the year.

Turning to our capital initiatives. As previously indicated, we continue toexecute our strategy of redeveloping and repositioning, both our recentlyacquired and existing hotels in order to drive significant increases in cashflows and long-term values.

The third quarter had a relatively few number ofactive projects. Donovan House, theindependent luxury reincarnation of the Holiday Inn Thomas Circle, continues to be closed and under reconstruction. We are on track for completion by April 1next year. As mentioned earlier, theAlexis repositioning and redevelopment has just been completed and the grandopening party was last week.

At the Holiday Inn on the Hill, we finalized our plansfor our repositioning and renovation, except for the hotel's rooftop. The project overall includes refurbishing therooms, upgrading the lobby, ball room and meeting space and rebuilding andreconcepting the restaurant to position it comparably to the upscale hotel.

We are also replacing the window HVAC units with a newenergy-efficient 4-pipe HVAC system. Totalinvestment is budgeted at $15 million. Theredevelopment began last month and should be complete in the second quarternext year, at which time the Holiday Inn flag will come down and the propertywill be renamed.

In August, we commenced the redevelopment of theHoliday Inn Wall Street district hotel. Thefirst three floors should be complete later this month. We currently have six floors out, whichrepresents 40% of the hotel. The lobbyrenovation will start in November and the construction of the restaurant, whichis now leased, should commence next year. The hotel will be renamed Guildhall on December 1st, and the$10 million repositioning project is expected to be complete by April 1 nextyear.

At the Hotel Sax, we commenced the $9 millionreconstruction of a new ballroom, meeting floor and banquet kitchen inpreviously vacant surplus retail space on the fourth floor of the hotel. This state-of-the-art, one-of-a-kind meetingand catering venue should be complete by the end of the year.

Projects for the remainder of the year and into nextyear include the following: In mid-November, we plan to close Chaminade Resortto renovate the main building, including the lobby, entry, meeting room,ballrooms, the two restaurants, and the bar. The resort should re-open by the beginning of February next year. The capital investment is estimated at $5million.

Beginning in December, we are planning to commence therenovation of the remaining 392 rooms at Westin Michigan Avenue, including installation of a new 4-pipe HVAC system. The initial 359 rooms were completed earlierthis year. The remaining investment isestimated at approximately $11 million, and the project should be completeearly in the second quarter of next year.

Also beginning in December, We will be fullyrenovating and reconfiguring the two floors of ballrooms and meeting space atthe Westin Copley in Boston. The $9million project should be completed in March of next year.

At the Indianapolis Marriott, we plan to commence asoft goods refurbishment of all 615 guest rooms, including seven new rooms, aswell as refurbishing the two ballrooms and all meeting and pre-function space. The project is currently estimated at $8million is scheduled to start in mid November, and be complete in the firstquarter next year.

At the Hilton San Diego Resort, the second phase ofour redevelopment should commence late this year. The second phase includes redevelopment ofthe entry, lobby, restaurant, resort store, poolside bar and grill, and theconversion of the existing pool to a resort-style pool. The project should be complete by mid secondquarter next year.

In total, we continue to forecast capital investmentfor 2007 in the $120 million to $130 million range, with $90 million related tomajor renovations, repositionings and re-brandings. As a result of these renovations, and repositionings,we continue to forecast 92,000 room nights out of service for the year.

Combined with public area and meeting spacedisruptions, we are forecasting lost room revenues of $9.5 million, a reductionin total revenues of $14.5 million and a decrease in EBITDA of $8 million forthe year. These numbers are unchangedfrom last quarter's outlook.

The $9.5 million of lost room revenues for the fullyear represents a reduction in RevPAR growth for 2007 of 2.2%. These numbers of room nights out of serviceand reduced EBITDA exclude the former D.C. Thomas Circle Hotel. As wecontinue these projects, we anticipate having 24,000 room nights out of servicein the fourth quarter, which will impact total revenue $3.1 million and EBITDAby $1 million.

In the first quarter of 2008, we project 34,000 roomsout of service, reducing total revenue by $4.4 million and EBITDA by $2.4million. This compares to 47,000 roomnights out in the first quarter of 2007. None of these numbers includes the Donovan House, which has been closedsince February 2006.

All of these capital investments, as well as thosemade in recent years should continue to positively impact the competitiveposition of our hotels, and allow them to significantly improve performance infuture years, especially, 2008 through 2010.

In addition, all of the repositioning projects plannedfor the existing properties should be materially complete by mid second quarternext year, so disruption in the existing portfolio after that can be expectedto be limited to only typical refurbishments in the normal course of business.

Now, let me turn to our outlook for the remainder ofthe year. To date, 2007 is playing outinline with our industry forecast. Wecontinue to expect the economy and the travel industry to show growththroughout; although, the acceleration in the economy we were expecting in thelatter part of the year is not likely to happen.

As a result, given healthy lodging fundamentals, it isreasonable to assume that lodging industry will be strong in the fourthquarter, but probably not quite as strong as we were previously forecasting. Our four leading economic indicators:corporate profits, airline enplanements, consumer confidence and employmentgrowth now paint a mixed picture with negative trend lines in the last threemonths for all except enplanements.

Growth in corporate profits and employment have slowedsince last quarter, and consumer confidence declined in August and September. Nevertheless, wage growth remains strong andoverall employment remains high. Airlineenplanements, on the other hand, have increased over the course of the year,including in the third quarter confirming the strengthening of hotel demandthat we have seen over the course of the year.

Assuming no major geo-political events, we arenarrowing the range of our industry wide RevPAR forecast for the year slightly,by increasing the lower end of our rage from 5.5% to 5.7% and lowering the topend of the range to 6.2% from 6.5%. Urbanis on-track to outperform the industry by 300 basis points and upper upscaleshould outperform by up to 50 basis points.

For our portfolio, we are lowering our forecast ofRevPAR growth for the year to 5% to 5.5% from 5.5% to 6.5%. The majority of the reduction is due to ourlower RevPAR growth in the third quarter and group and transient pace for thefourth quarter that has not increased as much as we had forecasted when we wereprojecting a fourth-quarter economic pickup.

While our group pace for the portfolio-wide is up4.8%in Group room nights and 6% in ADR, we are concerned about a negative grouppace in December. We have revised ourRevPAR growth forecast for the fourth quarter to 6.5 to 7.5%. On a positive note, we have seen no increasein Group cancellations.

For 2007, despite our very successfully efforts tocontrol expenses year-to-date, the overall lower level of revenue growth isforcing us to lower our forecast for portfolio wide EBITDA margin improvementto a still healthy 80 to 100 basis points.

As a result of our slightly lower fourth quarterrevenue and margin projections, we are reducing the low end of our fourthquarter FFO per share range by $0.2 or roughly $800,000 to $0.69 and retainingthe top end of the range at $0.73.

For the year, our forecast is reduced to $3.11 to $3.15or roughly, 1% decrease from last quarter's full year 2007 forecast. This outlook excludes the $3.9 millionnon-cash expense associated with the March redemption of our Series A preferredshares.

We are currently forecasting EBITDA for the year inthe range of $206 million to $207.5 million. The EBITDA outlook for the year excludes the $30.3 million gain from thefirst quarter sale of the Laguardia Marriott and the $3.9 million non-cashexpense associated with the March redemption of our Series A preferred shares.

I would also like to touch on 2008, we remain solidlypositive about next year. However, wehave not yet commenced our property budget review process, so we are notprepared to discuss our outlook at this time.

But if we look at one indicator for our portfolio,group pace, we are particularly encouraged about 2008. At the present time, our Group room nights onthe books are up by 6.5% versus the same time last year for 2007 and ADR on thebooks is up 4.9%. Room night pace is upin every quarter except the first quarter of next year, which undoubtedly willbe challenged due to the Easter holidays moving to March next year from Aprilthis year.

As a result, we continue to be excited about thefundamentals of both the lodging industry and our company with the substantialcompletion of all of the repositioning within the current portfolio,significantly fewer room nights out of service, and less disruption next year,we believe that LaSalle is in a great position to continue to benefit in the yearsahead from our repositionings and the continued recovery and growth cycle inthe lodging business.

That completes our remarks. Hans and I would now be very happy to answerany questions you might have.

Questions-and-Answers Session

Operator

(Operator Instructions)

We will take our first question from William Truelovewith UBS.

William Truelove - UBS

I have got three main questions here. The first one is about the sales force issueyou had at Lansdowne and the group pace in the quarter. Were there any other large hotels that alsohad a sales force turnover like maybe the Westin Chicago and what not?

And what kind of things can you do as an asset managerto kind of work with your operator to not let that happen again?

Jon Bortz

Okay. Therewere a couple of other properties that had turnover. One, Holiday Inn on the Hill, which Imentioned where we turned over the entire Executive Team and the entire salesforce. The entire sales force was not aplanned event; although, the executive team turnover was because we needed toput a new team in place to manage an independent hotel versus a Holiday Inn andflag property.

We also had turnover at the beginning of the year atthe Westin Michigan Avenueas our Director of Sales and Marketing was promoted to Regional Head and ourRevenue Manager was transferred by Starwood to a Phoenix property.

They were replaced, but the new team has not been asstrong as the prior team, and the only changes that we can make are, if do notthink they are performing, we ask Starwood to make changes.

In the case of Copley, we also were without a Directorof Sales for Catering for the first nine months of the year and we saw asignificant negative impact in our Food and Beverage operations at thatproperty as a result.

As an asset manager, it is really a combination of thesqueaky wheel, really pushing our operators to find the right people, transferthe right people and hire recruiters, do whatever is necessary to get thosepeople. But we are really focused onmaking sure that we get the right people.

So, we do interview all of the Executives team membersthat are proposed and we are very demanding in terms of making sure that wefind the strongest people that are possible to run our hotels.

William Truelove - UBS

Just, more of an asset specific question as it relatesto Seaview in Atlantic City, you have got a lot of other projects going up atthe MGM announcement, you have a lot of Morgan Stanley condos going up, has reviewof the value of that asset changed? Andis it possible to maybe make it something more than it already is at this point?

Jon Bortz

That is a good question, Will. One of the positives about that property andone of the things we like about it is the fact that Atlantic City is beingtransformed into sort of mini East Coast Las Vegas. There has been $7 and 10 billion ofinvestment planned in the market, as it relates to both new casinos andtransformation of some existing casinos in the market.

And we believe that is a good thing for overall demandin the market, including the demand for Seaview, but it is also a big employerin the market and one of the things that we are in the process of studying isthe possibility of converting one of our golf courses to residential land tohelp satisfy what is a very strong demand for new housing in the marketplace.

William Truelove - UBS

And my last question, this is probably going to be thedifficult one because of the 2008 budgeting, but you did say that you are goingto have about 32,000 room nights out in the first quarter and you are expecting92,000 room nights out for 2007.

So the way of trying to think about 2008 totalcompany-wide RevPAR growth, can we just take sort of an industry growth rateplus the room night differential or is there maybe an asset specific way of someof the new hotels coming on like Donovan and Alexis, what not? Ways that we can try to better forecast roomrevenues for 2008 knowing that you haven't yet done your 2008 budget at theproperty level, so any help you can give the street on that?

Jon Bortz

Yes, I think what we can tell you broadly is that thedifferential in fewer room nights should translate into RevPAR improvementwithin the portfolio beyond what they would otherwise achieve. And then we do have some significantimprovements we are anticipating on top of that, that come from therepositionings that have been completed and that are being completed. So I do think we should next year outperformthe industry in a meaningful way and we would be disappointed if we didn't.

William Truelove - UBS

Right. Thanksso much. That is all of the questions Ihave.

Operator

(Operator Instructions)

We will move on to Bill Crow with Raymond James.

Bill Crow - Raymond James

Good morning, guys. A couple of questions here. Firstof all, following up on Will's question on '08, we have had a couple ofcompanies already talk about 5% to 7% RevPAR growth for next year. Do you think that is a reasonable outlook forthe industry overall at this point?

Jon Bortz

Bill, I think at this point based upon what we knowthat the industry should be in a relatively similar place to what it is thisyear with probably some downside based upon what happens with the economy andthis continuing sort of low growth pause that we thought would have, in alllikelihood, picked up by the latter part of this year, looks to us to probablyrun into early next year at a minimum.

And the good news about early next year is that thecomparisons are pretty easy in the first half of next year. So I would not think that it is going to bematerially different than this year. Pricingpowers should remain. I think in generalit is a better convention year across the nation and I think that is evidencedby really everybody who has reported a significant uptick in-group pace.

Bill Crow - Raymond James

Does D.C. suffer next year because the election andpoliticians out of town, et cetera?

Jon Bortz

Yes, in the four-year cycle, D.C.would typicallysuffer in the last quarter of the year. Wewould expect that to happen again next year. The offsetting factor as we see it right now, Bill, is that theconvention pace is up significantly next year. It is back to a level that is more like 2006, and so we think that wouldbe an offsetting factor, and we do think it would be a very activecongressional calendar even if a whole lot gets accomplished.

Bill Crow - Raymond James

Okay. Let medig into the group pace a little bit. Imean, you talked about the pace up I think 6.5% for next year and ADR up almost5% on those rooms are just terrific. Butwhat is the traditional cancellation rate on group business. At this point and time looking out to nextyear, have you got a historical number for that?

Jon Bortz

We do not have a historical number on that, Bill, butI would tell you That is very low.

Bill Crow - Raymond James

And is that because most of these group meetings haveliquidated damages clauses or is it that they occur no matter what the economydoes?

Jon Bortz

Well, Bill clearly they are based upon downturns inthe economy. Historically, you have seena greater level of cancellations but it would tend to be more in a negative GDPenvironment than just a slow growth environment. Part of the rational, obviously is that theretypically are termination penalties, in some cases 100%. That is as you get very much closer to thedate but it tends to be smaller, more like 75% or 50% as you get anywhere from60 to 180 days out.

Bill Crow - Raymond James

Right. Allright. And if you went back to '01 priorto 9/11, was the cancellation rate picking up at that point, do you remember?

Jon Bortz

I do not remember, Bill.

Bill Crow - Raymond James

Okay.

Jon Bortz

I do remember that we had a lot of cancellations after9/11.

Bill Crow - Raymond James

Yes, I was just thinking pre-9/11 when the economy wasweakening. Two more quick questions, Jon. You have talked about de-levering the balancesheet as we get into further into the cycle and it seems like it was thepopular press would have cap rates rising 50 to 100 basis points recently. A, what have you seen in the cap rateenvironment as you are looking at deals? And B, how do you balance the desire to de-lever later in the cycleversus maybe a better buying opportunity than you have seen in three years?

Jon Bortz

Well, in terms of what we have seen, I would tell you wehave seen no adjustment in cap rates in the lodging space at this point. We continue to expect that there will besome, but we have not seen any although there have not been a tremendous numberof transactions to use as a measuring stick.

It is our objective over the next several years tolower our leverage level. We do notthink That is inconsistent with being able to taking advantage of opportunities. In fact, it is even more consistent with it. Obviously the lower leverage we have, themore opportunity we have to make acquisitions without having to go to themarkets.

For capital, in addition to the fact that our buyingpower effectively increases as our EBITDA continues to grow from not only theindustry improvement over the next several years, but through therepositionings that we have done as well as the re-opening of the Donovan House.

Bill Crow - Raymond James

Do you think there is a better opportunity for you tobe successful bidders going forward now that maybe the leveraged buyers are onthe sidelines or is there too much capital chasing these assets?

Jon Bortz

We think it will ultimately play out that way, Bill. That is likely, but we think it will taketime and we have all been around long enough to know that these transitionperiods tend to create situations where there's a gap between sellerexpectations, which were based on the past and buyer expectations that are sortof based upon where we are now or forecast into the future.

But that opportunity may not come around right away,but some time over the next 6 to 12 months we would think that with thereduction in the number of high levered buyers that lower levered buyers, themore modest buyers, will become more competitive.

Bill Crow - Raymond James

Jon, finally, you talked about the rooms out ofservice in the first quarter but it sounds like most projects end by the end ofthe first quarter. Is it fair from amodeling perspective and then should we assume that you do not have a whole loton the table yet for '09 for rooms out of service?

Jon Bortz

Yes, there is a little bit of run over with a fewprojects into April of next year, but it is pretty minimal, Bill. We do not have numbers on it right now, butits probably less than 5,000 room nights. So there should not be much the rest of the year. And as of right now, we do not anticipatemuch of anything for '09.

Bill Crow - Raymond James

Okay. Terrific. Thank you, Jon.

Operator

We will take our next question from Dennis Forst withKeybanc Capital Markets.

Dennis Forst - Keybanc Capital Markets

Good morning. Iwanted to ask two questions. First, kindof look at the number of available rooms in the opposite direction rather thanrooms out. How many available rooms werethere during the third quarter, and what do you expect the number to be in thefourth quarter?

Jon Bortz

This is the total here. There were a total number of rooms in thethird quarter available before reduction of the rooms out of service. So I know you can do that math.Of 761,164rooms.

Dennis Forst - Keybanc Capital Markets

Okay. And thatincludes the two leased properties?

Jon Bortz

Yes.

Dennis Forst - Keybanc Capital Markets

So I back those two out, back out the Donovan?

Jon Bortz

No, you would not back those two out. When we report our hotel results, it includesall of the properties including the two that are leased.

Dennis Forst - Keybanc Capital Markets

The $171 million includes all the properties?

Jon Bortz

It includes?

Dennis Forst - Keybanc Capital Markets

I am sorry the two third party hotels?

Jon Bortz

The numbers on the income statement exclude the leasedthe two leased hotels, but the numbers on the hotel schedule, which is asupplement attached, includes those two properties.

Dennis Forst - Keybanc Capital Markets

So the $168 RevPAR includes those two hotels?

Jon Bortz

Yes. And theDonovan House is not in any of these numbers. So, the number I gave you for the third quarter of available roomsexcludes the Donovan House. All youwould do is take the number I gave you, take out the 5,000 rooms out of serviceand you have what was available.

All you would do is take the number I gave you takeout the 5000 rooms out of service and you have what was available.

Dennis Forst - Keybanc Capital Markets

Okay.

Jon Bortz

In the fourth quarter?

Dennis Forst - Keybanc Capital Markets

Yes.

Jon Bortz

The number is 764,000 let us call it, rounded. And you would take out the 34,000 number thatwe have provided.

Dennis Forst - Keybanc Capital Markets

Okay. And thenif I was trying to come up with room revenues and I made the assumption thatthe RevPAR excluding those two third-party hotels was essentially the same asthe RevPAR with them, I could just multiply whatever my RevPAR assumption isby, I think that would be around 675,000 rooms to come up with a room revenuenumber.

Jon Bortz

To get to the number that is on the income statement?

Dennis Forst - Keybanc Capital Markets

Yes.

Jon Bortz

Yes.

Dennis Forst - Keybanc Capital Markets

Okay, good. Appreciatethat, and then secondly, Southern California, West L.A., is that a pretty short-term reservation window? Are most of those transient rooms?

Jon Bortz

West L.A. is very short-term. We do verylittle group in our four hotels there because they are quite small.

Dennis Forst - Keybanc Capital Markets

Right.

Jon Bortz

And I would say probably 60% to 70% of our business iscorporate volume account. The productionhouses, Disney, Warner, Universal, Sony, all of those types of organizations

Dennis Forst - Keybanc Capital Markets

Okay. And areyou concerned about a writers' strike closing down the industry here in thefourth quarter?

Jon Bortz

We would get concerned about any strike, but right nowwhat we hear is that it would not have much impact on production in the nearterm. But it might have an impact onproduction in '08, particularly the first half if it was more then a fairlyshort.

Dennis Forst - Keybanc Capital Markets

I guess if there's enough scripts particularly on theTV side to keep going for a while but if it did last for longer than expectedor so, then it could have an impact on the second quarter maybe next year.

Jon Bortz

Right, we might have to suffer through more reruns.

Dennis Forst - Keybanc Capital Markets

Thank you.

Jon Bortz

Sure. Operator?

Operator

(Operator Instructions)

We will take our last question from David Loeb withBaird.

David Loeb - Robert W. Baird & Company

Bill answered most of my questions. So I'll finish off with an easy one. As you look forward at the economy, given allof the leading indicators that are perhaps looking at a pause for the nextcouple of quarters.

What kind of offset is there from foreign travel giventhe weak dollar into your gateway markets? Are your hotels positioned to pick up much of that business?

Jon Bortz

They are and they have been aggressively pursuing thatbusiness. It is particularly beneficialon the East Coast, David, as you would imagine because the greatest weakness inthe dollar has been versus the European currencies. And obviously, less so with the Asiancurrencies, particularly Japan where it is actually, if anything, gone theother direction.

David Loeb - Robert W. Baird & Company

And how about Seattle with the Canadian dollar?

Jon Bortz

It should see benefit. We have seen for a number of reasons the cruise business move fromoriginating from out of Vancouverto Seattle and That is helped the market. We should continue to see more tourism travel out of Canada into Seattle, but I would tell you more of the business in Seattle comes from the south than it does from the north.

David Loeb - Robert W. Baird & Company

Okay. Great,thanks.

Operator

And Mr. Bortz, there are no other questions in thequeue at this time.

Jon Bortz

Okay. Thank youvery much, operator. Thank you all forparticipating in the call and we look forward to giving you an update nextquarter. Thank you.

Operator

That does conclude today's presentation. Thank you for your participation and have awonderful day.

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Source: LaSalle Hotel Properties Q3 2007 Earnings Call Transcript

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