Another quarter, another stellar earnings report by LaSalle Hotel Properties (NYSE: LHO ) , and another 52-week high for the stock. Yawn. Shares of the upscale and luxury hotel REIT have been on a steady climb since early 2003. Given the strength of the company's first-quarter results, released Wednesday, the shares seem poised to continue their rise.
LaSalle's earnings announcement contained a wealth of positive information, including increases in occupancy and room rates. Earnings soundly beat analyst estimates, and the company increased its 2006 guidance for the second time.
Since the stock has risen almost continuously for three years now, investors are likely wondering how long the growth can last. For much of that time, LaSalle has traded at a premium multiple to its peers, such as Hospitality Properties Trust (NYSE: HPT ) and Innkeepers USA Trust (NYSE: KPA ) . That premium comes with a price: One earnings misstep, and the shares can drop faster than Barry Bonds' home-run record this season.
For years, many analysts have pointed to LaSalle's strong balance sheet and access to capital as justification for its premium valuation and as indicators of likely future growth. The question has always been when, and how, the company would put that money to work. Since the end of November, La Salle has begun to answer that question by announcing the acquisition of six hotels for a total of $539 million, including Chicago's House of Blues Hotel and Westin Michigan Avenue.
In LaSalle's 10-Q filing, we see that at the close of Q1, the company had only $51 million drawn on its $300 million credit facility; that debt made up only 27% of the company's total capitalization. On average, most hotel REITs carry debt-to-total capitalization percentages in 40% to 50% range. This gives LaSalle ample capacity to add leverage in order to finance additional property acquisitions.
With its existing property portfolio delivering exceptional operating results, and with the capacity to add additional properties throughout 2006, shares of LaSalle Hotel Properties appears poised to continue its ascent. Sometimes, premium multiples really are deserved.
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Fool contributor Sean P. Smith holds no financial position in any of the companies mentioned. He is a fan of the House of Blues in Chicago, though.