LaSalle Orders 20% Cut in Hotel Staffing

(2008-11-17) LaSalle Hotel Properties said Friday the hotel real-estate investment trust told its management companies to cut their work forces by 20%, one day after the company rescinded its 2008 guidance because of uncertainty in its markets. Chief Financial Officer Hans Weger, in an interview, said the company was freezing wages and cutting costs to combat what is expected to be a difficult 2009. LaSalle shares fell 18%, or $1.93, to $9.02 in New York Stock Exchange composite trading Friday, and are off 72% this year. "We are going to do everything we can where we can save money," Mr. Weger said. The company itself has a slim corporate payroll, but it contracts out the management of its 31 hotels to various companies, such as Starwood Hotels & Resorts Worldwide Inc., and has told those firms to cut jobs, Mr. Weger said. The cuts won't reduce any spending by LaSalle -- which pays a fee to the management companies -- but would boost margins at the hotels, which trickles back to the REIT, he added. LaSalle said Thursday it experienced a much steeper-than-expected fall in revenue per available room, or revpar, a key measure in the hotel industry. Revpar fell about 11.4% in October, much sharper than the company's projected decline of 6.7%, which it gave just three weeks ago. The conditions led the company to pull its full-year guidance. "At this time, we do not believe that we can provide a credible outlook for the remainder of the year as expected performance at our hotels continues to decline," Mr. Weger said in statement. The sharp fall in October's numbers concerned analysts, said Patrick Scholes, of Friedman Billings Ramsey. Mr. Scholes said LaSalle faces increased pressure because it has a larger portion of luxury and so-called upper-upscale hotels, which have seen the largest drops in reservations, particularly from corporate spending. "I call that the 'AIG effect,' " said Mr. Scholes, referring to the now infamous retreat on which American International Group Inc. spent $443,000 just days after receiving an $85 billion federal bailout. "A lot of other corporations have said, 'Uh-oh, we better cancel our bookings because we don't want to look like AIG.' " Mr. Weger confirmed the company would remain a profitable enterprise and added that it was "very comfortable" with its balance sheet and liquidity position. "It's really easy to fall in and out of [the guidance] range; that's the reason we rescinded," Mr. Weger said, noting the rapid deterioration was seen in more than just business cuts. "We've seen it across the board; it's across cities, consumers, groups and corporate." Two analysts, at Janney Montgomery Scott and BB&T Capital, stripped LaSalle of their buy investment ratings Friday in light of the uncertainty. The company also cut its dividend by 51% and warned of declining trends that would carry through 2009. On Oct. 22, the hotel owner said earnings would be 29 cents to 34 cents a share for the year, down from July's guidance of 40 cents to 54 cents.