LASALLE HOTEL PROPERTIES - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____.

Commission file number 1-14045

LASALLE HOTEL PROPERTIES
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

Maryland 36-4219376
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)

1401 Eye Street, NW, Suite 900, Washington, D.C. 20005
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code 202/222-2600

Securities Registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Class on which registered
-------------- ---------------------

Common Shares of New York Stock Exchange, Inc.
Beneficial Interest
($.01 par value)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive or
proxy information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ]

As of March 10, 2000, there were 16,900,495 shares of the Registrant's
Common Shares issued and outstanding. The aggregate market value of the
Registrant's Common Shares held by non-affiliates of the Registrant
(15,481,408 shares) at March 10, 2000 was approximately $185.8 million. The
aggregate market value was calculated by using the closing price of the
stock as of that date on the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be held on May 17, 2000 are incorporated by reference in
Part III of this report.

LASALLE HOTEL PROPERTIES

INDEX

FORM 10-K
REPORT
ITEM NO. PAGE
- -------- ---------

PART I

1. Business. . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties. . . . . . . . . . . . . . . . . . . . . . 10
3. Legal Proceedings . . . . . . . . . . . . . . . . . . 16
4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . 16

PART II

5. Market for Registrant's Common Shares and
Related Shareholder Matters . . . . . . . . . . . . . 17
6. Selected Financial Data . . . . . . . . . . . . . . . 19
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 22
7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . . . 30
8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . . 30
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure. . . . . . . . 31

PART III

10. Trustees and Executive Officers of the Registrant . . 31
11. Executive Compensation. . . . . . . . . . . . . . . . 31
12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . 31
13. Certain Relationships and Related Transactions. . . . 31

PART IV

14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . 32

The "Company" means LaSalle Hotel Properties, a Maryland real estate
investment trust, and one or more of its subsidiaries (including LaSalle
Hotel Operating Partnership, L.P.), and the predecessor thereof or, as the
context may require, LaSalle Hotel Properties only or LaSalle Hotel
Operating Partnership, L.P. only.

INFORMATION CONTAINED IN THIS FINANCIAL REPORT CONTAINS "FORWARD-
LOOKING STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC
PERFORMANCE, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND
PROJECTIONS OF REVENUE AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECT," "ANTICIPATE," "ESTIMATE" OR "FACTORS THAT MAY INFLUENCE RESULTS
AND ACCURACY OF FORWARD LOOKING STATEMENTS" AND ELSEWHERE IDENTIFY
IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.

PART I

ITEM 1. BUSINESS

GENERAL

The Company was organized as a Maryland real estate investment trust
on January 15, 1998 to own hotel properties and to continue and expand the
hotel investment activities of Jones Lang LaSalle Incorporated (formerly
LaSalle Partners Incorporated) and certain of its affiliates (collectively
"JLL"). The Company is managed and advised by LaSalle Hotel Advisors, Inc.
(the "Advisor"), a wholly owned subsidiary of JLL. As of December 31,
1999, the Company owned interests in 13 hotels with approximately 4,300
suites/rooms (the "Hotels") located in ten states. All of the Hotels are
leased under participating leases ("Participating Leases") which provide
for rent equal to the greater of base rent ("Base Rent") or participating
rent ("Participating Rent") which is based on fixed percentages of gross
hotel revenues. All of the Hotels are managed by independent hotel
operators ("Hotel Operators"). The Company is a real estate investment
trust ("REIT") as defined in the Internal Revenue Code of 1986, as amended
(the "Code").

The hotel industry is highly competitive. Each of the Company's
Hotels is located in a developed area that includes other hotel properties.

The number of competitive hotel properties in a particular area could have
a material adverse effect on occupancy, average daily rate ("ADR") and room
revenue per available room ("RevPAR") of the Hotels.

The Company may be competing for investment opportunities with
entities that have substantially greater financial resources than the
Company including lodging companies and other REITs. These entities
generally may be able to accept more risk than the Company can prudently
manage, including risks with respect to the creditworthiness of a hotel
operator or the geographic proximity of its investments. Competition
generally may reduce the number of suitable investment opportunities
offered to the Company and increase the bargaining power of property owners
seeking to sell.

The Company's principal offices are located at 1401 Eye Street, NW,
Suite 900, Washington, DC 20005. Effective March 25, 2000, the Company's
principal offices will be located at 4800 Montgomery Lane, Suite M25,
Bethesda, MD 20814.

FORMATION, INITIAL PUBLIC OFFERING AND SUBSEQUENT ACQUISITIONS

On April 23, 1998, the Company's Registration Statement on Form S-11
was declared effective. On April 29, 1998, the Company completed its
initial public offering (the "IPO"); prior to such date, the Company had no
operations. In connection with the IPO, the Company sold 14.2 million
common shares of beneficial interest, $.01 par value (the "Common Shares"),
at a price of $18 per Common Share, resulting in gross proceeds of $255.6
million and net proceeds (after deducting underwriting discounts and
offering expenses) of approximately $234.1 million. The Company
contributed all of the net proceeds of the IPO to LaSalle Hotel Operating
Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), in exchange for an approximate 82.6% general and limited
partnership interest in the Operating Partnership. The Operating
Partnership used the net proceeds from the Company, the issuance of an
additional 0.9 million Common Shares, the issuance of 1.3 million rights to
purchase Common Shares and the issuance of 3.2 million limited partnership
interests ("Units"), representing approximately 17.4% of the Operating
Partnership, to acquire ten upscale and luxury full service hotels (the
"Initial Hotels").

The Company completed the acquisition of two additional hotel
properties during 1998. On June 1, 1998, the Company acquired a 95.1%
interest in the 462-room San Diego Paradise Point Resort for an aggregate
purchase price of $73.0 million. On June 24, 1998, the Company acquired a
100% interest in the 270-room Harborside Hyatt Conference Center & Hotel
for an aggregate purchase price of $73.5 million.

On June 2, 1999, the Company acquired a 100% interest in the 182-room
Hotel Viking and the adjacent 12-room inn in Newport, Rhode Island (the
"Newport Property") through an indirect subsidiary, LHO Viking Hotel,
L.L.C. (the "Viking Subsidiary LLC"). The Viking Subsidiary LLC is a
limited liability company, of which the Operating Partnership is the sole
member. The Newport Property was acquired from Bellevue Properties Inc.
("Bellevue"), for an aggregate purchase price of $28 million funded with
proceeds from a borrowing under the Company's 1998 Amended Credit Facility.

The Newport Property is leased and operated by Viking Hotel Corporation, an
affiliate of Bellevue.

Substantially all of the Company's assets are held by, and all of its
operations are conducted through the Operating Partnership. The Company is
the sole general partner of the Operating Partnership. At December 31,
1999, continuing investors held, in the aggregate, 1,559,234 Units or a
8.5% limited partnership interest in the Operating Partnership. The
outstanding Units are redeemable at the option of the holder for a like
number of Common Shares of the Company, or, at the option of the Company,
for the cash equivalent thereof.

To enable the Company to satisfy certain requirements for
qualifications as a REIT, neither it nor the Operating Partnership can
operate any of the hotels in which they invest. Accordingly, four of the
Company's Hotels are leased to LaSalle Hotel Lessee, Inc. (the "Affiliated
Lessee"). The Company owns a 9% interest in the Affiliated Lessee in which
the Company together with JLL and LPI Charities, a charitable corporation
organized under the laws of the state of Illinois, make all material
decisions concerning the Affiliated Lessee's business affairs and
operations. The remaining nine Hotels are leased to unaffiliated lessees
(affiliates of whom also operate these Hotels).

THE ADVISOR

Upon completion of the IPO, the Company entered into an advisory
agreement (the "Advisory Agreement") with the Advisor to provide
acquisition, management, advisory and administrative services to the
Company. The initial term of the Advisory Agreement extended through
December 31, 1999, subject to successive, automatic one year renewals
unless terminated according to the terms of the Advisory Agreement. The
Company may terminate the Advisory Agreement without termination fees or
penalties upon notice given at least 180 days prior to the end of the then
current term of the Advisory Agreement. The Company's Board of Trustees
approved the renewal of the Advisory Agreement for 2000.

GROWTH STRATEGIES

The Company's primary objectives are to maximize current returns to
its shareholders through increases in distributable cash flow and to
increase long-term total returns to shareholders through appreciation in
the value of its Common Shares. To achieve these objectives, the Company
seeks to (i) enhance the return from, and the value of, the Company's
Hotels and any additional hotels and (ii) invest in or acquire additional
hotel properties on favorable terms.

The Company seeks to achieve revenue growth principally through
(i) renovations and/or expansions at certain of the Company's Hotels,
(ii) acquisitions of full service hotel properties located in convention,
resort, urban and major business markets in the U.S. and abroad, especially
upscale and luxury full service hotels in such markets where the Company,
through JLL's extensive research and local market experience, perceives
strong demand growth or significant barriers to entry, and (iii) selective
development of hotel properties, particularly upscale and luxury full
service properties in high demand markets where development economics are
favorable.

The Company intends to acquire additional hotel properties in targeted
markets, consistent with the growth strategies outlined above and which
may:

. possess unique competitive advantages in the form of location,
physical facilities or other attributes;

. be available at significant discounts to replacement cost, including
when such discounts result from reduced competition for properties with
long-term management and/or franchise agreements;

. benefit from brand or franchise conversion, new management,
renovations or redevelopment or other active and aggressive asset
management strategies; or

. have expansion opportunities.

The Company believes its acquisition capabilities are enhanced by the
considerable experience, resources and relationships of JLL in the hotel
industry specifically and the real estate industry generally.
Additionally, the Company believes that having multiple independent Hotel
Operators creates a network that will continue to generate significant
acquisition opportunities.

RECENT DEVELOPMENTS

Holiday Inn Plaza Park is being actively marketed for sale by the
Company. Accordingly, the asset was classified as held for sale at
December 31, 1999 and will no longer be depreciated. Based on initial
pricing expectations, the net book value of the asset was reduced by $2,000
to $5,508. There can be no assurance that real estate held for sale will
be sold.

On January 25, 2000, the Company entered into a joint venture
arrangement (the "Chicago 540 Hotel Venture") with an institutional
investor to acquire the 1,176-room Chicago Marriott Downtown (the "Chicago
Property") in Chicago, Illinois. The Company, through the Operating
Partnership, owns a 9.9% equity interest in the Chicago 540 Hotel Venture.
The Company will receive an annual preferred return in addition to its pro
rata share of annual cash flow. The Company will also have the opportunity
to earn an incentive participation in net sale proceeds based upon the
achievement of certain overall investment returns, in addition to its pro
rata share of net sale or refinancing proceeds. The Chicago Property was
leased to Chicago 540 Lessee, Inc., in which the Company also owns a 9.9%
equity interest. The institutional investor owns a 90.1% controlling
interest in both the Chicago 540 Hotel Venture and Chicago 540 Lessee, Inc.

Marriott International continues to operate and manage the Chicago
Property.

HOTEL RENOVATIONS

The Company believes that its regular program of capital improvements
at its Hotels, including replacement and refurbishment of furniture,
fixtures, and equipment ("FF&E"), helps maintain and enhance their
competitiveness and maximizes revenue growth under the Participating
Leases. During the year ended December 31, 1999, the Company spent
approximately $32 million on renovations and additional capital
improvements at the Hotels. Additionally, the Company is planning to spend
approximately $28 to $30 million on renovations and additional capital
improvements at the Hotels during 2000.

Under the Participating Leases, the Company established a reserve for
capital improvements at the Hotels (the "Reserve Funds"). The Reserve
Funds have not been recorded on the books and records of the Company, as
such amounts will be capitalized as incurred. The amounts obligated under
the Reserve Funds range from 4.0% to 5.5% of the individual Hotel's total
revenues. The total amount obligated by the Company under the Reserve
Funds was approximately $9.5 million at December 31, 1999, of which $4.6
million is available in restricted cash reserves for future capital
expenditures.

TAX STATUS

The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code. As a result, the Company generally will not be
subject to corporate income tax on that portion of its net income that is
currently distributed to shareholders. A REIT is subject to a number of
highly technical and complex organizational and operational requirements,
including requirements with respect to the nature of its gross income and
assets and a requirement that it currently distribute at least 95% of its
taxable income. The Company may, however, be subject to certain state and
local taxes on its income and property.

SEASONALITY

The Hotels' operations are seasonal. Seven of the Company's Hotels
maintain higher occupancy rates during the second and third quarters. The
Marriott Seaview Resort generates a large portion of its revenue from golf
related business and, as a result, revenues fluctuate according to the
season and the weather. Radisson Hotel Tampa and Le Montrose All Suite
Hotel experience their highest occupancies in the first quarter, while
Holiday Inn Beachside Resort and Le Meridien New Orleans experience their
highest occupancies in the first and second quarters. This seasonality
pattern can be expected to cause fluctuations in the Company's quarterly
lease revenue under the Participating Leases.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
liable for the costs or removal or remediation of certain hazardous or
toxic substances on under, or in such property. Such laws often impose
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances,
or the failure to remediate such contaminated property properly, may
adversely affect the owner's ability to borrow using such property as
collateral. Furthermore, a person who arranges for the disposal or
treatment of a hazardous or toxic substance at a property owned by another,
or who transports such substance to such property, may be liable for the
costs of removal or remediation of such substance released into the
environment at the disposal or treatment facility. The costs of
remediation or removal of such substances may be substantial, and the
presence of such substances, may adversely affect the owner's ability to
sell such real estate or to borrow using such real estate as collateral.
In connection with the ownership and operation of the Hotels, the Company,
the Operating Partnership, or the Lessee, as the case may be, may be
potentially liable for such costs.

Phase I environmental site assessments ("ESAs") have been performed on
all of the Hotels by a qualified independent environmental engineer. The
purpose of the Phase I ESAs is to identify potential sources of
contamination for which the Company may be responsible and to assess the
status of environmental regulatory compliance. The Phase I ESAs include
historical reviews of the Hotels, reviews of certain public records,
preliminary investigations of the sites and surrounding properties,
screening for the presence of asbestos-containing materials,
polychlorinated biphenyls, underground storage tanks, and the preparation
and issuance of a written report. The Phase I ESA's do not include
invasive procedures, such as soil sampling or ground water analysis.

The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on
the Company's business, assets, results of operations, or liquidity, nor is
the Company aware of any material environmental liability or concerns.
Nevertheless, it is possible that the Phase I ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company
is currently unaware. Moreover, no assurance can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Hotels will
not be affected by the condition of the properties in the vicinity of the
Hotels (such as the presence of leaking underground storage tanks) or by
third parties unrelated to the Operating Partnership or the Company.

The Company believes that its Hotels are in compliance, in all
material respects, with all federal, state and local environmental
ordinances and regulations regarding hazardous or toxic substances and
other environmental matters, the violation of which would have a material
adverse effect on the Company. The Company has not been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matters in
connection with any of its present properties.

EMPLOYEES

The Company has no employees. The Advisor manages the day-to-day
operations of the Company. All persons employed in the day-to-day
operations of the Company's Hotels are employees of the management
companies engaged by the Lessees to operate such hotels.

ITEM 2. PROPERTIES

HOTEL PROPERTIES

At December 31, 1999, the Company owned interests in the following 13
hotel properties:

Number of
Guest
Property Rooms Location
- -------- --------- --------

Radisson Convention Hotel 565 Bloomington, MN

Le Meridien New Orleans 494 New Orleans, LA

Le Meridien Dallas 407 Dallas, TX

Marriott Seaview Resort 297 Absecon, NJ
(Atlantic City)

Holiday Inn Beachside Resort 222 Key West, FL

San Diego Paradise Point Resort 462 San Diego, CA

LaGuardia Airport Marriott 436 New York, NY

Omaha Marriott Hotel 299 Omaha, NE

Radisson Hotel Tampa 265 Tampa, FL

Holiday Inn Plaza Park 257 Visalia, CA

Le Montrose All Suite Hotel 132 West Hollywood, CA

Harborside Hyatt Conference
Center & Hotel 270 Boston, MA

Hotel Viking 194 Newport, RI

RADISSON CONVENTION HOTEL. Radisson Convention Hotel is an upscale
full service convention hotel located at the intersection of Interstate 494
and Highway 100, approximately 15 minutes from the Minneapolis/St. Paul
International Airport, and five miles from the Mall of America. The hotel
is leased to and operated by affiliates of Radisson Group, Inc.
("Radisson").

LE MERIDIEN NEW ORLEANS. Le Meridien New Orleans is a luxury full
service convention oriented hotel located in downtown New Orleans, a major
convention city. The hotel is centrally located across the street from the
French Quarter and near the central business district, the Ernest N. Morial
Convention Center and the New Orleans Superdome. The hotel has received
the AAA Four Diamond award for 14 consecutive years. The hotel is subject
to a 99-year ground lease, which expires May 2081. The hotel is leased to
and operated by affiliates of Le Meridien Hotels & Resorts ("Meridien").

LE MERIDIEN DALLAS. Le Meridien Dallas is an upscale full service
convention oriented hotel located in downtown Dallas, approximately 25
minutes from the Dallas/Fort Worth International Airport, in the heart of
the city's arts and financial districts. The hotel is conveniently located
near the City Convention Center, four stops away on the new Dallas light
rail system, with a DART station adjacent to the hotel. The hotel is
leased to and operated by Meridien.

MARRIOTT SEAVIEW RESORT. Marriott Seaview Resort is a luxury golf and
conference resort located in Brigantine Bay, approximately nine miles north
of Atlantic City, New Jersey. The hotel is leased to the Affiliated Lessee
and operated by Marriott International, Inc. ("Marriott") pursuant to a
long-term incentive-based operating agreement.

HOLIDAY INN BEACHSIDE RESORT. Holiday Inn Beachside Resort is an
upscale full service resort comprised of several one, two and three-story
buildings, located on an approximately 7.8 acre parcel north of U.S. 1 on
the beach facing the gulf of Mexico. The resort is located on the island
of Key West, considered to have the most consistent weather in Florida, and
benefits from the island's reputation as a popular tourist destination.
The hotel is leased to and operated by affiliates of Durbin Companies, Inc.
("Durbin").

SAN DIEGO PARADISE POINT RESORT. San Diego Paradise Point Resort is
an upscale resort that lies on 44 acres and has nearly one mile of
beachfront and is located in the heart of Mission Bay on Vacation Island, a
4,600-acre aquatic park in southwest San Diego County. The resort is
minutes away from the San Diego International Airport and convenient to
many major San Diego tourist attractions including Sea World, Old Town,
Downtown San Diego, the San Diego Convention Center, Qualcomm Stadium and
the San Diego Zoo. The hotel is subject to a 50-year ground lease, which
expires December 2044. The hotel is leased to and operated by WestGroup
San Diego Associates, Ltd ("WestGroup"), an affiliate of Noble House Hotels
and Resorts.

LAGUARDIA AIRPORT MARRIOTT. LaGuardia Airport Marriott is an upscale
full service urban/major business hotel located directly across from New
York's LaGuardia Airport. The hotel is five minutes from Shea Stadium and
the USTA National Tennis Center and 20 minutes from Manhattan. The hotel
is leased to the Affiliated Lessee and operated by Marriott pursuant to a
long-term incentive based operating agreement.

OMAHA MARRIOTT HOTEL. Omaha Marriott Hotel is an upscale full service
major business hotel located in the western suburbs of Omaha at one of the
city's busiest intersections (I-680 and West Dodge Road). The hotel is
located in the Regency Office Park, a mixed use development containing over
865,000 square feet of office and retail space, and directly across West
Dodge Road from Westroads Shopping Center, the largest shopping mall in
Omaha. The hotel is leased to the Affiliated Lessee and operated by
Marriott pursuant to a long-term incentive based operating agreement.

RADISSON HOTEL TAMPA. The Radisson Hotel Tampa is an upscale full
service major business hotel located in east suburban Tampa, Florida. The
hotel is situated at the entrance to Sabal Business Park, a three million
square foot office complex. The hotel is near Busch Gardens and Houlihan's
Stadium, 50 minutes from Walt Disney World in Orlando, and a 35 minute
drive to Tampa International Airport. The hotel is leased to and operated
by Radisson.

HOLIDAY INN PLAZA PARK. Holiday Inn Plaza Park is a mid-price full
service hotel located at the junction of Highways 99 and 198 in Visalia,
California. The hotel is situated in the heart of Central California, a
major agri-business center and is also a popular tourist destination due to
its central location and proximity to Yosemite, Sequoia and Kings Canyon
National Parks. In addition, the hotel is utilized extensively by major
corporate groups and social users due to the size and flexibility of its
meeting space and ample parking. The hotel is leased to and operated by
affiliates of Outrigger Lodging Services ("OLS").

LE MONTROSE ALL SUITE HOTEL. Le Montrose All Suite Hotel is a five-
story, luxury full-service hotel located in West Hollywood, California, two
blocks east of Beverly Hills and one block south of the "Sunset Strip".
The hotel is within walking distance of many of the area's finest
restaurants, retail shops and night clubs. The hotel attracts short and
long-term guests and small groups primarily from the recording, film and
design industries. The hotel is leased to and operated by OLS.

HARBORSIDE HYATT CONFERENCE CENTER & HOTEL. Harborside Hyatt
Conference Center & Hotel is a full-service luxury conference and airport
hotel located adjacent to Boston's Logan International Airport along the
Boston waterfront. The property features 19,000 square feet of meeting
space and is directly across from Boston's central business district and
next to the Ted Williams tunnel, providing convenient access to downtown
Boston. The property is subject to a long-term ground lease from Massport,
Logan International Airport's owner and operating authority. The hotel is
leased by the Affiliated Lessee and operated by Hyatt pursuant to a long-
term incentive-based operating agreement.

HOTEL VIKING. Hotel Viking is a full-service upscale resort located
on Bellevue Avenue in Newport, RI, a resort area that is rapidly becoming a
year round hotel market. The Hotel offers 29,000 square feet of meeting
space, two restaurants, a lounge and a rooftop bar. The acquisition also
included the fully restored Kay Chapel and Trinity Parish House, both
adjacent to the Hotel, as well as a twelve room inn located directly across
the street. The hotel is leased and operated by Viking Hotel Corporation,
an affiliate of Bellevue Properties Inc.

THE PARTICIPATING LEASES

In order for the Company to qualify as a REIT, neither the Company nor
the Operating Partnership may operate hotels or related properties. The
Operating Partnership leases the Hotels to the Lessees for terms of between
six and 11 years (from commencement) pursuant to separate Participating
Leases that provide for rent equal to the greater of Base Rent or
Participating Rent and which set forth the Lessees' required capitalization
and certain other matters. Unless otherwise noted, each Participating Lease
contains the provisions described below.

PARTICIPATING LEASE TERMS. The Participating Leases have an average
term of approximately 10 years, with expiration dates staggered between the
years 2004 and 2009, subject to earlier termination upon the occurrence of
certain contingencies described in the Participating Leases (including,
particularly, the provisions summarized below under the captions "Damage to
Hotels," "Condemnation of Hotels," "Termination of Participating Leases for
Failure to Meet Performance Goals" and "Termination of Participating Leases
upon Disposition of Hotels"). The variation of the lease terms is intended
to provide the Company with protection from the risk inherent in
simultaneous lease expirations and to align the expiration of certain of
the Participating Leases with the expiration of the applicable franchise
license.

BASE RENT; PARTICIPATING RENT; ADDITIONAL CHARGES. Each Participating
Lease requires the applicable Lessee to pay (x) the greater of (i) Base
Rent in a fixed amount (ii) Participating Rent based on certain percentages
of room revenue, food and beverage revenue and telephone and other revenue
at the applicable Hotel, and (y) certain other amounts, including utility
charges, certain impositions and insurance premiums, and interest accrued
on any late payments or charges ("Additional Charges"). Each lease year
and beginning in January 2001 for the Hotel Viking, the Base Rent and
Participating Rent thresholds are increased to reflect any increase in the
applicable Consumer Price Index published by the Bureau of Labor Statistics
of the United States of America Department of Labor, U.S. City Average,
Urban Wage Earners and Clerical Workers ("CPI"). Lessees are required to
pay Base Rent monthly in arrears by the first day of each calendar month,
and Participating Rent is payable quarterly in arrears by the twentieth day
of each fiscal quarter, except for the Hotels operated by Marriott, the
Hotel operated by Hyatt and Hotel Viking, whose rents are due in accordance
with their respective Participating Leases, as defined. Participating Rent

is calculated based on the year-to-date departmental receipts as of the end
of the preceding fiscal quarter, plus the prorated amount of each of the
applicable departmental thresholds for the fiscal quarter, or portion
thereof, minus the cumulative Participating Rent previously paid for such
fiscal year and the cumulative Base Rent paid for such fiscal year as of
the end of the preceding fiscal quarter.

Other than real estate and personal property taxes, casualty insurance
including business interruption insurance, ground lease payments, capital
impositions and capital replacements and refurbishments (determined in
accordance with generally accepted accounting principles ("GAAP"), which
are obligations of the Company, the Participating Leases require the
Lessees to pay rent, condominium dues, certain insurance, all costs and
expenses, and all utility and other charges incurred in the operation of
the Hotels. The Participating Leases also provide for rent reductions and
abatements in the event of damage or destruction or a partial taking of any
Hotel as described under "Damage to Hotels" and "Condemnation of Hotels."

The Company has sold certain FF&E to the Lessees of Radisson
Convention Hotel and Le Meridien Dallas at its book value in exchange for
promissory notes receivable ("FF&E Notes") of approximately $1.0 million
and $.6 million, respectively. The FF&E Notes bear interest at 6.0% and
5.6% per annum, respectively, and are payable in monthly installments of
interest only. These FF&E Notes have an initial term of five years unless
extended at the Company's option. Additionally, the Company provided
working capital to each of the Lessees in the aggregate amount of $5.9
million in exchange for a note receivable ("Working Capital Notes"). The
Working Capital Notes bear interest at either 5.6% or 6.0% per annum, and
are payable in monthly installments of interest only. The term of each
Working Capital Note is identical to the term of the related Participating
Lease. Payments made under the FF&E Notes and the Working Capital Notes are
used to reduce the related Participating Lease payments by an equal amount.
The total of the interest income payments and Participating Lease payments
will be equal to the amounts calculated by applying the rent provisions of
the Participating Leases to the revenues of the Hotels.

RESERVES. The Participating Leases for the Hotels obligate the
Company to make funds available for capital improvements at the Hotels
(including the periodic replacement or refurbishment of FF&E)in amounts
ranging from 4.0% to 5.5% of total revenue from the Hotels, with the amount
of such reserve with respect to each hotel representing projected capital
requirements of each hotel. The Company's obligation to make funds
available for capital improvements has not been recorded on the books and
records of the Company as such amounts are and will be capitalized as
incurred. Any unexpended amounts will remain the property of the Company
upon termination of the Participating Leases. The reserve requirements for
the hotels operated by Marriott and Hyatt are contained in certain non-
cancelable operating agreements, which require the reserves for the hotels
operated by Marriott and Hyatt to be maintained through restricted cash
escrows ("FF&E Escrows"). The amounts maintained in the FF&E escrows have
been recorded on the books and records of the Company. Otherwise, the
Lessees are required, at their expense, to maintain the Hotels in good
order and repair, subject to ordinary wear and tear, and to make all
necessary and appropriate nonstructural, foreseen and unforeseen, and
ordinary and extraordinary repairs (other than capital repairs) which may
be necessary and appropriate to keep the Hotels in good order and repair.

The Lessees are not obligated to bear the cost of any capital
improvements or capital repairs to the Hotels. With the consent of the
Company, however, the Lessees may utilize funds from the capital
expenditure reserves to make capital additions, modifications or
improvements to the Hotels. All such alterations, replacements and
improvements are subject to all the terms and provisions of the
Participating Leases and will become the property of the Company upon
termination of the Participating Leases. The Company owns substantially all

personal property (other than FF&E which has been sold to the Lessees of
Radisson Convention Hotel and Le Meridien Dallas, inventory, linens and
other nondepreciable personal property) not affixed to, or deemed a part
of, the real estate or improvements on the Hotels, except to the extent
that ownership of such personal property would cause any portion of the
rents under the Participating Leases not to qualify as "rents from real
property" for REIT income test purposes.

INSURANCE AND PROPERTY TAXES. The Company is responsible for paying
(i) real estate and personal property taxes on the Hotels, (ii) any ground
lease payments on the Hotels, (iii) casualty insurance on the Hotels, and
(iv) business interruption insurance on the Hotels. The Lessees are
required to pay for or reimburse the Company for all liability insurance on
the Hotels, with extended coverage, including comprehensive general public
liability, workers' compensation and other insurance appropriate and
customary for properties similar to the Hotels and naming the Company as an
additional insured, where permitted by law.

EVENTS OF DEFAULT. Events of Default under the Participating Leases
include, among others, the following:

(i) the failure by a Lessee to pay Base or Participating Rent
within ten days after same is due; or with respect to Radisson Convention
Hotel, ten days after notice of non-payment;

(ii) the failure of a Lessee to observe or perform any other term of
a Participating Lease and the continuation of such failure beyond any
applicable cure or grace period;

(iii) the failure of a Lessee to pay for required insurance;

(iv) the failure of a Lessee to maintain the Required Minimum Net
Worth or the security deposit, as applicable;

(v) should a Lessee or Operator file a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or consent to the appointment of a custodian, receiver,
trustee or other similar office with respect to it or any substantial part
of its assets, or take corporate action for the purpose of any of the
foregoing; or if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Lessee
or Operator, a custodian, receiver, trustee or other similar officer with
respect to the Lessee or Operator or any substantial part of its assets, or
if an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of the Lessee or Operator, or if any
petition for any such relief shall be filed against the Lessee or Operator
and such petition shall not be dismissed within 120 days;

(vi) should a Lessee or Operator cause a default beyond applicable
grace periods, if any, under any Franchise Agreement or Operator Agreement
relating to any Hotel; or

(vii) should a Lessee or Operator voluntarily cease operations of the
Leased Property for more than three (3) days other than by reason of
casualty, condemnation or force majeure.

In addition, an Event of Default will result in a cross-default of all
other Participating Leases to which the Lessee is a party; except with
respect to a default at Radisson Hotel Tampa, which would not result in a
cross default of Radisson Convention Hotel.

INDEMNIFICATION. Under each of the Participating Leases, the Lessees
will indemnify, and are obligated to hold harmless, the Company, the
Advisor and their officers and trustees, from and against all liabilities,
costs and expenses (including reasonable attorneys' fees and expenses)
incurred by, imposed upon or asserted against the Company or any of them on
account of, among other things, (i) any accident or injury to persons or
property on or about the Hotels, (ii) any misuse by the applicable Lessee
or any of its agents of the leased property, (iii) any environmental
liability caused or resulting from any action or negligence of the Lessee
or Operator (see "Environmental Matters"); (iv) taxes and assessments in
respect of the Hotels (other than real estate and personal property taxes
and income taxes of the Company on income attributable to the Hotels and
capital impositions); (v) the sale or consumption of alcoholic beverages on
or in the real property or improvements thereon; or (vi) the failure to
comply with the terms of the Participating Leases by the Lessee; provided,
however, that such indemnification will not be construed to require the
Lessee to indemnify the Company against the Company's own negligent acts or
misconduct.

ASSIGNMENT AND SUBLEASING. The Lessees are not permitted to sublet
all or any part of the Hotels or assign their interest under any of the
Participating Leases, other than to affiliates of certain of the applicable
Lessees, without the prior written consent of the Company. No assignment or
subletting will release a Lessee from any of its obligations under the
Participating Leases unless the Company expressly agrees that the Lessee
shall be released from any of its obligations under the Participating
Leases.

DAMAGE TO HOTELS. In the event of damage to or destruction of any
hotel covered by insurance which then renders the leased property
unsuitable for its intended use and occupancy as a hotel, the Participating
Lease shall terminate, and the Company shall generally be entitled to
retain the proceeds of insurance. In the event that damage to or
destruction of a hotel which is covered by insurance does not render the
leased property unsuitable for its intended use and occupancy as a hotel,
the Company generally will be obligated to repair or restore the hotel to
substantially the same condition as existed immediately prior to such
damage. In the event of damage to or destruction of any hotel that is not
covered by insurance, the Company generally, may either repair, rebuild or
restore the hotel (at the Company's expense) to substantially the same
condition as existed immediately prior to such damage, or terminate the
Participating Lease on the terms and conditions set forth in such
Participating Lease.

CONDEMNATION OF HOTELS. In the event of a total condemnation of a
hotel, the relevant Participating Lease will terminate with respect to such

hotel as of the date of taking, and the Company will be entitled to all of
the condemnation award in accordance with the provisions of the
Participating Lease. In the event of a partial taking which does not render
the property unsuitable for its intended use as a hotel, then the Company
generally will be obligated to restore the untaken portion of the property,
and the Company shall contribute the condemnation award to the cost of such
restoration.

TERMINATION OF PARTICIPATING LEASES. The Company has the right to
terminate the Participating Lease for a hotel if the hotel fails to meet
certain performance goals, as defined. Additionally, in the event the
Company enters into an agreement to sell or otherwise transfer a hotel, the
Company, at its option, may terminate the Participating Lease upon 30 days'
notice to the applicable Lessee, subject to certain provisions.
Additionally, in the event that changes in federal income tax laws allow
the Company or a subsidiary or affiliate to directly operate hotels, the
Company will have the right to terminate all, but not less than all,
Participating Leases with the Lessees.

OTHER LEASE COVENANTS. Each Lessee has agreed that during the term of
its Participating Lease, the Lessee will not engage in any unrelated
business activities. The owners of each Lessee and their parent entities
have agreed that, for the term of its Participating Lease, any sale of
their interest in such Lessee, or of their hotel management businesses in
general, will subject their interest in the Lessee to a limited fair market
value acquisition right in favor of a designee of the Company. In the event
that the Company exercises this right, any nonselling partner of the Lessee
will have the right to put its interest in the Lessee to the Company's
designee at a price equal to the fair market value of such interest. The
Participating Leases require each Lessee to make available to the Company
unaudited monthly and quarterly and audited annual operating information
for each Hotel leased by such Lessee.

INVENTORY. All inventory required in the operation of the hotels is
owned by the applicable Lessee. Upon termination of a related Participating
Lease, the Lessee shall surrender the related hotel together with all such
inventory to the Company.

ITEM 3. LEGAL PROCEEDINGS

Each of the Company, the Operating Partnership and the Advisor is not
aware of any material pending or threatened legal proceedings to which the
Company, the Operating Partnership, the Advisor or any of their
subsidiaries is a party or of which any of their property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's
shareholders during the fourth quarter of the year covered by this Annual
Report on Form 10-K.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND
RELATED SHAREHOLDER MATTERS

MARKET INFORMATION

The Common Shares of the Company began trading on the New York Stock
Exchange ("NYSE") on April 24, 1998 under the symbol "LHO". On March 10,
2000, the last reported closing sale price per Common Share on the NYSE was
$12. The following table sets forth for the indicated periods the high and
low sales for the Common Shares and the cash distributions declared per
share:

High Low Distributions
---- --- -------------
1999
- ----

First quarter $13-11/16 $10-1/2 $0.375
Second quarter $15-15/16 $12-7/16 $0.380
Third quarter $16-1/8 $12-3/4 $0.380
Fourth quarter $13 $10-13/16 $0.380

1998
- ----

For the period from April 29, 1998
(inception) through June 30, 1998 $18-9/16 $15-7/16 $0.260(a)
Third quarter $17-1/4 $11-11/16 $0.375
Fourth quarter $13-1/2 $ 7-1/2 $0.375

(a) The Company's Board of Trustees declared a distribution of $0.260 per
Common Share for the period from April 29, 1998 (inception) through June
30, 1998, which is approximately equivalent to a full quarterly
distribution of $0.375 per Common Share and annual distribution of $1.50
per Common Share.

SHAREHOLDER INFORMATION

As of March 10, 2000, there were 233 record holders of the Company's
Common Shares, including shares held in "street name" by nominees who are
record holders, and approximately 8,300 beneficial holders.

In order to comply with certain requirements related to qualification
of the Company as a REIT, the Company's Amended and Restated Declaration of
Trust limits the number of Common Shares that may be owned by any single
person or affiliated group to 9.8% of the outstanding Common Shares.

DISTRIBUTION INFORMATION

In 1999, the Company paid $1.515 per Common Share in distributions, of
which 91.1% represented ordinary income and 8.9% represented return of
capital for tax purposes.

The Company currently anticipates that it will maintain at least the
current distribution rate in the near term, unless actual results of
operations, economic conditions or other factors differ from its current
expectations. The declaration of distributions by the Company is in the
sole discretion of the Company's Board of Trustees and depends on the
actual cash flow of the Company, its financial condition, capital
expenditure requirements for the Company's Hotels, the annual distribution
requirements under the REIT provisions of the Code and such other factors
as the Board of Trustees deems relevant.

UNITS

In conjunction with the IPO, 3,181,723 Units were issued on April 29,
1998 (inception). On August 24, 1999 and November 29, 1999, 180,636 and
1,441,853 Units were converted to Common Shares, respectively. At
December 31, 1999, there were 1,559,234 Units outstanding. Unitholders
receive distributions per unit in the same manner as distributions
distributed on a per share basis to the common shareholders.

SALES OF UNREGISTERED SECURITIES

On June 1, 1998, in conjunction with the purchase of the San Diego
Paradise Point Resort, the Company sold 112,458 Common Shares to WestGroup
for cash consideration of approximately $2.0 million. This sale was not
registered under the Securities Act of 1933, as amended (the "Securities
Act") in reliance upon the exemption from the registration requirements
thereof provided by Section 4(2) of the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL INFORMATION

The following tables set forth selected historical operating and
financial data for the Company and selected historical financial data for
LRP Bloomington Limited Partnership, which is the predecessor of the
Company (the "Predecessor"). The selected historical financial data for
the Company for the year ended December 31, 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998, and the selected
historical financial data for the Predecessor for the period from January
1, 1998 through April 28, 1998, the years ended December 31, 1997 and 1996
and for the period from December 1, 1995 (date of formation) through
December 31, 1995 have been derived from the historical financial
statements of the Company and the Predecessor, respectively. The following
selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto included
elsewhere in this Form 10-K.

LASALLE HOTEL PROPERTIES
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(Unaudited, Dollars in thousands, except share data)

For the
For the period from
year ended April 29, 1998
December 31, (inception) through
1999 December 31, 1998
------------- -------------------
OPERATING DATA:
REVENUE:
Participating lease revenue. . . . . . $ 76,843 $ 46,464
Interest income. . . . . . . . . . . . 988 567
Equity in income (loss) of
Affiliated Lessee . . . . . . . . . . 57 (59)
Other income . . . . . . . . . . . . . 66 21
----------- ----------
Total revenue. . . . . . . . . . . . 77,954 46,993

EXPENSES:
Depreciation and other amortization. . 25,378 13,666
Real estate, personal property
taxes, and insurance. . . . . . . . . 8,205 5,047
Ground rent. . . . . . . . . . . . . . 3,351 1,886
General and administrative . . . . . . 1,342 459
Interest . . . . . . . . . . . . . . . 16,181 8,474
Amortization of deferred
financing costs . . . . . . . . . . . 992 514
Advisory fee (1) . . . . . . . . . . . 3,670 2,134
Other expense. . . . . . . . . . . . . 140 13
Minority interest in
Operating Partnership . . . . . . . . 2,706 2,567
Writedown of property held
for sale. . . . . . . . . . . . . . . 2,000 --
----------- -----------
Total expenses, minority
interest and writedown. . . . . . . 63,965 34,760
----------- -----------
Net income applicable to
common shareholders . . . . . . . . . . $ 13,989 $ 12,233
=========== ===========
Net income per common share -
basic and diluted . . . . . . . . . . . $ 0.91 $ 0.80
=========== ===========
Weighted average number of
common shares outstanding -
basic and diluted . . . . . . . . . . . 15,432,667 15,209,555
=========== ===========

As of December 31,
-------------------------------
1999 1998
----------- -----------
BALANCE SHEET DATA:
Investment in hotel
properties, net . . . . . . . . . . . $ 501,191 $ 467,552
Total assets . . . . . . . . . . . . . 532,072 496,338
Borrowings under the
credit facility . . . . . . . . . . . 164,900 164,700
Bonds payable, net . . . . . . . . . . 41,571 42,828
Mortgage loans . . . . . . . . . . . . 46,306 --
Minority interest in
Operating Partnership . . . . . . . . 22,417 47,694
Shareholders' equity . . . . . . . . . 242,568 228,384

For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------ -----------------
OTHER DATA:
Funds from operations (2). . . . . . . $ 44,065 $ 28,466
Cash provided by operating
activities. . . . . . . . . . . . . . 45,923 21,280
Cash used in investing
activities. . . . . . . . . . . . . . (63,660) (406,732)
Cash provided by financing
activities. . . . . . . . . . . . . . 17,779 387,022
Distributions declared . . . . . . . . 27,910 18,590

LRP BLOOMINGTON LIMITED PARTNERSHIP (3)
SELECTED PREDECESSOR HISTORICAL FINANCIAL DATA
(Unaudited, Dollars in thousands)

For the
period from
December 1,
For the 1995 (date of
period from Year Ended formation)
January 1, December 31, through
1998 through ------------------ December 31,
April 28, 1998 1997 1996 1995
-------------- ------- ------- -------------
OPERATING DATA:
REVENUES:
Room revenue . . . . $ 4,285 $13,863 $13,419 $ 587
Food and beverage
revenue. . . . . . 3,459 10,214 9,276 682
Telephone revenue. . 124 491 523 26
Other revenue. . . . 537 1,649 1,399 76
------- ------- ------- -------

Total revenue. . . 8,405 26,217 24,617 1,371

For the
period from
December 1,
For the 1995 (date of
period from Year Ended formation)
January 1, December 31, through
1998 through ------------------ December 31,
April 28, 1998 1997 1996 1995
-------------- ------- ------- -------------
OPERATING EXPENSES:
Departmental and
operating expenses. 5,712 17,404 16,462 1,219
Management fees. . . 336 1,111 1,053 55
Property taxes . . . 405 1,240 1,191 97
Interest expense . . 833 2,658 2,601 212
Depreciation and
amortization. . . . 1,196 3,123 2,718 375
Advisory fees. . . . 53 159 159 13
------- ------- ------- -------
Total expenses . . 8,535 25,695 24,184 1,971
------- ------- ------- -------
Net income (loss). . . $ (130) $ 522 $ 433 $ (600)
======= ======= ======= =======

(1) Represents advisory fee paid to the Advisor for acquisition,
management, advisory and administrative services provided to the Company.
The Advisor receives an annual base fee up to 5% of the Company's net
operating income, as defined in the Advisory Agreement, and an annual
incentive fee, which prior to January 1, 1999, is limited to 1% of the
Company's prorated pro forma net operating income based on growth in Funds
from Operations ("FFO") per share.

(2) FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), represents net income applicable to common shareholders
(computed in accordance with GAAP), excluding gains (losses) from debt
restructuring and sales of property (including furniture and equipment),
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent
cash generated from operating activities in accordance with GAAP, is not
necessarily indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income as an indication of
performance or to cash flow as a measure of liquidity. The Company
considers FFO to be an appropriate measure of the performance of an equity
REIT in that such calculation is a measure used by the Company to evaluate
its performance against its peer group and is a basis for making the
determination as to the allocation of its resources and reflects the
Company's ability to meet general operating expenses. Although FFO has
been computed in accordance with the current NAREIT definition, FFO as
presented may not be comparable to other similarly titled measures used by
other REIT's. FFO may include funds that may not be available for
management's discretionary use due to functional requirements to conserve
funds for capital expenditures and property acquisitions, and other
commitments and uncertainties.

(3) The Predecessor was formed on December 1, 1995 for the purpose of
acquiring and operating the Radisson Convention Hotel. On April 29, 1998,
the Predecessor contributed the Radisson Convention Hotel to the Company.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this report that address activities, events
or developments that the Company expects, believes or anticipates will or
may occur in the future, including such matters as future capital
expenditures, distributions and acquisitions (including the amount and
nature thereof), expansion and other development trends of the real estate
industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the
Company and the Advisor in light of their experience and perceptions of
historical trends, current conditions, expected future developments and
other factors they believe are appropriate. Such statements are subject to
a number of assumptions, risks and uncertainties, general economic and
business conditions, the business opportunities that may be presented to
and pursued by the Company, changes in laws or regulations and other
factors, many of which are beyond the control of the Company. Any such
statements are not guarantees of future performance and actual results or
developments may differ materially from those anticipated in the forward-
looking statements.

GENERAL BACKGROUND

The following discusses: (i) the Company's actual results of
operations for the year ended December 31, 1999 compared to the Company's
pro forma results of operations for the year ended December 31, 1998, and
(ii) the Company's pro forma results of operations for the year ended
December 31, 1998 compared to the Company's pro forma results of operations
for the year ended December 31, 1997. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this form 10-K. The Company has not included a
discussion of the Predecessor, as its financial information would not be
deemed comparable to the Company. However, the Predecessor's financial
information has been included in the notes to the consolidated financial
statements.

The pro forma financial information of the Company is presented as if
(i) the IPO and the related formation transactions and the acquisitions of
the San Diego Paradise Point Resort and the Harborside Hyatt Conference
Center and Hotel had been consummated as of January 1, 1997 and (ii) the
acquisition of the Hotel Viking had been consummated as of January 1, 1998.

The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming (i)
the IPO and the related formation transactions and the subsequent
acquisitions of the San Diego Paradise Point Resort and the Harborside
Hyatt Conference Center and Hotel had been consummated and the twelve
Hotels had been leased as of January 1, 1997, and (ii) the acquisition of
the Hotel Viking had been consummated and the hotel subsequently leased as
of January 1, 1998 nor does it purport to represent the results of
operations for future periods.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE PRO FORMA YEAR ENDED
DECEMBER 31, 1998

The Company earned approximately $76.8 million in participating lease
revenue during the year ended December 31, 1999. For the pro forma year
ended December 31, 1998, participating lease revenues would have been $75.0
million. This increase is due to increases in participating lease revenues
from the LeMeridien Dallas and LeMeridien New Orleans, which had increased
hotel revenues for the year ended December 31, 1999. The LeMeridien hotels
benefitted from the renovations, which took place at each of the respective
hotels during 1998. Participating lease revenues for the Harborside Hyatt
Conference Center and Hotel also increased due to strong rate and occupancy
at the hotel. These increases were offset by a decrease in participating
lease revenues at the San Diego Paradise Point Resort in 1999 due to
decreased occupancy levels at the hotel resulting from the significant
renovations taking place at the property during the year ended December 31,
1999.

Depreciation expense increased to $25.4 million or 13.4% for the year
ended December 31, 1999, compared to depreciation expense for the pro forma
year ended December 31, 1998, which would have been $22.4 million. This
increase is attributable to the additional depreciation expense incurred on
capital improvements, which were placed into service during 1999.

Real estate and personal property taxes, insurance and ground rent
increased $0.7 million to $11.6 million for the year ended December 31,
1999 from $10.9 million for the pro forma year ended December 31, 1998.
This increase is primarily attributable to increased real estate taxes at
the hotels.

General and administrative expense increased to $1.3 million for the
year ended December 31, 1999, compared to pro forma general and
administrative expense for the year ended December 31, 1999, which would
have been $ 0.7 million. This increase is attributable to additional
administrative costs incurred for the year ended December 31, 1999.

Interest expense was $16.2 million for the year ended December 31,
1999 and the pro forma year ended December 31, 1998.

Amortization of deferred financing costs increased to $1.0 million for
the year ended December 31, 1999, compared to the comparable pro forma
period in 1998, in which amortization costs would have been $0.8 million.
This $0.2 million increase is attributable to the amortization in 1999 of
costs incurred in late 1998 for the amendment to the credit facility, as
well as the amortization of financing costs related to 1999 Mortgage Loan
(hereinafter defined). These costs would not have been incurred in the pro
forma year ended December 31, 1998.

Advisory fees for the year ended December 31, 1999 were $3.7 million
compared to $3.8 million for the pro forma year ended December 31, 1998.
This decrease is attributable to a higher incentive fee for the pro forma
year ended December 31, 1998, offset by an increase in the base fee for the
year ended December 31, 1999. Advisory fees for the year ended December
31, 1999 also include $12 of expense for options granted to the Advisor
during 1999.

At December 31, 1999, Holiday Inn Plaza Park was held for sale by the
Company. Based on initial pricing expectations, the net book value of the
asset was reduced by $ 2.0 million. This writedown is not included in the
results of operations for the pro forma year ended December 31, 1998.

Minority interest was $2.7 million for the year ended December 31,
1999 compared to $3.6 million for the pro forma year ended December 31,
1998. This decrease is primarily attributable to lower income before
minority interest of $4.1 million for the year ended December 31, 1999
versus the pro forma year ended December 31, 1998.

Net income decreased approximately $3.2 million to $13.9 million for
the year ended December 31, 1999 compared to net income of $17.1 million
for the pro forma year ended December 31, 1998.

COMPARISON OF THE PRO FORMA YEAR ENDED DECEMBER 31, 1998 TO THE PRO FORMA
YEAR ENDED DECEMBER 31, 1997

Participating lease revenue would have been $75.0 million and $65.5
million for the pro forma year ended December 31, 1998 and the pro forma
year ended December 31, 1997, respectively. The $9.5 million or 14.5%
increase is primarily attributable to a 5.3% increase in RevPAR for the
Hotels and the inclusion of the Hotel Viking in the 1998 pro forma.

Depreciation expense increased to $22.4 million or 9.2% for the pro
forma year ended December 31, 1998, compared to depreciation expense for
the pro forma year ended December 31, 1997, which would have been $20.5
million. This increase is attributable to additional depreciation expense
incurred on capital improvements which occurred during 1998 and the
inclusion of the Hotel Viking in the 1998 pro forma.

Real estate and personal property taxes, insurance and ground rent
increased $0.8 million to $10.9 million for the pro forma year ended
December 31, 1998 from $10.1 million for the pro forma year ended
December 31, 1997. This increase is primarily attributable to increased
real estate taxes at the hotels.

General and administrative expense was $ 0.7 million for the pro forma
year ended December 31, 1998 and the pro forma year ended December 31,
1997.

Interest expense increased 13.0% to $16.2 million for the pro forma
year ended December 31, 1998 compared to interest expense of $14.4 million
for the same pro forma period in 1997. Interest expense for the pro forma
year ended December 31, 1998, assumes that the $27.0 million borrowing
under the 1998 Amended Credit Facility for the purchase of the Hotel Viking
was outstanding for all of 1998. The pro forma year ended December 31,
1997 does not include the additional borrowing or the Hotel Viking.

Amortization of deferred financing costs would have been $0.8 million
for the pro forma year ended December 31, 1998 and the pro forma year ended
December 31, 1997.

Advisory fees for the pro forma year ended December 31, 1998 were $3.8
million compared to $3.3 million for the pro forma year ended December 31,
1997. The $0.5 million or 16.4% increase is attributable to an increase in
net operating income during the pro forma year ended December 31, 1998 as a
result of including the Hotel Viking during 1998, as well as increased net
operating income from the rest of the portfolio. The pro forma year ended
December 31, 1997 does not include the effects of the Hotel Viking.

Minority interest was $3.6 million for the pro forma year ended
December 31, 1998 compared to $2.8 million for the pro forma year ended
December 31, 1997. This increase is attributable to higher income before
minority interest of $4.7 million for the pro forma year ended December 31,
1998 versus the pro forma year ended December 31, 1997.

Net income increased approximately $3.9 million to $17.1 million for
the pro forma year ended December 31, 1998 compared to net income of $13.3
million for the pro forma year ended December 31, 1997.

FUNDS FROM OPERATIONS

The Company believes that FFO is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund other cash
needs. The White Paper on FFO approved by the Board of Governors of NAREIT
in March 1995 defines FFO as net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items
related to unconsolidated entities and joint ventures. The Company
computes FFO in accordance with standards established by NAREIT which may
not be comparable to FFO reported by other REITs that do not define the
term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. FFO does not
represent cash generated from operating activities determined by GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. FFO may include funds that may not
be available for management's discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties. The following is a
reconciliation between net income and FFO for the year ended December 31,
1999 and for the period from April 29, 1998 (inception) through
December 31, 1998 (in thousands, except share data):
For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------ -----------------
Net income applicable to
common shareholders. . . . . . $ 13,989 $ 12,233
Depreciation . . . . . . . . . . 25,370 13,666
Minority interest. . . . . . . . 2,706 2,567
Writedown of property held
for sale . . . . . . . . . . . 2,000 --
---------- ----------
FFO. . . . . . . . . . . . . . . $ 44,065 $ 28,466
========== ==========
Weighted average common shares
and units outstanding -
basic and diluted . . . . . . . 18,419,694 18,391,278
========== ==========

In October 1999, NAREIT issued a White Paper which clarifies the
calculation of FFO. This clarification is effective January 1, 2000 and
should be reflected for all periods which are presented. The FFO
clarification will not impact the Company's calculation of FFO in periods
prior or subsequent to January 1, 2000.

THE HOTELS

The following table sets forth historical comparative information with
respect to occupancy, ADR and RevPAR for the comparable Hotels, the non-
comparable Hotels and total Hotel portfolio for the years ended
December 31, 1999 and 1998.

Year Ended December 31,
-------------------------------------
1999 1998 Variance
------- ------- --------
COMPARABLE HOTELS (a)
Occupancy. . . . . . . . . . 74.6% 74.6% 0.0%
ADR. . . . . . . . . . . . . $142.19 $132.83 7.1%
RevPAR . . . . . . . . . . . $106.02 $ 99.09 7.0%

NON-COMPARABLE HOTELS (b)
Occupancy. . . . . . . . . . 62.7% 66.0% (5.0%)
ADR. . . . . . . . . . . . . $124.10 $119.33 $ 4.0%
RevPAR . . . . . . . . . . . $ 77.83 $ 78.77 $ (1.2%)

TOTAL PORTFOLIO
Occupancy. . . . . . . . . . 71.2% 72.1% (1.3%)
ADR. . . . . . . . . . . . . $137.60 $129.27 6.4%
RevPAR . . . . . . . . . . . $ 97.91 $ 93.24 5.0%

(a) Comparable Hotels include all Hotels excluding those in Non-
Comparable.
(b) Non-Comparable Hotels represent Hotels which underwent significant
renovations and include the following:

Marriott Seaview, San Diego Paradise Point Resort and Radisson
Convention Hotel in Quarters 1 and 2, and LeMeridien Dallas, Radisson Tampa
and Radisson Convention Hotel in Quarter 3, LeMontrose, Radisson Hotel
Tampa, Hotel Viking and San Diego Paradise Point Resort in Quarter 4.

The Company's total portfolio RevPar growth of 5.0% in 1999
significantly outperformed the overall market. In 1999, the Company saw
substantial RevPAR gains from the hotels which were renovated during 1998.
The Company continues to benefit from its ownership of high quality hotels
located in strong markets with high barriers to entry and its continuing
refurbishment and repositioning programs.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, is its pro rata share of the
Operating Partnership's cash flow from the Participating Leases. Except for
the security deposits required under the Participating Leases, the Lessees'
obligations under the Participating Leases are unsecured and the Lessees'
abilities to make rent payments to the Operating Partnership, and the
Company's liquidity, including its ability to make distributions to
shareholders, will be dependent on the Lessees' abilities to generate
sufficient cash flow from the operations of the Hotels.

In April 1998, the Company entered into a $200 million senior
unsecured revolving credit facility (the "1998 Credit Facility") to be used
for acquisitions, capital improvements, working capital and general
corporate purposes. The Company amended its 1998 Credit Facility on
October 30, 1998. Under the Amended and Restated Senior Unsecured Credit
Agreement, as amended (the "1998 Amended Credit Facility"), the commitment
was increased by $35 million, bringing the total commitment to $235
million. Borrowings under the 1998 Amended Credit Facility bear interest at

floating rates equal to LIBOR plus an applicable margin or an "Adjusted
Base Rate" plus an applicable margin, at the election of the Company. For
the year ended December 31, 1999, the weighted average interest rate for
borrowings under the 1998 Amended Credit Facility was approximately 6.8%.
The Company did not have any Adjusted Base Rate borrowings outstanding at
December 31, 1999. Additionally, the Company is required to pay an unused
commitment fee which is variable, determined from a ratings or leverage
based pricing matrix, currently set at 25 basis points. The Company
incurred an unused commitment fee of approximately $0.2 million and $0.1
million for the year ended December 31, 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998, respectively. The
1998 Amended Credit Facility matures on April 30, 2001 and contains certain
financial covenants relating to debt service coverage, market value net
worth and total funded indebtedness.

In conjunction with the June 1998 acquisition of the Harborside Hyatt
Conference Center and Hotel, the Company assumed $40 million of special
project revenue bonds ("Massport Bonds") previously issued under the loan
and trust agreement with the Massachusetts Port Authority ("Massport"), as
amended ("Massport Bond Agreement"). In conjunction with the Massport
Bonds, the Company recorded a premium of $3.5 million, of which $1.6
million remains unamortized at December 31, 1999. The Massport Bonds are
collateralized by the leasehold improvements and bear interest at 10% per
annum through the date of maturity, March 1, 2026. Interest payments are
due semiannually on March 1 and September 1. Interest expense, net of the
premium amortization, for the year ended December 31, 1999 and for the
period from June 24, 1998 through December 31, 1998 totaled $2.7 and $1.4
million, respectively. The Massport Bonds shall be redeemed in part
commencing March 1, 2001 and annually until March 1, 2026, at which time
the remaining principal and any accrued interest thereon is due in full.
The Company has the option to prepay the Massport Bonds in full beginning
March 1, 2001 subject to a prepayment penalty which varies depending on the
date of prepayment.

On July 29, 1999, the Company entered into a $46.5 million mortgage
loan (the "1999 Mortgage Loan"). The loan is subject to a fixed interest
rate of 8.1% and requires interest and principal payments based on a 25-
year amortization schedule. The 1999 Mortgage Loan matures on July 31,
2009 and is collateralized by the Radisson Convention Hotel and the Le
Meridien Dallas. Interest expense for the period from July 29, 1999
through December 31, 1999 was $1.6 million. The 1999 Mortgage Loan had a
balance of $46.3 million at December 31, 1999.

At December 31, 1999, the Company had approximately $1.6 million of
cash and cash equivalents and had $164.9 million outstanding under its 1998
Amended Credit Facility.

Net cash provided by operating activities was approximately $45.9
million for the year ended December 31, 1999 primarily due to the
collections of Participation Lease revenues prior to December 31, 1999,
which was offset by payments for real estate taxes, personal property
taxes, interest expense, insurance, ground rent and the Advisory Fee.

Net cash used in investing activities was approximately $63.7 million
for the year ended December 31, 1999 primarily due to the acquisition of
the Hotel Viking and capital improvement expenditures at the Hotels.

Net cash provided by financing activities was approximately $17.8
million for the year ended December 31, 1999 primarily attributable to the
net proceeds received from the 1999 Mortgage Loan and the borrowings under
the 1998 Amended Credit Facility, offset by repayments on borrowings under
the 1998 Amended Credit Facility and the payment of distributions to the
common shareholders and unit holders.

The Company's policy is to incur debt only if upon such incurrence the
Company's total funded indebtedness would not exceed 50% of "Aggregate
Asset Value." For purposes of this policy, Aggregate Asset Value is defined
as the sum of (a) for all the Company's properties owned for more than four
quarters ("Seasoned Properties"), the EBITDA (reduced by the aggregate FF&E
reserves for the relevant period in respect of the Seasoned Properties) of
the Seasoned Properties for the preceding four quarters times 10, and (b)
for all Properties owned for less than four quarters ("New Properties"),
the investment amount (which shall include the purchase price, including
assumed indebtedness, and all acquisition costs) of the New Properties and
95% of all the capital expenditures with respect to the New Properties.
The Board of Trustees can change this policy at any time without the
approval of the common shareholders.

The Company has considered its short-term (one year or less) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that
its principal short-term liquidity needs are to fund normal recurring
expenses, debt service requirements and the minimum distribution required
to maintain the Company's REIT qualification under the Code. The Company
anticipates that these needs will be met with cash flows provided by
operating activities. The Company has also considered capital improvements
and property acquisitions as short-term needs that will be funded either
with cash flows provided by operating activities, under the 1998 Amended
Credit Facility, other indebtedness, or the issuance of additional equity
securities.

The Company expects to meet long-term (greater than one year)
liquidity requirements such as property acquisitions, scheduled debt
maturities, major renovations, expansions and other nonrecurring capital
improvements through estimated cash from operations, long-term unsecured
and secured indebtedness and the issuance of additional equity securities.
The Company will acquire or develop additional hotel properties only as
suitable opportunities arise, and the Company will not undertake
acquisition or development of properties unless stringent
acquisition/development criteria have been achieved.

RESERVE FUNDS

The Company is obligated to maintain Reserve Funds for capital
expenditures at the Hotels, as determined in accordance with the
Participating Leases. The Reserve Funds have not been recorded on the
books and records of the Company as such amounts will be capitalized as
incurred. The amounts obligated under the Reserve Funds range from 4.0% to
5.5% of the individual Hotel's total revenues. The total amount obligated
by the Company under the Reserve Funds is approximately $9.5 million at
December 31, 1999, of which $4.6 million is available in restricted cash
reserves for future capital expenditures. Purchase orders totaling
approximately $8.1 million have been issued for renovations at the Hotels.
The Company has committed to these projects and anticipates making similar
arrangements with the existing Hotels or any future hotels that it may
acquire.

SUBSEQUENT EVENT

On January 25, 2000, the Company entered into a joint venture
arrangement (the "Chicago 540 Hotel Venture") with an institutional
investor to acquire the 1,176-room Chicago Marriott Downtown (the "Chicago
Property") in Chicago, Illinois. The Company, through the Operating
Partnership, owns a 9.9% equity interest in the Chicago 540 Hotel Venture.
The Company will receive an annual preferred return in addition to its pro
rata share of annual cash flow. The Company will also have the opportunity

to earn an incentive participation in net sale proceeds based upon the
achievement of certain overall investment returns, in addition to its pro
rata share of net sale or refinancing proceeds. The Chicago Property was
leased to Chicago 540 Lessee, Inc., in which the Company also owns a 9.9%
equity interest. The institutional investor owns a 90.1% controlling
interest in both the Chicago 540 Hotel Venture and Chicago 540 Lessee, Inc.

Marriott International continues to operate and manage the Chicago
Property.

INFLATION

The Company's revenues come primarily from the Participating Leases,
thus the Company's revenues will vary based on changes in the revenues at
the Hotels. Therefore, the Company relies entirely on the performance of
the Hotels and the lessees' abilities to increase revenues to keep pace
with inflation. Operators of hotels can change room rates quickly, but
competitive pressures may limit the Lessees' and their Operators abilities
to raise rates faster than inflation or even at the same rate.

The Company's expenses are subject to inflation. These expenses
(primarily real estate and personal property taxes, property and casualty
insurance and ground rent) are expected to grow with the general rate of
inflation, except for instances in which the properties are subject to
periodic real estate tax reassessments.

YEAR 2000

The "Year 2000 Issue" arose as the result of computer programs and
systems having been designed and developed to use two digits, rather than
four, to define the applicable year. As a result, these computer programs
and systems had the potential to recognize a date using "00" as the year
1900 rather than the year 2000. This could have resulted in system failure
or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, pay invoices
or engage in similar normal business activities.

Prior to December 31, 1999, the Company, together with its Hotel
Operators, had completed its efforts to minimize the risk of disruption
related to Year 2000. The Company's Year 2000 efforts involved the
following stages: (i) inventory and assessment of software, hardware and
embedded systems; (ii) renovation, which involved converting, replacing or
eliminating selected platforms, applications, databases and utilities, as
well as the validation process of testing and verifying; and (iii)
implementation, which involved returning the tested systems to operational
status, initiating ongoing maintenance procedures to insure continued
readiness and development of contingency plans for critical business
systems should these systems have failed.

As of the date of this filing, the Company has not experienced Year
2000 problems, either internally or at any of its Hotels.

The Company incurred approximately $0.2 million in Year 2000 costs and
does not expect to incur any additional costs related to Year 2000 issues.
The costs incurred were not incremental to the Company as the amounts spent
were part of previously planned renovations and did not arise specifically
as a result of Year 2000 related issues.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities". This statement,
effective for fiscal years beginning after June 15, 2000, establishes
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that the changes
in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. Currently, the pronouncement has no
impact on the Company, as the Company has not utilized derivative
instruments or entered into any hedging activities.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". The Staff determined that a lessor should defer recognition
of contingent rental income until the specified target that triggers the
contingent rental income is achieved. The Company recognizes lease revenue
on an accrual basis pursuant to the terms of the respective Participating
Leases in which Participating Rent is calculated using quarterly
thresholds. Accordingly, SAB No. 101 will not have an impact on the
Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates.
The Company's policy is to manage interest rates through the use of a
combination of fixed and variable rate debt. The Company's interest rate
risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower its overall borrowing costs. To
achieve these objectives, the Company borrows at a combination of fixed and
variable rates.

In 1998, the Company obtained the 1998 Amended Credit Facility, which
provides for a maximum borrowing amount of up to $235 million. Borrowings
under the 1998 Amended Credit Facility bear interest at variable market
rates. At December 31, 1999, the Company's outstanding borrowings under
the 1998 Amended Credit Facility were $164.9 million. The weighted average
interest rate under the facility for the year ended December 31, 1999 was
6.8%.

At December 31, 1999, the Company also had outstanding bonds payable
of $41.6 million, of which $40.0 million represents the principal balance
of the bonds and the remaining $1.6 million represents unamortized premium.

The bonds bear interest at a fixed rate. For fixed rate debt, changes in
interest rates generally affect the fair value of the debt, but not the
earnings or cash flows of the Company. Changes in the fair market value of
fixed rate debt generally will not have a significant impact on the
Company, unless the Company is required to refinance such debt. At
December 31, 1999, the carrying value of the bonds approximated their fair
value.

On July 29, 1999, the Company entered into a $46.5 million mortgage
loan (the "1999 Mortgage Loan"). The loan is subject to a fixed interest
rate of 8.1%, matures in July 31, 2009, and requires interest and principal
payments based on a 25-year amortization schedule. At December 31, 1999,
the carrying value of the 1999 Mortgage Loan was $46.3 million, which
approximated its fair value, as the interest rate associated with the
borrowing approximates current market rates.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to the Financial Statements on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to
the material in the Company's Proxy Statement for the 2000 Annual Meeting
of Shareholders (the Proxy Statement) under the captions "Election of
Trustees".

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Principal and
Management Shareholders."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. FINANCIAL STATEMENTS

Included herein at pages F-1 through F-38

2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is included
herein at pages F-26 through F-28

Schedule III - Real Estate and Accumulated Depreciation

All other schedules for which provision is made in
Regulation S-X are either not required to be included herein under the
related instructions or are inapplicable or the related information is
included in the footnotes to the applicable financial statement and,
therefore, have been omitted.

3. EXHIBITS

The following exhibits are filed as part of this Annual
Report on Form 10-K:

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------

23 Consent of KPMG LLP
27 Financial Data Schedule

(b) REPORTS ON FORM 8-K

A report on Form 8-K dated October 25, 1999 was filed on
October 27, 1999. The report includes the Company's press release, dated
October 25, 1999, which reports earnings for the quarter and nine months
ended September 30, 1999.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

LASALLE HOTEL PROPERTIES

Dated: March 14, 2000 BY: /S/ HANS S. WEGER
------------------------------
Hans S. Weger
Executive Vice President,
Treasurer and Chief
Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
trustees of LaSalle Hotel Properties, hereby severally constitute Jon E.
Bortz, Michael D. Barnello and Hans S. Weger, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Form
10-K filed herewith and any and all amendments to said Form 10-K, and
generally to do all such things in our names and in our capacities as
officers and trustees to enable LaSalle Hotel Properties to comply with the
provisions of the Securities Exchange Act of 1934, as amended and all
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys,
or any of them, to said Form 10-K and any and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and dates indicated.

DATE SIGNATURE TITLE
---- --------- -----

March 14, 2000 /s/ Jon E. Bortz President, Chief Executive
-------------------------- Officer and Trustee
Jon E. Bortz

March 14, 2000 /s/ Stuart L. Scott Chairman of the
-------------------------- Board of Trustees
Stuart L. Scott

March 14, 2000 /s/ Darryl Hartley-Leonard Trustee
--------------------------
Darryl Hartley-Leonard

March 14, 2000 /s/ George F. Little, II Trustee
--------------------------
George F. Little, II

DATE SIGNATURE TITLE
---- --------- -----

March 14, 2000 /s/ Donald S. Perkins Trustee
--------------------------
Donald S. Perkins

March 14, 2000 /s/ Donald A. Washburn Trustee
--------------------------
Donald A. Washburn

March 14, 2000 /s/ Michael D. Barnello Chief Operating Officer and
-------------------------- Executive Vice President
Michael D. Barnello of Acquisitions

LASALLE HOTEL PROPERTIES

INDEX TO FINANCIAL STATEMENTS

LASALLE HOTEL PROPERTIES

Report of Independent Accountants. . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998 . . . F-3

Consolidated Statements of Operations for the year ended
December 31, 1999 and for the period from April 29,
1998 (inception) through December 31, 1998 . . . . . . . . . . . F-4

Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 . . . . . . F-5

Consolidated Statements of Cash Flows for the year ended
December 31, 1999 and for the period from April 29,
1998 (inception) through December 31, 1998 . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . . . F-8

Schedule III - Real Estate and Accumulated Depreciation. . . . . . F-26

LASALLE HOTEL LESSEE, INC.

Report of Independent Accountants. . . . . . . . . . . . . . . . . F-29

Balance Sheets as of December 31, 1999 and 1998. . . . . . . . . . F-30

Statements of Operations for the year ended December 31, 1999
and for the period from April 29, 1998 (inception) through
December 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . F-31

Statements of Stockholders' Equity (Deficit) for the
year ended December 31, 1999 and for the period from
April 29, 1998 (inception) through December 31, 1998 . . . . . . F-32

Statements of Cash Flows for the year ended December 31,
1999 and for the period from April 29, 1998 (inception)
through December 31, 1998. . . . . . . . . . . . . . . . . . . . F-33

Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-34

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Trustees of
LaSalle Hotel Properties:

We have audited the consolidated financial statements of LaSalle Hotel
Properties as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
LaSalle Hotel Properties as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the year ended December 31,
1999 and for the period from April 29, 1998 (inception) through December
31, 1998 in conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG LLP

Chicago, Illinois
January 21, 2000

LASALLE HOTEL PROPERTIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

December 31, December 31,
1999 1998
------------ ------------
ASSETS
------

Investment in hotel properties, net. . . $ 501,191 $ 467,552
Investment in Affiliated Lessee. . . . . 36 (21)
Cash and cash equivalents. . . . . . . . 1,612 1,570
Restricted cash reserves . . . . . . . . 12,883 9,789
Rent receivable from lessees:
Affiliated lessee. . . . . . . . . . . 1,675 --
Other lessees. . . . . . . . . . . . . 3,744 3,088
Notes receivable:
Affiliated lessee. . . . . . . . . . . 3,900 1,500
Other lessees. . . . . . . . . . . . . 3,617 3,451
Other. . . . . . . . . . . . . . . . . 442 --
Deferred financing costs, net. . . . . . 1,623 1,754
Prepaid expenses and other assets. . . . 1,349 7,655
---------- ----------
Total assets . . . . . . . . . $ 532,072 $ 496,338
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Borrowings under credit facility . . . . $ 164,900 $ 164,700
Bonds payable, net . . . . . . . . . . . 41,571 42,828
Mortgage loans . . . . . . . . . . . . . 46,306 --
Due to JLL . . . . . . . . . . . . . . . 1,123 886
Due to Affiliated Lessee . . . . . . . . 30 614
Accounts payable and accrued expenses. . 6,147 4,320
Distributions payable. . . . . . . . . . 7,000 6,902
Minority interest in Operating
Partnership. . . . . . . . . . . . . . 22,417 47,694
Minority interest in other partnerships. 10 10

Commitments and contingencies

SHAREHOLDERS' EQUITY:
Preferred shares of beneficial interest,
$.01 par value, 20,000,000 shares
authorized, no shares issued and
outstanding at December 31, 1999
and 1998 . . . . . . . . . . . . . . -- --
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 16,863,052 and 15,224,580
shares issued and outstanding at
December 31, 1999 and 1998,
respectively . . . . . . . . . . . . 169 152
Additional paid-in capital . . . . . . 255,329 231,376
Distributions in excess of
Retained Earnings. . . . . . . . . . (12,930) (3,144)
---------- ----------
Total shareholders' equity . . 242,568 228,384
---------- ----------
Total liabilities and
shareholders' equity . . . . $ 532,072 496,338
========== ==========

The accompanying notes are an integral part of these
consolidated financial statements.

LASALLE HOTEL PROPERTIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------- -----------------
Revenues:
Participating lease revenue:
Affiliated Lessee. . . . . . . . $ 28,290 $ 19,436
Other lessees. . . . . . . . . . 48,553 27,028
Interest income:
Affiliated lessee. . . . . . . . 228 54
Other lessees. . . . . . . . . . 205 135
Other. . . . . . . . . . . . . . 555 378
Equity in income (loss) of
Affiliated Lessee . . . . . . . . 57 (59)
Other income . . . . . . . . . . . 66 21
---------- ----------
Total revenues . . . . . . . 77,954 46,993
---------- ----------
Expenses:
Depreciation and other
amortization. . . . . . . . . . . 25,378 13,666
Real estate, personal property
taxes and insurance . . . . . . . 8,205 5,047
Ground rent. . . . . . . . . . . . 3,351 1,886
General and administrative . . . . 1,342 459
Interest . . . . . . . . . . . . . 16,181 8,474
Amortization of deferred
financing costs. . . . . . . . . 992 514
Advisory fee . . . . . . . . . . . 3,670 2,134
Other expenses . . . . . . . . . . 140 13
---------- ----------
Total expenses . . . . . . . 59,259 32,193
---------- ----------
Income before minority interest
and writedown of property held
for sale. . . . . . . . . . . . . . 18,695 14,800
Writedown of property held for
sale. . . . . . . . . . . . . . . . 2,000 --
---------- ----------
Income before minority interest. . . 16,695 14,800
Minority interest in
Operating Partnership . . . . . . . 2,706 2,567
---------- ----------
Net income applicable to
common shareholders . . . . . . . . $ 13,989 $ 12,233
========== ==========
Net income applicable to common
shareholders per weighted
average common share outstanding
- basic and diluted . . . . . . . . $ .91 $ .80
========== ==========
Weighted average number of
common shares outstanding
- basic and diluted . . . . . . . . 15,432,667 15,209,555
========== ==========

The accompanying notes are an integral part of these
consolidated financial statements.

LASALLE HOTEL PROPERTIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)

Distribu-
tions in
Additional Excess of
Common Paid-In Retained Retained
Shares Capital Earnings Earnings Total
------ --------- -------- --------- --------

Initial funding. . . $ -- $ 1 $ -- $ -- $ 1

Net proceeds from
issuance of common
shares. . . . . . . 142 234,052 -- -- 234,194
Issuance of
restricted common
shares. . . . . . . 9 16,409 -- -- 16,418
Proceeds from
issuance of
common shares . . . 1 1,999 -- -- 2,000
Issuance of rights
and options to
purchase shares . . -- 2,997 -- -- 2,997
Adjustment required
to reflect pre-
decessor's basis. . -- (24,082) -- -- (24,082)
Distributions
declared ($1.01
per common share) . -- -- (12,233) (3,144) (15,377)
Net income . . . . . -- -- 12,233 -- 12,233
---- -------- -------- -------- --------
Balance,
December 31,
1998. . . . . . . . 152 231,376 -- (3,144) 228,384

Offering costs . . . -- (106) -- -- (106)
Issuance of shares . 1 216 -- -- 217
Options granted
to Advisor. . . . . -- 12 -- -- 12
Unit conversions . . 16 23,831 -- -- 23,847
Distributions
declared ($1.515
per common share) . -- -- (13,989) (9,786) (23,775)
Net income . . . . . -- -- 13,989 -- 13,989
---- -------- -------- -------- --------
Balance,
December 31,
1999. . . . . . . . $169 $255,329 $ -- $(12,930) $242,568
==== ======== ======== ======== ========

The accompanying notes are an integral part of these
consolidated financial statements.

LASALLE HOTEL PROPERTIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)

For the
period from
April 29, 1998
For the (inception)
year ended through
December 31, December 31,
1999 1998
------------ --------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $ 13,989 $ 12,233
Adjustments to reconcile net income to
net cash flow provided by operating
activities:
Depreciation and other amortization. . . . 25,378 13,666
Amortization of deferred financing fees. . 992 514
Bond premium amortization. . . . . . . . . (1,257) (652)
Minority interest in Operating
Partnership . . . . . . . . . . . . . . . 2,706 2,567
Options granted to Advisor . . . . . . . . 12 --
Writedown of property held for sale. . . . 2,000 --
Equity in (income) loss of Affiliated
Lessee. . . . . . . . . . . . . . . . . . (57) 59
Changes in assets and liabilities:
Rent receivable from lessees . . . . . . . (2,249) (3,088)
Prepaid expenses and other assets. . . . . 3,442 (3,952)
Due to JLL . . . . . . . . . . . . . . . . 392 811
Accounts payable and accrued expenses. . . 575 (878)
---------- --------
Net cash flow provided by
operating activities . . . . . . . 45,923 21,280
---------- --------
Cash flows from investing activities:
Acquisitions of hotel properties . . . . . . (28,233) (380,250)
Improvements and additions to hotel
properties. . . . . . . . . . . . . . . . . (31,912) (9,309)
Advances to Affiliated Lessee. . . . . . . . -- (2,405)
Funding of notes receivable. . . . . . . . . (421) (4,951)
Funding of restricted cash reserves. . . . . (18,997) (14,385)
Proceeds from restricted cash reserves . . . 15,903 4,596
Proceeds from minority interest in
other partnerships. . . . . . . . . . . . . -- 10
Capital contribution to affiliated lessee. . -- (38)
---------- --------
Net cash flow used in
investing activities . . . . . . . (63,660) (406,732)
---------- --------
Cash flows from financing activities:
Borrowings under credit facility . . . . . . 86,830 164,700
Repayments under credit facility . . . . . . (86,630) --
Proceeds from mortgage loan. . . . . . . . . 46,500 --
Mortgage loan repayments . . . . . . . . . . (194) --
Payment of deferred financing costs. . . . . (811) (2,190)
Proceeds from issuance of common shares. . . -- 257,601
Offering costs . . . . . . . . . . . . . . . (106) (21,401)
Distributions. . . . . . . . . . . . . . . . (27,810) (11,688)
---------- --------
Net cash flow provided by
financing activities . . . . . . . 17,779 387,022
---------- --------