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
---------- --------

LASALLE HOTEL PROPERTIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(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
------------ --------------

Net change in cash and cash equivalents. . . . 42 1,570
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . 1,570 --
---------- --------

Cash and cash equivalents at
end of period . . . . . . . . . . . . . . . . $ 1,612 $ 1,570
========== ========

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

LASALLE HOTEL PROPERTIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, expect per share data)

1. ORGANIZATION AND INITIAL PUBLIC OFFERING

LaSalle Hotel Properties (the "Company") was organized in the state of
Maryland on January 15, 1998. The Company is a real estate investment
trust ("REIT") as defined in the Internal Revenue Code. The Company was
formed 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").
On April 23, 1998, the Company's Registration Statement on Form S-11 was
declared effective. The Company had no operations prior to April 29, 1998.

On April 29, 1998, the Company completed an initial public offering (the
"IPO") of 14,200,000 common shares of beneficial interest (the "Common
Shares"). The offering price of all Common Shares sold was $18 per common
share, resulting in gross proceeds of $255,600 and net proceeds (less the
underwriters' discount and offering expenses) of $234,138. The Company
contributed all of the net proceeds of the IPO to LaSalle Hotel Operating
Partnership, L.P., a limited partnership (the "Operating Partnership"), in
exchange for an approximate 82.6% general partnership interest in the
Operating Partnership. The Operating Partnership used the net proceeds
from the Company, the issuance of additional Common Shares of the Company,
the issuance of rights to purchase Common Shares and the issuance of
limited partnership interests ("Units"), representing an approximate 17.4%
interest in the Operating Partnership, to acquire ten upscale and luxury
full service hotels (the "Initial Hotels").

As of December 31, 1999, the Company owned interests in 13 hotels with
an aggregate of 4,300 suites/rooms (the "Hotels") located in ten states.
The Company owns 100% equity interests in 12 of the hotels and a 95.1%
interest in a partnership which owns one hotel. All of the Hotels are
leased under participating leases ("Participating Leases") which provide
for rent based on hotel revenues and are managed by independent hotel
operators ("Hotel Operators"). Nine of the Hotels are leased to
unaffiliated lessees (affiliates of whom also operate these hotels) and
four of the Hotels are leased to LaSalle Hotel Lessee, Inc. (the
"Affiliated Lessee").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the
Company, the Operating Partnership and its consolidated subsidiaries and
partnerships. All significant intercompany balances and transactions have
been eliminated.

USE OF ESTIMATES

The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is determined by using available market information and
appropriate valuation methodologies. The Company's financial instruments
include cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, borrowings against the 1998 Amended Credit Facility (as
defined in Note 7) and borrowings under the 1999 Mortgage Loan (as defined
in Note 7). Due to their short maturities, cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses are carried at
amounts which reasonably approximate fair value. As borrowings under the
1998 Amended Credit Facility bear interest at variable market rates,
carrying value approximates market value at December 31, 1999 and 1998. At
December 31, 1999, the carrying value of the 1999 Mortgage Loan
approximated its fair value, as the interest rate associated with the
borrowing approximated current market rates.

INVESTMENT IN HOTEL PROPERTIES

Hotel properties are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from 27.5-30 years
for buildings and improvements and 5 years for furniture, fixtures and
equipment.

The Company periodically reviews the carrying value of each Hotel to
determine if circumstances exist indicating an impairment in the carrying
value of the investment in the hotel or that depreciation periods should be
modified. If facts or circumstances support the possibility of impairment,
the Company will prepare a projection of the undiscounted future cash
flows, without interest charges, of the specific hotel and determine if the
investment in such hotel is recoverable based on the undiscounted future
cash flows. If impairment is indicated, an adjustment will be made to the
carrying value of the hotel based on discounted future cash flows. In
1999, the Company recorded a writedown of $2,000 for the Holiday Inn Plaza
Park (see Note 6). The Company does not believe that there are any factors
or circumstances indicating impairment of any of its investments in the
remaining twelve Hotels.

INVESTMENT IN 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 business affairs and operations. Accordingly, the
Company does not control the Affiliated Lessee and carries its investment
at cost, plus its equity in net earnings, less distributions received since
the date of inception.

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.

DEFERRED FINANCING FEES

Deferred financing fees are recorded at cost and are amortized over
the three-year term of the 1998 Amended Credit Facility and over the ten-
year term of the 1999 Mortgage Loan. Accumulated amortization at
December 31, 1999 and 1998 was $1,316 and $474, respectively.

DISTRIBUTIONS

The Company pays regular quarterly distributions to its shareholders
as directed by the Board of Trustees. The Company's ability to pay
distributions is dependent on the receipt of distributions from the
Operating Partnership.

REVENUE RECOGNITION

The Company recognizes lease revenue on an accrual basis pursuant to
the terms of the respective Participating Leases. Base and participating
rent is recognized based on quarterly thresholds, pursuant to the lease
agreements (see Note 10).

MINORITY INTEREST

Minority interest in the Operating Partnership represents the limited
partners' proportionate share of the equity in the Operating Partnership.
At December 31, 1999, the aggregate partnership interest held by the
limited partners in the Operating Partnership was approximately 8.5%.
Income is allocated to minority interest based on the weighted average
percentage ownership throughout the year.

Minority interest in the San Diego Subsidiary Partnership (as defined
in Note 4) represents the limited partner's proportionate share of the
equity in the San Diego Subsidiary Partnership. Income is allocated to
minority interest based on the terms of the partnership agreement.

INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code (the "Code"). As a result, the
Company generally will not be subject to Federal corporate income tax on
that portion of its net income that is currently distributed to
shareholders. Accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements.

For federal income tax purposes, the cash distributions paid to
shareholders may be characterized as ordinary income, return of capital
(generally non-taxable) or capital gains. For 1999, 91.1% of the Company's
distributions were fully taxable as ordinary income, while 8.9% represented
a return of capital. The Company's 1998 distributions were fully taxable
as ordinary income.

EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based on the weighted average number of common shares outstanding plus the
effect of in-the-money stock options.

3. NOTES RECEIVABLE

The Company provided working capital to the Affiliated Lessee and the
other lessees in the aggregate amount of $5,934 in exchange for notes
receivable ("Working Capital Notes"). In addition, the Company sold
certain furniture, fixtures and equipment to two of its unaffiliated
lessees in exchange for notes receivable ("FF&E Notes") of $1,583. Both
the Working Capital Notes and the FF&E Notes are payable in monthly
installments of interest only. The Working Capital Notes bear interest at
either 5.6% or 6% per annum and have terms identical to the terms of the
related Participating Lease. The FF&E Notes bear interest at 5.6% and 6.0%
per annum and have an initial term of five years unless extended at the
Company's option.

4. ACQUISITION OF HOTEL PROPERTIES

The Initial Hotels were previously owned by various limited and
general partnerships (the "Existing Partnerships"). In conjunction with
the IPO and the related formation transactions, the Initial Hotels, except
for Radisson Convention Hotel (previously owned by LRP Bloomington Limited

Partnership), were purchased by the Company from their Existing
Partnerships and were accounted for as purchase transactions. LRP
Bloomington Limited Partnership, the Existing Partnership that retained the
largest number and percentages of voting rights of the Company after the
formation transactions, was designated as the predecessor (the
"Predecessor") for accounting purposes. Therefore, the Company recorded a
purchase accounting adjustment in order to account for the Radisson
Convention Hotel using the historical basis of accounting.

In June 1998, the Company acquired an interest in the San Diego
Princess Resort (the "San Diego Property") through a subsidiary
partnership, LHO Mission Bay Hotel, L.P. (the "San Diego Subsidiary
Partnership"). The San Diego Subsidiary Partnership is a limited
partnership of which the Operating Partnership holds an approximate 95.1%
general partnership interest. The 462-room San Diego Property was renamed
the San Diego Paradise Point Resort.

The San Diego Property was acquired for an aggregate purchase price of
$73 million funded with proceeds from a borrowing under the Company's 1998
Credit Facility (as defined in Note 7) and from the proceeds of the sale of
112,458 Common Shares to the limited partner of the San Diego Subsidiary
Partnership who operates the San Diego Property pursuant to the terms of a
participating lease.

Also in June 1998, the Company acquired a 100% interest in the 270-
room Harborside Hyatt Conference Center & Hotel in Boston (the "Boston
Property") through an indirect subsidiary, LHO Harborside Hotel, L.L.C.
(the "Harborside Subsidiary LLC"). The Harborside Subsidiary LLC is a
limited liability company, of which the Operating Partnership is the sole
member.

The Boston Property was acquired for an aggregate purchase price of
$73.5 million, including $40 million of existing tax exempt industrial
revenue bonds to which the Boston Property remains subject. The remainder
of the purchase price was funded with proceeds from a borrowing under the
Company's 1998 Credit Facility. Hyatt Hotels Corporation continues to
operate the Boston Property under an existing management agreement.

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.

5. INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of December 31, 1999 and 1998
consists of the following:

December 31, December 31,
1999 1998
------------ ------------
Land . . . . . . . . . . . . . . . . $ 49,308 $ 46,989
Buildings and improvements . . . . . 421,134 383,294
Furniture, fixtures and equipment. . 77,030 58,180
-------- --------
547,472 488,463
Accumulated depreciation . . . . . . (39,036) (13,666)
Accumulated depreciation
(Predecessor). . . . . . . . . . . (7,245) (7,245)
-------- --------
$501,191 $467,552
======== ========

The Hotels are located in California (3), Florida (2), Louisiana,
Massachusetts, Minnesota, Nebraska, New Jersey, New York, Rhode Island and
Texas.

6. REAL ESTATE HELD FOR SALE

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.

Results of operations for the Holiday Inn Plaza Park are as follows:

For the
period from
April 29, 1998
For the (inception)
year ended through
December 31, 1999 December 31, 1998
------------------ -----------------

Total Revenues . . . . . . . . . $1,489 $1,079
Total Expenses . . . . . . . . . 420 259
Income from Operations . . . . . $1,069 $ 820

7. LONG-TERM DEBT

CREDIT FACILITY

In April 1998, the Company obtained a three-year commitment for 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 the 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 an additional $35 million,
bringing the total commitment under the facility 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 and for the period from April 29, 1998 (inception)
through December 31, 1998, the weighted average interest rate on borrowings
under the 1998 Amended Credit Facility was 6.8% and 7.0%, respectively.
The Company did not have any Adjusted Base Rate borrowings outstanding at
December 31, 1999 or 1998. Additionally, the Company is required to pay an
unused commitment fee which is variable, determined from a ratings based
pricing matrix, currently set at 25 basis points. The Company incurred an
unused commitment fee of approximately $162 and $93 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. At December 31, 1999 and 1998, the Company had outstanding
borrowings against the 1998 Credit Facility of $164,900 and $164,700,
respectively.

BONDS PAYABLE

On June 24, 1998 the Company, through the Harborside Subsidiary LLC,
acquired the Boston Property subject to $40,000 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 $3,480, of which $1,571 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 $2,743 and $1,425,
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. Future principal payments are as follows:

2000. . . . . . . . . . . . . $ --
2001. . . . . . . . . . . . . 400
2002. . . . . . . . . . . . . 400
2003. . . . . . . . . . . . . 400
2004. . . . . . . . . . . . . 500
Thereafter. . . . . . . . . . 38,300
-------
$40,000
=======

Under the terms of the Massport Bond Agreement, certain cash reserves
are required to be held in trust for payments of interest, credit
enhancement fees and ground rent. As of December 31, 1999 and 1998, these
reserves totaled $7,311 and $5,979, respectively, and are included in
Restricted Cash Reserves.

In addition, the Massport Bond Agreement was supplemented by a credit
enhancement agreement (the "Massport Credit Enhancement Agreement").
Pursuant to the Massport Credit Enhancement Agreement, certain funds have
been set aside by Massport to provide additional deficit funding if the
amounts held in trust by the Company are not sufficient to cover the debt
service requirements on the outstanding Massport Bonds. In consideration
for the Massport Credit Enhancement Agreement, the Company is required to
pay an annual enhancement fee of $150, payable March 1 and September 1.

MORTGAGE LOAN

On July 29, 1999, the Company, through the newly formed LHO Financing
Partnership I, L.P. (the "Financing Partnership") entered into a $46,500
mortgage loan (the "1999 Mortgage Loan"). The Financing Partnership is
effectively wholly owned by the Company. The 1999 Mortgage Loan is secured
by the Radisson Convention Hotel and Le Meridien Dallas. The loan matures
on July 31, 2009 and does not allow for prepayment prior to January 31,
2009, without penalty. The loan bears interest at a fixed rate of 8.1% and
requires interest and principal payments based on a 25-year amortization
schedule. The loan agreement requires the Financing Partnership to hold
funds in escrow for the payment of one half year's insurance and real
estate taxes. The 1999 Mortgage loan also requires the Financing
Partnership to maintain a certain debt service coverage ratio.

The 1999 Mortgage Loan had a principal balance of $46,306 at
December 31, 1999. Future scheduled debt principal payments at
December 31, 1999 are as follows (in thousands):

2000. . . . . . . . . . . . . $ 616
2001. . . . . . . . . . . . . 667
2002. . . . . . . . . . . . . 723
2003. . . . . . . . . . . . . 784
2004. . . . . . . . . . . . . 850
Thereafter. . . . . . . . . . 42,666
-------
$46,306
=======

8. SHAREHOLDERS' EQUITY

COMMON SHARES OF BENEFICIAL INTEREST

In connection with the acquisition of the Initial Hotels, the Company
issued 912,122 restricted Common Shares to JLL. The Common Shares were
valued at $18.00 per share or $16,418. The Company also granted 1,280,569
rights mainly to purchase Common Shares at the exercise price of $18.00 per
share in connection with the acquisition of the Initial Hotels. Among the
rights which were granted, 457,346 were granted to the Advisor (as defined
in Note 11). The Advisor may exercise its rights to purchase Common Shares
or Units, at the option of the Company. The Company has recorded these
rights in shareholders' equity at their fair value on the date of grant,
which was $2,997. All rights have a one year vesting period and a 10 year
term. At December 31, 1999, all of the rights were exercisable.

In connection with the purchase of the San Diego Property (see
Note 4), the sole limited partner in the San Diego Subsidiary Partnership
(which is an affiliate of the hotel operator) acquired 112,458 Common
Shares, from the Company for a purchase price of $2,000. The purchase and
sale of the Common Shares was a condition to the selection of the affiliate
of the limited partner as operator of the San Diego Property, and the
Common Shares have been pledged to the Operating Partnership to secure the
limited partner's obligations under the related Participating Lease.

On February 22, 1999, the Company issued 4,995 Common Shares to the
Board of Trustees for their 1998 Compensation. The annual fee paid to the
Board of Trustees is paid 50% in cash and 50% in Common Shares. Each
trustee may elect to receive Common Shares in lieu of receiving 50% of
their annual fee in cash.

On March 4, 1999, pursuant to the advisory agreement, the Company
issued 10,988 Common Shares to the Advisor for the incentive portion of the
1998 advisory fee, in lieu of the $155, which would have otherwise been due
to the Advisor.

On May 13, 1999, the Company's registration statement on Form S-3
under the Securities Act of 1933 (the "Securities Act"), as amended,
registering $200,000 of Common Shares, Common Share Warrants, Preferred
Shares of Beneficial Interest (the "Preferred Shares") and Depository
Shares representing Preferred Shares was declared effective.

As of December 31, 1999, the Company has reserved 1,500,000 Common
Shares for future issuance under the 1998 SIP (as defined in Note 12). The
Company has also reserved a total of 1,280,569 Common Shares for future
issuance pursuant to rights which have been issued and 1,559,234 Common
Shares for issuance upon the conversion of the Units, both of which were
issued in connection with the IPO, the acquisition of the Initial Hotels
and the formation of the Company.

During 1999, the Company granted options to the Advisor under the 1998
SIP. In conjunction with this grant, the Company recorded an expense of
$12 for the year ended December 31, 1999, which is included in Advisory Fee
in the income statement. These options vested on January 18, 2000.

OPERATING PARTNERSHIP UNITS

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.

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,
1,559,234 Units were outstanding.

9. EARNINGS PER SHARE

The Company's basic and diluted earnings per share for the year ended
December 31, 1999 and for the period from April 29, 1998 (inception)
through December 31, 1998 was $0.91 and $0.80, respectively. There was no
adjustment to either the weighted average number of common shares
outstanding or the reported amounts of income in computing diluted earnings
per share because the unexercised stock options were anti-dilutive. The
weighted average number of common shares used in determining basic and
diluted earnings per share was 15,432,667 and 15,209,555 for the year ended
December 31, 1999 and for the period from April 29, 1998 (inception)
through December 31, 1998, respectively.

The outstanding limited partners' units in the Operating Partnership
have been excluded from the diluted earnings per share calculation as there
would be no effect on the amount since the minority interests' share of
income would also be added back to net income.

10. PARTICIPATING LEASES

The Participating Leases have noncancelable terms ranging from six to
11 years (from commencement), subject to earlier termination on the
occurrence of certain contingencies, as defined. The rent due under each
Participating Lease is the greater of base rent, as defined, or
participating rent. Participating rent applicable to room and other hotel
revenues varies by lease and is calculated by multiplying fixed percentages
by the total amounts of such revenues over specified threshold amounts.
Both the base rent and the participating rent thresholds used in computing
percentage rents applicable to room and other hotel revenues, including
food and beverage revenues, are subject to annual adjustments based on
increases in the United States Consumer Price Index ("CPI") 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.
Participating Lease revenues for the year ended December 31, 1999 and for
the period from April 29, 1998 (inception) through December 31, 1998 were
$76,843 and $46,464, of which $25,271 and $15,256 was in excess of base
rent, respectively.

Future minimum rentals (without reflecting future CPI increases) to be
received by the Company pursuant to the Participating Leases for each of
the years in the period 2000 to 2004 and in total thereafter are as
follows:

2000 . . . . . . . . . . . . . . . . $ 53,998
2001 . . . . . . . . . . . . . . . . 53,998
2002 . . . . . . . . . . . . . . . . 53,998
2003 . . . . . . . . . . . . . . . . 54,246
2004 . . . . . . . . . . . . . . . . 53,992
Thereafter . . . . . . . . . . . . . 188,869

11. ADVISORY AGREEMENT

Upon completion of the IPO, the Company entered into an advisory
agreement (the "Advisory Agreement") with LaSalle Hotel Advisors, Inc. (the
"Advisor"), a wholly owned subsidiary of JLL, to provide acquisition,
investment management, advisory and administrative services for the
Company. The initial term of the Advisory Agreement extends 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.

The Advisory Agreement provides for payment of a base fee, payable
quarterly, starting at 5% of the first $100 million of net operating income
("NOI") (as defined). The percentage of NOI used to calculate the base fee
is reduced by .2% for every incremental $125 million of NOI above $100
million until $600 million, at which point any excess NOI above $600
million is subject to a base fee of 4%.

In addition, the Advisory Agreement provides for payment of an annual
incentive fee to be paid by the Company in arrears. The annual incentive
fee is equal to 25% of the product of (i) the amount by which the funds
from operations ("FFO") per common share/Unit (as defined) for the calendar
year then ended (the "Measurement Year") exceeds a growth rate of 7% per
annum of the FFO per common share/Unit for the prior calendar year and (ii)
the common shares/Units outstanding for the Measurement Year. For partial
years, the incentive fee shall be calculated on a pro rata basis for only
that portion of the year that the Advisory Agreement was in effect.
Payment of the incentive fee will be in common shares or Units at the
option of the Advisor.

12. SHARE OPTION AND INCENTIVE PLAN

In April 1998, the Board of Trustees adopted and the then current
shareholder, approved the Share Option and Incentive Plan (the "1998 SIP")
which is currently administered by the Compensation, Contract and
Governance Committee (the "Compensation Committee") of the Board of
Trustees. The Advisor and its employees and the Hotel Operators and their
employees generally are eligible to participate in the 1998 SIP.
Independent Trustees continuing in office after an annual meeting of
shareholders of the Company receive automatic annual grants of options to
purchase 1,000 Common Shares at a per share exercise price equal to fair
market value of a Common Share on the date of the meeting.

The 1998 SIP authorizes, among other things: (i) the grant of share
options that qualify as incentive options under the Code; (ii) the grant of
share options that do not so qualify; (iii) the grant of share options in
lieu of cash Trustees' fees; (iv) grants of Common Shares in lieu of cash
compensation; and (v) the making of loans to acquire Common Shares in lieu
of compensation. The exercise price of share options is determined by the
Compensation Committee, but may not be less than 100% of the fair market
value of the Common Shares on the date of grant. Options under the plan
vest over a period determined by the Compensation Committee, which is
generally a three year period. The duration of each option is also
determined by the Compensation Committee, however, the duration of each
option shall not exceed 10 years from date of grant.

On May 19, 1999, the common shareholders approved an amendment to the
1998 SIP, increasing the number of Common Shares authorized for issuance
under the SIP from 757,000 to 1,500,000. Accordingly, at December 31, 1999
and 1998, 1,500,000 and 757,000 shares were authorized for issuance under
the 1998 SIP, respectively.

Stock option transactions are summarized as follows:

1999 1998
----------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------ --------

Outstanding at
beginning of the year . . . 81,000 $ 16.22 -- $ --
Options granted. . . . . . . 310,700 13.20 81,000 16.22
Options forfeited. . . . . . (11,500) 13.25
------- ------
Outstanding at
end of year . . . . . . . . 380,200 81,000
======= ======
Exercisable at
end of the year . . . . . . 43,667 --
Available for future grant
at year end . . . . . . . . 1,114,805 676,000

Weighted average per share
fair value of options
granted during the year . . $ 1.55 $ .94

Options Outstanding Options Exercisable
--------------------------------- ----------------------
Number Weighted Weighted Number Weighted
Range of Outstand- Average Average Outstand- Average
Exercise ing at Remaining Exercise ing at Exercise
Prices 12/31/99 Life Price 12/31/99 Price
- ------------- --------- --------- --------- ----------- --------

$13.19-$18.00 380,200 6.2 years $13.84 43,667 $16.90

The fair value of each stock option granted is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:

1999 1998
------ ------
Expected Life. . . . . . . . . . . . 7.2 7.9
Expected Volatility. . . . . . . . . 32.0% 13.4%
Risk-free Interest Rate. . . . . . . 4.8% 4.7%
Dividend Yield . . . . . . . . . . . 10.9% 9.3%

PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE

The Company has applied Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for the 1998 SIP. Accordingly, no
compensation costs have been recognized, except $12 for the options granted
to the Advisor during 1999, which were accounted for under the method
required by Statement of Financial Accounting Standards ("SFAS") No. 123.
Had compensation cost for all of the options granted under the Company's
1998 SIP been determined in accordance with the method required by SFAS
No. 123, the Company's net income and net income per common share for 1999
and 1998 would approximate the pro forma amounts below (in thousands,
except per share data).

1999 1998
---------------------- -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------

Net income . . . . . . $13,989 $13,886 $12,233 $12,229
======= ======= ======= =======
Net income per
common share . . . . $ .91 $ .90 $ .80 $ .80
======= ======= ======= =======

13. AFFILIATED LESSEE

A significant portion of the Company's participating lease revenue is
derived from the Participating Leases with the Affiliated Lessee. Certain
condensed financial information, related to the Affiliated Lessee's
financial statements, is as follows:

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

Balance Sheet Information:
Cash and cash equivalents. . . . . . . . $ 5,494 $ 3,742
Due from LaSalle Hotel Properties. . . . 30 614
Total assets . . . . . . . . . . . . . . 11,176 9,580
Notes payable to LaSalle Hotel
Properties . . . . . . . . . . . . . . 3,900 1,500
Total liabilities. . . . . . . . . . . . 10,777 9,814
Stockholders' equity (deficit) . . . . . 399 (234)
Total liabilities and stockholders'
equity (deficit) . . . . . . . . . . . 11,176 9,580

For the
period from
April 29, 1998
For the (inception)
year ended through
December 31, December 31,
1999 1998
------------ --------------

Statement of Operations Information:
Total revenues . . . . . . . . . . . . . . . $100,700 $ 66,335
Participating lease expense. . . . . . . . . 28,290 19,436
Net income (loss). . . . . . . . . . . . . . 633 (659)

At December 31, 1999 and 1998, the Company owed the Affiliated Lessee
$30 and $614, respectively, for reimbursement of capital improvements,
which were paid by the Affiliated Lessee.

14. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

For the
period from
April 29, 1998
For the (inception)
year ended through
December 31, December 31,
1999 1998
------------ --------------

Interest paid, net of capitalized interest . . $ 17,652 $ 7,325
======== ========
Interest capitalized . . . . . . . . . . . . . $ 174 $ 57
======== ========
Supplemental schedule of noncash investing
and financing activities:
Advances to Affiliated Lessee converted
to notes receivable. . . . . . . . . . . . $ 2,400 $ --
======== ========
Distributions payable. . . . . . . . . . . . $ 7,000 $ 6,902
======== ========
Exchange of Units for Common Shares:
Minority interest. . . . . . . . . . . . . . $(23,847) $ --
Common stock . . . . . . . . . . . . . . . . 16 --
Additional paid in capital . . . . . . . . . 23,831 --
-------- --------
$ -- $ --
======== ========

In conjunction with the hotel acquisitions,
the Company assumed the following assets
and liabilities:
Purchase of real estate. . . . . . . . . . . $ 28,052 $470,859
Adjustment required to reflect
predecessor's basis. . . . . . . . . . . . -- 33,012
Note receivable. . . . . . . . . . . . . . . 167 --
Other assets purchased . . . . . . . . . . . 14 --
Liabilities, net of other assets . . . . . . -- (3,455)
Bonds payable. . . . . . . . . . . . . . . . -- (43,480)
Issuance of shares/units . . . . . . . . . . -- (76,686)
-------- --------
Acquisitions of hotel properties . . . . . . $ 28,233 $380,250
======== ========

15. COMMITMENTS AND CONTINGENCIES

Three of the Hotels are subject to ground leases under noncancelable
operating leases with terms ranging out to May 2081. Total lease expense
for the year ended December 31, 1999 and for the period from April 29, 1998
(inception) through December 31, 1998 was $3,351 and $1,886, respectively.
Future minimum lease payments are as follows:

2000. . . . . . . . . . . . . . . . . $ 2,165
2001. . . . . . . . . . . . . . . . . 2,165
2002. . . . . . . . . . . . . . . . . 2,165
2003. . . . . . . . . . . . . . . . . 2,165
2004. . . . . . . . . . . . . . . . . 2,165
Thereafter. . . . . . . . . . . . . . 93,458
--------
$104,283
========

The Company is obligated to make funds available to the Hotels for
capital expenditures (the "Reserve Funds"), 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 $9,496 at
December 31, 1999, of which $4,609 is available in restricted cash reserves
for future capital expenditures. Purchase orders and letters of commitment
totaling approximately $8,103 have been issued for renovations at the
Hotels.

The nature of the operations of the Hotels expose them to the risk of
claims and litigation in the normal course of their business. Although the
outcome of these matters cannot be determined, management does not expect
that the ultimate resolution of these matters to have a material adverse
effect on the financial position, operations or liquidity of the Hotels.

On behalf of the Company, the Advisor seeks opportunities for the
purchase of additional full service hotel properties located primarily in
convention, resort, urban and major business markets. From time to time,
the Company may enter into purchase contracts for the acquisition of hotel
properties. The consummation of each acquisition will be subject to
satisfactory completion of due diligence.

16. RELATED PARTY TRANSACTIONS

At December 31, 1999 and 1998, the Company had a payable to JLL of
$1,123 and $886, respectively, primarily for the advisory fee. For the
year ended December 31, 1999 and for the period from April 29, 1998
(inception) through December 31, 1998, the total advisory fee was $3,670
and $2,134, of which $412 and $155 represented the incentive portion of the
advisory fee, respectively.

At December 31, 1998, the Company had a receivable of $3,160 in
conjunction with the final settlement of the hotel acquisitions. The
receivable was classified in other assets on the consolidated balance sheet
and was collected in its entirety subsequent to December 31, 1998.

17. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The pro forma financial information set forth below is presented as if
(i) the Initial Offering and the related formation transactions and (ii)
the acquisitions of the hotels discussed in Note 4 had been consummated and
leased 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 the Initial Offering and the related formation
transactions and the acquisitions had been consummated and all the Hotels
had been leased as of January 1, 1998, nor does it purport to represent the
results of operations for future periods.

For the
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
Total revenues . . . . . . . . . . . . . . . . . $ 78,137 $ 75,598
---------- ----------
Depreciation . . . . . . . . . . . . . . . . . . 25,786 22,384
Real estate and personal property taxes and
insurance. . . . . . . . . . . . . . . . . . . 8,271 7,746
General and administrative . . . . . . . . . . . 1,342 707
Interest expense . . . . . . . . . . . . . . . . 16,902 16,222
Amortization of deferred financing costs . . . . 992 783
Advisory fees. . . . . . . . . . . . . . . . . . 3,676 3,839
Ground rent. . . . . . . . . . . . . . . . . . . 3,351 3,155
Other expense. . . . . . . . . . . . . . . . . . 140 --
---------- ----------
Income before Minority Interest and
writedown of property held for sale . . . . . . 17,677 20,762
Writedown of property held for sale. . . . . . . 2,000 --
Income before minority interest. . . . . . . . . 15,677 20,762
Minority interest. . . . . . . . . . . . . . . . 2,541 3,613
---------- ----------
Net income applicable to common shareholders . . $ 13,136 $ 17,149
========== ==========
Net income applicable to common shareholders
per share - basic and diluted. . . . . . . . . $ .85 $ 1.03
========== ==========
Weighted average number of common
shares outstanding - basic and diluted . . . . 15,432,667 15,224,580
========== ==========

18. PREDECESSOR INFORMATION

Pursuant to SEC regulations which require the presentation of
predecessor financial information for corresponding periods of the
preceding year, the following information represents condensed statements
of operations and cash flow information of LRP Bloomington Limited
Partnership, which is considered to be the predecessor of the Company, for
the years ended December 31, 1997 and for the period from January 1, 1998
through April 28, 1998.

LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)

STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands)

For the
period from
January 1, 1998 For the year
through ended
April 28, 1998 December 31, 1997
---------------- -----------------

REVENUES
Rooms. . . . . . . . . . . . . . . $ 4,285 $ 13,863
Food & beverage. . . . . . . . . . 3,459 10,214
Telephone. . . . . . . . . . . . . 124 491
Other. . . . . . . . . . . . . . . 537 1,649
-------- --------
Total Revenue . . . . . . . . 8,405 26,217
-------- --------

EXPENSES
Departmental expenses:
Rooms. . . . . . . . . . . . . . 1,096 3,524
Food & beverage. . . . . . . . . 2,379 7,198
Telephone. . . . . . . . . . . . 88 298
Other operating departments. . . 307 1,017
General & administrative . . . . . 571 1,674
Sales and marketing. . . . . . . . 435 1,352
Real estate and personal
property taxes . . . . . . . . . 405 1,240
Property operations and
management . . . . . . . . . . . 400 1,154
Management fees. . . . . . . . . . 336 1,111
Energy . . . . . . . . . . . . . . 292 808
Insurance. . . . . . . . . . . . . 71 132
Other fixed expenses . . . . . . . 73 247
Interest expense . . . . . . . . . 833 2,658
Depreciation and amortization. . . 1,196 3,123
Advisory fees. . . . . . . . . . . 53 159
-------- --------
Total Expenses. . . . . . . . 8,535 25,695
-------- --------
Net Loss (Income). . . . . . . . . $ (130) $ 522
======== ========

LRP BLOOMINGTON LIMITED PARTNERSHIP (PREDECESSOR)

STATEMENT OF CASH FLOWS
(Unaudited, Dollar Amounts in Thousands)

For the
period from
January 1, 1998 For the year
through ended
April 28, 1998 December 31, 1997
---------------- -----------------
Cash flows from operating
activities:
Net (loss) income. . . . . . . . $ (130) $ 522
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Depreciation and
amortization . . . . . . . . 1,196 3,123
Changes in assets and
liabilities:
Guest and trade receivables,
net . . . . . . . . . . . . (284) 175
Inventories . . . . . . . . . 8 45
Prepaid expenses. . . . . . . (367) 358
Accounts payable. . . . . . . (133) 4
Accrued expenses and
other liabilities . . . . . 515 90
-------- --------
Net cash provided by
operating activities . . 805 4,317
------- --------

Cash flows from investing
activities:
Funding of restricted cash
reserves . . . . . . . . . . . -- (1,010)
Proceeds from restricted
cash reserves. . . . . . . . . 148 1,736
Capital expenditures . . . . . . (611) (1,736)
-------- --------
Net cash used in
investing activities. . . (463) (1,010)
-------- --------

Cash flows from financing
activities:
Partner's distributions. . . . . -- (1,151)
Principal payments on
long-term debt . . . . . . . . (145) (758)
-------- --------
Net cash used in
financing activities. . . (145) (1,909)
-------- --------

Increase in cash and
cash equivalents. . . . . . . . . 197 1,398
Cash and cash equivalents,
beginning of period. . . . . . 1,744 346
-------- --------
Cash and cash equivalents,
end of period. . . . . . . . . $ 1,941 $ 1,744
======== ========

Cash paid for interest . . . . . . $ 833 $ 2,658
======== ========

19. SUBSEQUENT EVENTS

On January 14, 2000, the Company paid its regular fourth quarter
distribution of $0.38 per share/unit on its Common Shares and Units.

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.

20. QUARTERLY OPERATING RESULTS (UNAUDITED)

The Company's unaudited consolidated quarterly operating data for the
year ended December 31, 1999 and for the period from April 29, 1998
(inception) through December 31, 1998 follows (in thousands, except per
share data). In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of quarterly
results have been reflected in the data. It is also management's opinion,
however, that quarterly operating data for hotel enterprises are not
indicative of results to be achieved in succeeding quarters or years.

Year Ended December 31, 1999
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------

Total Revenues . . . . . $ 16,212 $ 20,644 $ 23,576 $ 17,522
Total Expenses . . . . . 13,704 15,410 17,377 17,474
---------- ---------- ---------- ----------
Net Income . . . . . . . $ 2,508 $ 5,234 $ 6,199 $ 48
========== ========== ========== ==========

Net Income Applicable
to Common Shareholders
per Weighted Average
Common Shares Out-
standing:
Basic. . . . . . . . . $ 0.16 $ 0.34 $ 0.40 $ --
========== ========== ========== ==========
Diluted. . . . . . . . $ 0.16 $ 0.34 $ 0.40 $ --
========== ========== ========== ==========

Weighted Average
Number of Common
Shares outstanding:
Basic. . . . . . . . . 15,230,052 15,240,563 15,315,174 15,938,385
========== ========== ========== ==========
Diluted. . . . . . . . 15,230,052 15,260,923 15,340,057 15,938,385
========== ========== ========== ==========

For the
period from
April 29, 1998
(inception) For the 1998 Quarters Ended
through -----------------------------
June 30, 1998 September 30, December 31,
------------- ------------- ------------

Total Revenues . . . . . $ 11,727 $ 19,820 $ 15,446
Total Expenses . . . . . 6,922 14,517 13,321
---------- ---------- ----------
Net Income . . . . . . . $ 4,805 $ 5,303 $ 2,125
========== ========== ==========
Net Income Applicable
to Common Share-
holders per Weighted
Average Common
Share Outstanding:
Basic. . . . . . . . . $ 0.32 $ 0.35 $ 0.14
========== ========== ==========
Diluted. . . . . . . . $ 0.32 $ 0.35 $ 0.14
========== ========== ==========

Weighted Average
number of Common
Shares Outstanding:
Basic. . . . . . . . . 15,165,673 15,224,580 15,224,580
========== ========== ==========
Diluted. . . . . . . . 15,165,673 15,224,580 15,224,580
========== ========== ==========

LASALLE HOTEL PROPERTIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 1999

Costs Capitalized
Subsequent to Gross Amounts at Which
Initial Cost Acquisition Carried At Close of Period
--------------------------- ---------------------------- ---------------------------
Building Building Building
and and and
Improve- Improve- Improve-
Land ments FF&E Land ments FF&E Land ments FF&E
-------- -------- -------- -------- -------- -------- -------- -------- ---------

Radisson Convention
Hotel . . . . . . . . $ 8,172 $11,258 $13,811 $ -- $ 1,506 $ 4,000 $ 8,172 $ 12,764 $17,811
Le Meridien
New Orleans . . . . . -- 60,062 6,554 -- 278 2,345 -- 60,340 8,899
Le Meridien
Dallas. . . . . . . . 2,452 20,847 2,166 -- 157 2,661 2,452 21,004 4,827
Marriott Seaview
Resort. . . . . . . . 7,415 40,337 2,339 182 998 6,647 7,597 41,335 8,986
Holiday Inn
Beachside Resort. . . 5,505 14,702 1,901 -- 287 651 5,505 14,989 2,552
San Diego
Paradise Point. . . . -- 69,639 3,665 -- 7,347 5,038 -- 76,986 8,703
LaGuardia Airport
Marriott. . . . . . . 8,127 32,139 3,976 -- 616 1,231 8,127 32,755 5,207
Omaha Marriott
Hotel . . . . . . . . 4,268 22,405 3,086 -- 395 955 4,268 22,800 4,041
Radisson Hotel
Tampa . . . . . . . . 4,383 20,223 2,166 -- 642 3,332 4,383 20,865 5,498
Holiday Inn
Plaza Park. . . . . . 1,663 5,335 396 -- 210 391 1,663 5,545 787
Le Montrose
All Suite Hotel . . . 5,004 19,752 2,951 -- 236 693 5,004 19,988 3,644
Harborside Hyatt
Conference Center
& Hotel . . . . . . . -- 66,159 5,246 -- 523 410 -- 66,682 5,656
Hotel Viking . . . . . 2,504 25,183 365 76 1,295 214 2,580 26,478 579
-------- -------- -------- -------- ------- ------- ------- -------- -------

Totals . . . . . . . . $ 49,493 $408,041 $ 48,622 $ 258 $14,490 $28,568 $49,751 $422,531 $77,190
======== ======== ======== ======== ======= ======= ======= ======== =======

LASALLE HOTEL PROPERTIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
As of December 31, 1999

Life On Which
Date of Depreciation In
Write- Accumulated Net Original Date of Income Statement
down (a) Depreciation Book Value Construction Acquisition is Computed
-------- ------------ ---------- ------------ ----------- ----------------

Radisson Conven-
tion Hotel. . . . . $ -- $10,223 $ 28,524 1969 12/01/95 5 - 30 years
Le Meridien
New Orleans . . . . -- 5,946 63,293 1984 04/29/98 5 - 30 years
Le Meridien
Dallas. . . . . . . -- 2,482 25,801 1980 04/29/98 5 - 30 years
Marriott Seaview
Resort. . . . . . . -- 4,268 53,650 1912 04/29/98 5 - 30 years
Holiday Inn
Beachside Resort. . -- 1,572 21,474 1960 04/29/98 5 - 30 years
San Diego
Paradise Point. . . -- 5,703 79,986 1962 06/01/98 5 - 30 years
LaGuardia Airport
Marriott. . . . . . -- 3,328 42,761 1981 05/01/98 5 - 30 years
Omaha Marriott
Hotel . . . . . . . -- 2,474 28,635 1982 04/29/98 5 - 30 years
Radisson Hotel
Tampa . . . . . . . -- 2,194 28,552 1987 04/29/98 5 - 30 years
Holiday Inn
Plaza Park. . . . . 2,000 487 5,508 1976 04/29/98 5 - 30 years
Le Montrose
All Suite Hotel . . -- 2,148 26,488 1976 04/29/98 5 - 30 years
Harborside Hyatt
Conference Center
& Hotel . . . . . . -- 4,917 67,421 1993 06/24/98 5 - 30 years
Hotel Viking . . . . -- 539 29,098 1850 06/02/99 5 - 30 years
------- ------- --------

Totals . . . . . . . $ 2,000 $46,281 $501,191
======= ======= ========

(a) In 1999, the Company recorded a $2,000 writedown on Holiday Inn Plaza Park, which was held for
sale at December 31, 1999. See Note 6 in Notes to Consolidated Financial Statements.

LASALLE HOTEL PROPERTIES

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
As of December 31, 1999

Reconciliation of real estate and accumulated depreciation:

Reconciliation of Real Estate:

Balance at April 29, 1998 . . . . . . . . . . . . . . $ 33,241
Acquisitions of hotel properties. . . . . . . . . . 444,863
Improvements and additions to hotel properties. . . 10,359
--------
Balance at December 31, 1998. . . . . . . . . . . . . 488,463

Acquisition of hotel. . . . . . . . . . . . . . . . . 28,052
Improvements and additions to hotel properties. . . . 30,957
--------
Balance at December 31, 1999. . . . . . . . . . . . . $547,472
========

Reconciliation of Accumulated Depreciation:

Balance at April 29, 1998 . . . . . . . . . . . . . . $ 7,245
Depreciation. . . . . . . . . . . . . . . . . . . . 13,666
--------
Balance at December 31, 1998. . . . . . . . . . . . . 20,911
Depreciation. . . . . . . . . . . . . . . . . . . . 25,370
--------
Balance at December 31, 1999. . . . . . . . . . . . . $ 46,281
========

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
LaSalle Hotel Lessee, Inc.

We have audited the accompanying balance sheets of LaSalle Hotel
Lessee, Inc. (the Company) as of December 31, 1999 and 1998 and the related
statements of operations, stockholders' equity (deficit), and cash flows
for the year ended December 31, 1999 and for the period from April 29,
1998 (inception) through December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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 financial statements referred to above present
fairly, in all material respects, the financial position of LaSalle Hotel
Lessee, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its 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.

KPMG LLP

Chicago, Illinois
March 1, 2000

LASALLE HOTEL LESSEE, INC.

BALANCE SHEETS
(Dollars in Thousands)

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

ASSETS
Cash and cash equivalents. . . . . . . $ 5,494 $ 3,742
Accounts receivable - trade,
net of allowance for doubtful
accounts of $108 and $102,
respectively. . . . . . . . . . . . . 3,689 3,804
Note receivable - LPI Charities. . . . -- 201
Inventories. . . . . . . . . . . . . . 789 742
Prepaid expenses and other assets. . . 1,174 477
Due from LaSalle Hotel Properties. . . 30 614
-------- --------
Total assets. . . . . . . . . . . . $ 11,176 $ 9,580
======== ========

LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Due to LaSalle Hotel Properties. . . . $ 1,675 $ --
Accounts payable
Trade. . . . . . . . . . . . . . . . 1,254 1,633
Advance deposits . . . . . . . . . . 1,368 1,035
Accrued expenses
Accrued sales, use and
occupancy taxes. . . . . . . . . . 542 610
Other accrued liabilities. . . . . . 2,038 5,036
Notes Payable to LaSalle Hotel
Properties . . . . . . . . . . . . . 3,900 1,500
-------- --------
Total liabilities. . . . . . . . 10,777 9,814
-------- --------
Stockholders' equity (deficit)
Common stock . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . 425 425
Retained deficit . . . . . . . . . . (26) (659)
-------- --------
Total stockholders' equity
(deficit). . . . . . . . . . . 399 (234)
-------- --------
Total liabilities and
stockholders' equity
(deficit). . . . . . . . . . . $ 11,176 $ 9,580
======== ========

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

LASALLE HOTEL LESSEE, INC.

STATEMENTS OF OPERATIONS
(Dollars in Thousands)

For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------ -----------------
REVENUES
Room revenue . . . . . . . . . . . $ 57,515 $ 36,643
Telephone revenue. . . . . . . . . 1,874 1,124
Food and beverage revenue. . . . . 31,855 20,897
Golf revenue . . . . . . . . . . . 6,422 5,680
Other revenue. . . . . . . . . . . 2,920 1,949
Interest income. . . . . . . . . . 114 42
-------- --------
Total revenues . . . . . . . 100,700 66,335
-------- --------

EXPENSES
Departmental expenses of hotels
Rooms. . . . . . . . . . . . . . 13,373 8,736
Telephone. . . . . . . . . . . . 1,057 607
Food and beverage. . . . . . . . 23,550 15,640
Golf . . . . . . . . . . . . . . 3,952 3,231
Other. . . . . . . . . . . . . . 1,670 1,212
Repairs and maintenance. . . . . . 4,097 2,577
Utilities. . . . . . . . . . . . . 2,444 1,618
Sales and marketing. . . . . . . . 5,564 3,384
General and administrative . . . . 7,367 4,940
Insurance. . . . . . . . . . . . . 730 360
Management and incentive fees. . . 7,397 4,975
Participation rent . . . . . . . . 28,290 19,436
Interest on notes payable. . . . . 228 54
Other expenses . . . . . . . . . . 373 224
-------- --------
Total expenses . . . . . . 100,092 66,994
-------- --------
Net income (loss) before
taxes. . . . . . . . . . . . . . 608 (659)

Income tax (provision) benefit . . . 25 --
-------- --------
Net income (loss). . . . . $ 633 $ (659)
======== ========

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

LASALLE HOTEL LESSEE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Dollars in Thousands)

APIC -
Common Common Retained
Stock Stock Deficit Total
---------- ---------- ---------- ---------

Initial proceeds
from stock
issuance. . . . . $ -- $ 425 $ -- $ 425

Net loss . . . . . -- -- (659) (659)
---------- ---------- ---------- ---------

Balance at
December 31,
1998. . . . . . . -- 425 (659) (234)

Net income . . . . -- -- 633 633
---------- ---------- ---------- ---------

Balance at
December 31,
1999. . . . . . . $ -- $ 425 $ (26) $ 399
========== ========== ========== =========

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

LASALLE HOTEL LESSEE, INC.

STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------ -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss). . . . . . . . . $ 633 $ (659)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Bad debts. . . . . . . . . . . . 86 94
Changes in operating assets
and liabilities
Accounts receivable. . . . . . 30 (3,656)
Inventories. . . . . . . . . . (48) (663)
Prepaid expenses and
other assets . . . . . . . . (105) (721)
Accounts payable and
accrued expenses . . . . . . 963 2,642
-------- --------
Net cash provided by
(used in) operating
activities . . . . . . . . 1,559 (2,963)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from notes payable. . . . -- 1,500
Capital contributions. . . . . . . 193 232
Proceeds from prorations . . . . . -- 2,568
Advances from LaSalle
Hotel Properties . . . . . . . . -- 2,405
-------- --------
Net cash provided by
financing activities . . . 193 6,705
-------- --------
Increase in cash and
cash equivalents . . . . . . . . . 1,752 3,742
Cash and cash equivalents
at beginning of period . . . . . . 3,742 --
-------- --------
Cash and cash equivalents
at end of period . . . . . . . . . $ 5,494 $ 3,742
======== ========

SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS:
Cash paid for interest . . . . . . $ 213 $ 54
======== ========
Advances from the Company
converted to notes payable . . . $ 2,400 $ --
======== ========

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

LASALLE HOTEL LESSEE, INC.

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

1. ORGANIZATION

LaSalle Hotel Lessee, Inc. was formed on March 24, 1998 as an Illinois
Corporation, (the "Affiliated Lessee") by Jones Lang LaSalle Incorporated
(formerly LaSalle Partners Incorporated) ("JLL") in connection with the
initial public offering of LaSalle Hotel Properties (the "Company") to
serve as lessee for three of the initial hotels owned by the Company. The
Affiliated Lessee is owned as follows: 9.0% by the Company, 45.5% by JLL
and 45.5% by LPI Charities, a charitable corporation organized under the
laws of the state of Illinois. Accordingly, the stockholders share in the
profits and losses of the Affiliated Lessee in accordance with their
respective ownership interests. In addition, any cash deficits will be
funded by the stockholders in proportion to their ownership interests. The
Affiliated Lessee had no operations prior to April 29, 1998. On June 24,
1998, the Affiliated Lessee leased Harborside Hyatt Conference Center and
Hotel (the "Boston Property") from the Company pursuant to the Company's
acquisition of the Boston Property.

The owners capitalized the Affiliated Lessee with cash contributions
totaling $425, which were received during 1999 and 1998. In connection
with the formation of the Affiliated Lessee and the subsequent lease of the
Boston Property, the Affiliated Lessee assumed certain assets and
liabilities of the four hotels. The net liability totaling $2,568 was paid
to the Affiliated Lessee by the Company. All four hotels (the "hotels")
are leased under participating leases ("Participating Leases") which
provide for rent based on hotel revenues and are managed by independent
hotel operators (the "Operators").

The following hotels are leased to the Affiliated Lessee by the
Company:

PROPERTY NAME LOCATION
- ------------- --------

LaGuardia Airport Marriott New York, NY
Omaha Marriott Hotel Omaha, NE
Marriott Seaview Resort Absecon, NJ (Atlantic City)
Harborside Hyatt
Conference Center and Hotel Boston, MA

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Affiliated Lessee is operated on a calendar year basis. However,
the Marriott hotels are operated on a fiscal year basis. The Marriott
fiscal year ends on the Friday closest to December 31. The 1999 and 1998
fiscal years for Marriott ended on December 31, 1999 and January 1, 1999,
respectively. Both Marriott fiscal years are reflected in the accompanying
financial statements.

USE OF ESTIMATES

The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

LASALLE HOTEL LESSEE, INC.

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

CASH AND CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is determined by using available market information and
appropriate valuation methodologies. The Affiliated Lessee's financial
instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, which due to their short maturities,
are carried at amounts which reasonably approximate fair value.

INVENTORIES

Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of cost or market.

REVENUE RECOGNITION

Revenue is recognized as earned. Ongoing credit evaluations are
performed and an allowance for potential credit losses is provided against
the portion of accounts receivable which is estimated to be uncollectible.
Such losses have been within management's expectations.

MEMBERSHIP FEES

Golf course membership fees are recognized as revenue using the
straight-line method over the membership period.

3. PARTICIPATING LEASES

The Participating Leases are operating leases with noncancelable terms
of 10 years, subject to earlier termination on the occurrence of certain
contingencies, as defined. The rent due under each Participating Lease is
the greater of base rent, as defined, or participating rent. Participating
rent applicable to room and other hotel revenues varies by lease and is
calculated by multiplying fixed percentages by the total amounts of such
revenues over specified quarterly threshold amounts. Both the base rent
and the participating rent thresholds used in computing percentage rents
applicable to room and other hotel revenues, including food and beverage
revenues, are subject to annual adjustments based on increases in the
applicable Consumer Price Index ("CPI"). Participating Lease expense for
the year ended December 31, 1999 and for the period from April 29, 1998
(inception) through December 31, 1998 was $28,290 and $19,436 of which
approximately $9,923 and $7,125 was in excess of base rent, respectively.

Future minimum rentals (without reflecting future CPI increases) to be
paid by the Affiliated Lessee pursuant to the Participating Leases for the
years 2000 to 2004 and in total thereafter are as follows:

2000 . . . . . . . $ 19,109
2001 . . . . . . . 19,109
2002 . . . . . . . 19,109
2003 . . . . . . . 19,109
2004 . . . . . . . 19,109
Thereafter . . . . 64,239
--------
Total. . . . . . $159,784
========

LASALLE HOTEL LESSEE, INC.

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

Other than real estate and personal property taxes, ground rent,
casualty insurance and capital improvements which are obligations of the
Company, the Percentage Leases require the Affiliated Lessee to pay rent,
liability insurance premiums, all costs, expenses, utilities and other
charges incurred in the operation of the leased hotels. At December 31,
1999 and 1998, the Affiliated Lessee had an outstanding receivable of $30
and $614, respectively, from the Company for the reimbursement of capital
improvements, which were paid by the Affiliated Lessee.

The Affiliated Lessee is required to indemnify the Company against all
liabilities, costs and expenses incurred by or asserted against the Company
in the normal course of operating the hotels.

4. ADVISORY AGREEMENT

On April 29, 1998, the Affiliated Lessee entered into an advisory
agreement (the "Advisory Agreement") with LaSalle Hotel Advisors, Inc. (the
"Advisor"), a wholly owned subsidiary of JLL, to provide all management,
administrative and accounting services for the Affiliated Lessee. The
Advisory Agreement will remain in effect until either party gives notice of
termination. The Advisory Agreement provides for an annual fee, prorated
for any partial year the Advisory Agreement is in effect. The advisory fee
increases 2% annually and will also increase by $2,500 with each additional
hotel leased by the Company to the Affiliated Lessee.

The advisory fee for the year ended December 31, 1999 and for the
period from April 29, 1998 (inception) through December 31, 1998 was $26
and $17, respectively.

5. INCOME TAXES

The components of the income tax expense (benefit) were as follows:

1999 1998
-------- --------
Federal
Current. . . . . . . . . . . . . $ 11 $ --
Deferred . . . . . . . . . . . . (33) --

State and Local
Current. . . . . . . . . . . . . 9 --
Deferred . . . . . . . . . . . . (12) --
-------- --------
Total income tax expense
(benefit). . . . . . . . . . . $ (25) $ --
======== ========

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to pretax income as a result of the following differences:

LASALLE HOTEL LESSEE, INC.

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

For the
period from
For the April 29, 1998
year ended (inception)
December 31, through
1999 December 31, 1998
------------ -----------------

Computed "Expected" tax
expense (benefit)
(1999 at 34%, 1998 at 25%). . . . . $ 207 $ (165)

State income taxes,
net of federal income
tax effect. . . . . . . . . . . . . 51 (35)
Change in valuation
allowance . . . . . . . . . . . . . (292) 200
Other, net . . . . . . . . . . . . . 9 --
-------- --------
Income tax expense
(benefit). . . . . . . . . . . $ (25) $ --
======== ========

The components of the Affiliated Lessee's deferred tax assets as of
December 31 were as follows:

1999 1998
-------- --------
Deferred tax assets:
Operating loss carryforward. . . . $ -- $ 165
Gift certificate liability . . . . -- 32
Allowance for doubtful accounts. . 45 3
-------- --------
Gross deferred tax assets. . . . . . 45 200
Less: valuation allowance . . . . -- 200
-------- --------
Deferred tax assets. . . . . . . . . $ 45 $ --
======== ========

The deferred tax asset and corresponding valuation allowance existing
at December 31, 1998 were subsequently adjusted to $292 to account for the
final tax loss carryforwards reflected in the 1998 tax returns. Due to the
profitability of the Company in 1999 and the use of available loss
carryforwards, the adjusted valuation allowance of $292 is no longer
necessary, and has been credited in the 1999 tax provision. The deferred
tax asset of $45 at December 31, 1999 is considered realizable given
estimates of future income.

6. OPERATOR AGREEMENTS

The hotels have entered into separate management agreements ("Operator
Agreements") with the Operators. Pursuant to the terms of the Operator
Agreements, the Operators are to manage the hotels for a base management
fee ranging from 3% to 3.5% of gross revenues plus an incentive fee equal
to a percentage of certain measures of profitability, as defined. For the
year ended December 31, 1999, base and incentive management fees totaled
$3,171 and $4,226, respectively. For the period from April 29, 1998
(inception) through December 31, 1998, base and incentive management fees
totaled $2,045 and $2,930, respectively. Management fees of approximately

LASALLE HOTEL LESSEE, INC.

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

$49 and $107 were payable on December 31, 1999 and December 31, 1998,
respectively. In addition, pursuant to the terms of the Operator
Agreements, the Operators provide the hotels with various services and
supplies, including marketing, reservations, and insurance.

7. CONTINGENCIES

The nature of the operations of the hotels exposes them to the risk of
claims and litigation in the normal course of their business. Although the
outcome of these matters cannot be determined, management does not expect
that the ultimate resolution of these matters to have a material adverse
effect on the financial position, operations or liquidity of the hotels.

8. NOTES PAYABLE

The Company provided working capital to the Affiliated Lessee in the
aggregate amount of $3,900 in exchange for notes payable. The notes bear
interest at 5.6% or 6.0% per annum and are payable in monthly installments
of interest only. The term of each note is identical to the term of the
related participating lease. Interest expense totaled $228 and $54 for the
year ended December 31, 1999 and for the period from April 29, 1998
(inception) through December 31, 1998, respectively.

9. CONCENTRATION OF RISK

The profitability of the hotels is dependent upon business and leisure
travelers and in certain circumstances, golf tourism. Consequently demand
may fluctuate and be seasonal. Unfavorable economic or weather conditions
could adversely affect the results of operations.

10. EMPLOYEE BENEFIT PLANS

A majority of the employees of the hotels participate in defined
contribution and other benefit plans, which are administered by the
respective Operators in accordance with the provisions of the related labor
contracts and are generally based on hours worked. The hotels contribution
to these plans totaled approximately $540 and $534 for the year ended
December 31, 1999 and for the period from April 29, 1998 (inception)
through December 31, 1998, respectively.

11. SUBSEQUENT EVENTS

On February 3, 2000, the Affiliated Lessee made a cash distribution of
$351,648 to its owners based on their respective ownership percentages.

On February 3, 2000, the Affiliated Lessee provided the Company with
$351,648 as a security deposit for its Participating Leases.