UPDATE: Morgan Stanley Initiates Coverage on LaSalle Hotel Properties on Limited Upside

In a report published Thursday, Morgan Stanley analyst Thomas Allen initiated coverage on LaSalle Hotel Properties LHO with an Underweight rating and $28.00 price target. In the report, Morgan Stanley noted, “We Rate SHO Equal-weight with a $14 price target, based on 12.5x ‘14e EBITDA and implying 11.1% upside from current levels. Although SHO boasts a portfolio of high quality properties, we believe upside is limited with the stock trading at 11.8x our ‘14e EBITDA, slightly above its 5-year average multiple. We believe that SHO is well positioned over the next 12 months as it should realize outsized RevPAR growth at some of its key properties following recently completed renovations. We expect SHO to beat consensus RevPAR expectations in the first half of 2014 given that it i) faces very easy comps (440bps of renovation disruption in 1Q13) and will still have the benefit of the renovation tailwinds, and ii) is favorably positioned in several key urban markets. However, SHO's 14% DC exposure is a headwind, and we think that growth across the portfolio will be harder to come by in 2H14 and beyond as the new DC convention center opens and the renovation tailwinds subside. We view SHO's focus on deleveraging its balance sheet favorably and believe growth of its common dividend may begin to attract incremental yield-seeking investors.” LaSalle Hotel Properties closed on Wednesday at $27.83.