LaSalle Hotel Properties (NYSE:LHO) Q2 2016 Earnings Conference Call - Final Transcript
Jul 21, 2016 • 11:00 am ET
(Operator Instructions) Jeff Donnelly, Wells Fargo.
Actually I had two questions pertaining to margins. The first question, Mike, I guess in prior downturns management teams have tended to phase in their cost reductions in response to the severity of the weakness they were seeing. And since you seem to have had maybe a more negative view on the outlook than peers, have you enacted those more drastic cost strategies already?
No, not really. I think that the thing that we have been trying to articulate to folks for the last couple years is there's a distinction between efficiencies and cost cutting. And we've been really proud of the way our asset management teams and our operators have been very effective in finding more and more efficiencies. So that's what's been going on.
If you look at the biggest part of the beat in Q2 in terms of margins, it was F&B. And as you remember, we've been talking about that for the better part of two years where we've looked at substantially restructuring how F&B works. So we're trying to make sure that the guest gets what they want, happy, but at the same time we become more efficient.
And it's a lot of little things, Jeff. As you might imagine, with nearly 50 properties, we're not able to do all of those things at a moment's notice. So it's taken quite a while to actually put a lot of those in place. That's the biggest example, but there are examples elsewhere. So the big story right now is efficiencies.
If things get to the point where we are actually experiencing a recessionary environment, like the prior downturns we've seen, then cost-cutting could be put in place. Obviously, we did a lot of those things the last couple of downturns and we are prepared to do that, but that tougher -- those tougher decisions have not been made yet.
And that dovetails well, I guess, into my next question, because it's one we hear a lot from investors. And that is, do you think the potential for cost savings in that scenario has been reduced by the fact that your best practices -- because of your best practices over the last few years, in effect, you've got less, I'll call it fat on the bone today than compared to prior cycles, and so there's a diminished ability to hold margin than you've seen in the past?
Well, certainly no one knows, and it does depend on the severity of the downturn you're referring to, but I will say this. We had the highest margins in 2008. We didn't know what we were going into, into 2009, until we went through it. And having been here at the time, we did not think until late (ph) wow, there's a lot of fat on the bone; I can't wait for a downturn to go trim it.
We thought we were operating pretty well. And so I would say a similar thing now is