- The Washington Times - Monday, June 7, 2004

MeriStar Hospitality Corp. is back to buying hotel properties after a year in which it sold off more than 15 percent of its portfolio.

The Arlington company, which buys hotels as investments, said last week it would buy a 484-room Marriott hotel in Irvine, Calif., for $92.5 million. Last month, it completed a $93 million purchase of the Ritz-Carlton in Pentagon City.

Shares of the company rose 10 cents yesterday to close at $6.46 on the New York Stock Exchange, their highest price in six weeks.

After selling off 17 smaller properties to raise money in the past year, MeriStar executives said they are now acquiring big hotels that attract business travelers.

“[The Irvine] acquisition is consistent with our plan to enhance our portfolio with larger properties with significant meeting space … located in major urban markets or high-end resort destinations,” said Paul Whetsell, MeriStar’s chairman and chief executive officer.

The company has shown signs of recovering from the past three years, when terror warnings and the buildup to the Iraq war created a slowdown in travel.

MeriStar reported a net loss of $40 million, or 59 cents per share, for the first quarter of this year, compared with a loss of $70 million, or $1.53 per share for the first quarter of 2003. Revenue increased from $203.6 million to $207.6 million during the same period.

Legg Mason analyst Rod Petrik, who rates the company a “buy” and does not own shares, said the company has positioned itself to take advantage of “a recovery in business travel, which has deteriorated over the past three years.”

He said MeriStar should benefit from the recent growth in jobs, gross domestic product and corporate profits, because businesses are starting to relax their budgets and allow more employee travel.

Last year, some financial analysts questioned whether MeriStar was operating with a large enough cushion of cash. Over the last several months, MeriStar has improved its base of free cash, increasing it to $191.9 million in March, from $85 million last March. The company raised cash by selling 12 million shares in May, and made several financial transactions that will save $10 million in interest this year.

Analysts warned, however, that investors would not look favorably on any additional stock offerings, and that MeriStar will likely sell some hotels to raise cash if needed.

MeriStar raised $29.5 million in March by selling five of its hotels, and in the past 12 months, it has sold 17 hotels for more than $104 million. It now owns 78 hotels in 23 states and the District of Columbia. MeriStar plans to sell off more of its smaller hotels this year.

MeriStar suspended the distribution of dividends last year, and is not expected to resume it until 2006. Nevertheless, Mr. Petrik said MeriStar presents a “compelling buying opportunity” because it is poised to take advantage of a rebound in travel and the economy.

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