- The Washington Times - Monday, January 10, 2005

Hospitality real estate company Host Marriott Corp. said last week it sold six of its smaller hotels to fund future acquisitions of larger, luxury hotels.

The Bethesda company, which owns 106 hotel properties under brands such as Ritz-Carlton and Four Seasons, sold the Albuquerque Marriott, the Bethesda Marriott, the Hartford Marriott Farmington, the Salt Lake City Marriott, the Tampa Marriott Westshore and the Torrance Marriott for $223 million.

DiamondRock Hospitality Co., a newly formed Bethesda real estate investment trust, bought two of the hotels while the remaining four were sold to private buyers.

Profits from the transactions will be reinvested to buy higher-end hotels that fit the company’s current portfolio plan, said Host Marriott spokesman Gregory Larson.

Last month Host Marriott sold 85 percent of its Courtyard joint venture, a partnership the company had with Marriott International Inc. to own 120 Courtyard by Marriott hotels, to Sarofim Realty Advisors for $92 million to pay for more luxury-hotel acquisitions.

Host Marriott shares on the New York Stock Exchange closed yesterday at $16.29, down 71 cents from a week earlier at $17.

Several analysts said the recent sales have strengthened Host Marriott’s position in the hotel industry, which is expected to have solid growth this year.

“The next two years will be as good as it gets in lodging demand,” said David Loeb, a real estate analyst for Arlington investment bank Friedman, Billings, Ramsey Group Inc.

Despite the robust outlook, the company still risks losing corporate and convention travelers, the bulk of Host Marriott’s business, from further terrorist attacks or a sluggish economy, Mr. Loeb said.

“But I’m not overly worried about Host Marriott buying assets that destroy value rather than create. The company is extremely well-managed,” said Mr. Loeb, who rated it as outperforming the market.

Following the sales announcement, James Sullivan, an analyst with New York investment bank Prudential Equity Group LLC, increased his 2005 estimates for Host Marriott’s funds from operations (FFO), a good measure of performance.

His 2005 FFO estimate is $1.14 per share, up 2 cents from the prior estimates at $1.12.

Host Marriott’s FFO more than doubled in its most recent quarter ended Sept. 10 to $21 million (6 cents per share) from $9 million (3 cents) a year earlier.

The company narrowed its third-quarter loss to $47 million (17 cents) from $88 million (35 cents) last year.

Additionally, hotel revenue rose 11 percent to $810 million from $727 million a year ago.

“In our opinion, the hotel sector remains at the early stages of a prolonged recovery,” especially with the industry forecasting new hotels to be limited for the next few years, Mr. Sullivan said.

Mr. Sullivan, who rated the stock as “overweight” or exceeding average returns for the next year, does not own any company shares and Prudential does no business with Host Marriott.

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