- The Washington Times - Tuesday, February 25, 2003

The threat of terrorism and war has caused shares of MeriStar Hospitality Corp. to plummet over the past month, and things got worse last week when analysts questioned how much cash the hotel owner had on hand.
Shares of MeriStar, a District-based hotel real estate investment trust, have fallen nearly 50 percent in February, losing value every day of the month except two. Yesterday, they dropped to a 52-week low of $2.80 before rallying to close at $2.93 on the New York Stock Exchange.
MeriStar owns 106 upscale hotels in 26 states under numerous brands, including Doubletree, Radisson, Hilton and Sheraton. With most hotel companies, the company never recovered from the terrorist attacks of September 11, and with the threat of war on Iraq, travel has slowed.
Standard and Poor's cut its debt rating on MeriStar last week, citing a lack of cash flow. MeriStar said it has about $50 million in cash and will suspend its dividend to retain more. It is also in talks to renegotiate its credit line so that money from sales of properties can be used to increase cash instead of pay down debt. The company has about $1.65 billion in outstanding debt.
Some analysts said MeriStar may not be able to pay a dividend until 2006. Other hotel trusts, including Host Marriott Corp. and FelCor Lodging Trust Inc., had previously cut their dividends. The Standard and Poor's Supercomposite Hotel Index has fallen 27 points, or about 20 percent, in the past 12 months.
MeriStar lost $124.9 million ($2.76 per share) in the last three months of 2002, compared with $61.8 million ($1.37) during the same quarter of 2001. Much of the loss stemmed from one-time charges relating to the write-down of hotels for sale.
There are obstacles facing MeriStar from many areas, analysts said.
"Risks to MeriStar include geopolitical threats such as war and terrorism, a failure to comply with debt restrictions and covenants … prolonged weakness in the economy and slower-than-anticipated recovery in business-travel demand," Wachovia Securities said in a research note.
Business travel, which is a main source of revenue for hotels, is at its lowest point since the mid-1990s. The Travel Industry Association of America reported that 2002 marked the fourth straight year of declining business travel, which fell about 4.3 percent during the year. Travel analysts said most companies are approaching corporate travel on a case-by-case basis, scheduling trips only when necessary.
Wachovia said shares of MeriStar are likely to trade at less than $4 for the rest of the year and that another terrorist attack or war with Iraq could hurt the company further.
There were some encouraging signs in MeriStar's most recent quarter. Revenue from hotels in the Mid-Atlantic region, Florida, Atlanta, Colorado and Chicago increased more than 10 percent on average, and revenue per available room rose about 4.5 percent. Revenue from Mid-Atlantic hotels was responsible for more than 13 percent of the company's earnings in the last three months of 2002.


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