- The Washington Times - Monday, August 23, 2004

Highland Hospitality Corp.’s purchase of four hotels is another sign to analysts that the McLean real estate investment trust will expand its portfolio significantly in the next few years.

The lodging REIT, which owns 10 upscale hotels, bought four properties last week from Wyndham International Inc. for $227 million.

The hotels, worth $134,500 per room, are the Hilton Parsippany in Parsippany, N.J.; the Crowne Plaza Hotel Atlanta-Ravina in Atlanta; the Wyndham Wind Watch Hotel in Hauppauge, N.Y.; and the Tremont Boston, a Wyndham Historic Hotel.

Highland spokesman Sean Dell’Orto said the company plans to own 18 to 20 hotels by the end of the year.

Most of the hotels will cater to business travelers in upscale urban areas and at airports. But Highland also is considering buying resort hotels in the United States and Mexico, Mr. Dell’Orto said.

Lodging analyst William Crow, who rated the stock as “outperforming the market,” said Highland’s hotels are well positioned to capitalize on a recovering business travel industry.

“There was a very definitive change in the corporate outlook late last year” that focused on increasing sales instead of cost reduction, prompting businesses to spend more on travel, said Mr. Crow with Raymond James Financial Inc., a St. Petersburg, Fla., financial services company.

Mr. Crow estimated that the company will expand quickly in the next few years. He expects sales to reach $147 million this year and more than double to $330 million next year.

Highland reported net income of $2.15 million (5 cents per diluted share) for its second quarter ended June 30. Diluted earnings include the value of convertible warrants and stock options.

Sales for the quarter were $25.2 million, and funds from operations, a good measure of a REIT’s performance, totaled $4.29 million (11 cents).

The company, which went public in December, does not have comparable figures for 2003.

Highland shares on the New York Stock Exchange, which have ranged from a low of $9.96 to a high of $12.50, closed yesterday at $10.75, down a penny from the Friday close. The stock went public at $10 per share on Dec. 15.

An economic slowdown or terrorist act could hurt hotel revenue, cautioned David Loeb, an analyst with Arlington investment bank Friedman, Billings, Ramsey & Co. Inc.

Ineffective hotel managers or unexpected supply growth in markets where Highland owns hotels also could hurt sales, Mr. Loeb said. Highland uses hotel management companies to run its properties.

Mr. Loeb, who rated Highland as “outperform,” does not own any shares of Highland Hospitality, but his bank is seeking a business relationship with the company.

Mr. Crow said he is more concerned about how much Highland spends on its acquisitions.

“It’s not a difficult task to integrate the acquisitions. The real challenge is getting an attractive deal” that will bring a healthy rate of return to shareholders, he said.

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