- The Washington Times - Tuesday, February 21, 2006

New York investment firm Blackstone Group said yesterday that it plans to acquire MeriStar Hospitality Corp. for $2.6 billion — the latest in a series of acquisitions in the resurgent hotel industry.

MeriStar, a Bethesda real estate investment trust, owns 57 hotels . Ten of them are in the Washington area, including the Georgetown Inn, Hilton Crystal City and the Ritz Carlton Pentagon City.

Shareholders would receive $10.45 per share in the $2.6 billion deal, a 20 percent jump from the closing price on Nov. 10 — the day before rumors of the transaction became public. The deal is expected to close in the second quarter.

Shares of MeriStar rose 35 cents yesterday to close at $10.28 on the New York Stock Exchange.

“I think that it’s a [move] that makes sense for the company,” said Rod Petrik, managing director and lodging analyst at Stifel Nicolaus & Co. Inc. in Baltimore.

Blackstone has completed four other hotel acquisitions in the past year, snatching up Wyndham International’s hotels, La Quinta Corp. hotels, the Rihga Royal in Manhattan and 10 MeriStar hotels in a separate transaction.

Blackstone’s activity is just part of a flurry of hotel acquisitions in the area, a pricey undertaking these days. Strategic Hotel Capital Inc. last month announced plans to buy the Four Seasons Washington D.C. hotel for $168.9 million — the highest price per room ever in the city.

The hotel industry is staging a comeback after its worst three years in more than 25 years, said Scott Smith, vice president of hospitality consulting firm PKF Consulting Corp. in Atlanta.

The industry, “really hasn’t had these dynamics, these metrics, as good as they are right now in the past 10 years,” he said, adding that the market is ripe for even more buyouts.

“It seems like the environment is pretty favorable now with the past two recent years of increasing occupancy and the average daily [room] rate throughout the U.S. in all market segments and all geographic regions,” he said.

Hotel properties are among the strongest in real estate now, Mr. Petrik said.

“It’s in recovery and in an upcycle and there are a lot of dollars chasing deals,” he said.

Mr. Petrik said many of the public lodging companies’ stock is priced below its market value, luring private investors to buy the properties at good prices.

The Washington market is especially active.

Occupancy in District hotels averaged 71.4 percent last year, up 1.1 percent from 2004, and the average nightly hotel rate jumped nearly $13 to $131.36 last year, according to Smith Travel Research, a Hendersonville, Tenn., hotel industry research company.

“A lot of the hotels are up for sale because owners see it’s a very hot market,” said Emily Durso, president of the Hotel Association of Washington D.C.

Ms. Durso said the District’s room rates and occupancy have become more consistent — less of a peak in the summer and less of a dip in the winter — by the conventions brought to town by the Washington Convention Center.

“It keeps a steady, large influx of business all year round,” she said. “Last year, there was a major convention in every month of the year.”

The burgeoning local hotel industry isn’t growing quickly enough to keep up with demand, sending rates up.

“Our rates are high,” Ms. Durso said. “We’re second now to New York … it’s good because the city makes a lot of money in taxes. The bad side is it’s hard to sell large group business.”

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