Starwood Trust continues hotel buying spree.

Stock price hits new highs as REIT expands

WEST LOS ANGELES - The stock of Starwood Lodging Trust, a real estate investment trust that specializes in hotels, hit two new highs last week. But that is only part of the story.

The company, teetering on the brink of bankruptcy four years ago, has been buying hotels at a furious pace in recent months. Following completion of its latest deal, Starwood will have equity positions in 65 hotels in 24 states plus the District of Columbia.

Six months ago, the company owned all or part of 46 hotels and four years ago, operating as Hotel Investors Trust, it had financial interests in 20 properties.

Between Dec. 31, 1995 and March 31, the value of the company's hotel holdings increased almost 20 percent, from $419 million to $513 million.

According to analysts, there is no end in sight.

"I think there is a window of opportunity here that will probably last for another year or so," said Camille Humphries, a financial analyst who covers the company in the Baltimore office of Alex. Brown & Sons, a securities company. "I see Starwood maintaining this pace for the next 12 months and then maybe slowing down. But I also see them always being a fairly aggressive buyer."

Humphries said her firm has a "buy" recommendation on Starwood stock, which is traded together with its sister company, Starwood Lodging Corp., under the HOT symbol on the New York Stock Exchange.

Starwood Lodging Trust buys equity positions in hotels and Starwood Lodging Corp. then manages the properties. Starwood Lodging Corp. currently manages 37 hotels.

The company specializes in buying hotels in metropolitan areas, mostly in downtown sections or near airports. The hotels cater to business travelers and operate under such industry names as Marriott, Sheraton, Radisson, Embassy Suites and Holiday Inn.

The combined company has its headquarters on Olympic Boulevard in West Los Angeles, where there is a staff of about 35.

More deals planned

In a statement released earlier this month with Starwood's first-quarter 1996 financial results, Vice President and Chief Financial Officer Ron Brown said the company plans to continue "to acquire upscale properties." However, he also noted the company plans to sell its two casino/hotels in Las Vegas and "four nonstrategic hotel properties."

Starwood Lodging Chairman Barry Sternlicht hinted in an interview that the company was about to make another move.

When contacted about his company, Sternlicht, a Connecticut-based investor, said a story about Starwood should not be done now because of pending events at the company.

"I would wait two or three weeks because there will be something happening," he said. He declined to be more specific.

Officials at Starwood were unavailable for further elaboration last week.

Last week, on May 20 and May 23, Starwood stock hit new highs, topping out at $37.25. The stock has been on a steady climb, recording several new highs, in recent weeks from a 52-week low of $20.25 cents last June.

Four years ago, when the company was known as Hotel Investors Trust, the stock fell at one point to 50 cents a share. On June 1, 1994, it was trading at $10.50 a share and on June 1, 1995, it hit $22.50.

Analysts note the company buys hotels and then invests heavily in renovations, which so far have paid off because occupancy and average daily room rates have increased at Starwood's properties.

In the past few months, Starwood has also picked up some well-known hotels, including the Doral Inn in New York City, the Boston (Mass.) Park Plaza and the Westin in Washington, D.C.

Pending acquisitions

In the pending deal, Starwood plans to invest $309 million in hotels that are currently owned by Teachers Insurance and Annuity Association. Among those acquisitions are the 731-room Doubletree Hotel at LAX, one of the largest hotels in Los Angeles County. Other acquisitions that are part of the proposed deal with Teachers is the Ritz Carlton, Philadelphia, the Ritz Carlton Kansas City and the Westin Hotel Waltham (Mass.).

Financing for the latest round of Starwood acquisitions has come from a secondary stock offering a year ago of $273 million, and a $63 million offering last month. Also, in the past two months the company has entered into a "one-year term loan facility" totaling $94 million.

In its quarterly report for the three months ended March 31, Starwood reported revenues of $54.8 million vs. $32.1 million a year earlier. Net income was just over $4 million, or 30 cents a share, compared to $348,000, or 17 cents a share, in the same 1995 period.

For all of 1995, the company reported revenue of $176.6 million with net income of $21.1 million, or $1.53 a share.