J. William Blackham Raymond Martz VITAL STATISTICS:Eagle Hospitality Properties Trust, Inc. ADDRESS: 100 East RiverCenter Boulevard, Suite 480 Covington, KY 41011 PHONE: 859-581-5900 WEB SITE: www.eaglehospitality.com SYMBOL: EHP, listed on the NYSE 52-WEEK HIGH: $10.49 52-WEEK LOW: $6.98 MANAGEMENT: William Butler, chairman; J. William Blackham, president & CEO; Raymond Martz, CFO; Brian Guernier, SVP Acquisitions

By Phil Britt

Operating in a sector full of top-performing companies, lodging REIT Eagle Hospitality Properties Trust, Inc. (NYSE: EHP) has found its niche and seen its results soar due to its focus on full-service and all-suites properties in the upper upscale segment of the hospitality market. Eagle Hospitality owns 12 premier brand hotels encompassing approximately 3,200 guest rooms. The properties are located in Arizona, California, Colorado, Florida, New York, Kentucky, Ohio, Illinois and Puerto Rico.

"Historically, the upper upscale market tends to outperform other segments of the hospitality market in expansionary economic times," according to J. William Blackham, Eagle Hospitality president and chief executive officer. "The upper upscale segment seems to have an elongated period of profitability; since this market segment is comprised of larger properties, they take time and financial resources to build, adding additional barriers to entry."

Eagle Hospitality's positioning has allowed it to maximize favorable economic and demographic trends. In 2005, the company posted strong growth in funds from operations (up 52.4 percent), income available to common shareholders (up 12.1 percent) and EBITDA (up 34 percent). The company, which has been public less than two years, expects its rapid flight to continue in 2006 and beyond.

"Hospitality REITs tend to outperform other types of REITs during periods of economic expansion and underperform during economic contraction. If you look at any 10-year period, there tends to be five to seven years of varying expansion and three to five years of no growth or contraction," Blackham says, adding that the current economic expansion is in its early stages. During this favorable period, demand typically outstrips supply, providing lodging companies with pricing power. In 2005, Eagle Hospitality's average revenue per available room (RevPAR) increased 6.5 percent to $88.25 from $82.86 in 2004.

Learning to Fly

The origins of Eagle Hospitality can be traced to its October 2004 initial public offering and acquisition of nine hotels previously owned by Corporex Companies, a private real estate investment concern based in Covington, Ky. Corporex owned a diverse portfolio including office and industrial buildings, sports clubs and condominiums.

Blackham, who had been an executive with Corporex for 15 years, wrote the business plan for Eagle Hospitality, resigned from Corporex and took the reigns of the new hospitality-focused REIT. Before joining Corporex, Blackham spent several years in real estate investment, first with Citibank and then with privately held developer Tambone Investment Group.

Eagle Hospitality started 2005 with $350 million in assets and the original nine hotels. Eagle purchased three hotels for $173 million during the year and is looking for more acquisitions in 2006.

Embassy Suites Hotel in Phoenix

The most recent acquisition was the San Juan Hotel & Casino in Puerto Rico. Even though the property suffered from hurricane threats during the final quarter of the year, travelers have returned now that the threat is over.

The Puerto Rico property, which had a strong 91 percent occupancy rate late last winter, was operating with 93 percent of its rooms occupied at the same time this year.

"The implications are that there's opportunity for room rates to rise," says Blackham, who also sees positive trends for the company's other 2005 acquisitions and for its Midwest properties.

Much of the company's success last year was due to the newly acquired properties, which combined provided an annualized EBITDA yield of more than 9 percent based on the company's $173 million investment.

In addition to the San Juan Hotel & Casino, Eagle acquired the 270-room Embassy Suites Hotel Phoenix/Scottsdale in Paradise Valley, Ariz., for $33.1 million ($122,000 per suite) and the 351-room Hilton Glendale (Calif.) for $80 million ($227,000 per room). The Embassy Suites Phoenix/Scottsdale increased EBITDA more than 54 percent versus the prior year, while the Hilton Glendale increased EBITDA more than 29 percent compared to the prior year.

Adding these hotels provided Eagle Properties with some geographic diversity to insulate it from the seasonal variations in travel between these properties and those already in its portfolio.

More Acquisitions Targeted, Dispositions Possible

Blackham's business plan for Eagle Hospitality calls for the company to grow by maximizing the total return from existing hotels and through disciplined acquisitions along the lines of the three made in 2005, he says.

"We try to buy properties in the top 25 markets and select resort locations, where there is above average room growth rate and where there are barriers to entry," Blackham says.

Marriott Southwest in Burr Ridge, Il.

Even though the company is seeking to pursue new investment opportunities, this could be the year that includes sales as well as acquisitions of properties for Eagle Hospitality, Blackham says.

"We're looking at the redeployment of our capital. We're looking to sell one or more of our hotels that have appreciated considerably and reinvest the proceeds into hotels and market places with higher growth and profitability capacity due to our strategy to increase shareholder returns," he says.

Beyond just purchasing and operating the properties, Eagle Hospitality is focused on initiatives to enhance the guest experience—everything from shower heads to fitness facilities—with the objective to drive repeat stays at higher rates. Guests are more likely to return, even if they pay a little more at Eagle Hospitality than for some less expensive hotels, as long as they have a pleasurable experience, Blackham says.

Travel Demand Buoys Financial Strength

The company's financials have also strengthened. Eagle Hospitality refinanced $123 million of its debt last year, which is expected to generate annualized interest expense savings of more than $1.1 million. Additionally, the company converted much of its floating rate debt to fixed rate debt. This is important in the current rising rate environment.

"We have a strong balance sheet, and our plan is to maintain a conservative capital structure in order to be able to pursue investment opportunities while enhancing the safety of our dividend," Blackham adds.

Eagle Hospitality declared a dividend of $0.175 per share of its common stock for the first quarter of 2006, unchanged from previous quarters. The first quarter dividend was payable on April 17, 2006 to holders of record on March 31, 2006. This represents a 7.9 percent annualized dividend yield based on the company's closing common share price of $8.90 on March 7, 2006.

Hilton in Glendale, Calif.

Blackham sees several factors that should aid the company's earnings growth this year. Corporate and personal travel are continuing to bounce back after the severe drop-off in late 2001 and 2002 despite continued high gasoline prices. Eagle Hospitality's properties are designed to meet the needs of corporate and consumer travelers.

"When we look to buy a hotel, we look for a location that serves a wide range of customers," Blackham says.

Demographics factor into Eagle Properties' investment decisions as well, according to Blackham. Generation X and Y travelers don't want to stay in the undifferentiated hotels their parents did. They want to stay in hotels that are functional and fun, with their own amenities and character. On the other side of the coin, their parents, the Baby Boomers, can afford a little more luxury now so they're opting for the luxury and upper upscale hotels that offer a higher level of personalized service and superior guest experiences, Blackham says.

With the combination of increased travel, demand for rooms and barriers to entry, the company expects hotel portfolio RevPAR growth of 6.5 percent to 8.5 percent in 2006.

Blackham says the company's non-Midwest hotels will generate approximately 60 percent of the company's EBITDA, which is up significantly from approximately 32 percent in 2005. As the company continues to execute its strategic expansion, this young lodging REIT is expected to continue to reach new heights.