Humphrey shares drop 32.6%; REIT expects to cut dividend

Humphrey Hospitality Trust Inc. announced yesterday that it expects to cut its monthly dividend and take other actions because the company leasing its 92 limited service hotels is having trouble paying rent.

Humphrey Hospitality Management Inc., the separate company that leases and runs the real estate investment trust's hotels, said it might not be able to continue the job without a reduction in its rent. It blamed new competition, along with higher energy and labor costs, for net losses of $2.4 million for the year that ended Dec. 31.


The board of directors of Humphrey Investment Trust has formed an independent committee to consider cost-cutting moves such as selling hotels, lowering rents or creating its own management firm, according to a company statement.

The Columbia REIT expects funds from operations and net income to dip. It also plans to reduce its previously announced monthly dividend of 77 cents a share by an undetermined amount.


Shares in Humphrey Hospitality Trust fell $2.31, or nearly 33 percent, to close at $4.78 on the Nasdaq stock market yesterday.

No one at the REIT was available to comment.

Humphrey, among the largest limited-service hotel REITs, announced in June that competition would likely dampen growth this year. The trust moved its headquarters and about 60 employees from Silver Spring to Columbia's Riverwood Business Park last year.

Warren Marr, director of hospitality and leisure consulting at PricewaterhouseCoopers, said the whole limited-service hotel sector is not suffering, although competition has hurt some companies.

"In the limited-service sector over the last few years there has been a very large increase in supply relative to other segments of hospitality industry," he said. "There is a lot of newer product in many markets, primarily suburban markets, so if you have a portfolio with older properties you may feel the crunch from that."

Marr said Humphrey is not alone in exploring the creation of a taxable subsidiary to manage its own properties. A change in federal law now allows REITs to create the subsidiaries so they can potentially make more money.

Humphrey primarily invests in nationally franchised hotels in second- and third-tier markets. Its brand names include Hampton Inn, Comfort Suites, Best Western, Days Inn and Super 8.