Highland Hospitality Corporation Reports Net Income of $4.3 million For the Year Ended December 31, 2004; Expecting Improvements in 2005 Driven by Renovation, Repositioning / February 2005

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Highland Hospitality Corporation Reports Net Income
of $4.3 million For the Year Ended December 2004;
Expecting Improvements in 2005 Driven by Renovation, Repositioning

MCLEAN, Va., Feb. 10, 2005 - Highland Hospitality Corporation (NYSE: HIH), a lodging real estate investment trust, or REIT, today reported its consolidated financial results for the quarter and year ended December 31, 2004.

Consolidated Financial Results

For the quarter ended December 31, 2004, the Company reported consolidated total revenue of $53.0 million and consolidated net income of $.9 million, or $.02 per diluted share. Funds from operations, or FFO, which is defined as consolidated net income plus depreciation and amortization, were $5.6 million, or $.14 per diluted share, for the quarter. Earnings before interest, income taxes and depreciation and amortization, or EBITDA, were $10.1 million, or $.26 per diluted share, for the quarter.

For the year ended December 31, 2004, the Company reported consolidated total revenue of $133.0 million and consolidated net income of $4.3 million, or $.10 per diluted share. FFO was $15.8 million, or $.40 per diluted share, for the full year. EBITDA was $22.0 million, or $.56 per diluted share, for the full year.

"This quarter was one of transition for us, as we absorbed the nine hotels we acquired in the third quarter," said James L. Francis, Highland's President and Chief Executive Officer. "Although we are pleased with the overall performance of our hotels during the fourth quarter, as we look forward in 2005, we expect to see improvements in performance driven by our renovation, repositioning and asset management efforts, combined with the continued strength of the lodging industry."

Both FFO and EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. Management believes that FFO and EBITDA are key measures of a REIT's financial performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance. A reconciliation of these non-GAAP financial measures is included in the accompanying financial tables.

Hotel Operating Performance

For the quarter ended December 31, 2004, the Company's 17 hotels contributed $53.0 million of total revenue and $12.9 million of hotel operating profit. Included in the following table are the key hotel operating statistics for the Company's 17 hotel properties for the fourth quarter 2004 and 2003. Since 12 of the 17 hotels were acquired in 2004 and five were acquired in December 2003, the hotel operating statistics for the fourth quarter 2003 reflect the results of operations of the hotels under previous ownership for either a portion of, or the entire, fourth quarter 2003.

Quarter Ended Quarter Ended
December 31, 2004 December 31, 2003

Occ % ADR RevPAR Occ % ADR RevPAR

    Total Portfolio
     (17 hotels)          63.5%   $111.96   $71.12    64.4%   $107.51   $69.23
    Rebranded/Renovated
     (7 hotels)*          59.7%   $118.04   $70.50    63.6%   $112.44   $71.56

Other (10 hotels) 68.0% $105.62 $71.87 65.3% $101.79 $66.44

* Rebranded/Renovated includes hotels that are currently going through significant renovation and/or in the process of changing their franchise affiliation.

For the quarter ended December 31, 2004, revenue per available room, or RevPAR, for the Company's total portfolio of 17 hotels increased by 2.7% to $71.12, versus the same period in 2003. Occupancy decreased by 0.9 percentage points to 63.5%, while average daily rate, or ADR, increased by 4.1% to $111.96. For the Company's hotels that are being renovated and/or rebranded, RevPAR decreased 1.5% to $70.50, versus the same period in 2003. Occupancy decreased by 3.9 percentage points to 59.7%, while ADR increased by 5.0%. For the Company's other hotels, RevPAR increased 8.2% to $71.87, versus the same period in 2003. Occupancy increased by 2.7 percentage points to 68.0%, while ADR increased by 3.8%.

Balance Sheet/Liquidity

During the fourth quarter, the Company completed the following financing transactions:

$17.6 million mortgage financing with Nationwide Life Insurance Company. The loan matures in December 2014 and bears interest at a fixed, annual rate of 5.7% and is secured by the Hilton Tampa Westshore hotel. The financing was completed to refinance the hotel's existing mortgage which bore interest at 7.9% and matured in July 2005;
$100 million term loan facility with a lender group led by Wells Fargo Bank, N.A. The loan matures in December 2007 with the ability to extend for one year and bears interest at a floating rate of LIBOR, plus 250 basis points. Subject to certain conditions, the facility allows for an increase of the total commitment to $150 million. As of December 31, 2004, the Company had drawn down $50 million of the $100 million available under the facility; and
On December 16, 2004, the Company filed a universal shelf registration statement with the Securities and Exchange Commission to register equity securities with a maximum aggregate offering price of up to $500 million. The universal shelf registration statement was declared effective by the Securities and Exchange Commission on December 30, 2004.

As of December 31, 2004, the Company had $75.5 million of cash and cash equivalents. Total assets were $724.6 million, including $578.7 million of net investment in hotel properties, long-term debt was $342.9 million, and stockholders' equity was $347.5 million.

During the fourth quarter, the Company generated $7.2 million of cash flow from its operations, used $5.8 million in investing activities, and generated $43.4 million in financing activities.

Douglas W. Vicari, Highland's Executive Vice President and Chief Financial Officer, stated, "We are pleased with the terms and pricing of our recent financing transactions. Our lenders and shareholders continue to show strong support and confidence in our Company due to our high quality assets and our conservatively managed balance sheet. We believe that we are well positioned to take advantage of opportunities in the investment market for hotels and resorts given the capital structure that we have put in place."

Acquisition Activity/Investment Outlook

During the full year 2004, the Company acquired 12 hotels consisting of 3,623 rooms for an aggregate purchase price of $441.6 million, including the assumption of mortgage debt and transaction costs. Below is a list of the properties acquired:
.

Property	# of Rooms	Location	Acquired	Consideration (in millions)
Hilton Tampa Westshore	238	Tampa, FL	1/8/2004	$30.2
Hilton Gardenn Inn BWI Airport	158	Linthicum, MD	1/12/2004	$22.7
Dallas/Fort Worth Airport Marriott	491	Dallas/Fort Worth, TX	5/10/2004	$59.6
Residence Inn Tampa Downtown	109	Tampa, FL	8/2/2004	$13.5
Courtyard Savannah Historic District	156	Savannah, GA	8/2/2004	$25.0
Hyatt Regency Wind Watch Long Island	360	Hauppauge, NY	8/19/2004	$50.1
Courtyard Boston Tremont	322	Boston, MA	8/19/2004	$38.8
Crowne Plaza Atlanta-Ravinia	495	Atlanta, GA	8/19/2004	$61.8
Hilton Parsippany	510	Parsippany, NJ	8/19/2004	$78.2
Radisson Mount Laurel	283	Mount Laurel, NJ	9/1/2004	$14.5
Omaha Marriott	299	Omaha, NE	9/15/2004	$29.1
Courtyard Denver Airport	202	Denver, CO	9/17/2004	$18.1
total	3,623			$441.6

On February 4, 2005, the Company closed on its previously announced acquisition of the Sheraton Annapolis hotel in Annapolis, MD for $18.0 million. The 196-room hotel will be managed by Crestline Hotels & Resorts and will remain a Sheraton-branded hotel. With the acquisition of the Sheraton Annapolis hotel, the Company has now closed on 18 hotels since its initial public offering in December 2003. Including in excess of $50 million in planned renovations, the Company has committed approximately $670 million of capital in hotel investments. The Company continues to actively pursue investment opportunities that fit with its strategic objectives.

James L. Francis stated, "Our current hotel portfolio is an excellent representation of our investment strategy. We continue to focus on hotels that will provide us with upside through new management expertise, upgrading and renovating, franchise repositioning and intense asset management. We see a strong and competitive acquisition market with many opportunities available to us, but we will continue to carefully allocate our capital to investments that will maximize our returns and increase shareholders' value over the long-term."

Dividend Update and Outlook

During the fourth quarter, the Company declared a dividend of $.14 per share payable to its common shareholders of record as of December 31, 2004. The dividend was paid on January 14, 2005. During the full year 2004, the Company declared common dividends of $.36 per common share. The level of future dividends will continue to be determined by the Company's quarterly operating results, general economic conditions, capital requirements and other operating trends.

2005 Outlook

The Company estimates that comparable hotel RevPAR for the full year 2005 will increase between 4% to 5% for its 17-hotel portfolio. Assuming the estimated RevPAR increase, the timely completion of planned renovations, and the investment of the Company's remaining $70 million of capital during the second quarter 2005, the Company estimates that for the full year 2005:
      - Total revenues will range between $253 - $257 million;
      - Corporate EBITDA will range between $58 - $60 million;
      - FFO per diluted share will range between $.83 - $.87; and
      - Earnings per diluted share will range between $.21 - $.25.

In addition, the Company estimates that for the first quarter 2005:
      - Total revenues will range between $52 - $53.5 million;
      - Corporate EBITDA will range between $8.8 - $10 million;
      - FFO per diluted share will range between $.11 - $.13; and
      - Earnings (loss) per diluted share will range between $(.02) - $.00.

"We continue to be encouraged by the performance of our industry as we enter 2005," advised Mr. Francis. "With key business travel and overall demand indicators pointing positive, we expect our portfolio will benefit from these strong fundamentals as we renovate and reposition a significant number of our hotels. While we anticipate that our performance will be impacted in the first half of the year by our renovation and repositioning efforts, we will begin to see the benefits of these efforts in the later part of the year. We believe that we are in the early-to-mid stages of a lodging industry recovery and our efforts in 2004 and 2005 will position us to benefit as industry fundamentals continue to improve."

HIGHLAND HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)                                                          December 31,
                                                    2004              2003
    ASSETS
    Investment in hotel properties, net         $ 578,715        $ 147,562
    Asset held for sale                              3,000                 -
    Deposits on hotel property acquisitions          8,714                 -
    Cash and cash equivalents                       75,481           225,630
    Restricted cash                                 38,710                 -
    Accounts receivable, net                         7,010             2,917
    Prepaid expenses and other assets                8,279             3,379
    Deferred financing costs, net                    4,732                 -
      Total assets                              $ 724,641        $ 379,488

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Long-term debt                              $ 342,854        $        -
    Accounts payable and accrued expenses           17,140             6,936
    Payable to affiliates                                -             8,832
    Dividends/distributions payable                  5,726                 -
    Other liabilities                                3,122                 -
      Total liabilities                            368,842            15,768

    Minority interest in operating partnership       8,321             8,457
    Commitments and contingencies
    Preferred stock, $.01 par value;
     100,000,000 shares authorized; no shares
     issued at December 31, 2004 and 2003                -                 -
    Common stock, $.01 par value; 500,000,000
     shares authorized; 40,002,011 shares and
     39,882,500 shares issued at December 31,
     2004 and 2003, respectively                       400               399
    Additional paid-in capital                     366,856           365,454
    Treasury stock, at cost; 71,242 shares at
     December 31, 2004                                (801)                -
    Unearned compensation                           (6,182)           (7,917)
    Cumulative dividends in excess
     of net income                                 (12,795)           (2,673)
      Total stockholders' equity                   347,478           355,263

Total liabilities and stockholders'
equity $ 724,641 $ 379,488

                       HIGHLAND HOSPITALITY CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share data)
                                        Three Months Ended      Year Ended
                                        December 31, 2004    December 31, 2004

    REVENUE
    Rooms                                 $     32,124         $     85,389
    Food and beverage                           18,711               42,193
    Other                                        2,174                5,429
      Total revenue                             53,009              133,011

    EXPENSES
    Hotel operating expenses:
      Rooms                                      8,044               20,013
      Food and beverage                         12,368               30,402
      Other direct                               1,147                3,134
      Indirect                                  18,587               47,857
        Total hotel operating expenses          40,146              101,406
    Depreciation and amortization                4,646               11,564
    Corporate general and administrative:
      Stock-based compensation                     774                3,122
      Other                                      1,957                6,414
    Total operating expenses                    47,523              122,506

Operating income 5,486 10,505

Interest income 279 1,206
Interest expense 4,915 8,413

    Income before minority interest
     in operating partnership and
     income taxes                                  850                3,298

    Minority interest in operating
     partnership                                   (22)                (102)
    Income tax benefit                             111                1,070

Net income $ 939 $ 4,266

    Earnings per share:
      Numerator:
        Net income                        $        939         $      4,266
        Less: dividends on unvested
         restricted common stock                   (90)                (288)
        Net income after dividends
         on unvested restricted
         common stock                     $        849         $      3,978

      Denominator:
        Weighted average number of
         common shares outstanding
         - basic                            39,117,610           39,093,691 Weighted average number of                                       common shares outstanding
         - diluted                          39,528,402           39,401,196

     Earnings per share:
       Basic                              $       0.02         $       0.10
       Diluted                            $       0.02         $       0.10

                       HIGHLAND HOSPITALITY CORPORATION
                RECONCILIATION OF NET INCOME TO FFO AND EBITDA
                     (in thousands, except per share data)
    2004 ACTUAL RESULTS
    The following table reconciles net income to FFO for the three months and year ended December 31, 2004:
                                       Three Months Ended      Year Ended
                                       December 31, 2004    December 31, 2004

    Net income                             $      939           $    4,266
    Add: Depreciation and amortization         4,646               11,564
    FFO                                    $    5,585           $   15,830

    FFO per share:
        Basic                              $     0.14           $     0.40
        Diluted                            $     0.14           $     0.40

    The following table reconciles net income to EBITDA for the three months and year ended December 31, 2004:
                                       Three Months Ended      Year Ended
                                       December 31, 2004    December 31, 2004

    Net income                             $      939           $    4,266
    Add: Depreciation and amortization         4,646               11,564
          Interest expense                      4,915                8,413
    Less: Interest income                        (279)              (1,206)
          Income tax benefit                     (111)              (1,070)
    EBITDA                                 $   10,110           $   21,967

    EBITDA per share:
        Basic                              $     0.26           $     0.56
        Diluted                            $     0.26           $     0.56

                       HIGHLAND HOSPITALITY CORPORATION
                RECONCILIATION OF NET INCOME TO FFO AND EBITDA
                     (in thousands, except per share data)
    2005 GUIDANCE
    The following table reconciles net income to FFO for the first quarter 2005 and full year 2005:

First Quarter 2005 Full Year 2005
Low High Low High

    Net income (loss)               $ (964) $   (79)   $ 8,300    $ 9,802
    Add: Depreciation and
          amortization                5,160     5,160      24,584      24,584
    FFO                             $ 4,196   $ 5,081    $ 32,884    $ 34,386

FFO per diluted share (1) $ 0.11 $ 0.13 $ 0.83 $ 0.87

    The following table reconciles net income to EBITDA for the first quarter 2005 and full year 2005:
                                   First Quarter 2005        Full Year 2005
                                      Low       High        Low         High

    Net income (loss)               $ (964) $    (79)   $ 8,300    $ 9,802
    Add: Depreciation and
          amortization                5,160     5,160      24,584      24,584
          Interest expense            5,710     5,710      24,794      24,794
    Less: Interest income              (257)     (257)       (630)       (630)
          Income tax expense
          (benefit)                    (805)     (495)        968       1,494
    EBITDA                          $ 8,844 $ 10,039    $ 58,016    $ 60,044

(1) the weighted average number of common shares outstanding used to determine FFO per diluted share was approximately 39,525,000.

Highland Hospitality Corporation is a self-advised lodging real estate investment trust, or REIT, focused on hotel investment primarily in the United States. The Company currently owns 18 hotel properties in ten states with an aggregate of 5,143 rooms.

Certain statements and assumptions in this press release contain or are based upon "forward-looking" information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Contact:

Highland Hospitality Corporation
Sean Dell'Orto
http://www.highlandhospitality.com

Also See:	Newly Formed REIT, Highland Hospitality Corporation, Acquires First Three Properties for $71 million / December 2003
	Highland Hospitality Corporation (HIH), a REIT, Expects IPO Proceeds of $342.3 million; Organized to Take Advantage of Lodging Investment Opportunities / December 2003

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