Highland Hospitality Corporation Reports 4th Qtr 2005 Net Income Available to Common Stockholders of $3.1 million; RevPAR Increased by 15.6% at Stabilized Hotels / February 2006

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Highland Hospitality Corporation Reports 4th Qtr 2005 Net Income Available to
Common Stockholders of $3.1 million; RevPAR Increased
by 15.6% at Stabilized Hotels

MCLEAN, Va., Feb. 8, 2006 - Highland Hospitality Corporation (NYSE: HIH), a lodging real estate investment trust, or REIT, today reported its financial results for the quarter ended December 31, 2005.

Consolidated Financial Results

For the fourth quarter 2005, the Company reported total revenue of $77.0 million and net income available to common stockholders of $3.1 million, or $.06 per diluted common share, compared to total revenue of $53.0 million and net income available to common stockholders of $0.9 million, or $.02 per diluted common share, for the fourth quarter 2004. Funds from operations (FFO) available to common stockholders, which is defined as net income available to common stockholders plus depreciation and amortization, were $10.8 million, or $.21 per diluted common share, for the fourth quarter 2005 compared to $5.6 million, or $.14 per diluted common share, for the fourth quarter 2004. Earnings before interest, income taxes and depreciation and amortization (EBITDA) were $19.4 million, or $.38 per diluted common share, for the fourth quarter 2005 compared to $10.1 million, or $.26 per diluted common share, for the fourth quarter 2004.

"We are extremely pleased with our portfolio's fourth quarter performance," said James L. Francis, Highland's President and Chief Executive Officer. "Our stabilized hotel performance exceeded both industry and segment averages with a 15.6% RevPAR increase translating into a robust margin expansion of 500 basis points. More importantly, we are beginning to see the positive impact from our completed renovations as our group of renovated hotels (which includes three projects still under renovation) experienced an 8.7% increase in fourth quarter RevPAR over the same period last year. Furthermore, profitability growth at these hotels was very strong, with a margin expansion of 380 basis points."

For the year ended December 31, 2005, the Company reported total revenue of $251.2 million and net income available to common stockholders of $8.0 million, or $.18 per diluted common share, compared to total revenue of $133.0 million and net income available to common stockholders of $4.3 million, or $.10 per diluted common share, for the prior year period. FFO available to common stockholders was $32.1 million, or $.75 per diluted common share, for the year ended December 31, 2005, compared to $15.8 million, or $.40 per diluted common share, for the prior year period. EBITDA was $57.2 million, or $1.34 per diluted common share, for the year ended December 31, 2005, compared to $22.0 million, or $.56 per diluted common share, for the prior year period.

Both FFO available to common stockholders and EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. Management believes that FFO available to common stockholders 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 net income available to common stockholders 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

Included in the following table is a comparison of occupancy, average daily rate (ADR) and revenue per available room (RevPAR), the key operating metrics that the Company uses to assess the revenue performance of its U.S. hotel properties, for the fourth quarter 2005 and 2004. The comparison does not include the operating results for the Barcelo Tucancun Beach resort, the Wyndham Palm Springs hotel, the Hilton Boston Back Bay hotel, the Westin Princeton hotel, and The Churchill hotel, which were all acquired in 2005.

Key Operating Metrics (1) Quarter Ended Quarter Ended
December 31, 2005 December 31, 2004

Occ % ADR RevPAR Occ % ADR RevPAR

Stabilized (11 hotels) 72.7% $115.49 $84.00 68.4% $106.20 $72.66

Rebranded/Renovated
(7 hotels) 61.5% $126.93 $78.03 60.7% $118.25 $71.77

Comparable (18 hotels) 67.2% $120.65 $81.06 64.6% $111.77 $72.22

    (1) Rebranded/Renovated includes hotels that are currently going through,
        or have recently gone through, significant renovation and/or in the
        process of changing, or have recently changed, their franchise
        affiliation. Stabilized includes hotels that are not being disrupted
        by renovation or rebranding efforts.

For the fourth quarter 2005, RevPAR for the Company's stabilized hotels increased 15.6% to $84.00, versus the same period in 2004. Occupancy increased by 4.3 percentage points to 72.7%, while ADR increased by 8.8%. For the Company's rebranded/renovated hotels, RevPAR increased 8.7% to $78.03, versus the same period in 2004. Occupancy increased by 0.8 percentage points to 61.5%, while ADR increased by 7.3%. For the comparable 18 hotels, RevPAR increased by 12.2% to $81.06, versus the same period in 2004. Occupancy increased by 2.6 percentage points to 67.2%, while ADR increased by 7.9%.

For the fourth quarter 2005, the Company's hotel properties contributed $77.0 million of total revenue and $21.7 million of hotel operating income. Included in the following table is a comparison of hotel operating income and hotel operating income margins for the fourth quarter 2005 and 2004. The comparison does not include the operating results for the Barcelo Tucancun Beach resort, the Wyndham Palm Springs hotel, the Hilton Boston Back Bay hotel, the Westin Princeton hotel, and The Churchill hotel, which were all acquired in 2005.

    Hotel Operating Income and Margins (1)
                                       Quarter Ended        Quarter Ended
                                       December 31, 2005   December 31, 2004

$(2) %(3) $(2) %(3)

Stabilized (11 hotels) $10.1 30.4% $ 7.4 25.4%

Rebranded/Renovated (7 hotels) $ 8.5 27.1% $ 6.8 23.3%

Comparable (18 hotels) $18.6 28.8% $14.2 24.4%

For the fourth quarter 2005, hotel operating income for the Company's stabilized hotels increased 36.7% to $10.1 million versus the same period in 2004 and hotel operating income margins increased by 5.0 percentage points to 30.4%. For the Company's rebranded/renovated hotels, hotel operating income increased 24.9% to $8.5 million versus the same period in 2004 and hotel operating income margins increased by 3.8 percentage points to 27.1%. For the comparable 18 hotels, hotel operating income increased by 31.1% to $18.6 million versus the same period in 2004 and hotel operating income margins increased by 4.4 percentage points to 28.8%.

Acquisition Activity/Investment Outlook

On October 24, 2005, the Company acquired the 385-room Hilton Boston Back Bay hotel in Boston, Massachusetts from Hilton Hotels Corporation for $110 million, plus customary closing costs. Hilton will continue to manage the property under a long-term management agreement.

On November 15, 2005, the Company acquired the 294-room Westin Princeton at Forrestal Village in Princeton, New Jersey from Starwood Hotels & Resorts for $53.5 million, plus customary closing costs. Crestline Hotels & Resorts, Inc. will manage the property under a Westin license agreement.

On December 9, 2005, the Company acquired the 144-room Churchill hotel in Washington, DC for approximately $48.8 million, plus customary closing costs. Crestline Hotels & Resorts, Inc. will manage the property under a long-term management agreement.

Mr. Francis stated, "The three assets acquired during the fourth quarter are well-located within high growth markets with significant barriers-to- entry. We believe these stabilized hotels will drive significant growth for our company as they benefit from the favorable economics that exist in the Boston, Washington, DC and Princeton, NJ markets and strong management from Hilton Hotels and Crestline Hotels & Resorts."

As previously announced, the Company has agreed to acquire the newly built 210-room Courtyard Gaithersburg Washingtonian Center in Gaithersburg, Maryland, expected to open for business at the beginning of the second quarter 2006. The purchase price of the acquisition is $29 million, of which $8 million was funded upon the signing of the definitive agreement.

Balance Sheet/Liquidity

On December 6, 2005, the Company closed on a $69.0 million fixed-rate mortgage loan secured by the 385-room Hilton Boston Back Bay hotel. The seven-year loan was provided by Connecticut General Life Insurance Company (CIGNA) and bears interest at an annual fixed rate of 5.96%.

As of December 31, 2005, the Company had $64.8 million of cash and cash equivalents and $21.5 million of restricted cash. Total assets were $1,056.8 million, including $910.5 million of net investment in hotel properties, long- term debt was $494.8 million, and stockholders' equity was $524.3 million.

During the fourth quarter 2005, the Company generated $14.6 million of cash flow from its operations, used $227.9 million in net investing activities, including $ 213.9 million in hotel acquisitions and $13.4 million in hotel capital expenditures, and obtained $72.6 million through net financing activities.

On January 6, 2006, the Company closed on a $35.0 million fixed-rate mortgage loan secured by the 294-room Westin Princeton at Forrestal Village hotel. The seven-year loan was provided by Connecticut General Life Insurance Company (CIGNA) and bears interest at an annual fixed rate of 5.97%.

As of January 31, 2006, the Company had approximately $91 million of cash and cash equivalents.

Dividend Update

During the fourth quarter 2005, the Company declared a dividend of $.14 per share payable to its common stockholders of record as of December 31, 2005. The dividend was paid on January 13, 2006. On November 15, 2005, the Company paid its previously announced initial quarterly cash dividend of $.18594 per share of Series A Cumulative Redeemable Preferred Stock, reflecting a partial dividend period. On January 18, 2006, the Company declared a quarterly cash dividend of $.49219 per share of Series A Cumulative Redeemable Preferred Stock. The dividend will be paid on February 15, 2006 to holders of record on February 1, 2006. The level of future dividends payable to stockholders will continue to be determined by the Company's quarterly operating results, general economic conditions, capital requirements and other operating trends.

Barcelo Tucancun Beach Resort

As previously reported, in October 2005, Hurricane Wilma caused substantial wind and water damage to the Company's Barcelo Tucancun Beach resort. The majority of damage affected the grounds of the resort and the first level of the hotel, including significant structural damage to the sea wall and damage to the lobby, restaurant and pool areas. Although significant progress has been made to restore the damaged areas, the resort is still closed.

The Company has comprehensive insurance coverage for both property damage and business interruption. The net book value of the property damage is currently estimated to be $6.5 million. During the fourth quarter 2005, the Company recorded a write-off of $6.5 million to its investment in hotel property for the property damage. In addition, the Company recorded an insurance claim receivable for $6.5 million because the Company believes that it is probable that the insurance recovery, net of a deductible, will exceed the net book value of the damaged property. To the extent that insurance proceeds ultimately exceed the net book value of the damaged property, a gain will be recorded in the period when all contingencies related to the insurance claim have been resolved.

2006 Outlook

Based on the Company's current hotel operating trends and the status of the Company's renovation and repositioning program, the Company estimates that for the first quarter 2006:

     - Total revenues will range between $76 - $78 million;
     - Earnings per diluted common share will range between $.02 - $.03(1);
     - FFO per diluted common share will range between $.18 - $.19(1); and
     - Corporate EBITDA will range between $16.9 - $17.4 million.

The Company also estimates that for the full year 2006:

     - Total revenues will range between $369 - $377 million;
     - Earnings per diluted common share will range between $.31 - $.36(1);
     - FFO per diluted common share will range between $1.02 - $1.07(1); and
     - Corporate EBITDA will range between $94.9 - $97.0 million.

    (1) The weighted average number of common shares outstanding used to
        determine earnings per diluted share and FFO per diluted common share
        was approximately 51.8 million for the first quarter 2006 and full
        year 2006.

Mr. Francis stated, "Our first quarter and full-year estimates for 2006 reflect our assumptions that portfolio RevPAR will increase by 9-11%, translating into an EBITDA margin expansion of 200-250 basis points, along with the timeliness of our renovations and acquisitions. These assumption ranges are based on our belief that our portfolio will continue to benefit from the continued industry growth in 2006 and be supplemented by the expected improvements in the performance of our renovated and rebranded hotels and the incremental growth from our newly acquired assets."

    HIGHLAND HOSPITALITY CORPORATION
    CONSOLIDATED BALANCE SHEETS
    (in thousands, except share data)

                                                          December 31,
                                                       2005             2004
    ASSETS
    Investment in hotel properties, net       $      910,532 $       578,715
    Asset held for sale                                3,000            3,000
    Deposits on hotel property acquisitions            8,202            8,714
    Cash and cash equivalents                         64,761           75,481
    Restricted cash                                   21,486           38,710
    Accounts receivable, net                          12,927            7,010
    Prepaid expenses and other assets                 31,401            8,279
    Deferred financing costs, net                      4,522            4,732
     Total assets                             $    1,056,831 $       724,641

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Long-term debt                            $      494,799 $       342,854
    Accounts payable and accrued expenses             23,163           17,140
    Dividends/distributions payable                    7,327            5,726
    Other liabilities                                  2,718            3,122
     Total liabilities                               528,007          368,842

Minority interest in operating partnership 4,500 8,321
Commitments and contingencies

    Preferred stock, $.01 par value;
     100,000,000 shares authorized;
     Series A Cumulative Redeemable
     Preferred Stock; 3,200,000 shares
     issued and outstanding at December 31, 2005      77,112                -
    Common stock, $.01 par value;
     500,000,000 shares authorized;
     51,969,372 shares and 40,002,011
     shares issued at December 31, 2005
      and 2004, respectively                             519              400
    Additional paid-in capital                       481,152          366,856
    Treasury stock, at cost; 160,992
     shares and 71,242 shares
     at December 31, 2005 and 2004,
     respectively                                     (1,772)            (801)
    Unearned compensation                             (3,276)          (6,182)
    Cumulative dividends in excess of net income     (29,411)         (12,795)
     Total stockholders' equity                      524,324          347,478

Total liabilities and stockholders'
equity $ 1,056,831 $ 724,641

    HIGHLAND HOSPITALITY CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (in thousands, except share and per share data)

                                  Three Months Ended          Year Ended
                                      December 31,             December 31,
                                    2005        2004        2005        2004

    REVENUE
    Rooms                    $     47,870 $    32,124 $   163,340 $    85,389
    Food and beverage              25,861      18,711      78,056      42,193
    Other                           3,263       2,174       9,819       5,429
     Total revenue                 76,994      53,009     251,215     133,011

    EXPENSES
    Hotel operating expenses:
     Rooms                         11,111       8,044      37,188      20,013
     Food and beverage             16,151      12,368      50,956      30,402
     Other direct                   1,278       1,147       4,480       3,134
     Indirect                      26,718      18,587      91,700      47,857
      Total hotel operating
       expenses                    55,258      40,146     184,324     101,406
    Depreciation and
     amortization                   7,746       4,646      24,057      11,564
    Corporate general and
     administrative:
      Stock-based compensation        790         774       3,222       3,122
      Other                         1,557       1,957       6,475       6,414
    Total operating expenses       65,351      47,523     218,078     122,506

Operating income 11,643 5,486 33,137 10,505

    Interest income                 1,028         279       1,819       1,206
    Interest expense                7,246       4,915      25,047       8,413
    Foreign currency exchange
     gain                              55           -         141           -

    Income before income taxes
     and minority interest in
     operating partnership          5,480         850      10,050       3,298

    Income tax benefit
     (expense)                       (737)        111        (201)      1,070
    Minority interest in
     operating partnership            (76)        (22)       (176)       (102)

Net income 4,667 939 9,673 4,266
Preferred stock dividends (1,578) - (1,627) -

Net income available to
common stockholders $ 3,089 $ 939 $ 8,046 $ 4,266

Net income per common
share:

     Numerator:
      Net income available
       to common
       stockholders          $      3,089 $       939 $     8,046 $     4,266
      Less: dividends on
       unvested restricted
       common stock                   (50)        (90)       (310)       (288)
      Net income available
       to common stockholders
       after dividends on
       unvested restricted
       common stock          $      3,039 $       849 $     7,736 $     3,978

     Denominator:
      Weighted average number
       of common shares
       outstanding - basic     51,055,273 39,117,610 42,455,438 39,093,691
      Weighted average number
       of common shares
       outstanding - diluted   51,355,162 39,528,402 42,702,401 39,401,196

     Net income per common
      share:
       Basic                 $       0.06 $      0.02 $      0.18 $      0.10
       Diluted               $       0.06 $      0.02 $      0.18 $      0.10

     HIGHLAND HOSPITALITY CORPORATION
     RECONCILIATION OF FFO AND EBITDA
     (in thousands, except per share data)

2005 AND 2004 RESULTS

The following table reconciles FFO available to common stockholders to net
income available to common stockholders for the three months and year ended
December 31, 2005 and 2004:

                                           Three Months Ended   Year Ended
                                             December 31,      December 31,
                                            2005     2004      2005     2004

    Net income available to common
     stockholders                     $    3,089 $    939   $ 8,046 $ 4,266
    Adjustment: Depreciation and
     amortization                          7,746    4,646     24,057   11,564
    FFO available to common
     stockholders                     $   10,835 $ 5,585   $ 32,103 $ 15,830

    FFO per common share:
        Basic                         $     0.21 $   0.14   $   0.76 $   0.40
        Diluted                       $     0.21 $   0.14   $   0.75 $   0.40

The following table reconciles EBITDA to net income for the three months and year ended December 31, 2005 and 2004:

                                          Three Months Ended    Year Ended
                                             December 31,       December 31,
                                            2005     2004       2005     2004

    Net income                        $    4,667 $    939   $ 9,673   $4,266
    Adjustments: Depreciation and
                  amortization             7,746    4,646     24,057   11,564
                 Interest expense          7,246    4,915     25,047    8,413
                 Interest income          (1,028)    (279)    (1,819) (1,206)
                 Income tax expense
                 (benefit)                   737     (111)       201   (1,070)
    EBITDA                            $   19,368 $ 10,110   $ 57,159 $ 21,967

    EBITDA per common share:
        Basic                         $     0.38 $   0.26   $   1.35 $   0.56
        Diluted                       $     0.38 $   0.26   $   1.34 $   0.56

     HIGHLAND HOSPITALITY CORPORATION
     RECONCILIATION OF FFO AND EBITDA
     (in thousands, except per share data)

2006 GUIDANCE

The following table reconciles FFO available to common stockholders to net
income available to common stockholders for the first quarter 2006 and full
year 2006:

First Quarter 2006 Full Year 2006
Low High Low High

    Net income available to common
     stockholders                    $     1,132 $ 1,652   $ 15,834 $ 18,442
    Adjustment: Depreciation and
     amortization                          8,184    8,184     36,907   36,907
    FFO available to common
     stockholders                    $     9,316 $ 9,836   $ 52,741 $ 55,349

FFO per diluted common share (1) $ 0.18 $ 0.19 $ 1.02 $ 1.07

The following table reconciles EBITDA to net income for the first quarter
2006 and full year 2006:

First Quarter 2006 Full Year 2006
Low High Low High

    Net income                       $     2,707 $ 3,227   $ 22,134 $ 24,742
    Adjustments: Depreciation and
                  amortization             8,184    8,184     36,907   36,907
                 Interest expense          8,250    8,200     35,750   35,250
                 Interest income            (400)    (400)      (783)    (783)
                 Income tax expense
                 (benefit)                (1,817) (1,774)       899      918
    EBITDA                           $   $16,924 $ 17,437 $   94,907 $ 97,034

    (1) the weighted average number of common shares outstanding used to
        determine FFO per diluted common share was approximately 51.8 million
        for the first quarter 2006 and full year 2006.

Investor Conference Call and Simulcast

Highland Hospitality Corporation will conduct a conference call at 10:00 AM EST on Wednesday, February 8, 2006, to discuss its fourth quarter 2005 financial results. The number to call for this interactive teleconference is 1 (800) 895-0198 (within the U.S.) and 1 (785) 424-1053 (for international calls). The conference I.D. is Highland. A playback will be available through March 8, 2006. To listen to a replay of the call, please call 1 (800) 688-7339 (within the U.S.) or 1 (402) 220-1347 (for international calls).

The Company will also provide an online simulcast and rebroadcast of the fourth quarter 2005 earnings conference call. The live broadcast of Highland's quarterly conference call will be available at the Company's website at http://www.highlandhospitality.com. The online replay will follow shortly after the call and will continue through May 8, 2006.

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 23 hotel properties with an aggregate of 6,708 rooms in 11 states, Washington, DC and Mexico. Additional information can be found on the Company's website at http://www.highlandhospitality.com.

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:	Highland Hospitality Acquires the 332-room Tucancun Beach Resort & Villas, in Cancun for $31.0 million; Barcelo Hotels Will Manage as an All-inclusive Resort Under the Barcelo Brand Name / April 2005
	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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