Feb. 22, 2007 - RALEIGH -- Winston Hotels, which grew from a Wilmington hotel to a portfolio that spans 18 states, agreed to be bought by a New York real estate investment firm in a $850 million deal.

The Raleigh real estate investment trust said Wednesday, after regular trading on the New York Stock Exchange, that Wilbur Acquisition Holding Co. agreed to buy all outstanding shares of Winston common stock for $14.10 per share, or $430 million, and assume Winston's debt. Shareholders must approve the sale. Winston expects the deal to close by July.

"We got an offer that was a great price to shareholders," chief executive and founder Robert W. Winston III said. "Prices are high and have been high in the industry, and our stock has performed very well this year."

The $14.10 offer is 2.8 percent above Wednesday's $13.71 closing price. Winston shares closed Feb. 15 at a nine-year high of $14.31, rising from a 52-week low of $10.10 per share in April.

"It's not much of a premium," Morgan Keegan analyst Napoleon Overton said. "But you're supposed to sell high."

Winston, the company's biggest individual shareholder, would benefit most: He owns 966,644 shares, according to Securities and Exchange Commission documents. He would get at least $13.6 million for cashing out.

Winston founded the company in 1994 when he merged a Wilmington hotel he owned with nine owned by his father, Charles Winston, who earned a fortune as co-founder of the Angus Barn steakhouse on U.S. 70 in northwest Raleigh. In the mid-1980s, Charles Winston sold his interest in the Angus Barn and other restaurants and sank his cash into the emerging limited-service sector of the hotel industry. The hotels offered lower room rates in return for reduced amenities and were winning guests from full-service hotels that had restaurants, bars and nightclubs.

Winston Hotels owns or is invested in 53 hotels in 18 states with a total of 7,205 rooms.

It is unclear what would happen to Winston's 30 employees. Hundreds who work for Raleigh-based Alliance Hospitality, which manages Winston hotels, won't be affected, Winston Hotels said.

The deal is another sign that the hospitality industry has recovered. Travel fell dramatically after the 2001 terrorist attacks, but occupancy and daily rates have increased. Occupancy in Winston's portfolio rose to 65.7 percent in 2006 from 64.9 percent in 2005; revenue per available room climbed 11.5 percent to $69.57.

REITs make their money by selling or leasing properties such as offices, warehouses, apartments and hotel rooms. They typically don't pay corporate income taxes so long as they distribute most their income to shareholders as dividends. The dividends are popular with investors because many are nontaxable or qualify for reduced taxes.

REITs have been popular in the past few years as the broader stock market offered unpredictable returns, and the growing economy generates more demand for space.

But as more investors compete for real estate, prices go up. Last month, Raleigh's 29-story Wachovia Capitol Center sold for $153.4 million, the most ever paid for an existing Triangle building.

Private investors are finding value in buying portfolios and selling them piece by piece. In the first 11 months of 2006, there were about $77.6 billion in deals to take public REITs private, twice the total in the previous two years, according to UBS Securities. This month, Blackstone Group paid $39 billion for Equity Office Properties Trust in the biggest leveraged buyout ever.

Wilbur, the group offering to buy Winston, is an affiliate of Och-Ziff Real Estate and Norge Churchill. Och-Ziff was co-founded by Och-Ziff Capital Management, a private global institutional asset management firm in New York, that has invested $3 billion in commercial real estate.

Stavros Galiotos, a founding partner, declined to comment. Norge is owned by clients of Acta Holding ASA, which is listed on the Oslo, Norway, stock exchange.

Overton speculated that the proposed sale may attract other bidders for Winston. "The lodging industry is in the midst of a cyclical recovery and has probably several more years of reasonable growth," he said.

Four Seasons Hotels last week agreed to be taken private by Microsoft Chairman Bill Gates, Saudi Prince Alwaleed Bin Talal and the company's chief executive officer for $3.37 billion.

Winston's shares climbed as high as $14.06 in after-hour trading on Wednesday. Its shares have risen 3.5 percent this year, while the Bloomberg hotel REIT index has risen 7.7 percent.

Staff writer Dudley Price can be reached at (919) 829-4525 or [email protected].

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