In his Forbes/Slatin Real Estate Report, editor Peter Slatin recently interviewed Amit Kapoor of Gabelli Asset Management, whose specialty is the hotel/hospitality segment of the broader real estate sector. Here are highlights from the interview, in which Kapoor looks at Orient-Express (NYSE: OEH), a premium property operator.

Forbes/Slatin: "As several recent reports have indicated, hotel stocks are continuing their strong performance while the current wave of privatization and consolidation also shows no sign of abating. What are the basic reasons behind your bullishness on the sector?

Amit Kapoor: Overall, momentum and fundamentals in the hotel market are very strong. The supply is limited and it will be at least two years before significant supply comes on line and starts affecting revPAR growth.

Forbes/Slatin: You've just released a very positive report on Orient-Express. What do you like in particular?

Amit Kapoor: Their story is location, exceptional properties and the revPAR premium their properties command over their peers'. Their holdings really comprise a defensible niche for the company versus cookiecutter luxury hotel chains.

"Typically what OEH buys are distinctive properties that are family owned, like the Hotel Cipriani in Venice, or from a private investor that owns a hotel, at an attractive valuation. They can then refurbish them and take advantage of increasing rates that their operation allows for.

"The final leg of growth for them is recovery in Europe, where some 50% of their owned EBITDA is projected to come from. (OEH owns 27 properties worldwide and manages another 11.) Margins there went from 34% to 25%, but are forecast for recovery by 2010.

"They also have so much developable land -- 325 acres adjacent to their hotels, where they plan to sell high-end vacation ownership. We estimate the land value of their holdings is worth $9/share, and their net asset value is $57.

"At this point it's hard to bet against a lodging operator with that much owned real estate. As our recent report notes, they are a potential catalyst in the active lodging M&A environment."

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