Analysts see opportunities as industry gains momentum

Hotel & Motel Management,  Jan 12, 2004  by Bruce Adams

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Bond interest rates are so low that institutional investors also are looking at real-estate because they offer higher yields than bonds, plus offer equity upside, he said.

Meeting expectations

Many of these favorable conditions are based on expectations that hotels will be able to improve their earnings.

"The markets are expecting improving operating results from hotels," Whyte said. "The recovery is inevitable, it is just a question of when. Investors who get in too early and don't see improved results probably won't bail out because there is very low supply on the horizon."

Wolkom was less sure about the market's tolerance for missteps.

"Everybody is projecting off of poor performances, so they think the numbers will be better," he said. "If hotel operators start missing numbers on the down side and come in under earnings expectations, that will be a problem. Many analysts think the lodging stocks already have gotten too expensive."

By the end of the first quarter of 2004, the hotel industry's bottom-line cash flows must stabilize or turn around, or stock prices will drop, Levy said.

"The catalyst to all this is investor perception that a recovery is under way," he said. "If it doesn't happen, multiples will decline and transactions will slow down."

Kline said improved performance is under way.

"We've just seen the turn in operating performance in the fourth quarter of 2003," he said. "That won't show up in companies' earnings until early 2004."

Name of panel: "The Wall Street Outlook - Clearing Skies and Sunny Days Ahead?"

Time of panel: 4:45-6 p.m. Jan. 19.

Moderator: Jon D. Kline, executive v.p. and chief financial officer of Sunstone Hotel Investors LLC.

Panelists: Jackson Hsieh, global head of real estate, lodging and leisure group, UBS Investment Bank; Michael Levy, executive director, Morgan Stanley; Rich Weissmann, managing director for Goldman Sachs & Co.; Paul Whyte, managing director, Deutsche Bank Securities; Greg Wolkom, managing director and head of lodging and leisure, Banc of America Securities LLC; and Jack Vissicchio, managing director, Merrill Lynch.

badams@advanstar.com

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