NEW YORK— Moody’s Investors Service here won’t be getting an argument anytime soon from the National Association of Real Estate Investment Trusts (NAREIT) when the rating agency contends the stock-pricing picture is not particularly bright for the nation’s lodging REITs. Indeed, NAREIT SVP/Research and Investment Affairs Michael Grupe agreed that recent times have proven to be a “challenging operating environment… and there’s no denying lodging REITs are faced with difficult economic conditions,” spurring a downturn in (especially corporate) travel. To this end, Moody’s maintained recent announcements by several lodging REITs that third quarter 2002 results will be lower than had been expected underscore the weak operating environment faced by lodging REITs— particularly in the full-service, mid- and upscale segments. As such, the Real Estate Finance arm’s John Kriz and Lesia Bates Moss reported Moody’s near-term rating outlook for the lodging REIT sector remains negative overall, although year-over-year RevPAR performance for all lodging segments is expected to be positive in the fourth quarter 2002 compared to the post-9/11 period of 2001. It was added Moody’s anticipates recovery in lodging REITs’ operating performance to more normalized levels will be delayed well into 2003. No immediate rating actions are contemplated. As Grupe explained, his belief is that “most companies have acted responsibly [during these tough times, doing things like]trimming dividends, etc. However, it’s like Warren Buffet stated: ‘Everybody likes lower prices when they go shopping, but nobody likes it when stocks go on sale.’” While noting Moody’s applies a credit rather than an equity focus to the hotel REIT universe, Grupe said the agency’s overall grasp of today’s situation doesn’t differ markedly from his own. “All in all,” he said, “I guess you’d have to say my outlook on this sector of the REIT marketplace is kind of neutral. For sure, I think stock prices have already taken their greatest hit, and I would definitely say things aren’t getting any worse at this time.” Accentuating the positive aspects of what is inarguably a distressed economic climate, Grupe added, “At least the cost of capital these days is very low, making it a good time for those companies carrying excessive debt to refinance it.”
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