Improved Performance Seen For Lodging Entities

NEW YORK? The message delivered to hundreds of industry attendees at the Banc of America Securities? 17th Annual Hospitality Conference here last month was that it may be ?time to check into lodging stocks.? That?s the word from Banc of Americas Securities LLC?s Michael Mueller, managing director of the firm?s Montgomery Division in San Francisco, who pointed out that a number of predictions and projections auger well for the improving performance of lodging entities and their stock prices. Among these are expectations that supply growth has peaked (and should decline through 2002), and that there are a number of attractive risk/reward opportunities in selected stocks. (Mueller isn?t the only one upbeat about lodging stocks. See story page one.) Reasons for weak hotel stock-price performance over the past few years? as cited by Mueller? include: concerns about supply growth as well as demand levels; 1999 RevPAR growth that came in below that originally anticipated; estimates of even lower/slower RevPAR growth; and the realization that other market sectors have lately proven to be more interesting to investors. ?It?s plain to see that stock prices do not accurately reflect actual lodging company performance and profitability,? Mueller said. To this end, he pointed to Pricewaterhouse-Coopers LLP/Smith Travel Research projections that purport a continued strong profit outlook for the industry through 2002, perhaps topping out as high as somewhere between $25 billion – $30 billion. On this note, some 20 leading lodging industry companies and REITs (over the course of the final two days of the conference) were invited to address attendees, sharing with the audience information regarding overall organizational viability as well as past, present and future operational accomplishments and strategies. Lodgian One of the industry?s leaders in terms of RevPAR growth in 1999 (6.5%), Lodgian similarly posted a $25-million increase in total revenues and nearly a $30-million improvement in EBITDA last year. However, perhaps the main reason the company made its share of headlines over the past 12 months has been its activity in acquiring as well as divesting properties. According to President/CEO Robert Cole, even though the company is now in the final phase of a $250-million renovation, repositioning and rebranding campaign, look for Lodgian to step up asset sales (primarily as a means of raising capital that would be used to reduce the company?s debt load). This would mark something of a change in operational direction for the company which, over the course of the past five years, either newly built or renovated 81% of the rooms in its portfolio. On hand to present a vision of the firm?s financial future, CFO Kenneth Posner reported that Lodgian is looking forward to increases right across the board this year. ?In 2000, we see RevPAR growing 4.8%, while total revenues should be up 5.1% and EBITDA increasing 8.0%,? he said. ?Additionally, we also foresee an uptick of 2.6% in our margin percentage.? Returning to the subject of asset sales, Cole explained that such transactions would take place in those instances when the company can shed the asset-in-question at a higher price than that at which Lodgian is currently trading. Moreover, Cole similarly wouldn?t rule out the possible sale of Lodgian in its entirety, noting that he and the firm?s management team ?will do whatever shapes up as being in the best interests of the company and its stock.? Of course, he also pointed out that a deal for Lodgian may not be quite as imminent as some might expect. ?After all, today?s capital market is not the easiest to get a deal done, and as things now stand, any potential buyer will need nearly a billion dollars in capitalization.? FelCor Lodging Trust ?The hotel industry today is little more than a shelf-space game,? according to Tom Corcoran, FelCor president/CEO. ?It seems all the hotel companies have only one thought in mind, and that?s to com