PALM BEACH, FL— Despite the fact numerous industry experts are coming out of the woodwork to warn of a veritable “wave” of hotel failures to hit the industry in the new year, at least one lodging executive believes it’s “highly unlikely” REITs will be among those entities falling by the wayside. As noted by David Bulger, evp/treasurer/CFO of Innkeepers USA Trust here, the industry can expect to see “C-Corps failing before REITs collapse, largely because lodging REITs across-the-board have capped their leverage levels well below the 50% mark. As such,” he said, “it would take a truly disastrous turn of economic events to mortally wound REITs. “Moreover,” Bulger maintained, “banks on the whole have been very appreciative of REITs’ balance sheets. As such, they have generally been very willing to work with REITs whenever necessary… especially in areas such as covenant violations.” According to Bulger, “the entire hospitality industry has been hurt in the recent financial markets. Owners and management companies are losing revenue due to decreased occupancy and rate, and franchise companies are losing revenue due to a slowdown in construction. Nonetheless, the long-term outlook for the hotel industry remains positive.” Returning to his positive assessment of REITs, Bulger pointed out that “REITs are designed to be a dividend and income stock, not a pure growth vehicle. The rapid growth hotel REITs experienced in the mid-‘90s was something of an anomaly,” he noted, “but then, so was the extraordinary growth in tech stocks during that same period. “It is unlikely that we will see that kind of growth again in the foreseeable future,” he added, “and it appears many investors now view returns of 8% -10% as ‘normal.’ As a result, hotel REITs that historically pay dividends in that range will become more attractive as the industry moves through the bottom of this economic cycle.” Finally, Bulger contended: “It looks like the market already has discounted the after-effects of the terrorist attacks and the concurrent recession. Hotel stocks have rebounded from their lows. Innkeepers’ stock, for example, is up about a third since its post-Sept. 11th low. “Ultimately, I think the market is expecting a rebound in 2003, and as that rebound becomes a reality it will be reflected in improved stock prices for both hotel REITs and [the more highly leveraged]C-Corps.”
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