Forecast Bad For All, But Particularly REITs

The Wall Street Journal takes a cursory look at the economic picture for our industry this week, positing that hotel management companies are in a much better position to weather a recession than are property owners.

The article quotes a J.P. Morgan Chase analyst saying that, historically, less real-state intensive businesses do better in economic downturns, partly due to their having lower leverage and higher margins. It also notes that another analyst sees long-term investment potential in real-estate-light hotel operators (namely Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc.), and that in general, management companies have a much easier time diversifying markets than do owners, particularly REITs.

Indeed, the article paints a grim picture for hotel REITs. SNL Financial reports that the 12 hotel REITs it tracks are down 28% year-over-year, while its hotel operator index is down "only" 15%.

It’s worth noting that just a month ago the same newspaper was touting the surprising financial success of REITs in general—but with the exception of REITs specific to the mortgage industry and, alas, the hotel industry.

Related Link
The Hotel Industry and a Slowing Economy (4Hoteliers)