US hotel sector’s unexplained strength

Shares in US  hotel REITs have been rising recently, writes the Wall Street Journal, despite some of the worst revenues people can remember.

The stocks of hotel companies that are structured as real-estate investment trusts were up 11% during the past three weeks and 34% since the beginning of the year, according to the National Association of Real Estate Investment Trusts. Such gains far outpace the 6% year-to-date gain for all REITs and the 12% rise by the Standard & Poor’s 500-stock index.

Host Hotels & Resorts Inc., a REIT that owns 113 hotel properties, recently lowered its 2009 earnings outlook, but its stock is up 26% since late July. Marriott International Inc., which manages and franchises more than 3,200 hotels world-wide, in July reported dour second-quarter earnings and said revenue per room in North America would likely decline 20% to 23% during the third quarter. Yet its stock has risen 13% since then and closed at $24.69 Friday.

So what’s going on? Optimists say hotel share rise first in any recovery, and point to hotel groups who are doing the mature thing and disposing of debt-laden assets. Pessimists, meanwhile, warn that fools rush in. Chris Woronka is not an optimist.

“You have some investors that weren’t invested…at all. And then these stocks moved and they had to play,” said Chris Woronka, an analyst at Deutsche Bank. “This isn’t a basis for a sustainable rally, and that puts the stocks in this sector on shaky ground.”

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