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Hotel Firms Facing Rocky Start to 2008

New forecasts by several publicly traded hotel companies, including Marriott International, Host Hotels & Resorts and Starwood, foreshadow continued uncertainties in the hotel industry.

Marriott International expects RevPAR to grow only 3% to 5% in 2008, down from its most recent forecast last October of 5% to 7% growth. And the company expects to earn $0.32 to $0.36 per share in the first quarter, down substantially from Wall Street estimates of $0.41 per share.

“We are looking at the future with some caution in mind,” said Marriott Chief Financial Officer Arne Sorensen. He also noted that while the company is seeing initial signs of travel cutbacks at suburban and airport hotels, its Ritz-Carlton luxury brand is racking up strong results.

Based on guidance provided by several major hospitality firms, the year ahead is getting off to a rocky start. Now, Bethesda, Md.-based Host Hotels & Resorts is forecasting funds from operations for the first quarter of 2008 and the full year to be well below the expectations of most Wall Street analysts. While the company reported sterling fourth-quarter FFO of $0.75 a share, Host’s guidance calls for first-quarter FFO of $0.29 to $0.30 per share and full-year FFO of $1.88 to $1.98 a share. A survey by Thomson Financial found analysts calling for $0.37 cents and $2.05 a share.

In late January, Starwood lowered its first-quarter 2008 earnings forecast to just $0.22 a share, little more than half the $0.39 that Wall Street was expecting, while RevPAR growth should slip to 4% to 6% versus expected 6% to 8%.

Also reporting 2007 results and giving 2008 guidance was Sunstone Hotel Investors. Like most hotel firms, the San Clemente, Calif.-based company is forecasting a dramatically slower first quarter along with potentially improved performance for all of 2008. Comparable hotel operating profit margins are expected to be down 50 to 100 basis points from the first quarter of 2007, and ranging from down 25 basis points to up 50 basis points compared to last year.

Using these high-profile firms as a bellwether, hotel analysts are expected to put more pressure on the segment, and investor sentiment has already begun to shift to the downside. Both Host and Starwood have embarked on significant stock-buyback programs to help prop up their flagging shares. Host shares closed Monday at $16.80, down 42% from the 10-year high of $28.98 achieved in February 2007.

Last week, Columbus, Ohio-based U.S. Realty Consultants found that capitalization rates for both limited service and full-service hotels rose slightly from record lows in 2007, largely on the basis of concerns over lower growth expectations in average daily rates (ADR). The firm’s recent Winter 2008 Hotel Investment Survey found that the direct capitalization rate for full-service hotels of 7.9% is 30 basis points higher than the average from the mid-year 2007 survey.

Still, much of the anticipated angst has yet to materialize in hard industry statistics. For example, in its latest monthly report, Hendersonville, Tenn.-based Smith Travel Research found that ADRs across all U.S. hotels rose 5.7% in January, up 5.7% from December 2007, while occupancies dropped 1.6% to 51.6%. And revenue per available room was up to $54.52, an increase of 3.8% from the previous month.

One hotel investor is eschewing the doom-and-gloom environment, announcing plans to deploy at least $600 million in hotel purchases in 2008. Fairfax, Va.-based Crescent Hotels and Resorts has started a second fund to purchase upper-upscale hotels. The company owns 40 hotels and resorts with 7,000 rooms in 19 states, and is in a joint venture to build eight to 10 new hotels over the next two years.

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