A Stifel Nicolaus & Co. analyst predicted on Tuesday that Strategic Hotels & Resorts Inc.’s luxury hotel portfolio will "significantly underperform" its peers in the lodging industry.
Analyst Rod Petrik maintained a "Hold" rating on the stock of the real estate investment trust, whose hotels include the Fairmont and InterContinental in Chicago.
"Strategic’s hole gets bigger as the economic downturn persists," Petrik wrote in a note to investors. "Luxury hotels are the hardest hit lodging segment in the current environment as corporate retreats are being canceled and transient demand has deteriorated rapidly as consumers and businesses pull back spending."
Strategic President and CEO Laurence Geller declined to comment to Crain’s on the report, but referred a reporter to a transcript of a conference call the company held with analysts last week.
"Having severely stress tested various economic scenarios, we have a high level of confidence that our company is well positioned to maneuver through the vagaries of this difficult period that appears to lie ahead for everyone," he told analysts, according to the transcript.
Petrik predicts that the revenue per available room at the Chicago-based company’s hotels will drop 17 percent in 2009 and 4.3 percent in 2010. Revenue per available room, or RevPAR, is a key gauge of a hotelier’s performance.
Petrik said almost 93 percent of the company’s outstanding debt matures in 2011 and 2012 and most of its secured debt is likely higher than current property values. Selling assets is very difficult in the current market, he added.
"It could take the company years to rework its capital structure, after we get to a recovery," the analyst said.
Petrik noted that Strategic Hotels has suspended its common and cumulative preferred dividends — saving the company more than $105 million a year.
"However," he said, "if the company survives, the cumulative preferred dividend that has been in arrears will have to be repaid."
Last week, Strategic Hotels reported that its fourth-quarter funds from operations, or FFO, amounted to a loss of $252.6 million, or $3.32 per share, compared with income of $32 million, or 42 cents per share, in the prior year. The company booked about $265.1 million in impairment of goodwill and other charges during the quarter.
FFO, which adds such items as amortization and depreciation back to net income, is considered a key measure of REIT strength because it gives a more accurate picture of cash performance.
Strategic Hotels’ stock jumped with the broader market on Tuesday, as Wall Street saw a modest rebound from Monday’s steep sell-off.
Strategic shares gained 3 cents, or 3.8 percent, to 82 cents in morning trading. The stock has traded between 68 cents and $15.68 during the past 52 weeks, and is off nearly 53 percent since the start of the year.
Chicago painters have been very busy painting hotels all around the Chicago area.
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