Hotels and Affiliated REITs Can Offer Comfort to Weary Investors

If you want to know how the hospitality business is doing these days, call up a nice hotel and try to make a reservation for next weekend. Or try to get yourself a bargain room at a good hotel in any big city in America.

Hotel occupancies are rising, room rates right along with them. Together they are pushing most hotel stocks to their highest levels since before 9/11.

Marriott International Inc., the granddaddy of Washington lodging companies, hit a post-9/11 high of $50.50 a share on Friday. In the past month, five of the other six local lodging stocks also have climbed to their highest levels since terrorists took down the World Trade Center towers and, with them, the airline and hotel industries.

The airlines have never recovered -- bad management is as much to blame as bin Laden -- but the hotel business is back.

"Right now the recovery is very strong," said J.W. "Bill" Marriott Jr., chairman of Marriott, the world's largest lodging company. "Business travel is up, leisure travel is up, international arrivals are up."

Always cyclical, the hotel business usually lags an economic recovery by six to nine months, he said. Since the economy began gaining momentum last fall, the hotel business is right on track. It'll be next year before the business strengthens to the point that rates rise in all parts of the country, but already Marriott is boosting prices in cities like Washington, New York and Los Angeles.

"The urban markets are on fire," said Mike Barnello, chief operating officer of LaSalle Hotel Properties in Bethesda, a real estate investment trust, or REIT, the stock of which hit a new high last week of $24.45 and closed Friday at $24.19. "That's reflected in the stock prices. Hotel stocks and hotel REITs have done well over the past 12 to 15 months."

LaSalle owns 19 upscale hotels, eight in the Washington area, and recently paid $59 million for the four-year-old, 241-room Hilton Alexandria Old Town.

Hotel industry executives say their industry is at or near a crucial inflection point where profit starts growing faster than revenue. Hotel occupancy rates nationwide climbed to 64.6 percent last month, a 13.5 percent improvement over last year, according to Smith Travel Research, the industry's semi-official statistics source. Average room rates rose 7.6 percent from a year ago, to $85.57 a night.

Multiply the higher occupancy by the higher rates and you get a 22.2 percent increase in what hoteliers consider to be the crucial statistic: revenue per available room. That's now up to $55.30 a night when you average together the entire industry -- from the $300-a-night Four Seasons in Georgetown to the $30-a-night tourist courts in the middle of nowhere.