Hotel Deals, Stocks May Climb

Billions of dollars have already been spent on hotel deals this year, and the pace probably will accelerate into 2006, further boosting lodging stocks, analysts and industry experts say.

Historically low interest rates and an abundance of capital have made hotels attractive to investors chasing higher yields.

Another hotel deal catalyst has been a surge in construction costs -- up more than 30% in the last two years -- which has driven the inclination to buy rather than build.

Private equity firm Blackstone Group has been one eager buyer, agreeing in June to acquire Wyndham International Inc. for $1.44 billion. That was on top of $5.1 billion it spent in 2004 to acquire hotel chains Extended Stay America, Prime Hospitality and Boca Resorts.

“The Wyndham deal is a good indicator of some of the things that will continue to happen,” said Laila Rach, associate dean of the Preston Robert Tisch Center for Hospitality at the New York University School of Continuing and Professional Studies. “There are smaller hotel companies that will be acquired not only by companies such as Blackstone but also by big hotel chains looking to fill their portfolios.”

Several analysts speculate that closely held Omni Hotels will be the next chain to get bought. Sonesta International Hotels Corp. is also said to be a potential takeover target. Its shares have more than quadrupled this year.

At the same time, chains such as Starwood Hotels & Resorts Worldwide, Hilton Hotels Corp. and Fairmont Hotels & Resorts Inc. are shedding properties as they shift their focus from owning to managing and franchising. The three companies have sold nearly $1.4 billion in assets over the last year and a half, using most of the proceeds to buy back more than $650 million in stock.

Starwood and Hilton have hinted at plans to sell several more properties in the coming months, which could translate into more stock buybacks.

Private equity firms, pension management funds and hotel real estate investment trusts are expected to be the buyers.

Hotel REITs such as DiamondRock Hospitality, Sunstone Hotel Investors and Strategic Hotel Capital Inc. probably will be aggressive buyers in the year to come, analysts say.