Hotel owners and operators will be celebrating the new year, thankful that 2009 is finally over. It was a miserable year for the industry, as revenues per available room (RevPAR) dropped approximately 17%, with expectations for it to decline another 3-5% in 2010. Only in 2011 should the hotel business see any growth. Therefore, investors should be careful placing bets in 2010. However, the end of 2009 did bring some hope.
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In November, Marriott International (NYSE:MAR) announced a reorganization plan that, when completed in 2011, will see the hotel chain become a truly global company. Currently, it has four divisions: Ritz-Carlton, timeshare, international lodging and North American operations. In its new arrangement, the company divides into four regions: the Americas, Europe, the Middle East and Asia. Each region will have its own president and operate independently. The idea is to deliver greater operating efficiencies by combining hands-on local management with the cost savings and marketing power available to a global company. Ed Watkins, a blogger for Front Desk, the online website for Lodging Hospitality magazine, believes the announcement, while welcome, should have come sooner. Investors will want to keep their eyes on the reorganization, especially the integration of its Ritz-Carlton luxury chain, which has been operating independently since its acquisition in 2000. Coming from that history, Ritz-Carlton may not appreciate the Marriott approach to hotel management, but only time will tell. (For related reading, check out Travel Tips For Keeping You And Your Money Safe.)
Hyatt Rising High
The hotel business got a much needed boost in the fourth quarter when Hyatt Hotels (NYSE:H) sold 38 million shares at $25 each in its initial public offering. In its first day of trading, the stock was up 12%, as investor appetite for anything new took hold. On the surface, the deal, which valued the entire company at $4 billion, might have looked cheap. Marriott, its major competitor, has an enterprise value of $6 billion, which is 12 times EBITDA. Since Hyatt has no debt, an equivalent multiple would mean the IPO factored in a 25% discount for the stock. Unfortunately, none of the proceeds went to the company. Instead, the funds went to the controlling Pritzker family for walking around money. Eventually, the family's squabbles will rock this stock. It's only a matter of time.
2010 will be better for the hotel industry than 2009. If I were to bet on the hotel industry in 2010, I would be inclined to go with a value-priced chain like Choice Hotels (NYSE:CHH) or Home Inns & Hotels (Nasdaq:HMIN), rather than larger operators like Hyatt, Marriott or Starwood (NYSE:HOT), as consumers will remain frugal until at least 2011. (For related reading, check out Top-Down Analysis: Finding The Right Stocks And Sectors.)