Hotel Stocks To Watch In 2012

By Will Ashworth | December 30, 2011 AAA
The U.S. hotel industry recovered nicely in 2011, with average daily rates increasing by 3.6% through the end of September; occupancy rates were up 4.6% and revenue per available room jumped 8.3%, as both corporate and leisure travel experienced an uptick in the number of travelers. Unfortunately, Smith Travel Research believes RevPAR in 2012 will grow by just 3.9%, as continue to balk at higher prices. With this in mind, I'll look at some of the hotel stocks to watch in the coming year and the reasons for doing so.

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Marriott Spin-Off

All eyes will be on Marriott International (NYSE:MAR), as it moves on without Marriott Vacations Worldwide (NYSE:VAC), its timeshare business that it spun off in November. Europe and Asia will be the two areas of growth for Marriott in 2012. In Europe, Marriott's partnered with AC Hotels to operate properties in Spain, Italy and Portugal. As for Asia, approximately 18,000 full-service rooms are planned for this coming year and beyond. Focusing solely on operating hotels, 2012 should be a profitable year.

Share Repurchases

Starwood Hotels and Resorts Worldwide (NYSE:HOT) signals a recovery of sorts in 2012, by commencing a $250 million share repurchase program, its first buybacks since the third quarter of 2008. It's unfortunate for long-time shareholders that management chose to conserve cash, after purchasing 13.6 million of its shares in 2008 at an average price of $43.60. By the market lows in March, 2009, those same shares could have been purchased for as little as $150 million, or 25% of the cost. (For related reading, see A Breakdown Of Stock Buybacks.)

Expansion

At the top of the to-do list for Choice Hotels International (NYSE:CHH) in 2012 is expanding its upscale Cambria and Ascend brands, which currently represents 44 of its 430 hotels in its development pipeline. In addition, it's making a multi-year investment in IT and marketing, in order to grow internationally. Slow and steady wins the day, for this lower-priced hotel franchiser.

Dividend Yield

Income investors looking for yield in the lodging industry should first look to Intercontinental Hotels Group (NYSE:IHG), operator of the Intercontinental, Crowne Plaza and Holiday Inn brands. Since 2006, IHG has averaged an annual dividend payment of 42 cents. Assuming 2012 sees the hotel industry continue to crawl out of its multi-year funk, you can expect a dividend of a least 51 cents and a dividend yield nearing 3%. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

CEO Departure

Marcus (NYSE:MCS) announced at the end of Oct., 2011, that Bill Otto, CEO of its hotel and resorts division, was leaving after 19 years at the company. Shareholders shouldn't be concerned about the executive's departure, as Otto has left the business in good shape. At the end of the day, however, the hotel business generates just 16% of its overall operating income and is second fiddle to the theater business.

Wyndham Worldwide (NYSE:WYN) announced in early December that its vacation ownership business is partnering with Avis Budget Group (Nasdaq:CAR) to promote each other's products. With Avis Budget having dropped out of the bidding for Dollar Thrifty Automotive (NYSE:DTG) in September, it's had to find other ways to generate revenues; this deal will definitely help.

China

Although I've listed China as the last item for this article, it's definitely not the least important. It seems every major hotel operator is opening new locations in China and this has led to a soaring vacancy rate, which sat at 61% as of the end of September. As I mentioned in the beginning, Marriott's plans for Asia are extensive, as are Hyatt's (NYSE:H), Hilton's and Intercontinental Hotel Group's. Don't expect big things from China until 2014 or beyond, as the oversupply diminishes.

The Bottom Line

The past year can best be described as one of recovery. In 2012, expect more of the same. Until the global economy dramatically improves, the hotel business won't have it easy.

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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

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