Lehman Brothers reduces rating for hotel industry

By Jeannine DeFoe
Bloomberg News Service

NEW YORK — Lehman Brothers Holdings Inc. cut its rating on the hotel industry to "neutral" from "positive," because demand for lodging has fallen since earlier this year.

Lehman Brothers analyst Joyce Minor also cut her ratings on Starwood Hotels & Resorts Worldwide Inc., which manages Sheraton's four Waikiki properties, and Meri-star Hospitality Corp. to "equalweight" from "overweight." Both companies rely on their owned hotels for profits and are more vulnerable than hotel managers and franchisers such as Marriott International Inc. to weak demand.

Revenue per available room, a measure of average occupancy and room rate, has fallen in each quarter this year compared with 2000, Minor wrote in a report, citing Smith Travel Research. Revenue per room fell 16 percent in the first quarter from 2000, and so far in the fourth quarter is 22 percent below the same quarter of 2000, the travel research company said.

Also, a U.S. war with Iraq may be in the fourth quarter of next year, Minor said, which may be the "spoiler" to improved lodging demand in 2004. Starwood shares fell $1.30 to $23.62 at 4:01 p.m. in New York Stock Exchange composite trading. Meristar fell 54 cents to $7.17. Marriott fell 49 cents to $31.80. Minor reiterated her "overweight" rating on Marriott, the largest U.S. hotel company. Marriott collects fees from hotel owners for managing and franchising properties, a source of income that is more reliable.