Sector Snap: Lodging REITS

Like many sectors, lodging REITs are struggling as consumers tighten spending due to the ongoing housing downturn, eroding credit, escalating gas prices and fears of a recession.

"We believe that the economic deterioration that has occurred since the fall has generated sufficient headwinds to significantly disrupt the sails flown by lodging REITs," said Rod Petrik of Stifel Nicolaus & Co. in a client note.

Petrik lowered his ratings on San Clemente, Calif.-based Sunstone Hotel Investors Inc. and LaSalle Hotel Properties to "Hold" from "Buy," while analyst Gabriel Buerkle cut his rating on New Cumberland, Pa.-based Hersha Hospitality Trust to "Hold" from "Buy."

Petrik also trimmed Bethesda, Md.-based LaSalle's 2008 funds from operations estimate to $3.19 per share from $3.48 per share and cut his 2009 FFO prediction to $3.21 per share from $3.69.

FFO, a widely used gauge of REIT operating performance, adds depreciation and amortization expenses, as well as other non-operating items, back to net income.

Petrik did, however, express some optimism on LaSalle, saying "the company is as defensively positioned as any lodging REIT in its ability to persevere in a downturn."

Sunstone's stock fell 52 cents, or 3.1 percent, to $16.25 in afternoon trading. Over the past 52 weeks, the stock has traded between $15 and $30.67. Shares of LaSalle shed 39 cents to $28.64, while Hersha's stock slipped 14 cents to $8.94.