Analyst predicts lodging industry revpar declines

Revenue per available room, or revpar, is considered a key gauge of a hospitality company's performance.

Wachovia analyst Jeffrey Donnelly downgraded his ratings for Strategic Hotels & Resorts Inc. and Ashford Hospitality Trust Inc. to "Underperform" and lowered his ratings on Host Hotels & Resorts Inc., FelCor Lodging Trust Inc. and Diamondrock Hospitality Co. to "Market Perform."

At the same time, Donnelly raised his rating for Starwood Hotels & Resorts Worldwide Inc. to "Outperform," arguing that the company's shares already reflect most of the risk to estimates. He also cited Starwood's high international exposure.

Donnelly reduced his earnings estimates for each of the 14 lodging companies he covers, including Marriott International Inc. and Choice Hotels International Inc., to reflect slower revpar growth and margin contraction.

Based on his adjusted forecast, Donnelly estimated that Strategic and Ashford will not be able to pay their current dividend from operating cash flow in 2009 and may be forced to cut their payouts by as much as 60 percent.

"We believe DiamondRock and FelCor will see tight dividend coverage but we believe any shortfalls will be bridged through in-place credit lines," the analyst wrote.

Despite the downgrade, many lodging companies' shares got a boost as the broader market extended its rally on better than expected earnings results and falling energy prices.

Here is a look at how some lodging companies were faring Thursday afternoon:

Starwood, up $1.74, or 5 percent, to $36.74.