Sector Snap: Hotel shares fall with market

The broader market also turned lower in afternoon trading as investors collected profits from Monday's massive gains and considered the U.S. government's $250 billion plan to spend to buy stock in private banks.

In a note to investors on Tuesday, Wachovia analyst Jeff Donnelly projected that the hotel industry's revenue per available room, or revpar, may not recover until 2011. Revpar is considered a key gauge of an hotelier's performance.

He forecast a 5.6 percent drop in 2009 revpar and a decline of 2 percent in 2010.

"Put differently," he said, "the industry outlook may be shaped more like a 'U' than a 'V.'"

Donnelly also lowered his ratings on shares of two hotel real estate investment trusts--FelCor Lodging Trust Inc. and Hersha Hospitality Trust--to "Underperform" from "Market Perform." The analyst said the companies would lack capacity to repay their near-term maturities in a worst case scenario, in which their maturities through 2010 could not be refinanced.

Donnelly noted that his approach is "incredibly conservative," saying that refinancings are, in fact, likely.

In afternoon trading, FelCor shares dropped 75 cents, or 16.5 percent, to $3.81. The stock has lost more than 80 percent in the past year.

Meanwhile, Hersha shares fell 77 cents, or 15 percent, to $4.38.

Donnelly raised his rating on another hotel REIT, Hospitality Properties Trust, to "Outperform" from "Market Perform," citing the company's excess capacity and recent drop in share price.