"Today, a great many lodging stocks are trading below their companies' net asset values," notes Bjorn Hanson, PhD., New York-based chairman of the PricewaterhouseCoopers lodging and gaming group. "That creates opportunity for company managements -- or private investment funds -- to acquire these companies at substantial discounts, while still offering company shareholders a premium over current share prices," Dr. Hanson observes. "Facing persistent difficulties in access to capital, many lodging companies will seriously consider this option," he adds.

Another result of low valuations will be additional postponements or reductions in hotel construction, according to PricewaterhouseCoopers. Earlier this year, the firm's proprietary econometric model for the lodging industry called for a 17.8 percent reduction in room starts, from 147,700 new room starts in 1998 to 121,400 starts in 1999 and another 7.9 percent decline to 111,900 room starts in 2000.

"Factoring into our model public lodging companies' reduced access to capital, PricewaterhouseCoopers forecasts a steeper decline to 113,700 new room starts in 1999 and 96,600 room starts in 2000," Dr. Hanson says.

"Macroeconomically, the reduction in building is beneficial for the long-term outlook of the lodging industry," he adds, "as reductions in supply growth will ease occupancy declines and moderate the downward trend in average daily room rate growth." Still, the PricewaterhouseCoopers forecast calls for moderating demand growth ahead: 2.8 percent demand growth this year, followed by 2.0 percent in 1999 and 2.3 percent in 2000.

A further effect of low lodging stock prices will be reductions in prices paid for hotel assets, both individual properties and portfolios, according to PricewaterhouseCoopers. As recent history's most active bidders -- public lodging "C" corporations and real estate investment trusts (REITs) -- must be more selective with less access to -- and higher costs of -- capital, prices paid for assets will be lower, the firm says.

"Recently, we have seen a number of hotel portfolio transactions in which a sharp drop in lodging stocks on Wall Street was followed immediately by private capital sources' reducing their bids for hotel assets," remarks Sean F. Hennessey, director of the northeastern U.S. PricewaterhouseCoopers lodging and gaming practice. "Clearly, private capital is responding to the public markets by seeking hotel assets at lower prices."

PricewaterhouseCoopers foresees the largest decrease in prices paid for limited-service hotel assets on a national, aggregate basis. The firm expects lesser reductions in prices paid for full-service hotel assets on a national basis. An additional result of significantly lower stock prices will be the postponement of initial public offerings (IPOs) of lodging and related leisure industry entities, Hanson observes. "The IPO market is virtually nonexistent, save for a few Internet issues, at the moment. We expect no revival of lodging IPOs certainly for the balance of this year," Dr. Hanson adds.

There may also be some stock-for-stock mergers in the current environment, the firm says. For companies with available cash, stock buybacks are possible.

The PricewaterhouseCoopers lodging and gaming group offers professional services including tax, assurance, financial advisory, management consulting, strategic research and related services to hotel and casino companies, their executives, owners, managers and brokers, as well as to financial institutions, governments, academics, attorneys and others. The group maintains a presence in major U.S. cities and around the globe. With a worldwide network of 6000 professionals, PricewaterhouseCoopers' Financial Advisory Service (FAS) practice provides creative solutions and ideas that increase value to clients during critical periods and when they are making important decisions that define their future. The FAS business is organized along five product lines. The Business Recovery Services, Dispute Analysis Investigations, and Valuations Shareholder Value product lines are the largest in the world. The Project Finance Privatization product line was rated second in Privatisation International's global league table by number of privatization financial advisory assignments and second in Project Finance International's global ranking by number of project finance advisory mandates. The Mergers Acquisitions product line was second in the world in number of deals completed, according to Securities Data Company. PricewaterhouseCoopers advised on 341 deals with a total worth of $33.2 billion.

PricewaterhouseCoopers (http://www.pwcglobal.com), the world's largest professional services organization, helps its clients build value, manage risk and improve their performance. Drawing on the talents of more than 144,000 people in 152 countries, the organization provides a full range of business advisory services to leading global, national and local companies and to public institutions. PricewaterhouseCoopers refers to the US firm of PricewaterhouseCoopers LLP and other members of the
worldwide PricewaterhouseCoopers organization.