The panel included: Arthur Adler, Managing Director of Sonnenblick-Goldman's Lodging & Leisure Group; Gavin Elwes, Vice President of The Commercial Mortgage Conduit Group at Lehman Brothers; Steve Goldman, Executive Vice President of Acquisitions and Development at Starwood Hotels & Resorts; Mark Mutkoski, Senior Lodging Analyst at BT Alex Brown; and David Smith, Vice President of Donaldson, Lufkin & Jenrette.

In the past few months, lodging stocks have fallen dramatically. "Uncertainty is causing the current downturn in the market.  When analyzing lodging stocks over a ten-year period [1988-1998], we saw that stocks traded anywhere from 7 - 11 times cash flow. Late last year, earnings multiples fell to their historical lows" noted Mark Mutkoski. "With some exceptions, earnings multiples will remain at these low levels"
 
Their was a consensus that looking ahead, most public lodging companies will show earnings growth by focusing on the performance of their individual assets and maximizing the value of those assets instead of rapidly increasing the number of properties they own.  "Companies that have multiple platforms for growth [brand affiliation, strong management, real estate investments, and a presence both domestically and internationally] will thrive this year," noted Arthur Adler. 

Steve Goldman added that this formula for growth has already been employed by Starwood.  "We first purchased Westin in order to sustain our growth.  We then purchased ITT in order to have a strong international presence.  In 1999, we will take advantage of distribution and the efficiencies that exist with the brands to maximize long term value." 
 
Starwood was favored by most of the panelists as their lodging stock of choice to invest in this year.
 
Mergers & Acquisitions

"Brands will be the primary driver for mergers and acquisitions this year," noted David Smith.  "Distribution, skills, synergies, and disparities in EPS [earnings per share] will be motivating factors for M&A activity.  We will see mergers of  'equals' and mergers of companies that will do better together, than alone."

Smith speculated that Meristar, Promus and Patriot American will all be candidates for a merger or acquisition.  Whereas, Mutkoski thought Hilton would be a company to watch "since they have a big balance sheet."

Debt & Equity Markets

David Smith suggested that it would be more difficult to find additional bank debt until hotel REITS and C-Corps demonstrate their ability to term out maturing short-term debt.  Alternatively, Arthur Adler commented that there are a number of private debt and equity sources that are looking to invest in real estate "since the nominal cost of capital is still very favorable."

"The lack of public equity and debt created an opportunity for alternative capital sources to enter the market, " notes Adler.  These capital sources consist of opportunity funds, private hotel companies, financial institutions such as commercial banks, insurance companies, pension funds and others. 

Adler also added that "in many cases these private capital sources were forced to the sidelines by the plentiful amount of low cost public equity and debt.  Now that the pricing of capital is more to their liking, these players can compete with more conservative underwriting and wider interest rate spreads." 

Elwes said that underwriting standards will change; pricing will decrease; conduits are still out there; rates are very attractive; and the market will bounce back in the latter part of 1999.

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