IPO wave passes by the hotel industry, report says.

America's tidal wave of initial public stock offerings largely excludes the U.S. hotel industry, according to an analysis by the hospitality and leisure group of PriceWaterhouseCoopers and Bear Stearns & Co. Inc.

While there were $14 billion in U.S. initial public offerings of stock in the first half of 1999, the hotel industry accounted for just 0.1 percent, or $12 million of the total, the firms reported. Further, stock issuance in the hotel industry has decreased each of the last three years, according to PriceWaterhouseCoopers, falling from $5.06 billion in 1996 and $4.15 billion in 1997 to $1.25 billion in 1998.

"Worries about industry fundamentals late last year stalled lodging equity offerings, and there were no offerings in the third or fourth quarters at all," said Bjorn Hanson, Ph.D., New York-based leader of PriceWaterhouseCoopers' hospitality and leisure group. "This year has brought a modest revival with the initial sale in January of two million shares by micro-cap lodging REIT Hersha Hospitality Trust, a secondary sale in April of 76.5 million shares by Homestead Village and a secondary sale in May of 10 million shares by Hospitality Properties Trust, a lodging REIT."

"The public markets are generally unwilling to provide IPO capital to the lodging industry because the late-cycle risks are high and the return potential is limited," said Jason Ader, senior managing director in charge of leisure industry research at Bear Stearns. "The slowdown in IPO activity should translate into a slowdown in hotel construction activity," Ader added.

"U.S. hotel room construction starts totaled 145,875 in 1998, down from 1997, the peak year," Dr. Hanson said, citing PriceWaterhouseCoopers figures. "We expect room starts to be lower this year than last."

The lodging industry is looking beyond Wall Street for capital to fund new room starts, according to PriceWaterhouseCoopers. Even as the capital markets shun hotel firms, traditional lenders are still active in the sector, Dr. Hanson said. "Commercial banks, insurers, pension funds and private investors are still active," he noted. "As experienced participants in the lodging industry over several decades, these traditional money sources recognize the industry's current fundamentals as sound."

Despite declining U.S. lodging occupancy rates, PriceWaterhouseCoopers expects a sixth year of record profits in 1999, fueled by average daily room rates that are rising faster than inflation.

Finding great favor on Wall Street are stocks of travel-related Internet firms that offer reservation and booking services, Bear Stearns reported. In the first half of 1999, such travel-related Internet offerings totaled $52.5 million.

"Wall Street likes dot com companies," Ader observed. "Yet none of the travel-related dot com firms now traded are owned by major hotel companies. I believe proprietary, branded, Internet-based booking sites owned by one or more powerful hotel companies would likely find a welcome reception in the financial community," he noted.