Hotel Stocks Set to Catch Swine Flu

Just in time for back to school, new swine flu fears have suddenly returned. And like the lingering infection itself, the H1N1 virus is one that just won't seem to go away.

In fact, according to a 68-page report released last week, about half of all Americans can look forward to a brush with the swine flu this winter, while 1.8 million will likely end up with a trip to the hospital from exposure.

That's the good news.

The bad news is that the new strain is so virulent that the author of the report, Dr. Harold Varmus, believes 90,000 Americans may eventually die from it. That's three times the average number of flu deaths experienced each year.

"This flu could be extremely dangerous," Dr. Varmus said ominously. "It needs to be taken seriously."

Swine Flu Investments

As a result, swine flu fears are now running at a fever pitch of their own, with U.S. health officials planning to spend up to $2 billion on flu vaccines this year, purchasing nearly 160 million doses.

But while the fear engendered by the virus has been a big bonus for swine flu investments in pharmaceutical companies like Glaxo-Smith-Kline (GSK) and Roche (RHHBY.PK), the return of the flu promises to be nothing but a headache for the travel industry — especially hotel REITS.

Because let's face it; even if the swine flu projections fall short of Dr. Varmus's "plausible scenario," consumers aren't exactly going to be eager to jump on a plane full of sniffling strangers or check into a room full of germs from who knows where.

For most would-be travelers, it just won't be worth the risk.

That has the potential to disrupt the entire $770-billion-dollar U.S. travel industry at a time when it can least afford it. And if the SARS outbreak of 2003 is any guide, a swine flu scare may be enough to send parts of this industry into the abyss.

Because by comparison, SARS caused only $18 billion in losses to the industry, as travel to Southeast Asia fell by almost 70%. Moreover, SARS caused "only" 774 deaths worldwide before rapidly coming to an end just four months later.

Meanwhile, with over 1,000 swine flu deaths already so far, we're only seeing the tip of the iceberg. The worst is yet to come, along with the requisite hysteria.

Swine Flu Means Big Headaches for Hotel Stocks

That puts hotel REITS, like Starwood Hotels (HOT) and Marriot International Inc. (MAR) on increasingly shaky ground these days, since vacancies are already running well above average.

In fact, according to Smith Travel Research (STR), occupancy rates for luxury hotels worldwide have dropped to 57 percent this year through July. That's down from 71 percent occupancy just one year earlier.

Additionally, according to the group, the average daily room rate will drop by 9.7 percent, and revenue per available room (RevPAR) will be down 17.1 percent this year. As for 2010, STR projects further occupancy declines of 0.6 percent, and additional RevPAR declines of 4.0 percent. Neither metric is exactly encouraging.

In the meantime, things have already gotten so bad in the industry that some hotel owners are walking away from their business entirely, handing the keys back to lenders as they default.

In fact, Real Capital Analytics now classifies $18 billion in hotel loans as distressed, meaning they are either delinquent, in foreclosure, in bankruptcy, or have already been restructured. That compares with just $1.3 billion in distressed hotel loans a year ago.

And when you add in the prospect of a swine flu scare into this already toxic mix, it's easy to see why hotel REITs make good short sale candidates these days.

As for Starwood Hotels and Marriott International, they already have the symptoms that could easily turn into something much more dire.

Swine flu or no swine flu, these stocks are headed for the teens.

Disclosure: No positions

Comments

[Tack:]

Swine flu is the "global warming" of medicine.

Sep 03 10:57 AM

[titans:]

these stocks make-up commercial re stocks which make-up part of the .DJUSRE index. the other stocks include company's (stocks) that rent apt's or lease office space or have storage facilities.most if not all of these companies are doing lousy (for a better word).Yet the index seems to rise everyday ? whereever you look, there's empty store fronts, office space is rising and rents are being lowered for tenants....the forces of wall st. are manipulating this index to short squeeze the players who are shorting the index (thinking commercial re companies stocks will go down: which they should). I s/w an individual the other day who's looking into a company who puts out investments options for wall st... many investors have lost millions if not everything (life savings) by investing in this sector going down (which it should be), but it's not ??? until the BIG BOYS (wall st.) get the money by squeezing these players (sell their shares @ a huge loss), these stocks will not go down in price as far as they should....WALL ST. WINS EVERYTIME AND ALOT OF INVESTORS LOSE MOST OF THE TIME !!!!!! INVESTORS MONEY GOES RIGHT INTO THE POCKETS OF ex. DIMOND OR LEWIS for their MILLION(s) DOLLAR BOUNSES, STOCK OPTIONS, AND SALARY...

Sep 04 05:40 PM