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Hotel Winners & Losers: Starwood

The Associated Press

Updated from 4:22 p.m. ET

NEW YORK -- Shares of hotel companies surged on the first trading day of the new year, with Starwood Hotels & Resorts booking double digit gains after announcing it will enter into a confidentiality agreement with Sam Zell's investment company.

Shares of Starwood Hotels & Resorts Worldwide(HOT Quote) closed up $2.80, or 16.2%, to $20.80 in afternoon trading. The stock has traded between $10.97 and $56 during the past 52 weeks. The broader market was also trading higher -- with the Dow Jones industrials rising 258 points -- despite a weaker-than-expected report on manufacturing.

The real estate magnate's Equity Group Investments LLC owns 14.75 million Starwood shares, or an 8.1% stake in the White Plains, N.Y.-based company.

In a note to investors, Friedman, Billings, Ramsey & Co. analyst C. Patrick Scholes said he believes Zell is considering boosting his stake.

"We do not know what EGI's ultimate intentions are, but with the stock price having fallen significantly over the past year, we suspect EGI would be interested in either upping its stake or cutting its losses," Scholes said.

As part of the confidentiality agreement, EGI has said it will not attempt to change control of the company without the written consent of Starwood's board.

Investor optimism offset a report from Smith Travel Research, or STR, on Wednesday that U.S. hotel performance flagged during the week of the Christmas holiday.

For the week ended Dec. 27, U.S. hotel occupancy dropped 16.4% and the average daily rate slid 9.5% to end the week at $92.49. As a result, revenue per available room fell 24.3% to $33.13. Revenue per available room, or revpar, is a key gauge of a hotelier's performance.

STR noted that the luxury hotel segment booked the steepest declines. Luxury occupancy tumbled 24.4% and average rates fell 14.5%, resulting in a 35.4% drop in luxury segment revpar. The luxury segment has been hit hardest by the economic downturn as businesses and consumers trade-down to less expensive properties.

STR noted that the week's results likely were skewed somewhat because Christmas fell on a Thursday in 2008, while it fell on a Tuesday in 2007.

Oppenheimer & Co. analyst David Katz noted that the timing of Hanukkah during the week also likely skewed the results. Hanukkah started during the previous week in 2007.

Scholes said the lackluster weekly results "suggest that more travelers stayed home and indulged in 'staycation' versus the same time last year."

"Overall, conditions clearly deteriorated in the back half of 2008, with (the fourth quarter) being a particularly weak quarter," said Katz.

Shares of Wyndham Worldwide(WYN Quote), Morgans Hotel Group(MHGC Quote) and Gaylord Entertainment(GET Quote) also surged on Friday afternoon.

Wyndham shares jumped $1.01, or 15.42, to $7.56. Morgans Hotel's stock gained 49 cents, or 10.5%, to $5.15. Gaylord's stock rose $1.37, or 12.64%, to $12.21.