Sector Snap: Lodging REITs

NEW YORK (AP) — Improving balance sheets and increased capital prompted an analyst to upgrade his view on lodging real estate investment trusts Friday to "Equal Weight" from "Undeweight."

Rod Petrik of Stifel Nicolaus & Co. said in a client note that he considers Diamondrock Hospitality Co., Host Hotels & Resorts Inc. and LaSalle Hotel Properties best in class among the group due to their "good portfolios, balance sheets and management teams."

LaSalle has been able to contain margin erosion during the recession, helped by its exposure to independent hotels, Petrik explained.

He points out that the three REITs have raised more than $1.2 billion in capital this year, with liquidity capacity of $2.55 billion.

Petrik kept "Hold" ratings on the companies but said they will probably be "the most opportunistic when things begin to improve."

"We would aggressively buy these names on share price pullbacks, all else being equal," he added.

Petrik said the sector is also benefiting from somewhat stabilizing occupancy and limited new supply.