High-yield portfolio managers are increasingly optimistic about the prospects for the lodging sector. Bonds of lodging companies were hit hard as travel fell off in the wake of Sept. 11. However, Mark Durbiano, portfolio manager at Federated Investors in Pittsburgh, says several names can get through whatever remains of the downturn. Federated has added to its holdings of Hilton Hotels 8.25% notes of '11 (Ba1/BBB-), which were trading at 97 last week. It has also bought Starwood Hotels' 6.75% notes of '05 (Ba1/BBB-) and Vail Resorts' 8.75% notes of '09 (Ba3/B), which were trading at 98 and 97.5, respectively. Durbiano says he likes these companies because they have "a very strong asset base."
Margaret Patel, portfolio manager at Pioneer Investment Management in Boston, has also been adding to the sector. She is encouraged by rising occupancy rates, and says declines in revenues per room are diminishing. Also, due to the slowdown, she believes there will be a decline in the supply of new rooms over the next year or two. Patel says the sector is economically sensitive, and therefore should benefit greatly once the economy improves. Finally, Patel argues that lower fuel costs and low short-term interest rates will reduce the cost of doing business for lodging companies. She declines to say which specific bonds Pioneer has added, though she believes the trends she describes will benefit the entire sector.
Not all money managers are high on the sector however. "It probably deserves to stay a bit cheap," says Tom Parker, portfolio manager at Barclays Global Investors in San Francisco. Parker says another terrorist attack would be devastating to the sector, and that it is particularly vulnerable to international travel, which has been "terrible." Barclays added exposure to the sector over a month ago, but will remain at a market weight for the foreseeable future.