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Hotels seeing stock prices jump
March 5 2012

Stock-based compensation is likely to see the biggest effect from rising hotel company stock prices, according to analysts.

The Dow Jones Industrial Average recently elbowed its way past the 13,000 barrier, and hotel stocks are going along for the ride.

As evidenced by a surging Baird/STR Hotel Stock Index, industry stock prices are on the rise. The Hotel Stock Index closed 28 February at 2284.71, up nearly 49% since closing at 1535.26 on 3 October 2011.

We’ve reported quite a bit on how rising stock prices help enable real-estate investment trust deal making, but I began wondering what other benefits strong stock prices bring to other public hotel companies.

With that thought in mind, I reached out to a pair of analysts for the answer. According to the analysts, rising stock prices are likely to have the strongest effect on stock-based compensation.

Mike Salinsky, an analyst at RBC Capital Markets, said public companies are likely to see an increase on the sales, general and administrative line of their balance sheet. As stocks rise, so too will SG&A expense.

“Shouldn’t be a huge number … A little bit of an impact,” he said.

Companies also are likely to be less concerned about diluting shares via stock-based awards, said Enrique Torres, an analyst at Green Street Advisors.

As for the overall level of stock prices in the industry, Salinsky said valuation is “fair.”

Torres said he sees good long-term growth prospects.

Of course, there is one other benefit to an elevated stock price: It keeps a company in line with listing requirements.

Supertel Hospitality last month announced it was no longer in violation of Nasdaq listing requirements after its stock price closed above the $1-per-share level for 10 consecutive business days.

“Clearly, any public hotel company that is in the business of owning properties and plans to grow through acquiring or developing assets needs to see strong stock price performance over time if they expect to be able to raise equity capital,” Kelly A. Walters, Supertel’s president and CEO said in an email. “That fact is especially true for those of us who are structured as real-estate investment trusts because we must dividend out 90% of income to the shareholders, making it difficult to fund new acquisitions out of retained earnings. 

“As a result, being able to issue stock when necessary is largely a function of your recent and long-term share price and dividend performance relative to the overall market and your particular peer group.”

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