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Hotel Recovery Hurt as Sandy Causes Cancellations, Damage

Revenue growth at U.S. hotels, already hurt by slowing traveler demand, will be hampered further by Sandy, the superstorm that blacked out much of southern Manhattan and flooded areas along the East Coast.

Starwood Hotels & Resorts Worldwide Inc. (HOT) and real estate investment trusts including Host Hotels & Resorts Inc. (HST), owner of the Westin New York Grand Central, and Hilton Times Square landlord Sunstone Hotel Investors Inc. (SHO) are among the companies that probably will be most affected by Sandy because of their properties in the U.S. Northeast, said Nikhil Bhalla, a senior lodging analyst at FBR & Co. in Arlington, Virginia.

Room-revenue growth was “generally soft through the first three weeks of the month,” before Sandy hit, Bhalla said in an e-mail. “So I expect results for the last week of October to be notably soft.”

Sandy came ashore in southern New Jersey at 8 p.m. local time yesterday. New York City hotels in lower Manhattan, including the New York Marriott Downtown and the W New York Downtown, were closed. Those operating in the city, such as the Four Seasons on 57th Street in Manhattan and New York Marriott Marquis in Times Square, prepared guests by handing out bottled water, flashlights and safety information and planning entertainment for stranded visitors.

U.S. revenue per available room, an industry measure of occupancy and rates, probably will grow 5 percent to 5.5 percent in the fourth quarter, Bhalla said. Before Sandy, he was expecting growth of 6 percent. The East Coast cities of New York, Boston and Washington account for about 10 percent to 12 percent of U.S. lodging revenue, he said.

Starwood Closures

Starwood, the Stamford, Connecticut-based hotelier whose properties include the St. Regis New York, has 36 properties in and around the city, and 19 hotels in the Boston area, according to its website.

The company yesterday closed the W New York Downtown as part of the city’s mandatory evacuation and shut the Le Parker Meridien after a crane on the One57 residential development nearby partially collapsed, threatening several adjacent buildings, according to Nadeen Ayala, a Starwood spokeswoman.

“Some other hotels through the region experienced outages of power and telephone services but are using back-up generators and systems,” Starwood said today in an e-mailed statement. “In a few cases, guests are being relocated to other Starwood hotels.”

Lost ‘Steam’

Starwood shares last week fell to a three-month low after the company forecast earnings below analysts’ estimates. A recovery in demand has “lost its steam,” Chief Executive Officer Frits van Paasschen said on an Oct. 25 conference call.

Kenneth Cruse, president and chief executive officer of Aliso Viejo, California-based Sunstone declined to comment on the impact of Sandy. Gregory Larson, an executive vice president at Bethesda, Maryland-based Host Hotels, the largest U.S. lodging real estate investment trust, didn’t immediately respond to an e-mail seeking comment.

The storm’s economic toll is poised to exceed $20 billion. The total would include insured losses of about $7 billion to $8 billion, said Charles Watson, research and development director at Kinetic Analysis Corp., a hazard-research company in Silver Spring, Maryland.

“Hotels typically are well-insured for these types of events,” Bhalla said. “The issue is that their insurance premiums will go up after such an event, so it will hit their margins a bit in the quarters to come.”

Atlantic City

In Atlantic City, casinos sustained only minor storm damage and could reopen on 24 hours’ notice, according to Anthony Rodio, president and chief executive officer of Las Vegas-based Tropicana Entertainment Inc. (TPCA) Damage was more significant to the city’s boardwalk and streets, which are lined with debris, said Rodio, who also heads New Jersey’s casino trade association.

“Atlantic City fared pretty well compared to the communities north and south,” he said. “I don’t think any of the casinos sustained any significant damage. It’s not nearly the devastation I’ve seen in some of the other parts of New Jersey.”

Rodio said it was too early to assess the financial impact on casino operators.

“There’s going to be a financial blow,” he said. “But it’s a one-time occurrence.”

Roof Damage

Some of Caesars Entertainment Corp. (CZR)’s Atlantic City properties suffered extensive wind damage to their roofs, said Gary Thompson, a spokesman for the Las Vegas-based company. Local teams were working as quickly as possible to complete damage assessments, he said. Caesars is the largest casino owner in Atlantic City with four properties: its namesake resort, Harrah’s, Bally’s and Showboat.

Starwood closed its Sheraton in Atlantic City to guests as part of the city’s evacuation order. The property is being used as a staging area for emergency workers, the hotelier said today.

Manhattan hotels have been accommodating travelers along with employees of firms such as Morgan Stanley and UBS AG that are putting up some workers who are unable to commute. Such business may help counter the impact of cancellations by out-of- town travelers, according to David Loeb, a Robert W. Baird & Co. analyst in Milwaukee.

‘Displaced Residents’

“Often we see a pick-up in demand immediately after these events -- from displaced residents, insurance adjusters, construction-trades people,” Loeb said. “It is way too early to tell if revenues will be materially impacted, as it will depend on how things offset each other. Business travel to the east will be canceled, for sure, but people will likely check into hotels with power while their homes have none.”

Marriott’s New York Marriott Downtown and the Ritz-Carlton New York in Battery Park are closed because of the mandatory evacuation of low-lying areas of New York City, said Kathleen Duffy, spokeswoman for Marriott International Inc.’s (MAR) hotels in New York City. Water flooded the Marriott Downtown and rose as high as the lobby entrance’s doorknob, she said today.

“As I was on the phone with the general manager at 8 p.m. yesterday, I heard him say, ‘Here it comes,’” Duffy said.

Marriott has had cancellations at its hotels in the city, including a dinner “for several hundred” people, Duffy said. The company’s New York hotels that remain open are more than 80 percent occupied with stranded guests, recovery crews and travelers arriving ahead of this Sunday’s marathon, she said.

To contact the reporters on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net; Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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