First it's bad earnings reports. Then questionable news on inflation. Regardless of the effects investors wish these tidbits would have on the financial markets, a single word of poor news seems to be sending the Dow Jones Industrial Average and, especially, the Nasdaq into a tailspin.

But not so for real estate stocks, which continue to prove their mettle in trying financial times. In particular, the lodging and resorts segment of the market has turned in excellent performance, both on Main Street and Wall Street.

So far this year, stocks for lodging and resort firms are up more than 9 percent. That's consistent with last year's performance, which saw lodging issues up more than 50 percent at a time when most other market indices were going down the tubes.

So what's behind this run-up? Two simple and irrefutable factors. First, these stocks were undervalued at the beginning of last year. And secondly, continued excelled quarterly results almost consistently across the board have prompted prices of lodging stocks to rise accordingly.

Case in point: John Q. Hammons Hotels, Inc. (AMEX: JQH) last week announced fourth quarter earnings up 7 percent over fourth quarter results the previous year. Financial statistics looked great for the hotelier. Total revenue for the quarter was up 11.4 percent. For 2000, revenue was up a stunning 17.5 percent, with earnings up an even more-impressive 19.4 percent.

Similar solid performance was turned in last week by Four Seasons Hotels Inc. (NYSE: FS), which saw net earnings for the fourth quarter increase 13.6 percent over the year before. For the year, earnings were up more than 19 percent.

Here's one last example to round out the trend. Earlier this month, LaSalle Hotel Properties (NYSE: LHO) reported an increase in funds from operations (FFO) of 8.9 percent for 2000. Not bad, and looking better again earnings warnings from technology and heavy manufacturing companies.

So what's behind these income statements? Across the board, hotel companies are boasting higher occupancies and increased room rates. Many firms also have finished up a recent spate of development and refurbishment. As such, their capital costs have decreased significantly, allowing them to enjoy their earnings rather than plow them under for new development.

What's more, new revenue is being realized from the assets now coming on the market, in addition to higher room rates that can be demanded at renovated properties.

So now for the big question. Can this trend continue? According to most lodging firms, the answer is no.

Take it from LaSalle, which rated lodging demand during 1999 and 2000 as "unsustainably high."

"As a result of the recent slowing in the economy, we believe it is prudent to be more cautious in our expectations for 2001," said Jon Bortz, chairman and chief executive officer for LaSalle. "Assuming an overall 2 to 3 percent growth in (gross domestic product) for 2001, we would anticipate a more sustainable 3 to 4 percent growth in (revenue per available room) for the year, down from our 7.7 percent (revenue per available room) growth rate in 2000."

"While we continue to experience solid booking activity at our hotels, we are concerned about the rapidness and severity of the economic slowdown, its impact on corporate profits and consumer confidence and their subsequent potential negative impact on both corporate and leisure travel," Bortz added.

Four Seasons is basing its 2001 financial projections on growth in the U.S. gross domestic product of between 2 percent and 2.5 percent. If that comes to fruition, the company is estimating an increase in gross operating profits of 5 percent.

So now that stock valuations have caught up with these companies' financial performance, if company comments are correct new investors in the sector likely won't realize the incredible gains enjoyed by last year's faithful.

For more articles by Lesley Hensell, please press here.