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Let’s face it. 2009 lodging estimates need to come down. I know I sound like a broken record but the data continues to deteriorate. A stronger dollar, weakening global economic conditions, and creeping room supply may finally touch the Teflon Don of Starwood’s portfolio: New York City. Starwood maintains the highest exposure to NYC of all the major hotel companies. As can be seen in the first chart, NYC represents about 7% of total owned hotel rooms and 16% of owned hotel EBITDA.
  • The same conditions that pushed hotel demand much higher than the national average (see 2nd chart) are now moving against the lodging environment in NYC. The dollar recorded the highest monthly gain in 15 years in August and global GDP growth is slowing rapidly. Since 1/1/07, the dollar index fell 15% to the end of July 2008 while international visitation to NYC grew over 20% against the backdrop of strong global economies. Meanwhile, the spread of NYC RevPAR growth vs the national average remained significantly positive throughout the period in the range of +5-9%. I believe the recent sharp reversal of the dollar and slowing global economies will narrow that gap considerably, and quickly. Considering the recent national RevPAR trends, this is not good for the NYC hotel market. August RevPAR probably fell 1% nationally.
  • In my 6/26/08 post, “NOT BEARISH ENOUGH? NOT EVEN BEARISH”, I estimated that 2009 lodging company EPS estimates were too high on average by 30%. At the time, the consensus HOT estimate was $2.92. Two months later, the consensus estimate has fallen 25% to $2.19. Unfortunately, the data has deteriorated further and forward looking indicators are worsening. I now think 2009 EPS estimates need to be reduced by another 25% and EBITDA by about $150 million. We’ll probably have to wait for the next “beat and lower” quarter come October to actually see the reductions.