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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

As discussed in our HOT post dated 8/31, the New York City market faces some major macro hurdles. A truly international city cannot be immune to a massive global economic slowdown. It is indeed global this time. We know the decline in domestic leisure travel will leak over to corporate travel. The conference and convention business displays a longer tail, so that’s a problem for 2009. The other major 2009 problem is that Wall Street is imploding in the middle of corporate rate negotiations for next year.

Located in the financial epicenter of the globe (for now), New York City hotels have historically drawn significant revenue from corporate guests – especially the high-end properties. The demise of Wall Street will certainly stymie the flow of guests arriving in lobbies across the Big Apple. We have already learned, from industry insiders, that the hotels in the proximity of Bear Stearns HQ saw a noticeable decline in traffic following Bear’s capitulation. Lehman, Merrill, AIG, Morgan Stanley, and others are all imploding at this critical phase of rate negotiations. Not good for Q4 RevPAR, and certainly not good for 2009.

NYC has been one of the best performing hotel cities in the country due, in part, to its reliance on international travel (see my 8/18 post US REVPAR “LINKED” TO THE DOLLAR). Other markets are in worse shape but it is the delta that matters. For HOT, this is a big part of the 2009 story. NYC generated over 15% of HOT’s owned hotel EBITDA the last 12 months and probably represents an even bigger part of analysts’ 2009 estimates. HOT also maintains significant exposure to other potentially troubled markets we’ve analyzed including London and Hawaii. I continue to believe another 20-25% reduction in EPS estimates for 2009 is prudent.