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We’re expecting a solid Q3 report.  What limited visibility there is should be positive.

We expect Starwood to report $237MM of EBITDA and EPS of $0.40 – about 2% ahead of consensus and a little higher than the high end of management guidance for EBITDA.  That, in and of itself, should be a positive but it will really come down to guidance.  We recognize that visibility is not high and management can afford to be conservative given the low valuation and uncertain macro environment.  However, we expect the commentary to be positive.  Lodging fundamentals continue to look more favorable to us than domestic gaming and leisure. 

Here are our Q3 projections:

Q3 Detail

  • 3.8% increase in system-wide rooms
    • 5.7% increase in franchised rooms and 4% increase in managed rooms
  • $437MM of owned, leased, consolidated JV and other revenue and $89MM gross margin
    • $278MM of room revenue, up 2% YoY on a lower room base offset by higher RevPAR
    • $159MM of F&B revenue, up 3% YoY and seasonally down $3MM QoQ
    • CostPAR of $256.54 up 4% YoY  compared to an 8.6% increase last year
  • $193MM of fee and other revenue – driven by system-wide room and RevPAR growth
    • $157MM of management and franchise fees, up 14.6% YoY and in-line with the high end of HOT’s guidance
      • $77MM of base fees, a 15% YoY increase
      • $30MM in incentive fees, up 10% YoY
      • $51MM of franchise fees, up 18% YoY
    • $30MM of amortization of deferred gains and termination fees and $6MM of other revenue
  • $146MM of VOI and residential revenues and $35MM of operating profit – with similar top line growth and margins as 2Q11
  • Other stuff:
    • SG&A: $95MM
    • D&A: $67MM consolidated; $10MM unconsolidated
    • Net interest expense: $53MM; $4MM unconsolidated