Q4 lukewarm but 2012 should be HOT.



HOT’s headline number should beat consensus when they report Q4 on Thursday.  The benefit from the sale of the Bal Harbour units will boost Q4 EBITDA as Starwood should have started booking in the quarter.  Excluding the Bal Harbour units, the ‘clean EBITDA’ number could be on the lower end of company guidance and a little below consensus of $279MM.  However, any slight miss would be due to USD strength, offset by stronger North American RevPAR trends. 

International exposure which has been a tailwind for Starwood these last 2 years turned into a headwind this last quarter.  Since HOT reported 3Q results on October 27th the Euro has depreciated by 7.4% vs. the dollar and the dollar index has strengthened 4.4%.  While HOT hedges roughly 50% of the Euro exposure, it still maintains plenty of exposure to other currencies.  Every 1% move in FX impacts EBITDA by $4MM.


Given the healthy trends in NA RevPAR, we’ve been positive on the lodging space since late August (see “IT’S NOT THE ECONOMY, STUPID” 08/25/2011).  However, given HOT’s heavy international and European exposure, we have preferred to express our positive thesis on lodging through MAR, which now derives almost all of its EBITDA from higher multiple fees.


Q4 Detail:


We estimate $285MM of EBITDA and EPS of $0.61, inclusive of Bal Harbour sales.


We model owned, leased and consolidated JV revenues of $440MM and margins of 19.2%

  • $281MM of room revenue, up 0.5% YoY
    • Room count should be down 8% YoY as a result of asset sales
    • We estimate non-same store RevPAR of $157.62
  • $159MM of F&B revenue, down 11%
  • CostPAR of $279.70 – up 2.2% YoY compared to up 8% in 3Q – benefiting from the strong dollar

$227MM of revenues from management & franchise fees, and other income

  • $85MM of base management fees, up 15% YoY
  • $56MM of incentive fees, up 3% YoY.  4Q10 is a tough comp as incentive fees were up 38.5% YoY
  • An 8% YoY increase in franchise fees to $35MM
  • $30MM of amortization of deferred gains and termination fees & other
  • $11MM of miscellaneous income

$175MM of VOI and residential sales and $44MM of operating profit, including Bal Harbour


Other stuff:

  • $90MM of SG&A
  • $78MM of D&A (including $11MM of unconsolidated JV)
  • $47MM of net interest expense plus $6MM pro-rata unconsolidated interest
  • 24% tax rate and 195MM shares

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