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HOT has done a great job cutting costs in a deteriorating demand environment.  This time they may have run out of dry powder.  This may be the first quarter without a substantial beat.  We believe forward numbers once again need to come down, despite favorable currency movements.  The Street continues to project flat 2010 RevPAR versus our projection of -5% and our EBITDA estimate is 11% below the Street at $790 million.  Here are the details ahead of the earnings release on 7/23.

-For 2Q09 we're in line with HOT's guidance but below street:

  • We're at 190MM of EBITDA (3.5% below street & guidance of 180-195MM) and $0.15 EPS (16% below street & guidance of $0.14-$0.20 EPS

-For full year 2009 we're still below consensus as we are less positive regarding HOT's ability to further cut costs.  Last quarter HOT stopped giving explicit guidance on EBITDA & EPS for full year 2009 due to the "uncertain environment":

  • $750MM of EBITDA (5.5% below street) and EPS of $0.65 (17% below consensus)
  • We assume owned RevPAR decreases 25% in 3Q09 and 15% in 4Q09and owned EBITDA margins decline 8.5% & 7.5% respectively
  • We assume world-wide RevPAR decreases 20% in 3Q09 and 8% in 4Q09, for a 2009 20% RevPAR decline (in line with management guidance)
  • 4Q09 improving RevPAR comparisons are driven by occupancy
  • Our owned EBITDA margin for 2009 is down almost 900 bps driven by difficult cost cut comparisons in the back half - we believe this is where we differ from consensus
  • Given the opaque nature of timeshare, we're in-line / slightly better than management's guidance
  • Total reported fee income down -16.5% (probably worse than street expectations)
  • We assume that HOT can reduce SG&A by $100MM (better than the $70MM guidance)

-2010 - We're still 11% below the street EBITDA estimate of $790m which is flat with 2009 due to approximately 5% lower RevPAR estimates.

-RevPAR 2Q09 Assumptions:

  • Branded Same-Store Owned Hotels in North America: we're in-line with an estimate of -30% vs. HOT guidance of -30% to 32%
  • We estimate that total revenue (not SS) will decrease 24.5%, which compares somewhat to HOT's guidance of SS worldwide company operated hotels of -24% to -26% (-18% to -20% in constant dollars).

-Foreign Currency:

  • Since HOT reported 1Q09 results, the dollar has depreciated against almost all of the currencies that HOT has exposure to
  • We estimate that vs. guidance given on April 30th the dollar depreciated about 3.5% against most of HOT's portfolio of owned hotel and 6% vs current spot
  • Euro: 1.32 on April 30th vs an average rate of 1.36 in 2Q09 and spot of 1.40
  • A weak dollar will have a positive impact on reported RevPAR relative to expectations on April 30th when Starwood gave guidance