HOT THOUGHTS INTO 2Q09

07/09/09 03:04PM EDT

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
© 2020 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.