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We won’t know the full details until early February but Q4 was decent for Starwood, all things considered.  2010 numbers still look high but let’s review Q4 first.





We think HOT will beat its guidance for Q4 of $0.17-0.21.  Surprised?  Don’t be.  It’s called sandbagging and it happens every quarter.  Management will also likely walk down expectations for 1Q2010, the front end of the sandbagging exercise.  We do think consensus estimates for all of 2010 need to come down, primarily due to margins, and we’ll have more on that in a coming post.

Our Q4 EBITDA and EPS estimates are $203MM and $0.22, respectively, which compares to guidance of $190-200MM and $0.17-0.21 and consensus of $199MM and $0.21.


Given the favorable FX tailwind, we estimate an 8.5% RevPAR decline for branded operated hotels worldwide vs guidance of -9 to -11%.  We estimate that Owned RevPAR will decline 11.8%.  For  owned hotel margins, we are projecting a 520 bps decline (not same store).

Management, Franchise fees and Other Income

We estimate a 9% decline y-o-y, compared to guidance of an 8-10% decrease.  Below are our assumptions:

-          Base fees down 7%

-          Incentive fees down 25%

-          Franchise fees down 4%

-          Amortization of gains & termination fees +15%

-          Bliss & Miscellaneous income -12%

Similar to MAR’s revised guidance, we expect timeshare income to come in slightly above guidance.  HOT will also recognize a $15MM gain and proceeds of $166MM on a note securitization, in excess of the $125-150MM guidance.


Bliss Sale

  • Announced the deal in Q4 and closed in early January
  • $100MM of proceeds, $85MM of TTM revenues, and TTM EBITDA of $5.3MM
  • 2010 Impact:
    • Loss of $80-85MM of revenues from the Mgmt & franchise fees, other income (specifically “Other (2)” line on the “Management Fees, Franchise Fees, and Other Income” supplemental table
    • SG&A will decrease by $78-80MM, since all Bliss associated expenses were lumped in SG&A


St. Regis Retail Sale

  • On November 5th HOT closed on the sale of the retail space in the St. Regis NY
  • HOT will collect proceeds of $117MM in the 4Q09 and lose $5.85MM of NOI or gross profit
  • Retail revenues have a very high margin – usually over 80% assuming that HOT doesn’t operate its own retail space.  This implies a loss of $7.3MM of revenues and $1.5MM of expenses from owned hotel revenues and expenses
  • Since the transaction closed in the middle of the 4th quarter, the impact will be nominal (roughly $1.4MM of revenue impact)


  • Starwood cuts its annual dividend to $0.20 from $0.90 in 2009, implying a cash outflow of only $36-40 million in 1Q2010


Debt issuance and tender

  • Starwood issued $250MM of 7.15% notes at 97.559% raising gross proceeds of $244MM on November 5th
  • On December 7th, HOT completed its tender offer retiring $195MM of the 7.875% Notes due 2012 and $105MM of its 6.25% Notes due 2013
  • Net debt reduction, excluding bank debt in the 4th quarter, should be $56MM with $1MM of incremental interest expense associated with the new notes (due to timing)
  • This transaction will reduce interest expense by $4MM in 2010

Timeshare Securitization

  • Earlier this week, HOT completed the securitization of $200MM timeshare mortgages with a $15MM pre-tax gain recognizable in 4Q09
  • The terms of this issuance, similarly to MAR’s, are materially more favorable than the deal HOT completed in June 2009.
    • Advance rate of 83% vs. 69%, interest rate of 5.8% vs 8%, and no interest to the residual for the initial 12-24 months
    • The sale will be cash flow positive, decreasing inventory by $166MM and thereby benefitting working capital