Repurchase of debt - was $250M –down to $62.5M due 2013.
Common offering: traded away “slight” portion of upside for greater protection against downside risk.
Elimination of cross-default (for defaults of less than $300MM) - It is not our intent to convey a significant number of hotels to lenders.
These are our criteria:
- cash flow less than debt service - value permanently below mtg amount - inflexible lender
W Hotel fits that description. Default will have no effect on other financings.
W Hotel acquired in 2006. Other 2006 acquisitions are performing better.
EBITDA declined from $7.4M in 2006 to about $2M in 2009. $65MM loan - $250k per key, about twice our average. Conveying hotel back to lender will improve cash flow and deleverage the company.
We have addressed our capital needs for the next 5 years.
We have asked our operators to cut costs the way we have at HQ
We have over $180MM in unrestricted cash.
Q: What will reaction be from lender community?
A: In advance of giveback, we spoke with our CMBS lender for months. Going forward, when we explain the background (subsidized the loan for months) we believe our ability to borrow will not be undermined. We understand that we will be recognized as a REIT that is willing to walk away from non-recourse properties.
A (Art): CMBS servicers often cannot really speak seriously unless you stop paying. This loan was priced as non-recourse debt. People realize that this does happen. San Diego REVPAR is down 32%. We are aware of another REIT that walked away from a property and was able to borrow later from the same lender.
Q: Host walked away from St Louis Marriott several years ago. Mass Mutual was the lender.
Q: Why did players act the way they did? What are implications for Starwood, and for you (if lender does not intend to take title).
A: Master Servicer has rules it must play by. We have NDA in place and can say little about management contract.
Q: Many management contracts have performance hurdles. Is it conceivable that you may find a manager that finds it in its interest not to cure.
Q (DeutscheBank): Did you have W appraised?
A: The $300MM figure in the indenture amendment was not arbitrary. [My notes: Since the Marriott Long Wharf in Boston has by far the highest per key non-recourse debt (over $400k), that hotel would seem to be the next on the chopping block. $170MM in debt …?]
Much more was said, but my notes cover the highlights, I hope.
Good work, thanks. I noticed they suggested a replacement value of $16 per share, down from $25 in the December conference. That's about what I figured, the effect of the same fruit covering a bigger pie.
I wonder how the Long Wharf cash flow is? That would be too bad to loose that one. Has anyone been to Boston lately? It has been about 4 years since I was there. I really liked the traffic improvement after the Big Dig mess and the down town looked like it was going through a total revival.
But the Hyatt Boston sure did not sell for much last year. I forget what that sold for.
I work in downtown Boston. Yes, the Big Dig has beautified the area where the Marriott Long Wharf is located. My understanding is the Sunstone bought the hotel from Boston Properties, Mort Zuckerman's REIT. Zuckerman got his start in Boston, knows the market well, and would probably sell such a property only to someone who was willing to grossly overpay. That would be SHO. Fortunately, its mortgage is non-recourse, giving SHO the opportunity to think again about its purchase. If the lender is willing to compromise (i.e., write down the principal or charge no interest for several years), maybe SHO will keep it. But there are a lot of new hotels in Boston (see the Intercontinental) and this property will likely not fetch anywhere near $400k per key on a sale.
My son stays at Marriott long wharf regularly. I had a drink at the bar a couple of months ago... reasonably busy... in fact, as an aside, the guy 2 seats down from me started to up chuck... but overall the Long Wharf is an excellent property... but according to HVS sale price in 3/23/07 was $567,662 a room... too high... way too high... next on the kick list???