A Rule #1 Blog reader, Steve, took Phil Town up on my request for people to do Homework on Starwood. He posted his Homework in the Comments, which you can read by clicking here. You can also read my response, just beneath his original comment.
I'll also re-post it here:
Wow, Steve, nice job on HOT.
As you noted, the only real saving grace on HOT as a Rule #1 stock would have to be figuring out the value of the real estate and seeing if that made it a bargain. Rule #1 requires that we have certainty to buy. Certainty comes from knowing the value of the business as a business... which would include its real estate... and buying it at a discount.
Even though somehow Bill Gates and gang decided to buy Four Seasons for a premium over the already pricey stock price (which tells me that they have too much money to invest and no where to put it and are not disciplined enough to wait it out like Buffett is doing with his $46 billion in cash), we really can't use that as a benchmark for the value of HOT.
It's a big mistake for an investor to decide that because one group paid X for something, that it was actually worth X. What they paid and what it's worth are not necessarily the same thing. We see this every day in the market, right?
So with regard to real estate right now, in general, REITs seem pretty much overvalued to me today and unless HOT has sandbagged the value of its real estate, Steve has done a nice job of showing us it's too pricey, too, and I don't want to count on a takeout bid from a bunch of private equity guys with deep pockets and money to burn.
Anyone care to take a crack at valuing HOT's real estate, please go to it for the rest of us. Meanwhile, I'm going with Steve's conclusion.
Phil Town says: Now go play.