Still worried about Q2 industry RevPAR but MAR should beat Q4 and Q1 probably needs to go higher.
We project MAR will report Q4 Adjusted EBITDA and EPS of $363MM and $0.41. Our numbers are 8% and 13% ahead of consensus, respectively, and above company guidance of Adjusted EBITDA of $331-346MM and EPS of $0.33-$0.36. At current valuations, some of the upside may be baked into these stocks. This was evident when Starwood reported its results last week. However, given the magnitude of the beat we are expecting, investors could move MAR higher.
We also think MAR could raise Q1 guidance. We’re already ahead of the street for 1Q2011 but in-line for FY2011. We continue to believe the Street is overestimating Q2 industry RevPAR. Our research shows that the April-July period in 2010 was one of pent up demand and in terms of dollar RevPAR, was much stronger than the rest of the year. The math shows that the comparisons during that period of 2011 will be very difficult.
For more details on our assumptions for Q4 please see below:
- RevPAR growth of 7.4% vs. 6-8% guidance
- Management and franchise fees of $385MM vs. guidance of $370-380MM
- 1.5% growth in managed rooms and 6.1% growth in franchised system-wide rooms
- 9.3% growth in base management fees to $178MM
- 20% growth in incentive fees to $71MM
- 14.5% growth in franchise fees
- Owned, leased, corporate housing and other revenues of $356MM producing gross margins of $39MM compared to guidance of $40MM
- Owned & leased room revenue up 8% to $121MM
- 5% YoY increase in F&B & other revenues
- $19MM of branding fees and $4MM of termination and other fees
- $195MM of contract sales and Timeshare segment results of $48MM vs. guidance of $190-200MM of contract sales and segment results of $45-50MM
- Other stuff:
- $25MM of gains and other income (in-line with guidance)
- $51MM of net interest expense (guidance of $50MM)
- $10MM Equity loss (in-line with guidance)