MAR: FOR WHAT’S IT WORTH

It’s not clear to me what the timeshare business is worth or where it’s going. It seems that it may have been one more product of the easy money era. Timeshare, securitization, contract sales, etc.; forget it all. Let’s see if we can make a valuation case for the hotel business because I wouldn’t pay a nickel for anything else.

What is the right multiple range for MAR’s hotel segment? Historically, MAR as a company has traded between 10x and 15x EBITDA. Of course, this always included the lower multiple timeshare business. Remember that MAR generates virtually all of its lodging profits from fees; management, incentive, and franchise fees. Surely, fee income should be valued higher than owned EBITDA due to the stability factor and the lack of maintenance capex associated with ownership. If you believe 2009 will be the trough, I cannot see putting a multiple below 10x on fee based EBITDA. On the high side, 15x seems reasonable due to the long-term demand for branded hotels globally.

So, if we throw away the time share business we are left with about $1bn in hotel EBITDA in 2009, per my calculation. Factoring in $400m in notes receivable and all of MAR’s year end debt yields a stock price range of $21 to $35. Other than the receivables, I’m not assuming any disposition value for the roughly $3bn in timeshare assets on the balance sheet. The valuation range leaves 11% downside and 47% upside. I sure wish I had a catalyst.

This is the first time in many quarters where I’ve felt that guidance was reasonable. I’m not saying there won’t be downside but at least estimates are reasonable. So MAR is starting to look interesting but, unfortunately, I cannot say the same thing for HOT: too much timeshare, too many owned hotels, and too much gateway city exposure.


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