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GEORGIANS WELCOME

Desperate for visitors, the Federal Migration Service began a program to allow hotels in Moscow to register visas themselves. I’m sure President Saakashvili will appreciate the convenience on his next vacation to Moscow.

Given the state of world tourism and travel, I wouldn’t be surprised to see other countries introduce similar measures.


Decent Week For Sports Apparel

Total sports apparel sales as reported by SportscanInfo came in +3.0. This might not seem meaningful, but it is the fifth consecutive week of accelerating yy sales. Not bad. Interesting to see a massive divergence between channels, with the Sports Retailers and Discounters/Mass taking share, with the ‘Family’ channel off by 30%. This category includes the likes of Boscov’s and other regional department stores that are struggling to stay afloat. Apparently they’re losing the struggle…

UA: Next Gen Trainers – In Case You Missed It

Just got the promo image below emailed to me about a minute ago. Fyi...

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OCTOBER SURPRISE?

We will have our “Eyes” on the Palin-Biden debate tonight. Not so much because we think either Vice Presidential candidate will say anything interesting, but because we believe the potential for an October surprise game change in this Presidential election will result from the Vice Presidential camp. While rumors have been rampant about Biden withdrawing due to “health reasons”, we think that a Palin withdrawal is even more likely given her very weak recent interview performances and Senator Obama’s decided margin in Real Clear Politics National Poll Average, which is currently showing him with a +5.7 point lead. The current Intrade contract for a Palin withdrawal is $10.2, which implies a 10% chance she will withdrawal. This is up from ~4% one week ago.

Daryl G. Jones
Managing Director

OIL BREAKING DOWN

Oil just broke Keith’s intermediate term support line of $95.34. While gasoline inventories are near all time lows in the U.S., which suggests demand for Oil in the U.S. should increase in the short term, it is difficult to make the case that demand will increase globally in a slowing global economy. It is likely that credit constraints, as we have been hammering home in our series of Ted Spread posts, only accelerates declining demand for Oil and other commodities. Our models have the next level of support at $91.07.

Daryl Jones
Managing Director

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.


Risk reward finally looking favorable

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