MAR 4Q11 PREVIEW

MAR has been on a tremendous run since the spin which gives us a little pause heading into what promises to be a confusing quarter.  Long-term, not much not to like or as the optimists would say, much to like.

 

We’ve been on the MAR bandwagon since before the spin.  While we’re still positive on the story and near-term RevPAR trends, the stock has been on a tear and MAR’s quarter (announcing next Thursday) is likely to be confusing.  MAR spun off VAC on November 21, yet many sell-side models do not reflect the spin.  Other factors to focus on are Q1 RevPAR trends – we think they are good – and trends in DC which have been disappointing lately.

We have Marriott reporting $363MM of Adjusted EBITDA and $0.49 of EPS.  We treat the timeshare business as fully consolidated up to November 21 and then give Marriott credit for their pro-rata fees on timeshare for the balance of 4Q.

Detail:

• World Wide RevPAR growth of 7.3% (non-comparable), with roughly 75% of the growth coming from ADR
• System-wide room increase of 2.4% YoY
  • 3.3% growth in franchised rooms
  • 1.4% managed rooms
• $355M of owned, leased, corporate housing and other revenue and $52MM of gross margin
  • Our revenue estimate is 3% below the street but our margin are $3MM higher
  • $141MM of owned & leased revenue
    • Leased revenue makes up the bulk of this number and is up 17% YoY, offset by a 9% decline in owned revenue
• $179MM of F&B and other revenue, down 3% YoY
• 4.25% increase in CostPAR
• $30MM of branding fees and $4MM on termination fees
• $429MM of fee income, which is close to the upper end of management guidance and a little above consensus
  • Base management fees of $187MM
    • We estimate $17MM of base fees related to timeshare, which MAR is no longer entitled to post spin-off. 
• Incentive fees of $83MM
• Franchise fees of $159MM, which include $7MM of fees related to VAC post spin
• We’re only modeling timeshare through November 21.  We expect most analysts are modeling a full quarter for simplicity purposes.  We assume timeshare sales and service revenue of $243MM and $45MM on a net basis. 
  • For the full quarter:
    • Sales and services revenue estimate is $370MM
    • $69MM net timeshare sales and service income
    • Segment results of $47MM
• Other stuff:
• SG&A: $229MM (excludes some timeshare related costs post spin)
• Net interest expense: $41MM (excludes timeshare interest post spin)
• Tax rate: 34%
• Diluted share count: 348MM