QUICK THOUGHTS ON MAR 2Q09 RELEASE

Sloppy quarter and disappointing guidance.  Not good a good signal for the rest of the lodgers including HOT.

MAR reported EPS of $0.23 which was spot in line with our estimate. However, the numbers were sloppy this quarter with $57MM of exclusions; $33MM related to restructuring charges, and $24MM related to the revaluation of residual interests from prior note sales.  We're not sure that the write-downs in this quarter will be the last ones we see.  Guidance for the third quarter was disappointing and full year guidance was lowered with the primary culprits being worse international RevPAR and lower incentive fees.   Not a good start to the lodging earnings season.

2Q09 results:

  • NA comparable company operated RevPAR came in at -23.4%, in line with mgmt guidance of -20 to -25%
  • International comparable company operated RevPAR at -31.5% was materially worse than company guidance of -17 to 20%, partially impacted by swine flu
  • Base management and franchise fees came in a touch better than our expectations; however, incentive fees came in 8MM worse.
  • Owned, leased, corporate house and other revenues came in 10MM below our estimate, while margin was materially better than we expected, contributing to a higher net result.
  • Timeshare revenues came in 11MM better than our estimate but margins were materially worse due to the $12MM write down of residual interests
  • G&A was in line with our estimate if you exclude the systems write down and accounts receivable charge offs

3Q09 Guidance of $0.09 to $0.14 is below street expectations of $0.20 for the quarter and below our estimate of $0.15 cents.  RevPAR guidance was not "less bad" as we think many investors and sell side analysts were hoping for.  Incentive fee guidance couldn't be any worse.

 Full year 2009 guidance was lowered

  • NA comparable company operated RevPAR guidance reaffirmed -17 to -20%
  • International comparable company operated RevPAR guidance lowered by 400bps to -17 to -20%
  • Fee income was lowered to $1,030 to 1,060MM from prior guidance of $1,050 to $1,100MM, primarily driven by lower incentive fees
  • MAR lowered the high end of the range by $5MM for owned, leased, corporate housing and other revenues, net of direct expenses to $55 to $60MM
  • Lowered timeshare segment results by $5MM to $25MM
  • Increased full year G&A guidance by $5MM to $585 to $605MM
  • Lowered EPS guidance to $0.76 to $0.86 from $0.88 to $1.02
  • Lowered investment spending by $25MM to $325 to $375MM

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