2009 guidance looks reasonable. We expect 2Q09 to be in line if not slightly better than street expectations. However, similar to other lodgers, 2010 estimates look way too high.
Our 2010 estimates are about 8% below the street for EBITDA and a lot lower on 2010 FFO. The stock is trading around 13.0x 2009 EBITDA and over 15.0x 2010 EBITDA. On a per key basis, at $165k, it doesn’t look a whole lot cheaper than the few comps we’ve seen, especially given that a third of the owned rooms are subject to ground leases and another 5% aren’t wholly owned or simply leased.
As the composition of lower RevPAR skews to rate and cost cut comparisons become more difficult, margins will become more strained. The weekly Smith Travel surveys indicate that industry RevPAR is not getting worse but it’s not exactly getting better either. There’s not a lot of positive news out there... group bookings remain bad, conference attrition isn’t improving, business booked during better times continues to roll-off and replaced by lower quality AAA and flights attendant business, and people are still losing their jobs. More rooms are being booked through discount channels – one member of our team just got 75% off a villa in Mexico which was $1,500 per night. You get the point. The chances of a guidance increase are remote.
2Q09 Preview Details:
We expect RevPAR to decrease 23%
- For the past four-out-of-five quarters, HST moderately underperformed MAR branded system-wide operated rooms; they’ve been better at having occupancy lead the way down (i.e. occupancy has been a greater contributor to RevPAR declines) and therefore they’ve been able to keep direct room costs down (“COSTPAR”)
- HST has de minimis FX exposure to its NA room-base (only 2400 rooms are non USA based)
- They only have one hotel in Mexico so the impact of swine flu has been minimal
Property EBITDAR of $244MM, margins down 700 bps to 22.8% vs Street at $244MM
- Room margin only down 350 bps since we assume a little over 50% of the decline in RevPAR is still occupancy driven
FFO of $0.23 vs Street at $0.22