HST 3Q09 EARNINGS PREVIEW

In light of recent RevPAR trends and MAR's 3Q09 results, 2009 guidance looks too conservative. We still think Street estimates for 2010 need to come down.

 

 

We expect HST to beat the Street numbers and raise 2009 guidance when they report this Wednesday.  Our Q3 Adjusted EBITDA estimate of $140MM is approximately 6% above the Street.  For Q4, we are 8% above the Street's estimate of $233MM.  We think 2009 RevPAR will come in closer to 19.5% than the down 20-23% guidance from the 2Q09 earnings call.  If RevPAR comes in better than company guidance, operating margin compression should also be less severe than the guidance of down 600-650bps. 

 

Despite our belief that HST will beat and raise for 2009, we are still cautious on the stock and the lodging space.  HST is trading at almost 15x 2009E EBITDA and about 18x 2010E EBITDA - hardly attractive in our opinion.  The implied price per key of 189k is also not particularly "cheap", in our opinion.  Lastly, we are still below the Street on 2010 for both revenues and EBITDA. We believe 2010 will bring positive occupancy but will still have negative ADR as the industry seeks to recover the roughly 10 points of occupancy lost from peak to trough.  Until occupancy recovers meaningfully, we do not believe that hotels will have much pricing power.  In the meantime, costs should modestly rise, resulting in operating margin declines.

 

2010 Guidance?

Last year HST did not provide 2009 guidance on the third quarter release, so we do not expect them to address 2010 in the release since visibility hasn't markedly improved. However we do expect HST to give preliminary guidance related to 2010 on the call which we suspect will be highly predicted on GDP recovery.

 

 

3Q09 Preview Details:

RevPAR of -19.5% on NA hotels

  • Using a weighted average of HST's US city exposure for 6/20-9/5, we came up with a RevPAR estimate of -16.4%, which we adjusted downward given HST's exposure to Upper Upscale and corporate travel
    • This compares to Marriott branded NA operated RevPAR being down 19.8%
    • Estimate -7.5% occupancy and -13% ADR
  • F&B down 18% and other down 4%

Cost per Occupied room down 2% ; total property level expenses down 10%

 

FFO of $0.09

 

 

"Youtube" from 2Q09:

  • "The weakness in rate is not likely to abate until demand recovers, which will likely require the economy to stop shrinking and start expanding.  However, we have seen some progress in slowing the negative trends we experienced since the beginning of the year.  While the group cancellation rate for the quarter was still above our normal average, it represented less than half the rate we experienced in Q4 of 2008 and the first quarter of 2009."
  • "cancellation rate improved meaningfully through the quarter, suggesting this issue may present less of a problem going forward"
  • "We think the margins will decline more than we experienced in the first half of the year, as the RevPAR decline will be more weighted to declines in average rate and changes in the business mix, as well as lower food and beverage margins due to further declines in high profit banquet and audio-visual business"
  • "We expect an increase in hourly wage rates and in property insurance costs, as insurance rates have started to increase.
  • "if you look at the RevPAR range that we've suggested for the full year it tends suggests that the second half of the year somewhere between 17% and 20% decline in RevPAR. 

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more