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.
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.