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Here is our Q1 2010 earnings preview and a "YouTube" from Q4.

MAR is scheduled to report its 1Q2010 results next Thursday and numbers should be good but that is probably expected. Our estimates for the quarter are in line with the Street and ahead of management guidance.  Everyone knows that RevPAR is tracking way ahead of expectations and the occupancy recovery has been exceptionally strong.  We think it will be interesting to see the flow through of better RevPAR to EBITDA on the owned side of the business, since occupancy does bring more cost with it.

For FY 2010 we’re at $974MM of adjusted EBITDA which is 3% ahead of the Street and just above the top end of guidance. 

While there are no bargains in lodging right now, we do like the MAR model and believe that it is less expensive than the real-estate leveraged companies.  Investors seem overleveraged to the earlier cycle hotel owners.  That relative trade may have already played itself out.  Buying MAR at 12x 2011 isn’t crazy in light of upcoming multiple year up cycle if you want to have exposure to the space.

 

MAR “YOUTUBE” FROM Q409

 

OUTLOOK & TRENDS

  • “While relative, corporate demand is picking up, cancellations are running again at normal levels and our 2010 group bookings continue to build. In December, new group bookings for any time in the future were both higher than the prior year and ahead of our expectations. We saw meaningful improvement in occupancy in December and January, businesses getting back to work. Adding it all together, we believe U.S. RevPAR growth should turn positive sometime in the second half of 2010. Outside the U.S., RevPAR will likely turn positive faster and yield a higher RevPAR in 2010 than in 2009.”
  • “Of course, pricing will recover slowly.”
  • “For the domestic Marriott Hotels and Resorts brand, group room nights on the books for 2010 are down 2% adjusted for last year’s cancellations and attrition and room rates for that business are down 3% year-over-year. Outside North America, group room nights on the books are also down 2% but room rates are down a bit more. Still, with pent up demand and easy comparables, we expect our in the year for the year group business to improve from these levels.”
  • “Our special corporate rate negotiations are nearly complete and special corporate rates for 2010 are running down modestly from 2009 levels.”
  • “For the Marriott brand … by the fourth quarter, occupancy was roughly flat and by period 13, occupancy increased roughly 1 to 2 percentage points.”  
  • “For most of 2009, we saw weak corporate room demand, but that is changing. Comparable room nights for corporate rated business in the Marriott brand declined 13% in the full year 2009, were flat in the fourth quarter, but rose 10% in period 13. On the other hand… room rates remain weak. For the Marriott brand, room rates at domestic company operated comparable hotels declined 12% in 2009, 11% in the fourth quarter, and declined 8% in period 13”
  • “In the fourth quarter, international occupancies increased slightly and in December occupancies increased 4 percentage points year-over-year. Demand in Europe and the UK strengthened with the improving transient and group demand. In the first quarter, we expect London and Paris occupancies to increase at double-digit rates. In Asia, occupancy rates rose over four percentage points in the fourth quarter, dramatically exceeding our expectation. Occupancy in our hotels in China increased over five percentage points in the fourth quarter, with better than expected domestic corporate demand.”
  • “Costs are likely to rise in 2010 and margins will be under more pressure from room rate  weakness, but we continue to work to identify more efficient ways of doing business.”
  • “Property level cost cutting is largely behind us, so incrementally weaker RevPAR will be more difficult to mitigate”
  • “We do try and hedge our currencies, particularly in the liquid currencies like the euro and the pound, I think we’re probably 60 to 70% hedged for 2010.”
  • “I think on balance we would expect incentive fees full year when 2010 closes out to be very modestly lower than those of 2009 as all those factors sort of go through.”
  • “View that ballpark we ought to be opening the same number of rooms in the next few years in each year, but obviously we’ll have to see how the economy develops and a little bit on how the financing market develops to know that for sure.”
  • “I think the comparisons that make it hard to extrapolate too much from what we’re seeing now is what we talked about before, which is the incredible pessimism that we were dealing with in the marketplace a year ago and as a consequence I think we are seeing a significant increase in volumes. So whether it’s our data from December and January, whether it’s the Smith Travel data that you look at, you see occupancy growth in virtually every segment….And I think as a consequence they’ve [luxury hotels] got a good number of months ahead of them where they’re going to post occupancy growth.”
  • “I think on margins and on owner returns, you’re going to see this year continued albeit modest hourly wage growth. I think we’ll see a continued growth in healthcare costs, management wages because they were really devastated in 2009, are likely to be up in 2010. There will be less benefit from a reduction in the number of managers because we’ve cut that already very deeply. And there will need to be and the management team deserves to be compensated with some bonus potential that really has not flowed through to them in 2008 or 2009. All of those are going to put some pressure on margins, and as a consequence in an environment in which particularly occupancy is moving first and rate is starting the year continuing to be down, we’ll see continued  pressure on house profit margins and owner returns.”
  • “The likelihood that timeshare even in a strong consumer environment and decent recovery there would ever get back to the same percentage contribution to company, I think is very, very slight. And it will end up being a smaller part of our business than it was at the peak”

GUIDANCE

  • “In 2010, we expect new timeshare inventory spending to be both lower than 2009 spending and over 100 million lower than our expected cost of goods sold… With lower investment spending in 2010, we expect 2010 timeshare net cash flow should increase to about 175 million to $200 million.”
  • “For those of you with different RevPAR outlooks, we believe that one point of worldwide systemwide RevPAR is worth about $10 million to $15 million in total fee revenue and about 3 to $4 million of profits on the owned leased, corporate housing and other line.”
  • [Timeshare] “We’re working under the assumption that contract sales in 2010 will be just slightly better than the 2009 level. All in all, in 2010 we believe our timeshare business could generate 170 to $180 million on the timeshare sales and services net line and 145 to 155 million in segment earnings.”
  • “We anticipate that Marriott’s adjusted general administrative and other expenses will increase 2 to 4% to 635 to 645 million in 2010 as we resume investing in our business and our people for the future. We expect wages will rise modestly in the second half and management bonuses will be reinstated in 2010. While changes in our deferred compensation program will reduce deferred comp expense on the G&A line by about $15 million in 2010, we’ve cautiously assumed roughly $15 million of additional performance related charges for a few hotels in that year as well.”