Evidence of V-shaped recovery.



HOT’s Q1 and guidance is pretty incredible. It feels like we went to sleep a few months ago and woke up 2 years later. Double digit RevPAR growth for 2010? This recovery certainly is starting in true V-shaped formation. We also know what we don’t know - how sustainable this is given the structural issues on the economy. Not much more to say about the great quarter and terrific guidance but here are some detailed observations.

  • HOT has really cleaned up their system – meaning when you look at comparable RevPAR statistics, you can see that they culled a lot of the worst performing assets out of the system (as 1Q09 SS #’s are materially higher than 1Q2010). 
  • Same goes for the owned portfolio. The assets they sold in 2009 had an aggregate EBITDA margin of only 12%.  Therefore, simply eliminating those assets is accretive to the balance of the portfolio. Hence, if you look at the entire owned portfolio there was margin expansion this quarter, despite same store margins being down 10bps.
    • North American SS owned margins were down 50bps to 11.9%
    • International SS owned margins were up 50bps to 17.6%
  • As expected, currency had a huge benefit in the quarter. North American RevPAR had a 3% benefit from currency in the quarter since Mexico and Canada make up 35% of the mix here. Unlike the Euro, these currencies, at current levels will continue to provide a tailwind for HOT for the balance of 2010.
  • We also thought it was interesting that HOT’s international owned portfolio only had 0.8% constant dollar RevPAR growth - considerably behind NA.  We thought the reverse would happen.
  • RevPOR was up this quarter (70bps). F&B looks to have improved 2.3% y-o-y
  • CostPAR increased 50 bps - just below RevPOR growth - hence the margin expansion.
  • Incentive fees increased 8% y-o-y or $2MM.
  • The only disappointing aspect to the quarter was net room growth was below our expectations and guidance, especially with the Sheraton brand. Managed rooms were 2k below our estimate as were franchised rooms.
    • Managed and Franchised rooms increased 2.1% y-o-y or by 5,597 net rooms. However, new brands contributed 3,410 rooms to the system and accounted for 61% of the growth.
    • Sheraton managed and franchised rooms shrank 4.7% y-o-y.
    • Managed and franchised rooms decreased sequentially by 20bps. This is the first 1Q to 4Q decline since 2005.

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