Meristar Hotels & Resorts (MMH) Message Board

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Strategies & Market Trends : Meristar Hotels & Resorts (MMH)

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To: professor who wrote ()	1/25/1999 10:31:00 AM
From: professor	Read Replies (1) of 21

Merrill Lynch initiates a buy recommendation on Meristar Hospitality (MHX - $18.1875) this morning. They cite their 1999 FFO/shares is $3.78 based on 3% RevPAR growth and zero acquisitions. Other highlights from the research report: MHX trades significantly below the median of its peer group on P/AFFO and slightly below on an EV/Adjusted EBITDA basis. On a P/AFFIO it trades at 5.3 while comparables trade from 5.9X to 12.2X. On an EV/Adj EBITDA basis MHX trades at 8.8X while comparables trade from 8.1X to 12.2X. MHX has a multi-brand quality portfolio of properties (upper upscale and resorts) and are renovating 20-25 properties as well this year. MHX has a solid capital structure with debt to total market capital ratio of 61% and EBITDA/Interest Expense of 2.8X. MHX controls more than 27,000 hotel rooms and has the sheer size to leverage its purchasing power and economies of scale. Sensitivity fo a 1% decline in RevPAR growth (3% to 2%)only results in a 6 cent decline in FFO/share. MMH is the operating partner of MHX, the industry's first paper clip REIT. The two have strong strategic alliances and overlapping management teams and Board members and ownership interests which should dispel any concerns about conflicts of interest. Merrill thinks that MHX should around $21. I would note that MMH ($3), the management arm of Meristar is the more interesting play. It has the ability to take on third party contracts outside of properties owned by the REIT. Already, they've signed a few contracts since the merger so the growth rate is much higher in MMH than MHX. MMH also bought the brandname Doral a few weeks ago furthering its strategic goal to develop high quality golf resorts. As I've mentioned before Robert Bass, Pequod Invstments and the co. executives own almost 30% combined of MMH. MMH is not widely followed making it an undiscovered gem at this time.

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