NEW YORK (CNN/Money) - Hotel rooms and coal plants may make strange bedfellows, but Marriott International apparently has found a way to accommodate the unlikely combination.

In its first quarter, the world's largest hotel operator reported a profit of $87 million, 22 percent of which came from its synthetic fuel business -- a nice result considering the fuel business generated a loss of $59 million and the company's revenue per available room fell 1.5 percent in the quarter.

How does the company add $19 million to its bottom line in a single quarter through a unit that runs at a loss? It uses tax credits under an Internal Revenue Service provision for producers of alternative fuel.

During the quarter, Marriott posted a pre-tax profit of $47 million and had a tax rate of 36 percent, which gave it a $17 million tax liability.

But the synthetic fuel business provided $57 million in credits, adding $40 million to the pre-tax income for an operating profit of $87 million.

The synthetic fuel is produced from waste coal that has been discarded because it's too small or has some other defect, according to George Barry, principal with Foss & Co., a San Francisco-based firm that sets up tax credits for corporations.

The waste coal is cleaned, crushed and mixed with a binding agent, such as tar. The coal stew then is compressed into briquettes or pellets. The finished product is designed to burn hotter and throw off more energy than standard coal.

While such tax advantages as affordable housing credits are widely known, the synthetic fuel credit remains a rarity, especially for a hotel operator.

"I haven't seen any other companies use it," said Bryan Maher, analyst with Credit Lyonnais. "At first we said 'what are they doing getting into the fuel business?' But they've been very upfront with its impact, so there is less skepticism about it now."

Indeed, in its first-quarter earnings release, Marriott separated the impact of the fuel business in the first paragraph. In the second quarter, the company expects a profit of 46 to 49 cents a share, 9 cents of it from the fuel business.

Analysts also include the impact of the fuel business in their estimates, according to research firm First Call.

One limit on the use of the synthetic coal tax credit is the small number of plants able to produce the refined product. Foss & Co.'s Barry says there are only about 40 facilities across the U.S. that can make coal that meets the credit guidelines in the Internal Revenue Code (IRC), and Marriott owns four of them.

While the use of credit may be a boon to Marriott's bottom line, most experts agree that running a business so different from its core operations, and at a loss, does carry some risk.

"Absolutely there's risk, " Foss & Co.'s Barry said. "But it's easier to think of it as an investment, and most investments carry risk."

William Marks, analyst with JMP Securities, said Marriott's risk from the fuel business remains slight. "It's a hotel chain, but they don't have hotel people operating the coal business."

Despite the coal operation's loss, Marriott has seen some appreciation from its original investment to buy the plants.

The company bought its four plants in October 2001 for $46 million and began operating them in the first quarter of 2002. Marriott recently agreed to sell half the operation to an investment bank for $25 million, plus future payments based on the amount of synthetic coal produced.

A Marriott spokesman would not disclose the bank purchasing the interest.

One potential snag that could hit the operation is that the plants might fall out of compliance with the Internal Revenue Code's provision for the tax credit.

"Firms that apply for this type of credit are very careful and have a conservative structuring," Barry said. "They typically get a letter from the IRS saying 'based on what you have told us about the plant, process and chemical change, this qualifies under Section 29 [the alternative fuel provision] of the IRC."

The sale of the 50 percent interest will lessen Marriott's tax credits in future quarters, but it also will remove some of its risk. Should the plants fall out of conformation with the tax code, the firm would have to absorb only half the loss from operating them.

And although the fuel business has given Marriott a boost recently, the impact has a limited shelf life. The tax credit expires in 2007, which will separate the cozy relationship between hotels and coal.