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Marriott Americas Division Commentary + Q&A

Introduction:

  • NYC: There have been 8k net room additions of hotel rooms since 2008 & 2009, occupancies are up 7% from 1H 2009
  • Net new rooms by 2013: 669-679k from an estimated 608k at year end 2010
  • 21-28% return on invested capital over the next 3 years

Bob McCarthy – Group President of the Americas

  • Competitive advantages: Leading brands, global scale/ leverage, and culture
  • Have grown from 67,000 rooms in 1985
  • 70% of their full service room pipeline is outside of the USA
  • Room refreshes underway and estimated to be completed by 2013:
    • Full service - 153 complete:  increased RevPAR vs. index by 3.2%
    • Courtyard - 200 complete: increased RevPAR vs. index by 7.6%
    • Springhill - 49 complete:  increased RevPAR vs. index by 2.2%
    • Residence Inn – 80+ complete:  increased RevPAR vs. index by 10.5%
  • Have changed their global sales strategy by aligning sales force by customer vs. by property
  • Estimate that annual growth in travel and tourism demand will grow 7% globally from 2009-2019, and 13% in BRIC countries
  • Have 33MM MAR rewards members and account for 50% of room nights
    • Use the data to market to existing members and increase their share of wallet (e.g. when someone is close to the next level of reward status)
    • 7.4MM members are non-US based (close to 25% of which are non-European/mostly Asia)
  • Their reservation systems is the most effective distribution in the industry:
    • $27BN in room revenues
    • 45.4% sales conversion rate
    • Highest contribution to occupancy & lowest transaction costs
  • marriott.com site represents 85% of their internet reservations
    • 8th largest consumer retail site by gross sales
    • $5.6BN of sales in 2009
  • Average tenure of managers is 11 years at MAR

Tony Caputo: Executive VP of Global Development

  • Global Footprint: Impact of distribution:
    • Aims to be in all markets where their customers travel
    • Provides lender comfort
    • Economies of scale help drive owner returns
  • 60% of their developers are located internationally
  • Global footprint:
    • 493,000 rooms in NA (4.2 average hotels/owner)
    • 47,000 rooms in Asia Pacific (1.5 average hotels/owner)
    • 41,000 rooms in Europe (2 average hotels/owner)
    • 17,000 rooms in LAT/SA/Caribbean (1.5 average hotels/owner)
    • 10,000 rooms in M.E. & A (2 average hotels/owner)
  • Use their capital to fuel growth through:
    • Loans, minority equity, guarantees, key money
    • 25,000 rooms in their pipeline were enabled by some kind of MAR investment
    • Committed $400MM of capital and $80MM of guarantees to enable their pipeline
  • Average Contract Terms
    • 20-30 years
    • Rarely terminable on sale or termination at will
    • Average years remaining on contract
      • NA: 18 years (22 for Full Service)
      • Caribbean & Latam: 27 years
      • Europe: 25 years
      • ME&A: 15 years
      • Asia Pacific: 20 years
  • Expect to have 15-20 Autograph & Edition hotels open by 2010
  • Gross 80-90k pipeline opening by geography through 2013:
    • NA: 49%
    • Europe: 11%
    • Caribbean & LATAM: 9%
    • Asia Pacific: 19%
    • ME &A: 12%
  • Gross 156k pipeline opening by geography from 2006-2010E:
    • NA: 74%
    • Europe: 7%
    • Caribbean & LATAM: 4%
    • Asia Pacific: 14%
    • ME &A: 1%

Dave Grissen: President, Americas

  • Growth in NA:
    • Low supply advantage (estimate that current demand is 1% > supply)
    • Margin improvement
    • Unit growth through FS conversions and limited service franchising
  • Forecast for NA RevPAR company operated Marriott hotels:
    • 2010E:
      • Room Rev: $108
      • Other revenues: $63
      • House profit margin: $56
    • 2013 Base case (7% RevPAR):
      • Room Rev: $132
      • Other revenues: $75
      • House profit margin: $80
  • Property cost savings specific:
    • Carved off hours of operations (eliminated non-peak)
    • Downgraded to cheaper F&B sourcing
    • Cut back of the house costs
    • Renegotiated vendor contracts
  • House profit margin for 2010E (32.6%) vs. 2007
    • Rooms : -540bps
    • Wages and benefits: -1.5%
    • Food & other procurement cost leverage: 0.8%
    • Controllables: +1.4%
    • Utilities: -0.8%
    • Expect 2013 margins Base case: 38.6%
      • Rooms : +320bps
      • Wages and benefits: +0.2%
      • Food & other procurement cost leverage: 0.6%
      • Controllables: +1.5%
      • Utilities: +0.5%
  • Operating efficiencies:
    • Rolled out core standard menus
    • E-procurement
    • Centralized engineering service model (sometimes share teams with several hotels)
    • Other: housekeeping/ flatter management structure model and standardization for adding new staff/ rooms preventative maintenance
  • Autograph:
    • Anticipate 15-20 new units per year
    • 35% Membership rewards penetration in 2010
  • OTA’s penetration of their bookings have declined to 4% from 11%
  • Limited brand growth (gross) through 2013: 23-26K
    • Residence Inns: 22%
    • SpringHill: 18%
    • Fairfield: 25%
    • Courtyard: 24%
    • TownPlace: 11%
  • Total NA rooms growth projected to increase from 493,000 at 2010E to 516-520k rooms by 2013

Q&A

  • Gross room growth of 80-90k rooms excludes 10k rooms in Asia, related to identified preliminary deals
  • Broadly, they aren’t assuming that they will have any significant new builds for full service hotels in NA
    • There is some new capital “leaking out” for limited service higher quality brands like MAR
    • Mostly FS growth will come through conversions
  • Every room in Asia Pacific pipeline is managed, Europe is almost all franchised; in NA, the rooms are more oriented towards managed vs. franchised.
  • Issue of amenity creep in prior recoveries?
    • Lots of it is a competitive response and based on customer feedback. Right now it’s not an issue.
  • From a demand standpoint, they are still very GDP driven. They were pleasantly surprised how fast business demand came back this year.
  • Expect healthcare cost to grow barely under double digits in 2011. Will see additional pressure in 2012 & 2013. Expect 2014 to really hit them with double digits. 
  • 3 reasons why they feel great about Autograph growth:
    • Power of the system
    • Positive impact on margins by shifting to their reservation system
    • Strength of owner support structure