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
- 2010E:
- 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