Marriott Mgmt Commentary + Q&A
Kevin Kimball: Executive VP, Global Business Finance
- Base Fees estimated to growth to $770MM under the 7% revpar case
- $90-95MM coming from new units
- $635MM -$710 coming from existing (560-563MM in 2010)
- Franchise fees estimated to growth to $590MM (base case)
- $80-85MM coming from new rooms
- Incentive fees were $145MM in 2007 vs. $43MM in 2009
- In 2007, House Margins were $52/room vs. only $30/room in 2009 on RevPOR of $206 and $168, respectively
- Under the base case (7%): RevPOR = $207 with Net House profit margins increasing to $51MM; in which case, total incentive fees would increase to $110MM
- When owners invest more money in the hotel (renovations/ etc) hurdle is increased
- Newly owned hotels take 2-3% to earn and owners priority
- In 2010, only 5% of their NA limited service hotels are expected to pay owner’s priority
- Because they are in large portfolios where results are pooled before paying an owner’s priority
- More supply coming online
- Required capex investments by owners
- Expect that in base case scenario 21% of their limited service hotels will pay fees
- International incentive fees:
- 57% paying in 2010 (58% in 09, 61% in 2007)
- Expect by 2013 – 64% will pay under base case
- So worldwide incentive fees:
- 25% paying in 2010 (flat to 2009)
- 43% expected to pay by 2013 (base)
- NA incentive fees:
- $65MM in 2010
- By 2013, those same hotel earnings in 2010 are expected to generate $90-150MM in fees and additional hotels that aren’t currently paying are expected to contribute $15-65MM of fees
- Total International incentive fees of $110MM in 2010 are expected to grow to $180-225MM by 2013
- 135-160MM from hotels currently paying fees
- $5-15MM from hotel not yet paying fees but open
- $40-50MM from hotels opening from 2010-2013
- Total worldwide incentive fees of $173-177MM in 2010 are expected to grow to $285-440MM by 2013
- $225-310MM from hotels currently paying fees
- $20-80MM from hotel not yet paying fees but open
- $40-50MM from hotels opening from 2010-2013
- 2013E split of incentive fees base $345MM:
- NA FS: 36%
- NA LS: 7%
- International: 57%
- In North America in 2010:
- 10% are recording incentive fees
- Of the hotels that aren’t
- 5% need < 10% increase in House Profit margins
- 3% need < 20% increase HPM
- 10% need < 30% increase in HPM
- 70% need > 30% increase in HPM to earn fees
- In North America by 2013 (base case):
- 29% are recording Incentive fees
- Of the hotels that aren’t
- 15% need < 10% increase in House Profit margins
- 9% need < 20% increase HPM
- 7% need < 30% increase in HPM
- 38% need > 30% increase in HPM to earn fees
- Owned, leased, corporate housing revenues and other expected to increase at a 1-6% CAGR from $1,025 in 2010E to $1070-$1205MM in 2013
- Net of expense growth expected to go from $90MM to $145-$230MM
- Owned and Lease only (almost all leased):
- $820MM in 2010 of revenues and loss of $15MM in 2010 (over $750MM from leased which lost $20MM)
- Expected to grow revenues to $840-$975MM by 2013 and net of expenses: $15-$100MM
- Branding fees, corporate housing and other:
- $205MM of revenues ($75MM or so of branding fees) in 2010 and $105MM net of expenses
- By 2013 expect $230MM of revenues and $130MM of net of expenses around $85-90MM from branding fees
- G&A: 16-18% of revenues or $765MM in 2013
Carolyn Handlon: EVP & Global treasurer
- Adjusted EBITDA of $1.54-$1.94BN by 2013
- Total debt of $4.5BN by 2013 under base case (~700MM of timeshare related)
- Think that they can do a bank deal around 4%
- Other balance sheet highlights 2013:
- Contract acquisition costs: $990MM
- Equity & Cost investments: $285MM
- Notes receivable: $1,775
- Sr Mezz/other non securitized: $760MM
- Loans to timeshare owners: $150MM
- Loans timeshare owners securitized: $865MM
- FCF from 2011-2013 of $1.6-$2.1BN:
- $3.6-4.1BN of cash from ops
- $300-700MM from capital recycling
- Investment spending: 2.3-2.7BN
Carl Berquist: CFO
- Use of FCF:
- Management and franchise contract growth
- Select real estate development/property acquisitions
- Strategic opportunities in key markets
- Other ROI enhancing investments
- Maintain IG rating
- Return cash to shareholders
- Investment spending – how they will spend $2.3-2.7BN?
- New units: 73%
- Mezz, key money, sliver equity
- Refreshing/repositioning hotels: 5%
- Loan programs for franchisees to help owners renovate properties
- Systems/ Corporate: 11%
- Technology investments
- Backoffice investments
- Existing units: 11%
- Room expansions
- Repositioning owned and leased hotels
- Purchasing 2-3 hotels/year
- New units: 73%
- How will they invest?
- 55% will be in capex
- 25% note advancements
- 17% contract acquisition costs
- 3% in equity and cost method investments
- How did they invest in 2006-2008?
- 60% was in capex
- 6% note advancements
- 11% contract acquisition costs
- 2% in equity and cost method investments
- 21% in timeshare
- They expect timeshare to be cash flow generative – no net investment: from $625-675MM of FCF
- Cash flow:
- FCF of 1.6-2.1BN
- They will issue common stock & other (stock comp) : $500-900MM
- Net debt issuance: $1.2-2.3BN
- Gives them: $3.3-5.3BN for stock buybacks
- Which means that they can reduce their share count from 378 to 349-320 by 2013
- Expect to generate a return on invested capital of 21-28% and EPS growth CAGR of 20-36%
- and think that there is upside from even better REVPAR or the incremental tentative 22,000 rooms that they can potentially add to their system
Q&A
- Assume that at the midpoint of the share buyback accounts for $0.05 of the buyback
- Assume 2.5-3% GDP growth for their 7% RevPAR forecast (+/- 2% for low end and high end of their forecast for GDP)
- $500-900MM is their stock compensation plan
- Timeshare is not going to consume any capital above the cash that they generate from sales
- The share counts post buyback were weighted for 2013
- Don’t know why they add back the cost of their timeshare financing to calculate their cash flow
