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
  • 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


  • 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

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