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Takeaway: RevPAR may be moderating faster than expected

Management surprisingly bullish but we would fade that

"Pricing power continued to improve in the quarter as hotel occupancy levels approached prior peaks. Looking ahead, we expect 2013 worldwide constant dollar REVPAR to increase at a mid single-digit rate despite moderate economic growth in many markets around the world. We are particularly bullish about our prospects in North America"

- Arne M. Sorenson, president and chief executive officer of Marriott International


  • Our 3Q was terrific. EPS was 4 cents higher than mid-point expectations. 
    • Favorable residential branding fees and termination fees contributed an extra penny.  
    • G&A line was benefited by 2 cents from better cost control and net litigation settlement. Lower than expected work out costs added another 3 cents.
    • Offsetting the above benefits, higher taxes and lower gains due to an asset impairment hurt them by 2 cents
  • Transient RevPAR was up 6%, largely driven by rate.  In particular, MAR saw stronger demand from technology and professional services companies.
  • Meeting planners spent more on F&B and have more last minute upgrades
  • Saw a double-digit RevPAR growth in: Boston, Philadelphia, New Orleans, Orlando and Los Angeles. 
  • Manhattan RevPAR rose 5% despite more supply
  • DC saw a 5% increase in RevPAR largely due to strong leisure and group demand
  • RevPAR in the ME benefited from easy comps and strong results at their Red Sea results
  • Asia Pacific saw much stronger business in Hong Kong, Tokyo, Indonesia, and Thailand
  • Incentive fees in NA more than doubled.  16 properties that didn't earn fees last year contributed $2MM of fees this quarter.
  • G&A: Lower energy costs and continued efficiency improvements
  • Continued to build market share in the US as measured by rooms.  According to STR, they have 10% of open rooms in the US and 20% of the construction pipeline.
  • 4Q outlook/guidance commentary: 
    • Quarter will have more of a benefit from business travel
    • Group booking pace is up almost 9%.  However, the election and a mid-week Halloween will likely negatively impact close-in bookings.
    • Europe:  expect a low single-digit increase in RevPAR, reflect economic weakness and absence of special events
    • Caribbean:  Low single-digit RevPAR growth; seasonally slow with only modest leisure demand
    • M&E:  Group business was surprisingly good last year and the comps are more difficult. Forecasting mid-to-high single digit RevPAR growth
    • Asia Pacific:  Forecasting mid-to-high single digit RevPAR growth
    • Fee revenue guidance assume lower re-licensing fees
  • Issued bonds given the low yields.  Increase their interest expense by $4MM in 4Q.
  • 2013 outlook: 
    • Assume that there will be some solution to the fiscal cliff
    • Government announced flat per diems.  Luckily, their business is strong enough that they can replace most of this business with higher rated business.  They still expect DC RevPAR to grow mid-single digit next year.
    • Low supply and peak occupancy level positions them well to drive higher rates
    • Meeting planners and transient guests are booking earlier and in some cases for multiple years
    • Expect NA to be steady as she goes, representing 75% of their fee revenue
    • Europe represents 9% of their fee revenue:  difficult event comps, supply is increasing faster than the US in some cities where they have distributions.  Expect flattish constant dollar performance in 2013.
    • Asia:  2013 RevPAR should reflect higher supply growth in some cities and lower inbound travel from Europe. RevPAR to increase in a mid-high single digit range.  In 2012, this region accounted for 9% of fee revenue.
    • Caribbean & LA: mid-single fee growth in 2013.  Region represents 5% of their fees.
    • ME: Assuming mid-single digit constant dollar RevPAR growth in 2013.  Region represents 2% of fees.
  • Expect hotel industry operating margins won't return to peak levels until at least 2014-2015
  • Transactions for properties are increasing.  Good opportunity for conversions.  Expect conversions to account for 50% of room openings.
  • Most of the 13,000 rooms they signed this Q will open between 2014-2016 and about 50% are outside the US
  • Welcoming the Essex House back to Marriott. They owned the property until 1994. It entered the system in September and is currently under renovation.  


  • Both Salesforce One ("SFO") and Group exposure is helping the Marriott brand in NA outperform.  They are 5 quarters post roll-out of SFO.  They are seeing great results from their efforts.
    • Hedgeye has gotten a lot of negative feedback on SFO from franchisees
  • GET's challenge is getting economies of scale around reservation systems.  Those will be the easiest places to get savings.  Fee potential of those hotels is very strong.
  • Why is the outlook for 2013 below their 3 year outlook of 6-8% given a few months ago?
    • 6-8% is a relevant range for their "model" 
    • As they get closer to 2013, they are on balance a bit more cautious then they were this summer in Beijing.  Particularly on GDP growth. Thinking 2%-ish GDP growth is in their forecast now
    • What they are seeing in the US is still very encouraging related to demand and corporate business, ability to push rate
  • China openings are about stable to where they thought they would be.  About 5 hotels opened this Q. They do see some opening slippage in Thailand and India, although it's unclear that those are related to the economy or hotel specific.  None of them are cancelled projects though.
  • Essex House guarantees:  Imply that they believe that they can get back to peak levels.  40% of visitors since being added to their systems were MAR Rewards members. Their relationships with meeting planners and databases should drive significantly more business to that property. 
  • Incentive fee growth:  Talked about a 22-28% CAGR a few months ago.  No guidance on incentive fees for 2013.  Expect that 4Q incentive fee growth will be lower than what they saw in 3Q given lower international RevPAR expectations. 
  • Booking window expansion?  Bookings in Q3 in the US for 1-year forward periods were down about 5% but bookings for 2 years out were up 10%.  Nothing to get alarmed about, it means that they are getting more capacity constrained and customers are booking further out. They are about 3% behind on RevPAR from 3Q07 and most of that is rate driven.
  • Seeing a modest increase in demand from their special corporate customers but they are obviously very early in the negotiating process
  • Forward group bookings and feedback on corporate negotiated rates give them confidence on achieving 5-7% RevPAR growth.  Better mix also goes into that calculation.
  • Group is about 40% for the MAR brand, so that mix impacts overall RevPAR for the brand.  Some markets that are more transient dominated like NY are influenced by strengthening dollar and increased supply.  Demand for Transient still looks good for next year.
  • The 7% increase in group bookings is really like 7.5% so it's really close to the +8% they saw last Q
  • The management business is more Group reliant and more concentrated in urban markets.  That's why their results are a little stronger than the franchised portfolio.  
  • Lower G&A in the quarter and read through for 2013:
    • They saved a penny through cost discipline
    • Saved 3 cents on the work-out (a one-time item) - they didn't anticipate this outcome. 
    • Expect a 3% increase in G&A YoY 
    • In the 4Q11, they had a $5MM one-time item that's helping the comp.
  • They wrote down an investment in a partnership by $7MM because values dropped
  • Group nights on the books are about the same as this time last year.  About 2/3rds of business should be on the books for 2013 at the end of the year.  Suspects that they may be 1-2% above when the year ends. 
  • Special Corporate is about 12-15% of their US Marriott brand business. 
  • They are still, on balance, pleasantly surprised about the numbers coming out of Europe. It's possibly that they keep chugging along at this pace for next year, but the loss of Olympics and other special events will cost them about 2%. 
  • How do they think about leverage?  Same: 3-3.25x.  They like repurchases over dividends because it gives them the ability to adjust capital returns based on the environment. Even though expectations are modestly reduced for 2013, they don't see a major shift that would make MAR change their leverage targets.  They are "modestly" a little less bullish.
  • NYC:  They think that NYC will perform in-line with other top US markets.  On the negative side, supply growth is on the high side. They do think that they should be able to absorb the new supply coming online.
  • What to expect about hotels leaving the system?  They think that 1.5% of the system is the right kind of deletion number going forward. There are different reasons for hotels leaving the system. They are comfortable having hotels on the low end leave the system.  Last Q they took out 4 hotels in Thailand. They took out 200 rooms from a hotel in Beijing because the owner wanted to convert some of the rooms to residential. This Q, Doral Miami left the system because they were going through a bankruptcy and they received a substantial termination payment. 



  • In 3Q12, MAR completed the sale of its equity interest in the Courtyard joint venture resulting in cash proceeds of $96MM and a $41MM pre-tax gain
  • At the end 3Q, MAR's "worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled over 120,000 rooms, not including the 8,100 rooms from the acquisition of the Gaylord brand and hotel management business"
  • In 3Q, Marriott added 35 new properties (4,874 rooms included 1,400 conversions & 1,600 international rooms) and MAR signed nearly 13,000 rooms.  Thirteen properties (3,103 rooms) exited the system during the quarter." 
  • Repurchased 9.6MM shares for $35MM during the quarter. 
  • "For comparable Marriott Hotels & Resorts properties in North America, group room revenue increased 8% in 3Q" with ADR up 3%.
  • "Transient REVPAR rose 6% with strong last-minute retail demand and reduced discounting."
  • "We expect 2013...North American systemwide REVPAR to increase 5 to 7 percent in 2013"
  • "Negotiations for special corporate business are already underway and we are targeting room rates to increase at a high single-digit rate."
  • "Group revenue on the books for 2013 for the Marriott brand in North America is up over 7% with rates up nearly 4%"
  • "We expect to add 28,000 rooms in 2012, 30,000 to 35,000 rooms in 2013 and 90,000 to 105,000 for the three-year period from 2012 to 2014. Our market share of hotels continues to grow around the world.”
  • "Base management and franchise fees rose 9%... reflecting higher REVPAR at existing hotels and fees from new hotels, as well as $7MM of deferred base management fees recognized in the quarter related to the sale of the Courtyard joint venture."
  • "In the third quarter, 28% of worldwide company-managed hotels earned incentive management fees compared
    to 24% in the year-ago quarter."
  • "Owned, leased, corporate housing and other revenue, net of direct expenses, totaled $26MM....The $9 million decline reflected a $7MM decline in termination fees and a $2MM decrease in residential branding fees."
  • SG&A & other declined 8% to $132MM, reflecting a favorable litigation settlement, partially offset by higher legal expenses, netting a $5MM favorable impact. 
  • The $41MM gain on the Courtyard JV sale was partly offset by a $7MM impairment charge on investment
  • Capitalized interested totaled $7MM compared to $5MM last year.