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MAR 2Q 2013 CONFERENCE CALL NOTES

Weakest quarter/guidance of the bunch

"We were pleased with our second quarter results and believe they reflect the core strength of our business model.  Modest economic growth combined with historically low supply increases in the industry helped us post 5.2 percent systemwide REVPAR growth in North America.  Both business and leisure transient demand were strong in the quarter, more than offsetting weak short-term group business.  As occupancy rates reach 2007 peak levels for many brands, room rates are moving higher, improving hotel profitability and incentive fees.

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

CONF CALL NOTES

  • Transient REVPAR: +6%, remains strong; rose 7% in March/April, 6% in May, 7% in June
  • Leisure business was hot
  • Group REVPAR: +17% in April, -1% in May, -5% June
  • Large convention hotels were particularly impacted by weak group demand
    • Bookings for rest of 2013: up 17%
  • Encouraged by long-term bookings
  • Corporations are cautious on discretionary spending
  • DC/Boston - group bookings very weak
  • Ex DC, NA REVPAR would have been +6.5%
  • Boston REVPAR 1%
  • Increases in meeting space supply
  • 2% group will come from DC
  • Don't believe group dynamics is a systemic issue
  • Adding resources to large meeting sales force
  • Encouraged by improvements in Europe; France/Russia led the way; 3Q comps in London will be difficult - but seeing signs of improvement in 4Q (also easier comps in 4Q)
  • Greater China - REVPAR +1% - gained 6% in market share
  • Middle East:  REVPAR +11% 
  • North America/Europe outlook:  steady as she goes
  • Tightened REVPAR forecast
  • Already have two 2 dozen AC hotels under discussion - look to sell assets when timing is right
  • 2Q - signed 16,000 new rooms
  • Beginning in June 2014, expect royalty fees for new and relicensed Fairfields to increase from 4.5%-5% of room revenue to 5.5%-6% of room revenue
  • Development environment for full-service remains challenging
  • Owned/leaser: 2 cents of higher than expected termination fees
  • JV impairment cost 1 cent
  • US incentive fees increased +35%
  • 100-150bps of margin improvement for 2013
  • Termination fees: $13MM vs $14MM
  • Shift in calendar will add $26MM in operating income; -$64MM in operating income impact in 4Q
  • 3Q 2012 -  $5MM positive litigation settlement
  • Group bookings flattish; 6% group bookings pace for 4Q 2013; 95% booked for 2013
  • Will have renovation disrutpions in leased hotels in 2H 2013
  • 4Q G&A guidance will decline significantly

Q & A

  • 2014 group pace:  revenues +2% 
  • Govt:  hopefully it's the worst; group and transient in decline; about 2% of business
  • No decisions made on bringing Moxy to US; 1Q 2014 brand launch
  • Spain getting worse and worse
  • 2013 guidance SG&A:  mostly due to noise in 2Q; 'steady state 5% SG&A increase'
  • Affordable Care Act delay - high single digit increases for healthcare costs for 2014. Double that rate in 2015
  • China:  tough 1H 2013 comps but comps will ease in 2H 2013; affected by austerity, some softening of economy, China/Korea/Japan island disputes; supply growth will be fairly high
    • Gained 6% in market share
  • Change in room opening guidance was due to pipeline timing
  • To get to 7% 2013 REVPAR guidance would require a spectuaclar 4Q
    • expect 5%ish REVPAR for rest of year
  • London asset:  open in 1st half of Sept - may sell it a year after opening
  • $1-1.5MM adverse FX effect in 2Q; FX more onerous in 4Q; 2013 FX headwind will be $6MM
  • 2013 incentive fees:  US 48%: 52% international
  • International incentive fees flat in 2Q
  • Diluted Share count at end of Q2:  310MM
  • Leisure/higher end have been doing well; occu and REVPAR at peak levels
  • 2014 Marriot brands booked 50%
  • AC hotel opportunity in US is 'substantial' - more urban feel; new additions are all mgmt contracts