MAR Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

Q1 2014 CONSENSUS ESTIMATES

• Total revenues:  $3,299 million

o Owned, Leased:  $232 million

o Franchise Fees:  $167 million

o Base Mgmt Fees: $158 million

o Incentive Mgmt Fees:  $69 million

• Adjusted EBITDA:  $326 million

• EPS:  $0.51/share

 

MANAGEMENT GUIDANCE

Q1 2014:

• Comparable systemwide RevPAR on a constant dollar basis:
• North America: +4% to +6%
• Outside North America: +3% to +5%
• Worldwide: +4% to +6%
• Total fee revenue: $380-$395 million
• D&A: approx. $30 million
• G&A and other: $155-$160 million
• Operating income: $235-$255 million
• Gains & other income: approx. $5 million
• Net interest expense (net of interest income): approx. $30 million
• EPS: $0.47-$0.52

FY 2014

• Comparable systemwide RevPAR on a constant dollar basis:
• North America: +4% to +6%
• Outside North America: +3% to +5%
• Worldwide: +4% to +6%
• Adjusted EBITDA in the range of $1.425B to $1.495B.
• Total fee revenue: $1,650-$1,700 million
• D&A: approx. $120 million
• G&A and other: $640-$650 million
• Operating income: $1,090-$1,160 million
• Gains & other income: approx. $10 million
• Net interest expense (net of interest income): approx. $110 million
• EPS: $2.29-$2.45
• Tax Rate: 32%

QUESTIONS FOR MANAGEMENT

1. Views on share repurchases given stock strong performance?
2. Where are inflation pressures negatively impacting margins?
3. Update regarding Gaylord booking, acceptance into the MAR group bookings channel?
4. How is Gaylord performing relative to expectations?
5. What insight from the Protea acquisition during the first four weeks of integration and operation?
6. Which part of your business is trending below plan and why?
7. How is Europe looking for this coming summer?
8. Which parts of the World are experiencing weakness?
9. Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, also MGM indicated ITYFTY is their friend in 2014, how does that compare with what the company is seeing for transient or ITYFTY bookings?

RECENT MANAGEMENT COMMENTARY

Financial statement adjustments

• Beginning in the first quarter of 2014, the company will reclassify depreciation and amortization expense from “Owned, leased and corporate housing -direct” and “General and administrative and other” and present it as a separate line item on its Consolidated Statements of Income for all periods presented.

Protea Acquisition

• April 1, 2014, completed the acquisition of Protea Hospitality Group covering 116 hotels and 10,148 rooms in seven African countries.
• The company paid approximately $200 million at roughly 10 times anticipated pro forma 2014 calendar year EBITDA
• Marriott now manages approximately 45 percent of Protea's rooms, franchises approximately 39 percent, and leases approximately 16 percent.
• Protea's pipeline is more than 65 hotels and 14,300 rooms, including more than 20 hotels and 3,000 rooms in Sub-Saharan Africa
• Protea Hospitality Group created an independent property ownership company that retained ownership of the hotels PHG formerly owned, and entered into long-term management and lease agreements with Marriott for those hotels. 
• The property ownership company also retained a number of minority interests in other Protea hotels.

Transient

• Transient business comes back more quickly than group and transient has rebounded in a very similar way in this lodging recovery as prior cycles

Group

• Group REVPAR at the Marriott brand rose over 4% in Q4 compared to the year ago quarter, with group room rates up nearly 3%
• Future group business looks even brighter
• Group booking pace for the Marriott brand for 2014 is up over 4%, about the same as we reported in September and corporate group pace is up nearly 10%
• Record levels of group business confirmed and booked in December 2013 - and that gives us further bullishness that group is doing what it should do as the economic cycle matures and that is, it’s coming back. Hopefully, we’ll see those trend lines continue in early 2014.
• Corporate demand is quite short-term, the trend is very encouraging for 2014
• 60% of 2014 group business is already on the books
• Expect system-wide RevPAR at North American hotels will likely increase at a 4% to 6% rate in 2014, with the improvement largely coming from rate.

Washington DC

• Washington suffered from, well, being Washington

Europe

• Signs of improved economic growth

ME/Africa

• REVPAR growth was strong in Kuwait and Dubai, but we saw significant REVPAR declines in Egypt

Caribbean/ Lating America

• Good leisure business and group demand drove results in the Caribbean and Cancun reported double-digit REVPAR growth
• Panama continues to report lower REVPAR due to oversupply

Asia Pacific

• Expect mid-single-digit constant-dollar REVPAR in 2014, constrained a bit by recent supply growth
• Government austerity measures intensified in Beijing, reducing food and beverage revenue

G&A

• In 2014, expect G&A to be flat to down 2% YoY
• In 2014, we are going to be more maniacally focused on managing G&A dollars

Capital Allocation

• Approx $1.25 billion to $1.5 billion could be returned to shareholders through share repurchases and dividends and we expect to continue to repurchase shares in 2014.
• As of February 18, 2014, Marriott repurchased 5.0 million shares of its stock for $246 million.
• On February 14, 2014, the board of directors increased the company’s authorization to repurchase shares by 25.0 million shares for a total authorization of 34.3 million shares as of February 19, 2014.

Investment Spending

• Investment spending in 2014 will total approximately $800 million to $1.0 billion, including approximately $150 million for maintenance capital spending
• New mezzanine financing and mortgage notes, contract acquisition costs (including the approximately $200 million payment associated with the Protea transaction)

Additions/Attritions/Cancellations

• At year-end 2013, MAR’s worldwide development pipeline increased to over 195,000 rooms, including nearly 30,000 rooms approved, but not yet subject to signed contracts
• The company anticipates gross room additions of 6% worldwide for the full year 2014 including the Protea hotels.
• Net of deletions, the company expects its portfolio of rooms will increase by approximately 5% by year-end 2014.

Asset Sales

• January 3, 2014: total purchase price for the three EDITION hotels ( sold the London EDITION, and signed binding agreements for the sale of two other company-owned EDITION hotels currently under development in Miami Beach and Manhattan) is approximately $815 million, roughly equal to the aggregate estimated total development costs of all three hotels. The hotels will each be operated by Marriott under long-term management contracts with their new owners, which are companies ultimately owned by the Abu Dhabi Investment Authority. Marriott expects to convey each hotel individually to the new owner after construction is complete. he residential component of the Miami Beach EDITION was not included in this transaction. Marriott will retain ownership of the residential units pending their sale to individual purchasers.
• January 30, 2014: sold its leasehold interests in the Renaissance Barcelona Hotel to an affiliate of the Qatar Armed Forces Investment Portfolio (QAFIP) for approximately €78 million including €45 million ($62 million) cash and the assumption of €33 million ($45 million) of related obligations.  The hotel will continue to be operated by Marriott under a long-term management contract.