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Hard to poke holes in the quarter and conference call commentary. Maybe incentive fees could've been a little better but overall MAR is executing operationally and from a shareholder perspective.

PREPARED REMARKS

  • Past few weeks sensing tremendous optimism across all markets, all segments, all geographies
  • 30% of Industry big box (more than 1,000 rooms) development is under MAR brands  
  • Overall supply growth in NA market remains low due to tight financing, high construction costs, but CMBS market opening and banks interested in lending to limited service hotels due to higher  yields.  
  • 65% of NA pipeline hotels outside top 25 markets
  • AC hotels: 28 approved in US and 40 under discussion
  • Moxy: 12 in pipeline, first will open later this year, expect >100 Moxy assets in 10 years
  • Building three hotels in Brazil should be $150-$200 million over next three to four years with recycling sometime after opening.
  • Mexico: strong capital markets and new lodging REITs stimulating limited service development and MAR has 23 hotel open and 18 in the pipeline
  • Asia/Pacific: signed more new build upper upscale and luxury rooms in 2013 that any competitor, and 2014 looks just a strong
  • India: full-service difficult, Courtyard and Fairfield brands have 4,000 rooms in development
  • China: 25,000 rooms open, 35,000 in development pipeline
  • ME/Africa: Protea acquisition closed
  • 2013: 67,000 rooms signed world-wide and expect 2014 another record signing year
  • 45m Marriott Reward members = ~50% of worldwide occupancy
  • 40% of marriott.com bookings from mobile devices
  • 6 year, 800 hotel Courtyard renovation which is increasing RevPAR and contributing to profitability
  • Marriott introduced new service initiatives for meetings business, new marketing campaign, and renovating guestrooms
  • Better transient booking trends and worldwide RevPAR = higher 2Q guidance
  • Courtyard: strong transient demand, lobby & room renovations
  • Marriott Brand RevPAR +8% = 300 ADR, cancellation below trend, F&B + 5%, group outperformed competition
  • Marriott brand group RevPAR ~500 bps across North America
  • US Government - demand stabilizing but not upturn yet, reducing Gov't occupancy in many markets
  • International RevPAR results:
    • Caribbean +10%. Mexico +13%, and Resorts +10% based on strong group and cold weather
    • Japan, Indonesia, Oz, Greater China (Shanghai & HK) +7%
    • Europe +4% based on UK +5%, Germany +4%, France -4%
    • Russia -1%
    • Egypt difficult
  • House profit margins +160 bps, despite higher utility costs high due to cold
  • WW House 130 bps
  • total fees +5%, base fees stronger RevPAR and -$2m f(x), constrained by slower NYC, WDC, New Orleas marktes - expect fee growth of low double digit rate
  • G&A lower based on timing items
  • Repurchased 7m shares = 355m during Q1
  • Q2 booking pace modestly higher YoY despite Easter, strength in corporate and leisure
  • Easter shift: added 100 bps to Q1 occupancy but likely -1% in Q2
  • Caribbean/Lat Am: double digit
  • Asia/Pac: mid single
  • Europe, Middle East, Africa, Russia, France & Egypt: low single digit growth
  • Group pace for Marriott during Q4 2013 was +4%, today +5% corporate even stronger
  • Pretea:  will add ~$15M and $7M of depreciation
  • G&A flattish
  • FY 2014 Adj EBITDA +9% to +13%
  • recycle 600-700m from asset sales and loans

Q&A

  • Why were fees not higher given RevPAR results?  Incentive fees are lumpy, greater weakness in WDC and NY which are strong fee earning markets, new supply in NYC negatively impacting results  Thailand RevPAR -20% in Q1 and impacted fees
  • Edition construction costs - believe fully reflective
  • Potential for big acquisitions to jump start AC, Edition, Proteia?  Today pleased with new platforms for growth and outlook - open Miami and Clock Tower in NTM, more hotels in pipeline.  AC brand is sizzling in the US (30 signed and 40 in discussion) will see higher level of activity.  Pleased with Protea, Gaylord and AC - each is own story.  Maybe a little early in Spain.  Protea good because 10x multiple and will add accretion impact but also leadership team will bring accelerated growth across Africa.
  • Wintrop won't impact MAR.
  • Protea leased assets, look to sell over time - prefer management contracts vs. leases because leases difficult to recycle, do not prefer lease transactions but like variable and revenue share lease with Protea.
  • Development in Brazil on/off balance sheet - 3 assets on MAR balance sheet. Seed select service in Sao Paolo (Fairfield) and Rio de Janiero (2 Courtyards) and already signed several new management contracts.
  • Brazil - Rio is perplexing...5 hotels open, 10 hotels in pipeline, not seeing strength for limited service brands, akin to investing in new growth platforms
  • Share repurchase - scorecard: in the middle of the cycle, not the end.  No comments on 15/16 guidance, but drivers of growth - revpar, unit growth, G&A, great capital leverage to continue for next several years, thus convinced stock is reasonably priced and a strong buy today vs. outlook and macro environment.
  • Government comps - see easier comps due to actions in 2013 to cut government groups during Q2, Q3 and Q4 in 2013.  Stayed and Paid in 2014 will be +10% in 2H14.  Total Gov't volume -15% as hotels yielding out Govt for higher ADR Transient.
  • Group booking trends for Q4 2014 - seeing group booking trends higher, up 5% vs. 2013 for 2013.  In Q4 2014 seeing flat, so first 3 Qtrs of 2013 trending +8%.
  • Incremental group demand, what is greater confidence by group - broad optimism.  In the US, confidence about economic recovery vs. last few years.  Less Gov't & fiscal overhang.  Corporations looking to invest in business via meetings, travel, etc.  
  • Marriott Brand Group share is up 500-600 bps, taking significant group share.
  • Raising Dividend - Board meeting in May, historically raise dividend in line with growth...payout ratio 30-35% of earnings.  Not anticipate a meaningful shift of capital from share repurchase to higher dividends.  Shareholders PREFER consistent return of capital to shareholders but mixed view on methodology and mix.
  • Group vs. Transient and RevPAR performance - 1 year ago discussion of secular shift away from group to transient, MAR rejected those conversations, but today evidence illustrates Group is recovering as it has in the past -- but slightly more modest recovery because RevPAR recovery has been slower this time.  Group doesn't outperform until Transient weakens.  Want to see Transient continue to outperform.
  • NYC vs North America - supply related and is there a segment difference?   For MAR, Q1 2014 RevPAR 1%.  Difficult comps to Hurricane Sandy and potentially some negative weather, surprised how little impact weather impacted Nationwide RevPAR but negative Chicago and NYC RevPAR.   NYC supply growth of 10% and occupancy still runs 85%.
  • Where in the cycle re-evaluate share repurchase as well as leveraging cash flow and ebitda over the cycle - historical view of holding cash (actually increases WACC) and thus view of buying stock into cycle downturn (2007), entered downturn at 3.5x debt/ebitda, was 5x in 09 and stock was $11 but didn't have powder to buyback the stock.  General approach increase nominal debt but not leverage levels 3x - 3.25x but sensible to bring down to 2.75x - 3x
  • When will limited service developments open the US - 65% of signings today outside top 25 MSAs; new limited service supply open in 2015 but not seeing full-service supply growth
  • Close Miami Edition sale, shortly after opening in Q4 2014, then close on sale of NYC Edition ClockTower in Q1 2015.
  • How frame Rate vs. Occupancy for remainder of 2014 -  occupancy higher in Q1 due to Easter shift, interested and focused in driving rate.
  • Managed Hotel Incentive Fees - where expect end of 2014.. inching or hockey-stick higher?  Good start with 300 bps increase in Q1, expect IFs to continue to grow, not yet growing 20% - still a challenging line to guide.  Expect low double digit growth rate for 2014 full year.  More comments at September analyst meeting.
  • Group commitment to higher F&B spend - Q1 actual +8% vs. RevPAR, Group F&B +10% and Outlets +7%.  F&B budgets finalized just prior to group arrival.
  • Operating margin growth of 160 bps in line with plan and how view for remainder of year - Q1 margin performance modestly better than forecast despite higher utility costs in Northeast, still keenly focused on expanding margins.