Hedgeye - MAR Q2 2014 - EARNINGS PREP

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

Q2 2014 CONSENSUS ESTIMATES

MANAGEMENT GUIDANCE

Q2 2014:

Comparable systemwide RevPAR on a constant dollar basis:
- North America, Outside North America & Worldwide +4% to +6%
Total fee revenue: $440-$450 million
D&A: approx. $30 million
G&A and other: $165-$170 million
Operating income: $300-$320 million
Gains & other income: approx. $0 million
Net interest expense (net of interest income): approx. $25 million
EPS: $0.63-$0.68

FY 2014

Comparable systemwide RevPAR on a constant dollar basis:
- North America: +4.5% to +6.5%
- Outside North America: +4% to +6%
Total fee revenue: $1,665-$1,705 million
D&A: approx. $130 million
G&A and other: $640-$650 million
Operating income: $1,105-$1,165 million
Gains & other income: approx. $5 million
Net interest expense (net of interest income): approx. $100 million
EPS: $2.39-$2.53
Tax Rate: 32%

QUESTIONS FOR MANAGEMENT

Views on share repurchases given stock strong performance?
Where are inflation pressures negatively impacting margins?
Gaylord: update on booking trends, acceptance into the MAR group bookings channel; performance relative to expectations and how many Gaylord assets can the US support?
Update on the Protea acquisition, integration, cost saves and profit contribution?
Discuss the roll-out of AC Hotels in the US - are you having to offer key money or incentives to franchisees? How is MAR using income guarantees to promote adoption of the brand? Last quarter 28 were approved and 40 were in discussion.
Discuss the global roll-out of Moxy - why would a developer opt for Moxy over Marriott or Courtyard? Had 12 in pipeline with first hotel expected to open later this year.

RECENT MANAGEMENT COMMENTARY

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% of Protea's rooms, franchises approximately 39%, and leases approximately 16%.
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.

Overall

Given strong transient and group demand, intentionally reducing government occupancy in many markets.
The way transient and group grow in an economic recovery, group doesn't really, on a sustained basis, outperform transient until transient begins to weaken.
Sees strength in corporate and leisure transient businesses.

Transient

Very strong transient trends and improved group bookings have increased MAR's RevPAR growth outlook modestly in 2014.
Hopeful transient business continue to grow faster than group.
Courtyard benefited from the strong transient demand.

Group

Second quarter group booking pace in North America for the Marriott brand is modestly higher year-over-year, despite the timing of Easter, and see strength in corporate and leisure transient business.
Group always takes a bit longer to come back than transient business
Group business is building - three months ago, MAR's 2014 North American group booking pace for the Marriott brand was up just over 4%. Today, it's over 5%.
Corporate group pace is even stronger.

Washington DC

While we haven't seen an upturn in U.S. government business, government demand seems to be stabilizing and comparison should get easier as the year progresses.
Government group business, the comparisons get dramatically easier in the second half of the year compared to the first. So, government business stayed and paid in the second half of 2014 compared to the second half of 2013 could be up meaningfully, maybe 10% or some number like that wouldn't be surprising.

Europe/Middle East/Africa

Expect low single-digit growth in RevPAR in both Europe and the Middle East and Africa regions, held back by disruption in Russia, continued weak demand in France and ongoing weakness in Egypt.

Caribbean/ Latin America

Anticipate RevPAR will increase at a double-digit rate in the second quarter in the Caribbean and Latin America, as we benefit from strong demand in Mexico, the Caribbean and Brazil.

Asia Pacific

RevPAR should grow at a mid single-digit rate, reflecting strong results in most markets

G&A

Capital Allocation

Approx $1.25 billion to $1.5 billion could be returned to shareholders through share repurchases and dividends and expect to continue to repurchase shares in 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 quarter end, worldwide pipeline stood at over 200,000 rooms with nearly 40% already under construction.
In the U.S., across all our brands, have a 10% share of existing rooms, but nearly a 25% share of industry rooms under construction.
Overall development pipeline still favors smaller markets.
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