CONF CALL
- Every region signed a record number of deals in 2014
- Added 5 brands in 5 years (Autograph, Moxy, AC Hotels, Gaylord, Protea)
- Edition: 2 London/ 1 Miami already open; New York Edition will open in next few months; closed Miami Edition last night
- Booked $10bn revenue on Marriott.com; nearly 20% coming through mobile
- Rewards membership: 49m (contributed 1/2 of worldwide occupancy)
- 60% new members were next generation travelers
- 40% new members are outside NA
- 2015: gross rooms growth 7% (6% net of deletions)
- Supply: STR estimates supply increased 0.9% in 2014 and expects 1.3% growth for 2015
- Have 10% share of NA rooms
- Have 26% of share for under construction market
- Expect to have more than 100 Autograph hotels open by end of 2015
- 16 Moxies in pipeline (Europe) and 5 Moxies in pipeline (US)
- Last month, approved 2 Moxy deals in Manhattan. Expect 150 Moxy hotels open by 2023.
- Aggressive expansion abroad for limited service (Residence Inn/Fairfield)
- In 2014, US htoels reported 20% increase in guests coming from Greater China
- Q4 2014:
- Higher termination fees added 1 cent
- NA systemwide REVPAR : ~7%
- Strong REVPAR in San Francisco, Pacific NorthWest, Florida
- Transient demand was strong. Nearly half of top 20 markets increased retail REVPAR by double digits
- Q4 Group REVPAR rose 6%; 4% growth in full service hotels reflecting holiday timing
- For 1Q 2015, group revenue pace up 6% while FY 2015 group pace is up 5%. Meeting planners bullish, booking windows lengthening and room rates are strengthening
- In 4Q, group room revenue booked for all future periods increased 9%.
- 2015 corporate rates will increase 5-6%
- Across US system, international guests make up only 5%. So don't see FX headwind for US business
- Expect 5-7% 2015 NA REVPAR
- Caribbean/Latin America
- REVPAR rose 8% in 4Q
- Strong leisure/good group drove results in Caribbean/Mexico
- Brazil soft
- Expect constant dollar REVPAR of mid single digits for 2015
- Europe
- Q4 REVPAR: 3%
- Good group attendance, strong holiday demand in Germany/Austria, easy weather comps
- Weak Russia
- In 2015, London will benefit from strong group business and rugby Cup later.
- ~30% of European lodging demand comes from outside Europe (20% NA, 6% Asia)
- Expect 2015 REVPAR increase in low single digit rate
- In 2014, 7% of fees came from Europe
- MEA
- REVPAR up 15% in 4Q
- Egypt strong
- Expect 2015 REVPAR increase in high single digit rate
- In 2014, 3% of fees came from MEA
- Asia Pacific
- REVPAR increased 3% in 4Q
- Weaker yen boosted Japan
- RevPAR in Greater China increased slightly reflecting strong Shanghai demand offset by the disruption from political demonstrations in Hong Kong.
- In 2015, expect demand will remain strong in Shanghai and improve in Hong Kong...a mid single digit growth rate for the region.
- In 2014, 9% of fees came from Asia-Pacific (5% from Greater China)
- Operations outside US contributed 25% of fees in 2014
- For 2015, 1% move in dollar, net of hedges would change adjusted EBITDA by $3m
- In 2015, new accounting rules require service charges to be included in property revenue. Expect WW house profit margins would increase 60bps instead of 90bps as a result of this change
- 2014: incentive fees increased 18% with more than half of hotels worldwide paying incentive fees
- 2015: fee 9-11% growth
- Incentive fees growing in low double digit rate
- Constrained by unfavorable FX, lower deferred fee recognition, and renovations
- Estimate FX to reduce fee revenues by $15-20m in 2015
- 2015 guidance excludes pending Delta acquisition. P&L impact from Delta will be 'noisy'. Transaction should be modestly accretive in 2016.
- REVPAR sensitivity unchanged: 1 point REVPAR = $20m fees and $5m on owned/leased
- 2015: plan to renovate several owned/leased hotels and begin construction Fairfield Inn Brazil
- Cash return to shareholders in 2015 will be at least that in 2014
- 1Q 2015
- Fee growth in mid teens rate with higher relicensing and application fees
- While group pace is strong, full service RevPAR growth in North America is likely to be a bit lighter than later in the year due to property renovation schedules and the recent northeast snow storms.
- Expect owned leased and other revenue net of expenses will increase more than 20% with the Addition of the Protea leased hotels and higher credit card branding fees.
- G&A should increase in the first quarter reflecting higher brand initiatives and hotel development expenses. However, first quarter G&A will also benefit from a roughly $12 million net favorable impact to our legal expenses associated with certain litigation resolutions.
Q & A
- Difference between upscale and UUP #s is really about group
- In a higher rate environment, transient grows faster than group
- Shortcoming of REVPAR is that it doesn't include non-room revenue...that's associated with group business
- Don't think near maturity of cycle
- Focused on G&A costs flat, growing at a minimum
- Limited service paying fees: 50% in 2014, 38% in 2013
- No hotel renegotiations that have moved the needle
- Lending market getting a little better for big hotels but it's targeted.
- Lead times extended out for construction
- Full service development: very small volume of deals
- Asia-Pacific REVPAR rising in 2015: In 1H 2014, Thailand was rough. China should be similar to 2014 but easier comp.
- Potential Asset sales ($600-650m)
- Have small Courtyard in Europe on the market.
- 2 EDITIONS in Miami and Residences
- Expect $50m in Residences
- Also will collect some notes due 2015 ($30m)
- Preferred stock coming due
- Buyback vs dividend: buyback more flexible. PE multiple at 26 (higher than 20-yr avg of 22) but think EPS can grow 20% in next couple of years so valuation not a concern
- Conversions: into Marriott and Renaissance brands from independents
- Capex breakout: need to spend $80-100m to finish Edition buildings. Don't need to put a lot of capital to get new Select-Service hotels. $100m or so on key money and loans. Not more aggressive on key money than their competitors
- US Net room growth: most will be upscale in secondary markets
- Half of 2015 openings will be US. Most will be franchised select service and extended stay hotels
- Assume breakeven on Miami Edition Residences
- Intensely competitive business
- NY international exposure: 10-15%
- FX will hurt arrivals in NY
- Room night international arrivals to NY down 3% in 4Q 2014
- FX helping travel to Paris/London
- Shanghai REVPAR: 6-7%; continues to see it perform well
- Expect govt austerity to continue to China
- Q4 interest accretion $7m benefit: had been recording too much interest on accreting bond.
- Expect US pipeline to continue to grow
- Expect fewer signings in China in 2015
- Delta impact in 2015: transaction costs will result in a couple of pennies impact (not in guidance)
- Fees 1Q 2015: more chunkier relicensing fees than other quarters
- Tough comp for 3Q 2015: in 3Q 2014, had $15m deferred fees
- Expect franchise fees to grow faster than managed fees
- Expect REVPAR for franchise and managed to be roughly comparable
- FX impact most pronounced in Europe
- Moxy Europe per key costs: 40-50k euro range
- Diluted share count at end of 2014: 286m
- 1Q NY Group could be negative: (Super Bowl comp, snow storms and supply)
- Expect NY to underperform by few hundred basis points with Q4 2015 being the weakest
