Published:
July 30, 2007
With
nearly 3,000 properties and over half a million rooms spread
throughout 70 countries, Marriott (NYSE: MAR, $40.46) is one of
the world's largest hotel management companies. From
moderately-priced chains like Courtyard and Fairfield to the
pampered luxury of Ritz-Carlton, Marriott's broad portfolio of
brands has something for every traveler. However, the firm
specializes primarily in attracting business groups.
Unlike many rivals, who are facing heavy capital expenditures to
overhaul their properties and re-energize their brands, Marriott
has already infused its hotels with fresh bedding and
high-thread-count sheets. And many rooms have also been
outfitted with high-definition TVs and the latest in
connectivity technology for travelers with iPods and laptops.
This attention to detail has clearly begun to pay off. With a
reputation for quality, Marriott hotels are currently seeing an
18% revenue per available room (RevPAR) premium to their closest
competitors. And because many travelers prefer Marriott, the
company has had great success at convincing hotel owners around
the world to "re-flag" their properties to one of Marriott's
brands. In fact, of the 23,000 rooms added to the Marriott
system in 2006, almost 7,000 were conversions from competitors'
chains.
And while the company continues to add tens of thousands of new
units every year, it is also squeezing out more revenues per
room, as the table below clearly shows:
|
Region |
Occupancy |
Average Daily Rate (ADR) |
RevPAR |
RevPAR
Change from 2005 |
|
Latin America |
73% |
$151 |
$110 |
+9.9% |
|
Continental Europe |
71% |
$151 |
$107 |
+10.2% |
|
United Kingdom |
75% |
$205 |
$154 |
+13.3% |
|
Middle East/Africa |
69% |
$135 |
$93 |
+10.3% |
|
Asia Pacific |
76% |
$130 |
$98 |
+11.2% |
|
Ritz-Carlton Intl. |
72% |
$242 |
$174 |
+9.1% |
|
North America |
73% |
$128 |
$93 |
+9.1% |
|
Total Worldwide |
73% |
$132 |
$96 |
+9.4% |
As
you can see, Marriott is enjoying healthy double-digit growth
across many of its regions. Furthermore, more units, times
higher revenues per unit, spells steady increases in the fees
that the company collects from owners and franchisees:
| |
2003 |
2004 |
2005 |
2006 |
|
Incentive Fees |
$109M |
$142M |
$201M |
$281M |
|
Franchise Fees |
$245M |
$296M |
$329M |
$390M |
|
Base Mgmt. Fees |
$388M |
$435M |
$497M |
$553M |
|
Total |
$742M |
$873M |
$1,027M |
$1,224M |
|
YoY Growth |
N/A |
+17.7% |
+17.6% |
+19.2% |
By
leveraging its core brands and taking advantage of a favorable
operating climate, Marriott has seen its fee-based income soar
over the past three years. More importantly, operating cash
flows have also been climbing, and earnings have jumped +70% to
$1.66 per share. Of course, as Warren Buffett would remind us,
today's investors receive nothing from yesterday's growth --
it's tomorrow that counts. And on that front, investors have
plenty of reasons to be excited.
First, the Marriott Rewards program -- 26 million members strong
-- gives the firm a growing base of loyal customers that can be counted on
to continue booking frequent repeat visits. Second, the firm's
web site, which guarantees the best rates at all Marriott
properties, has repeatedly siphoned traffic away from other
online travel sites. Revenues booked through this important
distribution channel surged +35% last year to $4.3 billion.
The firm's busy development pipeline should be another key
growth driver in the years ahead. Even in a weaker RevPAR
environment, the company can look forward to an additional
85,000 to 100,000 new rooms over the next three years. That will
bring the total number of system-wide units to more than 600,000
-- one-fifth of which will be located overseas.
While Marriott's domestic market share has doubled over the past
decade to reach 10%, it controls less than 1% of the foreign
lodging market -- leaving ample room for growth. China and India
are particularly promising, as booming economic expansion in
those countries is expected to usher in a new wave of leisure
travel by an increasingly affluent middle-class.
Finally, the firm's timeshare -- or "vacation ownership" sales
represent another avenue for growth. Marriott has been involved
in this business for more than two decades and has grown to
become a global leader, boasting 11,600 villas and more than
350,000 owners. Last year, the firm raked in almost $2 billion
from timeshare sales in exotic locales like the Bahamas.
With all of this in mind, we think Marriott will continue to
prosper over the next few years. As such, we think they
are worth considering anywhere below $38 per share.
Nathan Slaughter
Editor
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Stocks
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