Marriott International Reports Fourth Quarter and Full Year 2013 Results
February 21, 2014 12:11pm
Full year 2013 net income totaled $626 million compared to $571 million for full year 2012. Full year 2012 net income included the $25 million after-tax Courtyard joint venture gain.
Full year 2013 diluted earnings per share (EPS) totaled $2.00 compared to $1.72 in 2012. On October 30, 2013, the company forecasted full year diluted EPS of $1.98 to $2.01.
Arne M. Sorenson, president and chief executive officer of Marriott International, said, "2013 was a year of firsts. Strong REVPAR growth and new hotels drove Marriott's fee revenue to a record $1.5 billion. We signed contracts with owners and franchisees for 67,000 new rooms, the most productive year in our history averaging more than one hotel every day. Our development pipeline reached a record 195,000 rooms.
"Our North American group sales organization booked $3.4 billion in new group business in 2013 for all future periods, eclipsing their prior record from 2007. Group revenue on the books for 2014 is running more than 4 percent higher than 2013 levels for the Marriott brand. Special corporate negotiated rates are nearly complete with room rates expected to rise about 5 percent in 2014.
"Marriott Rewards and Ritz-Carlton Rewards signed a combined 3.4 million new members, contributing to the nearly 50 percent growth in membership over the last 5 years. Roughly 45 percent of that 5-year growth was outside the U.S. In 2013, a record 25 percent of room nights were booked on Marriott.com. Marriott mobile reservations surged by 67 percent in 2013 and we introduced mobile check-in for all Marriott Hotels in the United States, another industry first.
"For 2014, we expect worldwide systemwide REVPAR to increase 4 to 6 percent. With our strong development pipeline and the anticipated addition of the Protea hotels in Africa, we expect rooms growth will accelerate to approximately 6 percent gross or roughly 5 percent, net of deletions.
"During 2013, we were pleased to return over $1 billion to our shareholders through dividends and share repurchases, the top end of our expectations for the year. In 2014 we could return an additional $1.25 billion to $1.5 billion to our shareholders. In fact, we have already repurchased 5 million shares for $246 million dollars year-to-date. Over the last three years, we have returned over $3.9 billion to our shareholders through share repurchases and dividends and reduced our average fully diluted shares by 17 percent."
For the 2013 fourth quarter, REVPAR for worldwide comparable systemwide properties increased 4.3 percent (a 4.1 percent increase using actual dollars).
In North America, comparable systemwide REVPAR increased 4.7 percent in the fourth quarter of 2013, including a 3.3 percent increase in average daily rate. REVPAR for comparable systemwide North American full-service and luxury hotels (including Marriott Hotels, The Ritz-Carlton, Renaissance Hotels and Autograph Collection Hotels) increased 5.9 percent with a 4.3 percent increase in average daily rate. REVPAR for comparable systemwide North American limited-service hotels (including Courtyard, Residence Inn, SpringHill Suites, TownePlace Suites and Fairfield Inn & Suites) increased 3.6 percent in the fourth quarter with a 2.5 percent increase in average daily rate.
International comparable systemwide REVPAR rose 3.2 percent (a 2.3 percent increase using actual dollars) in the fourth quarter.
Marriott added 47 new properties (7,681 rooms) to its worldwide lodging portfolio in the 2013 fourth quarter, including The Ritz-Carlton Almaty in Kazahkstan, the JW Marriott Hotel Hanoi and the Hotel Am Steinplatz, an Autograph Collection hotel in Berlin. Fourteen properties (2,532 rooms) exited the system during the quarter. At year-end, the company's lodging group encompassed 3,916 properties and timeshare resorts for a total of nearly 676,000 rooms.
The company's worldwide development pipeline increased to approximately 1,165 properties with over 195,000 rooms at year-end, including approximately 170 properties with nearly 30,000 rooms approved for development, but not yet subject to signed contracts. The company's pipeline at year-end 2013 does not include the approximately 10,000 rooms associated with the Protea transaction.
MARRIOTT REVENUES totaled $3.2 billion in the 2013 fourth quarter compared to revenues of over $3.7 billion for the fourth quarter of 2012. Base management and franchise fees totaled $315 million compared to $369 million in the year-ago quarter. The company estimates that the change in fiscal calendar resulted in approximately $72 million of lower fees year-over-year. The calendar change impact was partially offset by higher REVPAR and non-room sales at existing hotels, as well as fees from new hotels.
Fourth quarter worldwide incentive management fees totaled $73 million compared to $90 million in the fourth quarter of 2012. The company estimates $19 million of the lower year-over-year fees relates to the change in the fiscal calendar. In the year-ago quarter, incentive management fees included the $3 million favorable impact of the recognition of previously deferred fees. In the fourth quarter, 32 percent of worldwide company-managed hotels earned incentive management fees compared to 30 percent in the year-ago quarter. For full year 2013, 39 percent of worldwide company-managed hotels earned incentive management fees compared to 33 percent in the year-ago quarter.
Owned, leased, corporate housing and other revenue, net of direct expenses, totaled $50 million, compared to $56 million in the year-ago quarter. The company estimates that approximately $10 million of the year-over-year decrease relates to the change in the fiscal calendar. Increased results at several leased hotels and higher residential and credit card branding fees partially offset the effect of the calendar change. The 2013 fourth quarter included $2 million of pre-opening costs largely related to the London EDITION hotel.
On October 30, the company estimated fourth quarter owned, leased, corporate housing and other revenue, net of direct expenses would total approximately $40 million for the fourth quarter. Actual results in the quarter exceeded those expectations largely due to $3 million of residential and credit card branding fees, as well as better than expected performance at a few owned and leased hotels.
GENERAL, ADMINISTRATIVE and OTHER expenses for the 2013 fourth quarter totaled $200 million. On October 30, the company estimated general and administrative expenses for the fourth quarter would total $170 million to $175 million. Actual expenses in the quarter were higher than expected largely due to higher costs related to new unit development and increases in incentive compensation (mainly associated with the company's very strong development pipeline), as well as higher than anticipated legal expenses, impairment of deferred contract acquisition costs and bad debt reserves.
INTEREST EXPENSE totaled $32 million in the fourth quarter, compared to interest expense of $41 million in the year-ago quarter. The company estimates that approximately $5 million of the year-over-year decrease relates to the change in the fiscal calendar. The decrease in interest expense in the quarter also reflects the impact of a senior debt retirement and new senior debt issuance at a lower interest rate, partially offset by lower capitalized interest. Capitalized interest totaled $7 million in the quarter, compared to $10 million in the year-ago quarter.
Provision for Income Taxes
The provision for income taxes in the fourth quarter was lower than anticipated largely reflecting the $12 million benefit related to adjustments of state and foreign tax provisions based on recent tax filings for prior years.
Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)
To facilitate comparisons with its competitors, the company has revised its presentation of EBITDA to now present depreciation expense that owners and franchisees reimburse to the company as a separate line item and revised its presentation of adjusted EBITDA to add back share-based compensation expense.
On this basis, adjusted EBITDA in 2013 totaled $1,325 million, a 9 percent increase over 2012 adjusted EBITDA of $1,217 million. For the fourth quarter, adjusted EBITDA totaled $321 million, an 18 percent decline from fourth quarter 2012 adjusted EBITDA of $390 million. See page A-8 for the adjusted EBITDA calculation.
Beginning in the first quarter of 2014, the company plans to 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. The income statements for each quarter and full year 2013 reflecting this revised presentation are presented on pages A-13 to A-17. The company's outlook for 2014 reflects this new presentation.
In connection with this change, in the fourth quarter of 2013, the company revised its presentation of depreciation and amortization on its Consolidated Statements of Cash Flows in the Form 10-K report that it expects to file later this week. Please see the Form 10-K report for additional information on these changes.
At the end of the fourth quarter, total debt was $3,199 million and cash balances totaled $126 million, compared to $2,935 million in debt and $88 million of cash at year-end 2012.
Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 307.5 million in the 2013 fourth quarter, compared to 322.2 million in the year-ago quarter.
The company repurchased 4.4 million shares of common stock in the fourth quarter at a cost of $200 million. For full year 2013, Marriott repurchased 20.0 million shares of its stock for $829 million. To date in 2014, Marriott has 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.
For the 2014 first quarter, the company expects comparable systemwide calendar REVPAR on a constant dollar basis will increase 4 to 6 percent in North America, 3 to 5 percent outside North America and 4 to 6 percent worldwide.
The company expects full year 2014 comparable systemwide REVPAR on a constant dollar basis will increase 4 to 6 percent in North America, 3 to 5 percent outside North America and 4 to 6 percent worldwide.
The company anticipates gross room additions of 6 percent 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 percent by year-end 2014.
The company assumes full year fee revenue could total $1,650 million to $1,700 million, growth of 7 to 10 percent over 2013 fee revenue of $1,543 million. The company's estimated first quarter total fee revenue reflects roughly $5 million of lower fees due to the three additional days in the year-ago quarter related to the change in the fiscal calendar.
As depreciation and amortization will be presented as a separate line item in its Consolidated Statements of Income beginning in the first quarter of 2014, the company is presenting the guidance table below consistent with this change. See pages A-13 to A-17 for quarterly and full year 2013 results restated for the change in presentation.
For 2014, the company anticipates general, administrative and other expenses will total $640 million to $650 million, flat to down 2 percent compared to 2013 expenses of $651 million, excluding depreciation and amortization.
Given these assumptions, 2014 diluted EPS could total $2.29 to $2.45, a 15 to 23 percent increase year-over-year.
The company expects investment spending in 2014 will total approximately $800 million to $1.0 billion, including approximately $150 million for maintenance capital spending. Investment spending also includes other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs (including the approximately $200 million payment associated with the Protea transaction), and equity and other investments. Assuming this level of investment spending, approximately $1.25 billion to $1.5 billion could be returned to shareholders through share repurchases and dividends.
Based upon the assumptions above, the company expects full year 2014 adjusted EBITDA will total $1,425 million to $1,495 million, an 8 to 13 percent increase over the 2013 full year adjusted EBITDA of $1,325 million. See page A-9 for the adjusted EBITDA calculation.
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