News for the Hospitality Executive
BETHESDA, Md., April 18, 2012
FIRST QUARTER HIGHLIGHTS
FIRST QUARTER 2012 RESULTS
Reported net income totaled $104 million in the first quarter of 2012 compared to $101 million in the year-ago quarter. Reported diluted EPS was $0.30 in the first quarter of 2012 compared to $0.26 in the first quarter of 2011.
Adjusted net income and adjusted diluted EPS for the first quarter of 2011 exclude $21 million ($13 million after-tax and $0.03 per diluted share) of timeshare spin-off adjustments. Timeshare spin-off adjustments include items such as the removal of timeshare business operating results and spin-off transaction costs, as well as the addition of license fees and other related items as if the spin-off had occurred on the first day of fiscal 2011. See page A-1 for first quarter 2011 reported results, the timeshare spin-off adjustments and adjusted results.
Arne M. Sorenson, president and chief executive officer of Marriott International, said, "Results were terrific in the first quarter of 2012. There is tremendous strength in global travel today; travelers are on the road, attending meetings, making sales calls and taking family vacations.
"Group business strengthened in the first quarter with increasing occupancy, room rates and greater group spend on food, beverage and other services. Transient business was also strong. Revenue from special corporate guests increased over 9 percent in the quarter with increasing room rates. Our largest customers tell us they expect to travel more in 2012.
"Industry supply growth continues to be a great story, especially in the U.S. where the dearth of construction starts signals favorable market conditions for the next few years. At the same time, our worldwide development pipeline increased to 115,000 rooms in the first quarter as we continue to increase our global market share.
"Our balance sheet continues to be in great shape. With strong cash flow, we are investing in our business while returning significant cash to our shareholders through dividends and share repurchases."
For the 2012 first quarter, REVPAR for worldwide comparable systemwide properties increased 6.8 percent (a 6.7 percent increase using actual dollars).
International comparable systemwide REVPAR rose 5.9 percent (a 5.3 percent increase using actual dollars), including a 2.7 percent increase in average daily rate (a 2.1 percent increase using actual dollars) in the first quarter of 2012.
In North America, comparable systemwide REVPAR increased 6.9 percent in the first quarter of 2012, including a 3.6 percent increase in average daily rate. REVPAR for comparable systemwide North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels) increased 7.1 percent with a 3.5 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 6.7 percent in the first quarter with a 3.6 percent increase in average daily rate.
Marriott added 24 new properties (3,234 rooms) to its worldwide lodging portfolio in the 2012 first quarter, including three Autograph Collection hotels in the United States, two Courtyards in France and the Residence Inn Manama Juffair in Bahrain. Ten properties (2,487 rooms) exited the system during the quarter. At quarter-end, the company's lodging group encompassed 3,732 properties and timeshare resorts for a total of nearly 644,000 rooms. The company expects to add 25,000 to 30,000 rooms and expects 7,000 to 8,000 rooms to exit the system in 2012.
The company's worldwide pipeline of hotels under construction, awaiting conversion or approved for development totaled 700 properties with approximately 115,000 rooms at quarter-end.
MARRIOTT REVENUES totaled over $2.5 billion in the 2012 first quarter compared to adjusted revenues of over $2.4 billion for the first quarter of 2011. Base management fees rose 3 percent to $124 million over prior year adjusted levels reflecting higher REVPAR and the unfavorable impact of $3 million of fee reversals at two hotels due to contract revisions. Franchise fees rose 8 percent to $126 million over prior year adjusted levels reflecting higher REVPAR and fees from new hotels. In the first quarter, 29 percent of worldwide company-managed hotels earned incentive management fees compared to 25 percent in the year-ago quarter.
Worldwide comparable company-operated house profit margins increased 120 basis points in the first quarter. House profit margins for comparable company-operated properties outside North America increased 70 basis points and North American comparable company-operated house profit margins increased 130 basis points from the year-ago quarter.
Owned, leased, corporate housing and other revenue, net of direct expenses, increased 10 percent in the 2012 first quarter, to $22 million, largely due to improved operating results at leased hotels, partially offset by lower termination fees.
GENERAL, ADMINISTRATIVE and OTHER expenses for the 2012 first quarter increased 4 percent to $147 million, compared to adjusted expenses of $141 million in the year-ago quarter.
INTEREST INCOME totaled $4 million in the first quarter compared to adjusted interest income of $7 million in the year-ago quarter. The decline in interest income was primarily due to repayments of notes receivable.
EQUITY IN EARNINGS (LOSSES) totaled a $1 million loss in the quarter compared to a $4 million loss in the year-ago quarter. The decline in equity losses largely reflected the improved performance of hotels in two joint ventures.
Earnings before Interest Expense, Taxes, Depreciation
and Amortization (EBITDA)
During the first quarter, the company issued $600 million of Series K bonds due in 2019 with a 3 percent interest rate coupon. The company expects to use the net proceeds for general corporate purposes.
The company repurchased 4.2 million shares of common stock in the first quarter at a cost of $150 million. Year-to-date through April 17, 2012, Marriott repurchased 6.7 million shares of its stock for $245 million. The remaining share repurchase authorization, as of April 17, 2012, totaled 33.8 million shares.
SECOND QUARTER 2012 OUTLOOK
The company expects to open 25,000 to 30,000 rooms in 2012 as most hotels expected to open are already under construction or undergoing conversion from other brands.
For 2012, assuming a strong U.S. dollar and modest fee revenue growth in hotels in Washington, DC, the company expects full year fee revenue could total $1,425 million to $1,465 million, growth of 9 to 12 percent over 2011 adjusted total fee revenue of $1,307 million. The company expects owned, leased, corporate housing and other revenue, net of direct expense, could total $140 million to $145 million in 2012.
For 2012, the company expects general, administrative and other expenses to total $660 million to $670 million, an increase of 3 to 4 percent over 2011 adjusted expenses of $643 million.
Given these assumptions, 2012 diluted EPS could total $1.58 to $1.69.
The company expects investment spending in 2012 will total approximately $600 million to $800 million, including approximately $100 million for maintenance capital spending. Investment spending will also include other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs, and equity and other investments. Assuming this level of investment spending, roughly $1 billion could be returned to shareholders through share repurchases and dividends.
Based upon the assumptions above, full year 2012 EBITDA is expected to total $1,105 million to $1,160 million, an 11 to 17 percent increase over the prior year's adjusted EBITDA. Adjusted EBITDA for full year 2011 totaled $992 million and is shown on page A-7.
Marriott International, Inc. (NYSE: MAR) will conduct its quarterly earnings review for the investment community and news media on Thursday, April 19, 2012 at 10 a.m. Eastern Time (ET). The conference call will be webcast simultaneously via Marriott's investor relations website at http://www.marriott.com/investor, click the "Recent and Upcoming Events" tab and click on the quarterly conference call link. A replay will be available at that same website until April 19, 2013.
The telephone dial-in number for the conference call is 706-679-3455 and the conference ID is 62456951. A telephone replay of the conference call will be available from 1 p.m. ET, Thursday, April 19, 2012 until 8 p.m. ET, Thursday, April 26, 2012. To access the replay, call 404-537-3406. The reservation number for the recording is 62456951.
Note on forward-looking statements: This press release and accompanying schedules contain "forward-looking statements" within the meaning of federal securities laws, including REVPAR, profit margin and earnings trends, estimates and assumptions; the number of lodging properties we expect to add in the future; our expectations about investment spending; and similar statements concerning anticipated future events and expectations that are not historical facts. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those we identify below and other risk factors that we identify in our most recent annual report on Form 10-K or quarterly report on Form 10-Q. Risks that could affect forward-looking statements in this press release include changes in market conditions; the continuation and pace of the economic recovery; supply and demand changes for hotel rooms; competitive conditions in the lodging industry; relationships with clients and property owners; and the availability of capital to finance hotel growth and refurbishment. Any of these factors could cause actual results to differ materially from the expectations we express or imply in this press release. We make these forward-looking statements as of April 19, 2012. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Marriott International, Inc. (NYSE: MAR) is a leading lodging company based in Bethesda, Maryland, USA with more than 3,700 properties in 73 countries and territories and reported revenues of over $12 billion in fiscal year 2011. The company operates and franchises hotels and licenses vacation ownership resorts under 18 brands, including Marriott Hotels & Resorts, The Ritz-Carlton, JW Marriott, Bulgari, EDITION, Renaissance, Autograph Collection, AC Hotels by Marriott, Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, ExecuStay, Marriott Executive Apartments, Marriott Vacation Club, Grand Residences by Marriott, and The Ritz-Carlton Destination Club. There are approximately 300,000 employees at headquarters, managed and franchised properties. Marriott is consistently recognized as a top employer and for its superior business operations, which it conducts based on five core values: put people first, pursue excellence, embrace change, act with integrity, and serve our world. For more information or reservations, please visit our website at www.marriott.com, and for the latest company news, visit www.marriottnewscenter.com.
MARRIOTT INTERNATIONAL, INC.
In our press release and schedules, and on the related conference call, we report certain financial measures that are not prescribed or authorized by United States generally accepted accounting principles ("GAAP"). We discuss management's reasons for reporting these non-GAAP measures below, and the press release schedules reconcile the most directly comparable GAAP measure to each non-GAAP measure that we refer to (identified by a double asterisk on the preceding pages). Although management evaluates and presents these non-GAAP measures for the reasons described below, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, operating income, income from continuing operations, net income, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, these non-GAAP financial measures may be calculated and/or presented differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.
Adjusted Measures that Reflect the Timeshare Spin-off as if it had Occurred on the First Day of 2011. ("Timeshare Spin-off Adjustments"). On November 21, 2011 we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW").
Because of Marriott's significant continuing involvement in MVW future operations (by virtue of the license and other agreements between Marriott and MVW), we continue to include our former Timeshare segment's historical financial results for periods before the spin-off date in our historical financial results as a component of continuing operations. Under the license agreements we receive license fees consisting of a fixed annual fee of $50 million (subject to a periodic inflation adjustment), plus two percent of the gross sales price paid to MVW for initial developer sales of interests in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or Ritz-Carlton marks.
In order to perform year-over-year comparisons on a comparable basis, management evaluates non-GAAP measures that, for periods prior to the spin-off date , assume the spin-off had occurred on the first day of 2011. The Timeshare Spin-off Adjustments remove the results of our former Timeshare segment, assume payment by MVW of estimated license fees ($14 million, $15 million, $15 million, and $16 million for the 2011 first quarter through 2011 fourth quarter, respectively) and remove the unallocated spin-off transaction costs ($1 million, $4 million, $8 million, and $21 million for the 2011 first quarter through 2011 fourth quarter, respectively). We have also included certain corporate items not previously allocated to our former Timeshare segment in the Timeshare Spin-off Adjustments.
We provide adjusted measures that reflect Timeshare Spin-off Adjustments for illustrative and informational purposes only. These adjusted measures are not necessarily indicative of, and do not purport to represent, what our operating results would have been had the spin-off actually occurred on the first day of 2011. This information also does not reflect certain financial and operating benefits we expect to realize as a result of the spin-off.
Adjusted Measures That Exclude Other Charges. Management evaluates non-GAAP measures that exclude certain 2011 charges because those non-GAAP measures allow for period-over-period comparisons of our on-going core operations before the impact of material charges. These non-GAAP measures also facilitate management's comparison of results from our on-going operations before material charges with results from other lodging companies.
2011 Other Charges. We recorded charges of $28 million in the 2011 third quarter, which included an $18 million other-than-temporary impairment of an investment in marketable securities (not allocated to any of our segments) recorded in the "(Losses) gains and other income" caption of our Income Statement and a $10 million charge related to the impairment of deferred contract acquisition costs and an accounts receivable reserve, both of which were associated with a Luxury segment property whose owner filed for bankruptcy and recorded in the "General, administrative, and other" caption of our Income Statement.
MARRIOTT INTERNATIONAL, INC.
Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") is a financial measure that is not prescribed or authorized by United States generally accepted accounting principles ("GAAP"), reflects earnings excluding the impact of interest expense, provision for income taxes, and depreciation and amortization. We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
We also evaluate Adjusted EBITDA, another non-GAAP financial measure, as an indicator of operating performance. Our Adjusted EBITDA reflects the following items, each of which we describe more fully above: (1) Timeshare Spin-off Adjustments; and (2) an adjustment for $28 million of other charges for 2011. We use Adjusted EBITDA to make period-over-period comparisons of our ongoing core operations before material charges and to facilitate comparing results from our ongoing operations before material charges with those of other lodging companies.
EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Both of these non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting EBITDA's and Adjusted EBITDA's usefulness as comparative measures.
Adjusted Pretax Margin and EBITDA Margin Excluding Adjusted Cost Reimbursements. Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer, but also includes reimbursements for other costs, such as those associated with our Marriott Rewards and Ritz-Carlton Rewards programs. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on either our operating income or net income because cost reimbursements revenue net of reimbursed costs expense is zero. We consider total revenues as adjusted for Timeshare Spin-off Adjustments and income before income taxes as adjusted for Timeshare Spin-off Adjustments to be meaningful metrics for the reasons noted above. In calculating adjusted pretax margin and EBITDA margin we consider total revenues as adjusted to further exclude cost reimbursements and therefore, adjusted pretax margin and EBITDA margin excluding cost reimbursements to be meaningful metrics as they represent that portion of revenue, pretax margin, and EBITDA margin that impacts operating income and net income.