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Marriott International at the Africa Hotel Investment Forum (AHIF 2016 ) at the Kigali Convention Centre, October 5, 2016

Marriott International reports first quarter 2017 results highlights

Highlights

  • First quarter reported diluted EPS totaled $0.94, an 11 percent increase over prior year results. First quarter adjusted diluted EPS totaled $1.01, a 38 percent increase over first quarter 2016 combined results.  Adjusted 2017 first quarter results exclude merger-related costs.  Combined 2016 first quarter results assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015;
  • Both North American and worldwide comparable systemwide constant dollar RevPAR rose 3.1 percent in the 2017 first quarter;
  • The company added more than 17,000 rooms during the first quarter, including roughly 3,300 rooms converted from competitor brands and 6,400 rooms in international markets;
  • At quarter-end, Marriott’s worldwide development pipeline increased to more than 430,000 rooms, including roughly 36,000 rooms approved, but not yet subject to signed contracts;
  • First quarter reported net income totaled $365 million, a 67 percent increase over prior year results. First quarter adjusted net income totaled $395 million, a 36 percent increase over prior year combined results;
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $750 million in the quarter, a 64 percent increase over first quarter 2016 adjusted EBITDA and a 10 percent increase over first quarter 2016 combined adjusted EBITDA;
  • Marriott repurchased 6.7 million shares of the company’s common stock for $575 million during the first quarter. Year-to-date through May 8, the company repurchased 10.4 million shares for $925 million.

BETHESDA, MD – May 8, 2017 – Marriott International, Inc. (NASDAQ: MAR) today reported first quarter 2017 results.

On September 23, 2016, Marriott completed its acquisition of Starwood Hotels & Resorts Worldwide (Starwood).  The discussion in the first section below reflects reported results for the first quarter in accordance with US generally accepted accounting principles (GAAP).  To further assist investors, the company is also providing (a) adjusted results that exclude merger-related costs; and (b) combined financials and selected performance information for 2016 that assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015, but use the estimated fair value of assets and liabilities as of the actual closing date of the acquisition.  Combined results also reflect other adjustments as described below.  Throughout this press release, the business associated with brands that were in Marriott’s portfolio before the Starwood acquisition are referred to as “Legacy-Marriott”, while the Starwood business and brands that the company acquired are referred to as “Legacy-Starwood.”

Branding fees from credit cards and residential sales are reported in the Franchise fees line on the income statement.  Prior to the first quarter of 2017, those fees were reported in Owned, leased and other revenue.   Reported results for the 2016 first quarter on page A-1 and combined results on page A-2 have been reclassified to conform to the current reporting.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We were pleased by our performance in the quarter across the board.  RevPAR exceeded our expectations in North America and Europe due to stronger group attendance and higher-rated business transient demand.  Demand in Greater China and elsewhere in the Asia Pacific region was also better than expected.  With just over 3 percent RevPAR growth worldwide, our teams did an excellent job driving margin improvement of 100 basis points at company-operated hotels.  Given the stronger than expected RevPAR performance in North America in the first quarter and improving demand trends in the Europe and Asia Pacific regions, we have increased our full year 2017 RevPAR expectations.

We continue to make great progress on integrating the Starwood and Marriott lodging businesses, gaining efficiencies at both the corporate and property levels.  Legacy-Starwood hotels are enjoying the benefits of Marriott’s OTA contracts and procurement agreements, and are in the process of transitioning to our above-property shared-service model for finance and accounting.  Our global sales organization, which maintains relationships with our largest customers, is now fully integrated.

In the first quarter, we sold the Westin Maui for $317 million subject to a long-term management agreement, furthering our goal of recycling owned real estate capital.  We expect the proceeds of the sale, together with strong cash from operations and our modest capital needs, will allow us to return more than $2 billion of cash to our shareholders in 2017.  To date in 2017, we have already returned more than $1 billion in dividends and share repurchases.”

First Quarter 2017 GAAP – Financial Results As Reported

Marriott reported net income totaled $365 million in the 2017 first quarter, a 67 percent increase over 2016 first quarter net income of $219 million.  Reported diluted earnings per share (EPS) was $0.94 in the quarter, an 11 percent increase from diluted EPS of $0.85 in the year-ago quarter.

Base management and franchise fees totaled $629 million in the 2017 first quarter, compared to $422 million in the year-ago quarter.  The year-over-year increase in these fees is primarily attributable to the Starwood acquisition, higher RevPAR and unit growth.

First quarter worldwide incentive management fees increased to $153 million, compared to $101 million in the year-ago quarter.  The year-over-year increase is primarily attributable to the Starwood acquisition.

Owned, leased, and other revenue, net of direct expenses, totaled $81 million in the 2017 first quarter, compared to $38 million in the year-ago quarter.  The year-over-year increase is primarily attributable to the Starwood acquisition.

Depreciation, amortization, and other expenses totaled $65 million in the first quarter, compared to $31 million in the year-ago quarter.  The year-over-year increase is primarily attributable to the Starwood acquisition, including the effect of purchase accounting.

Merger-related costs and charges totaled $51 million in the first quarter, compared to $8 million in the year-ago quarter.  Included in the merger-related costs and charges are $21 million of severance and retention costs, $23 million of integration costs and $7 million of transaction costs.

General, administrative, and other expenses for the 2017 first quarter totaled $210 million, compared to $155 million in the year-ago quarter.  The year-over-year increase is primarily attributable to the Starwood acquisition, inclusive of general administrative cost savings from combined company synergies.

Gains and other income, net, was flat year-over-year in the 2017 first quarter.

Interest expense, net, totaled $63 million in the first quarter compared to $41 million in the year-ago quarter.  The increase largely reflects a higher commercial paper balance and related interest rate, higher Senior Note balances due to debt assumed in the Starwood acquisition, which the company subsequently exchanged for new Marriott Senior Notes, and net higher interest on Senior Notes due to issuances and maturities.

The provision for income taxes totaled $120 million in the first quarter, a 24.7 percent effective tax rate, compared to $107 million in the year-ago quarter, a 32.8 percent effective tax rate.  The provision for the first quarter of 2017 includes a $43 million tax benefit resulting from the adoption of Accounting Standards Update 2016-09 (“ASU 2016-09”), which changes the GAAP reporting of excess tax benefits associated with employee stock-based compensation.

For the first quarter, adjusted EBITDA totaled $750 million, a 64 percent increase over first quarter 2016 adjusted EBITDA of $458 million.  See page A-8 for the adjusted EBITDA calculation.

First Quarter 2017 Financial Results As Adjusted Compared to First Quarter 2016 Combined Financial Results

This information is being presented to allow shareholders to more easily compare the 2017 first quarter adjusted results with the combined results for the first quarter of 2016.  The combined results assume Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015, but use the estimated fair value of assets and liabilities as of the actual closing date of the acquisition.

Combined results for the 2016 first quarter discussed in this section make the following assumptions: (1) removes merger-related costs and charges; (2) adjusts income taxes to reflect the company’s combined 2016 effective tax rate of 32.5 percent; (3) adjusts weighted average shares outstanding to include shares issued to Starwood shareholders; and (4) adjusts debt to reflect borrowing on the Credit Facility and issuance of Series Q and R Notes on January 1, 2015.  Adjusted results for the 2017 first quarter exclude merger-related costs and charges.  See page A-2 for the calculation of adjusted results, as well as combined results for the year-ago quarter.

First quarter 2017 adjusted net income totaled $395 million, a 36 percent increase over 2016 first quarter combined net income of $290 million.  Adjusted net income for the first quarter of 2017 excludes $48 million ($30 million after-tax) of merger-related costs.  Adjusted diluted EPS in the first quarter totaled $1.01, a 38 percent increase from combined diluted EPS of $0.73 in the year-ago quarter.

Base management and franchise fees totaled $629 million in the first quarter of 2017, a 7 percent increase over combined base management and franchise fees of $590 million in the year-ago quarter.  The year-over-year increase largely reflects higher RevPAR, unit growth and an increase in branding fees.

First quarter incentive management fees increased to $153 million, compared to combined fees of $150 million in the 2016 first quarter.  The year-over-year increase was largely due to higher net house profit at many properties, partially offset by lower deferred fee recognition and unfavorable foreign exchange.

Owned, leased, and other revenue, net of direct expenses, totaled $81 million, compared to combined revenue, net of expenses of $86 million in the year-ago quarter.  The adjusted year-over-year decrease largely reflects lower termination fees, lower results in Rio and New York, and the impact of Legacy-Starwood hotels previously sold, partially offset by better results at other owned and leased hotels.

Adjusted depreciation, amortization, and other expenses for the 2017 first quarter totaled $68 million, compared to combined expenses of $82 million in the year-ago quarter.  The $14 million decrease year-over-year was largely due to Legacy-Starwood hotels previously sold, properties moved to assets held for sale in the 2016 third quarter and revised purchase accounting assumptions.

General, administrative, and other expenses for the 2017 first quarter totaled $210 million, compared to combined expenses of $246 million in the year-ago quarter.  The decrease in expenses year-over-year was largely due to general administrative cost savings, partially offset by a $5 million guarantee reversal in the year-ago quarter.

Gains and other income, net, totaled $0 million in the 2017 first quarter, a $7 million increase from combined losses and other income, net, in the 2016 first quarter.  The year-over-year increase was largely due to Legacy-Starwood’s loss related to the termination of a corporate jet capital lease in the 2016 first quarter, partially offset by a favorable loan adjustment in the year-ago quarter.

Interest expense, net, totaled $63 million in the first quarter, compared to combined net expense of $70 million in the year-ago quarter.  The decrease was largely due to the maturity of Series H Senior Notes.

The adjusted provision for income taxes totaled $138 million in the first quarter, a 25.9 percent effective rate, compared to the combined provision for taxes of $140 million in the 2016 first quarter, a 32.6 percent effective rate.  The adjusted provision for the first quarter of 2017 includes a $37 million tax benefit resulting from the adoption of ASU 2016-09.

For the first quarter, adjusted EBITDA totaled $750 million, a 10 percent increase over first quarter 2016 combined adjusted EBITDA of $683 million.  See page A-8 for the adjusted EBITDA and combined adjusted EBITDA calculations

First Quarter 2017 Financial Results Compared to February 15, 2017 Guidance

On February 15, 2017, the company estimated total fee revenue for the first quarter would be $740 million to $750 million.  Actual total fee revenue of $782 million in the quarter was higher than estimated, largely reflecting better than expected RevPAR growth, as well as higher branding fees.  Incentive fees exceeded expectations largely in the North America and Asia Pacific regions.

Marriott estimated owned, leased, and other revenue, net of direct expenses, for the first quarter would total $60 million to $70 million.  Actual results of $81 million in the quarter were higher than estimated largely due to better than expected results at several owned and leased hotels, as well as $6 million of termination fees.

The company estimated general, administrative, and other expenses for the first quarter would total approximately $225 million to $230 million.  Actual expenses of $210 million in the quarter were lower than expected largely due to open positions and timing.

Selected Performance Information

Combined information for the 2016 first quarter presented in this section assumes Marriott’s acquisition of Starwood and Starwood’s sale of its timeshare business had been completed on January 1, 2015.

The company added 103 new properties (17,183 rooms) to its worldwide lodging portfolio during the 2017 first quarter, including the Le Méridien Visconti Rome, the Fairfield by Marriott Kathmandu in Nepal and the Sheraton Annaba Hotel in Algeria.  Twenty-two properties (4,376 rooms) exited the system during the quarter.  At quarter-end, Marriott’s lodging system encompassed 6,161 properties and timeshare resorts with nearly 1,203,000 rooms.

At quarter-end, the company’s worldwide development pipeline totaled 2,536 properties with more than 430,000 rooms, including 917 properties with approximately 166,000 rooms under construction and 207 properties with roughly 36,000 rooms approved for development, but not yet subject to signed contracts.

In the 2017 first quarter, worldwide comparable systemwide constant dollar RevPAR increased 3.1 percent (a 2.7 percent increase using actual dollars).  North American comparable systemwide constant dollar RevPAR increased 3.1 percent (a 3.2 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 3.2 percent (a 1.4 percent increase using actual dollars) for the same period.  These RevPAR growth statistics compare the first quarter of 2017 to combined comparable systemwide RevPAR for the first quarter of 2016.

Worldwide comparable company-operated house profit margins increased 100 basis points in the first quarter largely due to improved productivity and food and beverage margins.  House profit margins for comparable company-operated properties outside North America rose 90 basis points, while North American comparable company-operated house profit margins increased 100 basis points in the first quarter.  These house profit margin statistics compare the first quarter of 2017 to combined comparable company-operated house profit margins for the first quarter of 2016.

Balance Sheet

At quarter-end, Marriott’s total debt was $8,470 million and cash balances totaled $738 million, compared to $8,506 million in debt and $858 million of cash at year-end 2016.

Marriott Common Stock

Weighted average fully diluted shares outstanding used to calculate reported diluted EPS totaled 390.0 million in the 2017 first quarter, compared to 258.9 million shares in the year-ago quarter.  Weighted average fully diluted shares outstanding used to calculate combined diluted EPS totaled 395.5 million in the 2016 first quarter.

The company repurchased 6.7 million shares of common stock in the first quarter at a cost of $575 million at an average price of $86.29.  Year-to-date through May 8, the company has repurchased 10.4 million shares for $925 million at an average price of $88.85.

OUTLOOK

The following outlook for the second quarter and full year 2017 does not include merger-related costs, which the company cannot accurately forecast, but are likely to be more than $100 million on a full-year basis.

Branding fees from credit cards and residential sales are reported in the Franchise fees line on the income statement.  Prior to the first quarter of 2017, those fees were reported in Owned, leased and other revenue.   In 2016, combined fees from credit cards and residential sales totaled $49 million in the second quarter and $210 million for the full year.  Application fees, relicensing fees and timeshare royalties will continue to be included in the Franchise fees line.  Comparisons to prior year combined results throughout this Outlook section reflect this change in reporting.  On February 15, 2017, the company issued further schedules setting forth combined quarterly and full year combined financial information for both 2015 and 2016 that reflect this change in presentation, and included those schedules in a Form 8-K filed on that date.  Those schedules are available on Marriott’s Investor Relations website at http://www.marriott.com/investor.

For the 2017 second quarter, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will be flat to up 2 percent in North America.  The company expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 3 to 5 percent outside North America and 1 to 3 percent worldwide. The company’s RevPAR guidance for the second quarter reflects the unfavorable shift of Easter into the second quarter.

The company assumes second quarter total fee revenue will total $820 million to $835 million.  These fee revenue estimates reflect about $10 million of unfavorable foreign exchange.  The company expects that incentive management fees in the second quarter will be constrained by renovations and unfavorable foreign exchange.

Marriott expects second quarter 2017 owned, leased, and other revenue, net of direct expenses, could total approximately $90 million.  This estimate reflects the $15 million negative impact of Legacy-Starwood hotels previously sold.

For the full year 2017, Marriott expects comparable systemwide RevPAR on a constant dollar basis for the combined company will increase 1 to 3 percent in North America, 2 to 4 percent outside North America and 1 to 3 percent worldwide.

For the combined company, Marriott anticipates gross room additions of 6 percent, net, for full year 2017.

The company assumes full year 2017 total fee revenue will total $3,225 million to $3,295 million.  Compared to the total fee revenue estimates the company provided on February 15, these fee revenue estimates reflect the better than expected fees in the first quarter, as well as the increase in full year 2017 comparable worldwide systemwide constant dollar RevPAR expectations.

Marriott expects full year 2017 owned, leased, and other revenue, net of direct expenses, could total $340 million to $350 million.  Compared to the revenue, net of direct expenses, estimates the company provided on February 15, these estimates reflect the unfavorable impact of the sale of the Maui Westin, partially offset by the better than expected results in the first quarter.

The company anticipates depreciation, amortization, and other expenses will total approximately $270 million for full year 2017.   Compared to the estimate the company provided on February 15, this forecast reflects the lower depreciation related to an asset that is now classified as held for sale, as well as updated purchase accounting assumptions.

For 2017, the company anticipates general, administrative, and other expenses will total $880 million to $890 million.   Compared to the expense estimates the company provided on February 15, these estimates reflect the lower than expected expenses in the first quarter.

Marriott expects full year 2017 adjusted EBITDA could total $3,100 million to $3,195 million.  See page A-10 for the adjusted EBITDA calculation.  Compared to the adjusted EBITDA estimates the company provided on February 15, these estimates reflect the better than expected results in the first quarter and improved comparable worldwide systemwide constant dollar RevPAR expectations, partially offset by the reduction in owned, leased and other revenue, net of direct expenses, related to the sale of the Westin Maui and a correction to the share-based compensation estimate.

Second Quarter 2017 Full Year 2017
Total fee revenue1 $820 million to $835 million $3,225 million to $3,295 million
Owned, leased and other revenue, net of direct expenses1 Approx. $90 million $340 million to $350 million
Depreciation, amortization, and other expenses Approx. $65 million Approx. $270 million
General, administrative, and other expenses $220 million to $225 million $880 million to $890 million
Operating income $620 million to $640 million $2,405 million to $2,495 million
Gains and other income Approx. $0 million Approx. $0 million
Net interest expense2 Approx. $65 million Approx. $255 million
Equity in earnings (losses) Approx. $10 million $35 million to $40 million
Earnings per share3 $0.99 to $1.03 $3.92 to $4.09
Tax rate4 32.9 percent 31.2 percent
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