Author Topic: MAR - Marriott International  (Read 9029 times)

ScottHall

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MAR - Marriott International
« on: July 03, 2018, 08:50:19 AM »
This is a hotel industry company that I am a big fan of. It has been a sleeper hit in my portfolio, one I haven't allocated as much to as I wish I would have, and it's one that doesn't get a whole lot of attention.

Big boy in the hotel industry but the MAR business itself is mostly an IP company with high margins and which requires very little capital. I think of it as akin to being the McDonald's as opposed to the individual McDonald's franchisee.

Collects management and franchise fees, incentive payments, that sort of stuff. Meanwhile investors put up the money for the actual hotel, in most cases, and take on the financial risk of ownership. Marriott does own some hotels, but not a ton of them. This is mostly a business that lives and grows on OPM. An associated question is, if Marriott doesn't own its properties, couldn't the branding and management just be changed and leave them SOL?

Well, yes and no. To break a contract early (these contracts last decades) an owner has to pay several years worth of fees to MAR. So the owner has to really want to do it. Accordingly, Marriott's attrition rate is quite low and expected to come in 1% to 1.5% of rooms this year compared to new rooms clocking in at 7%.

A business like that, which rides on OPM for its growth, with a historically "sticky" base of recurring revenue contracts which are pretty high margin, should generate robust FCF. And Marriott does exactly that. Just take a look at the cash flow statement.

The interesting thing is what Marriott does with all of that cash it generates. Mostly, it buys back shares. A lot of them. Because of the relative stability of its cash flows, it keeps a leverage target and not unlike Malone companies, Marriott doesn't mind issuing lower-cost debt to retire higher-cost equity to go alongside with the share repurchases from the FCF it generates from its operating business. So as the company grows, not only do the buybacks from operating cash increase, so can the buybacks from the debt issuance in order to maintain the company's desired leverage ratio.

Marriott bought in 29.2 million shares last year for $3 billion, and is targeting another $3 billion of capital return between dividends and buybacks this year; has already bought back 7.9 million shares this year.

The lodging market is cyclical and Marriott earnings got hit in the last downturn, so that's definitely a risk, but the company should be able to weather through to the other side because its business model was designed to basically always spew cash; MAR generated FCF in both 2008 and 2009, for example.

In the meantime the company should repurchase between five and six percent of its stock this year, and has a pretty strong pipeline for room growth over the next several years. Over the long run, if Marriott can continue to grow without need for a lot of incremental capital while shareholders increase their ownership of the business at a 5-6% clip on top, who knows what might happen. It's one to keep an eye on in event of any weakness at the very least.

MRQ and 2017 annual PRs:

https://marriott.gcs-web.com/news-releases/news-release-details/marriott-international-reports-first-quarter-2018-results

http://news.marriott.com/2018/02/marriott-international-reports-strong-fourth-quarter-2017-results/
« Last Edit: July 03, 2018, 11:13:53 AM by ScottHall »


ScottHall

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Re: MAR - Marriott International
« Reply #1 on: July 03, 2018, 09:29:54 AM »
An interesting piece of financial history about this stock.

Joel Greenblatt talks about it a bit in his "You Can Be a Stock Market Genius" book because Marriott decided to separate the hotel ownership business and the management/franchise business. The story as I remember it is that he thought nobody wanted to own Host Marriott (the name of the real estate biz back then) because it was a fugly business with a lot of debt on it whereas the company this thread is about had the high margins, high returns on capital, and he figured that would be more appreciated by the market.

He ended up doing pretty well on those Host Marriott shares, I guess the stock tripled in just a few months. That same business is still pointed out as a big contributor to the top line in the annuals. Here's a review of the book that has the situation described right near the top.

https://whatheheckaboom.wordpress.com/2011/01/16/book-review-of-you-can-be-a-stock-market-genius-uncover-the-secret-hiding-places-of-stock-market-profits/

Jurgis

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Re: MAR - Marriott International
« Reply #2 on: July 03, 2018, 11:08:33 AM »
Dang, Scott.

MAR was one company that I was thinking of looking at more and maybe buying from 2018 Barron's "World's Best CEOs" list.

I just feel that I'm too late to the party. Expensive and cyclical. But then that's true with most good/moaty businesses in 2018.
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JayGatsby

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Re: MAR - Marriott International
« Reply #3 on: July 03, 2018, 12:45:13 PM »
Great company for sure, but I'm probably too cheap at these prices similar to Jurgis.

My problem with Marriott as a consumer is they're in the bucket of companies that continues to devalue their loyalty program. The brand is no longer an important signal of quality because I can see that online, so why would I be loyal to them? I spent 3 months last year living in a ~$200 a night Marriott hotel for a work project.  Let's say I averaged 22 nights a month in their hotel, that's $13,200 of revenue for them. In exchange, I got 3 nights in Prague at a nice hotel that was less than $150 a night (yes, I could have done a better exchange, but that's part of the point). So call that a 3.4% rate back. At hotels.com I get 3x that, a wider range of hotels, and none of the annoying games about points/"classes of hotels". 

Jurgis

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Re: MAR - Marriott International
« Reply #4 on: July 03, 2018, 02:01:32 PM »
Maybe that's another reason I never bought MAR - I really don't see a big attraction/brand/moat for myself. (Note: my tastes are very idiosyncratic, so it's completely anecdotal--; also I sometimes invest against my tastes since I know that they are idiosyncratic  8)). I don't remember if I stayed at Marriott anytime recently, but we have one (couple?) nearby and it's pretty shabby. Though I am sure if you look at prized locations they are good. But nothing different from any other hotel. I don't travel much, so I don't get back much or at all from hotel loyalty programs. I'd rather book a cheap or nice hotel (or cheap and nice if possible ;)) rather than go with brand. Or if I go to conferences I book conference hotel, since I hate walking 5-10 minutes from my room to the conference talks/etc - I'd rather be onsite. And yeah, I hate how "upper" end hotels don't give free breakfast and overcharge for any breakfast that you can buy. It's like "you paid through the nose for the hotel, pay more for breakfast sucker". There are (mostly Scandinavian) hotels for which I gladly pay the price they charge. Marriott has not made impression on me really so far.

Edit: possibly less anecdotal, from what I read there was/is shortage of hotel rooms with the rising economy and increased travel in US (and across the world?). Presumably there is a hotel buildout happening. This may lead to deeper cyclical downturn if the travel crashes on recession/whatever. I don't have numbers on this though and perhaps Marriott is somewhat insulated like Scott said.
« Last Edit: July 03, 2018, 02:15:55 PM by Jurgis »
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Spekulatius

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Re: MAR - Marriott International
« Reply #5 on: July 03, 2018, 03:11:26 PM »
Maybe that's another reason I never bought MAR - I really don't see a big attraction/brand/moat for myself. (Note: my tastes are very idiosyncratic, so it's completely anecdotal--; also I sometimes invest against my tastes since I know that they are idiosyncratic  8)). I don't remember if I stayed at Marriott anytime recently, but we have one (couple?) nearby and it's pretty shabby. Though I am sure if you look at prized locations they are good. But nothing different from any other hotel. I don't travel much, so I don't get back much or at all from hotel loyalty programs. I'd rather book a cheap or nice hotel (or cheap and nice if possible ;)) rather than go with brand. Or if I go to conferences I book conference hotel, since I hate walking 5-10 minutes from my room to the conference talks/etc - I'd rather be onsite. And yeah, I hate how "upper" end hotels don't give free breakfast and overcharge for any breakfast that you can buy. It's like "you paid through the nose for the hotel, pay more for breakfast sucker". There are (mostly Scandinavian) hotels for which I gladly pay the price they charge. Marriott has not made impression on me really so far.

Edit: possibly less anecdotal, from what I read there was/is shortage of hotel rooms with the rising economy and increased travel in US (and across the world?). Presumably there is a hotel buildout happening. This may lead to deeper cyclical downturn if the travel crashes on recession/whatever. I don't have numbers on this though and perhaps Marriott is somewhat insulated like Scott said.

I donít think that any hotel chain will be insulated when there is a downturn in travel. MAR is indeed putting up great numbers right now, but they are also accumulating a fair amount of debt and since they are asset light, there arenít a whole lot of assets to pawn, if they get overleveraged in a downturn. It might hit be correct that itís hard for a hotel to escape a franchise agreement, but in a real downturn, bankruptcy of hotel operators arenít unheard of either. ItĎs too risky for me and at current prices, there is no margin of safety, IMO.
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Jerry Capital

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Re: MAR - Marriott International
« Reply #6 on: July 04, 2018, 05:18:42 AM »
A long thesis in MAR should be compared to a long thesis in BKNG

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

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Spekulatius

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Re: MAR - Marriott International
« Reply #7 on: July 04, 2018, 05:43:39 AM »
A long thesis in MAR should be compared to a long thesis in BKNG

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

I donít think this is a good way of looking at it. The MAR brand has value and allows for a better online presence and a somewhat standardized experience that BKNG canít provide.
Life is too short for cheap beer and wine.

cameronfen

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Re: MAR - Marriott International
« Reply #8 on: July 04, 2018, 06:31:50 AM »
A long thesis in MAR should be compared to a long thesis in BKNG

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

I donít think this is a good way of looking at it. The MAR brand has value and allows for a better online presence and a somewhat standardized experience that BKNG canít provide.

Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names. 

Jurgis

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Re: MAR - Marriott International
« Reply #9 on: July 04, 2018, 08:31:03 AM »
Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

I guess maybe I'm not the target market for AirBnB.  8)
"Human civilization? It might be a good idea." - Not Gandhi
"Before you can be rich, you must be poor." - Nef Anyo
"Money is an illusion" - Not Karl Marx
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