to $502 million from $277 million for 2002;
Full-year Revpar for North American Properties Fell 1.3%,
Expects 2004 Revpar to Increase 3% to 4%,
Plans to Add 25,000 to 30,000 Rooms in 2004
Hotel Operating Statistics
|February 10, 2004
Highlights from the year:
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, "We are pleased with our solid performance in 2003, especially in light of the challenges of a war in Iraq and Severe Acute Respiratory Syndrome (SARS). Our leading brands have proven themselves in the challenging operating environment over the past three years. Owners have converted more than 115 hotels with over 20,000 rooms, excluding Ramada International, to our brands since the beginning of 2001 and the trend continues into 2004.
"We expect 2004 to be an even better year at Marriott, in part due to an improved demand outlook and in part due to Marriott's recent product initiatives. We rolled out Marriott's industry leading Look No Further(SM) Best Rate Guarantee, which ensures that customers receive the best available room rate at nearly 2,500 hotels when booking through any Marriott reservation channel. We also recently signed distribution agreements with major third party internet hotel distributors as well as with major travel management companies. These agreements are designed to make Marriott products available to a growing number of travelers with reliable pricing across all distribution channels.
"We are encouraged by the signs of improving trends and look forward to business travel demand building throughout 2004. We expect our 2004 REVPAR (revenue per available room) to increase three to four percent in North America. We also expect to continue our growth in distribution, adding approximately 25,000 to 30,000 hotel rooms and timeshare units to our system in 2004, even as growth in industry supply in the U.S. is expected to continue to decline. As we began 2004, our pipeline of hotel rooms under development increased to more than 50,000 rooms and included a growing proportion of international full service projects. With improved lodging demand, continued strong unit growth and strength in our timeshare business, we continue to expect EPS from continuing operations to be in the range of $2.06 to $2.16 in 2004.
"We have a long term vision for the lodging business to be where our guests are traveling. High-quality, worldwide distribution is important to drive brand value. During the year, we announced a number of exceptional hotels with tremendous market presence, both newly constructed and converted. Properties such as a new Ritz-Carlton in Tokyo and the Grosvenor House in Mayfair, London will extend the excellent distribution our brands enjoy today."
In fiscal 2003 (52 week period from January 4, 2003 to January 2, 2004), REVPAR for comparable systemwide North American properties declined by 1.3 percent, driven largely by lower average room rates. REVPAR at comparable systemwide North American full-service hotels (including Marriott Hotels & Resorts, The Ritz-Carlton, and Renaissance Hotels & Resorts) decreased by 1.6 percent during the year, while North American systemwide REVPAR for select- service and extended-stay brands (including Courtyard, Fairfield Inn, Residence Inn, TownePlace Suites, and SpringHill Suites) posted a REVPAR decline of 0.8 percent. The Ritz-Carlton brand in North America experienced stronger demand, particularly at its resort properties, with comparable REVPAR up 1.0 percent for the year. International REVPAR at comparable systemwide properties increased 3.7 percent (or declined 1.5 percent in constant dollars). International lodging demand was impacted in 2003 by SARS, the Iraqi war and weak economies in Continental Europe.
We added 185 hotels and timeshare resorts (31,261 rooms) to our worldwide lodging portfolio during 2003, while 24 properties (4,126 rooms) exited the system. For the full year 2003, hotels converted from competitor or unbranded hotels accounted for approximately one-third of gross hotel room additions. At year-end, the company's lodging group encompassed 2,718 hotels and timeshare resorts (490,564 rooms).
MARRIOTT REVENUES totaled $9.0 billion in 2003, a 7 percent increase from 2002. Base fees from managed hotels increased 2 percent to $388 million, reflecting 3 percent net growth in managed rooms, somewhat offset by lower REVPAR. Franchise fees increased 6 percent in 2003 to $245 million, reflecting 9 percent net growth in franchised rooms, somewhat offset by lower REVPAR. Incentive management fees declined 33 percent to $109 million, reflecting the REVPAR decline at managed hotels as well as lower property level house profit margins. North American company-operated hotel house profit margins in 2003 declined 2.7 percentage points largely due to lower average room rates, higher wages and insurance costs, lower telephone profits, and higher utility costs, offset somewhat by continued productivity improvements. International house profit margins were down only 1.0 percentage point. In 2003, 29 percent of managed rooms earned incentive management fees.
Marriott's timeshare business reported 16 percent higher contract sales for the full year 2003. Contract sales were particularly strong at timeshare resorts in Aruba and Hawaii.
MARRIOTT OPERATING INCOME increased 17 percent from 2002 levels to $377 million, largely as a result of lower operating losses from the company's synthetic fuel business in 2003 and the $50 million writedown of goodwill associated with ExecuStay that was included in operating income in 2002. Marriott's 2003 operating income included the receipt of a $36 million insurance payment for lost revenue related to the loss of the Marriott World Trade Center Hotel on September 11, 2001. Operating income in 2003 also reflected a $53 million reduction in incentive fees, due to the continued weak operating environment in the lodging industry.
Gains and other income include the gains on the sale of timeshare mortgage notes, hotel assets and other investments, including $64 million from the company's ongoing timeshare mortgage note sale program in 2003 and $21 million in gains on the sale of three international joint venture interests. Prior year gains included $60 million from timeshare mortgage note sales and $44 million from the sale of our equity stake in Interval International.
INTEREST EXPENSE increased to $110 million in 2003 compared to $86 million in 2002 reflecting lower levels of capitalized interest. The net provision for loan losses was $7 million, down from the 2002 level of $12 million.
We sold a 50 percent ownership interest in our synthetic fuel operation to a major U.S. financial institution in mid-2003. We expect to receive substantial additional payments over time, the size of which depends on the amount of synthetic fuel produced. Because the buyer retained a put option, we continued to report synthetic fuel results on a consolidated basis until November 6, 2003, when the put option was terminated. At that point, we began to account for the synthetic fuel business under the equity method. Our income derived from our equity in the synthetic fuel joint venture totaled $10 million during the year. Excluding the impact of our synthetic fuel operations, our tax rate for continuing operations was 34.6 percent in 2003.
Other equity losses increased to $17 million in 2003, primarily as a result of continued weakness in the Courtyard joint venture.
During 2003, we sold 3 hotels, 23 senior living communities and several land parcels totaling $611 million. We owned only six hotels at year-end 2003. Also, during 2003, we received $280 million in cash from the sale and collection of notes receivable (excluding timeshare mortgage notes). Total debt at year end 2003 was $1.5 billion, down from $1.8 billion at the end of 2002. In addition to reducing our debt by more than $300 million, we repurchased 10.5 million shares of common stock during 2003 at a total cost of $380 million. To date in 2004, we have repurchased an additional 2.3 million shares of common stock for a total cost of $104 million. Ten million shares remain authorized for repurchase.
During 2002, we closed the distribution services business and during 2003 we sold our senior living business. Therefore, we show the financial results for those businesses in discontinued operations for 2003 and 2002. Fully diluted earnings per share from discontinued operations were $0.11 in 2003 compared to losses of $0.64 a year ago. In light of our transition to a pure lodging company, we have modified our financial statements to include the consolidation of all of our general and administrative expenses and to provide more detail about our lodging business.
FOURTH QUARTER RESULTS Fourth quarter highlights include:
We added 50 hotels and timeshare resorts (7,206 rooms) to our worldwide lodging portfolio during the fourth quarter of 2003, while nine properties (1,599 rooms) exited the system.
Outside North America, comparable systemwide REVPAR for the last four months of 2003 increased 3.4 percent in constant dollars as a result of stronger occupancies in almost all regions and particularly strong demand in Middle Eastern, the United Kingdom and Caribbean destinations. Taking into account the decline in the value of the U.S. dollar, comparable systemwide REVPAR outside North America increased 8.7 percent during the quarter.
MARRIOTT REVENUES totaled $2.9 billion in the 2003 fourth quarter, a six percent increase from 2002. Base fees from managed hotels increased one percent, while franchise fees increased six percent as a result of strong unit growth. Incentive management fees declined 36 percent, reflecting REVPAR declines and lower property level house profit margins. North American comparable company-operated house profit margins during the fourth quarter declined 2.7 percentage points.
Marriott's timeshare business reported 11 percent higher contract sales in the 2003 fourth quarter. Contract sales were particularly strong at timeshare resorts in Hawaii and California.
MARRIOTT'S OPERATING INCOME for the fourth quarter of 2003 was $161 million, up from $37 million a year ago primarily as a result of lower synthetic fuel operating losses in 2003 and the inclusion of a $50 million writedown of goodwill related to our ExecuStay corporate living business in the year ago quarter. Marriott's fourth quarter lodging operating income benefited from a $36 million insurance payment for lost revenue related to the loss of the Marriott World Trade Center Hotel on September 11, 2001, largely offset by $19 million in lower incentive fees and charges totaling $15 million related to three hotels.
INTEREST EXPENSE totaled $33 million during the 2003 fourth quarter compared to $27 million in the fourth quarter of 2002. The increase was largely due to $5 million of lower capitalized interest.
Synthetic fuel operations contributed approximately $0.12 cents per share of after-tax earnings during the quarter. After the sale of a 50 percent interest, we continued to report synthetic fuel results on a consolidated basis because the buyer retained a put option. Effective November 6, 2003, that put option was terminated and we began to account for the synthetic fuel business under the equity method. Our income derived from our equity in the synthetic fuel joint venture totaled $10 million during the quarter. Excluding the impact of our synthetic fuel operations, our tax rate for continuing operations was 34.5 percent in the fourth quarter of 2003.
We are pleased with our current booking patterns in 2004 and believe the strengthening economy is beginning to impact favorably individual business travel. Combined with already strong leisure business, we are optimistic about 2004 demand growth. In addition, Lodging Econometrics expects U.S. lodging supply to grow only 1.2 percent in 2004. Based on these dynamics, we continue to estimate North American REVPAR growth for 2004 of 3 to 4 percent.
Assuming nearly flat house profit margins, completion of timeshare mortgage note sale transactions in the second and fourth quarters, approximately 25,000 to 30,000 new room openings, and roughly $0.40 of after-tax earnings per share from our synthetic fuel business, we continue to estimate that 2004 diluted earnings per share from continuing operations will range from $2.06 to $2.16. Under these assumptions, lodging operating income (excluding synthetic fuel's operating loss in 2003) should increase roughly 15 percent for full year 2004.
Assuming North American REVPAR growth of 2 to 4 percent in the first quarter of 2004, we currently estimate first quarter earnings per share from continuing operations of $0.38 to $0.42, including $0.06 of earnings from synthetic fuel.
We expect investment spending in 2004 to include
approximately $50 million for maintenance capital spending and approximately
$50 million for systems initiatives. We also expect to invest approximately
$25 million in new company-developed hotels and $75 million in the timeshare
business. We expect to invest approximately $150 million in mezzanine financing
and mortgage loans for hotels developed by our owners and franchisees and
approximately $150 million in equity investments, including investments
in timeshare joint ventures. In 2004, we estimate total investment spending
levels to be roughly $500 million, moderately lower than in 2003.
This press release contains "forward-looking statements" within the meaning of federal securities laws, including REVPAR, profit margin and earning trends; statements concerning the number of lodging properties we expect to add in future years; our expected investment spending; our anticipated results from synthetic fuel operations; and similar statements concerning anticipated future events and expectations that are not historical facts.
MARRIOTT INTERNATIONAL, INC. (NYSE: MAR - News) is a leading worldwide hospitality company with over 2,700 lodging properties in the United States and 67 other countries and territories.
Marriott International, Inc.
|Also See:||Marriott Reports Loss of $37 million in 4th Qtr 2002; Revpar for North American Properties Drop 5.7% in 2002 / Key Lodging Statistics / Feb 2003|
|Marriott Reports Loss of $116 million for Fourth Quarter; For 2001, Marriott Earned $236 million Compared to $479 million Last Year / Key Lodging Statistics / Feb 2002|
|Marriott International Posts Record 2000 Fourth Quarter And Full Year Earnings / Feb 2001|
|REVPAR and ADR at Marriott Lodging Brands Grow By 3.5 % in 1999; Occupancy Remained at 78 % / Feb 2000|