Marriott International, Inc (Marriott) is an operator, franchisor, and licensor of hotels worldwide. It maintains an asset-light business model where 99% of its hotels are managed on behalf of hotel owners or franchised to hotel operators. Listed on NASDAQ, Marriott has a market capitalisation of US$ 81.3 billion today. In this article, I’ll list down 8 major things to know about Marriott before you invest. They are as follows:
1. It Owns 30 Brands
In addition to the “Marriott” brand, the company owns multiple brands as follows:
These 30 brands are segregated into 4 segments:
2. It has 9,068 Properties in its System
Marriott expanded its number of properties in its system from 3,633 in 2011 to 9,068 in Q3 2024. In 2016, there was a huge increase in its number of properties as Marriott acquired a full interest in Starwood Hotels & Resorts Worldwide LLC for US$ 11.7 billion. From the 9,068 properties, its breakdown of properties based on brand segments are as follows:
3. It Generates 3 Sources of Income
The first type is management fees for operating hotels on behalf of hotel owners. Such include a combination of base management fee that is calculated based on a percentage of revenues that are generated and incentive management fee based on a percentage of profits that are attained by these hotels. Such fees are recognised on a monthly basis. These management agreements, signed between Marriott and hotel owners, have a duration of 20-30 years with options to renew for up to 10 or more years.
The second type is franchise and royalty fees that are based on a percentage of revenues of the hotels franchised to franchisees. The percentage ranges between 4-7% for all brands and 4% of all food & beverage revenues.
The third type is operating income from its hotels owned. In Q3 2024, from 9,068 hotels, Marriott owns and operates 50 hotels. In addition, Marriott includes other revenues, which include Global Design fees, which are fees related to hotel design and construction, termination fees, and other property and brand revenue in this income category.
In 2023, the breakdown of these 3 types of income are as follows:
4. Earnings Grew at a CAGR of 17.3% in 10 Years.
Overall, Marriott had grown its earnings at a 10-Year CAGR of 17.28%, up from US$ 626 million in 2013 to US$ 3.08 billion in 2023. This is attributable to continuous growth in all of its 3 income sources and a slower growth rate of its general and administration expenses during the period.
The exception is in 2020 as Marriott’s 3 sources of income were affected by COVID-19.
5. Capital Allocation Strategy
In 2014-2023, Marriott had generated US$ 19.0 billion in operating cash flows and had raised as much as US$ 6.2 billion in debt. From these cash inflows, Marriott allocated:
1. Net share buybacks: US$ 18.5 billion (65.5%)
2. Dividend payments: US$ 3.6 billion (12.6%)
3. Capital and technology expenditures: US$ 3.5 billion (12.3%)
4. Business Acquisitions: US$ 2.7 billion (9.7%) – mainly on Starwood in 2016.
6. Latest 12-Month Results
In Q4 2023-Q3 2024, Marriott generated US$ 3.08 billion in net income and brought in US$ 3.18 billion in operating cash flows. Of which, it paid US$ 2.30 in gross dividends per share (DPS).
7. It Has 3,800 Hotels in Development Pipeline
In Q3 2024, Marriott has 3,800 hotels with 585,000 rooms in its development pipeline. Of which, more than 220,000 rooms are from the long-term licensing agreement with Sonder Holdings Inc, which is signed in August 2024. These rooms are under construction.
Source: Long-Term Licensing Agreement with Sonder Holdings Inc
8. Valuation Ratios
Excluding 2020-2021, Marriott’s 10-year P/E Ratio, dividend yields, and P/OCF Ratio average at 27.34, 1.12% and 19.43 respectively. The dividend yield is based on gross dividends. Hence, as investors, we need to deduct 30% U.S. withholding tax to obtain a net dividend figure.
Conclusion:
Marriott operates an asset-light business model which enables it to scale on its number of hotels within its system via management, franchise and licensing agreements. Marriott had reported an increase in net income for the past 10 years (except 2020) resulting from its income growth from management, franchise and license fees and effective cost controls, which raised net margins in that period. The key for investors is to assess industry risk like COVID-19 and also its valuation.
There you go, the 8 things to know about Marriott before investing.
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