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Marriott International reports first quarter results

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First quarter diluted EPS totaled $0.57, a 33 percent increase over prior year results

• North American comparable systemwide RevPAR rose 6.3 percent in the first quarter with average daily rates up 3.3 percent;

• On a constant dollar basis, worldwide comparable systemwide RevPAR rose 6.2 percent in the first quarter, including a 3.2 percent increase in average daily rate;

• Marriott repurchased 7.0 million shares of the company’s common stock for $356 million during the first quarter.  Year-to-date, the company repurchased 9.0 million shares for $467 million;

• Comparable company-operated house profit margins increased 160 basis points in North America and 130 basis points worldwide in the first quarter;

• Adjusted for cost reimbursements, the company’s operating income margin increased to 41 percent compared to 38 percent in the year-ago quarter;

• At the end of the first quarter, the company’s worldwide development pipeline increased to over 200,000 rooms, including nearly 30,000 rooms approved, but not yet subject to signed contracts.  The pipeline does not include the more than 10,000 rooms associated with the Protea transaction, which was completed on April 1st;

• Nearly 6,000 rooms were added during the first quarter, including over 1,000 rooms converted from competitor brands and 3,300 rooms in international markets;

• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $339 million in the quarter, a 12 percent increase over first quarter 2013 adjusted EBITDA.

BETHESDA, MD – April 29, 2014 – Marriott International, Inc. (NASDAQ: MAR) today reported first quarter 2014 results.  Due to the company’s change in the fiscal calendar beginning in 2013, the first quarter of 2014 reflects the period from January 1, 2014 through March 31, 2014 (90 days) compared to the 2013 first quarter, which reflects the period from December 29, 2012 through March 31, 2013 (93 days).  Prior year results have not been restated for the change in fiscal calendar, although revenue per available room (RevPAR), occupancy and average daily rate statistics are reported for calendar quarters for purposes of comparability.

First quarter 2014 net income totaled $172 million, a 26 percent increase compared to first quarter 2013 net income.  Diluted earnings per share (EPS) totaled $0.57, a 33 percent increase from diluted EPS in the year-ago quarter.  First quarter 2014 results reflect a $10 million impairment charge and a net $16 million tax benefit.  On February 19, 2014, the company forecasted first quarter diluted EPS of $0.47 to $0.52.

Arne M. Sorenson, president and chief executive officer of Marriott International, said, “We are delighted to report solid results in the first quarter of 2014.  We continue to enjoy strong preference for our brands, sustained economic growth and favorable industry supply trends in many markets around the world.

“North American group and transient demand exceeded our expectations during the quarter, driving RevPAR and house profit margins higher.  We were particularly pleased to see higher food and beverage spending by both groups and transient guests.

“While hotel industry supply in North America is growing only modestly, particularly in the full-service segment, we are taking a greater share of new hotels being developed around the world, reflecting owners’ and franchisees’ confidence in our brands and operational strength.  At quarter-end, we had over 200,000 rooms in our development pipeline, a 35 percent increase from a year ago.

“On April 1, we became the largest hotel company in Africa after completing our acquisition of the Protea Hospitality Group.  We look forward to new opportunities for growth in Africa.

“Looking ahead, we expect demand to remain strong, with North American comparable company-operated RevPAR increasing 4 ½  to 6 ½ percent in 2014 and property-level house profit margins improving 100 to 150 basis points.  We expect 5 percent net rooms growth worldwide and another year of record signings from our development team.

‘We remain committed to increasing RevPAR, growing our distribution globally and controlling costs in order to drive earnings and shareholder value.  Over the past 4 years, we have repurchased 103.1 million shares for approximately $3.8 billion and 21.6 million shares for $973 million in the last four quarters alone.”

For the 2014 first quarter, RevPAR for worldwide comparable systemwide properties increased 6.2 percent (a 5.9 percent increase using actual dollars).

In North America, comparable systemwide RevPAR increased 6.3 percent in the first quarter of 2014, including a 3.3 percent increase in average daily rate.  RevPAR for comparable systemwide North American full-service hotels (including Marriott Hotels, The Ritz-Carlton, Renaissance Hotels, Gaylord Hotels and Autograph Collection Hotels) increased 6.5 percent with a 3.6 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 6.2 percent in the first quarter with a 3.1 percent increase in average daily rate.

International comparable systemwide RevPAR rose 5.7 percent (a 4.4 percent increase using actual dollars) in the first quarter.

Marriott added 32 new properties (5,855 rooms) to its worldwide lodging portfolio in the 2014 first quarter, including The Ritz-Carlton Kyoto, the JW Marriott Dongdaenum Square Seoul and the Pier One Sydney Harbour, an Autograph Collection hotel.  Fourteen properties (2,154 rooms) exited the system during the quarter.  At quarter-end, the company’s lodging group encompassed 3,934 properties and timeshare resorts for a total of nearly 680,000 rooms.

The company’s worldwide development pipeline increased to more than 1,200 properties with over 200,000 rooms at quarter-end, including 186 properties with nearly 30,000 rooms approved for development, but not yet subject to signed contracts.  The company’s pipeline at quarter-end does not include the 10,148 rooms associated with the Protea transaction.

MARRIOTT REVENUES totaled nearly $3.3 billion in the 2014 first quarter compared to revenues of over $3.1 billion for the first quarter of 2013.  Base management and franchise fees totaled $318 million compared to $304 million in the year-ago quarter.  The year-over-year increase largely reflects higher RevPAR and non-room revenue partially offset by $5 million of lower fees due to the three additional days in the year-ago quarter as a result of the change in the fiscal calendar.

First quarter worldwide incentive management fees increased $5 million to $71 million.   Incentive fee growth in the first quarter was somewhat constrained by tough comparisons to last year’s Hurricane Sandy recovery in New York, the inauguration in Washington, DC and the Super Bowl in New Orleans.  In the first quarter, 36 percent of worldwide company-managed hotels earned incentive management fees compared to 33 percent in the year-ago quarter.

On February 19, the company estimated total fee revenue for the first quarter would total $380 million to $395 million.  Actual total fee revenue in the quarter was within the expected range.

Worldwide comparable company-operated house profit margins increased 130 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 160 basis points from the year-ago quarter.

Owned, leased and other revenue, net of direct expenses, totaled $49 million, compared to $45 million in the year-ago quarter.  Improved results at several leased hotels and results from a property the company acquired in the fourth quarter of 2013 were partially offset by lower termination and residential branding fees.

On February 19, the company estimated first quarter owned, leased and other revenue, net of direct expenses would total approximately $45 million for the first quarter.  Actual results in the quarter exceeded those expectations by $4 million largely due to better than expected performance at several international hotels.

DEPRECIATION and AMORTIZATION expense totaled $36 million in the 2014 first quarter compared to $25 million in the year-ago quarter.  The increase in expense largely reflects a $10 million impairment charge for the company’s owned EDITION hotels due to higher estimated construction costs.  These hotels are contracted for sale at a fixed price.

GENERAL, ADMINISTRATIVE and OTHER expenses for the 2014 first quarter totaled $148 million, a 10 percent decline compared to the year-ago quarter.

On February 19, the company estimated general and administrative expenses for the first quarter would total $155 million to $160 million.  Actual expenses in the quarter were lower than expected largely due to favorable timing.

Provision for Income Taxes

The provision for income taxes in the first quarter was lower than anticipated due to a net $16 million non-cash tax benefit largely related to a settlement with the IRS.

Adjusted Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA)

Adjusted EBITDA totaled $339 million in the 2014 first quarter, a 12 percent increase over 2013 first quarter adjusted EBITDA of $303 million.  See page A-6 for the EBITDA calculation.

BALANCE SHEET

At the end of the first quarter, total debt was $3,302 million and cash balances totaled $184 million, compared to $3,199 million in debt and $126 million of cash at year-end 2013.

COMMON STOCK

Weighted average fully diluted shares outstanding used to calculate diluted EPS totaled 303.3 million in the 2014 first quarter, compared to 320.0 million in the year-ago quarter.

The company repurchased 7.0 million shares of common stock in the first quarter at a cost of $356 million.  Year-to-date, Marriott repurchased 9.0 million shares of its stock for $467 million.  The remaining share authorization as of April 29, 2014, totaled 30.3 million shares.

OUTLOOK

For the 2014 second quarter, the company expects comparable systemwide calendar RevPAR on a constant dollar basis will increase 4 to 6 percent in North America, outside North America and worldwide.

The company expects full year 2014 comparable systemwide RevPAR on a constant dollar basis will increase 4.5 to 6.5 percent in North America, 4 to 6 percent outside North America and 4.5 to 6.5 percent worldwide.

The company anticipates gross room additions of 6 percent worldwide for the full year 2014 including the 10,148 rooms associated with the Protea acquisition.  Net of deletions, the company expects its portfolio of rooms will increase by approximately 5 percent by year-end 2014.

The company assumes full year fee revenue could total $1,665 million to $1,705 million, growth of 8 to 11 percent over 2013 fee revenue of $1,543 million.

For 2014, the company anticipates general, administrative and other expenses will total $640 million to $650 million, flat to down 1 percent compared to 2013 expenses of $649 million.

Given these assumptions, 2014 diluted EPS could total $2.39 to $2.53, a 20 to 27 percent increase year-over-year.

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