University of Houston, 4333 University Drive, Houston TX 77204-2000, (713) 743-1050.
© 2013 University of Houston. All rights reserved.
| Title | Marriott Corporation, 1980 Annual Report |
| Creator (LCNAF) |
|
| Publisher | Marriott International, Inc. |
| Date | 1980 |
| Description | Marriott Corporation Annual Report for calendar year 1980. |
| Subject.Topical (LCSH) |
|
| Subject.Name (LCNAF) |
|
| Genre (AAT) |
|
| Language | English |
| Type (DCMI) |
|
| Original Item Location | Marriott Hotels Collection |
| Digital Collection | Annual Reports from the Hospitality Industry Archives |
| Digital Collection URL | http://digital.lib.uh.edu/collection/hiltonar |
| Repository | Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston |
| Repository URL | http://www.uh.edu/hilton-college/About/hospitality-industry-archives |
| Use and Reproduction | No Copyright - United States |
| File Name | index.cpd |
| Title | Image 22 |
| Format (IMT) |
|
| File Name | hiltonar_201609_052_022.jpg |
| Transcript | Capitalization Is Optimized Marriott's hotel business has become less capital intensive because about 70%-or $860 million-of the total hotel assets from which the company earns substantial operating profits are owned by others. This enables Marriott's hotel business to expand 25% annually without commensurate capital requirements, thereby releasing investment capacity to fund additional corporate growth. The company chooses to own some hotels for the long term, as well as to facilitate development and to temporarily utilize investment capacity. We believe that most of Marriotts $634 million of hotels at Current Value could be readily sold under management contract if better investment opportunities become available. For example, the company partially financed the 1980 stock repurchase program with the $159 million sale of three existing hotels and three projects under development Marriott utilizes its debt capacity to optimize shareholder returns. Debt is less expensive than equity financing because its cost—interest- is tax deductible. Debt also allows the company to own more assets from which the net profits flow to shareholders. Marriott can prudently utilize relatively high levels of debt in its capitalization because the financial markets perceive relatively low risk in the company's predictable cash flow stream and strong real estate asset base. □ Marriotts real estate assets produce high and stable net cash flow which has increased for 30 consecutive years. Non-cash charges (like depreciation) comprise about 50% of cash flow, and are unrelated to operating performance. D Most of Marriott's assets have long lives and are not subject to obsolescence through technological change. Therefore, capital expenditures are highly discretionary. D Most assets should be readily saleable to investors at prices well above book value. Marriott bases target debt levels on cash flow coverage of interest expense rather than on traditional debt- to-equity ratios. Senior debt and lease obligations are 5 5% of historical cost capitalization but only 25% of Current Value capitalization, which demonstrates that inflation makes the debt-to-equity ratio a poor debt capacity standard. Lenders require about four times coverage to provide debt financing to Marriott Corporation at prime rates, and less than two times coverage to finance individual hotel projects. The company's coverage increased to seven times in 1979, indicating excess debt capacity. It decreased to four times in 1980 with the increase in interest costs to initially finance the stock repurchase. Fifty-six percent of Marriott's debt is long term at fixed rates. The remainder is medium term revolving credits tied to the prime rate. Fixed- rate debt has a 15-year average life with a 10% average rate providing significant economic advantages to shareholders during periods of rising interest rates. Management elected to retain a relatively high proportion of floating rate debt in 1980 while awaiting improved fixed-rate debt markets. In the interim, the revolving debt has a negotiated weighted rate ceiling of 16% through 1981. This protected Marriott from the sharp upward swings in the prime rate during 1980 Marriott has no requirement for positive working capital since it principally sells services (rather than goods) for cash. Therefore, the company maintains relatively low receiv able and cash balances—monetary assets that depreciate in value during inflation. Negative working capital is a source of interest-free financing. Dividends Increase In November 1980 the Board of Directors increased the cash dividend 20% to 24C annually. This is consistent with Marriotts plan to increase dividends with earnings growth. The company has a good record of reinvesting cash flow in growth businesses at high returns Marriott will continue this reinvestment strategy to support planned profit growth averaging at least 20% annually through the mid-1980s. If management is successful, shareholders should profit through share appreciation taxed at advantageous capital gains rates, ratherthan through higher dividends taxed at ordinary rates. Stock Price Increases The range of Marriott stock prices by quarters is: 1980 1979 Quarters Ended in March June September December High 24 21% 28 37 Low 16% 17* 20% 2Vh High 14* \5'k 17 18% Low 11% 12% 13 15% We believe that Marriotts stock price increased during 1980 because: □ Over the past five years, the company has maintained high real earnings growth and has substantially improved ROE. □ Shares outstanding have been reduced from 37 million to 25 million since 1978. □ The investment community has a favorable market outlook for hotels, the firm's principal business. Marriotts prime economic objective is to increase share value through superior profits on a growing asset base. 18 |