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Marriott Corporation, 1980 Annual Report
Image 25
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Marriott International, Inc.. Marriott Corporation, 1980 Annual Report - Image 25. 1980. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. University of Houston Digital Library. Web. November 25, 2020. https://digital.lib.uh.edu/collection/hiltonar/item/1134/show/1114.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Marriott International, Inc.. (1980). Marriott Corporation, 1980 Annual Report - Image 25. Annual Reports from the Hospitality Industry Archives. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. Retrieved from https://digital.lib.uh.edu/collection/hiltonar/item/1134/show/1114

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Marriott International, Inc., Marriott Corporation, 1980 Annual Report - Image 25, 1980, Annual Reports from the Hospitality Industry Archives, Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, accessed November 25, 2020, https://digital.lib.uh.edu/collection/hiltonar/item/1134/show/1114.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

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Compound Item Description
Title Marriott Corporation, 1980 Annual Report
Creator (LCNAF)
  • Marriott International, Inc.
Publisher Marriott International, Inc.
Date 1980
Description Marriott Corporation Annual Report for calendar year 1980.
Subject.Topical (LCSH)
  • Hospitality industry
  • Hotel management
  • Corporation reports
Subject.Name (LCNAF)
  • Marriott International, Inc.
Genre (AAT)
  • annual reports
  • business records
Language English
Type (DCMI)
  • Text
  • Image
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
Item Description
Title Image 25
Format (IMT)
  • image/jpeg
File Name hiltonar_201609_052_025.jpg
Transcript Shares Undervalued Common stock valuation—like analysis of any investment—is a function of an after-tax cash flow stream, its rate of growth, and an appropriate discount rate reflecting business risk, financial leverage and inflation. When a discount rate reflecting Marriott's cost of capital is applied to the total relevant cash flows, fundamental investment analysis yields a substantially greater value for Marriott stock than the market recognized. The market's failure to appreciate Marriott's value derives from three factors: 1. Historical cost accounting understates both the value of Marriott's real estate-based assets and its investment capacity. 2. The market overemphasizes short-term earnings per share without examining the nature and magnitude of the underlying cash flows. 3. The market underestimates Marriott's future growth. Understated Asset Values Historical cost accounting understates Marriott's asset values and debt capacity—resulting in a misper- ception of the company's cost of capital and the discount rate applicable to its cash flows. The company's fixed assets are principally real estate with building and equipment depreciated according to industry accounting standards. For example, the average depreciated book value per room of Marriott's owned hotel rooms is $32,000. Yet hotels, unlike industrial plants, are appreciating assets. As reflected in the Current Value statement this results in an appraisal increment of $410 million for Marriott's owned hotel assets. In 1980, Marriott operated 16,500 rooms under management agreements with an average life of 70 years and generating $45 million in operating profits that tend to rise with inflation. These agreements have no stated value on Marriott's historical cost balance sheet However, they have an estimated Current Value of $326 million. When the Current Value of Marriott's real estate assets and management agreements is reflected on its balance sheet the magnitude of the company's debt capacity becomes more apparent Moreover, the failure to recognize the highly liquid nature of Marriott's hotels understates the company's potential investment capacity. The company has sold over $300 million of its hotels over the past six years, retaining favorable contracts to operate the properties. Hotel sales provided the principal funding source for the stock repurchases. Discretionary Cash Flow The historical focus of common stock investors upon reported net income and earnings per share rather than the cash flow earnings stream distorts common stock valuation. This is particularly true for a company like Marriott that has real estate-based assets compared with industrial, retail, or service companies. To value Marriott properly, the investor must understand the full magnitude of its economic profit as well as its anticipated future earnings stream. Marriott's Discretionary Cash Flow —or economic profit—was $ 125 million in 1980 compared to $72 million reported earnings, a proportionate difference that has been rather consistent over the past decade. This difference is largely a function of the real estate nature of the company's assets: 1. Marriott spends approximately half its annual depreciation charge to maintain "plant", while industrial companies are frequently required to spend significantly more than their depreciation. Depreciation expense tends to overstate the cost of operating Marriott's businesses and understates that of industrial companies. This is the major reason Marriott's reported net income understates economic profit 21