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| Title | Marriott Corporation, 1979 Annual Report |
| Creator (LCNAF) |
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| Publisher | Marriott International, Inc. |
| Date | 1979 |
| Description | Marriott Corporation Annual Report for calendar year 1979. |
| Subject.Topical (LCSH) |
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| Subject.Name (LCNAF) |
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| Genre (AAT) |
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| Language | English |
| Type (DCMI) |
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| 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 24 |
| Format (IMT) |
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| File Name | hiltonar_201609_051_024.jpg |
| Transcript | Hotel Rooms Growth Total 21,000 20,000 15,000 10,000 5,000 MANAGED/LEASED ROOMS 75 76 77 '78 79 to rising costs—including increasing capital costs. 2. Marriott's real estate-based assets with their large building component, unlike industrial assets, actually require less annual capital reinvestment than is provided by annual depreciation charged at historical rates. In contrast with manufacturing facilities, Marriott's high quality building structures, properly maintained, do not physically wear out at the depreciation rates assumed by industry accounting standards. For example, Marriott's Essex House Hotel is 50 years old, yet it remains one of America's finest real estate values due to its location in New York City and its excellent maintenance program. Marriott's real estate assets actually increase in value during inflation, as demonstrated by actual transactions. However, book depreciation assumes all assets decline in value and reduces stated asset values on the balance sheet. 3. Well-located hotels and theme parks (55% of Marriott's assets) are long life assets in industries not subject to rapid technological changes. Marriott therefore need not replace these assets at inflated costs to remain competitive, as is often the case with special-purpose industrial facilities. 4. Marriott's real estate assets produce high and stable net cash flow which justifies relatively high levels of long-term, fixed-rate debt. At prudent levels, tax-deductible debt—as mentioned previously— helps the firm combat the marginal cost of inflation and reduces the overall weighted cost of capital. 5. Marriott has no requirement for net working capital since it principally sells services (rather than goods) for" cash. The company therefore maintains relatively low receivable and cash balances— monetary assets that decline in value during inflation. Actually, for Marriott these depreciating monetary assets are more than offset by monetary liabilities which produce a net inflation benefit as shown in the table. Inflation and Marriott's Strategy for the '80s Management believes the 1980s will experience continued high inflation and has forj^4*ated its strategy accordingly: 1. Growth will be concentrated in the hotel business—an excellent and proven inflation hedge. Planned annual hotel room growth for the 1980s has been increased to the 20% to 25% range. 2. Capital will be conserved and new hotel growth will be financed by increasing rooms under management. All management contracts provide at minimum a constant percentage of inflation-driven profits. In addition, most new contracts will provide Marriott an increased share in profits after achieving certain targeted levels. 3. Marriott's financial return requirements on new investment will be continually adjusted to reflect anticipated inflation and capital costs. 4. The company will take advantage of prudent tax-deductible leverage to reduce capital costs. In setting its target debt structure the company will focus primarily on cash flow coverage of interest as the principal determinant of debt capacity. Marriott is now achieving high returns on invested capital which increase its ability to service debt. The resulting debt levels may appear high by traditional balance sheet ratios based on historical costs. However, when computed on a Current Value basis, which reflects the effects of inflation, these ratios assume more traditional proportions. 5. The company will endeavor to maintain a large negative net working capital position to maximize monetary liabilities that benefit from inflation. These strategies should enable Marriott to continue increasing real returns to shareholders as the company advances into the 1980s. 22 |