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MAR - Marriott International


ScottHall
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This is a hotel industry company that I am a big fan of. It has been a sleeper hit in my portfolio, one I haven't allocated as much to as I wish I would have, and it's one that doesn't get a whole lot of attention.

 

Big boy in the hotel industry but the MAR business itself is mostly an IP company with high margins and which requires very little capital. I think of it as akin to being the McDonald's as opposed to the individual McDonald's franchisee.

 

Collects management and franchise fees, incentive payments, that sort of stuff. Meanwhile investors put up the money for the actual hotel, in most cases, and take on the financial risk of ownership. Marriott does own some hotels, but not a ton of them. This is mostly a business that lives and grows on OPM. An associated question is, if Marriott doesn't own its properties, couldn't the branding and management just be changed and leave them SOL?

 

Well, yes and no. To break a contract early (these contracts last decades) an owner has to pay several years worth of fees to MAR. So the owner has to really want to do it. Accordingly, Marriott's attrition rate is quite low and expected to come in 1% to 1.5% of rooms this year compared to new rooms clocking in at 7%.

 

A business like that, which rides on OPM for its growth, with a historically "sticky" base of recurring revenue contracts which are pretty high margin, should generate robust FCF. And Marriott does exactly that. Just take a look at the cash flow statement.

 

The interesting thing is what Marriott does with all of that cash it generates. Mostly, it buys back shares. A lot of them. Because of the relative stability of its cash flows, it keeps a leverage target and not unlike Malone companies, Marriott doesn't mind issuing lower-cost debt to retire higher-cost equity to go alongside with the share repurchases from the FCF it generates from its operating business. So as the company grows, not only do the buybacks from operating cash increase, so can the buybacks from the debt issuance in order to maintain the company's desired leverage ratio.

 

Marriott bought in 29.2 million shares last year for $3 billion, and is targeting another $3 billion of capital return between dividends and buybacks this year; has already bought back 7.9 million shares this year.

 

The lodging market is cyclical and Marriott earnings got hit in the last downturn, so that's definitely a risk, but the company should be able to weather through to the other side because its business model was designed to basically always spew cash; MAR generated FCF in both 2008 and 2009, for example.

 

In the meantime the company should repurchase between five and six percent of its stock this year, and has a pretty strong pipeline for room growth over the next several years. Over the long run, if Marriott can continue to grow without need for a lot of incremental capital while shareholders increase their ownership of the business at a 5-6% clip on top, who knows what might happen. It's one to keep an eye on in event of any weakness at the very least.

 

MRQ and 2017 annual PRs:

 

https://marriott.gcs-web.com/news-releases/news-release-details/marriott-international-reports-first-quarter-2018-results

 

http://news.marriott.com/2018/02/marriott-international-reports-strong-fourth-quarter-2017-results/

 

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An interesting piece of financial history about this stock.

 

Joel Greenblatt talks about it a bit in his "You Can Be a Stock Market Genius" book because Marriott decided to separate the hotel ownership business and the management/franchise business. The story as I remember it is that he thought nobody wanted to own Host Marriott (the name of the real estate biz back then) because it was a fugly business with a lot of debt on it whereas the company this thread is about had the high margins, high returns on capital, and he figured that would be more appreciated by the market.

 

He ended up doing pretty well on those Host Marriott shares, I guess the stock tripled in just a few months. That same business is still pointed out as a big contributor to the top line in the annuals. Here's a review of the book that has the situation described right near the top.

 

https://whatheheckaboom.wordpress.com/2011/01/16/book-review-of-you-can-be-a-stock-market-genius-uncover-the-secret-hiding-places-of-stock-market-profits/

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Dang, Scott.

 

MAR was one company that I was thinking of looking at more and maybe buying from 2018 Barron's "World's Best CEOs" list.

 

I just feel that I'm too late to the party. Expensive and cyclical. But then that's true with most good/moaty businesses in 2018.

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Great company for sure, but I'm probably too cheap at these prices similar to Jurgis.

 

My problem with Marriott as a consumer is they're in the bucket of companies that continues to devalue their loyalty program. The brand is no longer an important signal of quality because I can see that online, so why would I be loyal to them? I spent 3 months last year living in a ~$200 a night Marriott hotel for a work project.  Let's say I averaged 22 nights a month in their hotel, that's $13,200 of revenue for them. In exchange, I got 3 nights in Prague at a nice hotel that was less than $150 a night (yes, I could have done a better exchange, but that's part of the point). So call that a 3.4% rate back. At hotels.com I get 3x that, a wider range of hotels, and none of the annoying games about points/"classes of hotels". 

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Maybe that's another reason I never bought MAR - I really don't see a big attraction/brand/moat for myself. (Note: my tastes are very idiosyncratic, so it's completely anecdotal--; also I sometimes invest against my tastes since I know that they are idiosyncratic  8)). I don't remember if I stayed at Marriott anytime recently, but we have one (couple?) nearby and it's pretty shabby. Though I am sure if you look at prized locations they are good. But nothing different from any other hotel. I don't travel much, so I don't get back much or at all from hotel loyalty programs. I'd rather book a cheap or nice hotel (or cheap and nice if possible ;)) rather than go with brand. Or if I go to conferences I book conference hotel, since I hate walking 5-10 minutes from my room to the conference talks/etc - I'd rather be onsite. And yeah, I hate how "upper" end hotels don't give free breakfast and overcharge for any breakfast that you can buy. It's like "you paid through the nose for the hotel, pay more for breakfast sucker". There are (mostly Scandinavian) hotels for which I gladly pay the price they charge. Marriott has not made impression on me really so far.

 

Edit: possibly less anecdotal, from what I read there was/is shortage of hotel rooms with the rising economy and increased travel in US (and across the world?). Presumably there is a hotel buildout happening. This may lead to deeper cyclical downturn if the travel crashes on recession/whatever. I don't have numbers on this though and perhaps Marriott is somewhat insulated like Scott said.

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Maybe that's another reason I never bought MAR - I really don't see a big attraction/brand/moat for myself. (Note: my tastes are very idiosyncratic, so it's completely anecdotal--; also I sometimes invest against my tastes since I know that they are idiosyncratic  8)). I don't remember if I stayed at Marriott anytime recently, but we have one (couple?) nearby and it's pretty shabby. Though I am sure if you look at prized locations they are good. But nothing different from any other hotel. I don't travel much, so I don't get back much or at all from hotel loyalty programs. I'd rather book a cheap or nice hotel (or cheap and nice if possible ;)) rather than go with brand. Or if I go to conferences I book conference hotel, since I hate walking 5-10 minutes from my room to the conference talks/etc - I'd rather be onsite. And yeah, I hate how "upper" end hotels don't give free breakfast and overcharge for any breakfast that you can buy. It's like "you paid through the nose for the hotel, pay more for breakfast sucker". There are (mostly Scandinavian) hotels for which I gladly pay the price they charge. Marriott has not made impression on me really so far.

 

Edit: possibly less anecdotal, from what I read there was/is shortage of hotel rooms with the rising economy and increased travel in US (and across the world?). Presumably there is a hotel buildout happening. This may lead to deeper cyclical downturn if the travel crashes on recession/whatever. I don't have numbers on this though and perhaps Marriott is somewhat insulated like Scott said.

 

I don’t think that any hotel chain will be insulated when there is a downturn in travel. MAR is indeed putting up great numbers right now, but they are also accumulating a fair amount of debt and since they are asset light, there aren’t a whole lot of assets to pawn, if they get overleveraged in a downturn. It might hit be correct that it’s hard for a hotel to escape a franchise agreement, but in a real downturn, bankruptcy of hotel operators aren’t unheard of either. It‘s too risky for me and at current prices, there is no margin of safety, IMO.

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A long thesis in MAR should be compared to a long thesis in BKNG

 

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

 

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

 

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

 

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

 

 

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A long thesis in MAR should be compared to a long thesis in BKNG

 

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

 

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

 

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

 

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

 

I don’t think this is a good way of looking at it. The MAR brand has value and allows for a better online presence and a somewhat standardized experience that BKNG can’t provide.

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A long thesis in MAR should be compared to a long thesis in BKNG

 

For MAR to grow their revenues they need to either increase royalty rates or increase the number of hotels in the royalty pool.

 

They can do the later buy convincing independent hotels to rebrand and pay a royalty too MAR or convincing new developers to adopt their brand. With doing that the entrepreneur loses his/her independence and is essentially a MAR employee.

 

The alternative is to pay BKNG their cut, which while seemingly more expensive has been shown to have a similar ROI while maintaining your independence.

 

As MAR matures and the world continues to shift online it resembles less and less a hotel brand and IMO a shitty subscale OTA with ancillary services.

 

I don’t think this is a good way of looking at it. The MAR brand has value and allows for a better online presence and a somewhat standardized experience that BKNG can’t provide.

 

Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names. 

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Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

 

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

 

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

 

I guess maybe I'm not the target market for AirBnB.  8)

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Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

 

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

 

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

 

I guess maybe I'm not the target market for AirBnB.  8)

 

I agree Airbnb is a different market segment than Hotel or even BnB and the one is unlikely to replace the other.

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Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

 

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

 

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

 

I guess maybe I'm not the target market for AirBnB.  8)

 

It's one of those things that you have to get over once and then it doesn't matter any more but options are typically decently cheaper than comperable or even less ocmperable hotels. 

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Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

 

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

 

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

 

I guess maybe I'm not the target market for AirBnB.  8)

 

It's one of those things that you have to get over once and then it doesn't matter any more but options are typically decently cheaper than comperable or even less ocmperable hotels.

 

Thanks but no thanks.  8)

 

Edit: although honestly the requirement to send passport/ID is the real deal breaker for me. If not for it, I might be willing to try - though unlikely to actually do it.

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AirBnB - when I travel on business, that not really and option and when I travel with my kid, I need all the anonymity I can get 8). Do people use AirBnB when traveling with kids?

 

sure its not any different then renting an apartment just more short term.  no pool or fitness room but... Business lodging is more difficult but smaller slice of thr pie.  My guess is if it gets more accepted they may be more short term. 

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I rent an airbnb in a major city. It's a high quality serviced apartment. I get tons of business travellers. I've had partners in PE firms, a venture funded CEO, the CFO of a big company, etc. Those reservations are made by assistants, of course, and airbnb has a program for that.

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Honestly both Booking and Marriot will prbably be hit in the long term by Airbnb and copycats, just like uber and lyft made taxis redundant.  It's probably a while off, but thats why I'm not in any of these names.

 

OK, I'm gonna be idiosyncratic again, but I never stayed at AirBnB and likely won't unless there's no other choice. I use Uber and Lyft all the time, but staying night at someone's house for me is really way more awkward than staying at a hotel. I've done BnBs in Scotland some time ago just because there were no hotels. It was OK, but I'd still choose hotel anytime.

 

And I'd never never send AirBnB my passport/IDs/etc as they require right now. This is totally screwed up. No hotels require it, but somehow AirBnB gets away with it. Good luck/have fun when all this gets hacked from their servers.

 

I guess maybe I'm not the target market for AirBnB.  8)

 

It's one of those things that you have to get over once and then it doesn't matter any more but options are typically decently cheaper than comperable or even less ocmperable hotels.

 

Thanks but no thanks.  8)

 

Edit: although honestly the requirement to send passport/ID is the real deal breaker for me. If not for it, I might be willing to try - though unlikely to actually do it.

 

You don't have to send ID (I have not yet encountered a property that required it. 1 wanted to see a photo of me though haha)

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Maybe the requirements are fluid and maybe the lightened them on push back, but:

 

https://www.huffingtonpost.ca/kris-constable/airbnb-privacy-security-id-jumio_b_4887509.html

https://community.withairbnb.com/t5/Help/Verify-ID-now-required-for-all-travelers/td-p/202421

 

Apparently the requirements are either fluid or not clear with a lot of confusion from both hosts and guests:

 

https://airhostsforum.com/t/airbnb-no-longer-requiring-photo-id/19193/4

 

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This is what AirBnB says officially:

 

https://www.airbnb.com/help/article/1237/how-does-it-work-when-airbnb-asks-for-an-id

 

IMO it's rather mushy when they require ID (apart the one where hosts require ID). So YMMV, I withdraw the claim that everyone is required to provide the photo ID. It might be possible to rent a lot on AirBnB and not run into situation where they ask you to provide you the ID.

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AirBnB has mostly replaced hotels for my whole family. When we travel we usually stay in nice hotels. Premium/super premium apartments on AirBnB are a real bargain compared to the hotels. We don't rent rooms or shared places only whole apartments. These places usually are exclusively used as AirBnB places. We've switched to AirBnB about 5 years ago and we've been really happy with it. The only problem we had was when a host in Rome tried to switch an apartment on me about 3 weeks before my trip. I just booked another place instead. No biggie.

 

As for traveling with kids, I didn't do it. But I imagine AirBnB would have even more of an edge over hotels. You can rent a 2 or 3 bedroom place instead of a hotel suite or multiple rooms. Plus you have access to a kitchen to maybe make some food, a proper fridge to store snacks, drinks, etc. Having laundry on site probably also helps if you have kids.

 

As for ID, i just checked and I didn't provide them with any. I think my parents provided a government ID just cause they wanted a more complete account to have host be comfortable renting to them. Just a clarification: generally you don't provide government ID to the hosts. You provide it to AirBnB and they put a badge on your account that they're checked your id. However certain places that license and regulate AirBnBs (like Barcelona) require you to provide your host with a copy of your passport.

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AirBnB has mostly replaced hotels for my whole family. When we travel we usually stay in nice hotels. Premium/super premium apartments on AirBnB are a real bargain compared to the hotels. We don't rent rooms or shared places only whole apartments. These places usually are exclusively used as AirBnB places. We've switched to AirBnB about 5 years ago and we've been really happy with it. The only problem we had was when a host in Rome tried to switch an apartment on me about 3 weeks before my trip. I just booked another place instead. No biggie.

 

As for traveling with kids, I didn't do it. But I imagine AirBnB would have even more of an edge over hotels. You can rent a 2 or 3 bedroom place instead of a hotel suite or multiple rooms. Plus you have access to a kitchen to maybe make some food, a proper fridge to store snacks, drinks, etc. Having laundry on site probably also helps if you have kids.

 

As for ID, i just checked and I didn't provide them with any. I think my parents provided a government ID just cause they wanted a more complete account to have host be comfortable renting to them. Just a clarification: generally you don't provide government ID to the hosts. You provide it to AirBnB and they put a badge on your account that they're checked your id. However certain places that license and regulate AirBnBs (like Barcelona) require you to provide your host with a copy of your passport.

 

Thanks. Maybe worth checking out "Premium/super premium apartments" in the future assuming AirBnB does not badger me about ID. I'll let you guys know... but probably in couple years, since I don't travel a lot. And conference travel will pretty remain conference-hotel ...  8)

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I stay in AirBnB units very often.  I have never provided ID to either AirBnB or a host and none has asked for it.  I have heard some hosts prefer to get a scan of a divers license to protect themselves but it hasn't been asked of me.  I have never shared a space, only an entire house or entire apartment.  Often with a pool if its a warm destination.

 

In contrast, every single hotel asks to see either drivers license or passport - right?  And then gets your credit card as well?

 

What am I missing here?  That you don't provide the ID to the hotel in advance, only when you check in?

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I stay in AirBnB units very often.  I have never provided ID to either AirBnB or a host and none has asked for it.  I have heard some hosts prefer to get a scan of a divers license to protect themselves but it hasn't been asked of me.  I have never shared a space, only an entire house or entire apartment.  Often with a pool if its a warm destination.

 

In contrast, every single hotel asks to see either drivers license or passport - right?  And then gets your credit card as well?

 

What am I missing here?  That you don't provide the ID to the hotel in advance, only when you check in?

 

Actually I think the number of hotels in US that ask for ID is <50%. And most of them don't scan/store it, just look at it. I'd say less than 10% scan it. And even the ones who scan it, probably don't store the scan. But yeah, internationally the number goes up a lot because of local regulations. While AirBnB stores your ID on their servers forever.

Edit: but, yeah, my objection to sending ID to AirBnB may be considered irrational. I'm fine with that.  8)

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