2006 Annual Report

North American Full-Service Lodging
North American Full-Service Lodging includes our Marriott Hotels
& Resorts, JW Marriott Hotels & Resorts, Marriott Conference Centers,
Renaissance Hotels & Resorts and Renaissance ClubSport brands.
Annual Change
($ in millions) 2006 2005 2004 2006/2005 2005/2004
Revenues $5,196 $5,116 $4,691 2% 9%
Segment results $ 455 $ 349 $ 337 30% 4%
2006 COMPARED TO 2005
In 2006, across our North American Full-Service Lodging segment,
we added 15 properties (4,971 rooms) and six properties
(1,604 rooms) left the system.
In 2006, RevPAR for comparable company-operated North
American full-service properties increased 8.5 percent to $121.10.
Occupancy for these properties decreased 0.4 percentage points
while average daily rates increased 9.0 percent to $167.27.
Compared to the prior year, our 2006 results reflect a $59 million
increase in base management, incentive management and franchise
fees.The increase in fees is largely due to stronger RevPAR,
driven primarily by rate increases and, to a lesser extent, to higher
food and beverage, meeting room rental and other revenue and
productivity improvements, all of which favorably impacted property-level
house profit margins.The growth in the number of rooms,
year-over-year, also contributed to the increase in fees. Incentive
fees included $10 million for 2005 that were calculated based on
prior period earnings but not earned and due until they were recognized.
Similarly, base management fees for 2006 included $4 million
of fees that were calculated based on prior period results, but
not earned and due until 2006. Owned, leased and other revenue
net of direct expenses decreased $8 million primarily as a result of
properties sold in 2006 and the receipt in 2005 of a $10 million termination
fee associated with one property, partially offset by the
receipt in 2006 of $10 million in termination fees.
General, administrative and other expenses decreased $69 million
as a result of, among other things, a $60 million charge in
2005, associated with the CTF transaction, more fully discussed in
the previous “Operating Income” discussion, as well as expenses
of $14 million in 2005, related to our bedding incentive program,
partially offset by increased expenses in 2006 reflecting costs
related to unit growth and development, systems improvements
and increases in ordinary costs such as wages and benefits. In
2005, general, administrative and other expenses included $3 million
of performance cure payments associated with one property.
In 2006, general, administrative and other expenses included a
$5 million performance cure payment.
Gains and other income was $3 million higher than the prior
year and reflected the redemption of preferred stock in a cost
method investee that generated income of $25 million in 2006
and $15 million of higher net gains and other income in 2006
reflecting gains in 2006 associated with the sale of joint venture
investments and real estate that were partially offset by lower
gains in 2006 associated with the sale or repayment before
maturity of loans receivable associated with several properties.
Gains and other income for 2006 reflected a $37 million noncash
charge to adjust the carrying amount to net realizable
value associated with land we own and lease, as further described
in the “Expected Land Sale” caption later in this report. Equity
results decreased by $19 million versus the prior year and
24 | MARRIOTT INTERNATIONAL, INC. 2006
reflected the recognition in 2005 of $16 million in equity earnings
from two joint ventures as a result of the ventures’ sale of
hotels and our sale of some joint venture investments in 2005
and 2006, offset to some extent by improved equity joint venture
results reflecting the stronger demand environment.
2005 COMPARED TO 2004
In 2005, across our North American Full-Service Lodging segment,
we added 20 properties (6,141 rooms) and five properties
(1,995 rooms) left the system.
In 2005, RevPAR for comparable company-operated North
American full-service properties increased 9.6 percent to $112.41.
Occupancy for these properties increased 1.4 percentage points
while average daily rates increased 7.5 percent to $154.00.
Compared to the prior year, our 2005 segment results reflect
a $58 million increase in base management, incentive management
and franchise fees and $35 million of increased owned,
leased and other revenue net of direct expenses. The increase in
fees is largely due to stronger RevPAR, driven primarily by rate
increases that favorably impact property-level house profits, the
growth in the number of rooms and the recognition in 2005 of
$10 million of incentive fees that were calculated based on prior
period earnings but not earned and due until 2005. The increase
in owned, leased, and other revenue net of direct expenses is
primarily attributable to properties acquired in 2005, many of
which were sold throughout 2006 as expected, including the
CTF properties. In addition, owned, leased and other revenue in
2005 reflected our receipt of a $10 million termination fee associated
with one property that left our system.
Somewhat offsetting the net favorable variances were $78 million
of higher general, administrative and other expenses. As
noted in the preceding “Operating Income” discussion, during
2005 we recorded a $60 million pre-tax charge, primarily due to
the non-cash write-off of deferred contract acquisition costs
associated with the termination of CTF management agreements,
and we incurred expenses of $14 million related to our
bedding incentive program, both of which impacted our general,
administrative and other expenses. In 2005, we also recorded performance
termination cure payments of $3 million associated
with one property, which impacted general, administrative and
other expenses. In addition, in 2005 there were increased overhead
costs associated with unit growth and development.
Further impacting segment results, gains and other income
was $15 million lower than the prior year, while equity results
increased by $13 million versus the prior year. The decrease in
gains and other income is primarily attributable to the $13 million
gain in 2004 associated with the sale of our interest in the
Two Flags Joint Venture. The increase in equity results is primarily
attributable to several joint ventures that had significant
asset sales in 2005 generating gains, and to a lesser extent, the
favorable variance is also a result of a stronger demand environment
and the mix of investments.
North American Limited-Service Lodging
North American Limited-Service Lodging includes our Courtyard,
Fairfield Inn, SpringHill Suites, Residence Inn, TownePlace Suites, and
Marriott ExecuStay brands.
Annual Change
($ in millions) 2006 2005 2004 2006/2005 2005/2004
Revenues $2,060 $1,886 $1,673 9% 13%
Segment results $ 380 $ 303 $ 233 25% 30%