Marriott International Inc (MAR), Starwood Hotels & Resorts Worldwide, Inc (HOT): Three Hotel Companies for Luxurious Returns

Page 2 of 2

Growing incentive management fees

Marriott International Inc (NYSE:MAR)‘s main business is franchising and purchasing management contracts. The company remains focused on expanding its international portfolio. Therefore, it purchased a management contract from Ryman Hospitality Properties, or RHP, in the first quarter of 2012. This added five hotels, and approximately 8,100 rooms, to its portfolio in exchange for $210 million. Originally, the company expected $20 million in base management fees and $5 million as incentives in 2013. However, due to lower-than-expected group bookings, Marriott International Inc (NYSE:MAR) expects $3 million in base management fees and nil incentive earnings in 2013. RevPAR will decrease to 1% this year from 5% in 2012. The company is working to solve this issue through various sales incentives.

As of the first quarter, Marriott International Inc (NYSE:MAR) has approximately 1,021 management contracts. It receives the basic fees as well as incentives after a certain level of profits as per the contract terms and conditions. The company earns approximately 15% of the incremental cash flow from incentives. The company’s strength is in management of its resorts, and the recovering North American economy is increasing the company’s RevPAR. RevPAR will rise from 5.2% currently to 6.2% by the end of 2013. With this rise, Marriott International Inc (NYSE:MAR)’s incentive management fees will increase from $232 million in 2012 to $264 million this year and $302 million in 2014.

Conclusion

Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT)’s focus on expansion will be beneficial for the company. Furthermore, its condos project will yield capital return this year. InterContinental Hotels Group PLC (ADR) (NYSE:IHG) is expanding in China to capitalize on its high growth rate. In addition to this, it is also franchising more rooms for incremental fees. I recommend a buy for both of these stocks.

Marriott International Inc (NYSE:MAR)’s management contract will witness low revenue, but its international contract will provide incremental management fees. I recommend holding the stock.

The article 3 Hotel Companies for Luxurious Returns originally appeared on Fool.com and is written by Shweta Dubey.

Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2