1. CORPORATE FINANCE Marriott Corporation CASE STUDY Azad Yılmaz, VU Master of Finance Nijat Mehdizadeh, VU Master of Finance
2017 September

2. HISTORICAL BACKGROUND
MARRIOTT
HISTORICAL BACKGROUND
Made by Nijat Mehdizadeh
2017 September

3. Summary
Marriott International, Inc. is a leading lodging company based in Bethesda, Maryland, USA.
opened in Washington, D.C. in 1927 by J. Willard and Alice S. Marriott.
it has more than 3,700 properties in 73 countries and territories.
The company operates and franchises hotels under 15 brands.
There are approximately 300,000 employees at the company’s headquarters and other offices.

4. John Willard Marriott Alice Marriott
Founders:
John Willard Marriott Alice Marriott

5. Marriott International headquarters in Bethesda

6. MARRIOTT J.W.Marriott Jr. Chairman & CEO
William Shaw VP & General Manager
Arne Sorneson EVP Chief Financial Officer
James Sullivan EVP Lodging Development
John Marriott Vice Chairman
Joel Eisemann EVP Owner and Fracise Services
Bradley Wood SVP Risk Management
David Grissen SVP Lodging Operations
Edwin Fuller VP;President & Managing Director, Marriott lodging International
Simon Cooper President & COO Ritz-Carlton Hotel Company
Robert Miller President, Marriott Leisure
Amy Mc Pherson EVP sales & Marketing
Robin Uler
SVP food & Beverage, Spa & Retail Services
Robert McCarthy President, North American lodging operations
James Fisher Director, Corporate Communications
Stephen Joyce
SVP Owner & Franchise Services
Charlotte Sterling EVP - Communications
Michael Jannini EVP Brand Management

7. Vision MARRIOTT Vision
“to be the world’s leading provider of hospitality services
Taking care of guest
Extensive operational knowledge
Development of highly skilled workforce
Offering best brand portfolio

8. Marriott's size and position in the market
Operates and franchises more than hotels and resorts, totaling approximately 425,900 rooms and 6,300 vacation ownership villas worldwide.
15 brands
Has hotels in 73 countries.
It is ranked as the lodging industry’s most admired company and one of the best places to work for by Fortune® magazine.

9. Organizational Structure
General Manager
Executive Assistant Manager
Human Resource
Engg
Finance
Room Division Manager
Sales & Marketing
Food & Beverages
Credit IT
Payable Cost Control Purchase Income Audit
Payroll
Health Club
Front Office
House keeping
Business Center

10. Marriott’s Brands Luxury Lodging Full Service Select Service
Extended Stay
Ownership Resorts

11. Competitors Top Competitors for Marriott National & International
Hyatt
Hilton
Holiday inn
Sheraton
Holiday inn Best Western Serena
In recent years, Marriott’s brand image has slid a bit and now is trying to rebound.
The Islamabad Marriott Hotel has market share of 43%, among the competitors i.e. Holiday Inn, Serena, Pearl Continental (Rawalpindi), and Pearl Continental (Bhourbon).

12. Market Share (International)

13. Three main lines of business.
Lodging
Contract services
Restaurants
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14. Financial Strategy
Selection of investment project by discounting expected cash flow at hurdle rate for each divisions.
Hurdle rate is the minimum rate of return that must be met for a company to undertake a particular project.
For example,

15. Elements of Financial Strategy
Manage rather than own hotel assets
Invest in projects that increase shareholder value
Optimize the use of debt in the capital structure
Repurchase undervalued share

16. THEORICAL&PRACTICAL ANALYSIS Made by Azad Yılmaz
2017 September
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17. MARRIOTT
The aim of this part is to illustrate the weighted average cost of capital (WACC) for Marriott Corporation and its three divisions such as restaurant, lodging and contracts as well as interpret the logic behind the calculations.
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18. WACC
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19. WACC
Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation
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20. WACC= (1-t)*rD(D/V)+rE*(E/V) Percentage of total revenues
Calculating the WACC
Calculation of WACC
Mariott
Lodging
Contract
Restaurant
WACC= (1-t)*rD(D/V)+rE*(E/V) t=
0,441
1-t=
0,559
rD=
0,1025
0,1005
0,0830
0,0870
rE=
0,2117
0,1952
0,3050
0,2084
D/V=
0,60
0,74
0,40
0,42
E/V=
0,26
0,58
Percentage of total revenues
100%
0,41
0,46
0,13
WACC=
11,91%
9,23%
20,16%
14,13%

21. Re=COST OF EQUITY ( By CAPM Formula)
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22. The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.
It is an integral part of the weight average cost of capital (WACC) as CAPM calculates the cost of equity.
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25. Calculation of Re
Mariott
Lodging
Contract
Restaurant
Re= Rf + β X ( Rf- Rm ) Rf
0,0895
0,0690 β
1,6450
1,4230
2,7860
1,6460
Rf-Rm
0,0743
0,0847 Re
0,2117
0,1952
0,3050
0,2084
Note That: Rf-Rm is called as Risk Premium.As Lodging is long term then we use 7,43%. 8,47% for both restaurant and contracts because they are short term
**Note That: For Long-Term we used S&P 500 and Long-Term U.S Bond Returns In Exhibit 5.
**Note That: For Short-Term we used S&P 500 and Short-Term U.S Treasury Bill Returns In Exhibit 5.
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26. BETA COEFFICIENT
Unlevered beta (Asset Beta) is the beta of a company without the impact of debt. It is also known as the volatility of returns for a company, without taking into account its financial leverage.
Conversely, levered beta (or “equity beta”) is a measurement that compares the volatility of returns a company’s stock against those of the broader market. In other words, it’s a measure of risk.
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27. CALCULATING BETA ASSET BETA LEVERED BETA 2017 September
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28. CALCULATING BETA MARRIOTT LODGING CONTRACTS RESTAURANTS UNLEVERED BETA
MARRIOTT
LODGING
CONTRACTS
RESTAURANTS
UNLEVERED BETA
0,8950
0,5490
2,0300
1,1015
RE-LEVERED BETA
1,6450
1,4230
2,7860
1,6460
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29. Rd=COST OF DEBT
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30. Rd=COST OF DEBT Credit Spread: Default Spread based upon rating
The risk-free rate is customarily the yield on government bonds like U.S. Treasuries.
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31. Rd=COST OF DEBT Atvejo problemos 2017 September
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32. Rd=COST OF DEBT Rd Calculation of Rd Mariott Lodging Contract
Restaurant
Rd= G.Bond Rate + Spread
Goverment Bond Rate
0,0895
0,0690
Spread
0,0130
0,0110
0,0140
0,0180 Rd
0,1025
0,1005
0,0830
0,0870
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33. CONCLUSION
Marriott has to choose a risk value for each of the business and then go for combining the Hurdle rates for different business to form a portfolio and decide upon which business to invest in.
Based on the WACCs stated for Marriott and its various departments it’s obvious that the values are different
If Marriott has used only one hurdle rate then it would be used the 11.91% rate which is for the entire company.
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34. CONCLUSION
As the risk in a business changes, the β value would change thus changing the hurdle rate. The future rates that the firm has used to predict the WACC are themselves prone to change with time.
That is why WACC needs to be updated regularly to make accurate decisions.
2017 September
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35. CONCLUSION
We represent the cost of capital with risk, so therefore the risk in the lodging department is lower when compared with other departments that have a higher WACC.
While Marriott used this rate, other projects would be rejected exact Lodging because of its cost of capital of 9.23% which is lower than Marriott’s WACC as entire.
A higher rate effects in a negative Net Present Value as well as a reduced cash flow.
2017 September
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36. CONCLUSION
In summary, the risk that Marriott assumes will increase over time as Marriott continues to invest in high risk projects.
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37. RESOURCES
Fundamentals of Corporate Finance, Sixth Edition. Westerfield, Jordan Ross
Corporate Finance, Pierre Vernimmen, Second Edition
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38. THANKS FOR YOUR KIND PATIENCE.
2017 September
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