Marriott (MAR): Key Merger Points - Stifel
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Stifel analyst, Simon Yarmak, reiterated his Hold rating on shares of Marriott International (NASDAQ: MAR) and raised his price target to $66.00 from $65.00. The analyst offered key points to consider now that the Starwood merger has closed:
Starwood shareholders received $21.00 in cash and 0.80 shares of Marriott, or $76.80 per share at closing.
The merger forms the worlds largest hotel company. Marriott now controls over 5,700 hotels and 1.1 million rooms across 30 brands in over 110 countries.
MAR’s management stated that it expects to recognize $250 million in annual cost synergies within two years after closing.
Over the last 12 months RevPAR in the U.S. has been decelerating. August RevPAR was +2.1% vs a 2.2% comp. The outperformance by select-service chains has disappeared.
Room additions for 2016 is projected to be 6.5% net. Starwood had expect 4%-5% net rooms growth. On a blended basis, assuming Starwood's midpoint of 4.5%, combined 2016 unit growth is 6%.
MAR had worldwide hotel rooms under construction, awaiting conversion, or approved, of 285,000 rooms (1,762 hotels). HOT had 132,000 rooms (640 hotels) in its pipeline. Combined the company will have the largest pipeline with 417,00 rooms and over 2,400 hotels.
The owned portfolio will consist of almost 30 hotels with 11,900 rooms. It will take some time to pare down its real estate. MAR hopes to sell $1.5-$2.0 billion of real estate over the next 24 months. Without allocating SG&A to the real estate segment, owned real estate increases to 20.0% up from 15.0%.
Buybacks Will Likely Be Muted Near Term. MAR was very active buying back stock over the last few years repurchasing almost 130 million share for over $6.3 billion. We expect share repurchases to slow in the near term as the company pays down debt that was used to fund the $21/share in cash ($3.5 billion). Post close leverage will be 3.5x-3.6x
The merger was first announced in November 2015.
Shares of Marriott International closed at $68.44 yesterday.
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