Morningstar | We Don't See Marriott's Rental Platform as a Material Driver to Its Strong Brand Advantage
We expect Marriott to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by renovated and newer brands, as well as its industry-leading loyalty program. Additionally, we see the acquisition of Starwood (closed in September 2016) as strengthening Marriott's brand advantage, as Starwood's global luxury portfolio complements Marriott's dominant upper-scale position in North America.We believe Marriott’s intangible brand and switching cost advantages are strengthening. Legacy Marriott has added several new brands since 2007, renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few years, and expanded technology integration and loyalty-member presence; these actions have led to share gains and a strong positioning with millennial travelers. Starwood's loyalty member presence and iconic brands should further strengthen Marriott's advantages.We see room growth for Marriott averaging midsingle digits over the next decade (above the long-term supply growth average of 2%), supported by the company having around 20% of all industry rooms under construction, well above its high-single-digit existing unit share.With 96% of the combined rooms managed or franchised, Marriott has an attractive recurring-fee business model with high returns on invested capital and significant switching costs for property owners. Managed and franchised hotels have low fixed costs and capital requirements, along with contracts lasting 20 years that have meaningful cancelation costs for owners.Cyclicality and overbuilding in the industry present the main risk for shareholders. Typically, U.S. lodging recoveries last seven to nine years. We model this U.S. cycle to last through 2019 (10 years), which we believe is reasonable considering that from 2009 through 2018, U.S. demand and supply have increased by around the high 30% and 10%, respectively, with supply growth roughly matching demand growth in 2019.Marriott International is a worldwide operator, franchisor, and licensor of hotel, residential and timeshare properties under various brand names at different price and service points. The company has operations in the following reportable business segments: North American Full-Service, which includes the company's Luxury and Premium properties located in United States and Canada; North American Limited-Service, which includes the company's Select properties located in United States and Canada; and Asia Pacific, which includes all properties in the company's Asia Pacific region.
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