Since 1980, Marriott's core business model has been to manage and franchise hotels, rather than own them. With long-term agreements, this strategy has allowed tremendous growth while minimizing leverage and risk in a cyclical industry. It has facilitated a growing market share, rising brand equity, substantial revenue per available room (RevPAR) premiums and decades of strong returns to owners and franchisees. By minimizing our capital investments and recycling those investments we do make, we maximize our financial flexibility and cash flow. This strategy allows us to operate a steady ship when times are tough and thrive when the business climate improves.

In 2008, our revenues from base management and franchise fees rose 3 percent despite a 1.5 percent decline (in constant dollars) in systemwide worldwide RevPAR. We also benefited from new fee revenue generated by the addition of more than 33,000 rooms and residential units.

At year-end 2008, we operated or franchised 3,178 lodging properties across 18 brands in 66 countries and territories. Looking forward, we're building tomorrow's foundation with a deep pipeline of new managed and franchised hotels worldwide. More than 800 hotels, totaling over 125,000 rooms, are under construction, awaiting conversion or approved for development. Sixty percent of these are already under construction or conversion, and another 10 percent are financed. About a third of these new rooms are full- service, and more than a quarter are outside North America. We expect to open more than 30,000 rooms in 2009 alone.

We anticipate that the credit crunch and a weak demand environment will reduce new hotel construction this year and new hotel openings beyond 2009. However, similar to previous downturns, we also believe we will see more hotels converting to our brands as owners seek to improve their returns.

The year 2009 marks the 25th anniversary of our timeshare business. Starting with one resort in 1984, we operated 67 resorts including 42 in active sales at year-end 2008. Timeshare owner satisfaction remained strong in 2008 and 53 percent of sales came from owners purchasing additional weeks or referrals of friends and family. Occupancy rates at our timeshare resorts remained above 90 percent as our owners continued to enjoy their vacations.

However, with weak consumer confidence and a more difficult financing environment, contract sales declined 23 percent in 2008 and we completed fewer than expected note sales. Our fractional and residential products were particularly impacted by the weak demand environment. In response, we dramatically slowed new development, increased marketing and purchase incentives, and substantially reduced costs. While the timeshare business faces a challenging environment, we expect it to be both profitable and a net cash generator in 2009.

> Back to top of page

> Go to next page