1. ZARA ALI, CORY CARLSON, DANIELLA COMITO & EMMA HEBBLETHWAITE Valuation

2. AGENDA  Company Overview  Industry Overview  Competitors  Value Drivers  Risk Analysis  Ratio Analysis  Dividend Discount Model  Free Cash Flow Model  Valuation Using Multiples  Recommendation

3. COMPANY OVERVIEW Founded in 1969 Headquarters: Stamford Connecticut 1,162 Properties 100 Different Countries 171,000 Employees 9 Brands  St. Regis, The Luxury Collection, W Hotels, Westing, Le Meridien, Sheraton, Four Points, Aloft & Element

4. SWOT ANALYSIS Strengths Nine unique brands Brand loyalty World’s most award-winning loyalty program Weaknesses Not a strong global presence Economy has customers reducing their spending Opportunities Digitalized media as a new source of revenue Economy has customers looking for packages Vacation ownership is a growing market Threats Highly competitive industry Is affected by many different economies

5. INDUSTRY OVERVIEW Lodging Industry  Service Sector Mature Industry Delivers Specialized Services to Customers 8 Hotel Classifications  Commercial, Airport, Conference, Economy, All-Suite, Residential, Casino & Resort

6. INDUSTRY TRENDS Booking Room Process  Internet Additional Luxury  Furniture, Complimentary Breakfast, WIFI Smoke-Free “Destination” Theme Decor

7. TOP COMPETITOR Marriot International Net Income: $571 Billion 3,800 Properties 74 Countries 7 Brands Other Top Competitor: Hyatt Hotels Corporation

8. VALUE DRIVERS Award Winning Loyalty Program  Increases Brand Loyalty  Increases Customer Experience Many Locations  Wide Customer Base Element Brand  First LEED-certified Hotel Brand  Environmentally Friendly is a Growing Trend

9. RISK ANALYSIS Data Breach  Identity Theft  Loss of Credibility  Costly Recover  Identify Areas of Exposure  Risk Management Program Industry  High Competition  Geographical & Brand Diversification  Loyalty Program

10. RISK ANALYSIS CONTINUED Staff  Poached by Competitors  High Training Costs  Economy in Recovery Tax & Law/Regulation  Higher Tax & Higher Regulation  Increase Costs  Currently No Government Talk

11. FINANCIAL RATIO ANALYSIS Liquidity201220112010Industry Current Ratio0.951.271.21 1.16 Quick Ratio0.270.260.25 1.05 Asset Management201220112010Industry Inventory Turnover6.522.422.24 14.78 Days sale outstanding55.98150.82162.95 24.7 Total Asset Turnover0.71.590.52 0.24 Reduced Ability to Pay Current Debt Highly Dependent on their Inventory to cover Debt High Volume of Sales Reduced Time it takes to Receive Cash Asset Efficiency has Increased

12. FINANCIAL RATIOS CONTINUED Debt Management201220112010Industry Total Debt Ratio65%69%75% 46.6% Times Interest Earned5.243.152.39 11.79 Profitability Ratios201220112010Industry Profit Margin8.89%8.69%9.41% 6.6% Return on Total Assets6.34%5.12%4.88% 1.08% Return on Equity17.92%16.55%19.30% 2.53% Less Dependent on Creditors Increased Ability to Pay Interest $0.09 of Net Income per Dollar of Sales $0.06 of Net Income per Dollar of Assets ROE Dominates the Industry

13. FINANCIAL RATIOS CONTINUED Market Value Ratios201220112010Industry Price/Earnings ratio19.7017.7119.30 33.18 Market/Book Ratio3.752.943.29 2.23 Investors Willing to Pay $19.70 per Dollar of Profits Industry is Higher $3.75 per Book Value of Shares Higher than Industry

14. BETA Regression: 2.33601704  Chose to Use this as our Beta Yahoo! Finance: 1.91 Google Finance: 2.33 MSN Money:2.13 Conclusion: Twice as Risky as the Market

15. CAPITAL ASSET PRICING MODEL Cost of Equity Capital = r f + (r m – r f ) β r f = 30 Year Treasury Bond Rate = 3.65%  Use Treasury Bond because Firm may have Unlimited Life Market Risk Premium = 2%  Low Risk/Mature Industry R i = 3.65% + (2%) * 2.33 = 8.31%

16. Uses Growth Percentage From Plow Back Equation Chose to Use this DDM

17. Uses Growth Estimated By Historical Dividend Growth This DDM shows Sensitivity

18. PROJECTED UNLEVERED FREE CASH FLOW Fiscal Year201220132014201520162017 Net Income 2,294,462.80 2,356,458.39 2,646,526.78 2,970,388.13 3,331,979.33 3,735,695.90 Depreciation & Amortization 170,000 242,774.44 271,057.66 302,635.88 337,892.96 377,257.49 Total Other Non-Cash Adjustments 113,145.90 126,327.40 141,044.54 157,476.23 175,822.21 196,305.50 Net Operating Cash Flow 2,577,608.70 2,725,560.23 3,058,628.98 3,430,500.24 3,845,694.50 4,309,258.89 Capital Expenditures $(1,034,136.61) $(1,093,494.76) $(1,227,121.95) $(1,376,316.69) $(1,542,892.63) $(1,728,874.67) Other Investments $ (809,626.89) $ (856,098.47) $ (960,715.36) $(1,077,520.12) $(1,207,932.64) $(1,353,538.22) Net Cash Flow from Operating Activities $(1,843,763.50) $(1,949,593.23) $(2,187,837.31) $(2,453,836.82) $(2,750,825.27) $(3,082,412.88) Interest Expense170,000 Levered Free Cash Flow 4,591,372.20 4,845,153.46 5,416,466.28 6,054,337.05 6,766,519.77 7,561,671.77 Tax Shield 36,601 Unlevered Free Cash Flow 4,554,771.20 4,808,552.46 5,379,865.28 6,017,736.05 6,729,918.77 7,525,070.77

19. WEIGHT AVERAGE COST OF CAPITAL Cost of Equity Cost of DebtDebt to Value Equity to Value WACCTerminal WACC 8.31%4.45%50.15%49.85%5.59%4.27% Years123456 Unlevered Free Cash Flow 4,554,7714,808,55 2 5,379,8656,017,7366,729,9197,525,071 Terminal Value 363,530,000 Cost of Debt=Treasury Yield (3.65%)+ BBB Credit Rating (0.80%) Equity to Value=Market Value of Equity ÷ Total Value of Debt & Equity ($14,146,843,700) ÷ ($28,376,843,700) Stabilize after 5 Years to Constant Growth of 2.2% Terminal Value = 7,525,071 ÷ (.047 -.022) = 363,530,000 Year 6 CF ÷ (Terminal WACC – Constant Growth Rate)

20. FREE CASH FLOW VALUATION CF0=0 CF1=4,554,771 CF2=4,808,552 CF3=5,379,865 CF4=6,017,736 CF5=6,729,919+363,530,0 00 Terminal WACC=4.27 NPV=319,034,417 1. Value the Firm Firm Value(+) Cash & Marketable Securities (-) Long Term DebtEquity Value $319,034,417$463,000$3,695,000$35,802,417 2. Find Value of Equity 3. Value Stock Price Equity Value ($35,802,417) ÷ # of Diluted Outstanding Shares (194,000,000) = $184.55

21. VALUATION USING MULTIPLES EPS: 3.3 Industry P/E: 25.98  Found by Averaging 12 Competitors Marriott P/E: 22  Very Close to Industry Stock Price = $85.73  Market Price = $73.87  Undervalued by $11.86

22. CONCLUSION Valuation MethodStock Price P/E Ratio$85.73 DDM$33.12 FCF$184.55 Weighted Average$104.21 20% P/E Less Accurate Simple 40% DDM Credible 40% FCF In Depth Analysis

23. RECOMMENDATION Current Trading Price = $73.87 Intrinsic Value = $104.21 Undervalued by $30.34 Recommendation = Buy!

24. THANK YOU!