Executives during Marriott International’s fourth-quarter/full-year earnings call shared the company’s recent achievements and upcoming developments in a post-Starwood-deal environment.
BETHESDA, Maryland—Despite fourth-quarter revenue per available room results that are a shadow of their former values, executives at Marriott International are optimistic about the company’s 2017 outlook and development, especially now that it is integrating Starwood Hotels & Resorts Worldwide.
During a fourth-quarter/full-year conference call with investors, Marriott officials touted the company’s 2016 openings, as well as its development pipeline. According to an earnings news release, Marriott and Starwood combined added 68,000 rooms last year, 11,000 of which came from brand conversions. Around the world, one in four hotels under construction currently is a Marriott brand. In North America, that stat becomes one in three hotels under construction.
“We have nearly a 40% share of those final planning rooms in the U.S.,” President and CEO Arne Sorenson said during the conference call. “Developers are clearly favoring projects with strong brands.”
As of press time, Marriott’s stock was up 7.95% year to date. The Baird/STR Hotel Stock Index was up 18.55% for the same time period.
Slower RevPAR growth
North American revenue per available room growth came in at 1.1% for the fourth quarter, just above guidance, Sorenson said. Full-year RevPAR growth in North America was 2.3%.
Leisure business continued at a healthy pace, particularly in the luxury segment, he said. Sales to legacy Marriott’s 300 largest corporate customers rose 1% in North America, he said, compared to flat sales in the third quarter. Sales to energy and financial customers continued to weaken, he said, but sales to manufacturers increased by 4%.
Signs point to stronger gross domestic product growth in 2017, he said, and the company has greater confidence in its range now that it has completed its annual budget.
For the full-year 2017, Marriott forecasts comparable systemwide RevPAR worldwide will grow 0.5% to 2.5%. In North America, the company expects that growth range to be flat to up 2%, and outside North America it expects the range to be 1% to 3% growth.
Sorenson said the company’s 2017 global systemwide RevPAR forecast is “a bit more bullish than our guidance in November.”
RevPAR declined by 3% in the Caribbean and Latin America in the fourth quarter, Sorenson said, so modeling shows a low single-digit percent increase for the region in 2017. Similarly, RevPAR dropped 1% in the Middle East and Africa because of a tough oil market, lower government spending, new hotel supply and political unrest, he said, so the 2017 forecast is “flattish.”
The Asia Pacific region saw RevPAR grow 1%, with strong numbers particularly in India, Shanghai and Malaysia, he said. This should continue on to yield a low- to mid-single digit increase in 2017. Europe’s RevPAR grew 2%, he said, so 2017’s outlook shows low single-digit growth for the continent this year.
Selling off assets
For the full-year 2016, Marriott recycled capital totaling nearly $285 million from asset sales and note collection, EVP and CFO Leeny Oberg said. Prior to its acquisition, Starwood sold assets for $316 million.
“We continue to expect more than $1.5 billion in dispositions of Starwood-owned assets over the next 24 months, including the $175 million received in the fourth-quarter for the sale of the San Francisco St. Regis,” she said. “Our approach to selling owned assets reflects the importance of getting the full value of the hotel, as well as a strong management agreement and property improvement plan where needed.”
Marriott is talking with people in the market about all of the assets, she said, and many of them were already under active discussion prior to the acquisition. Each one is in a different stage because each has a different situation, she said, such as having to look at ground leases or comparing elements on the PIP. She said she was unable to give a prediction on the timing of the sales, but the company feels good about environment and ability to complete them.
As for estimating gross versus net proceeds from the sales, Oberg said the amount will vary “quite a bit” among assets.
“I would say a good proxy to use is about 20%, but again, I will say that could be very different asset to asset,” she said.
While the company expects to sell off owned assets in 2017, she said the earnings guidance at this point assumes there will be no sales.
Plans for brands
Asked about the number of brands in Marriott’s portfolio and his thoughts on consolidation, Sorenson said: “The short answer is we’re going to keep them all.”
While he wouldn’t start out a company with 30 brands, he said, the company now has 30 brands with their own distribution and strong owner investment. The principal tool for going to market is the portfolio and loyalty program. Offering more choices and more brands is a positive, not a negative, he said. Over time, the company will work with franchisees to crystalize the brands’ positioning as much as possible to draw distinctions among them.
Marriott has already pulled together its full-service hotel owners after the acquisition, Sorenson said, a large number of whom own Sheraton-branded properties. They’re talking about where the brand should go, defining the brand standards collaboratively and then making sure those standards are implemented, he said.
“Implementation means for hotels that don’t meet those standard, we move with due speed … to either get them on to brand standards or to get them out of the Sheraton brand,” he said.
The company won’t expect owners to meet new standards within a month of their announcement, he said. They need time to understand the standards, he said, to assess whether it’s economically rational to meet them and then, if so, to make the arrangements to perform the work.