Marriott holds steady during industry-challenging Q2
Marriott holds steady during industry-challenging Q2
08 AUGUST 2017 9:08 AM

Executives at Marriott International provided insight into the company’s successes and developments during their second-quarter earnings call.

SHANGHAI—A solid performance during the second quarter and the recently announced joint venture with Chinese e-commerce platform Alibaba Group gave Marriott International executives plenty to talk about during the company’s earnings call.

President and CEO Arne Sorenson provided some more details about the joint venture with Alibaba Group to create a booking channel aimed at Chinese outbound travelers.

“We believe this relationship with Alibaba will enhance the appeal of our products to Chinese guests, further increase Chinese membership in Marriott Rewards, Ritz-Carlton Rewards, and SPG and make travel easier,” he said. “With the joint venture, hotel owners should see both an increase in bookings from Chinese travelers as well as a lower cost for these reservations.”

In terms of performance, Marriott’s revenue per available room in North America grew 0.9% because of strong leisure demand, Sorenson said. Projections for the rest of the year show a flat third quarter with RevPAR growth between 1% and 3% in the fourth quarter, he said.

Comparable systemwide RevPAR increased 6.8% year over year in the Asia/Pacific region, Sorenson said. Comparable hotel RevPAR in Greater China increased by more than 8%, and food and beverage grew 3% there as well. The company’s European hotels benefited from improving economic growth and greater demand than in the U.S., he said, leading to RevPAR increasing 7% in the quarter.

“RevPAR in Europe exceeded our expectations, as many markets bounced back from recent terrorism events faster than expected,” Sorenson said. “For the third and fourth quarters, we expect RevPAR in Europe to increase at a mid-single-digit rate, also with upside potential.”

Systemwide constant dollar RevPAR in the Caribbean and Latin America grew 4%, Sorenson said, supported by RevPAR growth of 10% in Mexico. Resorts in the Caribbean saw modest increases in RevPAR as travelers returned for Easter as well as lessened concerns about Zika. South America’s RevPAR fell 2% because of weaker economic trends, and expectations for the continent show a low single-digit increase during the second half of the year because of Brazil’s weak economy and tough comparison’s to the 2016 Rio Olympics.

RevPAR grew in the Middle East and Africa 2%, Sorenson said, balancing strong performance in South Africa against flat growth in the Middle East. Sanctions on Qatar combined with weak oil prices and lower government spending in the region “contributed to a bearish travel sentiment in the region.”

Marriott’s stock was up 25.3% year to date. The Baird/STR Hotel Stock Index was up 23.6% for the same time period.

Development pace
Marriott is expected to grow its systemwide rooms by 6% net this year, Sorenson said. Its pipeline hit a record 440,000 rooms during the quarter, he added, showing the embedded growth of 36% of the current system size. During the second quarter, Marriott signed or approved an additional 36,000 rooms to the pipeline.

“One third of these new room signings and approvals were legacy Starwood brands, and 55% were outside North America,” Sorenson said.

The company has the largest share of luxury properties in the world, he said, citing Marriott’s 426 luxury hotels comprising 113,000 rooms.

“Upon completion, our pipeline of luxury hotels should add another 200 hotels and nearly 50,000 rooms,” he said. “That is over 40% growth implicit in the pipeline.”

Developers and lenders continue to favor Marriott’s brands, Sorenson said. Data by Hotel News Now parent company STR shows that one in three hotels under construction in the U.S. will be a Marriott, he said, and that amounts to one in four worldwide.

Labor shortages have led to some delays in construction, Sorenson said, and some openings have been pushed back a few months. The good news is there haven’t been any cancellations. Construction starts are continuing to move forward with “considerable momentum,” so even though labor markets are tight, the deals are getting done.

Group business
Group business softened more than anticipated, Sorenson said. When starting the year with mid- to high single-digit group revenue growth on the books above the previous year, Marriott gave some of that back over the course of the year.

“We’re forecasting right now and believing right now that we’re going to end up stayed-and-paid group business in the books in 2017 a bit less than what we would have anticipated when the year began,” he said. “And I think we’re seeing 2018 a touch more modest than we would have expected a few quarters ago.”

Part of that is likely because of the lengthening of the booking window, he said, and partially tough comparisons. The company is at roughly 80% occupancy now, and Sorenson said it has been putting a lot of group business on the books over the past few years, so it’s getting a little tough.

“But I think there’s probably a piece of some corporate cautiousness that is preventing us from posting even better numbers,” he said.

The gross domestic product is a better reference point for assessing demand over corporate profits, Sorenson said, because it’s a broader measure. He noted GDP growth has been quite anemic.

Asset recycling
Marriott has recycled about $800 million in assets since closing on the Starwood deal, EVP and CFO Leeny Oberg said, including the Charlotte Marriott City Center for approximately $170 million.

“We anticipate recycling another $700 million by year-end 2018, although no asset sales beyond those completed are included in our earnings or share repurchase guidance,” she said.

When asked about the makeup of future asset sales, Oberg said they will likely be one-off transactions rather than portfolios.

“You've got a wide variety of everything from foreign countries to particular issues on ground leases to different kinds of hotels,” she said. “Obviously, different kinds of investors who are interested in those hotels, so, absolutely I would say these are going to be onesies and twosies.”

The recycling has allowed Marriott to return more than $2.2 billion to shareholders through dividends, she said. It has also allowed the company to repurchase almost 15 million shares for about $1.5 billion so far in 2017.

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