It's been about seven months since Marriott International completed its acquisition of Starwood Hotels & Resorts and from the sound of its first-quarter earnings, the tie-up is already paying dividends, with multiples to come.
Numbers wise, Marriott's Q1 was highlighted by a 3.1-percent uptick in North American and worldwide RevPAR, a number that was on par with its biggest competitor Hilton. The increase was helped by stronger momentum coming from Europe and Asia Pacific and very strong numbers from the Washington, D.C., market on the strength of the presidential inauguration and the Women's March on Washington.
First-quarter net income totaled $365 million, which was a heady 67-percent increase over prior-year results. In regards to development, Marriott added more than 17,000 rooms during the quarter, a number that included roughly 3,300 rooms converted from competitor brands and 6,400 rooms in international markets, it said. At quarter-end, Marriott’s worldwide development pipeline increased to more than 430,000 rooms, including roughly 36,000 rooms approved.
According to STR, one in four hotels under construction worldwide is a Marriott brand. Still, Sorenson called financing for new hotel construction "challenging" amid "stronger equity requirements" that is combined with a shortage of skilled contractors.
At the beginning of the call, Marriott CEO Arne Sorenson highlighted the company's recent general manager roadshows meant to acclimate GMs to the new combined Marriott and Starwood. "We are melding two organizations and there was optimism at every stop," Sorenson said.
There is no denying the synergies that are already present and coming from the acquisition, Sorenson said, adding: "We are getting juice from bringing the companies together."
And the aim is to squeeze as much out as they can. According to Sorenson, Starwood hotels in North America are already tied to Marriott's negotiated OTA contracts and procurement systems with the likes of Avendra. And while Starwood owners wouldn't see huge swings in Q1 because of this, as Marriott CFO Leeny Oberg pointed out, they will come. "It will be noticeable in terms of margins and benefits," she said, stressing that it will vary based on hotel.
Brand related, Marriott continues to take a hard look at Sheraton and Sorenson said that new, detailed brand standards are imminent for the brand. The bottom 50 Sheraton hotels based mostly on guest survey data are also being put on the microscope, with some leaving the system through attrition. Sorenson said that Marriott is in discussion with the owners of the laggard hotels, and that nearly half of the 50 have renovations underway, with more on the way.
Marriott's integration of Starwood, while tending to dominate discussion, sometimes takes a breather to other issues, including corporate transient and group business fundamentals—both so vital to the success of any hotel company. Marriott said Q1 group business in its full-service North America hotels was up 1.6 percent. "We feel more encouraged by corporate travel this quarter than [at the same time] a year ago." Sorenson said, adding that he is less confident about markets like Houston, where the energy sector continues to lag, but very optimistic about western markets and cities like Washington, D.C. "Companies are reporting better corporate profits, so we feel better based on Q1 results," he continued.
The limited-service and select-service space continues to be where the bulk of development is, though that has tempered a bit in the last couple of years, an effect of changes in lending trends. "2015 was peak for signings for select-service growth in the U.S. because of construction and financing," Sorenson said. "2017 is strong but not at same levels as 2015, and it won't ramp back up until there is definitive proof of a stronger GDP environment."
Sorenson added that "Financing for new hotel construction is challenging with stronger equity requirements," mixed with a shortage of skilled contractors and higher cost of construction.
On the Airbnb storyline, Sorenson said that home sharing generally "has been less impactful to our RevPar numbers. They are serving a mostly different customer than we serve—they are skewed toward leisure and a value-centric customer."
The notion of Marriott listing hotels on Airbnb—the thought being it could be a cheaper platform than OTA—was quickly shot down by Sorenson. "None of our hotels have or should have a single room on Airbnb," he said. "We are not looking at Airbnb as an intermediary."