How the recovery from the pandemic will shake out still is very uncertain, but Marriott International is encouraged by the direction performance is taking. During its first-quarter conference call, leaders said they are confident in their projections through the end of the year.
“As we look ahead to the rest of 2021, assuming continued progress with vaccinations and an improving consumer and macroeconomic environment in many regions around the world, we believe that the pace of the global recovery will continue to accelerate,” said Leeny Oberg, the company’s CFO. “While trends will vary by region, we expect overall leisure demand will strengthen further into the summer months. In the U.S. and Canada, reservations at our resort hotels are particularly strong; transient roomnights for stays 30 days out are now over 60 percent above 2019 levels. And on top of that rates are almost 20 percent higher than the 2019 level.”
In addition, occupancy on the books for Marriott’s resorts in the region is higher relative to the same time in 2019 for every month through the end of the year, according to Oberg.
“We were pleased to see demand improve meaningfully during the first quarter. We are welcoming more and more guests to our hotels as consumers are traveling again once they feel it is safe,” said Tony Capuano, CEO. “While recovery trajectories vary from region to region, the resiliency of demand has been most keenly demonstrated in mainland China, where occupancy is near the prepandemic level. Occupancy reached 66 percent in mainland China in March, nearly the same as in March 2019, on strong demand from both leisure and business travelers.”
In the U.S. and Canada, occupancy started the year at 33 percent in January and reached 49 percent by March as the pace of vaccinations increased, Capuano said.
“We are encouraged to see green shoots in special corporate and group bookings, which have been improving as companies slowly begin to return to their offices,” he said. “The pickup in transient booking pace for the U.S. & Canada points toward continued improvement in consumer sentiment around travel.”
First Quarter 2021 Results
Marriott’s reported operating income totaled $84 million in the 2021 first quarter, compared to 2020 first quarter reported operating income of $114 million. Reported net loss totaled $11 million in the 2021 first quarter, compared to 2020 first quarter reported net income of $31 million. Reported diluted loss per share totaled 3 cents in the quarter, compared to reported diluted earnings per share of 9 cents in the year-ago quarter.
Adjusted operating income in the 2021 first quarter totaled $138 million, compared to 2020 first quarter adjusted operating income of $293 million. Adjusted operating income in the 2020 first quarter excluded impairment charges of $101 million.
First quarter 2021 adjusted net income totaled $34 million, compared to 2020 first quarter adjusted net income of $160 million. Adjusted diluted EPS in the 2021 first quarter totaled 10 cents, compared to adjusted diluted EPS of 49 cents in the year-ago quarter. These adjusted 2021 first quarter results and adjusted 2020 first quarter results excluded impairment charges of $3 million after tax (1 cent per share) and $75 million after tax (23 cents per share), respectively.
Adjusted results also excluded restructuring and merger-related charges, cost reimbursement revenue, and reimbursed expenses.
Base management and franchise fees totaled $412 million in the 2021 first quarter, compared to base management and franchise fees of $629 million in the year-ago quarter. The year-over-year decline in these fees is primarily attributable to RevPAR declines related to COVID-19. Other non-RevPAR related franchise fees in the 2021 first quarter totaled $141 million compared to $139 million in the year-ago quarter, aided by $11 million of higher residential branding fees.
Incentive management fees totaled $33 million in the 2021 first quarter. The company recognized no incentive management fees in the first quarter of 2020. Roughly 45 percent of the incentive management fees recognized in the quarter were earned at hotels in the Asia Pacific region, largely in Greater China.
Contract investment amortization for the 2021 first quarter totaled $17 million, compared to $25 million in the year-ago quarter. The year-over-year change largely reflects impairments of investments in management and franchise contracts recorded in the 2020 first quarter.
Owned, leased and other revenue, net of direct expenses, totaled a $27 million loss in the 2021 first quarter, compared to $8 million of profit in the year-ago quarter as a result of RevPAR declines related to COVID-19.
Depreciation, amortization, and other expenses for the 2021 first quarter totaled $52 million, compared to $150 million in the year-ago quarter. The year-over-year change largely reflects a $90 million impairment charge recorded in the 2020 first quarter.
General, administrative, and other expenses for the 2021 first quarter totaled $211 million, compared to $270 million in the year-ago quarter. The lower expenses in the 2021 first quarter largely reflect $50 million of lower bad debt expense and $14 million of lower guarantee reserves. Expenses in the 2021 quarter include $14 million of additional non-recurring executive compensation related to leadership changes.
Interest expense, net, totaled $100 million in the first quarter compared to $87 million in the year-ago quarter. The increase is largely due to higher interest expense associated with 2020 debt issuances.
Equity in losses for the first quarter totaled $12 million, compared to a $4 million loss in the year-ago quarter. The increase in losses largely reflects the negative impact on results at joint venture properties due to COVID-19.
Adjusted earnings before interest, taxes, depreciation and amortization totaled $296 million in the 2021 first quarter, compared to first quarter 2020 adjusted EBITDA of $442 million.
The company added 134 new properties (23,567 rooms) to its worldwide lodging portfolio during the 2021 first quarter, including roughly 7,300 rooms converted from competitor brands and nearly 12,000 rooms in international markets. Additions in the 2021 first quarter included 11 all-inclusive conversion properties (3,700 rooms) in the company’s Caribbean and Latin America region. Exiting the system during the quarter were 114 properties (17,381 rooms), including 88 Service Properties Trust hotels (12,803 rooms). At quarter end, Marriott’s global lodging system totaled more than 7,600 properties with more than 1,429,000 rooms.
At quarter end, the company’s worldwide development pipeline totaled 2,825 properties with approximately 491,000 rooms, including 1,141 properties with more than 222,000 rooms under construction and 105 properties with roughly 18,000 rooms approved for development, but not yet subject to signed contracts.
“Our conversion signings were particularly strong in the quarter and included nearly 7,000 rooms that were part of an all-inclusive deal in our Caribbean and Latin America region,” Capuano said. “More than 23,500 rooms joined our system in the quarter. Consistent with our view a quarter ago, we expect gross rooms growth could accelerate to approximately 6 percent in 2021. Including deletions, we continue to estimate our rooms distribution could grow 3 to 3.5 percent, net, for the full year.”
In the 2021 first quarter, worldwide RevPAR declined 46.3 percent (a 45.9 percent decline using actual dollars) compared to the 2020 first quarter. RevPAR in the U.S. & Canada declined 46.3 percent (a 46.3 percent decline using actual dollars), and RevPAR in international markets declined 46.1 percent (a 44.8 percent decline using actual dollars).
Balance Sheet and Liquidity
At quarter end, Marriott’s net debt was $9.6 billion, representing total debt of $10.2 billion less cash and cash equivalents of $0.6 billion. At year-end 2020, the company’s net debt was $9.5 billion, representing total debt of $10.4 billion less cash and cash equivalents of $0.9 billion.
In the first quarter, the company issued $1.1 billion of Series HH Senior Notes due in 2031 with a 2.85 percent interest rate coupon.
The company’s net liquidity was approximately $4.7 billion at the end of the first quarter, representing $0.6 billion in available cash balances and $4.1 billion of unused borrowing capacity under its revolving credit facility.
The company halted share repurchases in February of 2020 and suspended its quarterly dividend beginning in the second quarter of 2020.