Marriott reports improvements in Q2 earnings

Marriott International reported its earnings for the second quarter of 2021, with improved revenue, occupancy and rates across the company's portfolio.

In the 2021 second quarter, Marriott’s worldwide revenue per available room increased 262.6 percent (a 268.7 percent increase using actual dollars) compared to the same quarter in 2020. RevPAR in the U.S. & Canada increased 274.6 percent (a 275.8 percent increase using actual dollars), and RevPAR in international markets increased 223.2 percent (a 244.1 percent increase using actual dollars).

Worldwide occupancy reached 51 percent for the quarter, up 13 percentage points over the first quarter of this year, and improved six percentage points in June over May alone, topping 55 percent. Average daily rate in June was down 13 percent from June 2019. “As a result, global RevPAR has risen meaningfully and swiftly from the depths of the pandemic, when RevPAR was down 90 percent,” CEO Anthony Capuano said during a call with investors. In June, occupancy was down 38 percent compared to the same month in 2019.

In the U.S. and Canada, which account for roughly two thirds of Marriott’s rooms, lodging demand grew “impressively” during the quarter, led by growing leisure demand. U.S. leisure room nights in the second quarter were 15 percent higher than in the second quarter of 2019, and total U.S. occupancy surpassed 63 percent in June with ADR down 11 percent from June 2019, compared to 17 percent for the full quarter. “Our strong momentum has continued into the first three and a half weeks of July, with U.S. occupancy reaching 67 percent and ADR down only 2 percent compared to July of ’19,” Capuano said, noting that July RevPAR for this period was down approximately 16 percent from July 2019. 

Recovery timelines will vary by region given uneven vaccination trends, virus caseloads and travel restrictions. “Yet we remain encouraged by the incredible resilience of travel demand demonstrated by the rapid return of guests in areas where rules have been eased and people feel they can travel safely.”

Q2 Income

Marriott's reported operating income totaled $486 million in the 2021 second quarter, compared to the 2020 second quarter reported operating loss of $154 million. Reported net income totaled $422 million in the 2021 second quarter, compared to 2020 second quarter’s reported net loss of $234 million. 

Adjusted operating income in the 2021 quarter totaled $406 million compared to 2020 second quarter adjusted operating loss of $85 million. Q2 2021 adjusted net income totaled $260 million, compared to 2020 second quarter adjusted net loss of $184 million. 

As Michael J. Bellisario, senior research analyst at R.W. Baird noted in his email to investors, the main earnings driver was better-than-forecasted fee income, particularly the franchise fees, with co-branded credit card fees for the quarter exceeding 2019 levels. 

Adjusted earnings before interest, taxes, depreciation, and amortization totaled $558 million in the 2021 second quarter, compared to second quarter 2020 adjusted EBITDA of $61 million.

While the pandemic is still affecting revenue, it is also creating opportunities for new income. Last week, Marriott became the first major hotel company to let U.S.-based customers purchase travel insurance when they make a reservation through Marriott's website or mobile app by linking to approved products sold by Allianz partners. “As part of this distribution agreement, Marriott will earn commissions from Allianz,” Capuano said. 

Expenses

Base management and franchise fees totaled $587 million in the 2021 second quarter, compared to base management and franchise fees of $222 million in the year-ago quarter. Other non-RevPAR related franchise fees in the 2021 second quarter totaled $160 million, compared to $107 million in the year-ago quarter, aided by a $43 million increase in credit card branding fees.

Owned, leased, and other revenue, net of direct expenses, totaled a profit of $19 million in the 2021 second quarter, compared to a $72 million loss in the year-ago quarter. The $91 million increase in revenue net of expenses year over year largely reflects the ongoing recovery in lodging demand from the impacts of COVID-19 as well as $18 million of subsidies received from German government COVID-19 assistance programs.

General, administrative, and other expenses for the 2021 second quarter totaled $187 million, compared to $178 million in the year-ago quarter. The year-over-year increase primarily reflects lower compensation costs in 2020 as a result of reductions in executive pay, shortened work weeks and furloughs, partially offset by lower bad debt expense in the 2021 quarter.

Marriott anticipates that full year 2021 investment spending will total $575 million to $625 million. Total investment spending includes capital and technology expenditures, loan advances, contract acquisition costs and other investing activities.

Development

The company added 149 properties with 24,909 rooms to its worldwide lodging portfolio during the quarter, including approximately 5,300 conversion rooms and roughly 13,000 rooms in international markets. Additions in the 2021 second quarter included eight all-inclusive conversion properties (2,943 rooms) in the company's Caribbean and Latin America region, part of the nearly 7,000-room deal signed in the first quarter of 2021. Fourteen properties (2,486 rooms) exited the system during the quarter. At quarter end, Marriott's global lodging system totaled 7,797 properties, with more than 1,451,000 rooms.

At the end of June, the company's worldwide development pipeline had 2,750 properties with nearly 478,000 rooms, including 1,069 properties with more than 212,000 rooms under construction and 114 properties with roughly 19,000 rooms approved for development, but not yet subject to signed contracts. 

Leeny Oberg, Marriott’s CFO, highlighted the sale of the St. Regis Punta Mita resort during the quarter, a joint venture in which the company held a minority interest. “It's encouraging to see transactions like this occurring, and we expect to receive a total of at least $36 million after tax cash proceeds from the sale,” Oberg said, adding that Marriott will continue to operate the hotel under a long-term management agreement. 

“We are very pleased with our momentum around conversions as well,” Capuano said. “Conversions accounted for 26 percent of rooms added in the first half of this year, and have been a meaningful contributor to signings.” Meanwhile, a record 18 residential properties are expected to open during the year. 

“For the full year, we expect that gross rooms growth will accelerate to approximately 6 percent,” Capuano said, adding that 2021 net rooms growth will likely be towards the higher end of Marriott’s previous expectation of 3 to 3.5 percent.