Marriott International reported Q3 growth in revenue per available room, but still had to lower its guidance for the remainder of the year.
During an earnings call with investors and analysts, Marriott International President/CEO Arne Sorenson said the company was “pleased with the results” for the quarter, especially with the company’s global comparable systemwide constant dollar RevPAR increasing 1.5 percent, right in the midpoint of prior guidance and a 0.9 percent increase using actual dollars.
Revenue and Income
Marriott’s reported net income totaled $387 million in the quarter, compared to Q3 2018 reported net income of $503 million. Q3 adjusted net income was $488 million, compared to 2018 Q3 adjusted net income of $598 million.
North American comparable systemwide constant dollar RevPAR increased 1.3 percent (a 1.3 percent increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 1.9 percent (a 0.2 percent decrease using actual dollars) for the same period.
The company exceeded revenue expectations in Washington, D.C., Houston and across Hawaii on strong transient demand, Marriott CFO Leeny Oberg said during the call. RevPAR in New York City has had to adjust with higher supply and lower demand, she added, while hotels in Orlando and South Florida saw a decrease from Hurricane Dorian.
During the quarter, the company also incurred $6 million of expenses and recognized $9 million of insurance recoveries related to the data security incident disclosed on November 30, 2018.
At quarter's end, Marriott’s portfolio had a total of 7,200 properties and timeshare resorts with nearly 1,362,000 rooms. The company added 117 new properties with 17,720 rooms to its worldwide lodging portfolio during third quarter, including the West Hollywood Edition, the JW Marriott Marquis Hotel Shanghai Pudong and the Sheraton Bishkek, the company’s first hotel in Kyrgyzstan.
In August, Marriott launched its new all-inclusive platform, and by early Q4 had announced a deal to acquire Elegant Hotels Group with its portfolio of seven freehold hotels and about 700 guestrooms on the island of Barbados for $130.1 million. The deal, Sorenson said, should be wrapped by the end of 2019, and will “jump start” the company's all-inclusive offering.
At the same time, 11 properties with 1,464 rooms exited the system during the quarter—a decrease from previous years as the ripples from the Starwood merger three years ago continue to smooth out. During the call, Oberg emphasized the company is neither being more lenient in terms of the investment required from owners to be part of the portfolio, nor in terms of meeting brand standards. “We are expecting a lower rate of deletion from the system this year than last year, which approached 2 percent and was disproportionately related to the legacy Starwood Hotel portfolio,” Oberg told investors. “This year, we are looking at that being much closer to 1 percent. We've been giving guidance for the year of 1 percent to 1.5 percent, but as we've moved through the year and continue to have conversations with owners, we're continuing to see that many of these hotels are staying in our system.” Ultimately, Oberg said she expected 2020 to see a “fairly stable historic rate” of 1 to 1.5 percent removals, but for this year the number is at the lower end of the rage.
The company’s worldwide development pipeline had 2,947 properties with nearly 495,000 rooms underway as of the end of September, including 1,172 properties with approximately 214,000 rooms under construction and 201 properties with more than 31,000 rooms approved for development, but not yet subject to signed contracts. “Every quarter we go through the entire portfolio pipeline, and we add new units based on signings that have been done we subtract units when they open and we subtract a few that are killed,” Sorenson said. The number of canceled deals, he added, is not moving. “We’re not seeing the worst news, which is that deals are being abandoned.”
Buying and Selling
Already in the fourth quarter, Marriott has purchased the 270-room W New York-Union Square for $206 million. Two weeks later, the company sold the St. Regis New York for $310 million subject to a long-term management agreement. As of the end of Q3, Marriott held $211 million of property, equipment and current assets related to the St. Regis New York.
These two deals, along with 10 other hotels the company has sold for $2.2 billion since acquiring Starwood demonstrates strong owner demand for Marriott brands, Sorenson said. “We have, obviously, the capacity, given our size, to make modest investments in positioning the company for accelerated growth going forward. The deals announced in the last four to six weeks prove that. They’re about positioning us for the all-inclusive space and making sure we do what we want with the W brand in North America.” The company wants to invest in that brand, which he called “a juggernaut for Starwood.” Marriott, he added, looks at the deals in the context of how does each opportunity drive value for the company in the long term and also in the context of how each deal strengthens the company’s platform for future growth.
Still, Oberg added, Marriott is not changing its business model in terms of going asset-light. “We own 14 hotels today, the same as we owned a quarter ago,” she said. “We bought one and we sold one.”
For Q4, Marriott expects comparable systemwide RevPAR on a constant dollar basis will be flat to up 1 percent in North America, snd increase roughly 1 percent outside North America and worldwide—down from the previous guidance of 1 percent to 2 percent growth. That prior guidance, in turn, was down slightly from the prior estimate of 1 percent to 3 percent.
For the full year, Marriott expects comparable systemwide RevPAR on a constant dollar basis will increase roughly 1 percent in North America, roughly 2 percent outside North America, and roughly 1 percent worldwide. The company also anticipates global net room additions of 5 percent to 5.25 percent for 2019.
The company expects investment spending in 2019 will reach approximately $1 billion to $1.1 billion, including approximately $225 million for maintenance capital. Investment spending also includes other capital expenditures (including property acquisitions), new mezzanine financing and mortgage notes, contract acquisition costs and equity and other investments.
Compared to the forecasted investment spending the company provided at the end of Q2, the increase in spending reflects the purchase of the W New York-Union Square and the expected acquisition of Elegant Hotels Group. The company estimates $550 million to $600 million of its 2019 investment spending will be reimbursed or recycled over time.
For full-year 2020, Sorenson said the company expects comparable systemwide RevPAR on a constant dollar basis will be flat to up 2 percent worldwide, with RevPAR growth in North America around the middle of that range, reflecting what Sorenson called a “slower pace of economic growth” for the year. The expectation, he said, implies continuing moderate RevPAR growth.
Net room growth for 2020 should be similar, Sorenson added, noting construction delays in North America— "especially in the top 25 markets"—the Middle East and Europe. In spite of groundbreaking delays, he said, signings are strong and approaching the record set in 2018. The "vast majority" of 2020's openings, he added, are already under construction.