Thriving Marriott focuses on Sheraton upgrades, growth

Marriott International has signed 3,500 new Sheraton rooms in the past 12 months.

Nearly 14 months after the close of Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide, the company is pleased with its progress on the integration, according to Arne Sorenson, president and CEO.

“Our properties and general and administrative functions have already realized meaningful cost savings. From the date of the acquisition through last week, we have recycled assets totaling more than $1.1 billion of our $1.5 billion goal,” he said during the company’s third-quarter results call. “Year-to-date through Nov. 7, we have already returned $2.7 billion to shareholders through dividends and share repurchase and believe we could return nearly $3.5 billion in 2017.”

According to Leeny Oberg, Marriott’s chief financial officer, hotels continue to benefit from synergies associated with the Starwood acquisition, including online travel agency and procurement saving, revenue-management improvements, benchmarking initiatives, savings on maintenance agreements and insurance savings.

“Our hotels are also benefiting from a 10-basis-points reduction in our centralized charge-out rate for our loyalty programs and we expect to reduce such charges by another 10 basis points beginning in 2018,” she said. “We expect additional property cost savings as integration proceeds.”

Sheraton Update

According to Sorenson, Marriott typically offloads about 1 percent of the rooms in its portfolio each year, but that number could reach 1.5 percent this year and next year, and that increase is largely related to the Sheraton brand: 6,000 Sheraton rooms will exit the system in 2017 with another 4,000 rooms departing in 2018.

“We have launched a full-court press to improve the Sheraton brand,” Sorenson said. “We are working to increase accountability, quality assurance and capital investment when applying Marriott's systems and programs to drive the top line and reduce costs.

“These are still early days but we believe we are making real progress and owners are noticing. In fact, we signed 3,500 new Sheraton rooms in the last 12 months alone with representation from all of the continents.”

During the call, the company also shared that worldwide comparable systemwide constant dollar revenue per available room rose 2.1 percent in the 2017 third quarter, while North American comparable systemwide constant dollar RevPAR rose 0.4 percent; and third quarter reported net income totaled $392 million, a 460-percent increase over previous-year results. Third quarter adjusted net income totaled $413 million, a 20-percent increase over previous-year combined results.

Third-quarter reported net income totaled $392 million, a 460-percent increase over previous-year results. Third-quarter adjusted net income totaled $413 million, a 20-percent increase over previous-year combined results. Adjusted earnings before interest, taxes, depreciation and amortization totaled $831 million in the quarter, a 64-percent increase over third-quarter 2016 adjusted EBITDA and a 7-percent increase over third-quarter 2016 combined adjusted EBITDA. 


Record Pipeline

Marriott’s growth strategy continues its record-setting momentum. The company added nearly 22,800 rooms during the third quarter, including more than 3,600 rooms converted from competitor brands and roughly 8,000 rooms in international markets; 


“In the third quarter, our worldwide development pipeline reached a record 450,000 rooms, which is 36 percent of our current system size, and worldwide room openings totaled 23,000 rooms, a new single quarter record,” Sorenson said. “Our brands continue to be preferred by developers and lenders alike based on STR industry pipeline data. Our brands continue to represent a leading 35-percent of hotels under construction in the U.S. and one in four hotels under construction worldwide.”

New hotel signings also remain strong and Marriott’s pipeline grew 7 percent in the third quarter. But there are some clouds on the horizon the company is keeping track of.

“We are not seeing project cancellations or any hesitancy to sign new deals but shortages of skilled tradesmen, contractors and subcontractors are delaying openings,” according to Sorenson. “This is particularly true of high-value, complex projects such as dual-branded hotels, urban properties, high-rises and large custom projects. Today, these nonprototype projects make up over half of our limited-service openings in the U.S.

“Looking ahead, we believe the high demand for construction talent in hurricane, fire and earthquake damage areas, continued political disruptions in the Middle East and a growing proportion of complex limited-service projects in the U.S. could further lengthen average construction periods by a few months. Despite these issues, we believe our leading 1.2 million room worldwide system will grow by nearly 7 percent gross in 2017 and roughly 7 percent gross in 2018.”

Marriott’s worldwide pipeline of luxury rooms totaled nearly 50,000 at the end of the quarter. The worldwide pipeline of upper-upscale rooms totaled 132,000 with about half located in the Asia-Pacific region, with the Marriott and Sheraton brands showing particular strength in Asia. The limited-service pipeline is 270,000 rooms with growing interest from owners and franchisees around the world.

“Five years ago, only one quarter of our pipeline outside North America consisted of limited-service rooms,” Sorenson said. “Today, such rooms represent over 40 percent of our international pipeline.”

Looking Ahead

The next year is expected to be positive in terms of RevPAR, according to Sorenson.

“For 2018, we expect comparable systemwide RevPAR on a constant dollar basis will increase 1 [percent] to 3 percent worldwide and 3 [percent] to 5 percent outside North America, while RevPAR in North America should be flat to up 2 percent,” he said. “Group revenue pace for our North American full-service hotels is up nearly 2 percent.”

According to Sorenson, the company anticipates that its number of rooms will increase roughly 7 percent, gross, in 2018, while rooms deletions should total 1 to 1.5 percent during the year.