Quarterly earnings calls are traditionally rote and ordinary. A chance for companies to boast about how well their performance was or sugarcoat why it was not.
Back-to-back hotel earnings calls have been anything but standard fare. Last week, Hilton teased the coming of a new extended-stay brand in the lower end of the midscale segment; not be outdone, on Tuesday, Marriott International CEO Tony Capuano, during the Q&A portion of the company’s Q1 earnings call, heralded a forthcoming brand, also in the extended-stay space, focused on price-conscious travelers in the midscale segment. Details, like with Hilton, were scarce, but the product, also like Hilton, will be new-build and offer basic services that travelers need.
It’s not like Marriott needed to juice the call with a new brand announcement. The quarter was strong for Marriott, leading the Bethesda-based company to raise its guidance for the rest of the year.
“We continue to see momentum in the business,” said Capuano. “Post-pandemic, people have a deep appreciation for travel.”
The numbers were compelling. Global RevPAR increased 34.3%, with 25.6% in the U.S. & Canada and 63.1% in
international markets, compared to the same time a year ago, driven by solid growth in Asia Pacific, including China after the country reopened. Global occupancy hit 65%, which was 11 percentage points higher than Q1 2022.
Marriott CFO Leeny Oberg said that China was 95% recovered, with demand driven by domestic travel, further adding that 25% of booked room nights into mainland China pre-pandemic were international bookings. Net income of $757 million was $380 million more compared to the same period a year ago.
At the end of the quarter, Marriott’s worldwide development pipeline totaled more than 3,050 properties and approximately 502,000 rooms, including more than 21,000 rooms approved, but not yet subject to signed contracts. Roughly 200,000 rooms in the pipeline were under construction as of the end of the first quarter, which amounts to 40% of the pipeline.
LEANING INTO CONVERSIONS
The complicated capital markets are having an impact on development and dealmaking. Financing projects is tougher, evidenced somewhat by 60% of Marriott’s pipeline not yet under construction. Oberg pointed out that higher interest rates were challenging the debt markets, noting that some banks are playing a wait-and-see approach around capital requirements and other potential regulations. “Deals that have committed financing are moving forward,” she said, adding that there has been around a 1.5% fallout in the quarter, which is below the historical 2%. “We expect tightening in hotel financing to be short term,” she said.
Both Capuano and Oberg touted the rise in conversion projects, especially internationally, which has been slower to adopt the concept. Thirty percent of new signings in the quarter were conversions, Capuano said.
“There is strength in them,” Oberg said, touting the shorter window to open and clear what needs to be achieved. She also said Marriott is seeing further adoption of its soft brands globally.
When it comes to conversions, Capuano put forth the idea of portfolio conversions, rather than pure one-off conversions. He cited last year’s agreement with Vinpearl, Vietnam’s largest hospitality and leisure chain, to convert 2,200 rooms across eight hotels in Vietnam. “Portfolio conversions are a focus,” he said.
FUTURE FINDS
Marriott also announced it had completed the acquisition of the City Express brand and Capuano noted that it would continue to accelerate growth of the midscale brand through the Caribbean and Latin America and look for opportunities to expand it in other international markets. “It was a great way for the company to enter midscale, which is where we haven’t competed previously,” he said. “Midscale is a tier where we hear demand from guests and owners.”
Further investment and acquisition was also bandied on the call. Beyond City Express, Capuano expressed that the company would be or would look to be acquisitive over the coming days, months and years. Marriott’s deal for Starwood Hotels & Resorts in 2016 was a watershed moment, one that was preceded by what Capuano called “consistent bolt-on acquisitions with common DNA.” He said the strategy is to gain footholds in particular geographies where Marriott may have been frustrated by lack of organic growth. He cited the 2011 deal of AC Hotels as evidence and also other past acquisitions (Residence Inn and Ritz-Carlton) and organic growth through Moxy and Autograph Collection.
“We don’t need to do M&A to gain scale because we have that,” Capuano said. “We look at opportunities where there are gaps in geography or brand architecture and where our guests want to travel. (Marriott’s loyalty program, Bonvoy, has 182 million members currently.) There are a fair amount of opportunities floating around in the market. Expanded architecture through M&A and organically. Autograph and Moxy and blend with Residence and RC, which added through M&A, I like that approach.
Capuano further stated that between $850 million to $1 billion was tagged for investment spending, of which $100 million for City Express was included.
Marriott is also making a large investment in technology, “A replatforming of major systems,” as Capuano called it. He said that technology impacts both employees and guests and for the former, technology has to be simple to use—he likened it to opening a new iPhone and intuitively knowing how to use it with few instructions.
He also said that on the mobile front, guests in the future will have the ability to purchase ancillary services, beyond rooms, with the click of a button.
On the performance side, the long-awaited comeback in group and corporate transient business appears to be coming to fruition, slowly. Capuano said group revenue continued to be “pacing up,” while business transient business was “modestly recovering,” bolstered by solid corporate-negotiated rates.
“With the faster than expected recovery in international markets and continued solid booking trends globally to date in the second quarter, we are raising our RevPAR guidance for the full year,” Capuano said.