11 key takeaways from Marriott’s Q1 call
 
11 key takeaways from Marriott’s Q1 call
01 MAY 2015 8:32 AM
A slate of announcements and activity in the public sphere had analysts abuzz during Marriott’s first-quarter earnings call. 
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BETHESDA, Maryland—Executives said it’s smooth sailing in Bethesda, where Marriott International is staying its course amid a flurry of activity and announcements from its competitors.
 
Most notable among them: Starwood Hotels & Resorts Worldwide announced Wednesday it was exploring strategic alternatives to increase shareholder value. Also on Wednesday, Hilton Worldwide Holdings provided further clarity on its new midscale brand, which is expected to launch within 12 months. 
 
 
Despite those swirling headlines, Marriott President and CEO Arne Sorenson kicked off the company’s first-quarter earnings call with analysts Thursday with an overview of the company’s strong performance. Among the highlights: 
 
  • System-wide revenue per available room was up 6.8% during the first quarter;
  • net income totaled $207 million, up 20% from the year-ago quarter;
  • revenues totaled more than $3.5 billion, besting the nearly $3.3 billion in the first quarter of 2014; and
  • Marriott added more than 10,000 rooms during the quarter.
 
As of press time, Marriott shares (NASDAQ: MAR) were up 3.4% year to date. The Baird/STR Hotel Stock Index, by comparison, was up 0.7%.  
 
During the question-and-answer portion of the earnings call, however, analysts quickly turned to the hot-button issues of the day, among other issues. Here are 11 of the most notable factoids from Marriott’s 90-minute call, which was webcast:
 
1. Marriott likes ‘bolt-on’ acquisitions
With talk of mergers and acquisitions dominating the headlines, Sorenson laid out Marriott’s own acquisition strategy: 
 
“We’ve been reasonably active the last four or five years doing this smaller ‘bolt-on’ acquisitions, starting first with AC Hotels but then including (Gaylord Hotels) and (Protea Hotels) and most recently (Delta Hotels & Resorts) in Canada,” he said. 
 
“They all have some similarities in the sense they are all $100-million to $200-million transactions, on average about 10 times (earnings before taxes, interest, depreciation and amortization)—sometimes a little bit lower multiples than that. As a consequence, they turn out to be essentially flat in first-year results and accretive fairly quickly thereafter,” Sorenson added. 
 
Beyond that, each of those deals gave Marriott a platform for incremental, organic growth.
 
“We would love to do more deals if there are more deals in that meet those kinds of parameters,” he said. 
 
2. Starwood doesn’t fit that ‘bolt-on’ mold
Which brought Sorenson to Starwood—more specifically, whether Marriott had any interest in acquiring the chain. 
 
“You can see there are quite profound differences between the deals we’ve done and that hypothetical transaction,” he said. 
 
3. Europe is devoid of said ‘bolts’
When asked of the likelihood Marriott could add another bolt via an acquisition in Europe, Sorenson said the changes were unlikely. 
 
The group’s 2011 buy of Spain-borne AC Hotels is perhaps the last of its ilk, he said. 
 
“That was initially by us viewed primarily as a way to get into Spain. … And only later did we think about that as being a platform for growth in the United States and other markets around the world,” Sorenson said, adding he expects to have as many as 100 AC projects in the U.S. pipeline by year-end. 
 
“When you look across Europe as a whole though, there aren’t many brands like that; there aren’t many portfolios like that,” he said. Most hotels are smaller, unbranded, true independents, which makes them prime targets for the Autograph Collection. 
 
4. Delta is the new DoubleTree
When asked to clarify the brand positioning of Delta, Sorenson compared it to Hilton’s upscale DoubleTree. 
 
“They are full-service hotels with good, quality hotels, but maybe with a little less stringency in the particular requirements for conversions than we might apply for the Marriott brand, for example, or the Renaissance brand,” he said. “It could be a good conversion vehicle for us. We’ll see how that goes.”
 
5. Marriott won’t move into midscale, economy spaces
On the heels of Hilton providing further clarity on its plans to enter the midscale space, one analyst asked whether Marriott had similar aspirations.
 
“We’ve got (Fairfield Inn & Suites), which is 800 or 900 hotels today. (Moxy Hotels) we’re moving on now with tremendous speed. Moxy will be a smaller room than Fairfield, obviously more a lifestyle design. But I think rate-wise it will trade … higher than Fairfield” as Moxy almost entirely will be located in urban centers. 
 
Sorenson doesn’t see Marriott trying to do something beneath that level. 
 
“We’ve looked at it for many decades,” he said. “The rates and RevPAR are low in those markets. It’s really hard to make much money as a franchisor without owning the real estate. You’re really working hard for a very small return, and it probably doesn’t do that much for the brand portfolio’s strength either.”
 
6. Don’t read too much into slowing luxury numbers
RevPAR growth in the luxury segment was weaker than the other chain scales during the quarter, but Sorenson cautioned analysts from taking too much stock. 
 
“Most of the luxury industry numbers … are driven mostly by the disproportionate distribution of luxury in New York (City). New York, as everybody on this call knows, is the weakest RevPAR market in the United States today,” he said. 
 
Luxury RevPAR increased 6.3% during the first quarter, behind economy (+9.2%), midscale (+8.8%), upper midscale (+8.5%) and upscale (+7%), according to STR, parent company of Hotel News Now. Only the upper-upscale segment notched a lower RevPAR gain at 6%.
 
RevPAR in the New York market during the quarter was down 4.3%, the largest decrease among any of the top 25 U.S. markets. 
 
“We see luxury as continuing to be a strong performer,” Sorenson said.
 
7. Don’t read too much into New York City either
New York’s slump is not a harbinger of bad times to come, Sorenson said. “I think we’ll see demand will continue to build in New York.” 
 
While openings are coming fast and furiously, “New York will easily absorb this supply over time and will continue to perform very well,” Sorenson said. 
 
8. Marriott copied its competitors …
… when it came to pushing its guest cancellation cutoff from 6 p.m. the day of arrival to midnight the day before.
 
“We are not leading the charge there,” Sorenson said, adding Marriott was the last major player to adapt. 
 
“Particularly in a high-occupancy market, (the 6 p.m. cutoff) created a greater risk of overbookings and was harder to predict and harder to revenue mange the hotels,” he added. “So we followed most of our principal competitors, which went to a 24-hour cancellation (policy).”
 
9. Marriott is happy with its unit growth
“It is crystal clear there is nothing like organic growth in this business,” Sorenson said. 
 
Executives are happy with Marriott’s pursuit thereof, having opened more than 10,000 rooms during the quarter compared to nearly 6,000 the year-ago quarter. 
 
10. New competition? No worries for Autograph
As a key contributor to that unit growth, the Autograph Collection is facing stiffer competition from new entrants in the soft brand space such as Curio—A Collection by Hilton and Starwood’s Tribute Portfolio.
 
“The fact that other competitors are getting into this space, I guess we’re flattered by,” Sorenson said. “Hopefully we’ll be able to continue to sell our track record, which will be that much further ahead.” 
 
There were 81 Autograph hotels open as of 31 March with an additional 40 in the pipeline, he said. 
 
11. China has hit a slow patch—but it’s just a patch
Sorenson expects Marriott to sign fewer hotels in China this year than the company did in 2014. 
 
“Our real estate partners in China will be a bit more cautious because of the relative health of the residential market, particularly in a number of cities in China,” he said. “That may have some impact on openings a few years from now (and) may cause a little bit of delay on the hotels under development. … 
 
“We continue to remain pretty bullish that this is a patch China will get through and probably will return to pretty healthy growth sometime in the future,” he said. 
 

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