Marriott International said that China continued to lead the group’s recovery, with third-quarter occupancy of 61%.
The Asia Pacific region led deal signings in the third quarter, accounting for more than half of all rooms signed globally, with the vast majority of those rooms in Greater China as the group saw net rooms growth of 3.8% on the year.
Arne M. Sorenson, president & CEO, Marriott International, said: “All chain scales continued to show improvement versus the second quarter, although there were still large variations among hotels and markets. Drive-to leisure demand continued to lead the recovery, particularly for extended stay and resort hotels and for properties in secondary and tertiary markets. Business transient and group bookings in the quarter picked up modestly versus the second quarter but still remain significantly lower versus last year.
“Globally, the plateauing of demand that we saw towards the end of the third quarter has generally continued into the first few weeks of the fourth quarter. Occupancy levels in most regions have remained relatively in line to slightly better versus September levels, which were marginally ahead of occupancy levels in August.”
The company reported a 65.9% drop in revpar for the third quarter, down 65.4% in North America and 67.4% outside North America. Adjusted Ebitda was $327m, down 64% from $901m in the same period last year.
In September, occupancy reached just over 37%, an improvement of 25 percentage points from April’s 12%. Worldwide revpar in September was down 64% on the year. In China, occupancy reached 67% in September.
Base management and franchise fees totalled $366m, compared to $821m in 2019.
Sorenson said that the company had seen increased demand amongst its Bonvoy members for whole home rentals during the pandemic, commenting that the group would build the offering. He said: “We will remain focused on whole home, warm weather, ski country, resort destinations. I am quite convinced that that will continue to grow substantially and it will be a nice complementary feature to the traditional hotel business for us.We have had conversations with some of our good partners about building new inventory in some of those resort markets.”
Marriott International saw net rooms growth of 3.8% on the year, adding more than 19,000 rooms globally during the third quarter, including roughly 1,400 rooms converted from competitor brands and approximately 7,600 rooms in international markets.
At quarter-end the pipeline totalled nearly 2,900 hotels and more than 496,000 rooms, including roughly 25,000 rooms approved, but not yet subject to signed contracts. Approximately 228,000 rooms in the pipeline were under construction as of the end of the third quarter. The company said that, for the full year it expected 2.5% to 3% net rooms growth, including terminations of 1.5% to 2%.
Sorenson said: “Assuming progress is made in containing the virus, we would expect our gross room additions to accelerate next year compared to our expectations for 2020.”
Commenting on the loss of the 89 hotels owned by Service Properties Trust, the CEO said that the properties were "almost all limited service properties, [which] would create a short term headwind of roughly 1% in net rooms growth, but we are confident in our ability to replace many of those first generation limited service hotels with brand-new updated product”.
Total fees for the Sonesta group this year were expected to be $10m to $15m.
Sorenson said that the group remained in talks with Sonesta, but that “they seem to be hard wired to make those hotels Sonestas. We don’t know exactly how Sonesta would perform, but looking at the ROI from assets that are Sonesta flag versus ours, it looks like that ROI is roughly half, and it’s a little bit surprising to us that the separate stockholder and debt holder interest in SVC could be furthered by converting those to Sonesta’s brand, as opposed to the dramatically stronger brands that are on those hotels today”.
Commenting on the financial condition of the rest of the portfolio, CFO Leeny Oberg added: “The vast majority of our owners and franchisees continues to pay their bills on time or are on short term payment plans. Despite the current environment, only a small number of hotels have gone into foreclosure this year as lender have been relatively patient to date, and with only a handful of exceptions, the few hotels that are in foreclosure or receivership are retaining our flag.”
The company’s net liquidity totalled approximately $5.1bn, representing roughly $1.5bn in available cash balances, and $3.6bn of unused borrowing capacity under its revolving credit facility, less $30 million of commercial paper outstanding. At quarter-end, the group’s net debt was $9.4bn representing total debt of $11.0bn less cash and cash equivalents of $1.6bn.
Looking at changes to brand standards bought in during the pandemic, Sorenson said: “Some of the above property costs that have been cut we think will stick and stay for a while. We’ve probably reduced breakeven occupancy by three to five points depending on the brand”.
Insight: Marriott International does not split out its results in terms of revenue to allow a close poke at Greater China, but, according to the 2019 annual report, of a total estate of 1,380,921 rooms, 221,772 were in the Asia Pacific region, accounting for 16% of the portfolio. Revenues for the region were $1.19bn, against total revenue of $20.97bn.
So not something you’d want to base an entire business around right now, but like most of the global players, the company has ambitions. Marriott International in Asia Pacific has, on average, added close to 80 hotels per year in the last three years, with its pipeline growing by nearly 10% annually over the same time period. In the first half of 2020 the company recorded 73 new signings, including 43 in the Greater China region.
So at the moment it’s aspiration. In the meantime, the group is confident that it can continue to recover and, in good news for owners, recover in a more limber fashion. Earlier this season Host expressed its enthusiasm for the lower costs and fees it was enjoying at its brands. These will, surely, need to come back up sooner rather than later - the operators have shed all their assets to become fees players, as we have been hearing these past few years - and negotiating when that happens will be key to retaining happiness in the stack.