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Marriott International's hotels have yet to recover to pre-pandemic levels, but expansion is still an important piece of its agenda.
The hotel giant said its revenue per available room, a key hotel performance metric, more than doubled between July and September in comparison to the third quarter of 2020, but remained almost 26% behind Q3 2019, according to its quarterly earnings report.
Marriott's RevPAR spread narrowed from the second quarter of this year and the corresponding quarter in 2019, when the RevPAR gap was 44%, the earnings report stated. Marriott's best month in terms of RevPAR was July, with August representing a delta variant-driven dip in demand, followed by stabilization in September and resumed growth in October, CEO Anthony Capuano said on a conference call between executives and financial analysts Wednesday.
Global occupancy for its hotels was just over 58% in the third quarter, compared to 74% in 2019 but up significantly from this point last year.
Due to a combination of the pandemic's effect on the hospitality industry and the supply chain crisis's effect on construction costs and timelines, Marriott will not be able to meet its target of net growth in room count in the mid-single digits for this year, and likely not in 2022 either, Capuano said. Marriott estimates net rooms growth for all of 2021 to be 3.5%.
"When you have that percentage of hotel rooms unoccupied, the new construction is going to decline," Marriott Global Development Officer for the U.S. and Canada Noah Silverman said at Bisnow's Lodging Investment Summit in Washington, D.C., on Oct. 19. "We like to think of ourselves as growth company, so we continue to have pressures around unit growth, and increasingly we know some of that, a larger percentage of that is going to have to come via conversions when new construction is harder to pencil, harder to finance and harder to get done."
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Capuano said on the earnings call that Marriott has already added more conversion rooms in the first nine months of 2021 than in all of 2019.
"Conversions are expected to be a significant contributor to growth over the next several years," Capuano said on the call.
Conversions, when the owner of a hotel property switches brand partners, will likely wind up representing 25% of the new rooms added to Marriott's portfolio by the end of the year, Silverman said at the event.
Marriott is far from alone among major hotel operators in seeking conversions to maintain growth. The current lag between construction and demand for net rooms growth has created an abnormally favorable situation for owners of hotel properties looking to switch brand and operating partners, Silverman said.
"“The market for conversions is extraordinarily competitive," he said. "All of us [hotel operators] are circling every conversion opportunity like vultures, and we know we need to be aggressive to win those opportunities for our companies. We’re trying to smooth the process, and make things as easy as can be on owners who are otherwise cash-constrained.”
Despite the challenging market conditions, a rise in leisure travel drove Marriott's net income to $220M in the third quarter, up from $100M in Q3 2020 and down from $387M in Q3 2019. Though performance has not yet returned to pre-pandemic levels, the company has been able to lower the breakeven point for the operation of its hotels such that 97% of its hotels in the U.S. and Canada reported positive gross operating profit, Marriott Chief Financial Officer Leeny Oberg said on the earnings call.
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