Marriott will reach 1.8 million rooms by 2025

MIAMI BEACH – Plans to added between 230,00 and 270,00 rooms to reach 1.8 million rooms systemwide by the end of 2025 was among the highlights on Wednesday at Marriott International’s meeting with institutional investors and security analysts in Miami Beach.

The company’s three-year financial model through 2025 reiterated its 2023 outlook given in August and introduced two-year compounded annual growth rates (CAGRs) from 2023 to 2025 for certain key performance metrics. The net rooms growth model represents a three-year CAGR of 5% to 5.5%. It also assumed global RevPAR growth at a two-year CAGR of 3% to 6%from 2023 to 2025, after rising 12% to 14% this year.

R.W. Baird analyst Michael Bellisario wrote that Marriott's net unit growth forecast reflects conversions representing approximately 30% of gross openings in 2024-2025E. “Assuming 1% annual deletions, Marriott's outlook embeds approximately 165,000-200,000 gross openings in 2024-2025E, which means 25,000-30,000 annual conversions would be needed (or 27,000-32,000 annual conversions if deletions were 1.5%),” he said, adding that for historical context, Marriott's highest conversion years were 2021 and 2022 when ~18,000 rooms converted (MGM will make for a new high watermark when that deal closes in 2023 or 2024).

“All the hotel brand companies are fighting for more dots on the map via conversions, and Marriott's balance sheet at just ~3.0x net leverage supports additional key money investments (if needed) to win conversion deals,” Bellisario added.

Given the assumptions in its three-year model, the company could produce the following results:

• Total gross fee revenues could rise 16% to 18% year-over-year in 2023 and at a 6.5% to 9.5%  two-year CAGR to reach $5.4 to $5.8 billion in 2025.
• Adjusted EBITDA could increase 18% to 21% year-over-year in 2023 and at a 7% to 10% two-year CAGR to reach $5.2 to $5.7 billion in 2025.
• Adjusted diluted EPS could rise 25% to 29% year-over-year in 2023 and at a 10% to 15% two-year CAGR to reach $10.10 to $11.45 in 2025.
• Shareholders could see $1.9 to $2 billion in dividends, assuming a 25% payout ratio, and $9.8 to $11.6 billion in share repurchases, for total shareholder returns of $11.7 to $13.6 billion over the three-year period through 2025.

Marriott highlighted its growth in the midscale segment having completed an acquisition (the City Express brand portfolio) in the Caribbean and Latin America region, creating a midscale extended-stay brand in the U.S. and Canada region (StudioRes) and, yesterday announcing a new brand for its Europe, Middle East and Africa region (Four Points Express by Sheraton). The company also said it plans to further expand in the extended-stay segment, having recently announced the launch of Apartments by Marriott Bonvoy.

Marriott is also emphasizing luxury and leisure offerings, stating it has another 225 luxury properties in the pipeline. Conversions, particularly multi-unit conversions, are also a critical piece of the company’s overall growth strategy. In the first six months of 2023, conversions accounted for 63% of room signings, including the MGM Resorts transaction, and 25% excluding MGM.

Continued robust growth in Marriott’s branded residential business, cobrand credit card offerings and other adjacencies such as The Ritz-Carlton Yacht Collection are also expected to enhance the company’s fee growth.

“We are updating our model to reflect this stronger top-line performance in 2H23, and we are increasing our 2024 RevPAR growth estimate by ~75 bps, which primarily reflects a stronger 1H24 outlook (i.e., continued recoveries in business transient, cross-border travel, and Greater China),” added Bellisario.