Conversions, international fuel Marriott’s NUG

BETHESDA, Maryland — Marriott International continued to flex its net unit growth (NUG) muscle despite RevPAR headwinds affecting performance in the U.S. and Canada. Executives say that strength comes from the company’s ability to convert properties quickly and efficiently into its system.

“Conversions remain a significant driver of growth, representing nearly 30% of both room signings and openings during the first half of the year,” Marriott President and CEO Anthony Capuano said during the company’s earnings call on Tuesday.

Leeny Oberg

Leeny Oberg, CFO and executive vice president of development for Marriott, who recently announced her retirement, said conversions have been driving growth for the past few years and there is no reason to expect that to change.

“We would expect to continue to see over the next few years that we would have, call it roughly a third of rooms opening that are conversions… We will continue [strength] in the conversion space,” she said. “As we look at a pipeline that is over 5% higher than a year ago, with this heightened element of several years of conversions, we’re confident that we’re building the track record for mid-single digits net rooms growth over the next several years.”

Capuano mentioned Series by Marriott, a newly announced midscale/upscale collection brand, as another reason for continued optimism behind NUG.

“We’re just getting started in the midscale tier, where we think there is tremendous opportunity,” he said. “The number of midscale deals in the pipeline globally doubled just from a quarter ago, and with the introduction of something like Series, that enhances an effort that we’ve talked about the last few quarters around portfolio conversions.”

I have to admit, [leisure transient] has probably been the surprise outperformer for us and I will point to the luxury and certain parts of the premium segment. For example, resorts have performed extremely well.

Leeny Oberg

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The company added roughly 17,300 net rooms during Q2, and net rooms grew 4.7% YOY. At the end of the quarter, Marriott’s worldwide development pipeline reached a new record and totaled approximately 3,900 properties and over 590,000 rooms, with 50% of those rooms in international markets.

Capuano said leisure transient was the fastest-growing customer segment by RevPAR, growing globally by 3% and 1% in the U.S. and Canada, respectively.

Oberg said that leisure transient success wasn’t necessarily expected.

“[Leisure transient] has probably been the surprise outperformer for us and I will point to luxury and certain parts of the premium segment,” she said. “For example, resorts have performed extremely well… This desire for experiences over goods continues and the underlying trends that we see are excellent. The booking window is obviously quite short, so you can’t predict much more than three weeks in advance, but so far, we continue to see solid leisure trends. But I would not say that they’re accelerating.”

While group in Q2 rose 2% globally and 1% in the U.S. and Canada, business transient declined 2% globally, which Capuano attributed to ongoing economic uncertainty and volatility as well as diminished government travel.

You’re seeing more and more return to the office, either voluntary or mandated, and that’s having some impact on business transient volume as well But the volatility and the uncertainty that I talked about appear to be the biggest contributor to the bit of softness we saw in the quarter.

Anthony Capuano

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“Last year, about 3% of global room nights and about 4% of U.S. and Canada room nights were U.S. government workers. That’s federal, state, local, and we’ve done our best to try to estimate government adjacent room nights as well. In the U.S. and Canada, we would guess that would be about another 1%,” he said.

As for non-government travel, Capuano said most of the corporate groups that Marriott works with are back to normal.

“You’re seeing more and more return to the office, either voluntary or mandated, and that’s having some impact on business transient volume as well,” he said. “But the volatility and the uncertainty that I talked about appear to be the biggest contributor to the bit of softness we saw in the quarter.”

Oberg said that while business transient was down 1%, excluding government travel globally, business transient RevPAR for government was down 17% in Q2. She says that’s more down than what the company first saw in March 2025, but it also appears to be steadying out.

For its full-year guidance, Marriott is projecting 1.5-2.5% RevPAR growth internationally, with third-quarter RevPAR projected to be flat to 1%. The company projects gross fee revenues of $5.365-5.42 billion for the whole year and an adjusted EBITDA of $5.31-5.395 billion. Marriott expects to spend between $1.355-1.455 billion in investment spending for full-year 2025, including $355 million for its acquisition of the citizenM brand in July.

In July, Marriott completed its $355 million acquisition of citizenM, which includes 37 open hotels, like this one in Miami.

Other Q2 results

• Q2 adjusted EBITDA totaled $1.415 billion
• Base management and franchise fees totaled $1.2 billion in Q2, up nearly 5% YOY
• Marriott’s reported operating income totaled $1.236 billion in Q2
• The company added roughly 17,300 net rooms in Q2, including more than 8,500 net rooms in international markets
• Through Q2, Marriott’s global system totaled over 9,600 properties, with approximately 1,736,000 rooms
• At the end of Q2, Marriott’s total debt was $15.7 billion and cash and equivalents totaled $0.7 billion
• The company repurchased 2.8 million shares of common stock in Q2 for $0.7 billion

What the analysts said

Analyst Michael Bellisario of R.W. Baird said Marriott topped analyst and Wall Street expectations with gross fees up $8 million over Baird’s model.

“Looking ahead, 3Q25 guidance is below Baird/Street forecasts and the implied 2H25 outlooks – both for RevPAR and adjusted EBITDA – have been lowered to reflect a continuation of the current macroeconomic environment,” he said. “Net, net – 2026 estimates likely are biased a bit lower and we see no major surprises with Marriott’s 2Q25 earnings or 2025E guidance updates, including an unchanged net rooms growth outlook of ‘approaching 5%.’”

Analyst Patrick Scholes of Truist Securities said, unlike some of its peer companies that did not change full-year RevPAR guidance, Marriott took its full-year RevPAR projections down 100 basis points from +1.5-3.5% to +1.5-2.5%.

“Offsetting the RevPAR reduction and impact on fee revenue is higher earnings expectations for owned/leased/other profits,” he said. “Regarding the new rooms pipeline, at quarter end it was up 5.5% YOY (higher than Hilton’s +4% YOY despite Marriott having lower expectations for net rooms/unit growth than Hilton), though as has been the industry trend, this 5.5% growth rate was down from 1Q’s +7.4%.”