Group rebound gives Marriott momentumBy Jeffrey Weinstein | February 14, 2023Share Bullish 4Q22 earnings news led by better than expected group, international performance. Capuano comments on pipelines with new focus on midscale segment. Driven by ongoing improvement by group revenues, (+10% in 4Q22 versus pre-pandemic levels and 2023 already pacing up 20% year-over-year) business transient demand nearly 90% recovered and leisure demand remaining “robust,” Marriott International beat Street estimates for the final quarter of 2022 led by RevPAR growth of 4.6 (+5.2% U.S. and Canada and +3.4% international).At the same time forward-looking guidance was another bright spot of Tuesday’s earnings report. The range for worldwide RevPAR growth for the full year is +6% to +11%, while net rooms growth is projected at 4% to 4.5% versus 3.1% in 2022. Adjusted EPS is estimated at $7.23-$7.91, while the Adjusted EBITDA outlook sits at: $4.03-$4.3 billion.While comparisons for January 2023 were easier due to last year’s Omicron variant outbreak, worldwide RevPAR was up 51.6% year over year for the first month. Marriott President and CEO Tony Capuano added during the earnings call that the company is optimistic that 2023 global RevPAR will grow year-over-year, even if the global economy softens in the back half of the year.In written remarks, Capuano led with the fact that the 4Q22 U.S. and Canada RevPAR increased 5% over the 2019 quarter, driven by further improvement in occupancy and an 11% increase in ADR. “Leisure demand remained robust and group demand more than fully recovered, leading to fourth quarter group revenues 10% above pre-pandemic levels,” he said. “Business transient demand was at nearly 90% recovery in the quarter, while ADR was 3% above 2019. Our successful negotiation of high single-digit special corporate rate increases for 2023 bodes well for continued price strength.”Looking even further ahead, Capuano added that Marriott thinks there is still a meaningful upside to the group as it watches bookings materialize for the balance of 2023.“We see the earnings beat driven primarily by international outperformance and from overall hotel-level profitability – both owned/leased and incentive management fees (IMFs) with IMF contribution from international likely helping,” wrote Truist Securities C. Patrick Scholes. “RevPAR-driven fee revenues were $66 million above consensus and owned/leased operating profit was $15 million above consensus.”The company added more than 65,000 rooms globally during 2022, including approximately 40,000 rooms in international markets and nearly 17,500 conversion rooms.What we hear from them [guests and owners] loudly and clearly is at the right quality level entry in the midscale has great appeal.Tony CapuanoShare this quoteAt the end of the year, Marriott’s worldwide development pipeline totaled over 3,000 properties and more than 496,000 rooms, including roughly 22,300 rooms approved, but not yet subject to signed contracts. Approximately 199,000 rooms in the pipeline were under construction as of the end of 2022.“The financing environment for new projects and hotel sales remains challenging, especially here in the U.S., given higher interest rates and uncertainties surrounding a potential economic downturn,” Capuano added during the earnings call. “However, other industry headwinds like supply chain disruptions, construction costs and availability of labor have improved.”The anticipated closing of the deal to acquire Mexico’s City Express portfolio should add around 17,000 rooms in the moderately priced midscale space and Capuano said Marriott is excited about the opportunity to expand in this segment in the Caribbean and Latin America, as well as in other locations around the world.“We expect to grow that brand aggressively across CALA, and we are evaluating the applicability of that brand in other markets around the world,” Capuano added. “We have not made definitive decisions about when and if we will roll out City Express in other places. But you can rest assured, those evaluations and discussions are going on as we speak. I do think if you look at our historical track record of acquisitions, many of those initially either strengthened our leadership position or gave us a meaningful foothold in a region where we weren’t growing as quickly as we’d like organically. And then over the passage of time, we look for opportunities to grow that platform more broadly. I think the same strategy will apply to City for us.” More broadly, Capuano said Marriott growth strategy is driven by what it hears from guests and owners. “What we hear from them loudly and clearly is at the right quality level entry in the midscale has great appeal,” he said. “An alternative, launching a product like Apartments by Marriott Bonvoy, is equally appealing to both of those constituents. And that’s where our focus lies right now in terms of expanding the portfolio.”As for the recently launched Apartments by Marriott Bonvoy, Capuano added that the company has received a great deal of initial interest from owners and developers.On the subject of demand and development returning to the pivotal China market as COVID-related restrictions continue to subside, Marriott Chief Financial Officer and Executive Vice President of Business Operations Leeny Oberg said the company is really pleased with the overall pace of demand there, adding that Marriott could see a 30% increase in RevPAR growth there year-over-year with the biggest increase coming in the first quarter.While China deal signings last year were down about 15% from 2021 and more than one-third from 2019, as borders open Capuano said Marriott expects to see meaningful positive impact on demand patterns and on the outlook of its development partners. “We would expect an acceleration in deal volume,” he said.