Marriott's Demand and Profitability Trend Higher in Q2

Narrow-moat Marriott’s MAR second-quarter global revenue per available room improved to 56% of 2019 levels (versus 62% for Hilton HLT), up from 42% in the first quarter (45%), led by the U.S./Canada and China regions. U.S./Canada revPAR reached 61% of prepandemic levels versus 43% in the prior three months, while China revPAR surpassed 2019 marks this past spring. Strength continued into July, with U.S. revPAR rebounding to 84% of 2019 levels. We were encouraged to hear that U.S. group bookings for all future dates returned to 71% of prepandemic marks in June, up sharply from 44% in March, with rates having largely fully recovered. As a result, we plan to maintain our 2021 revPAR forecast of low 60s of 2019 levels, with a full recovery by 2023. We don’t plan a material change to our $130 fair value estimate, leaving the shares slightly overvalued.

Although Marriott’s pipeline dropped 6% from a year ago, conversion activity is strong and deletion amounts are dropping, giving the company confidence to now guide 2021 net unit growth to the higher end of its previous 3%-3.5% target (our forecast remains at 3.5%). Further, engagement on its industry-leading loyalty member base of 153 million is healthy, with these travelers booking 50% of second-quarter room nights, near the prepandemic peak of 52%. We still expect Marriott to average over 4% annual unit growth over the next 10 years.

Adjusted EBITDA reached $558 million in the second quarter, up from $61 million a year ago. During the quarter, 90% of U.S. managed hotels achieved gross operating profit versus 60% three months prior, aided by the demand recovery and cost-saving measures. Meanwhile, China hotels achieved around 200 basis points of higher margin once 2019 revPAR levels were reached. This instills confidence in our forecast for Marriott to achieve midteens operating margins in 2023 versus the low-double-digit average in the years before the pandemic.

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