Marriott International has separated itself from more cautious operators and declared that it expects to add at least 80,000 to 90,000 hotel rooms to its portfolio from 2011 through 2013, while at the same time returning up to $5.3bn to shareholders.
Arne Sorenson, president and COO, told the group's 2010 Security Analyst Meeting: "Most of these rooms are already under construction and signed. There are also opportunities for growth through M&A and conversion. We've estimated this upside at 22,000 rooms by 2013." Of those hotels in the pipeline, 75% of the full-service rooms were outside the US.
The group said that around a quarter of the hotels in the pipeline had seen investment from Marriott, through loans, minority equity stakes and debt guarantees or with key money investments. Tony Capuano, executive vice president of global development, said: "We remain focused on third party real estate ownership. However, the strength of our balance sheet allows us to use capital selectively. We've committed about $400m of direct cash investments and another $80m of guarantees to support that 95,000 room pipeline. The guiding principal behind the deployment of capital is the recyclability of those investments."
The company said that, having reduced net debt by almost $1.5bn since the end of 2008, it had already reached its targeted debt levels. It said it would invest $2.3bn to $2.7bn over the next three years, with Sorenson adding: "The bulk of that spending is unidentified and we could easily spend less or more. The balance will be returned to our shareholders."
Looking at the availability of funding for new hotels to come into the group's system, either new-build or conversion, Capuano said that globally, the group continued to see "very strong conversion interest with our full-service hotels, particularly with Autograph. On the limited service side we are starting to see some new construction capital leak out, largely for Marriott brands, but very little on the full service side".
J.W. Marriott, Jr., chairman and CEO, told the group's 2010 Security Analyst Meeting: "We are on the threshold of extraordinary growth for our company. As we look ahead over three years, Marriott is poised to deliver substantial gains in bottom line results, as well as meaningful returns to hotel owners and shareholders, as our industry-leading portfolio of brands both recovers from the recent recession and grows worldwide."
Marriott plans to adapt and expand current brands, such as Courtyard and Fairfield, to meet the needs of customers in markets worldwide, including emerging markets such as India. The group will also be expanding its new brands outside of the United States, including Edition, which just opened its first hotel on Waikiki Beach in Hawaii, and the Autograph Collection.
Capuano said: "Ten years ago around 40% of our developers were outside America, now it's at 60%." The group is also opening reservations offices in China and India.
In the US, the group is focusing on higher-end properties, with the Autograph Collection set to represent 40% of its North American full service growth pipeline of 17,000 to 18,000 rooms by 2013, out of 40,000 to 44,000 rooms. In contrast Edition makes up 4%, with the Marriott Hotels & Resorts flagship brand at 34%. While the Autograph Collection uses Marriott's reservations and other back room systems, the hotels retain the appearance of independent hotels.
In Europe, the group was also looking to the Autograph Collection to bolster its holding. Amy McPherson, president and managing director, Europe: "In the past three years we have seen a significant shift towards brands – almost 10 percentage points. With the owner/operator model prevalent in Europe, Autograph is an ideal brand.
"In Europe much of the focus has been on economic concerns, in particular the debt crisis. Marriott sees Europe as a large and growing market and we have significant distribution gaps in large and growing markets. Europe has a largely unbranded market and is a more complex market to the UK, but despite the complexity it is hard to ignore the potential."
The group announced plans earlier this year to add another 40,000 rooms in Europe by 2015, with 12,000 extra by the end of 2013, through organic growth for existing brands, conversions to the Autograph Collection (which the group said had 30 hotels in negotiation) and the use of "Marriott capital in high impact markets".
The company's deal with AC Hotels provided, said McPherson "immediate and existing presence" in Europe and Latin America, with the group seeing a rise in enquiries in Latin America. Closing the deal would, she said, see Marriott move from 10 in the ranking of hotel companies in Europe to five.
Marriott expects to have 179 hotels in Europe by the end of 2010, said that it was looking to fill out its portfolios in UK, Italy, Germany France and Spain. It was also looking at emerging markets such as Russia and Turkey, which it said was aided by less capital-intensive development models.
In the Asia-Pacific region 43% of Marriott's signed pipeline of 17,000 rooms was in greater China, with 39% in the Indian subcontinent. The pipeline of rooms estimated for the year-end this year was 47,000, with 46% in greater China.
Paul Foskey, executive VP, Asia-Pacific International Hotel Development, said: "In China we're ranked fourth overall and number two in the gateway and primary cities. We are focused on gateways not only because they have higher rates and fees, but because they also offer higher brand recognition. Like IHG we are anticipating over $1bn in revenues in 2010. Where you are and with what product are critical to how your drive revenues. We are expecting to capture 20% of the revenues with 15% of the rooms."
Foskey said that, in Asia Pacific: "Courtyard is our growth vehicle because it's scaleable, it's adaptable for different countries and it's well-suited for the growing middle class." This was particularly true in India, where Foskey said that there was less of a disparity in rate between primary, secondary and tertiary markets. The pipeline also includes a Ritz Carlton and seven JW Marriott hotels as well as a further seven high-end properties.
Marriott anticipated adding 15,000 to 17,000 rooms by the end of 2013, with 17,000 rooms in the current pipeline. Foskey said he was confident the group could accelerate growth to add a further 10,000 rooms not included in the wider company forecast.
The group was confident that the US would see rate growth, aided by limited new supply. Dave Grissen, president, Americas, said: "Based on the timeline for new development and the pace of new construction, US supply is expected to be at or below 1% through to 2013. Solid demand and limited supply leads to improved pricing power for our hotels. Marriott had strong ADR growth during the previous recovery when these same dynamics were in play."
HA Perspective: It is right that Marriott should be focused on growth. But the quality of growth also matters.
Europe has proved difficult for the company. The country by country approach is expensive and time consuming compared to what was delivered during the roll-out in North America decades ago.
And attempts to take short-cuts have mostly ended badly. Even in the UK, where the original master franchise deal with Whitbread yielded significant scale, Marriott is now married to a troubled owning group that paid too much and is too leveraged.
The deal with AC has left Marriott with a similarly troubled owner. These deals, and the launch of Autograph, are certainly good short-term bets but the longer-term remains shrouded in doubt.
The company needs to demonstrate more success with longer-term brand growth via franchising and management contract. This is a much harder task.