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  • With massive job losses, hotel closures and historically low

  • occupancy, 2020 was the worst year of record for U.S. hotels.

  • Marriott has been particularly hard hit, recording its first

  • full-year loss in more than a decade. But the rollout of

  • vaccines and signs of pent up travel demand has led to a

  • renewed sense of optimism for the hotel operator.

  • In the second quarter of 2021, Marriott reported net income of

  • $422 million compared to a net loss of $234 million a year

  • earlier.

  • Most hotel companies are expecting a strong spurt of

  • leisure demand this summer, some call it revenge travel; people

  • who have been putting off their vacations and such. And that has

  • been to the point where many hotels who cater to those summer

  • crowds are seeing business comparable to pre-Covid levels.

  • We're actually seeing really strong recovery of demand in a

  • variety of our largest markets. And it's not just leisure

  • demand, which is the thing that's really encouraging for

  • us.

  • The company was also impacted by the death of its longtime

  • leader. In February 2021, Marriott CEO Arne Sorenson, the

  • third chief executive in the company's history and its only

  • non-family member, passed away. Later that month, 25-year

  • company veteran Tony Capuano was named CEO.

  • Marriott International is one of the world's largest hotel

  • operators with 7800 properties in 138 countries and

  • territories, including the Ritz Carlton, Sheraton and Courtyard

  • by Marriott.

  • From a stock perspective, our strategy has been to remain

  • bullish, broadly so. And even when we feel like valuations

  • seem foolish, which they do, but, you know, each week that

  • we've waited, the news flow has gotten more positive,

  • An estimated 48 million Americans took to the roads and

  • skies during the busy Fourth of July weekend. Like its

  • competitors. Marriott has instituted new cleaning

  • procedures and cut back on offerings like its breakfast

  • buffet and in-room dining services in an effort to return

  • to profitability

  • But is it enough? And with the rise of video conferencing, will

  • business travel return to pre-pandemic levels for Marriott

  • and its rivals Hilton, Intercontinental and Hyatt?

  • Marriott got its start as a simple root beer stand in

  • Washington DC.

  • In the summer of 1927, J. Willard Marriott and his wife

  • Alice open an A&W franchise to serve thirsty patrons. A few

  • months later, to cater to winter diners, the couple offered tacos

  • and tamales; The Hot Shoppes restaurant was born

  • In 1928, The Marriott added new locations and by the late 30s

  • were expanding into the burgeoning field of inflight

  • catering, delivering box lunches for passengers on Eastern and

  • American Airlines.

  • But a shift in the late 1950s away from the restaurant

  • business changed the trajectory of the company and the

  • hospitality industry. In 1957, under the management of J.

  • Willard Marriott's son, Bill, the company launched its first

  • hotel in Arlington, Virginia

  • By 1964, the Marriott Hot Shoppes, as it was known, had

  • grown to four hotels and 45 restaurants. Over the next six

  • years, the company more than tripled in size.

  • Bill Marriott Jr, took the reins as CEO in 1972. During the

  • 1970s, Marriott oversaw the company as it spent more than $3

  • billion building airport hotels and convention hotels. He also

  • began shifting the company from a business model of hotel

  • ownership to one of property management and franchising. In

  • 1983, the company entered the mid-price hotel market for

  • business travelers with its Courtyard hotels, and in 1987

  • moved into the economy lodging segment, opening the first

  • Fairfield Inn.

  • The following year, Marriott opened its 500th hotel in

  • Warsaw, Poland.

  • Marriott has been one of the more aggressive growth companies

  • in the hotel sector. It's also grown in a number of different

  • ways. So it's grown by expanding the number of brands that it

  • represents. It's grown by both developing them in-house and

  • acquiring through M&A other hotel companies. And then it's

  • also been very active in growing internationally in a way that's

  • spread it's base of brands around the world.

  • In 1993, the company divided its operations into Marriott

  • International, the hotel management and franchising

  • company headed by Bill Marriott, Jr. and Host Marriott

  • Corporation, a hotel ownership company run by his brother

  • Richard.

  • Moving into the luxury market, the newly renamed Marriott

  • International acquired a 49% interest in The Ritz-Carlton in

  • 1995, with sales topping $10 billion by 1997. But it was a

  • 2016 acquisition that cemented the brand as the world's leading

  • hotel company.

  • Led by former CEO, Arne Sorenson, Marriott acquired

  • Starwood Hotels and Resorts bringing together Marriott,

  • Courtyard, Ritz-Carlton, Sheraton and St. Regis

  • properties all under one roof.

  • There are a lot of other companies which are seeking to

  • position themselves through, to grow and join the sort of the

  • upper echelon if you will, either through acquisitions, new

  • brand development and those sorts of activities,

  • I think Marriott in general has been, you know, one step ahead,

  • has been on the leading edge of, you know, evolving lodging

  • companies across the industry. And you point out the Starwood

  • acquisition, which really did you know, firmly put them in the

  • lead in terms of size. In terms of Breath of brands.

  • However, it may have been a global pandemic in 2020, that

  • proved to be one of the biggest challenges for hotel operators

  • With hotels nationwide closing, in September 2020, the iconic

  • Hilton Times Square hotel announced it was shutting its

  • doors. That same year, more than 670,000 hotel industry jobs were

  • lost. According to Sorenson, Covid-19 caused more pain to

  • Marriott International's business, than 9-11 and the

  • financial crisis combined.

  • The global hotel industry was a more than $530 billion business

  • in 2019 and included brands like Hilton, Intercontinental, Hyatt,

  • Wyndham and of course Marriott. U.S. hotels set multiple records

  • in 2019, including having more than 1.9 billion room nights

  • available, and roughly 1.3 billion room nights sold.

  • Profitability was high. Unit growth was high, and in general,

  • the business was doing quite well.

  • For like much of the travel industry, the coronavirus

  • pandemic has wreaked havoc on hotels. According to STR, 2020

  • was the worst year on record for the U.S. hotel industry, with

  • more than a billion hotel rooms unsold and revenue per available

  • room hitting an all-time low.

  • But with an increasing number of people getting their vaccines,

  • travel demand has surged. In the second quarter of 2021. Hilton

  • had net income of $128 million, compared to a net loss of $432

  • million the year earlier.

  • As of July 2021, the hotel brand had more than 6600 properties in

  • 119 countries and territories. During that same period, Hyatt

  • had a net loss of $9 million dollars compared to a net loss

  • of $236 million a year earlier. And in its latest financial

  • filings, IHG, which includes Holiday Inn, Crowne Plaza and

  • Intercontinental reported a total operating profit in 2020

  • of $117 million, compared to $816 million in 2019.

  • In the first half of the year was the most challenging the

  • travel and tourism industry has ever seen, when you saw social

  • distancing come into play travel restrictions and borders

  • closing.

  • In the second quarter of 2021, revenue at Marriott rose to $3.1

  • billion, up 115% from a year earlier. In March 2020. The

  • hotel operator furloughed two-thirds of its corporate

  • staff, 10s of 1000s of employees and enacted cost cutting

  • measures. It also implemented new procedures at hotels like

  • requiring facemask in public areas, cleaning surfaces with

  • hospital-grade disinfectant and services like mobile check-in

  • and mobile key.

  • At our low point, we had about 2000 out of 7500 hotels that

  • were closed around the world. We've probably reopened three to

  • 400 of those. I think when we look at even in the United

  • States, we see the early signs of recovery. Although we've gone

  • from something like minus 90% revenue to something like minus

  • 80% revenue

  • By July 2021, Marriott's occupancy rate was 51%, up 18%

  • from the start of the year.

  • And according to analysts, the hotel operators, like Marriott,

  • have suffered as a result of dropping travel demand, they

  • have found themselves in a better position than individual

  • hotel owners.

  • I would say that names like Marriott, Hilton, Hyatt, clearly

  • devastated by this but less so than the owners themselves.

  • Remember, these companies tend to take fees off the top line

  • and in some cases, the bottom lines of the hotels. But all the

  • costs of operating a hotel are borne by the actual owners of

  • the hotels. So those are the folks that got hit the hardest.

  • CNBC reached out to Marriott, but they denied our request for

  • an interview.

  • Marrott had revenue of $10.5 billion in 2020, down almost 50%

  • from the year earlier. According to analysts, the hotel operator

  • makes most of its money from its full-service hotels, like the

  • Ritz Carlton, and JW Marriott that offer multiple restaurants

  • and other amenities

  • In 2019, 64% of revenue came from its North American

  • full-service hotels, 16% came from North American

  • limited-service hotels like Fairfield Inn, and Courtyard

  • Marriott. 11% came from hotels in Europe, the Middle East and

  • Africa, and 5% came from the Asia Pacific region. The

  • remainder of revenue came from things like credit card and

  • loyalty programs.

  • Covid certainly was and has been a pivotal moment for Marriott

  • for a number of reasons; the most important of which is the

  • structure of their business where they manage hotels, and

  • they bear the cost of labor and other operating expenses on

  • behalf of the owners of those hotels that are reimbursed

  • through the fees that they collect, which seized up in a

  • way, unimaginable, you know, brought to bear a series of

  • issues and risks or how their business will run in the future.

  • So the industry is really hitting a major reset here.

  • Where are we thinking about what it is that person that that

  • sleeps in your hotel every night? What do they really want?

  • Do they need nightly turndown service? Do they need their beds

  • remade every night if they're there for three or four nights?

  • Like its rivals, Marriott uses an asset light business model,

  • meaning it typically manages or franchises hotels rather than

  • owning them. In 2019, 58% of Marriott's rooms were under

  • franchise agreements. 41% of rooms were under management

  • agreements, and less than 1% of rooms were owned or leased by

  • the company. In a bid to generate capital, in May 2020,

  • the company signed new deals with Co-branded credit cards

  • providing Marriott with an infusion of cash, $920 million.

  • Adding new hotels to its portfolio is another key driver

  • for how Marriott generates growth, usually with little or

  • no investment by the company.

  • The most important driver of is unit growth. So you want to add

  • additional hotels— 3%, 4%, 5%, we're actually seeing some years

  • of closer to 6% unit growth. Marriott has pursued that more

  • aggressively than say Hilton, which has preferred more of an

  • organic growth initiative. But if you look at, not only the

  • Starwood acquisition, but other acquisitions in Europe, in

  • Africa, it has really led to increased growth for Marriott

  • And while Covid-19 has impacted those growth plans, as of July

  • 2021, the company had nearly 478,000 rooms in its development

  • pipeline. From the start of 2021. until April, business

  • travel was expected to be down 85% compared to its 2019 levels.

  • The expectation is that business travel recovery will lag leisure

  • recovery in the hotel sector and Marriott participates in both

  • but it certainly is well known as a corporate and upscale type

  • of travel and demand. So Marriott will have a challenge

  • in the near term as it waits for corporate travel to rebound

  • fully.

  • The thing that will be interesting to watch, I think

  • it's going to be less clear what the trip purpose is.

  • Increasingly we're seeing folks that say, I can blend trip

  • purpose. I can combine leisure with business travel, and we

  • think that's a really good news for our hotels across the

  • country.

  • Marriott hopes to bring in some of those overnight guests in

  • what the industry refers to as the bleisure categorytravelers

  • who combined business with tourism

  • To book more rooms in April 2021, Marriott rolled out two

  • new programs: a contactless check-in kiosk and a contactless

  • food and drink vending machine.

  • I can tell you that Marriott is already focused on making sure

  • that hotels are resourced properly, so that we can stay

  • longer, do our work and enjoy ourselves as well. And I think

  • that aspect of it is going to be critically important. You know,

  • as we come out of this crisis and recovers as an industry.

  • And while Marriott has seen an uptick in drive to leisure

  • demand during the pandemic, particularly for its extended

  • state and resort hotels., the company is facing headwinds from

  • another segment of the market: short term rental companies.

  • To compete with Airbnb in 2019, the company launched Homes &

  • Villas, a home rental service that offers more than 10,000

  • luxury hotels in over 250 markets.

  • By the summer of 2020, bookings at Homes & Villas were up 700%

  • over the previous season.

  • When we launched Homes & Villas, it was really a compliment to

  • our hotel portfolio. The notion that, for very specific trip

  • purposes, our guests might need a whole home experience. We've

  • seen pretty explosive growth. I think at the end of the quarter

  • we had about 30,000 listings, and they are all full homes.

  • However, as analysts note, Marriott's Home & Villas, it's

  • just a small fraction of the 5.6 million listings on Airbnb.