BETHESDA, MD—Marriott International added more than 16,000 rooms during Q2 2019, including nearly 3,500 rooms converted from competitor brands and approximately 7,500 rooms in international markets. At quarter-end, the company’s worldwide development pipeline totaled roughly 2,900 hotels and more than 487,000 rooms, including approximately 40,000 rooms approved, but not yet subject to signed contracts. Roughly 213,000 pipeline rooms were under construction at the end of the second quarter.
The company’s reported net income totaled $232 million in Q2 2019, compared to 2018 second quarter reported net income of $667 million. Reported diluted earnings per share (EPS) totaled $0.69 in the quarter, compared to reported diluted EPS of $1.87 in the year-ago quarter.
Q2 2019 adjusted net income totaled $525 million, compared to 2018 Q2 adjusted net income of $619 million. Adjusted diluted EPS in Q2 totaled $1.56, compared to adjusted diluted EPS of $1.73 in the year-ago quarter. Adjusted results for the 2018 second quarter include $119 million pre-tax ($0.26 per share) of asset sale gains in gains and other income, net and equity in earnings. Adjusted results exclude merger-related costs and charges, cost reimbursement revenue, and reimbursed expenses. Adjusted results for the 2018 second quarter also exclude an increase to the gain on the sale of Avendra.
Base management and franchise fees totaled $834 million in the 2019 second quarter, an 8% increase over base management and franchise fees of $775 million in the year-ago quarter. The year-over-year increase in these fees is primarily attributable to unit growth, RevPAR growth and higher branding fees.
Q2 2019 incentive management fees totaled $165 million, a 6% decrease compared to incentive management fees of $176 million in the year-ago quarter. The year-over-year decrease largely reflects lower net house profits at North American managed hotels, and unfavorable exchange rates, partially offset by higher net house profits at international managed hotels.
General, administrative and other expenses for the Q2 2019 totaled $229 million, compared to $217 million in the year-ago quarter. The year-over-year change largely reflects an increase in administrative costs.
In Q2 2019, the company incurred $22 million of expenses and recognized $22 million of insurance recoveries related to the data security incident it disclosed on Nov. 30, 2018. The expenses and insurance recoveries are reflected in either the reimbursed expenses or merger-related costs and charges lines of the income statement, which have been excluded from adjusted net income, adjusted EPS and adjusted EBITDA.
The company also recorded a $126-million non-tax deductible accrual in the second quarter for the fine proposed by the U.K. Information Commissioner’s Office in relation to the data security incident. Marriott has the right to respond before the amount of the fine is finally determined and a fine can be issued. The company intends to respond and vigorously defend its position. The accrual is reflected in the merger-related costs and charges line of the Income Statement, which has been excluded from adjusted net income, adjusted EPS and adjusted EBITDA.
Gains and other income, net, totaled $1 million, compared to $114 million in the year-ago quarter. Gains and other income, net, in the 2018 second quarter largely reflected $109 million of gains from asset sales.
Interest expense, net, totaled $96 million in the second quarter compared to $79 million in the year-ago quarter. The increase is largely due to higher debt balances.
Equity in earnings for the Q2 totaled $0 million, compared to $21 million in the year-ago quarter. The 2019 second quarter included a $4-million asset impairment. The 2018 second quarter included a $10 million gain on the sale of a hotel in a North American joint venture.
“Our owners and franchisees continue to sign new hotel deals at a rapid pace,” said Arne M. Sorenson, president/CEO of Marriott International. “Our development pipeline increased 3% in the second quarter, reaching a record 487,000 rooms, including roughly 213,000 rooms under construction. Today, our pipeline includes five new all-inclusive resorts to be built over the next several years, which will be part of our newly launched all-inclusive platform. Recognizing the growing demand for all-inclusive lodging, our platform will create distinctive vacation experiences while leveraging existing brands in our luxury and full-service portfolio. We expect the platform will grow through both new-build properties and conversions of existing resorts, offering travelers yet another option for earning and redeeming Marriott Bonvoy points.”
Marriott launched an all-inclusive platform to serve the vacation segment. The company has signed management contracts with hotel developers who plan to build five new all-inclusive resorts, investing more than $800 million. The resorts are expected to open between 2022 and 2025.
