BETHESDA, MD—Marriott International Inc.’s RevPAR grew 4% in the second quarter. Net income also grew 25% year over year.
“We were pleased with our performance in the quarter across the board,” said Arne M. Sorenson, president/CEO,Marriott International. “Worldwide constant dollar RevPAR grew nearly 4% in the second quarter, with particularly strong transient demand in many markets outside North America. In North America, solid group business allowed us to drive higher room rates in the quarter.”
More than 82,000 rooms were opened in the last 12 months, yielding net rooms growth of 5.7%. “Over 40% of these gross room additions are located outside North America and more than one-third are in upper-upscale and luxury tiers,” he said. “Our development pipeline increased to roughly 466,000 rooms at quarter-end.”
The company added 142 new properties (23,287 rooms) to its worldwide lodging portfolio during the second quarter, including the Bulgari Hotel Shanghai in China, The Bodrum Edition in Turkey and the Sheraton Bamako Hotel, the company’s first hotel in Mali. Sixteen properties (3,117 rooms) exited the system during the quarter. At quarter-end, Marriott’s lodging system encompassed 6,717 properties and timeshare resorts with nearly 1,287,000 rooms.
At quarter-end, the company’s worldwide development pipeline totaled 2,740 properties with roughly 466,000 rooms, including 1,148 properties with nearly 213,500 rooms under construction and 253 properties with approximately 41,500 rooms approved for development, but not yet subject to signed contracts.
In the second quarter, worldwide comparable systemwide constant dollar RevPAR increased 3.8% (a 5.1% increase using actual dollars). North American comparable systemwide constant dollar RevPAR increased 3.1% (a 3.4% increase using actual dollars), and international comparable systemwide constant dollar RevPAR increased 5.7% (a 10.1% increase using actual dollars) for the same period.
The company will be introducing changes to its three loyalty programs later this month. “We are excited to introduce one set of unified benefits across our three loyalty programs on Aug. 18, creating an incredibly rich program in which members, on average, will earn 20% more points for every dollar spent,” said Sorenson. “Members will find it easier to redeem points, achieve elite status, and book stays across the entire portfolio on each of our websites and apps or by calling our customer engagement centers. Our credit card partners, JPMorgan Chase and American Express, are offering new and refreshed co-branded credit cards in the U.S., providing valuable perks and more ways to earn points when using the cards for stays worldwide.”
Marriott’s reported net income totaled $610 million in the second quarter, a 25% increase from the 2017 second quarter reported net income of $489 million. Reported diluted earnings per share (EPS) totaled $1.71, a 34% increase from reported diluted EPS of $1.28 in the year-ago quarter.
Second quarter adjusted net income totaled $619 million, a 46% increase over 2017 second quarter adjusted net income of $425 million. Adjusted net income excludes merger-related adjustments, cost reimbursement revenue, reimbursed expenses, and an adjustment to the Avendra gain. Adjusted diluted EPS in the second quarter totaled $1.73, a 56% increase from adjusted diluted EPS of $1.11 in the year-ago quarter.
Base management and franchise fees totaled $775 million in the 2018 second quarter, a 12% increase over base management and franchise fees of $693 million in the year-ago quarter. The year-over-year increase in these fees is primarily attributable to higher RevPAR, unit growth, and higher credit card branding fees.
Second quarter incentive management fees totaled $176 million, a 14% increase compared to incentive management fees of $155 million in the year-ago quarter. The year-over-year increase was largely due to higher net house profit at properties in North America and the Asia-Pacific region.
Owned, leased and other revenue, net of direct expenses, totaled $89 million in the 2018 second quarter, compared to $98 million in the year-ago quarter. The year-over-year decrease largely reflects the $21 million negative impact from hotels sold during or after the second quarter of 2017, including in the second quarter of 2018, partially offset by stronger results at a few owned and leased hotels in North America and Europe. Results in the 2017 second quarter included $5 million of business interruption proceeds.
Gains and other income, net, totaled $114 million in the 2018 second quarter, reflecting $67 million of gains associated with the sale of two hotels in Fiji and two hotels in North America, as well as $42 million of gains associated with the sale of the company’s equity interests in joint ventures in the Europe, Asia-Pacific, and Caribbean & Latin America regions. Gains and other income, net, totaled $25 million in the 2017 second quarter, reflecting a $24 million gain on the sale of the Charlotte Marriott City Center.
Equity in earnings for the second quarter totaled $21 million compared to $12 million in the year-ago quarter. The second quarter included a $10 million gain on the sale of a hotel in a North American joint venture.
The provision for income taxes totaled $186 million in the second quarter, a 23.3% effective tax rate, compared to $227 million in the year-ago quarter, a 31.7% effective tax rate. The lower effective rate in the 2018 second quarter largely reflects the effects of the U.S. Tax Cuts and Jobs Act of 2017.
For the second quarter, adjusted EBITDA totaled $939 million, a 15% increase over second quarter 2017 adjusted EBITDA of $820 million. Compared to the prior year, adjusted EBITDA for the second quarter of 2018 reflects the $17 million negative impact from sold hotels.
Worldwide comparable company-operated house profit margins increased 60 basis points in the second quarter, largely due to solid cost controls and synergies from the Starwood acquisition. House profit margins for comparable company operated properties outside North America rose 50 basis points and North American comparable company operated house profit margins increased 60 basis points in the second quarter.