Marriott International released its fourth quarter 2020 results for the first time since the passing of President/CEO Arne Sorenson earlier this week.
“We are all deeply saddened by Arne Sorenson’s unexpected passing,” said Leeny Oberg, EVP/CFO of Marriott. “We are grateful to have been able to work with such an inspiring and talented leader and will always treasure our memories of working with him. Our leadership team is committed to honoring him by building on his incredible legacy as we move the company forward.”
Stephanie Linnartz, group president, consumer operations, technology and emerging businesses, and Tony Capuano, group president, global development, design and operations services, who together are sharing responsibility for overseeing the company’s day-to-day operations until Marriott’s board of directors appoints a new president and CEO, commented on the company’s quarterly results.
“With the global pandemic, 2020 was the most challenging year in our 93-year history,” said Linnartz. “In April, we experienced the sharpest worldwide RevPAR decline on record, down 90% year-over-year with just 12% occupancy. Demand around the world improved from this trough at varying rates, with China leading the way. RevPAR in mainland China saw a meaningful rebound through the year and was down less than 10% year-over-year in December.”
She continued, “While China has shown that demand can be quite resilient when the virus is perceived to be contained, we have also seen that progress can be slowed by significant spikes in virus cases, such as we saw in the U.S and Europe towards the end of 2020. Global occupancy remained at 35% in the fourth quarter, in line with the third quarter, and still substantially above the trough in April. While no one can know how long this pandemic will last, we are seeing some small, early signs that the acceleration of vaccine rollouts around the world will help drive a significant rebound in travel and lodging demand.”
Capuano added, “We are gratified that we continue to see strong demand for our industry-leading brands from owners and franchisees despite the unprecedented challenges resulting from the pandemic. Our pipeline grew during the quarter to more than 498,000 rooms as of the end of 2020, with 46% of those rooms under construction. We are seeing strong interest in conversions, as demonstrated by our recent announcement of the planned conversion of 19 all-inclusive hotels with nearly 7,000 rooms to our system in the Caribbean and Latin America region during 2021. Looking ahead, we expect gross rooms growth could accelerate to approximately 6% in 2021.
He continued, “In the face of the unprecedented environment resulting from the pandemic, our associates and leadership team rose to the challenge. We worked closely with our owners and franchisees to help them weather the crisis by implementing cost savings, both temporary and permanent. And operationally we implemented heightened cleanliness standards across our portfolio to enhance the safety and wellbeing of our associates and guests, while also introducing additional protocols to help enable meeting and group business to safely take place.”
Oberg added, “In 2020, we moved swiftly to right-size our business in response to the precipitous decline in revenue by reducing costs, strengthening our balance sheet and lowering capital spending. While the current environment remains challenging, we believe our financial condition is strong and we look ahead to the rest of 2021 with optimism.”
Marriott’s reported operating loss totaled $128 million in the 2020 fourth quarter, compared to 2019 fourth-quarter reported operating income of $274 million. Reported net loss totaled $164 million in the 2020 fourth quarter, compared to 2019 fourth-quarter reported net income of $279 million. Reported diluted loss per share totaled $0.50 in the quarter, compared to reported diluted earnings per share (EPS) of $0.85 in the year-ago quarter.
Adjusted operating income in the 2020 fourth quarter totaled $148 million, compared to 2019 fourth-quarter adjusted operating income of $717 million. Adjusted operating income in the 2020 fourth quarter and the 2019 fourth quarter excluded impairment charges of $44 million and $114 million, respectively.
Fourth-quarter 2020 adjusted net income totaled $39 million, compared to 2019 fourth-quarter adjusted net income of $498 million. Adjusted diluted EPS in the 2020 fourth quarter totaled $0.12, compared to adjusted diluted EPS of $1.51 in the year-ago quarter. These 2020 fourth quarter adjusted results excluded $74 million ($0.23 per share) of income tax benefits due to the closure of prior years’ audits. The adjusted 2020 results also excluded impairment charges of $88 million after-tax ($0.27 per share) and loss on asset sales of $4 million after-tax ($0.01 per share).
Restructuring and merger-related charges totaled $262 million in the fourth quarter. Charges in the fourth quarter of 2020 largely reflect a $243 million increase to the liability for the Sheraton Grand Chicago put option.
Base management and franchise fees totaled $379 million in the 2020 fourth quarter, compared to base management and franchise fees of $799 million in the year-ago quarter. The year-over-year decline in these fees is primarily attributable to RevPAR declines related to COVID-19. Other non-RevPAR related franchise fees in the 2020 fourth quarter of $133 million declined $24 million, or 15%, from the year-ago quarter, largely due to lower credit card branding fees.
Incentive management fees totaled $44 million in the 2020 fourth quarter, compared to incentive management fees of $175 million in the year-ago quarter. The year-over-year decline in these fees is primarily attributable to lower net house profits at many hotels related to COVID-19. More than 60% of the incentive management fees recognized in the quarter were earned at hotels in the Asia Pacific region, of which three-quarters were earned in Greater China.
Contract investment amortization for the 2020 fourth quarter totaled $38 million, compared to $17 million in the year-ago quarter. The year-over-year change largely reflects impairments of investments in management and franchise contracts.
Owned, leased and other revenue, net of direct expenses, totaled a $27 million loss in the 2020 fourth quarter, compared to $92 million of profit in the year-ago quarter as a result of RevPAR declines related to COVID-19.
Depreciation, amortization and other expenses for the 2020 fourth quarter totaled $71 million, compared to $179 million in the year-ago quarter. The year-over-year change largely reflects $114 million of impairment charges recorded in the 2019 fourth quarter, partially offset by an $11 million impairment charge associated with a leased hotel in the U.S. recorded in the 2020 fourth quarter.
General, administrative and other expenses for the 2020 fourth quarter totaled $183 million, compared to $267 million in the year-ago quarter. The lower expenses in the 2020 fourth quarter largely reflect the company’s COVID-19-related cost reduction efforts.
Gains and other income, net, totaled $6 million, compared to $138 million in the year-ago quarter. Gains and other income, net, in the 2019 fourth quarter primarily reflected $134 million of gains associated with the sales of two hotels in the U.S. and Canada.
Interest expense, net, totaled $105 million in the fourth quarter compared to $89 million in the year-ago quarter. The increase is largely due to higher interest expense associated with new debt issuances.
Equity in losses for the fourth quarter totaled $87 million, largely reflecting impairment charges and the decline in results at joint venture properties due to COVID-19.
In the 2020 fourth quarter, the benefit for income taxes totaled $150 million, compared to the provision for income taxes of $47 million in the 2019 fourth quarter. The 2020 fourth-quarter benefit included $100 million related to the closure of pre-acquisition Starwood audits.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $317 million in the 2020 fourth quarter, compared to fourth quarter 2019 adjusted EBITDA of $901 million.
Selected Performance Information
The company added 109 new properties (17,780 rooms) to its worldwide lodging portfolio during the 2020 fourth quarter, including roughly 2,600 rooms converted from competitor brands and approximately 9,000 rooms in international markets. 46 properties (8,011 rooms) exited the system during the quarter. At year-end, Marriott’s global lodging system totaled more than 7,600 properties and timeshare resorts, with more than 1.4 million rooms.
At year-end, the company’s worldwide development pipeline totaled 2,881 properties with more than 498,000 rooms, including 1,187 properties with more than 229,000 rooms under construction and 119 properties with roughly 20,000 rooms approved for development, but not yet subject to signed contracts.
In the 2020 fourth quarter, worldwide RevPAR declined 64.1% (a 63.9% decline using actual dollars). RevPAR in the U.S. & Canada declined 64.6% (a 64.6% decline using actual dollars) and RevPAR in international markets declined 62.7% (a 62.2% decline using actual dollars).
Balance Sheet and Liquidity
At year-end 2020, Marriott’s net debt was $9.5 billion, representing total debt of $10.4 billion less cash and cash equivalents of $0.9 billion. At year-end 2019, the company’s net debt was $10.7 billion, representing total debt of $10.9 billion less cash and cash equivalents of $0.2 billion.
The company’s net liquidity was approximately $4.4 billion at year-end, representing roughly $0.8 billion in available cash balances and $3.6 billion of unused borrowing capacity under its revolving credit facility. During the fourth quarter, the company reduced its debt by more than $600 million.
The company halted share repurchases in February of 2020 and suspended its quarterly dividend beginning in the second quarter of 2020.