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What Do Marriott’s Key Metrics Suggest ahead of 3Q16 Results?

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RevPAR rises

A hotel’s operational efficiency is measured by its RevPAR (revenues per available room), which is calculated by dividing a hotel’s total guest room revenue by its room count. The two main factors driving a hotel’s RevPAR are its occupancy rate and ADR (average daily rates).

Marriott International’s (MAR) RevPAR for the second quarter of 2016 rose 2.9% across its worldwide properties. North America RevPAR rose 3.2% due to a 2.2% rise in ADR. RevPAR for international properties rose 1.9% in 2Q16.

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Strong pipeline

For 2Q16, Marriott added 80 properties to its list, taking the total to 4,554 properties and 777,000 timeshare resorts.

It had another 1,762 properties in the pipeline with 285,000 rooms. Of those, 608 properties with 106,000 rooms are under construction, and 219 properties with 33,000 rooms are approved for development.

3Q16 industry metrics look good

For 3Q16, the US hotel industry’s occupancy was flat at 71.1%, since both demand and supply rose at the same rate of 1.6% YoY (year-over-year). ADR rose 3.4% YoY to $127.19. This led to a rise in RevPAR of 3.3% YoY to $90.48.

Although the rise in RevPAR was the lowest third-quarter growth since 2009, RevPAR in absolute terms reached the highest value. That’s good news for Marriott.

What’s the outlook?

Marriott expects room growth to rise 6.5%–7.5% in 2016. That’s 0.50% lower than the outlook at the end of 1Q16 due to delayed hotel openings.

For 3Q16, RevPAR is expected to rise 3.0%–4.0% across all Marriott properties. For 4Q16, RevPAR is expected to rise 1.0%–3.0% in North America and 3.0%–4.0% internationally. This means a rise of 2.0%–3.0% worldwide.

As a result, 2016 RevPAR is expected to rise ~3.0% across all Marriott properties.

You can gain exposure to Marriott by investing in the PowerShares Buyback Achievers ETF (PKW), which invests ~0.90% of its portfolio in MAR. It also invests in Wyndham Worldwide (WYN) and Hyatt Hotels (H). It doesn’t invest in Hilton Worldwide Holdings (HLT) or InterContinental Hotels Group (IHG).

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