Q3 2019 Earnings Call
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Just started zero. Thank you I'll now turn the call over to Arnie Sorenson, President and Chief Executive Officer. Please go ahead Sir.
Good morning, everyone welcome to our third quarter 2019 earnings Conference call. Joining me today, our Leeny Oberg Executive Vice President and Chief Financial Officer, Laura <unk>, Senior Vice President Investor Relations, and Betsy Dom Senior Director Investor Relations.
I should note that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties.
As described in RCC filings, which could cause future results to differ materially from those expressed in.
Or implied by our comments forward looking statements in the press release that we issued last night, along with our comments today, our effective only today November five 2019 and will not be updated as actual events unfold.
You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in her remarks.
Www Dot Marriott Dot com slash investor.
So let's get started we were pleased with our results in the third quarter, our global system wide Revpar rose, 1.5% consistent with our guidance our global Revpar index increased 210 basis points in the quarter with strength in the U.S. Asia Pacific and the Caribbean in Latin America.
In the U.S. alone Revpar index increased nearly 200 basis points in the quarter with U.S. transient index up 250 basis points.
Barry bonds away is on a role global room revenue from Marriott Bond way members is up 12% year to date over the last nine months members contributed 52% systemwide room nights, a 320 basis point increase year over year.
In the U.S. alone members represented 58% cookbook room nights in the nine months year to date loyalty point redemptions are up over 20% driving better results at resorts and leisure destinations around the world Social media feedback about the program has become decidedly favorable.
In a recent survey of bone void members by an eight toward margin respond and said they preferred the new Marriott envoy loyalty program over either Marriott rewards for SPG.
Over the last nine months Marriott Broadway membership increased by 12 million members to reach 137 million members with nearly 40% of that increase coming from China, including the meaningful contribution from our Ali Baba joint venture.
Earlier this year, we launched homes and villas by Marriott International our home rental business with a growing number of premium homes and villas. Today. We are for 5000 homes in 190 markets across the U.S. Europe and the Caribbean in Latin America, and the third quarter over 95% of our home rentals were booked by myriad Bondpoint members.
And nearly 30% of the home rentals were paid for with point redemptions.
In another move popular with envoy members, we recently announced our entry into the all inclusive hotel business after signing new management agreements for five new build all inclusive resorts located in Mexico, and the Dominican Republic last month, we announced or offer to acquire elegant hotels, which owns and operates seven hotels.
Yes in Barbados, which would jump start are all inclusive offering.
We expect this acquisition will be complete by year end 2019 subject to approval by elegant shareholders.
Satisfaction of other conditions.
Our gas are increasingly booking online our direct digital channels leveraged the popularity of Marriott Bon voyage and offered the lowest cost per reservation those channels myriad dot com and Marriott mobile accounted for 32% of our room nights booked in the third quarter over 400 basis points higher year over year.
Also in the quarter the percentage of room nights booked through Otcs declined nearly 100 basis points.
Incidentally earlier this year, we signed new agreements with booking dot com and Expedia, which we expect will result in better economics for our owners and give us enhance control over how our products are presented by third party sites.
Our sales organization had a great quarter for North America, New group business booked in the quarter for comparable hotels in all future periods increased 6% year over year.
New revenue bookings made in the third quarter for 2020 increased 6% and new revenue bookings for 2021 rose 10%.
We have opened many of our group sales offices during evenings and weekends to serve our customers and their convenience and to take advantage of the strong demand for our products.
Well, our booking pace is down modestly for the fourth quarter 2019 to that due to the timing of holidays booking pace for comparable hotels for 2020 is up at a mid single digit rate year over year about two thirds of the group business expected for the year is already booked.
In the third quarter, we opened nearly 18000 rooms more than any competitor worldwide. Our development pipeline increased to a record 495000 rooms, 5% higher than a year ago quarter, including 214000 rooms under construction.
Nearly 40% of the rooms, and our pipeline our high value upper upscale and luxury rooms in high Revpar markets. In 2019, we expect our room count will increase five to five in a quarter percent net reflecting increasing construction delays offset by lower than expected room deletions from.
2020, we expect similar net rooms growth, we continue to experience construction delays in North America, particularly in the top 25 markets as well as in the Middle East in Europe .
Operating issues are also contributing to groundbreaking delays, which impact openings for 2020.
But signings are strong in fact 2019 room signings are approaching record 2018 levels. The vast majority of 2020 openings are already under construction.
So let's talk about 2020, Revpar growth estimates for U.S. GDP growth point to a slower pace of economic growth in 2020 with lodging supply growth continuing about 2%.
This implies continuing moderating revpar growth for the U.S. industry.
At the same time as I mentioned, our group revenue on the books in North America is quite strong with booking pace up at a mid single digit rate.
We are negotiating 2020 special corporate rates right now and while only a few negotiations are complete we expect 2020 special corporate rates will rise at a low single digit grade.
Recently announced the U.S. government per Diems weighted by our market distribution are set to rise 1.4% for the government's upcoming fiscal year.
Today, we are seeing good demand from both business and leisure transient customers, reflecting preference for our brands and our loyalty program, but given the meaningful unknowns in the economy. We are estimating North America Revpar growth in 2020 will increase around the midpoint of our zero to 2% global Revpar.
Guide.
For our Asia Pacific Region, we are modeling 2020, revpar growth at a low single digit rate, reflecting strong growth in Beijing.
South China markets, India in Japan double digit growth in room supply in Indonesia, Malaysia in the mall Deaves make constrained revpar growth in those countries next year.
Recent events in Hong Kong make that market quite difficult to forecast, our Hong Kong Revpar declined 27% in the third quarter, albeit with a meaningful improvement in Revpar index as we outperformed the industry.
We expect Revpar at our Hong Kong hotels will decline roughly 40% in the fourth quarter for the full year 2020, we are assuming a mid single digit revpar declined in the city.
Obviously any estimate for Hong Kong Revpar performance is somewhat speculative so while we hope comparisons will ease in the second half from 2020, we are only making a modeling assumption.
For next year, we expect Europe , Revpar will grow at a low single digit rate constrained by new supply in Germany and the UK.
Revpar in the Middle East Africa should be flat up slightly in 2020 with continued supply growth in the middle East and improving demand in Africa.
In the Caribbean in Latin America region, Revpar should increase at a low single digit rate next year, reflecting more modest economic growth and political uncertainty in some markets at same time, the region will benefit from newly comp luxury hotels in Panama and Costa Rica.
As you know our business model is focused on managing Enfranchising define dislodging brands. Our past results have demonstrated how this allowed us to perform well throughout economic cycles investors favor our business model because of this stability, but we are much more than this we have the deepest hotel brand offering and broadest.
Property distribution in the world, which contributes to our most valuable loyalty program worldwide loyalty penetration has been increasing all year and we believe there is further upside.
Owners benefit from our strong revpar premiums and great economies of scale, particularly since our acquisition of Starwood in North America, we have faced slowing industry revpar growth and rising wages for some time, yet savings from our greater scale and implementation of best best practices since 2016.
Have contributed 220 basis points of house profit margin lift and our managed hotels in North America.
Today, the house profit margins for the Marriott hotels brand in North America. For example is 150 basis points higher than at the less cyclical peak in 2007.
Strong economic results for owners contribute to owner preference for our brands, increasing market share and our growing pipeline, but we have a 7% share of worldwide open rooms, we have a nearly 20% share of worldwide rooms under construction.
We look for investment opportunities to leverage our distribution and our loyalty program.
Answer brands and drive shareholder value, we've announced two such opportunities just recently our acquisition of elegant hotels. Once complete we will firmly establish our all inclusive presence and our purchase and reinvention of the W. Hotel Union square should enhance the value of the W Hotel brand.
Our successful sale of the Saint Regis, New York and the 10 other hotels, we've sold over the past three years demonstrates strong owner demand for our brands and our commitment to our management and franchise strategy.
In total we monetized over 2.2 billion of assets since the acquisition of Starwood.
To be sure roughly 7% of our total fees our incentive fees from North American hotels. These incentive fees are subject to an owner priority return and admittedly very more that with Revpar then base in franchise fees, but the downside is limited further the long term value to shareholders from these properties is meaningful as these are.
Among our most prized invaluable hotels to our guests.
As you can tell I'm feeling very good about marriott's prospects today and appreciate the company's compelling value on a more personal note I'm also appreciative for your many kind words of support.
I've completed chemo radiation and immunotherapy over the last six months next step is surgery I've been working throughout and Im still getting in my morning runs I'm, sorry, I'll have to Miss our upcoming holiday Party in New York, but expect to be with you on the next earnings call in February and look forward to see many of you in person in 2000.
20.
The hit before handling this over to Leidy, let me pause a moment to recognize Laura.
Sadly this is here last quarterly earnings call.
Lora was by my side for my first quarterly earnings call in October of 1998. She was already a veteran IR professional then and she has only gotten better and better in the 21 years, we have sat next to each other for these calls Laura Thank you.
If I may be so bold. Thank you for all of us at Marriott and from all of US in the industry, we analyze our stock in the other securities in the hospitality interest industry, you're simply the best.
For more about the third quarter at our outlook years, leading.
Thank you already our third quarter financial performance was solid adjusted diluted earnings per share totaled $1.47.
Well revpar growth in individual piano line items were quite close to guidance. We were about two cents shy of the midpoint roughly a penny came from slightly higher than expected tax rate and a bit over a penny came from weaker than expected hotel performance in Hong Kong.
Global system wide constant dollar Revpar rose, 1.5% in the third quarter year over year.
North America alone Revpar increased 1.3%.
Revpar growth exceeded our expectations in DC, Houston, and Hawaii on strong citywide in transient demand.
On the other hand, New York City Revpar continues to cope with both higher hotel supply and lower demand revpar growth in Orlando in South, Florida was constrained by guests concern about hurricane Dorian.
Revpar for our comparable hotels in the largest 25 markets increased 9% in the quarter.
For group business in North America comparable hotel Revpar rose 2%.
Group cancellations remained modest and attendance at group meetings with strong transient revpar was up slightly year over year, reflecting steady corporate demand and stronger demand from leisure travelers.
In the Asia Pacific region system wide constant dollar Revpar increased nearly 2% from the third quarter constrained by events in Hong Kong and trade war impact on tertiary markets in China.
Excluding Hong Kong Revpar in the Asia Pacific region increased nearly 3%.
Larger markets in China were strong, particularly Beijing, Shanghai and Glenn show.
Leisure demand for our hotels in China is growing and outbound room nights sold to mainland Chinese travelers in the region increased by 9% in the quarter with large numbers traveling to Japan, Thailand, South Korea and Malaysia.
In Europe system wide constant dollar Revpar rose, 2% in the third quarter compared to the prior year, 4%, excluding the impact of the World Cup in Russia last year Europe continues to benefit from the strong dollar.
Room nights sold to use travelers increased 13% in the quarter with particularly strong loyalty redemption demand in Italy, Greece and Spain.
London posted another strong quarter with Revpar up 6% on strong you asked the middle eastern demand.
In the Middle Eastern Africa region system wide constant dollar Revpar rose, 2% in the third quarter with strong results in Saudi Arabia, Qatar, and Egypt, offset by weak performance in Dubai and.
And our Caribbean in Latin America region, Revpar rose, 3% in the quarter with strong performance in Brazil.
Our hotels in the Caribbean benefited from strong leisure demand and Mexico showed better results than in recent quarters.
First fee revenues totaled 955 million in the third quarter, consistent with our guidance and increased 2% over the prior year, reflecting unit growth and higher revpar.
Residential branding fees declined 15 million, reflecting the uneven timing of residential projects from year to year. We continue to have a deep pipeline of residential projects under development.
Well total fees met our expectations in the quarter incentive fees declined a bit more than we expected largely due to revpar and margin weakness in the Asia Pacific region.
Already discussed third quarter Revpar performance for the Hong Kong market total fees from our Hong Kong hotels declined 3 million during the third quarter compared to the prior year and we estimate such fees declined by 5 million in the fourth quarter.
Currently for the full year 2019, we expect our doesn't hotels in Hong Kong will contribute roughly 30 million in total fees.
Owned leased and other revenue net of expenses totaled 67 million in the third quarter of 15 million decline from the prior year largely due to lower termination fees.
Results also reflected lower results in New York City, and the impact of renovation at the Sheraton Grand Phoenix.
Termination fees totaled 11 million in the quarter compared to 23 million in the prior year.
Our adjusted EBITDA in the third quarter was flat year over year reflects reflecting 15 million lower residential branding fees 12 million lower termination fees and $17 million lower incentive fees offset by rooms in revpar growth.
Our third quarter adjusted tax rate was a bit higher than expected due to a slightly different geographic mix of business compared to the prior year. Our 2019 third quarter adjusted tax provision was higher mainly due to prior year tax benefits from dispositions.
Talk about the fourth quarter.
For North America, we expect fourth quarter, Revpar will increase by zero to 1% year over year.
Shifting holidays, another calendar anomalies should constrain revpar growth in the fourth quarter, but we should also benefit from favorable comparisons to last year strikes.
For the Asia Pacific region. Many economists expect Chinas economy will continue to weaken in the fourth quarter, which could further pressure revpar in China secondary markets.
With ongoing weakness in Hong Kong overall Asia Pacific Revpar in the fourth quarter could be flat to down modestly.
Excluding Hong Kong, we expect Revpar in the Asia Pacific region will increase at a low single digit growth rate.
We expect fourth quarter Revpar in Europe will continue to grow at a low to middle mid single digit rate with strong results in Venice, London in Moscow.
Middle Eastern Africa, Revpar declined at a low single digit rate in the fourth quarter, reflecting continued supply pressure in the UAE, while revpar in the Caribbean in Latin America should increase at a low single digit rate benefiting from strong citywide events in Santiago and Rio de Janeiro, and a strong holiday season.
But in Grand Cayman.
For the fourth quarter 2019, we believe gross fee revenue will total $960 million to $970 million up 5% to 7% over the prior years quarter due to Revpar in unit growth.
This is roughly roughly 20 million lower than our last guidance at the midpoint largely due to more modest revpar growth the fee impact of events in Hong Kong and unfavorable foreign exchange.
We expect total incentive fees will be flattish in the fourth quarter.
While incentive fees will be constrained by the Revpar environment fourth quarter IMF will also be helped by comparisons to last year strikes in international unit growth.
We continue to believe credit card fees could total 400 to 410 million for the full year 2019.
Owned leased and other revenue net of direct expenses could total 85 million in the fourth quarter compared to 88 million in the prior years fourth quarter, reflecting five to 10 million lower termination fees.
Fourth quarter 2019 owned leased results also reflect the sale of the fate reduced New York and the purchase of the W. Union square.
DNA should total 250 to 255 million in the fourth quarter, 3% to 5% over the prior year and consistent with our prior fourth quarter guidance.
With these expectations adjusted EBITDA in the fourth quarter should total 898 to 913 million, a 4% to 6% increase over the prior years quarter.
We expect our adjusted tax rate in the fourth quarter will be 25% an increase over the prior year due to higher favorable discrete items in the prior year, our effective tax rate for the fourth quarter is also a bit higher than our last guidance.
These assumptions yield dollar 44 to $1.47 deluded earnings per share for the fourth quarter flat to modestly from the year ago quarter.
For the full year 2019, we expect adjusted EBITDA totaled 3.572 to 3.587 billion, a 3% increase over the prior year and diluted earnings per share will total $5 and 87 to $5 a 90 cents.
Our full year diluted earnings per share guidance includes the impact of gains on sales of assets totaling two cents per share in 2019 compared to 65 cents per share in 2018.
Our 2019 earnings guidance does not reflect a gain on the sale of the Saint Regis, New York, which we expect will be significant.
As always our 2019 guidance does not include merger related costs are reimbursed revenues and expenses or additional asset sales.
Total investment spending for 2019 could total one to 1.1 billion, including roughly 225 million of maintenance spending an estimated 199 million for elegant hotels equity and debt and the purchase of the W., New York Union Square for 206 million.
We expect 550 to 600 million of this total investment spending should be reimbursed for recycled overtime.
We sold the Saint Regis, New York last week for 310 million subject to a long term management agreement.
To date, we've repurchased 14.2 million shares for 1.83 billion and we expect cash returned to shareholders through share repurchases and dividends will approach 3 billion in 2019.
This assumes no asset sales in 2019 beyond those already completed.
Our balance sheet remains in great shape at September 30, our debt ratio was within our targeted credit standard of 3.0 to 3.5 times adjusted debt to adjusted EBITDAR.
So before we take your questions I want to also think Laura for Chris innumerable contributions to Marriott personally I want to thank her for her incredible Mentorship to me over the years, it's hard for all of us to imagine like that Marat without her guidance for steady pen and her with but we'll try hard to maker.
Yes.
So that we can take speak with you as many as possible. We ask that you limit yourself to one question and one follow up.
Operator.
Thank you at this time I would like to remind everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press the pound key our first question comes from the line of Harry Curtis Instinet.
Sir your line is there any Mary.
Can you hear me.
Gotcha.
Alright, Alright technology problem here.
Yes, Laura you have been a great resource and partner over the years. Thank you very much.
Harry Great working with you.
I appreciate that.
So just a couple of quick questions.
First arnie.
Youre talking about corporate negotiated rates and in that process.
Are you guys getting any sense of the if whether or not the political environment is holding back travel budgets or investment by your customers and what would it take to prove that sentiment.
Yeah I don't.
There is a little bit more apprehension I suppose that we pick up I'm not sure. So much in the special rate negotiations directly as it is and just conversations we're having with.
Senior members of the American business community.
I think that apprehension is a little bit about politics, but the way you framed it maybe mix it almost sounds a little bit to general I think it is more focused on.
The trade dynamic probably then politics generally.
And of course, we've we've got everyday news about whether or not we're nearing a trade deal I think if we get to a trade deal obviously that will be.
Meaningful even if it's a relatively small deal, but having said that while apprehension is a bit higher I think absolute performance of the U.S economy is still.
Quite robust it may not be reflecting the kind of growth, we'd like to see in the year over year basis, but whether you look at our industry or the economy bird were broadly I think you see obviously low unemployment.
Industry, you see high occupancy you see absolute performance that is.
Fairly meaningful and so I think we would characterize this and you can sort of sensitive and what we said to expect in terms of year over year increases in revenue coming from a special corporate accounts, but it feels like a.
Cautious but steady.
Move into 2020 from 29 team expecting a bit more of the same as opposed to something declining.
Very good and.
My second question shifting gears relates to the connection if there is any between the growth and bondpoint members and correlation to.
Two credit card fees growth and credit card fees and as we you have you found terrific increasing the number of your members. This there.
Would you expect there to be some correlation to growth in credit card fees to a similar degree in 2020 and beyond.
Well the obviously we had a.
Gonzo year in 28 team.
When you looked at the way the credit card made contributions to us compared to before and of course that was because we had renegotiated deals with both of our credit card partners.
And.
We're in market with New limited time offers and other things that we're moving that quite robustly.
Growth rates in 2019 by comparison have been maybe a tad better than growth in total lodging fees, but not dramatically different.
We have a course of got to endure internal discussions underway, where we're looking at what we might budget for 2020, it's a little too early.
To talk about that in any sort of particular ranges, but we think there is more opportunity for these credit cards as the program gets that much more powerful.
Penetration of.
Total bond void members is very light our penetration of the heavy travelers is obviously more significant.
But I think we'll look for opportunities to grow that contribution in 2020, and probably at a number of years beyond that.
Very good thanks, very much everyone.
You bet.
Your next question comes from the line of David Katz of Jefferies.
Hi, good morning, everyone.
Good Laura I, just want to thank you for being patient and explaining to me sin fuel timeshare.
Any other detail and.
Bill for being the best color backer of all time.
Thank you.
All the best I wanted to just go back onto a comment you made in your opening remarks about.
Margins being up 150 basis points versus 2007, obviously were.
Comparing.
A different business today, but I have sort of gone back and looked at what the incentive fees were.
Trying to compare that on a some kind of a per room basis I got about halfway through that analysis and it became my turn help me sort of compare what the incentive fee generation is today.
And how we would put that in context from where you think we are in the cycle versus that 2007, I just found that comment interesting and would love to elaborate on a little bit more.
Yes, so a couple of its I'll repeat a couple of things I said in the prepared remarks, so we have calculated.
Obviously, we're talking here about hotel level margin performance, which is really about managed hotels.
In principally until kind of it coming up is about North America.
And two things one one is we've tried to calculate.
What margin performance is driven by Revpar and then what margin performance is driven by implement the steps we've been able to implement because of the starwood transaction.
And that differences about 220 basis points in North America. So so we think about.
220 basis points to full points of GLP margin has been delivered because of them.
In part because of that we end up with nominal GLP gross operating profit hotel level up 150 basis points from the peak.
In 2007, now that's a average number it.
Covers a lot of variables across different markets in the United States.
We know that New York for example, with both.
Substantial cost growth, which has experienced in the last decade.
Not just in labor wages and benefits, but also in property taxes and.
Compounded with some supply growth, we have seen more pressure there on house profit margins compared to peak than we have in some other markets now when it gets to incentive fees. This this becomes a global story of course and.
What we've seen is a continued meaningful shift.
From us derived fees to international derive fees.
And well it would be an oversimplification to say that all international IMF is.
Less risky than domestic IMF certainly on average terms it is.
Significantly more.
Stable through the cycles than the American IMF SAR why because typically in the United States you would have an owner's priority of until you feel bad owner's priority bucket, we get nothing were in much of the rest of the world be incentive management fee Formula gives us a share profits from the from the first the first.
So just a couple of more things to add to that David that that you may find helpful, which is the switch from kind of what used to be two thirds North America total incentive fees to now one third which which will absolutely. We expect to be the case in 2019 that only a third of the incentive fees are coming from.
Erica one of the interesting things when you look at Q3 is that actually the percentage of international hotels, earning incentive fees increased.
From 73% to 75%, while not surprisingly in the U.S. they declined from 52% to 41%. So all of this again points to Arnie theme about.
The predominance of owners priorities in our North America managed hotels.
While.
Outside the us it.
Such more that on dollar one of profits, we earn incentive fee, albeit a lower percentage of overall profit.
Super helpful. Thank you very much.
Your next question comes from the line of Robin Farley.
Great.
Two questions one question one follow up.
This is just looking at removals and this system.
This quarter it looks like the lowest rate in a couple of years and just wondering.
So it's just timing issue or is there sort of a change in either.
Properties in the system that are willing to make reinvestment or are you more lenient with not forcing some removal. So just wanted to get some color. There and then I do have a follow up as well. Thanks, Okay. Great. Thanks Robin No you you hit the nail on the head in terms of that we are expecting lower rate of deletions from the system.
This year.
Certainly than last year, which approach, 2% and was disproportionately related to the legacy Starway hotel portfolio and this year, we are looking at that being much closer to 1%, we'd been giving guidance for the year of 1% to 1.5%, but as we've moved through the year and continue to have.
Conversations with owners.
We're continuing to see that many of these hotels are staying in our system. It is not a function of us being more lenient relative to the kind of investment required for these hotels as we've talked to you. There's been tremendous investment for example in the shared and portfolio as many of those hotels are either undergoing run.
Operation or we've got agreements for them to undergo renovation.
I think we are thinking this early in the budget process as we look at 2020, but it's really too early to say anything more than a a fairly.
Stable historic rate that would be 1% to 1.5% obviously of course, it would be great fit turns out lower but we do think for this year.
It is going to end up towards that towards that lower range.
Okay, great. Thank you and then just as a follow up on.
You talked a little bit already about incentive management fees, just thinking about 2020 next year and you've you've only given the revpar guidance.
Is it.
Should we be thinking about maybe fee growth.
Not being at the same level as this years, 5% just given that it's expenses continue to go up and in North America. The issues that you highlighted in this quarter with incentive management fee, Hong Kong, where sounds like Revpar reasonably expected to to decline next year and then expenses in North America, we saw the pressure on North American.
Property margins this year health margins this year.
Does it seem like the.
Expectation for fee growth next year would be lower than this year's growth rate.
I think it'd be too I would be too early to conclude that.
Let's let's be mindful of the fact, we are.
Heavily into the budget process right now, but we earn we're not completed yet and of course, we've got a sense, which we've shared with you. This morning of Revpar range, which we think is germane to the way we think about 2020.
But the teams around the world are working to too.
Sort of run that through each of their businesses and.
Individual hotels for that matter to see were.
Pulls together in settles.
But I would think that.
Lodging fee growth. There's every reason to believe it will be positive and should be broadly comparable to what we experienced in 2019.
As you know we added a couple oddball items like FX.
And changes in termination fees and shifts in residential branding fees that impacted in all of those things will need to be taken into consideration as we look at next year, but the fundamental model of Revpar and unit growth would we get you certainly to something that looks quite similar to this year on that part alone.
Okay, great. Thank you very much.
Your next question comes from the line of Smedes Rose subsidy.
Okay.
Hi, Thank you.
Good morning.
Good morning, I wanted just to ask a little bit about just the sheraton in the western brands. If you look at the year to date performance at least measured by Revpar I mean, they are struggling you know versus what you've seen it at the Marriott brand specifically and is there anything that you would expect to be doing differently or something thats underway, maybe that will help.
Kind of close.
The performance gap in terms of percentage changes as you move forward.
Before you acquired these brands.
Yes, it's a good question that does that does.
This is a logical question given the revpar numbers by brand that we share in the press release, the one of the things that we were most gratified by in Q3, we obviously talked about our.
Lets his points.
But we saw index growth in both legacy Starwood and legacy Marriott portfolios.
And.
That is a pretty powerful sign that we think this.
Experiment is working well.
This is going to work will we think for both portfolios. If you look at it that way I think what.
Sheraton in western or probably quite different in this regard Weston.
It is impacted by the law of small numbers to some extent more than Sheraton is for the smaller the portfolio. The more you've got some variability based on geography alone.
Impact to the reported Revpar numbers, Sheraton, obviously as a bigger brand.
You still have some geographic.
Differences there that are relevant I think everything we've got is we've got a good amount of renovation activity underway and the Sheraton brand, which does have an impact on the margins on the way Revpar is post to the in any given quarter.
That might be short term pain, but clearly it is long term very much where advantage.
But again I think the.
Good point on said, we'll have Sheraton.
Repositioning going and we're really actually quite encouraged the.
Most of that is implied by at least comments about relatively lower deletions from the system I think what we're seeing from our.
Ownership community generally is.
As to support for where we're taking the brand.
The acknowledgement that means capital needs to be brought in those brands those hotels need to be brought up to.
The kind of standards were setting for the brand going forward.
Okay. Thanks, and then could I just follow quickly you you're continuing to expand your all inclusive cousins.
From a valuation perspective, it looks pretty clearly pretty compelling and unimagined, there's a lot of synergies there, but I wanted to ask.
The big sort of concentration in Barbados.
Not as big as Thats, not a biggest destination for us tourists incidents for European.
And I mean, I guess kind of what is your your goal here. It's just sort of set up a platform for other folks to come to you now in sort of say, we want to be part of this or kind of what's what's the endgame ultimately.
Yeah, I mean, the obviously all inclusive has grown very steadily over the course of the last couple of decades, I suppose and we've watched it develop it is.
Almost by definition a.
Purely leisure brand I mean, theres certainly some some hotels that are getting some group business that is not leisure, but it is heavily at leisure play.
We are really encouraged by the bond voice straight, which we've talked about this morning.
It's really in some respects is about recognizing business travelers bye.
Giving them the kind of experiences they want when they're taking their leisure trips.
And with lifestyle in luxury resort portfolio that we've gotten or hotel portfolio, we've already got tremendous things to offer there, but we can see that in the all inclusive space.
There is another thing that we would like to be able to offer which is a.
Connection with the loyalty program for an all inclusive state, which many many travelers like to have I think the bet, we're making with elegant is not is concentrated as it might seem willetts.
A handful of hotels and that markets, it's only about 700 rooms total.
So we're not we're not in any way concerned about our ability to.
Continue both to market that in the UK, which has been the stronger source market for those hotels, but increasingly open that market up to American travelers, who will find paradise of Barbados I think as attractive as many of the other markets in the region.
And then I think we'll continue to move I think the.
The.
Theory has been well recognized for a number of years.
That is.
Isn't that obvious that hotel loyalty program should be able to deliver.
Good cost effective volumes all inclusive hotels.
And I don't know that anybody has really proven that yet obviously some of our hotel competitors are already in with a handful of all inclusive hotels, but I think it's still early for all of us.
We want to make sure that we get in there that we use our management team to both learned the differences in this business.
But to also be able to make sure we can deliver a customer to these kinds of hotels and I think we'll be able to do that.
All right. Thanks in large best of luck on next adventure.
Thanks.
Your next question comes from the line of Joseph Greff of JP Morgan.
Good morning, everybody and lore I just wanted to add you will be missed.
Thank you for all your help over the years.
Thanks, Joe.
Or do you talked about construction delays earlier in the call.
Can you talk about how much of it is related to operating expenses or construction costs and finding labor versus ownership, maybe cooling things a little bit in light of macro uncertainty and then how much.
Confidence do you have in terms of that Theres, a plateau and the delay of some of these new openings as you look at the 2020.
So at a fair has a good question Joe the obviously were.
We're disappointed by this too and.
Quarter ago, and probably two quarters ago too.
We were asked about.
Growth in 2020 or in the years ahead compared to 2019 and based on.
The multiyear planning that we've done much of which we've shared with you when we do.
Plus meeting.
And also just based on the obvious which is that the pipeline in aggregate size is very big and we've been.
Signing high quality deals every year end well every year is not a record we have been.
And really restrict surprise to the upside about how the new.
Projects are coming into the pipeline and that continues well into 2019, even with the sort of apprehension in the market. So all in all of those things caused us to be.
Not just hopeful but to have some.
Factual underpinning and thinking that we were going to see unit growth step up in 2020 in the years beyond from the levels. We're at today and obviously, we've given you. Our first looked at 2020. This morning are released last night.
And have said, we now expect it to be roughly comparable net unit growth rates next year as this year, which I know is disappointing to folks.
We're still early in the process. So we should we should mention that we don't we don't it we've not finalized our budget plan.
I think that as we've said in the past in every quarter, we go through the entire portfolio pipeline.
And we add new units based on signings that had been done we subtract units was when they open and we subtract a few that are are killed every quarter.
The number that we cancelled this last categories really not moving so we're not we're not seeing the worst news driving this which is the deals are being abandoned.
Instead, what we're seeing is sort of all of the above for delays.
And by that I mean, you've got a piece of it which is about the.
Greater.
Upper upscale and luxury mix that is in our pipe pipeline.
Greater.
Urban mix, which is in our pipeline, where permitting and construction often takes longer.
You've got continued.
Hi, construction costs in many markets around the world, which our owners are trying to make sure that they.
Managed well offset a little bit by continued.
High availability of debt financing.
Pretty attractive pretty attractive terms.
And then lastly, I think you do have some apprehension about the economy generally and so I think there are some owners varies a little bit by market to market, but.
So motors, who will look and say I do intend to do this project I'm going to move forward with it but I'm going to do it maybe with a bit more deliberate speed than I would have if I.
Was really a 100% convinced that I needed to cap to capture this thing right away. It is a.
American phenomenon, but it is also increasingly a global phenomenon because I think we're seeing the same dynamics play out.
Probably in the middle Eastern Europe .
Next to the United States, but.
We're seeing this these trends sort of take place around the world.
Great. Thank you.
And for my follow up it looks like based on your.
Disclosures in the press release that the buyback activity moderated somewhat meaningfully.
Quarter to date and I know the capital return commentaries left intact. If you could help us understand one may interpreting that correctly and to maybe what drove this sort of.
Slow down in Fourq, you to date buyback activity.
Sure Joe Happy too.
As you can imagine kind of in between every month, we're constantly assessing the cash that we need for investment the timing of that investment as well as the timing of asset dispositions and just the general flow of cash from operations and the reality is we got a bit by the timing of both our.
Commitment on elegant and on Union square and.
Not really wanting to count on cash in the door until it actually showed up so there isn't really any message at all relative to the timing of quarter to date and if you look at our first three quarters. There are actually quite even except for Q1, where we were a bit more accelerated in Q1, because as you.
Remember, we started off the year with leverage ratio that was really down towards the lower end of our 3.0 to 3.5.
So.
As we talked about it's the same.
Expectation for overall level of capital returned to shareholders as it was last time and generally the new Capex that we've talked about is offset by the disposition that we had last week.
Great. Thanks, much guys.
Thank you.
Your next question comes from the line of Anthony Powell of Barclays.
Hi, good morning, guys.
Anthony Hi.
The acceleration of Revpar index gain was pretty meaningful in quarter was that driven more by.
Sales momentum you talked about or by better customer engagement with Bondpoint.
He was driven by both but I think the Bon voyage piece is probably the broadest in its extent that is very much a global phenomenon, where penetration from loyalty program was up meaningfully.
Initially every market around the world.
Our group sales at the same time, which is a function of.
The sales force obviously is.
You know is strong stronger than the transient categories of business, but by a point or so not not dramatically.
And certainly not.
Capable of.
Of explaining all of that.
Index growth, if you will for the quarter.
Okay. Thanks, and you mentioned that the loyalty redemptions were up 20% in the quarter well some of that growth due to the fact that covers maybe pulling forward. Some bookings ahead of changes like picking off peak redemptions and category tougher comps in the future.
Yes the.
Redemptions have been high this year I think a big chunk of it is simply the stability of the program now in the ability of.
Customers from.
Legacy SPG and legacy legacy Marriott rewards to experiment with a broader portfolio and that's been very interesting to see.
And there's some obvious example, starwood for example have the great Chica collection in.
Italy, principally but southern Europe .
The glorious hotels and suddenly that's opened up too.
Huge number of legacy Marriott rewards members and they save as these are places that we want to try and experiment with.
I think there is probably some.
On sale aspect also that that moved out I think some of the bookings that could have been made through the first part of 2019, probably not into the middle of 2019.
Allowed some of the highest category hotels to be and this is not about peak off peak pricing, but is about the.
The former highest category hotels, they were on sale a little bit.
Based on the way the.
Minutiae of those formula work.
Thank you have some extraordinarily sophisticated folks who walks these loyalty programs and thought this is a this is a good time to reserve some of those redemption stays for that kind of hotel, but I suspect, we will see pretty robust redemption activity as a steady state.
Aspect of the loyalty program going forward.
Got it didn't make some redemptions in the system, increasing the fleet this year or was it kind of.
Similar to prior years.
In terms of overall may well, we're already all redemptions are up but they're.
Not just in luxury and upper upscale, but they're also up in the select service business and there's meaningful crossover which is great to see so you've got former Marriott rewards members going to legacy Starwood hotels and vice versa.
Meaningful.
Right.
Thank you.
Your next question comes from the line of Thomas Allen of Morgan Stanley .
Hey, Good morning, you were very active on the transaction front. So just couple of questions on that do you expect to do any more single asset transaction in the near term and then when you think bigger picture.
Are you returning to your historical practice of doing.
Larger bolt on transaction are small to medium sized bolt on transactions every year and then how you're thinking about larger scale M&A like starwood. Thank you.
Let me I'm going to say some general and then linear lineal jump in here and give you something that's more precise but.
We have.
Obviously, the capacity given our size to make some modest investments in positioning the company for.
Accelerated growth going forward and so the.
The deals we've announced for example in the last.
46 weeks.
Really prove that out they are about.
Positioning us well for the all inclusive space, which we've talked about already this morning.
And making sure what we do what we want to do for the W. brand, particularly in North America, where.
We want to make sure that we invest in the strength of that brand, which has been a juggernaut for starwood for many years.
But do that in a market like New York, where it is really important that we have a flagship that we feel great about.
So both of those opportunities stepped up we of course look at them in the context of.
How does that individual deal value for us long term, what's the strategy for it.
But more than that we look at it in the context of our we are we strengthening the platform for us to grow.
The future maybe on it or what should add to that yes, I know that the only thing is to your basic question. The answer is no. We're not changing the business model whatsoever relative to the asset light business model, we actually own 14 hotels today, which is the same that we own a quarter ago as we bought one and we sold one.
And as Arnie said, it's a seven hotels on.
Elegant, but they total only a small number of room so.
Continues to be the same which is that we're opportunistic whether it be bolt on or whether it be single asset purchases. They are very much done from a strategic lens, but also with the view that we are not.
Moving at all from our asset light model.
Helpful. Thanks for the color and then just a quick one you highlighted in his prepared remarks. It in 2019, your sector and $30 million from fees for from Hong Kong.
What was that in 2018 and you have guarantees on those hotels. So just how does how but thinking about like the potential volatility in that number great. Thank you.
So as we talked about first of all the the break is.
Okay.
You bet.
The break is that.
30 million, which is kind of probably 60 535 between based fees basin franchise fees versus incentive fees, what we talked about as them being down 3 million in Q3, and 5 million. In Q4. My guess is they were expected to be up a little bit. This year, so thats going to say on a net basis that they're probably.
I don't know five five ish million for the year this year.
And then obviously as we go forward I will have to see what next year brings we don't have any meaningful sort of guarantees that would remotely b.
Something that would kind of gives you pause we do have a JV the shared in Hong Kong, JV, which was impacted.
In Q3 and will be expect.
Vaccine in Q4 from those JV earnings, but again.
These are all relatively small amounts when you're looking at only 12 hotels overall.
Thank you.
Your next question comes from the line of Amanda Gram of Goldman Sachs.
This is Stephen Grambling, So maybe that's that's me.
Thanks for getting me. Thank you Laura for all of your insight and humor, maybe that was one last thing to CMS with me.
And I probably should it.
First on David's first question on house margins, how much of the improvement has been driven solely by Redpoint economic expansion versus benefits to owners through increased scale credit card negotiations, okay, renegotiation et cetera.
Well, so that the 220 basis points is all the ladder.
Okay, that's an effort to calculate the margin cumulative margin impact since we closed the starwood deal.
Excluding the impact from Revpar.
And if you take that number and the 150 basis points.
Absolutely improvement in margins versus 2007.
It would suggest that 100% of it.
Good more than 100% of that difference is driven by the deal that we've done in the steps we've been able to take since then.
Good question, Steve Yes that does that's that's perfect and then second on Thomas' question about capital intensity is there a rule of thumb to think about for the combined Capex software investment contract acquisition costs as we move forward given the increase over the past two years since we it looks like we should be moving to more normalized level.
Yes. Good question I mean, I think the.
Capital spending we do we've talked quite a bit this morning about some of the unusual deals so lets ignore those big.
Thanks, Sorry, 750 that we've talked about on annual basis and that we talked about at the security analyst meeting is still the appropriate number for what we think for ongoing organic growth of our business.
Which roughly call. It 225 million is normal maintenance capex for our corporate systems as well as for our owned leased hotels.
So the rest is as you know there is a good chunk a key money and then bits that are either for equity investing.
As well as for loans and and guarantees and again as we talked about today for example in this year, if you're talking about roughly 1 billion to a billion. One we would expect as much as 600 million of that could be released which should be recycled overtime.
Helpful. Thanks, so much.
Your next question comes from the line of Patrick Scholes Suntrust.
Hi, good morning.
Laura Laura Thank you again, certainly thank you for taking and.
Promptly answering my many obscure questions over these years.
Pardon.
Thank you.
Arnie question for you on that strong group pace for next year, how much of that strength do you see is driven by political conventions and the like.
I don't think much.
Im not sure I actually know for a certainty but.
Certainly over time, a presidential election year he is not.
Great year for Washington, DC for example.
All other things being equal because by enlarge the politicians are are out on the hustings as opposed to.
Going out in Washington, and so we obviously have a substantial presence including group hotels in Washington.
I don't know what their bookings are for next year, but I would guess that.
It is.
Sort of less than average.
And I think when you look at the rest of the country.
Of course, you'll have to two conventions in the two individual cities, which will be good for that but I think overwhelmingly what we're talking about is corporate.
And association business, it's not about sort of political environment.
Okay. Thanks, Thank you for your color on that.
Okay.
Our next question comes from the line of Shaun Kelley of Bank of America.
Hi, good morning, everybody and Laura I wanted to.
Following my congratulations as well and I'm sure I think 11 years ago, we were talking about incentive management fees. So I feel like it's inappropriate time to ask about incentive management fees.
So I just wanted to kind of dig in a little bit on Arnie I think you give some color earlier in the queue in a about on just sort of the breakdown in mix between domestic today versus where it was previously in international.
As we look at what was kind of provided it did security analyst day, though on and we think about like the environment that were end.
It does feel like we're sort of running below the level of targets, where we thought it maybe a 1% revpar environment, we might be able to get let's call. It mid single digit type.
Enough growth and it feels harder and harder to kind of hit that so just could you break that down a little bit more is there a specific area that you think it's kind of.
Either trending below what you thought or missing expectation is it just across the board that there's a little bit more leverage in the models. Then you kind of thought there was there just kind of how you break that down for us.
So maybe we should decide right now that will invite lower back in a decade, and we can talk about incentive management fees.
What would that be 2029 or something like that.
The.
And one contact setting comment before answering your question, obviously, the incentive fees are skewed towards but by definition there always on managed hotels not franchised hotels.
Hey, skew towards.
More significant markets pick up top 25 in the United States or very well established resort destinations and may skew towards.
Upper upscale and luxury hotels all around the world.
And if it is those hotels, which deliver disproportionately higher fees per room to us.
Than our competitors or others in the industry will experience from the brands that Theyve got.
So while there is a bit more volatility in incentive management fees for obvious reasons. They come from the bottom line not the topline.
They are in every instance fees, we would just to soon be earning.
Because they are economically additive to us and because they are strategically additive to us because the those hotels make an extraordinary amount of difference.
Linear Loran Betsy and I were talking this morning, I actually think if you go back and look at the security analyst meeting and the 1% scenario.
We're performing right in line with that at least in terms of total fees.
There may be some variability in which of the three fee lines is contributing to that but but broadly were within the range of what we've talked about and so there is there is nothing here that.
We're going to be able to say to you. This morning that gives you tremendously more clarity than what you know to be obvious which is.
That would in Europe .
The low year over year, Revpar environment with expenses growing at.
Meaningfully faster rate than Revpar is.
But that's going to have an impact too.
Marriott and its embedded incentive fees, just the way, it's going to have an impact to the owner.
And there their contribution from that hotel.
Now there are some things, which exacerbated here a little bit one way or another Hong Kong, we've talked about at length. This morning.
I have had a disproportionate impact in Q3, albeit modest.
I suspect the impact in Q4 will be more significant than in Q3, because that performance there is going to be that much worse.
In Q4, and then you go around the rest of the the world and you'll see different performance in different markets. New York, We've talked about to New York will be a place where because of anemic revpar growth or modest declines even in revpar.
And cost increases the incentive fee contribution from the hotels that are in incentive fees.
New York will be disproportionately weaker than they would be in other markets around the world.
The only thing I'd add to that is that when we look at 2019 to expected full year fees, we actually at this point, we'd expect that.
International incentive fees will go up year over year.
They won't go up a lot, but they will go up and that that represent.
Two things first of all the different quality of the incentive fees as we've talked about earlier much less of an owner's priority characteristic and number two in general our managed footprint is growing faster outside the U.S. than it is growing inside the U.S. So again when you look at those security analyst.
Forecast or expect models that we put out earlier this year one of the things to remember is that we are expecting unit growth outside the us to be faster than inside the U.S., which again has this difference in the characteristics of the incentive fees.
Great. Thank you everyone.
But.
Your next question comes from the line of Jared Cheyenne Wolfe Research.
Hi, everybody. Thanks for taking my question.
It's good to hear from year Im glad all its is trending is as you hope so far and Laura.
Just to Echo everyone's comments, you've been fantastic, Congrats and best wishes to you.
In the.
In the 2020 as year to 2% Revpar guidance.
Can you parse how.
The the impact from group business transient and leisure transient and if I just take your group commentary, which seems really strong.
And your special corporate rates being up low single digits. It would seem like leisure is not as strong. So correct me if I'm wrong on that.
Your chest and Thats, a little bit given we have not done or budgets yet for next year. I mean, I think it's I think you're going to infer from what we've said that.
Group may be.
The strongest perform contributor if you will to that.
Zero to 2%.
Range that we gave for for next year.
I think it would be far too soon to suggest that that implies that.
Leisure transient is meaningfully were weaker than business transient.
Obviously, we're going to we're going to see the wave the year actually evolves, but we're also going to see the where the completion of our budget.
Season evolves.
And again, but but behind that average of zero to 2% you're going to see submarkets that are.
Lower than that zero in some markets that are higher than the two based upon market dynamics, which may have something to do with convention centers or or group booking pace for that individual market or the strength of the.
Sort of local drivers of that those economies as opposed to some other economies. So I would I, while group I think will be.
Among the strongest segments for us I don't think it means that the others are necessarily going to be down.
Okay. Thank you and just a follow up on that I mean, if I look around at other travel industries leisure travel in general I think still seems to be quite strong you've got the theme and experiences you get the boomers retiring.
That seems to be a little in contrast to some of things we're seeing on the hotel side do you think some of the I guess call leisure softness maybe not as strong as well, we're seeing with group and the like do you think any that could be related to I guess home rental starting to gain a little bit of a bigger share of the hotel pie here in recent years.
Yeah, I don't and that's one reason I answer your first question. The way I did is is we don't see leisure as being growth has been weak.
We.
We see what it again again, I'm, probably talking a little bit about the American.
Situation at this point, but but probably we could expand it to some other parts of the world as well I think the the what we see is our leisure customer is out on the road they are staying with us.
They are taking their vacations, yes of course, some are doing home rentals, when they travel as well.
That that is.
I think particularly more relevant for those that are most cost sensitive.
Not not for those who are most interested in a.
A.
Great experience. If you will of course, that's one of the reasons, we decided to get into this space ourselves to deliver something which is.
More predictable as a great experience.
And more more tied for.
Travelers, who are interested more than just the cheapest rate the second possibly get but I think leisure remained strong we met with some senior folks in.
China, not so long ago, and I think if you look at China, outbound travel, which is often leisure.
The global numbers are still quite.
Quite respectable.
Arrivals in Europe from China of course are much stronger than arrivals in the United States are from China.
And there are number of reasons for that but I would I would characterize really the leisure customer.
Generally as being quite healthy.
Okay. Thank you very much.
Yes.
Your next question comes from the line of Bill Crow with Raymond James.
Good morning, Aura jump on your bandwagon, but I've been accounted for 20 years known finish the right Ernie strengthen wisdom to the doctors.
My question first question really has do with incentive management fees go back to that topic.
What is the mark to market on an expiring management fee in other words.
Those that were signed 20 years ago, or 25, or 30 years ago. We know the economics were really good Marianne, but as they mature as they expire.
What what does that change was the delta.
That's a good question Bill I mean, I don't think that's.
Terribly germane to what we're experiencing today, okay. So so the performance at our global incentive fee line.
Is not.
Being driven by Mark to market of a significant number of managed hotels for example.
So I would suggest this question be viewed a little bit more abstractly than that.
And there I think it's going to vary a little bit by part a world leader you mentioned that about two thirds of our incentive fees now are coming from outside the United States.
Those contracts are are they are not all uniform of course, but we're signing.
Brand, new hotels coming into our system with incentive fee formulas.
And.
Real contributions from them about similar to many of those tells we signed a decade ago.
Which are in and so I don't think Theres a.
Meaningful mark to market sort of.
Risk their long term I think if you look in the United States or to some extent in Europe .
There are some.
Above market deals that we did a long time ago.
Sometimes they were assets that we controlled and sold.
And as those mature I suspect that.
Owners will try and reduced incentive fees there now to be fair owners will always try and reduce the level of fees that their pain.
Not just incentive fees, but.
Applying fees as well.
The negotiations there really are about what kind of value do do your brands and does your loyalty program deliver.
And what are they worth and.
Long winded way of saying the of course, if some of those contracts were terminated today and start all over again I suspect that they would start with a similar formula for incentive fees.
But probably with a starting point, which is lower than what they're achieving today.
All right. Thanks, My follow up quickly is and if I missed it I apologize, but did you talk about capital return.
For 2020, given some of the other comments you made about trends being similar next year to this year any reason to to suspect that you won't return $3 billion are shown capital.
Yes.
I think from a model standpoint that you're right the fundamentals in many respects when you think about.
EBITDA growth and the kinds of Revpar in unit growth numbers that we've talked about that make sense that couple caveat for you Bill first of all we havent gotten into the detailed planning that we're thinking about whether its cash taxes or net working capital in the loyalty program and all that so so for the moment, let's assume we're talking kind of more.
The same and the only comment I would make is to remember that we started out this year.
Not really at the lower end of our classic 3.0 to 3.5 times leverage ratio and we did take advantage of that in the early part of the year. So that kind of kick we won't have the advantage of next year, but otherwise I would say that your general thesis that's correct.
Thank you all.
You bet. Thank you.
Your next question comes from the line of West holiday of RBC capital markets.
Hi, everyone. Just a quick question on the new Okay agreement, you mentioned that you'd have better control of the inventory with third parties, but how meaningful is this and will show up more in the Revpar line item or will they be any cost savings associated with it.
Yes the.
Probably the most significant thing we've done with the OTI is themselves is.
Something we've we've been doing not just in the brand new agreements but.
Probably started a bit over a year ago and that is we have been more aggressive in.
Essentially dialing back the business will take from OTI is when we project will be at high occupancy.
We've had that right for a few years, we didnt use it as aggressively as we're using that now.
And we've talked about that and some of the last number of quarterly calls.
Conceivably had a modest negative impact to two revpar growth year over year, but we think factoring in the.
The lower cost associated with a business that.
Came in when we turned those dials down to zero.
Net net it drove profitability for the hotels.
And that will be something that we will continue to a tool will continue to use the other thing, which we disclosed of course is that with Expedia, we did a.
We found a place where actually our alignment with them could be much greater and that was in the wholesale space.
Wholesale is another kind of third party. If you will that is both an expensive channel and.
Sometimes a channel which mix.
Pricing integrity challenged because wholesale inventory can end up out there being passed from.
Sort of what intermediary to another and we don't often know where it's sold and in tuck in that through with Expedia. We've got will they can bring their technological prowess.
Bear and we can put some discipline in the wholesale market, which should make that.
Both.
Easier to manage from and integrity perspective.
And reduce the cost of that business that comes into our system through the wholesale channels. So.
That we're excited about obviously, we're it's early days in that but the the teams at both myriad things and Expedia or working aggressively and we think there will be some.
Good outcomes from that.
Okay, and then just a quick follow up you know the always think conversions will accelerate in a downturn, but right now we're seeing a low revpar growth environment. You also driving down the OTA commissions meaningfully lower and you are having more increased direct bookings. So could we see an acceleration over the next few years in a low growth environment would we have still wait for the downturn for the coverage.
Instead accelerate.
I think conversions are quite healthy even today as we speak and partly that is the things that you just mentioned it is also about.
Some of the soft brands that weve used with luxury collection autograph contribute.
All performing quite well we are in a position where we can go out in both offer that top and bottom line financial benefits, but also.
Some flexibility on the kind of product, we take that we wouldnt wouldn't necessarily be the case, if we had only the hard brands.
I think when we get to a weaker economic environment, we will see that.
Some of the hotels with don't really have good pipes of customers connected to them.
They'll they'll also have an incremental reason if you will that they don't have today, which should be helpful. Then.
Thank you.
You bet.
Your next question comes from the line of Kevin Kopelman of Cowen and company.
Oh, Thanks, a lot and first of all Arnie that's luck on the upcoming procedure and.
Laura.
Thanks for all your health and congrats.
So just wanted to follow up on signings, let me quickly so.
Could you talk about.
What approvals and things were in Q3 and then.
Maybe clarify your comment about approaching record signings is here are you almost there already here in early November .
I expect that closer to year end, then how would you kind of generally care characterize the outlook for new signings.
Going forward as sense today. Thanks.
A couple of preliminary comments developer our developers are the best in the industry by far but they are a special breed and they'd love to do things.
In the fourth quarter of the year and so until until the Bell is running at the end of the year, you never really know where youre going to end of.
We are we are if you look at sightings through Q3.
Were marginally ahead of last year in and again I think you could say in the context of a that's global global comment, but in the context of the uncertainties that are out there about the economy are about geopolitics are about other things.
That's a pretty stunning.
Level of success.
We can't say at this point, where we're going to end up the year, but there's a lot that the team is working on.
And they'll they'll scramble to work through when one funny thing the.
The T. The select service team in the United States.
As they get into December they they've got this big Bill that sits on the table in the ring. The Bell every time they sign a contract.
And that Bell is rig and all the time in the last couple of weeks of the year.
They delivered one of those big bells into my office last December just to.
Sort of let me share in the and if you will.
But we'll we'll we'll keep working through the end of year. Obviously, we'll report when we get into January about where the dust settled on signings generally all good news.
Excellent. Thanks Arnie.
But.
Your final question will come from the line of Ari Klein of BMO capital markets.
Hi, Thank you.
Maybe just following up on that conversion side of things can you can you just talk about in some of the markets that have been a little bit tougher for you have you seen conversions increase in those markets.
You're talking about markets in which Revpar has been softer yeah, yeah yeah.
Yes, I mean I don't.
I'm not sure I can do that justice off the cuff I do think if you look at.
One of the highest supply growth in environments. The world is the UAE.
To include Dubai.
And if you look back a couple of years I would guess that in Dubai, We had done essentially zero conversions.
And in the last year or so we've done a handful of conversions and I think in a sense that may prove a little bit of this.
Gary that we were talking about before which is where.
Businesses under most pressure in that instance, mostly about supply growth not about demand weakening.
But revpar has been negative for the industry in Dubai not for us necessarily in every quarter, but has been.
Negative for the last.
Much of the last couple of years I suppose in Dubai, and as consequence, we're seeing a bit.
Better conversion activity there than has ever been the case in the past that would be an example, I can't give you a stats for.
Sort of a group of markets like that if you.
Yes. Thanks, Thanks for the color appreciate it that alright, Laura will you bring us home.
So my last my last comment.
There's no better job in the World and Investor Relations and no better company in the world The Marriott to do it in.
The corporate culture here isn't just about taking care of the customer. It's also about taking care of all of you.
Theres, a real commitment here to get it right for all of you with straightforward accurate and fulsome disclosures and candid assessments of business trends.
Fortunately it takes a team of people to make that happen and they are terrific you've met some of them.
That have joined me on road shows and conferences over the years and many of them or listening to this call. So my message to all of my colleagues as thank you for making US look smart for so long and keep up the good work.
For the investors and sell side analysts on the call I am going to Miss you and I've really enjoyed working with you I hope all of you come to the holiday Party on December five we're going to have a terrific time.
Thank you Laura all right. Thank you Laura thank everybody.
Thank you for participating and Marriott International third quarter Alcor 19 earnings Conference call you may now disconnect.