Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Marriott International's first quarter. She doesn't 20 earnings call.
At this time, all participants' lines journalists and only mode.
After the Steve's remarks told me a question answer session.
My question during the second only to press Star one on your telephone keypad.
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I would knocking on the couch it but your speaker today, Mr. Earnest Wenjun. Please go ahead Sir.
Good morning, everyone and welcome to our first quarter 2020 conference call.
Every one of their families are safe and healthy during these unprecedented in challenging times and I would like to send my deepest condolences to those of you have lost friends <unk> family because of current 19.
No. There is lots are with you.
Joining me today from their respective homes are Leeny Oberg, executive Vice President and Chief Financial Officer, Jackie Burka, Mokoena, or senior Vice President Investor Relations, and Betsy Dom Vice President Investor Relations.
I believe this is the first time the merit team has not been together in the same room to hostess cool and that includes an earnings call from China in 28 team in one during a blizzard in 22.
I want to remind everyone 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 our FCC filings, which could cause future results to differ materially from those expressed or implied by our comments.
Statements in her comments and in the press release, we issued earlier today, our effective only today.
It will not be updated as actual events unfold.
Please also note that unless otherwise stated our revpar in occupancy comments reflects system wide constant currency and year over year changes and include hotels temporary closed due to cope with 19.
You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in her remarks today on our Investor Relations website.
Let me begin with what is clearly top of mind for all of you are Marriott is navigating through the extraordinary in continually evolving worldwide impact of coping 19.
This is by far the most significant crisis ever to impact our business for a company that is 92 years old and has weathered the great depression.
We're too and numerous natural disasters around the world that he is saying something.
Well, the you're generally got off to a great start we saw a sudden sharp declines in occupancy associated with covert 19, beginning in greater China in January and then extending around the world.
You can see continued to deteriorate in March and stabilized in April, albeit at very low levels everywhere, except for greater China, where trends are improving.
Revpar in April fell 90% worldwide and in North America is well April system wide occupancy was 12% both worldwide and in North America.
For the weekend be me second worldwide occupancy was 15%.
And 20% went just looking at comparable hotels that were actually open.
About 25% of our hotels worldwide are temporarily closed with 16% of our north American portfolio temporarily closed.
Europe is mostly shut down with just over three quarters of our hotels closed right now.
The state the obvious we are operating in a very challenging environment. However, the glimmer of good news is that overall negative trends appear to have bottomed in most regions around the world.
The resiliency of demand is evident in the improving trends in greater China.
Bookings continue to pick up with demand driven primarily by domestic travelers occupancy levels in greater China or currently just over 30% up from the lows of under 10% in mid February.
Revpar has followed a similar trajectory currently down around 67% year over year compared to an 85% decline in February.
Throughout mainland China leisure demand was strong for the Chinese Labor day holiday weekend in early May occupancy for that weekend was over 45% with resort markets close to 70%.
We have seen examples of demand starting to come back in other areas around the world as well last weekend at some beaches reopened Ritz Carlton Bakara in Santa Barbara and our hotels and Hilton Head South Carolina. For example were expected to reach approximately 50% occupancy based on reservations on the books.
Limited service occupancy in the U.S. as increased a bit each week over the past few weeks showing the most would be meaningful improvements in drive to destinations.
Local state and national governments are trying to manage the tight rope between containing covert 19.
In restarting their economies there are likely to be some areas that started slower some faster and some that open in fits and starts but our business should improve as restrictions or relaxed.
On the development front, our pipeline increased slightly to a very healthy 516000 rooms at the end of the first quarter. We opened over 14000 rooms in the first quarter and at quarter end over 230000 rooms in our pipeline around 45% we're under construction.
We do expect some hotel openings will be delayed due to covert 19 related supply chain issues or local restrictions on construction activity, but at this point, we have not seen more deals than usual dropping out of the pipeline.
The pace of new deal signings has overall has slowed a bit as a result of the crisis, but we are encouraged by our current conversations with owners. Many continue to have a clear preference for our portfolio of brands, which posted worldwide Revpar index gains of 330 basis points in the first two months of year.
Like us many owners are taking a longer term view on the market opportunity.
In the first quarter, our Asia Pacific region saw meaningful development activity with over 9000 rooms, nine roughly 45% more than a year ago quarter, and we continued to see strong interest from owners in North America, even though they are not feeling a sense of urgency to get deals across the finish line.
We cancelled or North American monthly development deal approval meeting in March for the first time in more than a decade to pause in take stock of the environment given the dramatic piece in which covert 19 was impacting the industry, but have now returned to our usual medium cadence.
We continue to do what we can do across all areas of our business to respond to the current environment. We have issued several updates on the numerous actions, we've taken which have focused on helping our associates, our guess our hotel owners and franchisees and the company itself manage through the situation.
Well no one can know exactly when and how demand will start to return in each part of the world Marriott is ready we have swiftly made significant short term changes to our business and enhanced our liquidity position, while remaining focused on how to best position ourselves for the recovery and for growth over the longer term.
Yes global trends have started to stabilize teams across the company have been diligently monetary and various data points and developing a cross disciplined recovery plan.
In addition to tracking the booking in cancellation information in macro economic indicators. We're also looking at data around cobot 19 testing in cases and government regulations, all with an eye towards ramping up our business in a thoughtful way as restrictions are lifted.
Market conditions improve.
We're consulting with our owners to analyze potential market demand and hotel level cash flow to help inform when and how to reopen their hotels region specific marketing strategies are being developed that we plan to rollout in phases as different customer segments and levels of demand return.
A key component of our marketing plans will be leveraging our powerful Marriott bondpoint loyalty program.
Focusing on reaching are highly engaged member base in our many Marriott bond void credit card holders.
Throughout this crisis, we have continued to communicate with our loyalty members, including with special promotions on our co brand credit cards in the U.S. such as our offer for six times points on groceries.
We have also extended to lead benefits.
And today to help spark demand, we will announce a new promotion to buy gift cards for future hotel stays at a 20% discount.
In greater China, our joint venture with Alibaba has been very helpful. In rebuilding demand a recent spring sale run by Alibaba Slinky travel side was very successful in generated terrific near term bookings.
Bookings from sea trip have also grown significantly over the last few weeks and are up over 15% for the first week of May versus the same time last year.
Another key component of our recovery plan is communicating with our guests and associates about our focus on health and safety and giving them the confidence they need to travel and stay with us.
We recently announced enhanced global cleanliness guidelines focused on evaluate elevating cleanliness levels and hospitality norms to meet the health and safety challenges presented by the new environment.
We're also working to reduce the frequency of contact between associates and gas by continuing to roll out programs, such as mobile check in mobile key.
No contact room service.
I want to take a moment to express my appreciation to our team of associates around the world. It midst furloughs reduced work weeks temporary hotel closures, new cleaning requirements in very lean operation staffing. They continue to inspire me every day.
Your constant messages to me of hope and belief in Marriott remind me over and over that we are so fortunate to have the best team and the business.
The recovery is not going to happen uniformly across all regions and it is not going to occur overnight.
It may take longer than any of us, we'd like and we will likely operate a bit differently going forward.
But we have taking the steps necessary to position the company to manage through this crisis successfully.
And travel will rebound.
Our people are solid financial footing, our 30 industry, leading brands and our number one Marriott Bon voyage loyalty program continued to point toward a brighter future.
Before I turn the call over to leave me I want to share some organizational news.
Dave Grisson, our current head of the Americas has decided to step down from his position as group President the Americas.
First quarter 2021, after a 36 year career with Marriott.
David I started talking about its potential retirement last year, but neither here nor I felt the time was right to finalize any retirement.
As we moved into Twentytwenty increasingly turned.
Our turned toward questions around how we will we how we will rebuild our business in our company on the other side of covert 19, it became obvious that we needed our new leaders to be fully engaged in this process.
Dave will be with us through Q1, allowing for a smooth and thoughtful transition, but he will be missed by all of us and we wish him all the best as Youve entries into the next phase of his life, Dave. Thank you for your extraordinary contributions to Marriott.
Starting in 2021, we will remain organized in a continent structure, but our global lodging business will be consolidated under two fantastic veteran leaders Liam Brown. The current head of EEMEA will oversee North America and Craig Smith, our current head of Asia Pacific will oversee all international regions outside of North America.
Liam and Craig our excellent executives and bring tremendous leadership skills to their new posts.
They have been key members of our leadership team for many years and we'll continue to be in the years ahead I.
Hi, congratulations to both of them.
My last organizational update is particularly important one to me.
Although we take the next two years, although we will take the next two years to implement and appropriately celebrate the leadership of Bill Marriott. We wanted to share with you that Mr. Marriott has informed our board of directors that he plans to transition to the role of share Emeritus in 2022.
Bill has been fully engaged in marriott's work for as long as I have been alive and he remains a daily source of contact and inspiration to me.
In the midst of covert 19, I talked to him every day.
Well our conversations today are focused on the crisis. We are fighting they are of a piece with the ongoing conversations that we have had Dan.
And day out ever since the summer of 1992, when we first met.
At the tail end of another crisis, the Gulf first Gulf War, and the recession that followed.
The state the obvious we will celebrate celebrate bill Marriott for his contributions to this company to its associates and to the industry between now and his transition to cheer emeritus and two years.
For now Bill let me say thank you.
To me or a boss I'm enter a friend.
And truly family I cannot imagine a time without your partnership and friendship and I pray that there are many more years ahead for us.
In anticipation of bills transition to the chair Emeritus role, we expect that David Marriott will join our board of directors next year.
David is well suited to serve on our board and I know he will bring not only his operations in sales experience, but also he has deep understanding of merits culture to board level conversations and decision making.
One other quick point and I know, we're giving you a peek into our forward looking plans when David joins the Marriott Board, we expect that he would step down at that time as an executive of Marianne.
I look forward to working with David as a director and then chair for many years to come.
And now I will turn the call over to Leeny for more details on our finances.
Any.
Thank you Arnie I hope all of you and your families are staying healthy and say I also want to thank her teams around the globe for their dedication and tireless efforts touring these unprecedented times worldwide Revpar was down 22.5% for the quarter driven by the sharp, 60% global decline in March 1st quarter.
Gross fee revenues totaled 629 million comprised of 240 million of base management fees and 415 million of franchise fees.
Under the terms of our contracts our portfolio of managed hotels earned 64 million of incentive management fees or I am asps in the first quarter.
However, under accounting rules, we could only recognized I am apps to the extent full year forecast supports that these fees will not be reversed later in the year at this point theres significant uncertainty around full year performance. So we did not recognize any I'm apps in the quarter.
Within franchise fees other non revpar related fees totaled approximately 140 million up 5% from a year ago, primarily driven by stable year over year credit card and timeshare branding fees as well is higher year over year residential branding fees.
Adjusted EBITDA of 442 million included 79 million, a bad debt expense guarantee reserves related to cope with 19.
Given the uncertainty around the timing and trajectory ever recovery, we're unable to provide our normal quarterly and full year PML guide.
Instead I thought it would be helpful to talk through a modeling scenario for our monthly run rate of major sources and uses of cash in the current environment with worldwide Revpar down roughly 90% and also provide you with a few modeling sensitivity.
Note that this is just one scenario and not an estimate of actual results.
Marriott's overall cash flow with easiest to describe into broad categories. The first category. Its classic cash flow with a corporate level, which is basically EBITDA less cash interest expense cash taxes and investment spending.
The second category it relates to our cost reimbursement revenues and reimbursed expenses, which represent the cost that we charge out to our owners and franchisees to cover the programs and services, we provide to them.
Starting with corporate cash at these extraordinarily low levels of Revpar, we assume net cash outflows of roughly 90 to 95 million per month.
That's assuming cash sources of around 60 to 65 million and cash uses of about 155 million per month.
The cash inflows are base management and franchise fees and other non revpar belated franchise fees.
Given we are not currently recognizing any incentive fees due to the uncertainty around full year results. It's easy to model Revpar related based management franchise fees based on 2019 actuals, if you adjust those for unit growth and to 90% decline in Revpar.
The result is roughly 20 to 25 million of fees a month per point of Revpar.
Also as a sensitivity for you impact of a one point change in Revpar would be roughly 2 million of fees per month.
As revpar climbs back closer to prior year levels, obviously, the improvement in fees per point of Revpar grows significantly.
In this scenario the remaining 40 million per month. The fees is expected to come primarily from other non <unk> revpar related franchise fees, mainly credit card branding fees residential branding fees and timeshare royalty fees all of which are much more stable.
Assuming revpar is down 90%, we expect that corporate cash outflows could total approximately 155 million per month.
Compared to our 2020 budget, we've reduced our cash run rate for corporate Gionee by 30%, excluding bad debt to about 40 million per month.
And we've eliminated or deferred around 45% of our original investment spending forecast of 700 to 800 million for the full year, bringing our investment spending to roughly 35 million per month.
The remaining 80 million per month includes cash interest expense cash tax payments and the monthly cash outflows for owned leased hotel portfolio in this exceedingly low revpar environment.
The second category of cash flows relates to the revenues and expenses for the programs and services that we provide to our hotels for which were entitled to reimbursement.
As you know our spending reimbursement per hotel level programs and services are meant to net to zero overtime, yet there can be timing differences between dollars we spend in dollars we collect.
I'll break this second category of cash flows into two buckets.
The first is the cash flow related to the Marriott Bond Boy program and the second is the timing of all our other programs and services.
Cash flows into the loyalty program from hotels, and our co brand credit card issuers as members earned point.
The cash outflows for bond boy or the payments made to hotels when members were deemed point.
Well as the cost of running the program, including marketing.
This year, we expect to have much slower redemption expenses in terms of both volume of night and the rate paid for those days given lower occupancy.
At the current low occupancy rates, we estimate that we will generate several hundred million dollars of cash from the loyalty program this year or 45 million of cash benefit a month.
This does not include the cash we recently received from our co brand credit card issuers.
That leaves the remainder of our cost reimbursement revenues and reimbursed expenses.
The largest bucket is the direct pass through a payroll and other operational costs at our hotels, primarily for our North American managed hotels.
In 2019 these costs were around 75% of the more than 16 billion of gap reimbursed expenses.
So far this year, we have reduced these pass through costs by around two thirds.
These expenses are generally repaid to us within days and in 2019 managed owners reimbursed us with very little exception or delay.
At this point, it's very small fraction of these managed hotels are delayed in paying us.
Apart from these hotel level cost and loyalty the remaining reimbursed expenses in 2019 supported mandatory programs and services, we provide to our hotels.
They cover brand sales and marketing funds are reservation system property management systems and alike.
About two thirds of the amounts charged hotels to cover these costs, which are also included in cost reimbursement revenues vary based on hotel level revenues or program usage with the remaining being a fixed charge per hotel or pirquitas.
That lines up well with our costs to provide these services, which are also about two thirds variable and one third fix.
We took significant cost cuts and changes we implemented in this low revpar environment, we believe that the cost reimbursement revenues do would cover our reimbursed expenses.
But there could be some cash timing mismatch given the systems the discount and payment deferral, we provided for April and May as well as owners and franchisees extending their payables a bit.
In this very low demand scenario, we could see roughly 100 million a month of higher working capital usage before considering the loyalty cash inflows.
The net cash outflow for all programs and services, including the positive cash flow from loyalty could be around 55 million a month, which brings the total company cash use to roughly 145 to 150 million a month.
It's worth noting that in April despite the 90% decline in Revpar, the company's cash burn rate was significantly better than that estimate.
And of course, this trends improve the cash burn rate should improve as well.
I want to remind you that when you look on that personnel for cost reimbursement revenue and reimbursed expenses will look a bit different than the cash flows I've. Just described primarily due to the accounting for the loyalty program, which requires that its cash is received goes onto our balance sheet as deferred revenue with no immediate impact.
On the PNM.
We've been focused on preserving liquidity and shoring up our cash position.
In mid April we issued 1.6 billion a five year senior notes and last week, we raised another 920 million through amendments to our co brand credit card deals.
We also eliminated dividends and share repurchases until further notice.
Our current cash and cash equivalent amount on hand is around 3.9 billion.
If you add to that cash the undrawn capacity on our revolver of 1.3 billion, which we paid back on may 1st and deduct around 900 million of commercial paper currently outstanding our net liquidity today is roughly 4.3 billion.
We know the recovery could take awhile, but we're confident we have the liquidity we need to manage through this situation, including paying back near term debt maturities.
We've made solid progress and mitigating the impact of Cobot 19 on our business and are prepared for the wide range of scenarios that could play out.
We feel confident that we will come through the successfully and look forward to traveling and welcoming all of you at our hotels.
Thank you for your time this morning, and we will now open the line for questions.
Thank you the floors for your question.
On your.
Your first question comes from Sean Kelly.
Hi, Good morning, everyone based on many I was born in Sean warning.
I was trying to type about OSAT advertise tickets or.
Just keeps it [laughter]. So thank you for 'em for all the detail and hope everyone is doing a is doing well.
You know leaning maybe to start with a high level. Once you just a digest everything you kind of gave us and do really appreciate that.
Could you give us a sense on on maybe just the broader on you know franchise and management system at this point what have been.
Somebody asks by the owner community at this point as we think through you know what what their own you know kind of cash level needs. You know, maybe and specifically if you could give any color on the percentage or number of either managed or franchised hotels that.
Sort of asking for either feed deferrals or feel relief at this stage.
So so a couple of things first I'll I'll remind you remind everybody once again that a a huge proportion of our fees that we charge a revenue base. So there is an automatic decline that has happened as result of the drop in Revpar. So that if you think about it.
For the mandatory programs and services that we charge. When you also include the deferral and the 50% discount that we gave in April and May Ah Theres actually very little do a at the moment from on them the.
Mandatory programs and services at the managed hotels in North America. We have also as as I talked about dropped payroll I'm incredibly as well as all the operating cost hotels. So so of course, you do have hooters and as just as we.
You are thinking about how we're managing our payables everybody's trying to manage their cash as best they count, but I will say our owners and franchisees are paying their bills.
We have a really very very small fraction of our hotels that are I'm, having trouble paying at the moment and then except for a bit of extended payable terms that you can see.
Otherwise, it's really all systems go for the moment and as I said in April we <unk>, we actually saw relative to those numbers I gave a really up fairly dramatically better situation than the one that I gave you, but we wanted you to have the benefit of arc.
Cash planning so that we are.
Making sure that no matter the situation that we were able to manage through it.
Thank you very much.
Your next question.
Joe Greff of JP Morgan.
Good morning, everybody good to hear everybody and hope to all of you or your families are healthy and well.
Due to jump back to your thanks, just with respect to your.
Your hotel owners you'd have a sense in North America, how many of them.
Access.
Federal loans release program.
And then my second question is.
Let me leave the maybe break even occupancy is our for your North American full service North American select service hotels, and I guess in that breakeven occupancy.
A threshold what mdrs who's sitting there then.
So let there's a lot we don't know about the details of our owners access of the payroll protection program. Another government support obviously, we're we're in touch with them and we hear back we think that there are.
Hundreds of hotels that have successfully applied for.
Those <unk> payroll protection program, how many of them have actually received the dollars is little harder for us to keep track of.
And the percentage says that have been approved our you know in the 50% to 60% range. If you include the select service hotels select service hotels, obviously tend to be.
More clearly small business them full service hotels, but for each hotel owner.
There are tens generally to be.
Eligibility under some of these programs to get the can kind of support that the government is intended to apply.
We continue to work with them to to try to navigate through that I think the other thing. That's important is what we hear anecdotally from our owners in North America is that lenders have been reasonably accommodating as well and so you put those things together.
When you put the collaboration that leave me has just described between Marriott and our owners, which includes very much are cutting above property costs, including cost.
Programs that are paid for by the system.
And then work at deferring a brand standards and initiatives and working to tap into.
Differ if if if you spend even to TEP and TEGP any dollars and those sorts of things and.
Generally we think the well there's pressure all around we think overwhelmingly that the system is surviving so far obviously it'll get tougher the long grid last but we do think read about them and I think we're likely to see some some release in pressure as we go.
Forward is demand incrementally begins to return.
The breakeven actually occupancy question is an interesting when the.
Where you could you could look at our portfolio.
States and remember April Revpar down roughly 90%.
And say well why are only 16% of the hotels close.
Because it's got to if those sorts of numbers. There are many more hotels that are losing dollars than that are closed and that's true.
But the question is do they lose the question is not so much do they make money by staying open but the question at the moment is do they lose less by staying open.
And our general you know calculation is that by the time, you get to 10% occupancy or so.
You are probably better off from a purely financial perspective to stay open.
The losses will be lower than the losses associated with being closed and remember when you're closed you still got labor cost for some labor that is required you've still got a heating and cooling you've got security you've got a other costs that.
Cannot be avoided.
And so it doesn't there's there's not a closing scenario that gets you instantly to a break even level, you're still losing money on that.
I think when you look at a you know what is a cash breakeven obviously, it's going to depend a little bit on.
Select service versus full service and the level of services provided the level of services provided in hotels with light occupancy today is less than the level of services that were provided before cobot 19 showed up pick about food and beverage as an example, which is.
Likely to be significantly truncated today compared to what it was just a few months ago.
You know broadly you're going to probably break even as you know, 30% or so occupancy in the slick brands and maybe 40% occupancy in the full service brands, but again still do better by being open that occupancy levels, which are lower than that than you would do by being closed.
The last point I think I'd make on this is.
Not just in terms of Revpar, but in terms of hotel closings slash openings April seems to have defined the bottom.
And when we look at the last couple of weeks there have not been.
A significant movements in the number of closed hotels, but most days were seen.
You know one or two or three more hotels reopened.
And we are seeing hotels closed.
And if anything is we see demand start to crawl back as restrictions are released.
But the trend line now is towards more openings not towards more closings.
Thank you.
Your next question Patrick shows of Suntrust.
Hi, Good morning, Wonder if you could.
Hi, Patrick bought worn and hike morning.
HM from thoughts about.
You know potential.
[noise] recovered yet you used to this point group returning in the back half a year.
You know your thoughts on corporate fly to demand and then any early indications of.
Summer leisure I know some sort of up to.
Figure out, but interested in your thoughts well, but I think what we've got stay here is probably not incrementally all that new from what a others in the industry have been saying the last few weeks and what we've been saying actually the last few weeks.
It's obviously, we've got a global phenomenon underway.
It is you know sort of stun even in spreads.
We've talked about China little bit in China, It does appear to be recovery and holding.
I know, there's lots of debate about whether or not there is a resurgence of the virus in China. We've got tens of thousands of associates working in our hotels and basically have a way of tapping into that community and listening to both their sentiment in to some extent the data.
By and large what we hear there is reassuring that in fact, a demand is coming back and the virus spread does not appear to be profound that doesn't tell us for certain words, where it's going in the next few months, but there is something that's encouraging there.
When you go around the world, you're going to see a different dynamic in various parts of the world I think in Europe.
Europe, Unlike China in the United States is meaningfully more dependent on long haul travel.
You think about Europe has been a destination for.
Vacationers from all around the world, we want to see those great European cities.
Because it's dependent on air and long haul I suspect it will be.
Probably the slowest get back to the kind of levels that we enjoyed before cover 90.
Advantages of China in the United States are there both domestic markets.
Even in normal times, the U.S. is about 95% to 96% U.S. travel with only 4% to 5% in total dependent on.
Inbound travel from the rest of the world and by the way, Mexico, and Canada are both big source markets and there are obviously fairly close.
Sometimes those our drive to.
Business, sometimes their flight obviously.
Looking at the U.S., which maybe where your questions focus we obviously see the drive to markets as being the strongest you can see that in the even the data we showed on select brands in the prepared prepared comments.
We are performing better and I think that's both leisure and to some extent it is sort of local or regional business, but business that is dependent on the car and I think that will.
Come back the most I think we'll see some.
Some cities perform better so you know.
Split contrasts here, a new York, maybe the stickiest because of its density and its relying on reliance on a mass transportation, which creates some sense of risk.
And so we would spec and <unk> and also maybe a little bit their dependence on international travel, which is higher than the U.S. is all.
But go to a market like Oh.
Oh San Antonio.
Even Chicago, where there is a much more likelihood that people can drive in.
In the summertime be outside enjoy like Michigan or enjoy.
The outdoor destinations and I think we will see those markets perform.
Better and faster.
The slowest bit of business to come back, we'll we'll certainly be group.
And we hear from our group customers that they want to get back to a place where they can bring people together, but the obviously want to do that in a way which is safe.
And that depends on some things, which we can influence like the protocols we use around.
Cleanliness and meetings in the hotels and we've got great work underway there.
On the median side. It will include you know probably lower density in our hotels in other words more square footage be used for.
Per head at a meeting than would have been the case beforehand, you know maybe sadly we've got the capacity to do that.
But there are parts of this which we won't be able to control to and to the extent those meetings are dependent on air travel. It's not just gonna be you know how does the plane itself feel and the airlines I think you're making good progress there, but how is it getting through the airports.
Doug can you get through the security lines in a way that makes sense.
I think the you know on on balance and you've heard this a little bit from the industry data, which is out there I think what we're seeing across the United States is folks are tip toeing out of their homes a bit more the last few weeks Oh, you know, we're probably seen occupancy clip.
Click up a point a week or something like that the last few weeks, that's not enough to put a stake in the ground and declare that.
You know, we've got momentum towards recovery, given how low the numbers actually are.
But it does tell you that that Oh, the the early travelers, which are going to be drive too.
Leisure local domestic are interested in sort of getting out there and.
Relieving their lives and if they can do that and overtime build confidence collectively we can build confidence in the safety that a we can enjoy if we're out of our homes or that will get better and better if on the other hand restrictions are released in the virus spread.
Surges, and we can't have that confidence as consumers. It will not be just a question of what the government restrictions are but it'll be a question of what that counts confidence level is.
And that will make the recovery slower.
Okay. Thank you for the.
The very detailed answer.
Your next question comes from Thomas.
Hey, good morning, and hope of once while I'm, just give us an update and how you're thinking about net unit growth. Thanks.
Well, we're watching it [laughter] I think is the right is the right answer the.
You know, obviously, we're we're month and a half into the.
Extraordinary crisis outside of China, and a couple of months longer than that in China.
In various parts of the World construction was essentially band in some markets. It was in the central services that was allowed to continue.
Beyond that you've got some question about hotels that were ready to open and whether or not the final furniture supply was in hand or not or whether it was dependent on a global supply chain, which itself slowed down.
I think we can say with a relatively high level of confidence that the overwhelming majority of hotels, which were scheduled to open in twentytwenty.
Would have been very far along in their construction.
And they will still makes sense to reopen US you know assuming some kind of.
Reasonable assumptions around a recovery.
And so while there will be a delay in getting them opened we would expect that they will open whether that delay is a number of months or a number of quarters, probably will depend a little bit on those supply chain.
Supply chain dynamics.
Construction restrictions, which by and large have been released I mean, I think California been construction for a period of time and I think construction is now back on.
In California.
And just the owner sense about you know obviously, there's less urgency to get open, but whether it's more logical to get up to be open or to defer opening.
I you know it's it is oh likely we will have fewer new hotel openings than we assume before over 19 and 2020.
Whether that's a down by half are down by a quarter. You know, we'll have to watch and see I think it still way too early to to identify I do think that most of the hotels that were scheduled to open in 2020 will ultimately open into our system.
The same I think can be said for certainly most of the first half of 2021 openings as well.
Thank you.
Your next question comes sign of Smedes Rose City.
Hi, Thank you.
Hi, I Wonder if I wanted to ask you guys and others have created a pronounced that's around what cleaning will look like in hotels and kind of a post covered world as you reopened.
Just.
How do you think about just the overall labor costs at a hotel going forward. If you think that they'll ultimately stay about the same or do you see <unk>.
<unk> significant increases or decreases from here.
Well, that's it's going to be very interesting I think to watch I think in the early stages, obviously, we're going to have or.
Less less FNB service for example, I think.
We're likely to have either fewer restaurants open a fewer.
HM meetings and the staffing that's associated with meetings.
Probably a difference in the approach to the phase and some of those sorts of things. So I suspect in the early quarters, it's going to be more grab and go and pre package material vary a little bit obviously by segment and bye.
Market around the world, but I think those things would generally tell you that for the balance of 2021 or excuse me 2020 labor costs as a percentage of revenues are probably likely to be lower I think when you look longer term is gonna be interesting certainly in the.
First stage, we would expect that digital check in or think about using your phone as a key or checking in at a kiosk or.
We will be important both to protect associates and to protect guess.
I think there will be relatively greater effort in housekeeping between guess than there was before to make sure that those rooms are.
Virus free to the extent, a we can be certain of that.
I suspect there could be relatively less services provided during stay however, and you know those things.
May offset each other a little bit.
But obviously, we'll we'll work our way through that in the best case, we cant long weighted way of saying I think in the near term.
Certainly labor costs will be less and obviously, we'll be looking longer term ad.
Making sure that we meet what our guests expectations are.
The.
Services provided or the services that are needed by our guests and also making sure that our owners get back to a place where.
Their investments make sense and where they're there.
Financial will be is good for the long term.
Okay. Thank you I could I just a few one more too I mean do you think.
I guess, particularly in North America, as maybe some owner struggle to get reopened or maybe have difficulty working with their banks I mean, thats very art. It would you see more of a lending capacity or potentially putting out guarantees for that to some of the owners of maybe on a short term basis or is that sort of on the table. It now.
Leading you've got that yeah, I do yeah, I think you know as you know.
We typically a really use our capital to propel our growth now we do obviously from time to time will work with an owner in a specific situation, particularly when there's reinvestment going into a property as we have done with host for example, but but I think broadly.
Speaking Oh, we have reimbursables, we expect to get paid a we provide those programs and services and the owners have an obligation to pay us. So while there is an ongoing dialogue and we certainly as you've seen from all of our efforts to reduce our costs as well as to.
For the payment of some mandatory required fees you know Ben Ben wanting to be understanding about the situation, but at the same time I would not expect to see that we would be doing extensive.
Either guarantees or loans to deal with that.
Thank you.
Your next question comes on line of Harry Curtis.
<unk>.
Hi, or maybe just a quick follow up on that question.
As you think about your development going forward.
It does does this crisis really change.
The way that you approach.
A key money in Mezz loans, given the the reserve that you.
Not just the reserve, but the impairment charge that you that you took today.
So a first of all on the impairment charge. If you think about the biggest chunks of the impairment charge today I two of them were related to leases.
They are leases that have been around and as you know with the lease accounting change. We have these assets on our books called right abuse assets that extend over the life of the lease. So so frankly, they really don't relate to.
The classic sort of giving a key money or.
With that and frankly, there was one the impairment charge that we took this quarter that we mentioned the $14 million. That's on a very large portfolio with limited service hotels and as part of that transaction. There was an agreement oh by the owner to spend hundreds of millions of dollars to reinvest those properties so quite Frank.
<unk>.
Still a transaction that within the broader scheme of keeping up our.
Portfolio, and making them competitive or make a ton of sense now a you know I think in general as you think about what we have to invest in our pipeline, it's actually fairly small.
Tends to be that on more complex higher end projects that we at the margin are going to have a little bit more capital and then if it's on a.
Kind of small.
Small price limited service hotels, but I think fundamentally we still view that the way that we approach investing in deals.
To be appropriate now at the same time I will say, we are obviously cognizant of kind of where we are from a liquidity standpoint, as well as rebuilding the business over the next few years. So when we think about for example, our restrictions that we have put into our.
Revolver Covenant waiver, where we're obviously going to keep very closely very close watch on the amounts of investment that we're spending but what I think from a fundamental approach we still feel really good about the value that we heard driving with this these key money type of investment.
And Ah. Thank you Arnie, maybe you can.
Respond to the second question, which is as you imagine the recovery two to three years from now.
And the house profit margin that was generated across your portfolio.
In 2019.
You've you've you've walked through some of the gives and takes on on higher and lower expenses or is it unrealistic to think that you can get there.
In the next two or three years, assuming the same level of of of occupancy.
Get back to the same level of profit per room, you were talking about exactly yeah. Yeah. The I don't think it's it's certainly not unrealistic to try and and I think we will work hard at that if not getting back to the same levels getting getting even better levels.
I do think that the.
In the first instance, the recovery topline recovery, obviously is really important to this as well as what we doing the cost side topline recovery in the first instance is gonna be covert 19, driven or what is the sense of.
Government restriction that that gets in a way of our business and what is the sense of.
Sort of remaining concern or anxiety about the spread of though I virus that that dampens down demand.
And the recovery from that is going to depend significantly on the progress of the virus or the development of vaccine development of.
Other other treatments, maybe ubiquity of testing all the things that are being talked about every day and endlessly every day.
Beyond that the the a question about the topline is going to be driven by the economy.
None of us knows how.
Severe the economic hang over will be when the.
Fear of covert 19 receipts, but there is every every reason to suspect that there may be some.
Stickiness to a weaker demand environment at least for a period of time simply because of a GDP activity and so those those things I think are both important from a topline perspective from a cost perspective, you know we will obviously do the kinds of things that we're going to do.
To the extent a the topline is Ah Ah depriving us.
Dollars per room of revenue that challenge becomes a little bit more significant but I think as we move our way down but down the recovery and we see revenue per room come back we ought to.
Have a fighting chance of getting preference going back to.
Well, thanks, everybody and Leeny, if you could just send us the a spreadsheet into your presentation does [laughter] [laughter].
Your next question.
Hello Barclays.
Hi.
Good morning, everyone.
Good morning, Anthony morning morning, a question on again.
Well I agree. So do you expect this event to have an impact on how wonders approach construction financing you expect them to.
Maybe required more equity requirement passengers and could that be kind of watchman headwinds.
Any disruption in the cat.
Well I'll start and then already feel free to to add on so so I think first of all let's talk about what's already under construction.
You know the financial.
Institutions today are in vastly better health when they were back in the the great recession and as already was saying earlier. These deals are still makes sense. There under construction. There's no reason to think that they won't get finished as the final supplies are delivered.
And then they have the ability to open now could it be that they opened a bit later to you know depending on the environment for demand sure, but but again from everything we hear anecdotally as well as C. I don't know if you notice around your towns that construction actually is one of the few business.
But you can actually still see a fair amount going on and so as you then think about the pipeline of new deals I think that clearly is one that there's more question around and that there is likely to be at least a bit more of a wait and see attitude by the lenders on.
Committing to new deals however, with the the one thing I will say is that as you think about if they are going to lend who they're going to lend to it is it's kind of classically been the case that the stronger brands get the financing when deals are getting done and a I would expect with all.
That you've heard around what we're doing related to cleanliness and making sure that the guests no. The standards that they can expect our hotels to have when they come a that that will continue to be a one of the the strong points that our brands have when a develop.
For goes to consider.
Getting alone and the other thing I'll say is our conversations that are developers are having continue a pace. Obviously conversion activity is up right now as we think about the those conversations as well as Ben.
Continuing on new construction there. There. These are folks who are looking for the longer term and become a longer term perspective, a they still view it quite strongly.
Got it thanks, and you mentioned Arnie that you saw some good revpar in that game and January February how do you maintain that momentum in its kind of environment. That's I mean, you can even focus on <unk> and looking maybe.
Early next year in a downturn scenario what she will you have you can grow Revpar index.
Well, we called out Marriott Bond way I think at as of AH. You ended the quarter were at 142 million members or something like that and I think the program remains a powerful tool for us to drive.
LT travelers to our brands and we'll continue to stay focused on.
Making sure that program is strong and is a relevant folks.
Both as they travel and a when they're not trailing them and I think that will be the principle to or in our tool kit.
Beyond that of course, it's it's the questions that or sometimes related sometimes are mutually reinforcing of that but it is the breadth of distribution.
It is a hotels that continue to inspire people when they dream about travel, which is often about resort destinations in about a.
Luxury and lifestyle hotels, not exclusively but that certainly is a piece of that and I think our portfolio. There is extraordinarily strong.
And then you know questions about how do we go to market with the sales force and how do we make sure we're delivering the kind of operational excellence, which Marriott has long been known for I think all of those things will remain tools that we rely on the.
We were disappointed obviously by covert 19 for so many reasons, but partly the momentum that we had built in the latter part of 29 team in which continued into into 2020 with <unk>.
As we mentioned 330 basis points of index growth in January and February which are massive numbers for portfolio of our size.
Speak very well for our ability to get back there and.
And rebuild that momentum there theres nothing about covert 19, which could disrupt that momentum in the years ahead.
Thank you.
You bet.
Your next question comes the line of Robin Farley.
Great. Thanks, I wanted to follow up on what you mentioned earlier, but unit growth and I understand you know there.
Construction uncertainty of kind of how much of that well get to lead but I'm wondering if you could talk about conversion than what level.
Of interest she may be seeing especially given that some owners out there not and your system.
Probably under some pressure and Ken how much could conversion offset.
Some of the slower growth in new units and how quickly they get into your pipeline.
And then just as a point of comparison on a same topic if you.
You talked a little bit more about how in the last downturn that may have you name. It seems like conversions, obviously uptick in a downturn at how much did that offset a changes and maybe what your.
<unk> decline and indeed.
So the I'm, leaving you may have this data top of mind I I'm not sure I do but if you. If you look through cycles and this will be directional amount not probably as concrete as you'd like robin.
In a weaker environment conversions go up.
Oh, they go up for us they go up for the stronger brands because I'm not every hotel can perform.
As well in the weaker environment.
So we're already seeing a conversations pop up where folks are looking out oh.
Oh, My goodness, how do I get the so Joe reopened and don't I need a pipeline of customers in a loyalty program today more than I am even one.
You know six months ago or three months ago.
And so all of that will help I think at the same time, it's fair to say that.
Well well a conversion step up in the weaker environment Newbuilds step down.
And they probably step down.
At least as much as the conversion step up.
And so we would a if you look at 2010 11 12 the.
Hotels that were under construction before the great recession.
Continued to open into into our system.
But we had not signed hotels, new hotels, and nine and 10 at the kind of pace that we had before the great recession hit.
And so we end up a with a percentage unit growth even with the benefit of conversions, which is certainly not higher than what we would have had before in.
My recollection serves we then would not on average have been a little bit lower.
So I think when we look now into the next period of time I think our brands are a stronger I think the portfolio is stronger I think he.
Momentum with the loyalty program and our index numbers are stronger all of which will bode well for conversion activity as by the way is the depth of the decline.
In performance of the industry as a whole which gets that much more motivation I think for owners to move.
At the same time as lean years, just gone through I think we're going to see that you know well the banks are much stronger than they've been in the prior crises.
They will inevitably pause and either require more equity or get to see whether or not we can get more clarity before they're going to provide the kind of.
Financing commitments, but they were providing fork over 19 put all those things together and you know I suspect will find opportunities here, but.
We will be a.
Less likely to be seen a increase near term and net rooms openings into our system than degrees.
We disagree.
No I totally agree that the only thing I'll add Robin it's one of the differences between now and the great recession is our strong portfolio of soft brands and frankly, the interest that we're seeing in those brands around the world. So is the conversion vehicles that we have now as compare.
To 12 years ago I do think are meaningfully stronger, which I think is helpful. I think the financing realities are gonna stay the same so that's kind of we're gonna have to you know if somebody is looking for financing or refinancing to do a deal well have to work through that in the demand environment with cobot, but but I do think that we've got the REIT portfolio.
Brands, a kind of across all 30.
And we definitely are seeing increasing conversation, but as I already said you know if you're looking at.
Kinda normally maybe 15% to 20% of your conversion your your remote openings, our conversion and let's say that number goes up to a third that's still is not going to offset what you're seeing in terms of the slow down and new construction.
Oh, no great that that makes sense. Thank you and maybe just one small follow up just a if you think about sort of last year or something typical what percent of your conversions were from the soft brands, which like you said something you can have in the last downturn.
Oh, Yeah in North America, it's going to be overwhelmingly that way. So if you think about in full service that the full service rooms that we opened to maybe about call. It 25, 20% of our room openings in North America.
Because limited service since it's such a big chunk in our in our current pipeline not to be existing stocks that have the room opening a they're gonna overwhelmingly being soft brand either new build or conversion. So I'd say, we can get you to specific numbers, but I did a good percentage.
Thank you very much.
Your next question.
Katz with Jefferies.
Hi, good morning, everyone I'm arent good to hear everyone's voice Asian, Thank you for all the detail.
Transparency as usual.
I just wanted to pose a strategic.
Issue <unk> when you sort of think about growing your business going forward and you know in the context of this event and you know other events. We've been through how do you think about you know the hurdle rates of taking on a hotel as a management comp.
Tracked versus.
Hey, you know franchise with a third party operator, and you know sort of mid calibrating all of the risks in returns associated with all that in a given where we are in this maybe a larger question for another day, but I thought I suppose it anyway.
Yeah, It's a it's a a it's a fair question and obviously when that that has been raised a few times I think there are.
Obvious differences between management and franchise or the franchise model is dramatically more prevalent in the lower segments of the industry.
Franchising is also dramatically more prevalent.
The U.S. than it is another markets around the world.
And there there obviously different reasons for those distinctions one is that.
The farther up the chain scale you go the more likely you're getting into group the more like we are getting into luxury.
The the greater premium is pride placed on operational expertise and by no means to I mean, it suggests that there aren't franchisees that have.
Expertise that able to do that but not all franchisees do and in some markets of the world those franchisees by and large not exist yet.
I think that there is room for us to consider whether again.
Some of the lower segments, we have a more management than we need you need to have a weather we've had a sort of a cultural bias towards management a that.
Necessary at the same time.
I think the power of the luxury brands the power of the lifestyle brands the power and.
The group's space the tower in food and beverage I for one wouldn't trade data away I think that is something that is going to drive the stickiness of the loyalty program.
Dr. Aspirationally travel drive higher in travel, which will continue to be strong.
And we want very much to two keep that as a prominent and industry, leading part of our portfolio and would not trade marriott's model for being a purely in the.
Lower lower segments are there there might be a different risk profile there, but there's also a different upside.
Perfect. Thank you very much.
Your next question comes from the line of Wes Golladay of RBC capital markets.
Hey, good morning, everyone can you talk about what drove the 65 million a bad debt expense this quarter.
Yeah sure as you know the the new accounting standard called C., So better known as as Cecil.
Or does it a little bit differently than the way that bad debt, we've done for us before and it's an accounting standards that everybody out there has got a follow and and before.
It was truly writing them off once a it was very clear that the receivable was absolutely uncollectible.
A requirement now is a little bit more as you think about like a classic loan portfolio for a back where it has to have obviously, what you reflect as uncollectible, but also but also an estimate of future expected losses. So it requires that you go when you're looking at your past.
History of your receivables and making an estimate based on performance of of where they will.
Prove out and so are you actually are taking a.
Classic loan loss provision against that base of receivables as well as when you've actually got a specific receivable that seemed uncollectable. So as you can see and the number.
That we talked about to 65 million.
As part of what we've been Gionee this quarter, a that obviously is meaningfully impacted by cope with Nike. So it's got whatever ones that we very specifically theme uncollectable, but also given a the environment a an estimate of future expected losses.
Okay. Thank you.
Your next question.
Chris Raymond James.
One for each of you. Many is there any risk to collecting what is owed from the timeshare business.
[laughter] I'm I'm sure they're listening to this call [laughter]. So I would say no I know I I think that as you know is overwhelmingly I fixed charge and we feel great about our partner Marriott vacations worldwide and we do not believe that there is.
Risk associated with that fee.
Okay, and then Ernie bigger picture any change given the current dynamics.
To your investment your commitment to homes and goes.
Oh, no I don't think selfie the amount of money we've invested in homes and goes is really very modest I'm talking about a you know a handful of millions of dollars something like that to get the business up and running.
And I think the way we've positioned the business, which is the higher end of.
The the Oh sharing space or sort of skewing towards whole home and luxury which is quite different from traditional until product.
And has different dynamics, I think two and a covert 19 environment, because you're not really sharing a part of a home and and you're ending up in a place, which I think can be.
Where we can deliver the kind of professional services that we'd like to deliver would suggest there's still opportunity for that it is as a consequence, I think something that will continue to pay attention to.
Do you think it'll ramp back up similar to the way the hotels are ramping up.
Yes, Yeah, I would think so I mean I. It. So it's obviously a tiny business for us by comparison to what we're doing and.
It is a leisure focus more leisure focus than our hotel business is.
I don't you know there could be some modest differences and the way that they ramp a occurs I wouldn't think you're very dramatic though.
Thank you.
It.
Your next question Michael.
Baird.
Good morning, everyone.
Hi, good morning.
Just one quick question for you I think you mentioned payment deferrals and 50% see discounts, but that was I think just for April and May [laughter]. When do you decide or what gets you.
To offer the same concessions for.
Say June and July for example, or maybe even longer what are you looking for when you have to see what do you have to hear from franchisees.
Well I again, I think as I as I talked about before we've done a remarkable job of being able to reduce our costs down to this level, where we were able to offer that and still.
I feel like we'll be able to recoup our expenses in providing a these are kind of basic mandatory programs and services. So I don't expect at this point that.
We would be looking at offering a further discount.
And then what what's the timing or your expected timing for recouping, those <unk>, Oh, I'm sorry, Yes September.
Perfect. Thank you.
Your next question Carlos Centralia Deutsche Bank.
Hey, good morning, everybody just a quick one for me.
Arnie.
What's what percentage of your occupied.
29 team worked from gas originating from a slight.
[laughter], we've asked that question to the unit you may have noticed that a when you check into it until we actually don't typically ask people how they came.
And so we've we've looked at this a little bit based on the other data sources and a one surprise you to learn that it varies dramatically from market to market. The select brands in the United States are gonna be much less dependent on flight to business and.
A you know some markets, where basically you can't get there unless you fly thinking about the Canary Islands as an example.
You know our estimates is probably half something like that but again that you know where you've got to be careful about a global average.
Because it hives dramatic variation.
Within it.
That's helpful. Thank you and then if I could just just one quick follow up with respect to the I guess, it's 900 million of commercial paper outstanding right. Now he is the next payments on that our ARPU.
Thanks.
That yes, mostly because the guy that most yeah, mostly in the third quarter.
Great. Thank you both does not.
You bet.
Your next question comes on line of geared children of Wolfe Research.
Can you tell me what percentage of urinary good pipeline is under contract or crude but has not yet begun construction and Arnie. You mentioned you haven't really seen an unusual amount of yields drop from the pipeline are you surprised by that and I guess a lot of.
The conversation today seems to be around financing availability going forward, but from an owner's perspective. The economics of building today are are certainly very different.
So I guess why wouldn't we see a lot of that particular segment of the pipeline go away. The segment that has not begun construction start construction. So I think the number we shared with you and jump in here team if I'm remembering this wrong 230000 of 516000 or under construction that's right.
So that's what 40% something like that 45%, maybe yep yep yep in that range and so that's that's the concrete number we can give you I think the the what happens with this the of the a balance better not under construction over the course over the next couple of years Theres.
If you come to bear in mind here.
One is that hotels are not entering that pipeline in till typically they have been worked for the substantial period of time it could be a year on average level I'm guessing here a little bit.
Where an owner is identifying a sites are doing a detailed work about how much is going across to build it.
Doing a performance about what the returns are gonna be and it is not even though it may not be under construction. It is something which is very serious we're not putting deals in our pipeline. For example, just because somebody shows up in says I want to build a court yard in X market, but I haven't identified the site, yet or I haven't I don't have a sort of a specific deal to get done.
And then when viewed in that context, I don't think it is that all surprising that 60 days into a crisis like this one that has a fairly uncertain path out a that people are being tentative about making a permanent decisions about killing deals that they worked on for a period.
Time.
I think this the second thing to bear in mind views.
Well, we certainly have suffered a substantial here in terms of.
Topline performance.
We will all be looking together to see what the best thinking can be about when that top line comes back and for hotels that have not yet been built.
What is the advantage that it's available to me if I can get financed at a lower construction costs and if I'm not open and I'm not going to be open for the two or three years that I need to be under construction, which may coincide with the weaker demand environment and also the weaker construction environment might deal actually maybe a decent deal.
And I may decide to pursue it I probably won't.
Ah accelerate my construction until I get smarter about thinking that true.
But there will be upsides as well as downsize associated with this weakness for projects that are not yet under construction.
Okay. Thank you just one clarification if I may you did give the number 45% under construction, but you've got other 55% <unk>. Some of that conversions are you, saying that all that 55% is just yeah. Yeah. I can give you that so roughly 16000 or pending conversion and then.
As we said in the press release about 24000 or approved but not yet signed all the rest are new build pending construction starts.
Got it thank you very well call it roughly 240000 broadly speaking.
Thank you.
Your next question comes Richard Bernstein.
I I can I tell me like more for each of you again I I mean I'm personally just your view on rate you talked about offering at 20% discount for prepaid Boucher <unk> rate was down just 1%.
In the last quarter on the hotels leaves and trona. So just how much you winning he can but the rate to drive incremental them all.
Well I think we'll watch that obviously, we want to we want to make sure that were not dropping rate to chase demand, which is not there.
And that that obviously does nothing for us.
At the same time, we compete in an industry, which is.
Is.
Highly distributed in terms of its pricing.
This is one of the the challenges that we we bear perpetually people.
View us as a you know that you're okay, you're the largest hotel company in the world doesn't that give you pricing power a well. The fact that matter is even as the largest hotel company in the world We've only got.
What's our global distribution levy, 14%, 15% something like that of old rooms in the world.
And a significant number.
77% globally.
16% North in North America, North America that 3% outside of the World.
The.
And and many of those rooms or price, where franchisees not price by merit.
And so we will we're not going to we're not going to push rates down by any means we're gonna do everything we can to make sure that we're maintaining pricing power, but there will be a price competition in our industry too as we try and.
Good demand I'm energized and coming back into the system and we'll do the best we can make it against judgments that need to be made.
And just a quick quick follow up on major they told me on other things in the book not an issue it's a quarter. Despite receiving some on just whenever I can understand how I wonder what pricing when do we found in these years, even what assumptions are you making.
To to book not knowing the vessel.
So as you know you basically are looking every month that the expectation of the performance against a budget and so.
And and against a target depending on what the contracts require so if there's an owner's priority then you need to have exceeded that but again based on that months performance.
Expectation that the issue however becomes you don't actually technically earn it at the ended the year until you see what the full year performance it.
So based on for example January and February which were really terrific and really strong performance. We clearly were clicking along doing well and as I said no would have locked in you know early on 64 million of incentive fees. However.
Even despite a greater China are starting to really feel some impact a in February and March but when we look knowing as we enter into April that you're looking at a 90% decline in revpar our comfort.
That we can feel secure that we won't have to give those back.
It is not great enough for us to feel like that we can recognize them as income.
Okay. Thank you very much.
Your final question.
Richard Rich Hightower Evercore.
Hey, good morning, everybody. Thanks for taking the question here.
<unk>.
Of everybody as well so can you just help us understand the the implied cost of capital for the 900 odd million of a you know coming incrementally from the credit card agreements or just help you know I know, there's a lot of assumptions in there, but just help us understand that as a source versus other sources of capital.
Sure So let me.
Let me do that's an and Arnie obviously jump in the think about it this way that as people spend on their credit cards, the our credit card.
If she wears pay offs and agreed amount of money based on that credit card spend and that is to compensate us for obviously being a part of the bond Boy program and also or.
And able to affiliate within Marriott brands. So when you think about that kind of amounts over a number of years, there's kind of an expectation about how much you could be a collecting in revenues from the credit card companies and basically it's getting some of it upfront so what will happen.
And over the next several years is a what they will pay us based on the amount of a credit card spend will be moderately a modest amount less than they otherwise would have picked up. So if you think about it from a kind of classic cost of capital. It is.
Streamlines, a efficient and economic from Marriott to have it also doesn't have obviously any of the classic characteristics of debt.
In terms of required we payment terms et cetera. So it's really again overwhelmingly a reflection of monies that we received earlier a that then we'll get essentially paid back by them paying us less than they otherwise would have over the next several years.
And the cost is less than our last bond deal.
Meta.
Got it. Thank you. Thank you guys you bet Ah. Thank you all very much for your time. This morning. The we appreciate obviously your interest in us and in the recovery of.
Marriott and the industry.
Wishing nothing but the best as we work our way through this challenging time as a business as an industry in as society.
No that a will be there to welcome you as soon as you get back on the road.
With bills and thank you. Thank you very much.
Thank you.
This conference call you may now disconnect.
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