Q3 2020 Marriott International Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Marriott International's third quarter Twentytwenty earnings Conference call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance.
Press Star Zero I would now like to hand, the conference over to our speakers today Arnie Sorenson President and CEO. Thank you. Please go ahead.
[music] good morning, everyone and welcome to our third quarter 2020 conference call. Joining me today are Leeny Oberg, Executive Vice President and Chief Financial Officer, Jackie Burka Mcconnell, our senior Vice President Investor Relations.
Betsey Johnson, Vice President Investor Relations.
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 SEC filings, which could cause future results to differ materially from those expressed in or implied by.
Our comments.
Statements in her comments in the press release, we issued earlier today are effective only today and will not be updated as actual events unfold.
Please also note that unless otherwise stated our revpar and occupancy comments reflects system wide constant currency year over year changes for comparable hotels and include hotels temporarily closed due to COVID-19.
You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our Investor Relations website.
Before I talk about the quarter I want to again, thank our incredible team of associates around the world, who continue to work tirelessly and show true resilience. During these challenging times the power of the Marriott culture has never been more evident and I am incredibly grateful.
I hope everyone joining us today is Steve safe and well.
Well COVID-19 is still significantly impacting our business our third quarter results showed meaningful improvement versus the second quarter three.
Third quarter worldwide Revpar declined 66%.
Most 19 percentage points better than last quarter's decline.
Globally, 94% of our hotels are now open with 97% open in North America.
Our world wide occupancy levels improved each month during the quarter and continue to close the gap to last years.
We saw a steady climb in demand through August and then the rate of improvement begin to plateau towards the end of the quarter in most regions.
However, we are pleased with the overall progress we have made since the trough in April.
In September our global occupancy reached just over 37% and improvement of 25 percentage points from April 12%.
Worldwide Revpar in September declined 64% versus September of last year.
Over 25 percentage points better than the year over year decline in April.
The recovery trajectories have differed greatly by region the recovery in greater China, especially in mainland China has been the strongest results have improved meaningfully since February demonstrating the resiliency of travel when the virus is perceived to be firmly under control.
Occupancy in mainland China reached 67% in September a bit ahead of occupancy in September of last year.
And an extraordinary improvement from 9% occupancy in February.
In 2019 around 75% of room nights in mainland China were sourced from domestic markets domestic gifts excuse me, even with strict travel entry requirements limiting visitors from outside the Maitland demand has rebounded strongly across all segments leisure transient bookings in the third.
Third quarter were over 25% ahead of last year's bookings.
By domestic travelers kick in more trips inside the country.
This is transient and group bookings have strengthened each month since February solely from domestic meetings and events, but are still lagging a bit compared to last year.
Oh, I'm, calling in Macau, which are reliant on visitors from the mainland are recovering more slowly as travel restrictions are easing, but cumbersome and free procedures are still inhibiting demand.
Demand in the rest of the Asia Pacific has also continued to improve but generally at a much slower pace countries are in various stages of reopening with many steel imposing strict travel restrictions, Japan, Australia, New Zealand, South Korea, and the Philippines continue to.
To drive performance helped by quarantine business for travelers entry those countries.
In North America, where 95% of room nights in 2019 were sourced from domestic travelers results in the third quarter were also meaningfully better than the second quarter. So the rate of improvement did slow in September.
Third quarter, Revpar declined 65% versus the third quarter of last year with the occupancy reaching 37%.
During the quarter all chain scales continued to show improvement versus second quarter, Although there were still large variations among hotels and markets.
Drive to leisure demand continued to lead the <unk> recovery, particularly for extended stay and resort hotels and for properties in secondary and tertiary markets.
Business transient and group bookings in the quarter picked up modestly versus the second quarter, but still remains significantly lower versus last year.
The improvement in demand in Europe, the Middle East in Africa, and the Caribbean and Latin America are Kayla has been has also been slower than in North America and China.
In the last few weeks rising numbers of cases in many countries in Europe, and Kayla have led governments to reimpose or extend lockdowns travel restrictions and social distancing regulations. These.
These measures discourage international travelers, who made up about 40% of Europe's room nights and about 60% of kilos room nights in 29 team.
Compared to came about in Europe demand trends have been a bit better in the middle Eastern Africa, where international guests have extort him historically made up around 50% of room nights certain resort properties in Turkey, the UAE and Qatar were particularly strong in the quarter currently.
Currently 20% of hotels are closed and Kayla, 26% of hotels are closed in Europe.
9% or closed in the middle East and Africa.
Globally, the plateauing of demand that we saw towards the end of the third quarter as genuine generally continued into the first few weeks of the fourth quarter occupancy levels. In most regions have remained relatively in line to slightly better versus September levels, which were marginally ahead of occupancy levels in August.
Okay rent Windows remained very short and visibility is still limited Nonetheless, we do expect an easier year over year Revpar comparison in the fourth quarter, given our historical seasonality.
We usually see a substantial step down in occupancy around the world in November and December.
As compared to September and October the.
The holidays and relatively less business travel into.
In 2019 global occupancy was around five percentage points lower in November than October and then December occupancy was another eight percentage points lower than November.
This year with the leisure segment, showing the strongest demand we could see occupancy levels throughout the fourth quarter remain relatively flat in September and October as.
As a result year over year Revpar comparisons could look better in the fourth quarter than they did in the third of course as we have seen to date results vary greatly by region and can change quickly.
The recent virus resurgence is in numerous countries could have a dampening effect on demand.
We know the road to recovery is going to take some time. However, we have been very pleased with the progress we are making across a number of key operational and financial areas.
The biggest operational adjustments has been our heightened cleanliness standards, the health and safety of our associates and guess remain a top priority.
Throughout the pandemic, we have adjusted our protocols to elevate our remedy misguided lines and tools.
Every property across our portfolio is now required to complete a monthly commitment to clean certification.
By increasingly leveraging contactless technologies, such as mobile and web check in mobile key and mobile chat. We're re imagining the guest experience while also amplifying operational efficiencies.
We also continue to rollout innovated targeted phased in marketing strategies, our messaging emphasizes our heightened cleaning guidelines and safety measures, while appealing to evolving consumer sentiment.
Traveling challenge men.
Many of our recent creative offerings, such as fall for travel.
And our October week of lenders have been very successful in sparky leisure demand.
And at the end of October we announced our new work from anywhere packages, which are designed to capture additional revenue driven by the remote work Trent.
Our award winning loyalty program underpins all of our marketing strategies and we remain focused on engaging with our 145 million Marriott bond we members.
Including those who are not yet ready for hotel stays.
We have also been highlighting non hotel stay experiences such as heat around town.
In homes and villas by Marriott International and in collaboration with American Express and Chase, we have been offering numerous grocery and retail spending accelerators and limited time offers on our co branded credit cards.
The increased demand amongst our bondpoint members for homes and villas whole home rentals during the endemic and the much more modest decline in chasing Amex envoy card spend compared to the decline in Revpar are great indicators of the value of the bond we program to our customers.
Another key constituencies, our owner and franchisee community, we have had an unprecedented level of engagement with them this year, including weekly Webinars in many regions and were frequent interactions with our owner advisory committees. We are deeply committed to working closely together to manage through these challenging times.
James.
We remain focused on reducing their costs as much as possible in this environment as Lee will discuss during her remarks.
On the development front, we now anticipate net rooms growth of 2.5% to 3% in 2020, the high end of our expectation from a quarter ago, reflecting strong openings in the third quarter.
This takes into account, 1.52% deletions, which is around 50 basis points higher than we estimated in February primarily due to certain hotels that were already struggling in treating 2020 deciding to close permanently due to covert the team.
Given the current fluid environment, we have more uncertainty than usual on opening dates for many hotels nearing completion, but the good news is that 46% of our almost 500000 room pipeline is currently under construction with rooms under construction up 6.5% from a year ago although.
Although signings are not as strong as in 29 team. They are quite solid considering the extraordinary impact of COVID-19 on our industry.
We believe that many of the rooms that do not opened in 2020 as a result of COVID-19 will now likely open in 2021.
Most of openings will likely vary depending on the recovery of lodging demand in specific markets with heightened uncertainties in markets, where airlift is key.
We're also encouraged by the increasing number of conversations we're having around conversions. We remain keenly focused on conversion opportunities that are accretive from both a brand in the financial value perspective.
Assuming progress is made in continuing the virus, we would expect our gross room additions to accelerate next year compared to our expectations for 2020.
We are in the middle of developing our 2021 budget. So it is too soon to give a definitive outlook for rooms depletions for the coming year it.
It is worth noting that the potential 2021 exit of the 89 hotels owned by service properties Trust, which are almost all limited service properties.
Would create a short term headwind of roughly 1% to net rooms growth but.
But we are confident in our ability to replace many of those first generation limited service hotels with brand new updated product.
Finally, as Lee will discuss in a moment, we have made significant strides in shoring up our financial position to weather the crisis.
While the recovery is going to take longer than anyone would like we're seeing encouraging signs that demand can be extremely resilient.
The steps, we have taken for our customers and owners the power of myriad bond way, our strength and liquidity position and our incredible team of associates around the world I am confident that we are very well positioned now and for the future.
I'd now turn the call over to Leeny over to our CFO.
Thanks, Arnie very much.
I hope all of you on the call are staying safe and well I'd also like to thank our team of associates for their incredible work this year and making sure Marriott comes through this crisis strong and healthy.
Third quarter with global Revpar down, 66%, our gross fee revenues totaled 397 million a decline of 58% versus a year ago quarter gross fees were comprised of base management fees of $87 million franchise fees of $279 million and incentive management fees our IMU.
31 million 70.
75% to buy enough in the quarter were earned that hotels in the Asia Pacific region, where contracts generally have no owner's priority.
Over 90% of our hotels in greater China had positive gross operating profit in September with almost three quarters generating positive profit for the first nine months of the year Steve.
These results are a reflection of the strong rebound in demand and our ability to help our owners control costs.
Within franchise fees are non revpar related franchise fees were again, much more resilient totaling $119 million in the third quarter down 18% from the year ago quarter with credit card fees down 22%.
Third quarter, Gionee improved by 40% year over year, primarily reflecting a full quarter of the difficult but necessary steps. We took earlier this year in response to cope with my team.
That's included furloughs reduced work weeks and meaningful cuts and executive compensation.
<unk> has improved from the global trough experienced in April corporate and about property furloughs and reduced work weeks generally ended by late September.
Of course, Revpar is still well below 2019 levels and expect it to take some time to fully recover.
That in mind, we focused on restructuring our organization to reduce cost on a more sustainable basis at the corporate and above property level as well.
Hello level. So we can operate more efficiently today and going forward.
Our restructuring efforts are anticipated to reduce total corporate and other above property controllable costs by 25% is.
In line with the expectation we noted last quarter. This includes both classic corporate DNA as well as programs and services, we provide to the hotels for which we are reimbursed.
We're still working through our budgeting an exact allocations for 2021.
But based on our preliminary estimates, we expect total corporate DNA costs in 2021 could be around 20% lower than our original 2020 guide of $950 million to $960 million with expenses for Reimbursable programs and services down well over 25%.
Importantly, we expect a reduction in DNA to be largely sustainable subject to wage and inflationary increases.
We reported third quarter, adjusted EBITDA of 327 million down 64% versus the third quarter of last year and a significant improvement from adjusted EBITDA in the second quarter of this year.
We do have a couple of headwinds in the fourth quarter compared to third quarter adjusted EBITDA.
As we have mentioned DNA savings will not be as large as in the third quarter with the return of our workforce to full time and to the fourth quarter is a seasonally slower quarter.
At the hotel level as part of our cost mitigation efforts, we conducted a thorough review of all Reimbursable programs and services in order to reduce the associated cost to our hotels.
This work went beyond the naturally lower fees charged in this environment given that the majority or build based on a percent of hotel revenue.
Our work has led to significantly lower expenses for the hotels well some savings are volume related given fewer associates transactions and the like others reflect a real reduction in program right.
For example, after providing a discount this year on certain fixed mandatory fees paid by all of our hotels around the world. We have work to provide a meaningful discount on these same fees in 2021 as well.
Of course, we have also significantly cut our expenses associated with providing programs and services given the lower expected levels of reimbursement from the hotels.
As we noted last quarter, we've been able to reduce breakeven profitability rates at our managed properties by three to five percentage points of occupancy.
As you might imagine we are applying the same disciplined approach to our owned and leased properties as well.
We have also been allowing owners to access the knee reserves for working capital and have extended the waiver of required funding of these up any funds through the end of March 2021, with lender consent where applicable.
Additionally, we worked with our U.S. managed hotels to file for cares that tax credit, which led to refunds of $119 million, which should help support our hotels working capital position.
These measures combined with our aggressive collection efforts have been quite effective the vast majority of our owners and franchisees continue to pay their bills on time or or on short term payment plans.
Despite the current environment only a small number of hotels have gone into port closure. This year as lenders have been relatively patient today.
And with only a handful of exception the few hotels that are in foreclosure or receivership are the tightening our flag in.
In North America, our management and related agreements generally protect us and historically, we have held onto most franchise agreement agreements as well when properties go into foreclosure.
Last quarter, we laid out a cash burn scenario with Revpar down 70% that indicated the monthly cash burn rate of around 85 million or 255 million a quarter at that Revpar decline.
Our actual cash burn for the third quarter was around flat much better than the model would have shown even including severance payments of around $60 million in the quarter that were not included in the model.
We were pleased that total fees came in higher than our two to two and a half million of monthly fees per rep part.
Powerpoint sensitivity would have predicted with revpar for the quarter down 66%.
Merely due to higher incentive management fees.
The other major drivers of our neutral cash burn were better owned leased result.
Lower DNA cost.
On working capital management and robust loyalty program cash flows.
The model, we provided last quarter should still be useful as we think about potential monthly cash burn in the fourth quarter with a couple of days.
We still expect that sensitivity of a one point change in revpar on our fees would be in the two to two and a half million per month range as we've seen the sensitivity is not completely linear given the variability of imap.
Does not include the impact of changes in credit card fees.
We expect the continued strong collections of receivables should again help minimize our working capital outlay in the fourth quarter.
Investment spending for the full year is now expected to be slightly below the low end of our prior expectation of $400 million to $450 million and significantly below our original forecast of $700 million to $800 million at the beginning of the year.
This is another example of the strong progress we have made in reducing cash outlays in the current environment.
The variance versus last quarter's expectation is primarily due to the timing of key money payments and additional deductions and system spending.
There are also two timing related items to highlight which will impact our cash flow in the fourth quarter.
In October our working capital was impacted by the funding of our 2019 company match to associate score one K plan contributions, which totaled around $130 million that payment usually occurs earlier in the year.
Also cash interest payments will be roughly 100 million higher in the fourth quarter than in the third quarter due to the timing of when the payments are due.
For the first three quarters of 2020 with year over year Revpar down an unprecedented 59% through September 30, we have demonstrated our ability to adapt quickly and weve confirmed the power of our asset light business model, our cash from operations less capital expenditures has been positive year to date.
At the end of the third quarter, our net liquidity was approximately 5.1 billion, representing roughly 1.5 billion in available cash balances plus 3.6 billion undrawn on our revolver.
The substantial increase in liquidity from the prior quarter reflects our August 1 billion dollar bond issuance maturing and 2032 most of those proceeds were used to pay down a portion of our revolver balance.
We believe our liquidity position and resilient resilient cash flow from operations comfortably position us to meet our short and long term obligation.
In closing, while the timing of a full recovery is unpredictable. We're confident that COVID-19 will eventually be contained and that travel will come back quickly.
We look forward to welcoming new and returning guests to our hotels before too long.
Thank you for your time this morning, and we'll now open the line for questions.
At this time, if he would like last a question. Please press Star then the number one on your telephone keypad again that is star then the number one to ask a question.
Our first question comes from the line of Shaun Kelley with Bank of America.
Hi, good morning, everyone.
Sean.
Hi, Arnie Sue.
Just to start off you covered a lot of ground. The prepared remarks. Thank you for all that could we hit on the net unit growth commentary for next year, a little bit more deeply I think aren't you talked about a couple of the puts and takes around the SBC terminations being a bit of a drag what else could factor in and just broadly speaking do you expect to see some.
The level of maybe elevated terminations relative to or exits assistant exits relative to past behavior, just given the environment. We're in or do you think these can start to normalize and in this comment could you give any thoughts around particularly just maybe the health and status of the Starwood legacy portfolio. Thank you.
Alright, well, there's a lot in that and let me let me.
Start maybe by saying, it's still a little early obviously, there's a lot of uncertainty out there because of the pandemic I think we were pleased to see in Q3 the.
Increase in openings again compared to Q2, I think in Q2 to some extent even as projects were ready to reopen either restrictions included it or the.
Total lack of business precluded it or just the uncertainty in the environment.
And so to get to about 19000 rooms opening in Q3 I think his assignment at least for projects that are under construction and nearing completion those will open and I think that that's what gives us the most optimism about.
Not just Q4, but looking into 2021 that we should see.
You see all of this depends on the virus, but that we should see these projects that are under construction are open.
As a as scheduled if you will over the course of the next.
A couple of years, something like that but very much including 2021.
The deletion side of the equation is harder.
And then of course, there's an offsetting potential upside which is conversions.
Both depend a little bit on what happens with properties that are under trouble and what happens with change.
Change in ownership, we're changing our capital structure for existing hotels.
Some of what we've lost a year to date are as we mentioned in the prepared remarks hotels that entered the COVID-19 pandemic already under financial pressure.
And simply did not make sense to reopen.
Certainly not to reopen under their current.
Positioning.
I suspect, we'll see some of that next year. Besides SBC I don't we don't have a number for it yet we're obviously just in the process of trying to build our budget. Our teams are dealing with owners all around the world I think by and large on the positive side conversions into our system.
On the negative side deletions from our system.
Will become clearer as ownership of hotels change hands, whereas the new capital structure put in place and I suspect that will begin to occur more in 2021 than it is doing right now.
Thanks, and maybe just as a follow up on that same topic would just be on.
Are there a large number of these sort of let's call. It cross kingold guarantee type contracts out there as the FCC situation pretty unique I mean, it just any color you can provide on those types of structures.
SBC is very unusual I mean the.
Those portfolios were initially put in place with HPG.
20 years ago, maybe 25 years ago, something like that and they were initially a lease structure or a lease like structure they've evolved since to be.
Sort of a a management structure, but with a cap guarantee.
That structure was re done with ESPC earlier this year.
We were quite optimistic that actually was done in a way that would would bode well for long term, including getting substantial additional new capital into those assets to bring them up.
Standard.
Course, pandemic I had a profound impact to that.
We are in discussions with SBC today about the possibility of renewing that I think the based on what we've heard including as recently as yesterday from that team.
They seem to be hard wired to make those hotels sunestas.
We of course don't know exactly how sonesta would perform but looking at the ROI from assets that are sonesta flag versus ours. It looks like that ROI is roughly half.
And it's a little bit surprising to us that the separate.
[noise] stockholder and debt holder.
Interest in SVC could be further by.
Converting those to Sunestas brand as opposed to the a dramatically stronger brands that are on those hotels today.
But again that seems to be the direction. They are heading and so you know our expectations would be that those.
Those hotels would leave the system, we do not think there is anything comparable to that that remains in the system.
Thank you for all the clarity.
You bet <unk> just worth noting one addition that it's a when you think about the impact on fees, it's quite minimal related to that portfolio total fees. In 2020. This year are expected to be $10 million to $15 million combos hotel.
Thank you.
Your next question comes from the line of Joe Greff with JP Morgan.
Hi, good morning, everybody.
Hey, Joe.
Are you you mentioned in.
Your comments for next year in terms of gross room additions for that to accelerate next year and part of that confidence is some of the rooms that little opened in 2020 of them being pushed out.
Opening 2021.
To what extent are the ones that you would have thought a year ago to open in 2021 will be pushed out.
To beyond 2021 2022.
Has that grown addition, most room addition acceleration.
Can you take that into account and it will typically visibility.
And stuff that gets pushed out so it's something wouldn't hit in 21, right now and would marry it in November 2020 have a good sense of that.
Yeah. So it's a fair question and I think generally we would say that everything in that pipeline has gotten extended by at least a few months.
Undoubtedly that's a little bit of an overstatement, but when we deal with thinking about that the end of the first quarter and the second quarter of this year with business sort of functionally disappeared in many markets around the world.
Including restrictions on lots of activity that has happened in those markets. The uncertainty in those restrictions certainly caused many many many projects to slow down even if they were already under construction.
And so I think it's a fair point to say that if in January of 2020, we targeted a you know.
June 2021, opening that opening could well have slipped by a few months.
We do have a team that is out there working with our development partners and trying to make sure. They understand what is under construction and what the status of that construction and what the forecast opening is for obvious reasons.
I think on the very positive side here, the the 45% or so of the rooms that are in the pipeline that are under construction 230000 rooms roughly.
We can all have an extraordinarily high level of confidence that those hotels are going to open.
I think you get beyond that to the hotels that are not under construction, yet and I think we're going to have to watch that I think they are real projects there they're a in many respects. The land is owned and controlled they've been designed they've been approved by us and by our partners.
We have signed contracts for the overwhelming majority of them, but of construction hasn't started each one of those partners is going to make a decision about you know what do I get for building in a weaker environment, which I mean might save something on construction costs.
And what about potentially lose in committee myself to a project.
Huh.
The open in a market that is harder for me to predict and underwrite today.
Our experience from prior crises is that most of the projects, which are not under construction.
Overwhelmingly will ultimately open.
But the the delay in those openings could be not just some quarters, but some years, particularly for the higher.
Higher end luxury or full service projects that may take some time to get finance can get underway.
So I on balance I think we would say we can have a reasonably high level of confidence that the gross openings will step up next year, but again. This is based on reasonable assumptions on what happens with Covidien team.
But it's it's.
So a little bit too soon for us to give you a really precise.
That's helpful and then as a follow up Leeny at year mutual cash burn in Threeq or was that.
That's it and you mentioned working capital management was a contributor to that besides the EBITDA upside.
What extent do you think working capital can be a source of a positive contribution to cash flow operating cash flow free cash flow next year.
Well one of the Big question is around loyalty. If you remember Joe last year, we actually had loyalty as a use of cash relative to strong redemptions throughout the system and.
This year kind of bit of the opposite.
No.
The reality is I actually I would expect next year that that stabilizes a bit as we continue to.
Rebound from the low levels of demand that we ourselves that while I would expect meaningfully more redemptions.
You know they won't be quite the same peak prices that they were at 2019 so.
So from that perspective, I would expect that loyalty is not as large a source of cash as this year, but but also not like 2019 either.
So when I think about it overall you know we were still kind of early days as we go through the budgeting process, but I would not see it as a major source, but also not a major use of cash next year as we think about from a working capital perspective.
Thanks, guys I'll take it.
Your next question comes from the line of Robin Farley with DBS.
Great. Thanks, I wonder if.
If you can talk a little bit about.
Your honor so talking about.
Permanent cost reductions from changing brand standards I.
I just wonder if you could talk about truth.
Is that really because you know right now okay, you don't need a doorman on duty or you don't need a 24 hour shuttle to the airport but.
Those come back.
How are they are they really and also when you have 30 brands.
Do you lose some of what distinguishes.
And if you if some of those brand standards do change.
A good question Robin and good morning or the.
I think what we want to do is have as many of the savings as weve been able to find and implement be long lasting a state the obvious.
I think there are some in your your question illustrates a few of them I mean, a food and beverage service I think would be one that's on the top of my list, maybe even before a doorman.
We have a in particularly in the markets in which demand is the weakest we have.
Fairly limited, sometimes dramatically limited food and beverage service and that's not going to be satisfactory to most guests when we get back to normal demand environment.
I guess can be quite sympathetic and empathetic during a tough tough time.
But when we get back to something that feels a little bit more normal they're going to expect a full services, particularly from a full service hotel, but they have come to anticipate.
Having said that I think we will see some things in keyless entry.
I think we will see some things in the staffing models that we have been experimenting with I think some of the above property costs that have been cut and lead he can talk a little bit about that we think will stick.
Stick and stay for a while I mean, our estimates today I think are probably reduce breakeven occupancy by three to five point something like that depending on the brand.
At the end of the day, though we've got to make sure. If the guest is satisfied with the experience that they're getting and you're right. It is going to be it's going to vary a little bit from brand to brand and segment segment.
Obviously, the advantages of course on the higher end segments is we'll see rates begin to move at some point to even as a customer for a little bit.
Net net a we'd expect that what weve done should deliver some long lasting margin improvement.
It's a little too soon to be able to tell you what that number.
<unk>.
Maybe just.
A quick follow up on that.
Conversions.
In the release you mentioned.
Conversions 1.4 thousand out of the 19000 rooms open says so.
Pretty small person because obviously that was all of it can you talk about that.
Signings in the quarter.
<unk> percent.
Or conversions or did you see that go up during the quarter for site. Thanks.
Yeah, and I don't I don't have that number I know that the team is talking.
Having significantly more conversations around conversions than they've had in the past.
The one quarter signings don't necessarily make a huge amount of difference I'm I'm aware of a few significant ones that are underway now and then the timo transactors that are working on them are hoping that they get done in the fourth quarter, whether that happens or not of course is is another question you know we've gone back and looked at.
But.
Conversions experience through the cycles. Obviously this we knew we knew this is of interest not just to you but to us as well.
And you can see you know even in the last two years before Cove, and we had a of our openings and 2019, 18% were conversions.
But the year before and 28 gene it was 12%.
And so you can see a little bit the the.
Obvious fact here, which is even in a very similar economic environment. These things can be a little bit lumpy and a little bit hard to predict.
We're in the teens for most of the last decade, or so and conversions as a percentage of our openings were highest coming out of the great recession in.
They got 11 was higher than 10 12 was higher than 11, 13 was higher than 12 and as a percentage. They peaked in 13, but the number of rooms, we opened as conversions in 2014 was higher yet again.
So you know I forget this is what we said before but we would expect conversion activity to increase.
Certainly in terms of discussion starting now we would expect that the more substantial increase in terms of actually opening into our system.
Will depend a bit on the.
What the new new ownership structures or financial structures for hotels that caused those folks to be able to look to the future and say I know now what I want to do that until.
Great. Thank you very much.
Your next question comes from the line of Patrick Scholes with Trust Securities.
Good morning.
Hi, good morning, everyone.
With the layoffs.
No yeah.
Corporate level sales staff and also property level sales that you know should we interpret that as you know your belief that it's going to be a long slow recovery for your group business and also related to that what are some of the ER. How is your group business tracking.
For next year. Thank you.
Yeah, our a group business for next year is about down about 30%.
It won't surprise you to know that the the.
First quarter is the worst by far in terms of group business on the books.
And as we get farther into the year. The decline is meaningfully less than that 30% number what does that tell you tells you that folks are still optimistic about holding their meetings that COVID-19 will allow them to hold their meetings.
As you get further into 2021.
I think we are.
Optimistic as are many that we could have a vaccine or two may be approved by the end of this calendar year.
And could see it start to get broadly distributed by sometime in the first half maybe it's the latter part of the first half and sometime in the first half of 2021.
And as that takes hold we're optimistic that group business will come back I think what we're seeing in group today.
He heard this from other companies in the industry. There is group business, obviously, it's stronger in China, but going to come back to the United States for a second the group business in hotels in the United States is not a lot like the group that I think we all first finca, which is corporate group and association business and the like.
I think for business. We have today is much more likely to be health care workers were somehow connected with the COVID-19 pandemic itself or.
You know things that are more leisure focused.
Would be some.
Atlantic groups it could be some larger family groups that sort of thing.
And the core corporate business is still pretty weak I don't think you should read too much into the efforts.
Efforts, we've made to me.
Manage our costs and the sales space.
Obviously those costs are borne by the system of hotels that are out there.
We have got to make sure that are managing those costs in a way that beats.
Beats the level of.
Reimbursement that can come in there.
And we're doing our best best to do that and to make sure. We continue to call on the customers that we know are important to us and aboard the recovery.
We'd be optimistic I think you've covered 90 and it goes the way we think that we will start to see.
This group business, that's on the books hang tight.
And ultimately come to pass and we'll start to see meaningfully more bookings when that when those vaccines start to.
Take effect.
Okay. Thank you for my hope, though.
Yes.
Your next question comes from Stephen Grambling with Goldman Sachs.
Hey, good morning, Thanks for taking the questions.
I just had a bit more of a I guess a strategic question related to the loyalty program you mentioned the strength and Bon voyage corresponding credit cards. What are you learning from how consumers are engaging with the program in this difficult time that could drive changes to further differentiate the brand in a recovery and potentially even lead to stronger conversions and are developed in the future.
[noise] conversions and development, you're talking about hotel development or we're back to credit cards and the runway program.
I mean, it's really all together because I feel like if you're.
Creating additional value in differentiation for the consumer ultimately that drives stronger revpar and development opportunities in the future yeah yeah.
Well I think the I, we mentioned a bit of this in the prepared remarks, but the.
We've been actually quite pleased with the performance of the crew.
Credit card portfolio during this crisis yeah.
And probably worth starting with that because.
You would.
Wonder about how well that would do have an affinity card for travel in a market, which there is very little travel, but what we've seen is that folks are still aspiring to travel dreaming about travel eager to get back on the road and as consequence, when Weve with our credit card partners dumb things.
Around grocery are dumb things around restaurants are around hardware.
The card has performed extraordinarily well and the bond boy membership I think is continue to.
Engage with us in a way that's pretty powerful.
I think if you go back to before the.
The pandemic, what we saw was a continued increase year over year on.
The number of bond void members as a percentage of the total business and our hotels.
And one of the frustrating as we've talked about this quarter ago about the timing of this pandemic is.
As we got into the second half of 2019, particularly the.
Starwood integration work was behind US the systems work was behind US the new Bond way program was launched and we could see whether it was in Revpar index or in loyalty.
Well t. penetration or other data, we look at very carefully really powerful momentum.
Towards.
Proving the value of those programs.
I don't have any doubt, but that we will get back to that.
It'll come it'll come back stronger obviously.
The sooner people get back on the road and know that travel is going to be a part of the way they live their lives, but when they do they will find that they've got a credit card program they'll find that they've got a broad portfolio of destinations to staff.
The biggest portfolio of hotels around the world clearly the strongest in the luxury and lifestyle and resort in urban space.
The other things like eating around town homes villas and other things that we still are working on and hope to get launched before too long.
The only other thing I'd I'd add Stephen as the.
Kind of the digital experience if you think about travelers today, if they are traveling the contact less element.
The experience is all the more important and that is all driven through the bond boy App. So as you see more and more people signing up for that experience that again gets them more invested and they really have an opportunity to see what bond boy can do for you.
Makes sense.
Helpful. I guess, one unrelated follow up on.
Just at the hotel level from a profitability standpoint, what are you learning from reopen hotel that conform when a incentive management fees could come back and Fuller force in North America.
Leaving.
Yeah sure I again, I think the reality is that.
We are in a position now where in many cases, you've got for a full service hotel. It is.
Or better to be open and closed.
Not in all cases, but in most cases, but but that is really about kind of what is that the least bad so.
We're still a very long way from obviously occupancy levels that get us to IMAX because overwhelmingly in the U.S., you've got owners priorities, but at the same time I'll say with the reduction in a cost structure that that I do think that it will help us as we come back.
To get to incentive fees earlier.
Then, perhaps we were before closing because of all the work that we've done on the cost structure I think the other side of that is obviously wage pressures and I don't see any sign of those actually going away I think what we obviously have done is try across every single discipline.
One of our hotels to improve our efficiency and to improve ways.
That can drive more to the bottom line. So I do think it's a certainly that we will hold on to a bunch of these savings.
In a sustainable way, but I think the wage pressure element on a full service hotel, it's obviously going to be you know with those being call. It 40% of your cost structure of a hotel that's going to be a big element of how quickly we get back.
Helpful. Thanks, so much.
Your next question is from Anthony Powell with Barclays.
Hi, good morning.
Well. He mentioned morning, you mentioned that business travel in China has lagged the leisure despite the virus being under in much greater control there is there anything to.
Read into from that in terms of the potential recovery in the U.S. or other other markets.
No I don't think so I mean the.
Obviously, we talked about occupancy being higher than it was a year ago and so that's a really good sign but but beneath that total you've got.
Two things that are happening one is that business transient travel and group travel is still a bit softer than it was last year and the second is you've got the Chinese travel business that used to go abroad, staying at home, which is driving those leisure numbers meaningfully higher.
Remember we had the in.
February 9% occupancy in China country.
Country entirely shut down.
And even today now we have you know occasionally a flare up in the market.
Which.
The Chinese government response is to essentially shut down that market and test everybody in the market for Workover 19, they managed to at least in two or three circumstances too.
Sort of missed that in the but if you will and get those markets reopened to get going again.
They have had an impact to US you know probably less than a point or so on revpar, but you know a little bit of an impact as they as they roll forward, but it's just a reminder, that a even in China, where there is a much broader sense that.
COVID-19 is under control it is not irrelevant to yet.
And Intuit becomes irrelevant I suspect we will.
See you know a little bit of relative weakness in business transient and group, albeit they are dramatically stronger than what we're seeing in the United States, which of course would be the next strongest big market you get to Europe, and the rest of Asia Pacific is probably weaker yet.
Understood. Thanks, and you mentioned a few times the relative strength of homes and bill was over the summer but.
It still seems like that you view that as more of an amenity versus the core business is there an opportunity for you to maybe grow the inventory there and grow that business a bit more dramatically given the demonstrated the guess popularity of of the offering that you've seen.
Yeah, and maybe it is we are growing it are as we've talked about from the beginning our effort here is a whole home product and and.
Obviously, if you look at our urban markets in globally, but particularly in the United States.
You would see that a we've got tremendous hotel capacity in extraordinarily little demand in those markets, partly that's because offices remain close you too many of those markets you don't have business transient travel you.
You may not have much leisure travel because people are more inclined to go to resort destinations or other destination. So we.
We will remain focused I think on whole home.
Warm weather ski country resort destinations I'm quite convinced that that would continue to grow substantially and it will be a nice.
Complimentary feature to the traditional retail business for us.
But could you what was the developers to maybe build new inventory in those markets like ski resorts are warm weather or is that maybe.
I mean, we're going to be finding existing inventory.
It'll it'll be both and we have had conversations with some of our good partners about exactly what you're talking about which is building.
Building building new inventory, if you will in some of those resort markets.
Great. Thank you.
Yeah, Anthony just one follow up on your comment about business travel is to remember that no in the ballpark of a quarter of the travel in China in our hotels is from international business from outside China. So the fact that that business nights, yes, they are down, but but again you're also.
So having the impact that you're not getting a travelers from outside China coming in so all things considered I would although it's <unk>.
Not quite as robust as leisure because people are not traveling outside China. It's still you know quite robust a recovery on the business side.
Thanks for that detail appreciate it.
Your next question comes from the line of David Katz with Jefferies.
Hi, everyone. Thanks for taking my questions.
Sorry, David Arnie, It's morning, Okay. Good good to hear everyone's forces.
You know as you talk to your business peers. We obviously are all very focused on this business travel element.
Do you do.
Do you think the collective wisdom is that that you know the gating factor is entirely therapeutic.
Or you know is that sort of one component of you know maybe a larger set of strategies.
You know to to to get the likes of me you know out and traveling again what are you hearing.
Well I mean, I think I think there are three things and obviously, the most urgent and most impactful will be what happens with covidien.
Clearly travel has plummeted because of the risks associated with it and the way those have.
Impact of either through formal restrictions or informal restrictions, we both airline capacity international travel all those sorts of things.
That impact has been very profound and.
We will have a I think a meaningful step up in group and trends business transient travel.
The moment that COVID-19 risk.
Receipts from sort of the the threatening horizon, if you will.
I think once that happens there are two other things that we're going after it is two one is what's the state of the underlying economy and you know as we've all watched for years and years and years did.
Demand in our industry does correlate well with the strength of the economy.
And you know my guess is we're going to see an economy, which is got some lingering.
A weakness because of a small businesses being closed maybe probably not able to reopen.
Relatively higher levels of unemployment around the world.
You know a number of factors that it will take some time for us to work our way through and then I think the third is you know what happens as a function of remote work.
The digital tools, we've all learned to use even more than we used before too.
To.
Meet with each other and stay connected in a time in which we can't be out I mean can you be in our offices, let alone traveling.
And there are of course, you've got to be conversation about.
How much of that will impact long term travel trends that last piece to some extent is similar to the conversations we participated in during the great recession and even when the tech bubble burst in early 2001, and 911, followed them both the travel recession, we have been.
And what generally we saw is that in the few years. Following most of that group and most of that business transient travel comes back I'm not all of it. If you look at 20 years worth of mix for the industry.
Including from area, we have seen a couple of points, maybe two or three points.
Shift from business transient and group combined towards leisure.
I suspect we will continue to see that in the years ahead as a leisure remains.
Probably a pretty powerful driver of demand.
But we'll get through I will see business transient moved to affect matters people love to travel they love to travel both for themselves personally I'm in love to travel for work.
It's often the most interesting to you know the place are going to learn the most.
And we'll see the lion's share of that come back even if it's not yeah every.
Every single night from every single company that we do business with.
[noise] noted that answer to your question David It. It's large it's largely does if I can follow it up by just specifically around the covert piece of your answer and you know the need for.
You know a vaccine to be a gating factor to mitigate the risks of covered you know are.
Are you hearing from any of your peers, you know about sort of interim steps or alternative strategies in conjunction with or instead of a vaccine just trying to think about whether we're sitting around waiting for one single event or a series of things.
From what you're.
Yeah, I mean, I I think I do spend a lot of time talking to our big customers, sometimes through the the business round table, sometimes another another one for one on one context.
Yeah, and I'd hesitate to speak for the corporate world globally, but I do think there is a increasing sense that.
With each passing month, we lose a little bit more in terms of the connective tissue.
Between our people in in companies in all sorts of different industries.
And I think its consequence, and you know when you're talking about collaboration or innovation or strategic conversations that these.
Maybe as most obvious that those are the things that are harder to do through.
Through a team's call or through some sort of digital tool.
And so I think there is a sense that when we can safely do it we should start to.
Probably more significantly opened offices.
And bring people back to work that is made difficult by a resurgence of the virus. Today you know I think we're talking about some days with over 100000, new cases in the United States.
Andy its me difficult by a school situation, which you know some markets. There are open some markets are closed in many markets that are hybrid.
And employers are trying to work their way through that process, but I am hopeful that we will even before the vaccine is broadly distributed.
We will start to see offices opened up with social distancing with mass squared and probably with reduced density but.
But starting to get to a place where it's at least a step towards a more normal environment.
It has to be done safely, but I think it can be done safely because I don't think the office environment is a particularly risky went I don't think it's probably as risky as the grocery store for that matter.
We will we will start to see I think some positive impact in our business from that too and that could receive the vaccine.
Okay. If I can ask one more very short follow up you commented earlier in your remarks about conversions.
Accepting or embracing those that are financially accretive and brand accretive.
If you could just colors, because all conversions are clearly not created it'll be equal, but beyond the financial impact. How you think about that brand accretive concept beyond just revpar index and the like.
Yeah, So so and I'm not sure you can even find out what we all do because we don't necessarily publishing I think some of our.
Some players in the industry are compensating their folks simply for adding units.
Our compensation tools basically our to reward folks for units that deliver value. So an NPV calculation is a big part of.
Our compensation scheme for the folks on our team that are out there helping us grow. We've also got our brand and operators that are involved in making sure that the products we bring on me.
Meet brand standards.
And typically that'll come home to roost for conversion in a way.
What does the property improvement plan look like for a pre existing hotel in order to put one of our flags on it.
And we want to make sure that obviously, we want to make sure we're growing.
We're really interested only in growing if it's delivering value we're about creating value, we're not about simply adding rooms that have no value.
But we know long term that the the reinforcing aspect of the power of growth depends on the strength of brands and so we've got to make sure that we are getting.
The kind of quality that represents the brand well. So all three of those things are going to be very much in the mix and if we can't be satisfied that all three of those exist. We're we're not going to take that product.
Thanks, very much be well everyone.
You too.
Your next question is from the line of Thomas Allen with Morgan Stanley.
Hey, good morning, So it's helpful going on the paired remarks that over 90% of hotels in China had positive gross operating profit in September do you have that decided by region or for your broader portfolio and how has that I know you had submitted to tread.
Okay.
So, yes, I don't have it.
For you by region or obviously, it's not going to surprise you. We've got big chunks of hotels still closed in Cala, and Europe and with Revpar down in the 70% that's an extremely difficult.
Process.
In the U.S. I work on on and get you some numbers, but obviously, it's going to be Oh, a far lower.
Sort of percentage.
But again.
I think it shows you when China the remarkable resilience of both.
Both the profits and the revenue is from a demand perspective.
I guess, a bigger question anyway is that I mean on the surface I mean, I think people view that this is going to be a relatively I mean in the short term, it's a very deep down.
Downturn and then there's some concern that going to be a long recovery.
And you know hotels maybe.
Seeing negative operating profit for a prolonged period of time, which you know on the servers a lot of people feel like will lead to closures, maybe not now, but you know what maybe debt maintenance or deferral or put off what gives you confidence like that that's not going to be the case.
Yeah. So so a couple of things that you know first again I think you do have to look back at how you do have to look at China as being somewhat helpful. In kind of evaluating how things could come back so I don't think although.
You know, we havent seen it everywhere else I think it is instructive and then.
For example, when you've seen in the luxury occupancy.
At the resorts, you've clearly seen that the leisure demand has has moved that up quite.
Quite nicely when you see the the Ritz Carlton brand. For example, you know had 27% occupancy in the third quarter in North America, and Weve talked before about how breakeven occupancy can be.
Around 40, and that's that's still with Revpar for Ritz Carlton being down 64%. So all of that to be said is I think it can rebound fairly quickly I think if you look back and see what happened in the great recession.
You also had the most complex hotels dramatically impacted by a massive drop in demand and what you saw is while it took a little bit of time, they did get through it they did get through to generally not being foreclosed upon.
And getting back to a strong profits and in many cases incentive fees for us So I well I. Appreciate we all appreciate that this is going to take longer than any of us would like I think the the most the guiding light I know that we see is is how quickly when.
People feel comfortable about travel how quickly demand returns and frankly rate all things considered.
Rate has held up.
Fairly well when you think about big picture.
Where things are so for example, when you see a a quick pop to demand and a drive to luxury resort you actually see that rate.
It stays in pretty good shape and again I think weve worked on the cost structure at the hotels to be able to take up some of the slack that that has been created from the demand side. So I you know you're right about it will depend based on how long this capex, but generally speaking the hotel.
Those are in better shape from a leverage standpoint than they were last go around I do think the lenders have been quite patient and as I think when we got some ability to travel that the demand is going to come back fairly quickly.
Helpful color. Thank you.
Your next question comes from the line of Smedes Rose.
City.
Hi, Thanks covered <unk> hi.
Covered a lot of ground. This morning, but I just wanted to ask you just kind of longer term when free cash does start to reaccelerate more meaningfully are there any changes in the way that you're thinking about.
The leverage levels that you'd like to attain or would you just which we should we expect that you'll just really focused on reducing debt or maybe how do you think about returning to a dividend program or some sort of repurchase program.
Sure. Thanks, Smedes I would love to be thinking about those questions I think for the moment, that's still a little ways off.
This will obviously depend on how quick Revpar comes back and we've got as you know we've got leverage ratios that we want to get back in line certainly on our revolver covenant to even consider share repurchase and dividends, we need to get back.
Two to four times to to be able to even consider that so.
I think it's a ways off in terms of actual planning a I think one of the things that you know we've been focused on is really thinking about our debt maturity stack and so that is one of the things that are.
That we've done that is more permanent and and I think will hold us in good stead as we think about kind of managing our cash flow. When you you know not looking at having quite as much in commercial paper, which is so short term and so much more subject to a crisis like that that obviously with stretching out or matures.
He spent will will be helpful.
But I think you know we want to be strong investment grade we want to continue to be.
Be in that range, but but we also will obviously be working hard to generate that excess cash flow to consider what to do with it a.
We like the mix of dividends of a modest dividend and share repurchase for the flexibility and for the kind of modest ongoing return to the shareholders and I suspect that we will continue to like that but.
But exactly where we want to peg a the leverage I think will absolutely depend on the pace of this recovery and the timing of it.
Okay. Thank you I appreciate that and let me let me let me let me throw one thing in on this spike in the.
What Leeny said is exactly right. There's obviously been a fair amount of conversation and policy circles about weather repurchasing stock is somehow a sign of a.
Bad behavior by corporate America, or buy businesses around the world.
And in the context of Marriott, we have been buying back stock.
For.
Decades, 40 years 45 years, maybe something like that.
And it is because not because we are interested in growing our business. We're in business due to the economy. We're.
We are in our people, but because the business produces cash and in the folder sometime we often find that we do not have attractive enough investments to use all of the capacity and as a consequence, we believe it's our shareholders' money and should be returned to shareholders either through dividends or share repurchases.
And well leave these comments about a you know let's take this one step at a time and see how the recovery and EBITDA comes back and.
You know, we'll continue to monitor this in terms of appropriate debt ratios and the like.
And the maturity ladder of the debt that we have all of those things are extremely important I do think we will get back fairly quickly back towards a place where.
We have excess financial resources that belongs to our shareholders and that through dividends and share repurchases. We will continue to get it back to them.
Okay. Good. Thanks, I just wanted to ask you to just circling back on the SPC, assuming those rules to come out of the system. So I assume that that lift a lot of territorial restrictions and just given that it is a big chunk can you sort of talked about this on your opening remarks, but yeah.
What would be sort of the strategy I guess to replace rooms in those markets sooner rather than later I'm not really familiar where the hotel specifically, our but do you would you expect to kind of have a very focused.
I had a conversation with developers or even conversion opportunities in those markets to kind of replace your presence there faster rather than you know so.
You know rather than later.
Our development team is already looked at that list and they are.
Obviously is going to be focused on the the.
Markets, where they are convinced hotels will make.
Good economic sense.
And we'll be talking to the appropriate partners in those markets to see whether or not we can add something there quickly now they will be new build so obviously it it and we are in a pandemic. So it's not like they will be opening in the first quarter 2020, but I suspect they'll move fairly quickly.
And without without getting too far into conversations we have already received some phone calls on that very topic from some of our partners. So I I think you can expect there will be some sunlight near term opportunities.
Okay, I mean, just sort of on that I mean, our developers yet we'll do you have just a sense in general of how to develop is able to access financing now or kind of what sort of changes are you seeing.
So it's so I think it you know obviously, you've got the reality that.
Our large multi unit partners and our lenders are.
Assessing the situation and trying to kind of figure out.
The health of their own assets right, whether it's the loans at the hotels they.
And so that is in some cases, requiring that they they take a bit of a pause but at the same time. These are in many cases folks who are thinking over the longer term and who do.
Have access to capital to get things going so again as you've seen we've clearly had a had a drop in signings we've had lenders clearly waiting on the sidelines, but it's not to say that all activity it stopped and certainly in some of our larger.
Diversified owners they got the ability to continue to move forward looking at pieces of land and starting to process in talking to us and putting deals together. So the conversations certainly get going I think it's as you've seen certainly on the financing front.
It's kind of putting pen to paper and getting committed capital on some deals has slowed but the conversations absolutely continue and Ah you know the business has had downturns before it's a cyclical business and and will again.
So I think this is sometimes when there can be some great opportunity, but <unk> to really see things pick up in a meaningful way, we'll take that there's more resolution around the code that situation.
Okay. Thank you very much appreciate it.
Your next question comes from the line of Richard You Clark with Bernstein.
Hi, Good morning, Thanks for taking my question just a quick just a quick question on the reimbursed costs on it looks like you are profitable on that line. In Q3, we are talking about making a a 25% cost saving in that what will actually happen to that the costs you save and that does that benefit the other knows they're going to get a cut that.
Faisal, we reinvest in marketing or does it does marriott benefit somehow from that.
Right well, we benefited from it indirectly we benefited from this from the standpoint that obviously, we need to make sure that what we charge.
For our programs and services.
It is competitive a in a variety of revpar scenarios and as you know many many of our charges are actually based on hotel level revenue. So their percentage of sales. So we've got to make sure that our costs also blacks with those changes so first in form.
Most it ultimately on the reimbursement it is a it is a net neutral goal what you're trying to do over time is to match your costs to your revenues, but also make sure that what you're charging a the the properties is competitive and so you're right that you.
See its positive, but but again, that's overwhelmingly due to loyalty and as I talked before earlier, Oh that really does flex a bit depending on what's going on with redemption volumes, we do basically manage it over time to be neutral.
As well as all the others programs and services that we charge the hotels for.
Okay. Just it's just that so just to clarify in future years. The cost you don't need to spend that will go down by 25%, but you should be able to retain recover the revenue shoemaking that line I Didnt say, we do.
Since so many of the charges that were targeting them flex with revenue is I've got to reduce my cost by that 25% because remember I can't charge them as much.
So when we talk about many of those costs that are above property related to programs and services.
That is a function of knowing that as you think about for example next year, we're likely to enter into the year.
You know not meaningfully different from where we are now unless there's some unbelievable piece of news. So so again, we're just making sure that our cost structure matches, what we buy contract are able to charge. The owners. So that 25% savings is really designed to.
Match, what we're charging the owners, but also to try to find ways as I said in my comments to actually reduce the rate that we're charging for programs and services, which will then a show up in higher hotel profit over time, which should make us more competitive.
Manager and franchise or is that I got to address your question.
That makes sense if I can just ask one very quick clarification on the from the oil I already said that you talk about the number of hotels do you you've opened from other brands does not include from independents as well or that just from alternative Brent oil prices.
It's from independent Roswell, Yeah, it's from any.
Yes any.
Independent.
Or other brands.
Okay. Thank you very much.
At this time, we have reached our allotted time for questions I would like to turn it back over to Mr. Sorensen for closing remarks.
Alright, well. Thank you all very much for your time and attention. This morning, I was not thinking as the questions were asked by so many of you how much we Miss you.
It's great to hear your it's great to hear me okay.
[noise], we hope you're all now.
Navigating through this time will.
We obviously can't wait for so many reasons to see you in person again soon in between now and then we wish you nothing but the best.
Obviously, if there are questions that we didn't get to this morning, I feel free to call the team and and we'll be in touch make sure you've got the information you need to have the thank you won't be well.
Thank you. This concludes today's conference call you may now disconnect.