Q4 2020 Marriott International Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Marriott International's fourth quarter 2020 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answers fashion.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question press the pound key I would now like to hand, the conference over to Jacky broke on mechanical senior Vice President Investor Relations. Please go ahead.
Good morning, everyone. We are all truly heartbroken by the recent unexpected passing of our president and CEO Arnie Sorenson. He was an exceptional visionary leader, but more importantly, an exceptional human being he will be deeply missed.
As you are aware of army decided to reduce the schedule of to fully focus on his health earlier this month income.
Consultation with the board, Stephanie Lanoxin, President of consumer operations technology, and emerging businesses and Tony Capuano, Who's President of Global development design and operations services two longtime members of our leadership team to jointly oversee the company's day to day operations.
Stephanie and Tony will continue on this capacity until our board of points, a new president and CEO, which is expected to occur in the next two weeks Stephan.
Stephanie and Tony are joining us on our call. This morning as usual, we had lini over the our executive Vice President and Chief Financial Officer, and Betsy Dom Our Vice President Investor Relations with us as well.
I will 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 our 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 reflect system wide constant currency year over year changes for our comparable hotels and include hotel.
The temporarily closed due to COVID-19 U.
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, and now I will turn the call over to lini.
Thank you Jackie and good morning.
Like all of you My heart is very heavy on his passing.
I feel incredibly fortunate to have worked with such a wonderful and talented leader and to count on he is a good friend.
So many of you have reached out to us with your condolences for his family and for Marriott and of shared you're fond memories of him and we've been comforted by your kind words.
Stephanie Tony and I wanted to share of two stories with you about Ernie as well this morning.
Hospitality business work inherently it includes a lot of trouble.
Most days when the army was on the road. He would leave in early morning group run away on the hotel's neighborhood with as many of associates as we're interested.
As the solar runner I would join the clue and watch Arnie somehow find a way to spend time with every runner in the group.
The burn of head just a quick runners of many of them back to the walkers and find a way to connect with each and every person who asked them about their families. The roles at Marriott and their points of view about their markets. The.
One would be over at 630, and then he would move on to a full day of meetings and at least five more hotel tours and you could tell he said on these connections with people and then he cared about them deeply.
I've learned so much from him and I will miss him tremendously.
We're all committed to honoring our incredible leader by building on its legacy and we of course want to update you on our business. This morning, as we move the company forward.
Today, we will cover our usual earnings call topics with Stephanie focusing on the customer and demand side of the business and Tony discussing our rooms growth and development trend I'll cover our financial results on liquidity.
Given the uncertainty around the pace of the vaccinations and therefore demand recovery will not be providing earnings guidance. Today, we will however share what we can't on about our outlook for 2021 and of two key areas. We will plan to take your questions. After our prepared remarks and now alternative.
Which of Stephanie.
Thank you Lindy and good morning. This week, we lost the wonderful friend and mentor Arnie was an incredible leader both from Marriott and the industry and he was fun in a competitive way.
Likely in the I also remember the countless times, we ran together and he would always beaten always.
But what I will remember the most it on Arnie with his humility is lack of ego and his passion for developing others.
Arnie and I attended the World Economic Forum in Davos together for the past six years.
The first year I attended I went to everything with the army taking it all in and learning so much from all of his interaction.
The second year, we went pretty much as soon as we arrived he pushed me out of the Nash so to speak.
He encouraged me the schedule my own meeting do my own media interviews.
He believed that was ready and in typical army fashion. He empowered me to grow he knew what was best for me and for the company.
That's the true leadership in the leasing and your team and helping your teammates believe in themselves.
I am honored to have worked with him and we are all committed to building on his legacy.
I know Arnie would want us to talk about business. So let me start us off.
COVID-19 has impacted our business to an extent, we never imagined, making 'twenty 'twenty by far the most challenging year in our company's history.
Full year worldwide Revpar declined 60% with average occupancy of just over 35% compared to 73% for full year 2019.
In 2020 occupancy and year over year Revpar changes showed steady improvement from the trough in April through the summer and into the early fall.
However, with spikes in Covid cases in many markets around the world. We saw the global pace of recovery flattened in the fourth quarter and in the first few weeks of 'twenty 'twenty. One currently over 94% of our hotels are open.
Recovery trajectory to date have varied greatly by region.
Mainland China, where there has generally been a sense of the virus is under control has led the recovery and strongly exemplifies the resiliency of demand.
Occupancy reached 60% in July and remained above that level through the end of 2020.
Fourth quarter Revpar in mainland China was only down 12% year over year.
We saw additional proof points of the ability for demand to recover quickly and the other areas as well during the fourth quarter, including the Maldives and Dubai.
Occupancy in both markets jumped to over 60% in December after their governments ease travel and free restrictions.
In the fourth quarter, many countries around the world re instituted strict temporary limitations on traveling and gathering to combat rising virus cases.
Demand in the U S was clearly sensitive to spikes in Covid cases in government travel advisories as we saw during the traditionally travel had the holiday period from Thanksgiving through the year.
Many cities in Europe also shut down.
Similarly in China, we have recently seen several markets essentially on Lockdown in January and February for several weeks at a time in order to fight the spread of the viable.
Leading to a meaningful drop in occupancy in these markets.
Overall occupancy in mainland China year to date has fallen to an average of around 40%.
The good news is that once these temporary shutdowns are lifted we have seen demand return quickly for.
For example on.
You can see in Chengdu, and Qingdao recently jumped from around 20% to over 60% in just two weeks after their local governments announced the virus outbreaks were under control and remove travel restrictions.
Our worldwide occupancy and year over year Revpar decline in January were roughly the same as we saw on December.
Looking ahead to the rest of 'twenty 'twenty, one booking windows remain very short and there is still a large amount of uncertainty.
While vaccines are slowly rolling out the pieces too uncertain to be able to predict when occupancy will move meaningfully higher.
But as the year progresses, assuming wider distribution of the effective vaccine. We are optimistic that the pace of recovery will pick up speed and accelerate throughout the year.
In the U S and Canada, we are encouraged to see some small green shoots of increased demand for corporate and leisure transient bookings as well as in group lead volume.
While still down meaningfully year over year transient booking pace and visits to our direct booking sites had been improving recently.
Occupancy over Presidents' day weekend was the strongest we had had for a long weekend since the beginning of the pandemic led by leisure demand and we are also starting to see a bit of momentum behind the special corporate bookings.
Group revenue pace in the U S and Canada for 'twenty 'twenty. One is also still down significantly compared to group revenue pace for 2020 at the same time last year.
So the declines are less severe for the second half of the year.
In January we had a very strong month for group bookings in 'twenty two and beyond.
Additionally, this business was booked in average daily rates, 11% higher than business booked in January of 'twenty 'twenty four stays in 'twenty 'twenty, one and beyond.
These are encouraging signs that there is strong demand for travel in future years, once real progress has been need and containing the virus.
Yeah.
As we think about marketing in this environment. Our teams continued to analyze the latest consumer trends to help shape our recovery strategy.
We are keenly focused on personalization and localization on capturing more leisure as well as leisure travel as the lines between work and home blur and on increasingly leveraging our digital direct channel and in particular, our Marriott envoy App.
We recently released our updated redesigned envoy app with the goal of better meeting the travel shopping needs of todays leisure traveler.
The power of the bond boy platform has become even more evident during the pandemic as many of our more than 147 million member has continued to interact with us in ways other than staying in our hotels.
Our Marriott Bumblee credit cardholders have bromine, particularly engaged.
Global credit card spending on our cards for 2020 was down only 16% year over year in marked contrast to the steeper decline in Revpar.
And while not material from a financial perspective, one of the most significant expanded offerings to members recently has been our whole home rental platform homes and villas by Marriott International or H P. M I.
We grew the number of units on the platform from around 2000 at launch less than two years ago to approximately 25000 today.
And we saw increased demand from our Marriott on board members with over 90% of H BMI room night in 'twenty 'twenty booked by members.
We continue to focus on driving demand to our hotels and on engaging with our members with creative content and special offers including our escaped the luxury and bond boy escaped promotion.
Additionally, early last year, we extended elite member status from early 'twenty 'twenty, two and we recently credited their accounts with another deposit of elite night credits to give them the headstart towards the elite status in 2022.
Before I turn the call over to Tony I want to thank our incredible team of associates around the world, who have shown true dedication and resilience throughout these challenging times.
Tony.
Thank you Stephanie and good morning.
Arnie was a remarkable person and I'm proud to call him a friend and mentor.
One of my favorite trips with him sums up how truly special and unique he really was.
After we acquired Starwood in 2016 Arne He wanted his senior leadership team to do an eight day whirlwind trip around the world.
He wanted the visit as many properties as we could to welcome our new associates and show them that the Marriott people first culture was real.
And he wanted to each of us there with them.
As we toured property after property already made a point to meet as many people as possible to shake every hand and to look each person he met in the yard.
He was so sincere of genuine hill.
He also made short of spend time with his leadership team outside of these meetings in particular I remember one overnight flight to the middle East towards morning, Arnie woke us all up and brought us to the lounge on the back of the plane. So we could just spend time together and enjoy each other's company.
This was classic Arnie.
He wanted to build a cohesive team that while not afraid of some spirited debate true.
Julie liked and respected each other and it worked our jobs are infinitely easier because we're all rowing in the same direction.
Now of being the humble person that he was I think arnie would say that we need to move on to the business. So let me now talk about our rooms growth.
In 2020, we added nearly 63000 rooms worldwide for rooms growth of 4.6% on a gross basis.
Room openings in the year were impacted by slower construction timelines and supply chain issues as well as some owners temporarily waiting to open their hotels due to COVID-19.
Asia Pacific was the one region, where we opened more rooms in 2020 than we did in 2019, adding over 18000 rooms with gross room's growth of over 8% versus year end 2019.
In China, We recently opened our 50 of hotel in Shanghai, The GW Marriott Shanghai function of <unk>.
Nominal accomplishment as our international growth continues to strengthen.
On a net basis, including deletions of the 1.5% of global distribution grew by three 1% year over year delay.
Deletions were generally in line with the average levels, we've seen over the last three years. Despite a number of hotels exiting our system for COVID-19 related reasons.
While findings for full year 2020 were not as robust as we had expected at the beginning of the year. Our overall pipeline continues to lead the industry totaling over 498000 rooms at year end, we also.
Benefited from continued momentum in our residential branding business and had another strong year for residential signings a testament to the power of our brands.
For the full year 'twenty 'twenty one of <unk>.
Sumit progress is made in containing the virus, we expect gross room's growth to accelerate to approximately 6%.
While we have seen some delayed construction starts and could continue to see some delays in openings, 46% of our pipeline is already under construction.
Additionally, we anticipate benefiting from the backlog of openings that were pushed from 2020 into this year.
We also expect to see a meaningful impact from conversions this year as owners and their lenders seek the incremental top and bottom line benefits from being part of the Marriott system.
We are extremely pleased with our recently announced conversion deal in tower that is expected to add 19 resorts and nearly 7000 rooms to our all inclusive portfolio.
Our biggest deal yet and cower these hotels fit perfectly with our focus on the leisure currently the strongest segment of demand.
And while they were not in our year end pipeline. These properties are all anticipated to join our system during 2021.
Let's now shift to our 'twenty 'twenty, one outlook for net rooms growth.
Not including the approximate 100 basis 0.1 time headwind from the 89 service properties Trust or S. V. C. Mostly limited service hotels that are leaving our system by the end of March we expect deletions of 1.5% to 2%.
That's slightly higher than we have experienced recently due to the potential for more COVID-19 related exits.
Coupled with our gross room's growth expectation, we expect net rooms growth of roughly 3% to 3.5%, including the exiting SPC wounds. We have already received interest from multiple owners about new deals in those markets and look forward to the opportunity to replace many of the first generation limited serve.
This S V C hotels with newer product.
A key component of our demand recovery strategy is remaining keenly focused on the health and safety of our guests from associates. We first introduced our heightened cleanliness standards in April of last year.
Since then we've been increasingly leveraging contactless technologies, such as mobile and web check in <unk>.
Key on mobile chat to re imagine the guest stay experience for this environment.
Last month, we began rolling out additional health protocol options for group meetings of certain properties, including on site temperature checks and providing for Covid testing capabilities. We have also remained focused on working closely with our owner and franchisee community to help them navigate these challenging times and have taken many of.
Steps to significantly lower their cost of this environment.
These steps include waiving F F and the contributions for most hotels with lender consents.
Reducing certain fixed charges for programs and services and extending the delay on renovations. We are also working with hotels on payment plans when necessary and we're very pleased that the vast majority of our hotels are paying their bills.
I also wanted to acknowledge our associates. This morning, they have exemplified the Marriott culture throughout the pandemic, whether it's looking after first responders prepping meals for those of need or hosting blood drives at our hotels there of remarkable team and we could not be more proud.
I will now turn the call back over the weenie to talk about our fourth quarter financials in more detail.
Thank you Tony and the.
The fourth quarter of 2020 worldwide Revpar declined 64% with occupancy of 35% of.
As Stephanie noted mainland China continued to lead the recovery.
Leisure remains the strongest driver of demand in mainland China and in the fourth quarter stays in the leisure segment were up double digits year over year for the second quarter in a row.
Business transient and group demand in the region also continued to rebound well in the fourth quarter and we've been pleased to see the evidence of pent up demand across all travel segments. In fact group stays comprised around 20% of overall room nights in the fourth quarter back in line with 2019 distribution.
Demand in the rest of Asia Pacific also continued to improve in the fourth quarter with the occupancy, reaching 35% up 10 percentage points from the third quarter, primarily driven by domestic leisure travel in Australia, South Korea, and Japan, as well as economic reopening efforts in countries like the Maldives and any.
Yeah.
In the U S and Canada leisure and drive to destinations remains the strongest markets throughout the fourth quarter.
Revpar declined 65% in the quarter in line with the year over year third quarter decline with the occupancy of 35% just below the third quarter's level of 37% the.
The seasonal decline in occupancy the typically happens during the fourth quarter was less pronounced in 2020, given the overall lower level of business travel.
Trends in EMEA were mixed fourth quarter occupancy in the Middle East and Africa reached 36% and 11 percentage point improvement from third quarter, reflecting strong domestic leisure demand in many major markets from the middle East the.
The recovery in Europe took a step back in the last few months of 2020 as most countries reimposed restrictions after major second waves of the virus.
During the fourth quarter, roughly one third of our hotels in Europe were temporarily closed in the occupancy fell to 15%.
And Kayla around 20% of hotels were closed during the fourth quarter resort properties, particularly in Mexico drove an improvement in occupancy the 24% in the region up from 15% in the third quarter.
With global Revpar down, 64%, our fourth quarter gross fee revenues totaled 423 million of decline of 57% versus the year ago quarter largely in line with the year over year decline, we saw in the third quarter.
Over 60% of the $44 million of fourth quarter incentive management fees were earned in Asia Pacific of.
Which three quarters were earned in greater China over 95% of our hotels in greater China had positive gross operating profit in the fourth quarter with over 90% generating positive profit for the full year the.
These results reflect the strong rebound in demand when the virus is under better control and our ability to help our owners control costs.
Within franchise fees are non revpar related franchise fees continued to be resilient totaling $133 million in the fourth quarter down 15% from the year ago quarter with credit card branding fees down 18%.
Fourth quarter, G&A improved by 31% year over year, reflecting our significant cost reduction efforts in the fourth quarter. Our total income tax provision was the benefit of $150 million, primarily due to the favorable resolution of pre acquisition Starwood tax audit.
We reported fourth quarter, adjusted EBITDA of 317 million down 65% versus the fourth quarter of last year essentially the same decline as in the third quarter.
I'll now turn the cash burn as we've described on prior calls our monthly cash burn rate was only slightly negative in the fourth quarter, even with Revpar down 64%.
The impact of the companies of 130 million 401, K match payment in October and higher cash interest due to the timing of payments were partially offset by continued strong receivables collection efforts and robust loyalty cash flows.
We've been pleased with the strength of our cash generation in 2020 in light of the dramatic reduction in revenues of full year financials show net cash provided by operating activities of $1 $6 billion, which included the one time $920 million of proceeds from our amended co brand credit card agreements.
Subtracting out the 920 million as well as all investment spending we still generated positive operating cash flow the strong performance in the year when revpar was down 60%.
These results show the true power of our asset light business model and are a testament to our company's ability to quickly and effectively adapt to a significant and rapid change in demand.
Loyalty was a key piece of the equation generating over $500 million of net cash flow in 2020 after being a net user of cash in 2019.
This year's positive cash generation from loyalty is on top of our credit card related fees, including an EBITDA as well as the $920 million of cash received from our amended co brand credit card agreements.
On the loyalty program benefited from strong cash inflows from our credit card programs given the resilience of consumer credit card spending while the loyalty programs operating cost of redemption expenses were down significantly.
The redemption expenses were much lower than usual in terms of gross volume of night al.
And the rate paid hotels for redemptions, given the low occupancy environment.
At the end of the fourth quarter, our net liquidity was approximately $4 4 billion after the pay down of over $600 million of debt during the quarter.
The company's net liquidity represents roughly 800 million in available cash balances plus $3 6 billion undrawn on our revolver.
We believe our liquidity position and resilient cash flow from operations comfortably position us to meet our short and long term obligations.
I also want to briefly discuss the $243 million fourth quarter charge related to the Sheraton Grand Chicago put.
Shortly after the Starwood deal closed we granted the hotel owner a onetime right to put the leasehold interest of Marriott in 2022 for $300 million in cash given the current environment. We have determined the put is likely to be exercised so we increased our liability.
We have the right to defer the closing on the points until late 2024.
Moving on to full year of 2021, while we won't be giving revpar earnings guidance I'll provide a bit of color on certain items, where we do have some visibility.
Starting with the top line.
Current revpar levels for full year 2021, we expect the sensitivity of a one point change in Revpar compared to 2019, the car on our fee could be between 35 and $40 million per year.
Please note that given the nominal level of Revpar in 2020, the impact of a one percentage point change in 'twenty and 'twenty, one revpar compared to 2020, revpar could be more like $15 million to $20 million.
As we saw throughout 2020, the relationship is not linear given the variability of IMF and the inclusion of non revpar related franchise fees as well.
In order for us to start, earning IMS in the U S and other markets, where IMS stand beside the owner priorities, we'll need to see substantial improvement in revpar levels.
We anticipate that the majority of biomass from 2021 will again be earned in international markets. We expect our non revpar related fees to remain resilient and show strong year over year growth in 2021.
We expect G&A to total $775 million to $800 million in 2021.
Note that the cash component of G&A will be lower than this range given noncash stock compensation, Inc.
Interest expense is anticipated to be roughly $430 million for the full year.
Turning to several other major items that will impact cash flow, our cash taxes are expected to be $275 million to $300 million for full year 2021, Inc.
Investment spending excluding amounts expected to be reimbursed over time is anticipated to total $375 million to $450 million for the full year.
We anticipate another $200 million of investment spending that is expected to be reimbursed over time for total investment spending of $575 million to $650 million as compared to $375 million in 2020.
Approximately $220 million of the total spending in 2021 is from maintenance Capex and our new headquarters.
Total investment spending includes capital and technology expenditures loan advances contract acquisition costs and other investing activities.
We expect cash flows from the loyalty program to be roughly neutral in 2021, even after the reduced payments, we will receive from the co brand credit card companies, but effectively repay roughly one third of the $920 million received in 2020.
In closing, while the timing of a full recovery is unpredictable. We are optimistic that we will see notable progress over the course of this year.
We've seen real evidence of the pent up demand for travel and we look forward to welcoming more and more guests to our hotels will now open the line for questions.
Thank you at this time I would like to remind everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue press. The pound key we ask that you. Please pick up your handset to allow optimal sound quality.
Our first question comes from the line of Shaun Kelley of Bank of America.
Hi, good morning, everyone on.
I guess I was just like the start by offering my most heartfelt condolences to the sorenson, the Marriott family and team regarding Orange passing I think.
We all appreciate the stories in memory of the debt.
Everyone shared on the call and we're all better people for having got the spend time with him. So he.
You'll be warmly remembered and greatly missed by all of us on.
Yes.
If I could turn attention.
Thanks, Thanks Lenny.
If I could turn attention maybe to some of the comments and I. Appreciate all the color that the team has put together this morning.
Yeah, I think maybe a good place to start would be the to refer to some of the stephanie's remarks around some of the green shoots that the she alluded to and that we're starting to see on from the travel environment. So Stephanie of possible I was wondering if you could elaborate a little bit on some of your comments around the group booking position as we made the move across the year. If you could help to give us a little bit more on the.
And then specifically the the rate commentary you mentioned the up 11%. If you could help us unpack that a little bit I think that's highly encouraging and a little different than we might expect to see.
And of different hotel environment of different cycle.
Sure of course, and good morning, Sean on.
So as it relates to our group business on.
We are encouraged to see some really positive trends as I mentioned in the prepared remarks of the on.
End of the fourth quarter of 2020 of our group pace for 2021, it was down negative 57%, but the second half of the year was down just 25% to 30%.
We're also on the group front things some positive trends as it relates to the group cancels they really slowed for the second half of 2021 and they are at normal levels for 2022 plus.
We're also seeing some great trends on lead volume, while it certainly behind 2019, it's improving.
Matter of fact over the last 45 days lead volume has increased 20 to 30 percentage points. So on a significant improvement from what we experienced in the fourth quarter of 2020.
The other thing I'd note on the group from we're starting to see a pickup in what I'd call more normal types of groups. So as an example, we're starting to see some incentive meetings bucket in the fourth quarter of this year and into Europe.
Your question about right, Yes January was not only of strong booking month, which was terrific actually the the best month, we've had in a couple of years, but the rate was up on for futures on 11.
10% on it.
And I should know most of those groups that were booked in the future years at the at those higher rates for in House group versus the city Wides, we haven't quite seen citywide bookings come back yet.
So I think that the.
The story on the group from just underscores the point that there.
There will be a return to meetings and group business on it.
It may be slower than we would like but we're seeing that we're seeing the demand as you can imagine Tom we're talking to our customers. All the time meeting planners, our top accounts and they all want to get back out on the road.
And on and travel were also saying in China from some quite.
Positive.
But things on the on.
On the group from its a matter of fact, the bookings in China.
<unk> for up to 20% of our room nights on again, which was encouraging and China is of great story. It shows that there is pent up demand for travel.
Six weeks after the virus was announced in China people started booking room nights again started with leisure, but then quickly towards that as the year moved on and moved to both business travel and group and of course much of it most of it was domestic but still strong demand. So we're very encouraged as to what we're seeing on the group price.
Thank you for all of the color I appreciate it.
Your next question comes from the line of Joe Greff of J P. Morgan.
Good morning, everybody.
I'd like to tell from my condolences as well.
Part of it was obviously of talented executives and everybody respected him for.
What he has done over the years at Marriott for the lodging industry, but I remember him as just being a good man and how we treated everybody still respectfully and something to aspire to for everybody else. So.
I know, it's the big lots of for you guys. So I just want to mention that.
So my question is for you Tony I was I was hoping on on the the gross room the outlook commentary for this year. If you can go through the composition of the gross rooms.
How much of it.
Is conversions how much of it is new construction of the new construction I guess, how much of it is pre COVID-19 vintage versus any of limited service.
New construction that debt.
Think about it is commencing since March of last year.
And then as you think about investment spend for the balance of what's in the pipeline ex the 2021 gross rooms openings do you think that accelerates.
And 'twenty, two and beyond relative to what you're spending this year.
Great well first of all thank you for your kind of sediments most appreciated.
I think of as we think about 2021 openings.
Obviously.
We've indicated in our prepared remarks on acceleration to about 6% gross openings.
And the state the obvious there's more limited visibility than we've had in to the markets pre COVID-19.
There's a number of factors I think that gives us some measure of comfort that support our guidance I think number one.
We've got about 230 sales rooms under construction around the world as we sit here today.
You also heard us talk a little bit about the sort of weighing all inclusive of project, adding 7000 rooms that gives us almost of 100 basis points.
Growth in gross openings in 2021.
To your point there were a number of hotels under construction last year that had been targeted for 2020 openings and the.
Slipped principally because of Covid related construction delays and we expect a significant number of those hotels to open in 2021.
And then I think the last thing I would say is that.
While its certainly early days, we're only 10 or 11 weeks into the year.
Seeing some encouraging signs related to accelerating conversions activity.
If you look at the fourth quarter of 2020 about 21% of our signings were conversions and that was the highest percentage contribution from conversions.
We have seen since the first quarter of 2019.
And so we did go back and take a look at from previous cycles and in fact.
If the last peak, we saw conversion spike all the way up to about 24% of total signings and I think thats quite encouraging as well the.
The other thing I would add Joe It also gives us some measure of comfort.
We've seen from quarter to quarter since the pandemic started a relatively steady level of rooms under construction and obviously, we've shared that with you in each of the quarterly calls Andrew.
Joe when you think about on the investment front.
Obviously, as you're adding more of rooms on a relative basis to 2020, you'd see a little bit more investment.
When you think about the kind.
Kind of classic typical in the <unk>.
Government either per day or per average key on our full year I would say we are not seeing any sort of meaningful increase in the amount of investment that were needed to put into deals and obviously when you look at our pipeline for example in the U S, which is 80% limited service.
They're typically the investment is far less and so I think what you would expect that our investment will increase a bit relative to the really low of 2020 levels.
We'd not expect it to see it take.
The kind of meaningful step up relative to the overall.
Sure.
That's helpful. Thanks, guys.
Your next question comes from the line of Thomas Allen of Morgan Stanley.
Hey, good morning, and let me just echo my condolences to the Orange family and all of you at Marriott.
As analysts we were lucky enough to watch him as an income.
Accretable CEO and experience from as an amazing later on just say.
To be truly missed.
Thank you Thomas.
So for.
For me can we just talk about the all inclusive of strategy a bit more.
2019, you announce the Allergan hotels the acquisition.
You've been intermittently announcing some sort of more organic growth and then there was the announcement the.
The last week about with front line can you just talk about what you've been learning so far as you've kind of built up hilltop. This business. Thank you.
Sure. Thank you Thomas I think maybe I'll talk a little bit about all inclusive from a growth on a deal side and then I might ask Stephanie to chime in from a demand in the leisure perspective.
On the transaction side as.
We talked about when we launched into the all inclusive of space.
It was frustrating for us to see the pace of growth in the all inclusive space first.
And caller, but even in southeast Asia on some of the eastern European resort markets and not have of platform to compete for those opportunities.
Since our launch.
The market reaction from the development community has been quite significant.
I think one of the things that gives us so much enthusiasm about the Sun wing announcements beyond of the fact that.
It's great rack.
Rapid increase in our footprint.
It has.
Decelerated the volume of the inquiries, we're getting about new opportunities, particularly on the conversion side.
And so on wing is a terrific partner for Us day.
I've been in the all inclusive of space much longer than we have and we think it is going to be a very symbiotic relationship where we don't have a lot to teach each other Stephanie maybe you can chime in of with little bit on leisure demand. Yeah sure. Absolutely. We are really excited to see our offering of all inclusive of properties grow for our consumers on it.
Leisure demand is very is the strongest segment right now on.
And it is also leisure is of the segment overall growing even faster than business travel. So we see a lot of runway for continued leisure demand. What we're most excited about with our all inclusive of properties as we're gonna have the properties across seven of our brands seven of our premium and luxury brands and it's gonna be a terrific offering particularly from.
Marry up envoy members. It is really anything that makes the Marriott <unk> program stickier and more engaging is great for our business. So whether it's growing our all inclusive business.
H BMI of course are terrific leisure properties around the world. We just see the the growth of all inclusive is a great on.
Great.
Position for our consumer.
And then just sticking on the development front.
You know in the past.
Used to do about one bolt on acquisition of year thinking Delta T K Award.
As the current environment.
Creating opportunities and how do you think about it kind of balance out with your balance sheet.
Sure.
There are lots of conversations I think from where I sit I'll be surprised if there is of high volume of activity, because I think buyer and seller pricing expectations are.
Still out of alignment and I think there may be some distressed circumstances where transactions occur.
But I do think that GAAP is significant.
We'll continue to look kind of if we see something that makes sense. We will use the same lens that we've always applied to the evaluation of bolt on acquisitions does it fill a gap for us in terms of either geographic distribution or segment.
And are the economics compelling.
Maybe the last point I would put on that.
Not only for individual hotel transactions, but for M&A transactions.
<unk> markets are challenging at best and I think of that will have some cooling effect potentially on the volume of M&A deals you see in the market.
Your next question comes from the line of Stephen Grambling of Goldman Sachs.
Good morning, I also want to share my condolences to everyone on the call as well as the entire Marriott Sorenson family. We will Miss earnings voice is openness of MS. Outrageously fast response time and emails. So I guess I'm just another size of the ability of connect everyone.
So true.
Yes.
So many of you.
You mentioned G&A in the 70 $75 million to $800 million range can you help us think about the different levers of costs that were removed and how you may expect somebody to return, perhaps in 2022 and beyond the more robust recovery and as a related follow up how do you think about permanent reductions in management costs or charge outs the owners they can.
Also bolster margins for them and allow you to recapture on us on a lower bound revpar.
Yeah sure. Thanks.
First of all on the corporate G&A front.
Now when you look at these levels compared to the kick off of 19 level, if youre looking at a high teens reduction.
And the comparison.
We need to remember that both of those numbers Inc.
Bad debt.
And while in the long run bad debt is of cash cost. It is kind of in the year for the year often not of cash cost because it's the reserve taken and.
Yeah, that's a little bit hard to predict exactly where that will go in 'twenty one.
I think you would normally expect in this environment it might be a little bit higher than normal levels.
Certainly on 19 it was.
Not even anything to worry about.
But overall I would say from a cash perspective, you would see that our cash costs on the G&A front.
With the 775 to 800.
That reduction is a bit higher than the high teens sort of number that I've described on the.
On the expense line and when I think about it going forward, Steve and I would say a couple of things first of all obviously.
I would expect that some will need to be added back as we are.
The move forward into a a much improved.
Picture for our industry, but I will also say that we undertook some work in 2020 that with while extraordinarily painful and difficult I think was a reflection that we have here that it will take some time for.
The industry to recover and we really need to put ourselves in a position where we could make these.
The cost savings last a very long time, if not permanently.
You could see costs go up.
More of that inflation I think you will see most of the savings are they sustainable and similarly on the hotel front, we've done a lot of work to.
Good things that are both temporary and sustainable on the cost front, we've obviously done from a.
Temporary reductions in fixed cost of the hotel level, we've obviously done.
From again really painful work in the in the way of furloughs et cetera, but we've also done some really innovative things around how to.
The better staffed the hotels had a better get our worked on how to.
Manage some of the programmatic cost that go to the hotels and I think there was again will be.
The sustainable when I think about in 'twenty, one what we've tried to do is.
So on to.
As much of.
The margin that we had of 19 as possible. So while I think the hotel margins will obviously.
From the reduction in revenues compared to 19 at the hotel level.
We think we have been able to save the vast majority of that margin decline.
Through the work that we've done and then obviously as we move into a much more normal picture they will be sustainable savings that allow us to get to of profitability.
Point that returns back to where it was much quicker.
That's all helpful. Thanks, so much.
Your next question comes from the line of Smedes Rose of Citi.
Hey, good morning.
Condolences as well regarding earnings of just thinking about him. It just seems like it's always struck me that for me on the of such kind of Grace.
It's just really sad, but he's not with us anymore.
I wanted to ask you.
Thanks.
Want to ask you.
Really just a little bit more about the relationship with with the owners who may be facing financial stress.
The what if anything Marriott, it's doing I guess the terms of.
Concessions or delayed payments or any other kinds of relief and whether some of those might be.
Kind of permanent.
Sure.
I talked.
The question before about some some substantive work that we've done to try to match the cost.
With the revenue decline in the short term and again try to make a bunch of of sustainable, but but overwhelmingly our owners are paying us and we've had tremendous success in collecting our receivables.
The most hotels have reopened and obviously amongst the select service hotels quite of few of them are actually cash flow positive.
We have a.
Arrange payment plans for a large number of our hotels.
And when you think about it typically range they pay us on 30 days.
And.
To be able to stretch that out over several months.
Health and we're seeing there again overwhelmingly that they are making payments on those payment plans and while there obviously.
You can get back to where there is.
Substantial recovery to get them to a much better spot.
For the moment they are hanging in there and they are able to pay some down and work with us to be able to.
Navigate through this time.
But but I do agree with you we are paying incredible attention to our cost on property and working with the owners to try to.
Find ways to do even more.
And you know.
The whole lot of this depends on what the owner has particular situation is too in terms of how well capitalized, whereas the debt structure and.
What kind of market there in but overwhelmingly we have seen really.
Strong performance and a good.
The newest information about the PPP loan extension.
The extension and expansion as well as whatever may come from a stimulus bill.
Hopefully it will be added benefit to them as well.
Okay. Thank you and then I just wanted to ask you on the on the.
Agreement with sudden wing did Marriott pay any upfront money for those properties come into the system.
So did the owner of agreed to invest in the incremental capex or do you feel like they are kind of ready to go well I'll take the first one of them that I'm going to turn it over to Tony for the.
The second one.
We would never get into specifics on a on a particular deal but I can tell you that this was a very very capital light deal I'll just leave it there.
And I think similarly on the second half of your question. These are terrific physical assets. There are some sort of modest renovation requirements, but.
These are pretty conversion ready assets that were excited to get into the system and start welcoming of our bond point, yes.
Great. Thank you guys sure.
Your next question comes from the line of Patrick Scholes of true of Securities.
Hi, good morning, everyone.
Certainly our deepest condolences.
Both the Sorenson and Marriott families.
Obviously, it goes without saying we are all deeply.
Miss him very much.
Question for you you talked about 94% of your hotels at the end of the year open implies 6% not open.
How much you think of what is what do you what do you internally think about the trajectory of reopened the ins and I assume those are mostly.
Urban and top 25 hotels correct.
Well some of them.
How big of a little bit here. Thank you Patrick and we appreciate your thoughts so first of all in U S and Canada, we're always talking 3% of those hotels.
All the way of 159 in all of North America. The the biggest concentration is in Europe, where 34% of the hotels are closed and then also in Caribbean and Latin America were 11% of the hotels are closed. So so I would say there there can be some true structural reasons why in those markets government regulations acts.
In some cases require that the hotels being closed so I think one of the things that we've all learned over the last year is that in many cases, even down at levels of 10% to 15% occupancy of hotel can be better off being open but it is closed.
From a cash flow perspective, and we began to on everything we can most of our charges. As you know are based on revenues so that floats with the occupancy.
So I think in general we would as hearsay things.
The start to pick up a little bit of hopefully as the vaccinations continue to progress even more and you will start to see things remain in closed hotels open up.
Okay.
Fair enough. Thank you.
Your next question comes from the line of Robin Farley of UBS.
Great. Thank you al the please let me add my condolences on the Army's loss I'm very sad obviously, he was such non feeling weak kind of person so sort of out of my condolences. Thank you Robyn.
My My question is on the unit growth topic I, you know I know conversions visibility is kind of more limited you know maybe I'll need within the next few months and removals kind of similarly.
When we think about gross unit additions from kind of new construction.
If it would happen next year in 'twenty, two a lot of that would probably be underway or have to be underway already now. So I guess I wonder if you could give us some thoughts on the.
The gross unit additions for for 'twenty two in other words, you're trying to get a feel for whether how much of the acceleration.
Gross additions and in 'twenty. One is you know the the openings of got pushed from 'twenty into 'twenty, one of kind of what that May look like.
First the impact of of the opening sliding into 'twenty. One. Thank you. Thank you Robin as I said in response to one of the earlier questions.
The state the obvious there is a lot less visibility into the future.
Then we've had prior to the pandemic.
I think beyond 2021, we're going to need to get a bit further into the economic recovery.
How quickly the financing markets rebound and.
And how quickly construction starts begin to pick up.
As I said, we do have 230000 rooms under construction, but it is interesting as I talk with our trans actors around the world.
Good news is we're generally not seeing much in the way of fallout of under construction pipe projects from the pipeline.
If there is going to be an impact it will likely be.
The further impact on the length of the construction cycle and so it's a little tough to know.
What that looks like in 'twenty, two I am hopeful that in the next couple of quarters that visibility will improve a little bit.
But I just don't think we've got great visibility beyond 'twenty one at this point.
Okay, no that makes sense, thanks, and he was actually surprising how many rooms are under construction very similar to what it was a year ago and actually given everything that's gone on I would've thought that the new starts would've made me of that number lower but it's fairly consistent of having 20000 rooms of different than a year ago. So that's that's why it seemed you know potentially a.
Encouraging for 'twenty two but.
I agree that's one of the statistics, we've been watching and to your point, it's quite encouraging that we've seen such stability in the volume of under construction rooms around the world.
And then just one quick follow up can you give a little more color around the the.
The the put option. It's just you know when you we normally look at your what's added back four of restructuring or for the acquisition costs related to Starwood. You know obviously that production is of significant a significant amount. So just a little bit of color around that thank you, yes sure absolutely.
Yes.
We always say, we're overwhelmingly of done with the integration.
And we're kind of hopeful that this is the last of.
This is the last bit.
When we acquired the company.
Starwood from management agreements for the Sheraton Grand Chicago, and the Western Times Square included a very broad cross brand territorial which actually when you think about it in that.
For the rest of our 28 brands.
We were severely limited in those areas.
Soon after we did the deal we entered into a settlement agreement with the hotel owner.
We're basically we granted that owner of onetime right to put the leasehold interest in the hotel to Marriott in 'twenty 'twenty two for $300 million in cash now it's worth noting that there is a ground lease underneath this hotel.
We actually don't have to buy that if we want to buy the Atlanta will have the right to for an additional 200 million, but it is worth noting that there is a.
Our ground lease on the hotel as well, but this is for buying the.
The the.
The interest in the hotel are the other interesting part is that.
Given the current economic conditions, we believe that the put is probable of being exercised.
The result, we needed to reflect what.
What we think of the current value and obviously all of these markets are struggling and that resulted in this charge. The other thing that's worth noting is that we actually have the right.
Do not actually close on the put until late 2024.
So even though it could get put to us in 2022, we wouldn't necessarily have to buy it until the end of 'twenty four.
And so it's actually worth noting that that are also part of the impairment that we had in the contract amortization line reflects the fact that frankly right now.
If you ask us we would expect that we would defer that purchase and till the end of 'twenty four and continue to manage the hotel until the end of 'twenty four.
On to take into consideration of the fact that we don't buy it until then the.
The part that I guess I'll add is that since that agreement was signed we've actually added 4000 rooms in the Chicago and New York markets. So while it is painful and clearly a direct result of Covid.
We do think that in the abroad.
Picture, it's really important for us to be able to have the capability to expand our brands in those really important market.
And if the value of the hotel improves over the next two years or between now and late 'twenty four you would reverse some of the loss I would assume the.
The value that's being run through.
Yes, yes.
Obviously, you've got to look at that every single quarter, and we would but.
No.
<unk>.
Kind of a whole lot of different factors and free.
We move over the next few years, but that's fundamentally yes, you're right.
Okay, great. Thank you very much thanks.
Your next question comes from the line of Ben CPO of Cleveland Research.
Great. Thanks are also wanted to express my sympathy the Orange family on the Marriott team. He certainly will be missed.
Question on leisure you mentioned the favorable trend lines, there expectations for outperformance in that segment for some time.
Meeting that demand with the all inclusive offering I wanted to dig more into your homes and villas just curious.
How you think you're progressing there what do you think about the trend lines in demand for short term rentals as we live in an increasingly remote world and.
And how you think you're meeting the needs of those around 150 million loyalty members in terms of their interest in.
And appetite for short term rentals.
Great well. Thank you for that question, yes, we're on it.
Where we really are excited about HDMI, primarily as an offering for our Merry up envoy remember, we launched that business in 2019 with about 2000 homes as I mentioned in the prepared from arc and the reason we launched the business as we were talking to our Marriott <unk> member and eight out of 10 of them said not only not that day.
We're just thinking about renting a home, but they actually had done it through another platform. So we knew it was an offering they wanted that we didn't have and we knew it would be complementary to our core of hotel business. So we launched the business in 2019, we've grown at the 25000 homes there is about on theirs.
Couple of million homes in the segment in which we play in I think it's really important when we talk about each BMI to make some distinction from other platforms first of all we only have whole homes.
We also it's not an open platform like some of the other players you can't just put of home on there. We only work with professional housing management companies and we are very very strict standards about what type of premium and luxury homes will allow on the platform.
The standards around the amenity design aesthetic service levels on.
Safety security et cetera. So we are very strict about which all of them Scott on the on the platform.
And one of the on most important things about each BMI, you can earn loyalty points and burn oil the loyalty points there.
And in the prepared remarks, the 90% of our bookings are coming from loyalty members on.
Also 30% of the bookings of redemptions people redeeming their Marriott envoy points and we saw the business too on well, particularly during last summer because people wanted a whole home on 40% of our HDMI destinations are actually new to Marriott, there, where we don't have hotels and many of them.
On more remote locations, which really was quite attractive during on during.
During COVID-19.
We're excited about the is the about the offering and we see it as complementary to our core business and the tremendous.
Value proposition primary up on board members.
Great. Thanks.
Your next question comes from the line of Dori Kesten of Wells Fargo.
Good morning, everyone and also on the awesome.
Arnie was really one of the kind of it will be sorely missed.
I was wondering I guess.
I guess it is fellini, how important is it for Marriott internally to return to share repurchases and dividends and is there anything beyond your leverage target that we should be using as a he's on the timeline guide.
No I don't think so I think of it.
Free the stability of the marketplace will be important.
Kind of assuming that we continue.
Continue on the.
The beginnings of this recovery and get to a much more stable place I think we clearly are.
We have to recognize that it will take us of a while to get back to where our leverage ratios of where we want them to be and we will need to be considering.
Whether the market is as stable as it was from 2012 through 2019, when you think about the the volatility of our cash flows, but I think broadly speaking looking at our business model on the way we generate cash that's that I think the of the.
Fundamental.
Strategy is still the same which is the grow absolutely the best way, we can with really efficient use of capital.
Resulting in a business model that generates significant excess cash over and above what we need to reinvest in the business.
And in that respect we would.
I look forward to returning to both a modest dividend and share repurchase.
Okay, Thanks, and Stephanie on as a follow up if you look out three years, how would you expect your exposure to leisure business transient and group two of shifted.
The belief that we will eventually return to the to the distribution that we had over the last few years.
Yeah, when we look medium longer term task Covid, we think there is robust demand for travel across all segments leisure business travel group meetings.
There there could be some slight shifts here and there, but again, we as I mentioned, we when the when the Covid gets under control, we see the demand come back on.
And we're already on the business travel side, we're seeing we're starting to see of green shoots on.
Our special corporate bookings in January on it.
In the month for the month on where it's the best that we've seen since last fall and when we look at the bookings from our corporate accounts further out we're seeing them tick up each week, particularly from the accounting and consulting firms and on.
And technology companies.
Again post Covid, we see robust travel demand across all segments again could there be some shifts here and there, yes, but we're quite bullish on the overall outlook.
Okay. Thank you.
Your next question comes from the line of Chad Beynon of Macquarie.
Hi, Good morning, I'd also like the off from my condolences as well, we all learned so much from Marni and he was such a kind of person to all of us. So thank you.
Yeah.
Tony somewhat of a hypothetical but how do you think domestic price integrity.
<unk> will play out once the Occupancies improve I guess near term in the back half of 2021, and then medium term and in 2022, obviously this is of.
The higher component of house profit of IMF was there anything that you saw on China in the fourth quarter in terms of.
The pricing played out and anything to think about this from prior cycles.
Sure Chad I think that the Stephanie I'll I'll take that one on on pricing I mean pricing is really about on compression not trip purpose and so on you know in normal times, we can get compression from leisure business and our resorts when they are quite busy or special events on.
And our retail rates, we don't really differ between business and leisure we do have some negotiated volume discounts for corporate accounts, but the key the pricing really is about occupancy rebounding and right now that's the challenge I mean in terms of ADR. It fell very steeply in April and May of last year.
And that was driven by very low occupancies, and we had caregiver rates and the like in our hotels, but you know the occupancy did tick up throughout the year of course, it varies market to market.
In general.
Last year, we saw luxury ADR hold up fast with extended stay ADR of next.
On you know and again it really does it really does get to compression I think it'll be interesting to watch. This recovery if demand comes back much more quickly than we anticipated we may be able to grow ABR of faster than we did coming out of the last downturn.
But again, it's it's really about it's more about.
Compression than it is about trip purpose.
Great. Thank you very much Stephanie.
Ladies and gentlemen, we have reached the allotted time for questions and answers I will now return the call to lini over for additional or closing comments.
Thank you very much I appreciate everybody joining this morning, the can't wait to see you out on the road and thank you again, so much for your kind of thought take care.
Yeah.
Thank you for participating and Marriott International fourth quarter 2020 earnings Conference call you may now disconnect.
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