Q3 2021 Marriott International Inc Earnings Call
Yes.
Good day, everyone and welcome to today's Marriott International's third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session.
You May register to ask a question at any time by pressing the star and one on your Touchtone phone.
Please note this call maybe recorded and I will be standing by should you need any assistance.
It's now my pleasure to turn today's program over to Jackie Burka, Senior Vice President of Investor Relations.
Thank you good morning, everyone and welcome to Marriott third quarter 2021 earnings call on the call with me are Tony Capuano, Our Chief Executive Officer linear Berg, our Chief Financial Officer, and Executive Vice President business operations, and Betsy Dahm, Vice President of Investor Relations.
We're very happy to not only be doing this call altogether in person this morning.
It would be doing it from the road at the beautiful J W. Marriott Orlando Bonnet Creek.
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 occupancy and average daily rates comments reflect systemwide constant currency results for comparable hotels and include hotel.
Temporarily closed due to COVID-19 rasp.
Revpar occupancy and ADR comparisons between 2021, and 2019 reflect properties that are defined as comparable as of September 30th 2021, even if they were not open and operating for the full year 2019, or they did not meet all the other criteria for a comparable in 2019, you can find out.
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 Tony.
Thanks, Jackie and good morning, everyone over.
Over the past few months I've been fortunate to have spent the majority of my time back on the road I've been speaking with our associates meeting with customers attending industry conferences, and engaging with our owners and franchisees as I've been doing this week here in Orlando.
My travels have taken me to Europe, the Caribbean and Latin America in many parts of the country here in the U S. It's been wonderful to see so many people traveling again and to witness firsthand the resilience of global travel.
This resilience was clearly evident during the third quarter the.
Strong global Revpar recovery momentum, we experienced in the spring continued into the summer thanks to sustained robust leisure demand an impressive average daily rates.
July worldwide Revpar reached a new peak since the beginning of the pandemic down just 23% compared to 2019 levels ox.
Occupancy in July rose to 61% an increase of over 500 basis points from June while ADR was down less than 3% versus July of 2019.
In August global demand softened a bit primarily as a result of the impact of the delta variance and the subsequent delay and many companies returned to the office.
Demand stabilized in September before rising once again in October.
Recovery trajectories remains varied by region and have been uneven revpar in all of our regions, except for greater China improved in the third quarter compared to the second quarter.
The recovery in greater China has been choppy or given it's zero COVID-19 policy.
Mainland China was the first market to see Revpar return to pre pandemic levels, a quarter ago and Revpar Rose again in July to 11% above July of 2019.
But demand in fell significantly in August after the government imposed strict lockdowns in response to small regional COVID-19 outbreaks, leading to a meaningful decline in revpar for the month.
Demand in swiftly rose again in September as soon as those restrictions were lifted.
In the U S and Canada third quarter, Revpar performance improved meaningfully to down less than 20% compared to the same quarter of 2019 results.
Results were driven by elevated leisure demand and ADR nearly a 2019 levels.
Total occupancy reached 67% in July retrenched, a bit in August and held steady in September before rising again in October.
Third quarter Revpar in the U S and Canada improved across all brand tiers in all market segments primary secondary and tertiary.
While primary markets are still the most challenged these markets saw the largest revpar gains during the quarter as demand in gateway cities like New York continued to rise.
Group demand accelerated nicely in the U S and Canada in the quarter.
Group room revenues for the quarter were down 46% versus the third quarter of 2019, a significant improvement compared to the second quarter's decline of 76% versus the same time period in 19.
Group bookings have also been increasing.
In the year for the year U S managed group bookings.
<unk> 2019 levels for each of the last five months through October as event booking windows have shortened during the pandemic.
Most importantly group ADR has continued to rise and for full year 2022 is currently pacing nearly 4% above pre pandemic levels.
In the U S and Canada Special corporate was the segment most impacted by the Delta variant during the quarter given the delay in return to office timelines as a reminder, the special corporate segment represents business transient customers, who book at pre negotiated rates. We estimate this segment has been account.
For roughly half of business transient room nights, although we can't know with certainty the trip purpose for transient bookings other than special corporate the special corporate segment. Therefore, it gives us the best indication of business demand trends.
Special corporate bookings showed steady recovery each month this year until we saw a slight pullback in the back half of the third quarter.
The gradual upward trajectory returned in October with bookings versus 2019 growing each week during the month.
Special corporate bookings are currently down less than 40% compared to the same timeframe in 2019.
From conversations with our corporate customers, we know that many of them, especially those with more client facing jobs are increasingly eager to get back on the road, we expect a recovery in business transient transient congratulate continue as more workers returned to the office guest visitation policies are relaxed and greater <unk>.
<unk> employees are permitted permitted to travel again.
We also expect the traditional business trip to continue to evolve with a blurring of the lines between business and leisure travel.
In the Middle East and Africa third quarter Revpar came in less than 20% below pre pandemic levels led by strong performance in the UAE and Qatar.
Revpar top third quarter 2019 levels in Qatar, Thanks to preparations for the 2022 World Cup, while Revpar in the UAE was nearly even with 2019 largely benefiting from Staycations.
Europes recovery took another large step forward in the <unk> in the quarter.
Occupancy doubled in one quarter to reach 47% as many key international borders reopened entry restrictions eased in almost all hotels once again open.
The Caribbean and Latin America posted third quarter, Revpar, 18% below 2019 levels demand for our resort properties remains robust, particularly in the Caribbean and Mexico.
Ibn destinations, while slowly improving still lagged historically, the third quarter as the region's softest quarter seasonally yet many resorts saw record occupancy and ADR and our luxury ADR in the region for the quarter was ahead of 2019 levels by 32%.
The recovery in Asia Pacific, Excluding China advanced more slowly in the third quarter results were mixed across countries, though India saw a meaningful improvement in demand as Covid case load has dropped and restrictions lifted encouragingly. Many countries in the region have recently taken significant steps.
Reopened travel such as announcing new vaccinated travel lanes.
<unk> in October accelerated nicely as a result.
Developer sentiment continues to improve in step with the global recovery and the pace of signings has picked up meaningfully this year.
At the end of September our pipeline stood at nearly 477000 rooms gross room openings through the third quarter of this year exceeded the first nine nine months of 2019 by 25% and surpassed the same period last year by almost 50% and deletions from the.
Pipeline remained at the low end of our long term trend.
Conversions remain a meaningful driver of rooms growth given our impressive roster of conversion friendly brands and the meaningful top and bottom line benefits associated with being part of the Marriott system.
We've already added more conversion rooms in the first nine months of this year than we did in all of 2019.
Accounting for over 30% of all signings in the first nine months of this year compared to around 15% of signings pre pandemic conversions are expected to be a significant contributor to go growth over the next several years for the full year, we still expect the gross room's growth will accelerate to around six.
<unk> percent with more clarity around our estimated full year deletions. We now expect 2021 net rooms growth will be approximately three 5%.
The attractiveness of our brands are increasing development activity.
Around conversions and our industry, leading pipeline give us confidence that we will see meaningful rooms growth going forward.
We expect that over the next several years, we will get back to our typical mid single digit net rooms growth that we demonstrated prior to the pandemic. However, the exact timing is hard to predict and will depend on a host of factors related to the global recovery.
<unk>, the lending environment and evolving supply chain dynamics supply chain issues have pushed some openings and construction starts out a few months, but the deals continue to move forward.
Turning to Marriott envoy global enrollments driven by digital sign ups accelerated during the quarter growing the program to 157 million members as of the end of September.
We remain extremely focused on fostering engagement with our members. We recently rolled out numerous successful special promotions such as our second annual week of wonders and the relaunch of Marriott envoy moments, where members can use points to gain VIP access to a broad variety of experiences. Additionally.
We just announced several loyalty program updates, including status award endpoint extensions, which should further encourage members to stay with us as global travel rebounds since.
Since the start of the pandemic, we've grown our share of bookings coming through our digital and other direct channels over 76% of our global room nights in the first three quarters of the year were booked through our direct channels with around half of these booked through our digital channels.
In closing I firmly believe that the long term recovery is on track the resilience of travel and consumers' desire to visit our 7900 global properties is undeniable and I'm looking ahead with a lot of optimism about our future at this point I would like to turn the call over to leaning leaning.
Thank you Tony we are pleased with our third quarter results, which reflect the continued meaningful improvement in the global recovery third quarter worldwide Revpar was down 26% compared to the same quarter in 2019, despite the impact of the Delta variant in the latter half of the quarter.
In comparison global Revpar declined 44% in the second quarter versus the same period in 2019.
Worldwide occupancy rose to 58% in the third quarter and ADR was only 4% below the third quarter of 2019, we've been very pleased to see rate almost back at pre pandemic levels in just 20 months.
In comparison global ADR had lagged the recovery in Revpar in prior downturns, taking around five years to rebound after the 2009 recession and around four years to recover post 911 importantly, the recovery rate has not just been driven by customer mix our third quarter.
Retail or rack rate in the U S and Canada was essentially flat with the third quarter of 2019.
Gross fee revenue reached $776 million in the third quarter, our non revpar related franchise fees were again, particularly strong totaling 173 million in the third quarter, 19% ahead of 2019 levels credit card branding fees of 113 million.
We're up 11% compared to the 2019 third quarter on the back of strong new account acquisition and robust global card spending.
Our residential branding fees also had another outstanding quarter totaling $18 million.
Incentive management fees or IMS totaled $53 million in the quarter over 40% of IMS were earned at resort properties with IMF from our luxury resorts around the world up almost 30% compared to the third quarter of 2019.
We were pleased to see positive results from our owned and leased portfolio in the quarter, primarily due to improved performance at hotels in the U S and Europe.
Third quarter, G&A and other expense totaled $212 million and were impacted by compensation true ups and additional legal expenses, we continue to realize meaningful savings from the significant restructuring activities undertaken last year, and we still expect full year G&A and other to be roughly 800.
Million down 15% to 2019 levels.
We also recorded a 164 million pre tax loss on extinguishment of debt during the quarter associated with the repurchase of $1 billion of our 575% senior notes due in May 2025, as part of our balance sheet management, we are focused on bringing down our app.
Bridge interest rate lengthening, our average debt maturities and reducing our debt balances over the last 18 months, we have reduced our outstanding net debt by $1 $4 billion.
At the hotel level, we have significantly improved margins and lowered breakeven occupancy levels around the world in the third quarter, even with Revpar for managed properties in the U S and Canada down 27% versus pre pandemic levels, 97% of our managed hotels in the region had positive.
GOP gross operating profit.
We're proud of the work our teams have done and maximizing margins during the pandemic. We expect many of the cost reduction and productivity enhancement initiatives. We have implemented will be maintained as occupancies continue to rise given the current labor environment, we are keeping a close eye on wage and benefit inflation.
<unk> as associates are hired back and open positions are filled but our cost reduction efforts could offset this inflation in future years.
As demand continues to rise we are working closely with our owners and franchisees to maximize hotel profitability, while delivering the outstanding guest experiences our customers expect from our brands. We're close to completing an extensive review of our brand standards and are already implementing numerous changes intended to help rich.
<unk> hotel operating expenses, while improving flexibility based on customer needs as Occupancies rise.
Looking ahead, we are still not in a position to be able to give specific revpar earnings guidance, but I would like to share some general observations and provide color on certain additional items, where we do have some visibility.
We're optimistic about the pace of global recovery as we look ahead into next year as more markets reopen around the world with meaningful continued improvement in business transient and group demand continued growth in leisure demand and healthy levels of ADR, we expect to make substantial progress.
Dress and closing the gap to 2019 revpar levels by the end of next year, assuming no major setbacks in the pandemic recovery to further help your modeling for 2021 as a reminder, the fourth and the first quarters of the year historically have seen lower demand than the second and third quarters.
In 2019 global occupancy fell around six percentage points from the third quarter to the fourth quarter turning to fees at current Revpar levels, we still expect a sensitivity of a one point change in full year 2021, Revpar versus 2019.
Could be $35 million to $40 million of fees as we have seen the relationship is not linear given the variability of IMS and the inclusion of non revpar related franchise fees.
We expect our non revpar related fees to continue to benefit from strong credit card and residential branding fees interest expense is now anticipated to be around $420 million full year cash taxes are now expected to be $350 million to $375 million or.
Anticipated full year cash flow from the loyalty program has not changed from our expectation a quarter ago, we still expect it to be positive for the full year before factoring in the reduced payments, we will receive from the credit card companies.
After factoring in these reduced payments, which are expected to effectively repay around one third of the total $920 million. We received in 2020, we continue to anticipate modestly negative cash flows from loyalty.
We remain focused on carefully watching capital expenditures and we now expect full year investment spending of $525 million to $550 million below our expectation of $575 million to $625 million that we shared last quarter.
Total investment spending includes capital and technology expenditures loan advances contract acquisition costs and other investing activities.
As we think about capital allocation retaining our investment grade credit rating remains a top priority, we're making excellent progress, bringing our credit ratios back in line as we continue to generate positive cash flow and manage our spending levels. Assuming this progress continues we could be in a position to restart capital.
Returns in the back half of 2022.
We're very enthusiastic about how our business is performing and we're happy now to take your questions operator.
Yeah.
At this time, if you would like to ask a question. Please press star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key once again that is star and why if he would like to ask a question and we will take our first question from Joe Greff with J P. Morgan. Your line is now open.
Good morning, everybody.
Good morning, Thank you for taking my questions.
I know you don't want to necessarily talk about 2022 with any great specificity.
But I just wanted to get a sense of how you were thinking about the leisure segment as we head into next year. Obviously, that's a segment this year where demand has recovered the most in your pricing has been fairly inelastic and price obviously up significantly.
Do you think leisure can maintain some sort of growth trajectory in 2022, what do you think that has to come down and then obviously, it's more than compensated by the growth in the transient business transient segment. How are you thinking about that right now.
Thanks for the question Joe we are continue to be quite bullish about leisure, we think theres lots more run room in terms of this.
Leisure led recovery you heard some of the statistics that leaning I shared in our prepared remarks about the performance and the pricing power that we've seen in our resort destinations and so the short answer is we absolutely believe that leisure can continue to grow into 'twenty two.
Joe one other comment I'll make is that we've seen actually since 2010, we've seen leisure trips grow faster than business trip and I think with the reality that there's still some pent up demand as well as increased savings rates and frankly more.
<unk> and travel that we absolutely believe that leisure can continue to grow going into 'twenty two.
Great.
You mentioned that on the call you have it in the press release that you have greater visibility on deletions and I know that the room deletions comment was really specific for this year can you talk about the visibility on deletions for for next year, and maybe where that trends, obviously I'm not looking for a gross or net rooms growth number, but just how you see the visibility on.
Deletions.
For 'twenty, two maybe relative to the historical percentage depletion rates.
Yeah.
Great question and we're in the middle of our budgeting process now so I think we feel extremely solid about the numbers for 'twenty. One it's too early to give you a specific number but obviously the one time bump that we had this year.
From the SBC portfolio.
We don't expect to happen and I do believe that it will fall back to more normal levels in 2022, with perhaps still a tinge of COVID-19 related impact, but I think more likely to be falling back into.
Levels that you've seen before.
Great. Thank you guys.
Thanks, Joe.
And we will take our next question from Shaun Kelley with Bank of America. Your line is now open.
Great. Thank you and good morning, everyone.
Maybe as my first Tony you sort of asked the same question, if I could but youre, focusing a little bit more on corporate and group. Obviously, we're right at the cusp of probably how much lead time, you have but can you just just talk a little bit about corporate behavior, you gave us a little color through.
The things are rebounding a little bit in October, but just what little signs do we have heading into 'twenty two on what I consider core business transient and then also just maybe on the group on the group bookings front.
Of course, so the biggest improvement we expect.
Or that we saw this quarter came from business transient.
Which has already kicked up even a bit in October we're quite encouraged special corporate bookings have improved each week in October is when we compare them to 2019.
And because you asked for a little bit of granularity I can tell you that new special corporate bookings in October for some of our key customer categories had some really nice growth and I'll give you two examples accounting and consulting grew 35% over what we saw last months and technology business grew about 31.
1% versus last month.
When I slipped a group, which was the second part of your question.
At the end of September group revenue was pacing down around 43% versus 19, but we think we could see some improvement from that level given the volume of last minute bookings, which have been quite a significant recent trend.
In the quarter for the quarter bookings in October we're above October of 19 by the highest percentage we've seen since the pandemic began.
And maybe the last thing I would tell you on grow grew excuse me that is also quite encouraging when we look at the group. That's on the books for 2022, the ADR for that group is up about three almost 4% relative to the group that was on the books for 2019.
Thank you and maybe just as my follow up if we could.
Could you just give us a little bit there's been more discussion in the industry than it probably is normal about small and medium sized.
Corporates and that activity rebounding a bit faster than what we've seen in maybe the larger fortune 500 are top 50 accounts could you talk a little bit about that exposure for Marriott. If you break it down that way or maybe the behaviors that you're seeing between small medium and larger sized large size corporate.
Yes of course.
Historically.
We saw.
Business transient business coming out of.
Small and medium sized companies was about 60% of our business transient revenue now given that the larger businesses have been a little slower to recover during the pandemic for.
For the first three quarters of this year, we've seen about 75% of that revenue coming from small and medium accounts.
Okay.
Thank you very much.
Of course.
And we will take our next question from Thomas Allen with Morgan Stanley. Your line is now open.
Thank you.
Given our much of your marketing spend is done through the system fund it'd be interesting to hear just an update on where you are in your kind of marketing strategy and spend versus kind of pre COVID-19 I remember back to early 2019, you did a big bond boy parts.
Just trying to think about what youre doing now and potential implications for distribution and market share. Thanks.
So youre absolutely right that broadly speaking.
Our marketing spend is a function of the top line revenue from our hotels.
And that is in two places Thomas one is obviously in in classic sales and marketing fund, but also when you think about the revenues coming into our loyalty program are also driven by a combination of our credit card spend as well as hotel revenues and penetration of <unk>.
<unk> stays at our hotels and so clearly that is still meaningfully down from 2019, However, obviously a whole lot better than it was in 2020 and I'm sure you've seen lately.
Done a fabulous new campaign.
That has been on everywhere from airlines to sports non sports games et cetera that really emphasize.
How special it is to be able to travel and to have experiences that that open. Your mind. If you will and so it's been a really concentrated a reminder to the to our consumers of how special travel is and that new campaign has.
Gainshare very nicely, our mobile app downloads have grown really well so the otas about an important driver of business forest. During this pandemic, but I think for my share perspective, we're continuing to see the same trends we've been seeing.
Super helpful. Thank you.
And we will take our next question from Patrick shows with true Securities. Your line is now open.
Hi.
Good morning, mourning mourning mourning.
Uhm Hilson has been pretty vocal about.
Having daily housekeeping on demand and I haven't heard as much from you <unk>, what do you think about that going toward especially for your mid scale types of properties.
Puts a timely question.
Trick as I mentioned in the opening remarks, we've just spent two full days with.
A significant number of our owners and franchisees ear in North America.
As we shared with them we continue to run a few different proofs of concept of evaluating how we strike the right balance between guest expectations and the economic challenges that are owner community continues to face, we got tremendous engagement and input from that commute.
<unk> and I think we continue to move towards a more definitive and permanent position on housekeeping.
Okay. Thank you and then just a quick follow up question you had noted.
Eventually getting back to your mid single digits Longterm met unit growth, but for next year is it.
Reasonable to assume that net unit growth percentages will be roughly similar to what they are this year.
It's too early to give specific expectations.
What I can tell you is we are with increasing confidence.
Feeling like.
The mid term, we're going to get back to that mid single digit rooms growth, but I think it'll be a bit challenging next year and it'll be challenge for a few reasons I think.
Number one the continued on predictability of the pandemic, but maybe more impactful we have seen some delays in construction starts some of which have been direct results of interruption to the supply chain.
But again the dose feel like short term impediments and in fact, it's interesting if you look at the pipeline both in Q2 and Q3. The fallout. We saw was the lowest we've seen in the last three years. So that would certainly suggest that while we may have to struggle through a bit of these short term.
Delays it actually bolsters, our confidence in our ability to get back to that mid single digit growth rate.
Okay. Thank you for your update.
You're welcome.
And we will take our next question from Stephen Grambling with Goldman Sachs. Your line is now opening.
Hi, Thanks, I guess to follow up on my initial 2022 expectations.
What guardrails can investors think about around the more concrete expense items, such as G&A and should the relationship you've outlined between Revpar and EBITDA generally hold as we as we think into future years.
So sure. So so a couple of things on the TNA front I think certainly you have to take into consideration, what's going on with wage and benefit inflation and then I think as we get back to more.
Kind of fully loaded Rev. Part numbers in the system I think you should expect that for the next year any way that it'll be a little bit higher than just inflation.
We get to organization back too.
Full operations, but again I still think that you are looking at overall levels of G&A, reflecting significant work that we did in 2022 rebuild Marriott so that it still will be meaningfully lower than the kind of guidance that we gave it.
At the beginning of 2020, which was $950 million to $960 million.
Similarly.
As you ask about what was your other question that you asked about Steven because we think about the relationship between right yeah for EBITDA and Revpar, Yes, I think it'll be the same except perhaps a little bit bigger.
Have more and more.
Mm owned leased profits coming back as well as Imf's coming back if you remember Prepandemic, we were close to 50 million per point of Revpar. We're obviously.
Getting hopefully closer to 40 million.
And that's obviously hotel related Rev. Tar the non Rev car will tie much more into both the residential fees as well as the credit card fees, but.
It should expand although I think again in 2022.
It will still be closer to the 40 million in 2022, and then again continue to grow from there.
And since you mentioned the the nine hotel related fees and credit card fees I think <unk> you reference that you'd had very strong synapse can you just remind us of how our customer typically progressive once it signs up do you see a burst of send spending right at sign up or is there a kind of a gradual build now have you seen Dave yes.
Politically absolutely a gradual build.
You're right it absolutely.
Kind of take takes a while to get going.
Great. Thanks, So I'll jump back in the queue.
Thank you.
And we will take our next question from Smeets roads Rose with city.
Hi, Thank you I wanted to ask you a little bit more on the on the group bookings that you are seeing in the U. S is it is it fair to say that that sort of larger C V D.
<unk> the properties are continuing to lack or have you seen you seen and kind of any uptick there and maybe any other sort of just changes in the competition with a group.
Of course, maybe I'll give you some macro observations, but before I do that certainly we're seeing <unk>.
Really strong social group activity.
And expect that to continue in terms of citywide, which I think was part of your question. It was interesting. We spent the last two days with many of our full service owners here in the U S and I think their view is there seeing.
Softness and citywide activity in the first half of 22.
Are hopeful they will start to see some pick up in the back half of next year more broadly around group you heard some of the comments I made in the prepared remarks.
Q3 revenues down 46% in group as compared to 19, which was a big uptick compared to the statistics, we shared with you last quarter, where we were down 76% versus 19.
The other statistic I would share with you that I think is interesting.
In the quarter for the quarter bookings in October.
Both in the quarter for the quarter bookings from October 19 by over 30%, which is the highest percentage increase we've seen since the beginning of the pandemic.
Okay. Thank you and then I was just hoping you could talk a little bit more about what your orders or see on labor costs. It sounds like you're sort of somewhat optimistic about grow with an iron mask next year and I'm just sort of trying to.
I guess square that with the Fries and we were heard from one of their last night that Labour is up 20%.
<unk>.
Folks are saying.
Of course, so like many other companies around the country and around the world. We are seeing some challenges with labor. It won't surprise you that those challenges are most acute in the markets, where we've seen the most rapid.
Covering and demand so leisure destinations kind of leading the way.
From our perspective, we have a multi pronged approach to try and address those issues we've been doing we.
Ramped up our efforts in social and targeted marketing highlighting the extraordinary opportunities that exist at Marriott, we have been some instances used one time sign on bonuses or temporary incentives.
And we do still have many open positions to fill.
But we are seeing a bit of an uptick in applicant flow and have been filling jobs.
Jobs pretty steadily over the last several months.
And I would add we are not hearing from our owners that it's universally 20%.
There may be a couple of markets here, and there where that could be happening in a particular situation, but broadly speaking, while it's clearly meaningfully higher than it was.
Back in 18, and 19, I would say, 20% is not the norm.
And the only other thing I'll say is that.
While ADR is still not back to 2019 levels traditionally in our business, we have been able to see that ADR.
Tends to be able to.
Hold onto inflation that we've seen ADR increases that are at least inflation if not higher.
And while clearly at the moment, we're not back there yet that should be helpful as well.
Alright, thank you.
And so we will take our next question from David Cats with Jeffries. Your mind is now open.
Hi, good morning, everyone. Thanks for taking my questions.
Good morning, I know that we have seemingly a fair amount of time to discuss.
Respected capital returns if you could just talk about what would have to happen.
For capital returns to maybe start earlier or later for that matter.
Within the construct of those capital returns.
Any changes in how you would think about the mix so buybacks versus dividends and the question takes around those just so we can start the conversation.
Okay.
Sure.
So first of all.
Similar messages to what you've heard before which maintaining our investment grade credit rating is a top priority for Marriott, we do want to continue to get our credit ratios.
Back to the three to 3.5.
<unk> levels of debt to EBIT are we are really pleased with the progress that we're making in that regard probably.
Happened faster than we might have imagined a year ago and so with that in mind. We are feeling increasingly confident that we'll be able to turn to returning capital to shareholders.
Perhaps with continued progress in the recovery and the back half of 2022 when.
When we think about the mix of dividend versus share repurchases I think it's instructive to look at what we did in the in the great recession, which is that we as we moved closer and closer to.
That three to three five times range.
We.
We instituted a modest a smaller than.
Smaller than it was before cash dividend and then return to the normal level of cash dividend before we begin share repurchases and Tony and I will be talking about that to the board and continuing to have a dialogue, but I don't think that that's a pretty good framework for you to consider as we move forward I think from a.
Kind of rationale David I think one of the things, we really like about the three to three and a half times.
Level for US is the flexibility then it then gives us when we see an opportunistic investment come our way and so we do want to return to that area, knowing that that windows come up we want to be able to take advantage of them and in that.
A guard.
Kind of reestablishing.
That policy and those levels I think as to where we're headed.
Perfect and if I can just follow up with one.
This model in detail.
When we look back historically versus this year with the differential in cost reimbursements in revenue and costs.
There are periodic.
Positive versus negative and this year, it's been more of a positive. So far is there any sort of input you can help us with the remainder of this year and how that evolves into next year just to keep our model Street.
Yeah sure I think as a reminder, overtime that the idea is that is essentially a net neutral to the company I ear. These are cost reimbursements without without a profit component and the timing of.
The revenues and the expenses can obviously very.
Kind of Pier point as you look at what's happened this year.
You have seen that the gap has narrowed between the net.
Reimbursed revenue line and that's really a reflection of loyalty when you think about last year far fewer redemptions were taking place and we had lowered our administrative costs in the loyalty program to take into consideration the much lower revpar that we had in our system. So naturally that has come back to.
<unk>.
A higher level this year and redemptions have also grown meaningfully but again I think over time, you'll continue to see some variation quarter to quarter and year to year, but over time.
General <unk>.
Direction is net neutral to the company.
Got it thank you so much.
And we will take our next question from Bill crowd with Raymond James Your line is now open.
Good morning, Bill Clinton Bell.
Are you there bill.
Yeah.
Function on your phone.
Alright, sorry about that good morning.
Morning.
Tony I appreciate the comments on the.
Special corporate related business travel and to pick up your scene in the consulting and technology in particular.
Curious whether the destinations of changed as we look at the S. T R data.
It's pretty barren and and and some of these bigger New York Chicago, She will persist goza consistent with where your.
What you're seeing from the special corporate waited business.
So first of all.
As we talked about the the smaller and medium sized.
Business transient has been relatively stronger than that to your point is more likely to be in secondary and tertiary market. However, during Q3, we saw the best improvement.
In our big cities and special corporate that we've seen since the pandemic. So I think it is absolutely moving in the right direction, including those larger cities.
Okay and then my follow up is just kind of on a bigger picture basis.
Be putting a bigger risk premium on the fee income coming out of trying to give them the changes.
And kind of government attitudes going on there.
Well, how much time do we have I.
I think China is a really important market for us it is a dynamic and evolving market like anybody that's got a significant footprint in China, we continue to watch with great interest and great focus the evolving landscape there.
But when you look at the composition of ownership that we have when you look at the percentage of our portfolio that has whole or partial ownership by state owned enterprises I don't think we look at it as having any.
Really remarkably higher risk profile, then we've thought for the last number of quarters.
And one reminder, and as I'm sure you know all too well, we typically do not have an owner's priority on our IMF, there and so the IMF actually behave very similarly to based fees.
Okay. Thank you for the comments.
Thank you.
And we will take our next question from Dori Kasten with Wells Fargo. Your line is now open.
Thanks, Good morning.
Hey, based on early conversations that you're having with developers how do you expect signings to trend over the next several quarters.
And are there certain market that you're having to provide additional incentive that you haven't historically.
Well as I mentioned earlier, the pace of global signing says picked up significantly since the bottom of the trough created by the pandemic year.
Year to date are signings or upper about 30% compared to where we were.
Same time last year, what we hear anecdotally from our partners.
Financing for acquisitions and conversions of existing assets continues to be pretty readily available.
Construction financing for new builds is more challenging the.
The construction financing that is out there as we've seen in other more conventional down markets tends to rely heavily on relationship lending tends to rely heavily on quality of sponsorship and tends to rely heavily on the quality of the brand affiliation.
In terms of additional investment, we're not seeing any sort of remarkable.
Like in the use of the company's balance sheet, the guiding principles that have guided our dealmaking.
And good and bad markets remain intact in instances, where we see strategic imperative or in instances, where we think we can drive premium.
Fees and earnings for the company, we will consider use of the company's balance sheet.
And I may have missed that so what what was the reasoning for the lower investment spending.
2020, I'm, sorry, and can anyone.
No that's fine so.
So as we've talked about for a couple a couple of things. One is that we did talk about how some construction starts have.
Pushed forward a little bit and so that would then impact some of when the key money goes out the door, but probably more importantly, and larger as we just really are able to refine the.
The amount of cap ex that we're going to spend on system capex as well as the company's new headquarters building and when you put those together you get the reduction that we described today in the press release.
Okay, great. Thank you.
Thank you.
And we will take our next question from Rich Hightower with Evercore Goodbye. It is now open.
Hi, good morning, everybody.
But just in terms of the the development pipeline again, I guess given that.
A little more heavily skewed towards luxury in upper upscale then maybe some of your peers.
Wondering if you could <unk> could describe any <unk>.
Differences in the economics of those two specifically versus the select service tears.
And even by geography, but are there are there any pockets of of tightness more more so than the average around construction cost lending availability et cetera, et cetera that we should be aware of.
Sure. So maybe I'll remind you we got a question on this topic a quarter ago and I think the specific question. We got was within our portfolio in terms of the economics to emigh her to marry a from a fee perspective, how would a luxury hotel like a rich Carlton compare to a lower tier.
Like a Fairfield Inn and the response, we gave a quarter ago was obviously subject to variability by geography, but it's about Tenex, we see about 10 times the fee potential luxury hotel that we typically achieve in a select service hotel.
Are more complex projects they are more capital intensive projects, the complexities of getting them financed or not insignificant.
But as as evidenced by the volume of luxury in upper upscale on our portfolio the strengths of our Browns I think command.
Pretty effective.
The ability to source that for those projects.
Yeah. Thanks, I appreciate that maybe I'll turn it on its head for a second but the economics to the owners as well I mean are there any key differences in that regard versus what actually impacts Mary on itself.
Well as I said the these are complex projects you heard in the Weenies prepared comments.
Pretty extraordinary numbers about our branded residential business and with increasing frequency, we see the luxury projects being developed as mixed use projects that include a branded residential component that's often critical an underwriter.
Underwriting those project.
Okay.
In leisure destinations the Premium's, we've seen in luxury rates over the last couple of quarters have been extraordinary.
Alright, thank you.
Of course.
And we will take our next question from rapid Parley with U P. S. Your line is now open.
Great. Thanks, I wanted to circle back on on the group booking outlook I I know you talked about price uhm rates being up 4% next year I'm wondering if you could give us a sense of what kind of group bookings is relative to 2019.
And I think there's this idea that there's there's gonna be a lot of pent up demand for it but I'm wondering if that's actually translated into bookings yet maybe obviously not for Q1, but are are their quarters and Q T three or four where the what's on the books is is back to 19 levels or groups kind of not pulling that trigger just.
Yeah. Thanks.
Of course, thanks, Robin so if I if I look at 2022 in aggregate.
And I look at total group revenue on the books at the end of this past quarter and compare that to what was on the books.
At the end of the third quarter in 19 four 2020.
We're down about 20% in gross revenue, we're down about 23% in total booked rooms, and as I mentioned earlier were up nearly 4% and a dr.
Okay, Great now that that's helpful. Thanks, and then just on on the large investment spending I know a Lady you mentioned it was kind of refining some of the headquarters in systems. Capex is there is something related to that there's somebody compared contract investment.
In in the quarter that <unk> was there like a significant project or or maybe it's.
Multiple and set that would cut cancelled or something just wondering if that is related.
No not at all.
She was driving the the pair contract investment in the corner.
Yes.
Actually it was it was not a contract investment. This was an initiative for some international hotels that we had begun.
In 2019 related to operational improvements in in some international hotels that as a result of Covid and all that is going on.
In those hotels that it no longer makes sense to carry forward with that so the investment that we had put on our books to date needed to be written off.
So it was actually a a program initiative of the company for the hotels that we've not related to a hotel contract.
So it was like Ah you had kind of made loans to some hotel owners as an incentive and then can I have now that the lines are written off is that roughly how it where no no actually as you know very often we have programs that we.
Do for our hotel that they reimburse us for and in some cases, we actually develop the programs and over time the hotel owners pay us back in in this case, we had begun work on the program and invested some funds to develop the program and decided once.
<unk> came it no longer made sense to implement that program at the hotels and have them repay us over time.
We rode off the investment.
Okay, great. Thank you that's helpful. I don't know if <unk>.
One one final shot.
<unk> you made a comment we're talking about parity of using your cash flow kind of you know reinstating a smaller dividend and repugnant larger different at and you mentioned the investment grade reading to kind of take advantage of opportunities to <unk> to be opportunistic I think that's the expression you used is there anything you know.
The acquisition Wise that you think about.
You would be looking for opportunities I don't know if you can characterize anything and then and then that's it for me. Thanks.
I would say that the the.
The approach we've taken to evaluating those sorts of opportunities remains intact.
If you look at our track record in this area, we don't feel any particular pressure to do acquisitions simply for the sake of scale, if we see a gap in our portfolio whether that be.
Brand gap or a tier gap that we think represent significant growth opportunity or a significant gap in our geographic footprint that can be solved the way, we did with AC in Spain or protein in South Africa, We would certainly take a look at that but I think <unk> comment is really.
Around our capital philosophy to ensure we are in a good position showed one of those opportunities presented itself.
Okay, great. Thank you.
Thank you.
Cancel we'll take our next question from Chad beyond with Mark Kay. Your line is now open.
Hi, Thanks for taking my question I wanted to ask about the continued recovery and rate given how strong its been Anthony you talked about the outlook for group, but I'm wondering if you could kind of touch on maybe some of the differences in in leisure B T and in group have you got.
It has been able to test and learn maybe how high you can push pricing or is this tough to do without kind of full compression nights.
Well, there's a lot in that question I think the good news what we've seen through the last couple of quarters is the ability of the leisure segment to create compression and the creation of that compression almost irrespective of which segment drives the compression is driving really terrific.
Pricing power I think when you look at our retail rates across the portfolio. We are essentially back to 2019 levels and that's another statistical illustration of the strength of our pricing power and what's really encouraging about that is that we're achieving that pricing power, albeit at lower ox.
UNC levels than we were experiencing in 2019.
Okay, Great and then a quick follow up maybe a near term modelling help. Many you mentioned that normal seasonality is for Q4 of a Q3 to be down 6% sequentially from a rough par standpoint has there been a major difference looking back on on leisure versus.
Corporate given that you know I think we all expect for corporate to kind of improve sequentially here. Thanks.
Yeah sure I think when you look overall at the business. It is traditionally the case that you have lower business overall again, I think interestingly I actually expect to leisure could continue to strengthen because when you think about coming out of the pandemic.
Increasingly people are feeling comfortable traveling.
Where we see festive bookings in places like caller et cetera, it's great demand and the holidays are pacing up well compared to 2019. So I think we're very encouraged but the overall message. We were trying to impart is that typically is a period just with family holidays et cetera that it is.
A lower occupancy quarter, and it's worth mentioning that when you go back to 2019, and 18 levels and you look at our EBIT in Q3 and Q4 as we talked about in our in our comments that typically Q3 is a higher revpar driving quarter then.
Q for typically.
Okay. Thanks, I appreciate it thanks for the help.
And I will now turn the program back over to Tony kept copy auto for any additional or closing remarks.
Thank you very much and thanks to all of you for your continued interest in the company and the recovery of the global travel and tourism industry.
Back on the road and we look forward to running into you in our hotels around the world. Thanks, again and have a great day.
This does conclude today's program. Thank you for your participation you might disconnected anytime and have a wonderful day.
[noise] [music].