Q3 2022 Marriott International Inc Earnings Call
Good day, everyone and welcome to today's Marriott International's third quarter 2022 earnings at this time all participants are in a listen only mode. Later there'll be an opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star one.
One on your Touchtone phone. Please note this call maybe recorded.
Now my pleasure to turn today's program over to Jackie Burka Senior Vice President of Investor Relations. Please go ahead.
Thank you good morning, everyone and welcome to the myriad third quarter 2022 earnings call.
The call with me today are Tony Capuano, our Chief Executive Officer, Randy <unk>, Our Chief Financial Officer, and Executive Vice President business operations, and Betsy Dahm, Vice President of Investor Relations.
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 are 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 rate comments reflect systemwide constant currency results for comparable hotels and include hotels temporary closed.
Due to COVID-19.
Revpar occupancy and ADR comparisons between 2022 and 2019 for French properties that are defined as comparable as of September 30th 2022, even if they were not open and operating for the full year 2019, or they did not meet all the other criteria for comparable in 2019.
Finally, unless otherwise stated all comparisons to pre pandemic. Our 2019 are comparing the same time period in each year.
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 Tony.
Thanks, Jackie and thank you all for joining us this morning.
We had an outstanding third quarter quarter.
But rose about 2019 levels for the first time since the pandemic began up nearly 2%.
Revpar compared to 2019 improved sequentially from the second quarter in every region around the.
Global occupancy rose to $60 per so while ADR outpaced <unk> by 2019, excuse me by a remarkable 2%.
Compared to pre pandemic levels worldwide Revpar in September reached a new.
Monthly high watermark, increasing more than 4% or nearly 7% excluding greater China.
During the quarter leisure demand remained strong well above 2019 levels.
In the U S and Canada full service revenue for the quarter showed continued growth ending up 3% over the same quarter in 2019.
Fourth quarter full service group revenue is currently pacing up 4%, but it's likely to improve further given the strong last minute group bookings that we've seen all year.
The trend towards last minute bookings has led to meaningful compression and pricing power helping.
For new bookings rise each quarter this year.
At our managed hotels in the U S. ADR for in the year for the year group bookings made in the third quarter rose, 17% compared to same year bookings made in the 2019 third quarter a significant chunk from the 6% increase we saw in the first quarter.
ADR for group bookings made in the third quarter for 2023, outpaced 29, 2019 third quarter bookings for events in 2000 by 24%.
Business transient demand also continued to improve during the quarter, although it still lags 2019 levels third quarter business transient room nights in the U S and Canada were 11% below 2019.
We are currently in the midst of our special corporate negotiations for 2023 and are very pleased with how they are progressing.
After two years of holding rates steady. So early results look positive for at least high single digit year over year rate growth.
Third quarter, Jay in the weak trends continue to suggest that travelers are combining leisure and business trips.
In fact, the average length of a transient business trips has increased meaningfully and year to date is up more than 15% compared to 2019.
With borders reopened in most countries around the world Rising cross border travel help spur demand during the quarter, especially in Europe and in the Caribbean and Latin America or Cal region.
Cross border guess accounted for 15% of our global room nights in the third quarter, an uptick from 12% in the first quarter of this year.
In 2019, 18% of travel to our properties was from cross border guests. So we anticipate additional upside from international travel.
Specially from greater China, once stringent travel restrictions are relaxed.
Given rapidly rising interest rates and growing concerns about a possible global recession, we are closely monitoring consumer and macroeconomic trends.
There is no doubt that the hospitality industry is impacted by economic cycles, and with transient booking windows, averaging only about three weeks trends could change relatively quickly. However, we have yet to see signs of a slowdown in global lodging demand in fact, we've seen just the opposite booking trends remain very.
Healthy.
Given the sustained high levels of employment consumer trends prioritizing experiences versus goods pent up travel demand at a high level of consumer savings travel spending has been incredibly resilient.
In October demand remained strong across our regions with the exception of greater China, where trends are still low.
Our powerful Marriott envoy program grew 173 million members at the end of the third quarter.
The program achieved record penetration levels in the quarter, reaching 60% in the U S and Canada and 53% globally.
Members also continue to engage with our co brand credit cards, which had another solid quarter. After recently, making significant enhancements by adding new benefits to many of our U S cards sign ups have well exceeded expectations. This led to record new cardholder acquisitions as well as record spending for the first nine.
Months of this year.
We also introduced two mid tier cards at the end of September which should help drive strong growth going forward.
While much smaller fee contributors that our U S credit co brand cards, we are similarly seeing record growth internationally. This year in new card members and total cartons that this has been particularly driven by China, where we've had great traction after launching our first cards there in July .
Our bond <unk> members have been increasingly interacting with the platform through our direct digital channels, which helps boost owner and franchisee profitability.
Since 2019, our share of room nights booked through direct digital channels has increased more than five percentage points to 38%, while our distribution through otas has risen by less than one percentage point to 12%.
The power of bond more in our direct channels has also been evidenced in our latest offering the Ritz Carlton yacht, which made its inaugural voyage from Barcelona last month.
Remarkably around two thirds of all the bookings for this incredible brand extension have been through direct channels, which is many times about the rates most cruise companies experience.
Additionally, envoy members account for more than half of the yards bookings, we look forward to more shifts joining the portfolio in the future.
Shifting to the development front, our pipeline grew for the fourth quarter in a row totaling more than 500 in 2000 rooms by the end of the third quarter.
Siting activity in the quarter remained healthy in most regions of the world.
Our development team continues to be laser focused on conversions, a particularly bright spot in the development story conversions represented 21% of room signings and 27% of remote things in the quarter. We are very enthusiastic about the level of conversations on conversions, including for multiyear.
That conversion opportunities.
Outside of greater China, we were pleased to see new construction starts to pick up nicely in the third quarter, while not yet back to 2019 levels new construction starts in the U S reached the highest quarterly level since the pandemic began.
For full year 2022, we now expect gross room's growth of approximately four 5% compared to our prior expectation of closer to 5%.
The change is primarily a result of fewer expected openings in greater China as the Lockdowns there have extended construction timelines.
The good news is that we have not seen deals in greater China or in any of our regions falling out of the pipeline at a higher than usual rate.
With just two months left in the year, we now expect deletions at the bottom end of our prior guidance deletions could be about one 5% for 2022 or 1%, excluding the 50 basis point impact from our exit from Russia.
So our net rooms growth for 2022 is likely to be around 3% or three 5% before factoring in installations in Russian.
We're always looking at opportunities that help broaden the offering for our guests as well as our owners and franchisees last month, we announced our agreement to acquire the city Express brand portfolio, which is currently comprised of 152 hotels with over 17000 rooms in the calibration.
We are quite bullish on the moderately priced mid scale space, which has meaningful growth potential.
On closing this transaction, we will immediately gain a significant foothold in this high growth segment in <unk>, while also becoming the largest hotel company in the region.
We are incredibly excited about the opportunity to expand in this segment and <unk> as well as other locations around the world.
If the transaction closes before year end, our 2022 gross room's growth could be around five 5% and our net rooms growth could be approximately 4%.
We really look forward to working with the city Express team.
We expect solid rooms growth going forward given the attractiveness of our portfolio of global brands are powerful loyalty program, our momentum around conversions that are industry, leading pipeline, while the exact timing will depend on how new construction starts trends from ear, we remain confident that over the next several years.
We will return to our pre pandemic mid single digit net rooms growth.
Now before I turn it over to leading I just want to recognize and thank our associates around the world for their continued commitment passion and resilience leading thank you Tony.
Excellent financial performance again this quarter.
Driven by continued momentum in global Revpar growth in the U S and Canada third quarter Revpar was three 5% above pre pandemic levels with ADR, surpassing 2019 by more than 10% Revpar.
Revpar for all market types primary secondary and tertiary and all brand types from luxury through extended stay with more fully recovered in the first time with the exception of Asia Pacific Our international regions posted incredibly strong revpar growth as restrictions across most countries.
We lifted Europe in particular benefited from a large increase in U S leisure demand thanks to the strong dollar.
Compared to 2019 third quarter Revpar rose, 6% in Europe , nearly 19% in the Middle East and Africa, and nearly 18% in cattle.
Revpar is still lagging behind 2019 levels in greater China, and in our Asia Pacific, Excluding China, or APAC region, Greater China improved the most in the quarter with Revpar, 23% below 2000, 1930 percentage points better than a quarter ago.
However, the recovery there remains uneven given China's renewed commitment to its strict zero Covid policy. The good news is that we continue to see that when the market reopens for domestic travel after a lockdown lodging demand rebound rebound very quickly and.
In APAC, South Korea joined India, and Australia, and crossing the full recovery Mark, but this was offset by Japan's borders remaining closed until the end of the quarter third quarter Revpar in APAC was 14% below pre pandemic levels, an eight percentage point improvement from a core from a quarter ago.
No.
As we move through the fourth quarter APAC is benefiting from a recovery in air lift and Japan now open borders.
Three quarter third quarter total gross fees of $1 1 billion rose, 11% compared to 2019 exceeding the top end of our guidance.
Growth was driven by Revpar improvement in room additions as well as another quarter of strong non revpar related fees.
Those fees totaled $192 million in the third quarter, largely aided by ongoing growth in our co brand credit card fees, which rose 22% year over year.
The strength of our industry, leading luxury portfolio also contributed significantly to fee growth in the quarter.
Gross fees from our luxury properties were up 13% versus the same quarter in 2019, even with greater China is weaker performance.
While our luxury properties account for 21% of our managed rooms. They contributed 34% of our total incentive management fees in the third quarter.
Third quarter adjusted EBITDA also exceeded the high end of our guidance outpacing the same quarter in 2019 by 9%.
With the strong U S dollar foreign exchange net of hedging negatively impacted adjusted EBITDA by $22 million in the quarter. Some of which was included in our guidance a quarter ago.
This negative currency translation was more than made up for by the positive impact from increased U S leisure travel abroad.
We estimate that net of our hedges of 100 basis point change in the U S dollar could affect full year 2022, adjusted EBITDA by less than $10 million.
G&A and other expenses totaled $216 million in the third quarter better than our guidance, largely reflecting lower than expected administrative costs and bad debt.
At the hotel level, we remain focused on containing operating costs for our owners and franchisees, while also delivering superior service to our guests.
With ADR, 15% above 2019, and our significant productivity enhancements third quarter profit margins at our U S and Canada managed hotels or two full percentage points above 2019 levels, despite meaningful wage and benefit inflation.
Wage and benefit growth, while still high continue to moderate in the third quarter.
Let me now turn to our fourth quarter and full year 'twenty two 2022 guidance the details of which are in our press release as.
As we headed into the end of the year. We're very pleased with the strong continued momentum in our business group and transient bookings are showing further gains against 2019 in both the U S and Canada and internationally, we expect fourth quarter revpar compared to pre pandemic levels too.
Accelerate from the third quarter, even with anticipated weaker demand in greater China.
Compared to 2019 fourth quarter Revpar increased four 6% in the U S and Canada be down 2% to flat internationally and increased 2% to 4% globally.
Worldwide fourth quarter, Revpar increased 27% to 29% over fourth quarter 2021.
We're still working through our 2023 budgets and recognize that there is heightened macro uncertainty.
That said, we currently think 2023 global Revpar could increased nicely year over year driven by gains in both the U S Canada and internationally.
Each quarter could see growth compared to this year with particularly strong growth in the first quarter due to the easier comparison, given the impact of the <unk> variant in early 2022.
For full year 2022, we're now anticipating G&A expenses of $880 to $890 million slightly better than our prior guidance, primarily due to lower bad debt expense.
We're also raising our full year adjusted EBITDA guidance and now expect it now expect adjusted EBITDA of around $3 79 billion at the midpoint of the range, which is 6% higher than our prior full peak year of 2019.
Due to the timing of some capital expenditures for owned leased hotels and corporate systems as well as key money payments. We now expect full year investment spending of closer to 500 million assuming the city Express transaction does not close in 2022.
Strong spending on our credit card is expected to result in loyalty being a slight source of cash for the full year before factoring in the reduced payments received from the credit card companies.
Year to date, our net cash provided by operating activities was $1 9 billion a significant increase of nearly $1 2 billion compared to the first three quarters of last year. A strong reminder of the power of our asset light business model.
At the end of the quarter, our leverage ratio was excellent at the low end of investment grade targets with our solid financial results and cash flow generation. We have already returned $1 9 billion to shareholders through buybacks and dividends through October 31, and we now expect to return more than two.
$7 billion to shareholders this year.
In closing, we're incredibly proud of how well our business is performing and how resilient our business has proven to be Tony and I are now happy to take your questions operator.
At this time I would like to ask a question. Please press the star and one on your Touchtone phone.
You may remove yourself from the queue by pressing the pound key.
Once again to ask a question that is star one.
And we'll take our first question from Shaun Kelley with Bank of America. Your line is open.
Hi, Good morning, everyone. Thanks for taking my question.
Good morning, Sean.
Tony you probably wanted to start with you if we could one thing thats been a bit of a theme and you hit on it as well through your through your commentary was just how strong the development environment has held up and I'm wondering if you could unpack that for us a little bit just given we continue to hear about rising.
Financing costs, a little bit more stress in some of the commercial real estate markets and that contrasts pretty greatly with what.
You kind of implied in your comments about just how well your signings are going and your activity is going to can you help us square that up a little bit and just talk about what youre seeing on the ground.
Of course.
So on the siding side, we continue to see strong.
Development Committee volume, we continue to see strong franchise application volume.
In most markets around the world.
The constriction, we're seeing in the debt markets for new construction, particularly here in the U S.
<unk> lengthening the cycle, even a bit longer in terms of getting shovels in the ground.
But we're quite encouraged about the consistency we've seen in the volume of under construction projects in our pipeline. In fact, we were looking at it over the last few days as you saw in our release, we continue to have a little over 200000 rooms under construction, it's actually the 20th straight.
Quarter, where we've had more than 200000 rooms under construction globally.
The market in China is most certainly.
Where we're seeing the most challenges.
Disproportionate share of our projects in the pipeline in China in fact about 60%.
In the luxury and upper upscale tier principally in primary markets, which are.
Well the combination of those quality tiers in those markets.
Cause those projects to be the most significant fee generators.
But they are more complex development projects and it takes a little longer for them to get open.
A market like China.
But broadly we continue to see really powerful interest in our portfolio of brands and where may be most encouraged by the volume both our signings and openings in the conversion tier.
Okay.
That's great and then.
Maybe as my follow up Lee you mentioned.
I believe as Youre looking out to 2023 Revpar did it could increase nicely and you said each quarter positive.
Versus this year could you just talk a little bit about again very high level assumptions behind that I know no. One has got a crystal ball here, but just how did you kind of how do you consider the macro when you when you think about that outlook and maybe some of the <unk>.
Or minuses.
<unk> into that.
Yes sure Thanks, Sean.
As you say Theres, obviously continues to be a fair amount of uncertainty.
About the possible recession.
Given the defense continued rise in REIT in rates and economic headwinds that do continue to grow but I think we've got some things in our business that really do.
Lead us to confidence about 2023, although we are not predicting per se a recession.
We clearly believe there does continue to be pent up travel.
Travel demand, particularly in parts of the world, where the borders are just opening.
We're also seeing.
Just generally a desire for.
Travel services as compared to goods, which which we do see strongly in leisure.
We also see as we think about.
Kind of the overall macro environment that there is pent up savings for the consumer So we'll have to see but again from where we sit right now and as we look into the booking trends moving into 2023, we continue to see strength across all of the business.
Segment, Sean and then the last thing I would say is <unk>.
The reality is our booking window, we're still short so.
Roughly three weeks.
For transient bookings things could change relatively quickly but.
But the signs that we see right now we feel good about 2023, obviously Q1 is there is a particularly.
Hopeful given we had <unk> in the first quarter of 2022.
Thank you very much.
Okay.
Our next question will come from Joe Greff with JP Morgan Your line is open.
Hi, good morning, everybody.
I was hoping you could talk about 2023.
Group business on the books.
For next year, and maybe talk about it maybe a little bit differently than maybe how you've talked about it in the past I was just wondering how much of group for 2023 is on the books for insured as a percentage of what you anticipate the total to be and then maybe you can just talk about in.
In segments in terms of when that was booked so to get a sense of pricing how much of 23 group was booked in 'twenty two how much of it was booked in 'twenty one how much of it was booked prior to 'twenty, one and obviously how much would you anticipate in the year for the year just given the relative strength of group of late thank you.
Yeah of course so.
Let me start macro and then I'll try to get a little more precise in reference to your specific question.
2023 group revenue on the book is currently pacing down about 11%.
Relative to 19th although candidly you heard <unk> comments about the short booking window on transient similarly short booking window on group and so I don't know that looking at that Dell, 11% is particularly relevant.
Even for Q4 this year were up 4% and we think that will likely improve through the quarter given the strength of short term bookings and the trade that many of our customers are making for flexibility of they're willing to pay higher rates.
When I look deeper into whats on the books for 2023 room nights are down in the high teens.
ADR is actually close to about 10%.
And then I think your second question was really about when that business is being booked.
But I guess I'll try to give you. Some 2022 data that is hopefully indicative of the trends we're seeing.
<unk>, 50% of the group business, we've seen year to date in 2022 was Basel in the year for the year.
That's about double what we saw.
Pre pandemic, where typically we'd see about 25% of our total group volume being booked in the year for the year.
Great. Thank you and then lini.
Heard your comments obviously about.
Broad expectations for 2023.
Par growth, how do you think non revpar related fees.
Perform relative to that Revpar growth expectation would you expect it to be similar would you expect it to be plus or minus how do you think about that.
So.
We're in the middle of our budget process, Joe So, we obviously aren't getting to where we're talking about specifics on revpar growth of 23 over 22.
I think.
What we've seen this year as credit card fees, frankly being up over 20% year.
Year to date this year and I think for the full year, obviously, our guidance implies the same.
So I think youll continue to see.
Growth in the card holders and then growth in spend but whether it matches exactly revpar, we're not in a position to to say specifically, obviously when you look at compared to 19, those credit card fees have grown meaningfully more than hotel related fees because of that.
Of Covid.
And the steady growth in card holders and credit card spend.
Each and every year as we've moved through 2019.
Again broadly speaking we are looking at growth.
Non revpar fees in 2023 boats from credit card holders as well as spend but the relative.
Rate of growth compared to Revpar, we will get closer to as we move through the budget process, but we're looking for healthy growth in both.
Thank you very much guys.
Okay.
And our next question will come from Robin Farley with UBS. Your line is open.
Oh, great. Thanks, I was curious about the acquisition that you made in October and you talked about expanding in the Midscale segment.
And the caller region with that brand do you have thoughts about the mid scale segment in the U S not necessarily with that brand, but but you know.
Some other some other brands that maybe we don't know about yet.
Of course, so as we mentioned in the release on the acquisition of I think.
At least touched on this in my prepared remarks.
The acquisition initially is focused on the Cal region. We are equally excited about the growth prospects for mid scale across calendar and what this transaction does for us in terms of further strengthening our footprint across this really important region.
As with many acquisitions that we've done over the years once we close once we start rolling in caliber we will of course of valuate. The applicability of this platform as to whether it makes sense to rollout some or all of the sub brands under the city Express Brad banner into other markets around the <unk>.
World.
But right now we're focused on getting the transaction closed.
Yeah.
But in general it is the mid scale segment in the U S something whether it's whether it's that brand or not that that you kind of have your sights set on.
Well as you know we are not in the mid scale segment in the U S. Certainly this acquisition gives us the opportunity to evaluate whether it makes sense to add our mid scale in any other market inclusive of the U S.
And then just one follow up on the.
The comment your comments about.
The pipeline growth in rooms under construction.
And you mentioned that it's been a very steady sort of rooms under construction in the last few quarters your steadily above the.
The 200000 unit rate is there.
Can you give us a little bit of insight into sort of new construction starts in the U S. Only because sort of the broader U S market seems to be.
Slowing number of new construction starts.
Hotel space, So just wondering how that.
Sort of incremental hotel starts looks.
Of course so.
Again outside of greater China, which is.
Quite a volatile environment, we're pretty encouraged about what we're seeing around the world in terms of new construction starts we are certainly not back to the peak of 2019.
But as I mentioned earlier, new construction starts in the U S and Canada reached the highest quarterly level, we've seen since the start of the epidemic.
Okay alright, thank you.
Of course.
And our next question will come from Smedes Rose with Citi. Your line is open.
Hi, Thanks.
I wanted to ask a little bit about net unit growth as well going forward.
Probably remains difficult for developers to kind of excess capital and then just wondering D. C Marriott, providing more of a backstop to developers either through.
Loan guarantees are just direct financing.
Okay.
Sure of course so.
As both linear and I referenced the availability of debt, particularly for new construction here in our biggest market is a bit challenging.
The good news is the pipeline continues to be strong we continue to see fallout from the pipeline and below our historical averages.
It has always been the case in constricted debt markets.
Brand affiliation track record of the developer strength of the sponsorship or what are the factors that capture.
Construction debt that is in fact available and so we see signs that the strength of our brands continue to capture a disproportionate share of what's out there.
A quarter or so ago, we announced closing on the financings for our $1 $2 billion Hayward Pacific hotels ensure this to California. This quarter, we announced the closing on financings for our new Ritz Carlton reserves in Papagayo in Costa Rica. So we do feel like we are grabbing meaning.
Full share of the dollars that are out there.
And I'm, sorry, Smedes, what was the second part of your question or key money well.
Yes.
Yeah, Yeah, Yeah, maybe I'll take a high level.
Shot at this and Lee can jump in with some more color I don't see our our tried and true philosophical approach to investment in projects changing even in this environment.
Certainly the competitive environment gets more competitive by the day.
But we will use the <unk> or apply the same disciplined lens that we've applied in the past and among the long list of reasons will continue to take that approach over the years. When you look at the projects, where we've leveraged the company's balance sheet.
To get to accelerated growth those are projects that tend to generate outsized fee volumes. The only thing I'd add is that we are not seeing that we are increasing our financing support or investments support.
In a meaningful way for deals I think at the end of the day.
Okay, Let me think about the organic number to use use that similar to.
The shears three per cent for next year.
<unk>. Thank you.
Thank you Patrick.
Yeah the.
Some of the Mercatus that's out there causes us to be reluctant to give you a hard number what I will tell you as we are encouraged by deal value. We are encouraged by the volume of under construction projects and may be most notably in a death constricted environment, we are particularly enthusiastic about that.
The volume of conversion deals were improving and signing the volume of conversion deals that were opening and the volume of conversion discussions, we're having boats on individual projects and multiunit opportunities.
Okay well thank.
Thank you.
Thank you.
And our next question will come from David Cats, with Jeffrey and I Miss open.
Hi, Good morning, everyone. Thanks for taking my question I wanted a good morning, I wanted to ask about Imf's. The the release shows you know two thirds of the more international.
Can can you just add a little color on what percentage of North American hotels are earning them today and you know any qualitative commentary about how that curve my rule out into the future would be helpful.
Yeah sure. So let's talk about it a couple of things first of all just from the dollar sized David we were at 35 million.
I am maths or about a third from the U S and Canada and that is pretty similar to what it wasn't Q3 19. It was 39 now it was 26% of overall hotels in the U S and Canada, earning incentive fees in Q3, and 56% 19, but but it's important to <unk>.
Take out a full service for women in service because the reality is that we had a large portfolio back in 19 of manage.
Unlimited services, which is you know left our systems over a year ago. So if you actually look at full service, we're actually at a slightly higher percentage of hotels, earning imf's in full service than we were in 19.
And again as we talked about before at my comments that you saw how's profit margins that are full service hotels.
200 basis points compared to 19 with our strong revpar performance and really strong efforts on the cost containment side. So so I I, we feel good about what's going on we've talked about.
Hoped for expected growth in <unk> in 2023, both U S and internationally, which should bode well for continued progress unintended fees, obviously wage and benefit grows is is something we're keeping an eye on which.
Has moderated debate, although it still reflects the fact that we're in an inflationary environment and then the last thing I'll say is we we've continued to see.
Improvement in the large urban markets, where we've got a number of managed full service hotels in the U S and we've seen nice progress since we moved into Q3 and some of those urban markets and we expect them to continue on.
As we move into 2023.
With that recovery.
[noise] understood. Thank you for that and as my follow up you know the discussions happened during COVID-19 early on about the fee structures and the interactions between owners and yourselves around you know contracts and service delivery et cetera, and interestingly came up with.
And a couple of places from investors recently about what's changed.
Now that at least for most of US Covid is kind of in the rearview mirror can you just talk about.
Now that's different and how that's manifesting itself in and the numbers.
Fundamentally the fee structures have not changed so I would say Wow, we did things that on a temporary basis like helped on that reducing reimburse book costs and helping with extensions on accounts receivable they were.
Oh really overwhelmingly temporary things and then I'll also if you remember it.
85% of the things that we charge are based on top line revenues of the hotels, so they they've flat.
<unk> as the revenues go up and down which is helpful to the hotel owners I think you know you see things like what we've talked about on our direct or indirect digital bookings things like that which do help the hotels origins bye bye coming through that channel rather than.
Coming through the O T. As as an example, all the productivity efforts that we've we've done to help improve.
Our productivity perverted, we've obviously worked very hard to make sure that we can make the most out of every revenue dollar that comes through the hotel, but as far as as structural.
Changes in the contract there's nothing really to look for it there.
No no the only thing I would add.
We obviously have brought back all of our quality metrics or QA audits are ran standards.
You might think that the owners would balk at that I think quite the contrary they care deeply about their neighbors within the portfolio and continue to encourage us to bring back and enforce those standards and then similarly, we obviously gave are some franchisees a measure of relief on renovations.
Cycle at the very bottom of the trough of the pandemic.
Bringing those requirements back, but with some some pragmatic perspective on hotels that are doing a terrific job on service as evidenced by those quality metrics and giving them the ability to selectively extend some of those renovation cycles.
Understood. Thank you very much.
Thank you. Thank you.
Alright next question you woke up the bill crowd like Raymond James Your line is open.
Good morning, Thank you Tony.
Tony morning view.
Few hotels, Amanda is kind of a leg lagging economic indicator, maybe three or six months.
Curious, whether you agree with that and if so what is the best whether it's a consumer view or other economic data points to try and judge the macro change that that maybe a foot.
Yeah. It's a good question I I would revert maybe refer back to some comments that both lenient I've made this morning about this extraordinarily short booking window, so probably not as much of a lagging indicator as we might have experienced pre pandemic.
While we are encouraged that optimistic by the forward looking data, we see I think <unk> said it best we also recognize that we work in an industry that is cyclical and subject to economic cycles.
And because of that short booking window trends can change quickly. However, even if in fact, we are in a recession or we fall into a recession I think the company and travel more broadly are positioned differently. We can maybe you Wanna talk about that yeah. I think we we definitely see that we.
Could perform relatively better than we have in prior recessions, you've definitely got unemployment rates right now that are truly at historic lows and while certainly.
What is happening with interest rates.
We'd be expected over time to influence that we are.
As far cry from the nine and a half that we were in the great recession and and similarly, when do you think about cutting up savings and the desire for.
For people to.
<unk> and do travel to to not assume that they can put it off that they really don't want to postpone it and that there is still those business and leisure trips that families and consumers wanted make and and Wow consumer.
Health is something that we will be watching extremely closely.
For the moment, there does look to be some some extra room, there that could help as we go into a potential recession.
So that's helpful. If I could just ask my follow up questions. We understand that the owners meetings recently the the topic of of consistency of brand is kind of come up is is there some complaints about that removing enough rooms from the system.
You talked about the <unk> low number of removal should we expect that to go up over the next couple of years as <unk> as you get back to kind of enforcing.
Capital spending.
So maybe I'll take the first part in Leamington takes a second.
As I mentioned earlier.
Vast majority of our owners are quite pleased that we brought back our quality metrics and quality requirements. They care as you point out meetings wait about the quality of the overall portfolio. While there may be some pockets of frustration I think there's also a broad understanding that it was appropriate.
To suspend those processes during.
The the depths of the pandemic and then it'll take us a bit now that they are reinstated to get back to having an adult empirical data to be a little farther on enforcement.
The only part that I would add is that for.
The nurse, who did do some renovations during COVID-19 I think the results that they're seeing are powerful and I think are good incentives for other owners to do the same we did as Tony mentioned, we did gives owners that bit about <unk>.
<unk> in the in the heart of Covid to help everybody managed through.
The pandemic, but I I think as we are coming out of it I think the entire industry recognizes the importance of having both product and service up to where our consumers are guests expect them to be given the price is that people are paying so we do expect.
<unk> to be additional renovations and frankly, probably a pick up in renovations now that were largely through that impact and and believe that the returns on those renovations will be strong.
For the time being we certainly continue to see that aren't we expect our information rain to stay in this 1% to 1.5%.
Right that we've talked about for several years, we we otherwise we get into the new year refined that a bit as we go through the entire budget process, but I think that that sort of range should be your expectation.
Perfect. Thank you.
And our next question will come from <unk> with Barkley Your line is open.
Hey, good morning, everybody. Thanks for taking my question Uhm, so or maybe good morning, <unk>. So when you when you think about corporate transient recovery and specifically focusing on your largest accounts the larger corporates in the U S. What is the tone.
That you kind of get back from them when you talk to them about how they are planning for the future. Obviously, we know that near term you're seeing good trends, but you know, we hear and see headlines regarding especially in tech some larger companies pulling back on expenses and things like that I. Just curious you know how you feel about.
<unk> some of that some of those things.
Sure. So at a macro level. We are are again encouraged by the sequential quarter over quarter improvement in business transient you'll recall that in the U S and Canada B T was down almost 25% in the first quarter that dropped to 13% in Q2.
And just down 11% in Q3.
As we've discussed in the past small and medium sized companies, which are about 60 per cent I'll show speed tea room nights are fully recovered and in fact in Q3 their room nights, where about 10% when you're given to the larger companies.
Your comments are right special corporate which tends to be a lot of those big companies their room nights were down about 17% in the quarter.
And when you start to look at the specific tiers within special corporate you brought up a tech as an example, they were down about 23 per cent in the corner.
Tried to respond more qualitatively in terms of what we're hearing from them.
I think it's really embedded in the short booking window.
They absolutely talk about the value of face to face interaction with each other with their customers with their clients.
But they are all so again much like our group customers.
Willing to trade a bit of of pricing for flexibility.
And then the last thing I would say to try to address your question. We are relatively early in the special corporate rate negotiations.
What we're seeing in terms of the the pricing in a row and confidence that we're gonna end up at least with high single digit year over year race.
Is pretty encouraging as well.
Great. Thanks for that Tony I appreciate it and then.
Mm mm mm conversion activity, which you you guys did talk about and hoping to ask it and it's been a slightly different way, but you know just given the sort of counter cyclicality of that activity in past cycles and sort of <unk>. One would think maybe that you know we were sort of at the tail end of conversion activity that was L. A.
<unk> because of Covid, but maybe that there is some you know pick up there could be a pickup of conversion activity. If we went into a another if we went into a recession is that how how you think about it at this point, it's not it's not I think the reality is a couple of factors are in.
Play here they'd give us even more confidence about the runaway we have for conversions.
Number one for Mary.
We've never had a better stack of conversion friendly browse and across multiple quality tears, which is really encouraging for us number two we talked a bit about the constriction in the debt markets. There is meaningful <unk> not meaningfully relatively more data available for existing.
Assets that there is new construction, but the same lenses from the lender's perspective apply brand affiliation track record and so in order to source, but that that is available for existing assets. I think you see existing owners and buyers of assets thinking longer and harder about brand affiliation.
And then I think third I mentioned this in response to one of the earlier questions.
Tip, we've seen in multi unit conversion discussions is is a little different than what we've seen at the tail end of other cycles.
Perfect. Thanks, so much everyone.
Welcome.
And our final question will come from Duane anyway with Evercore ISI. Your line is open.
Hey, thank thank you so much ninth nice to speak with you.
On the on the business Trans you'd commentary, which I think you said down 11.
I wondered if you could provide some regional color, where where would you mark that recovery across you know the geography that you touch and.
And then just as we think about the shape of that recovery curve you know we've seen some nice sequential improvement here.
But should we be thinking about a plateau you know through early next year, when we have new new sort of a budget cycles or are there regions, where you still think sort of sequential improvement into four Q on B T is on the table.
Sure. So, let's let's talk I'm gonna reference back to Tony's comments about where roughly 60 per cent of our D. T. In Q3 was from small and medium sized companies.
And that frankly is sprinkled all over the country. So that's gonna be everywhere from New York to Tulsa to smaller markets that are unlimited service hotels, rather than the larger special corporate accounts.
Obviously are more headquartered in the urban.
Large cities.
I will say, it's we've continued to see progress as we moved along when you think of for example, do you think of New York City, which has moved quite nicely during the year.
With the improvement in D T, where they were down 29% in Q1 today or New York City was actually three per cent higher in Q3 and 2019. So I I think you will continue to see the progress.
The trends and B T or similar.
Internationally as well as in the U S. I I do think as we move into 2023.
This will depend on the state of the economy, so kind of having a prediction about exactly where b T will go.
It is tough to pinpoint we do look for continued improvement and think it will ultimately get back to where it was but the exact timing of that hard to say and then the last thing I'll point out is just the reality that we have seen it moderate in terms of its rate of improvement as we've moved into.
Two three and I would expect to see that moderation continue.
[noise], Okay. Thank you very much.
Thank you.
And it appears we have no further questions at this time I'll try the program back to Tony kept Bolano for any closing remarks.
Great well. Thank you all again for joining us. This morning. Thanks for your continued interest in Marietta get back on the road and we look forward to seeing you at our hotels.
Coming weeks and months have a great day.
Thank you.
This does conclude today's program. Thank you for your participation and you may disconnect at any.
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Mhm.
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Good day, everyone and welcome to today's Murray International third quarter of 2022 earnings at this time all participants are in a listen only mode. Later, there will be an opportunity to ask questions. During the question and answer session. You may write just start to ask a question at any time by pressing the star and one on your Touchtone phone. Please note this call may be recorded.
It is now my pleasure to turn today's program, Oh, but to Jackie Burger Senior Vice President of Investor Relations. Please go ahead.
Thank you good morning, everyone and welcome to Marietta, Eric Carter 2022, earning.
On the call with me today.
Our Chief Executive Officer leaning Keith.
Chief Financial Officer, and Executive Vice President.
Issues, and Betsy, Don or Vice President of Investor Relations.
I will remind everyone.
Today are not historical facts and are considered forward looking statements under federal security, but.
These statements are subject to your mind and uncertainty.
Grabbed in our SEC filings, which could cause future results to differ materially from those expressed by fire.
Comment.
Savings in our comments in the press release, we issued earlier today are effective only today and will not be updated as actual events unfold.
Also note that unless otherwise stated are <unk> occupancy an average daily rate comments reflect systemwide constant currency resolved for comparable hotels include hotels temporary due to COVID-19.
Best part occupancy a yard comparisons between 20, and 22 and 2019 or France properties that are defined as comparable as of September 30th 2022, even if they were nice opening operating for the full year 2019.
All the other criteria for comparable in 2019.
Additionally, unless otherwise stated all comparisons to pre pandemic of 2019 are comparing the same time period and each year.
Can find our earnings release and reconciliation a tall non-GAAP financial measures referred to in our remarks today on our Investor Relations website.
Now I'm gonna try to call them over to county.
Thanks, Jackie and thank you all for joining us this morning.
We had an outstanding third quarter.
<unk>.
The room is about 2019 levels for the first time since the pandemic began up nearly 2%.
<unk> compared to 2019 improved sequentially from the second quarter in every region around the world.
Global occupancy rose to 69%, while ADR outpaced 29 two.
2019, excuse me by a remarkable 10 per cent.
Compared to pre pandemic levels worldwide web part in September reached a new <unk>.
Monthly high watermark, increasing more than 4% or nearly 7% excluding greater China.
During the quarter leisure demand remains strong well above 2019 levels.
In the U S and Canada full service revenue for the quarter showed continued growth and take up 3% over the same quarter in 2019.
Fourth quarter full service group revenue is currently pacing up 4%, but it's likely to improve further given the strong last minute group bookings that we've seen all year.
The trend towards last minute bookings has led to meaningful compression and pricing power, helping group ADR for new bookings rise each quarter this year at.
At our managed hotels in the U S. ADR for in the year 40 or group bookings made in the third quarter rose, 17% compared to same year bookings made in the 2019 third quarter.
Significant chunk from the 6% increase we saw in the first quarter.
ADR for group bookings made in the third quarter for 2023, outpaced 29, 2019 third quarter bookings for events in 2000 by 24%.
Business transient demand also continued to improve during the quarter, although it's still lags 2019 levels third quarter business transient room nights in the U S and Canada, where 11% below 2019 <unk>.
We are currently in the midst of our special corporate negotiations for 2023 and are very pleased with how they are progressing after two years of holding rates steady. The early results were positive for at least high single digit year over year right.
Third quarter day of the week trends continue to suggest that travelers are combining leisure and business trips and.
In fact, the average length of a transient business trip has increased meaningfully and year to date is up more than 15% compared to 2019.
With borders reopened in most countries around the world Rising cross border to travel help spur demand during the quarter, especially in Europe and in the Caribbean and Latin America or calibration.
Cross border guests accounted for 15% of our global room nights in the third quarter, an uptick from 12% in the first quarter of this year.
2019, 18% of travel to our properties was from cross border guests. So we anticipate additional upside from international travel a <unk>.
Specially from greater China wants stringent travel restrictions are relaxed.
Given rapidly rising interest rates and growing concerns about a possible global recession, we are closely monitoring consumer and macro economic trends.
There is no doubt that the hospitality industry is impacted by economic cycles, and transient booking windows, averaging only about three weeks trends could change relatively quickly.
We have yet to see signs of a slowdown in global launching demand in fact, we've seen just the opposite booking trends remains very healthy given.
Given sustained high levels of employment.
Consumer trends prioritizing experiences versus goods pent-up travel demand at a high level of consumer savings travel spending has been incredibly resilient.
In October demand remains strong across our regions with the exception of greater China, where treatments are still law.
Are powerful Marriott ongoing program route 173 million members at the end of the third quarter.
The program achieved record penetration levels in the quarter, reaching 60% in the U S and Canada and 53% globally.
Members also continue to engage with our Cobra credit cards, which had another solid quarter.
After recently, making significant enhancements by adding new benefits to many of our U S cards sign ups have well exceeded expectations. This went to record new card holder acquisitions as well as record spending for the first nine months of this year.
We also introduced to mid tier cards at the end of September which should help drive strong growth going forward.
While much smaller fee contributors that our use chrome program cards, we have similarly seem record growth internationally. This year in new card members and total carbon step.
This has been particularly driven by China, where we've had great traction after launching our first cards there in July .
Our bottom boy members have been increasingly interacting with the platform through our direct digital channels, which helps boost the owner and franchisee profitability.
Since 2019, our share of roommates booked through direct digital channels has increased more than five percentage points to 38%, while our distribution through otas has risen by less than a percentage point to 12%.
The power button boy in our direct channels is also evident in our latest offering the rich Carl yacht, which made it to <unk> from Barcelona of last month.
Right around two thirds of all the bookings for this incredible brand extension have been through direct channels, which is many times about the rates most cruise companies experience <unk>.
Additionally, bondpoint members accounts for more than half of the yacht bookings, we look forward to more shifts joining the portfolio in the future.
Shifting to the development from our pipeline through for the fourth quarter in a row totaling more than 502000 rooms by the end of the third quarter, citing activity in the quarter remains healthy in most regions of the world.
Our development team continues to be laser focused on conversions are particularly bright spot in the development stories conversions represented 21 per cent of room silence and 27 per cent of remote things in the corner were very enthusiastic about the level of conversations on conversions, including for multi use.
Conversion opportunities.
Outside of the greater China, we were pleased to see new construction starts to take up nicely in the third quarter, while not yet back to 2019 levels new construction starts in the U S reached the highest quarterly levels since the pandemic began.
For full year 2022, we now expect gross rooms growth of approximately 4.5% compared to our prior expectation of closer to 5%.
The change is primarily a result of fewer expected openings in greater China as the Lockdowns there have extended construction timelines.
The good news is that we have not seen deals in greater China or in any of our region's falling out of the pipeline at a higher than usual rate.
With just two months left in the year, we now expect deletions at the bottom end of our prior guidance deletions could be about 1.5% for 2022 or 1%, excluding the 50 basis point impact from our exit from Russia.
So our net rooms growth for 2022 is likely to be around 3% or 3.5% before factoring installations in Russian.
We're always looking at opportunities that helped broaden the offering for our guests as well as our owners and franchisees last month, we announced our agreement to acquire the city Express brand portfolio, which is currently comprised of 152 hotels with over 17000 rooms in the calories region.
We are quite bullish on the moderately priced midscale space, which has meaningful growth potential. Upon closing this transaction, we will immediately gain a significant foothold in this high growth segment in Calla, while also becoming the largest hotel company in the region.
We are incredibly excited about the opportunity to expand in this segment and count as well as other locations around the world.
It's the transaction closes before year end or 2022 gross rooms growth could be around 5.5% in our net rooms growth could be approximately 4%.
We really look forward to working with the city Express team.
We expect solid rooms growth going forward given the attractiveness of our portfolio global brands are powerful loyalty program or momentum around conversions and our industry leading pipeline.
The exact time and will depend on how new construction starts trends from here, we remain confident that over the next several years, we will return to our pre pandemic mid single digits net rooms growth.
And before I turn it over to leading I just want to recognize and thank our associates around the world for their continued commitment passion and resilience bleeding. Thank you Tony we had excellent financial performance again this quarter.
Driven by continued momentum and global rent the confidence in the U S and Canada third quarter Red part was 3.5% above pre pandemic levels with ADR, surpassing 2019 by more than 10% <unk>.
<unk> for all market types primary and secondary and tertiary and all Brian types from luxury through extended stay this more fully recovered and the first time with.
With the exception of Asia Pacific Our international regions posted incredibly strong revpar growth as restrictions across this country slowly lifted Europe in particular benefited from a large increase in U S. Leisure demand. Thanks to the strong dollar compared to 2019 third quarter revenue power.
6% in Europe , nearly 19% in the Middle East and Africa, and nearly 18% in cattle.
Russ part is still lagging behind 2019 levels in greater China, and in our Asia Pacific, Excluding China, or APEC region, Greater China improve the most in the quarter with Rev. 23% below 2000, 1930 percentage points better than a quarter ago. However in the room.
Covering their remains uneven given China's renewed commitment to its strict zero COVID-19 policy.
The good news is that we continue to see that went up market reopens for domestic travel after a lockdown.
Lodging demand rebounds rebounds very quickly.
Packed South Korea joined India, and Australia, and crossing a full recovery Mark.
This was offset by Japan's borders remaining closed until the end of the quarter third quarter Revpar in APEC was 14% below pre pandemic levels and eight percentage point improvement from <unk> from a quarter of gum.
As we move through the fourth quarter APAC is benefiting from a recovery and are left and Japan's now open borders.
Three quarter third quarter total gross speeds of 1.1 billion rose, 11% compared to 2019 exceeding the top end of our guidance.
It was triggered by Rev. R improvement in room additions as well as another quarter of strong non <unk> related fees those fees totaled 192 million in the third quarter, largely aided by ongoing brothers and our co brand credit card fees, which rose 22% year over year.
Year.
The strength of our industry, leading luxury portfolio also contribute.