Q4 2022 Marriott International Inc Earnings Call

Speaker 2: At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star in one on your touch tone phone. You may withdraw yourself from the queue by pressing star and two.

Speaker 2: Please note this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Jackie Berca.

Speaker 3: Thank you. Good morning, everyone, and welcome to Mary at Fourth Quarter 2022 earnings call. On the call of me today, our Tony Teplano, our President and Chief Executive Officer, Leanie Over, our Chief Financial Officer and Executive Vice President, Business Operations.

Speaker 3: and Betsy Dom are vice-president of investor relations. I will remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal security laws.

Speaker 3: These statements are subject to numerous risks and uncertainties as described in our FCC filing, which could cause future results to differ materially from those expressed in or implied by our comments.

Speaker 3: Statements in our comments on the press release we issued earlier today are effective only today and will not be updated as actual event unfold.

Speaker 3: Please also note that unless otherwise stated, a repart, occupancy, and average daily rate comments reflect system-wide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19.

Speaker 3: RevPAR occupancy in ADR comparisons between 2022 and 2019. Re-sled properties that are defined as comparable as of December 31, 2022, even if they were not open and operating for the full year 2019, where they did not need all the other criteria for comparable in 2019.

Speaker 3: in ADR comparisons between 2022 and 2019. We've left properties that are defined as comparable as of December 31, 2022, even if they were not open in operating for the full year 2019, or they did not need all the other criteria for comparable in 2019. Additionally,

Speaker 3: Unless otherwise stated all comparisons to pre-pandemic for 2019 are comparing the same time period each year.

Speaker 3: 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.

Speaker 4: Thanks, Jack. Good morning, everyone. 2022 was a very strong year for Merriott. After achieving global RIP part recovery in June , we finished the year on a real high note with RIP part versus 2019 of 7% in December and up 5% in the fourth quarter.

Speaker 4: Each quarter saw sequential improvement in global occupancy and ADR of Air 2019.

Speaker 4: We ended the year with 40-quarter occupancy down just 5 percentage points and ADR of 13%.

Speaker 4: With Asian Pacific excluding China or APEX surpassing pre-pandemic levels in the fourth quarter, all regions except greater China have now more than fully recovered.

Speaker 4: It is abundantly clear that people love to trap. Global leisure demand has remained robust. In the fourth quarter, leisure transient reunites increased 7% versus 2019, and we continued driving leisure ADR, which rose 22%.

Speaker 4: Our group business experienced a multiple meaningful improvement in 2022.

Speaker 4: In the US and Canada, fourth quarter group revenues increased 10% above the same quarter in 2019.

Speaker 4: Group Bremenhoek for 2023 is already pacing up 20% year-over-year with reduced at-app store gang

Speaker 4: Give them strong lead generation and increased rate quotes, especially for in the year 40 year bookings, we expect group revenues this year to strengthen further.

Speaker 4: In 2022, around half of group room nights were booked in the year compared to just one-third in 2019.

Speaker 4: U.S. and Canada business transient demand remain steadfast from the third to the fourth quarter at around 90% recovery.

Speaker 4: For 2023, we are pleased to have an negotiated special corporate rate growth in the high single digits after holding these rates steady the last two years.

Speaker 4: Our day of the week trends in the US and Canada continue to point to the blending of business and leisure trips.

Speaker 4: In the fourth quarter, midweek occupancy was still down with single digit percentage points versus 2019, while occupancy on shoulder and a week and nights was down the low single digit.

Speaker 4: Additionally, the average length of a business transient trip in the US has risen by more than 20% versus 2019.

Speaker 4: Rising cross-border travel also helps for overall demand growth during the work.

Speaker 4: Though we believe they're still further upside in 2023, especially now that China's borders have re-opened.

Speaker 4: Guests traveling outside their home country accounted for 16% for transit roommates globally in the 2022-04th quarter. One percentage point higher than the prior quarter, yet still 3 percentage points lower than 2019.

Speaker 4: With more than 177 million members, our Calvary-At-Bondway program has also been a key driver of demand for our hotels and other lodging offerings and for adjacent products like our Bondway-At-Bond-Go-Randed credit cards.

Speaker 4: Our growing portfolio of credit cards, now in nine countries following our November card launch in Saudi Arabia, had record global card member acquisitions and cards spent last year. Product innovation and engagement with our members were made key focus areas, especially through investments in our Marietta Bonvoy Act.

Speaker 4: and other digital programs. We have made great gains in contributions from our digital platforms, which are highly profitable channels for our owners, and anticipate many additional enhancements over the next couple of years.

Speaker 4: In 2022, our mobile app users were up 32% year over year. Digital roommates rose 27% and digital revenues climbed 41%.

Speaker 4: The financing environment for new projects and hotel sales remains challenging, especially here in the U.S. given higher interest rates and uncertainties surrounding a potential economic drops. Please rise passionately.

Speaker 4: However, other industry headwinds like supply chain disruptions, construction costs, and availability of labor have improved.

Speaker 4: Given strong global operating trends, overall developer sentiment improved in 2022, and we had another year of strong signing activity.

Speaker 4: Our global development teams signed franchise and management agreements for nearly 108,000 rooms last year.

Speaker 4: In addition, upon the anticipated closing of the transaction, the city express portfolio should add around 17,000 rooms in the moderately priced mid-scale space.

Speaker 4: We're excited about the opportunity to expand in this segment in the Caribbean and Latin America or Cali region, as well as in other locations around the world.

Speaker 4: We also recently announced apartments by Married Bonvoy, a new one-to-three-bedroom service department grant that we plan to launch in the Upper Ops Gailon luxury sector.

Speaker 4: We've already received a great deal of initial interest from owners and developers.

Speaker 4: Momentum in conversions continues, including in multi-property opportunities.

Speaker 4: Thanks to the breadth of our roster of convergent friendly brands across the chain scales.

Speaker 4: The meaningful top and bottom line benefits associated with being part of our portfolio make these brands very attractive to owners.

Speaker 4: Conversions represented nearly 20% of room sidings and 27% of room additions in 2022.

Speaker 4: We added a total of 394 properties last year.

Speaker 4: representing more than 65,000 rooms. And grew our industry leading system, 4.4% by growth basis, or 3.1% net year-over-year.

Speaker 4: Excluding the impact from our exit of Russia, our net room's growth was 3.6%.

Speaker 4: For 2023, we are forecasting growth rooms growth of around 5.5%.

Speaker 4: including around one percentage point from the anticipated addition of the city express rooms to our franchise system.

Speaker 4: Assuming deletions of 1 to 1.5%, net rooms could grow 4 to 4.5%.

Speaker 4: I'd like to pivot now and share a few highlights of our recent ESG efforts.

Speaker 4: ESG is an integral part of our company's culture and strategy, and our company is dedicated to making positive and sustainable impact wherever we do business. In June , we committed $50 million to support the historically underrepresented groups in the journey to hotel ownership.

Speaker 4: through a new program here in North America called Marriants Bridging the Gantt. This program should help us reach our goal of having at least 3,000 diverse and women-owned hotels in our system by 2025.

Speaker 4: In December , we announced that over 1 million Maraed Associates have taken our human trafficking training, which we've also donated to the wider hospitality industry.

Speaker 4: In terms of workforce diversity and inclusion, our aim is to achieve global gender parity in the company's leadership by 2023, and have people of color hold 25% of US executive positions by 2025.

Speaker 4: We also continue our work to set science-based emissions reduction targets with more details expected to come later this year.

Speaker 4: I will proud of these accomplishments and all that we've achieved in 2022.

Speaker 4: As we look ahead to full year 2023, there is meaningful uncertainty about global economic growth.

Speaker 4: Lodging is a cyclical business and it's not immune to downturns in the macroeconomic environment.

Speaker 4: Today, however, we have not seen signs of demand softening.

Speaker 4: Certainly trends could change relatively quickly given our average transient booking window is around three weeks.

Speaker 4: But a month and a half into 2023, booking demand and pricing remains strong. As Leighne will discuss in her remarks, where optimistic the global red part will grow year over year, even if the global economy softens in the back half of this year. Before I turn the call over to Leighne,

Speaker 4: I'd like to thank our associates around the world for their hard work and commitment in navigating the last few challenging years and in helping the company achieve these record financial results. I also want to make a couple statements regarding two of my senior team members. I'm sure you saw the news in December that Stephanie Lennart has been appointed.

Speaker 4: Under Armors, new president and CEO , a role that shall assume at the end of this month. Also, after a 35-year career with Marriott that has found the glow, Craig Smith, our group president international, has informed me of his decision to retire from the company later this month.

Speaker 4: Crank has developed and mentored hundreds of hotel general managers and above property leaders around the world, and has helped us meet and celebrate the growth of our international business. I want to thank both Stephanie and Craig for their decades of dedication and countless contributions to Marion.

Speaker 4: While I will personally miss these two excellent senior executives, I'm proud that we have such an incredibly deep management.

Speaker 4: I look forward to sharing more details about new leadership appointments soon.

Speaker 4: Now, let me turn the call over to Leaning. Thank you, Tony. With sustained momentum and global rest part growth, we reported an outstanding quarter. The gross fees rose 16 percent and adjusted even to a decline to 21 percent over the 2019 fourth quarter.

Speaker 5: For the full year, we posted reference fees, adjusted EBITDA, and adjusted EPS, despite the own primary and causing a slow start to the year.

Speaker 5: In the fourth quarter, Rev. Far versus 2019 accelerated nicely from the third quarter in every region except greater China. Compared to pre-pandemic levels, fourth quarter US and Canada Rev. Far increased, 5% by 11% growth in ADR. Rev. Far in the region versus 2019 improved sequentially from the

Speaker 5: and occupancy.

Speaker 5: In the Middle East and Africa or Mia, Ruffpart, 44% boosted by the World Cup in Qatar. Ruffpart increased 28% in Cala, 7% in Europe , and 6% in Asia Pacific except for China.

Speaker 5: While results in greater China were again impacted by lockdowns in the fourth quarter, the region reached a major milestone with the new open border policy and the lifting of quarantine requirements in January .

Speaker 5: It could take time to increase airline capacity and work through passport and visa requests, but we're optimistic about meaningful risk of recovery in the region as these issues evade. We saw a huge demand surge in January during the Chinese New Year holiday.

Speaker 5: with Rundparr for the holiday period nearly in line with 2019. Other regions are also anticipated to benefit from an increase in outbound China travel, especially APEC, where over 40% of Rune Nights in 2019 came from Chinese travelers. In the fourth quarter, total gross fee revenues totaled 1.1 billion.

Speaker 5: Intensive management fees or IAMFs rose impressively in the quarter reaching 186 million.

Speaker 5: IMF Sir Cash, the fourth quarter of 2019, with IMF and the U.S. and Canada up nearly 30%.

Speaker 5: At the hotel level, we remain focused on working closely with our owners and franchisees to deliver superior customer service while containing operating costs.

Speaker 5: Profit origins that our U.S. managed hotels in the quarter were again higher for the same period of 19 despite meaningful wage and benefit inflation.

Speaker 5: Importantly, our guest surveys indicate that customer satisfaction continues to rise.

Speaker 5: In December , our intent to recommend scores in the US and plume for the 10th consecutive month and are now generally in line with 2019 scores.

Speaker 5: Hiring challenges have moderated and the number of open positions in the U.S. is now below 2019 levels.

Speaker 5: Our asset light business model once again generated significant cash during 2022 with net cash provided by operating activities totaling 2.4 billion double the amount in 2021.

Speaker 5: Our oil deprogram was a modest source of cash before factoring in the reduced payments received from the credit card companies.

Speaker 5: In 2023, we expect loyalty to again be modestly cash positive before the impact of the final year of reduced payments.

Speaker 5: Now let's talk about our 2023 outlook, the full date to all those of which are in our press release.

Speaker 5: Note that all RUB PAR comparisons will be to 2022. More than one in four hotels that are currently comfortable in both 22 and 23 or open for the full year were not open in 2019, making comparisons to that year not really meaningful.

Speaker 5: I'll start with the first quarter, which we anticipate will benefit from continued strong underlying trends.

Speaker 5: There is also a meaningfully easier comparison to the year ago quarter when the Omancrime variant depressed lodging demand.

Speaker 5: Halfway through the quarter, bookings across customer segments and geographies are excellent.

Speaker 5: Momentum is being driven by rising cross-border travel and strong group revenues do demand and the ADR gain.

Speaker 5: Additionally, business transient revenues are benefiting from higher volumes and are successful, special corporate rate negotiations.

Speaker 5: January Global Rev Car Rose 52% with the US and Canada up 43%.

Speaker 5: We anticipate that first quarter-rev's part could increase 25 to 27% in the U.S. and Canada, 47 to 49% in international markets, and 30 to 32% worldwide.

Speaker 5: Given short-term booking windows and a significant level of macroeconomic uncertainty, there's less visibility in forecasting the company's financial performance for full year 2023. As a result, we're providing a broad range for full-year RevPAR and other key metrics.

Speaker 5: The high-end of the range reflects a relatively steady global economic picture throughout 2023.

Speaker 5: with continued resilience of travel demand across customer segments and markets.

Speaker 5: The low-rendered root range reflects the meaningful softening of the global economy, beginning in the second quarter, when the world wide and revamped our roughly flat compared to 22 in the second half of the year.

Speaker 5: So, for the full year, Rove Park in the US and Canada could increase 5 to 9 percent. An international Rove Park could rise 12 to 18 percent, leading to a global Rove Park gain of 6 to 11 percent. The sensitivity of a 1 percent change in full year.

Speaker 5: anticipated to rise 4 to 7%.

Speaker 5: Non-robot parasy growth is expected to benefit from higher credit card fees resulting from growth and average spend and in the number of curfews.

Speaker 5: We expect 2023 GNA expenses of 915 to 935 million, an annual increase of 3 to 5 percent, but still below 2019 levels. A total year adjusted EBITDAQ had increased between 5 and 12 percent, and adjusted EPS could rise to 18 percent above 2020.

Speaker 5: After three years of meaningfully reduced investment spending, we anticipate 2023 investment spending of 850 million to 1 billion.

Speaker 5: This includes 100 million for the expected acquisition of the City Express brand portfolio, and around 160 million of renovation spending on our own W Union Square hotel in New York, and the elegant hotel portfolio in Barbados.

Speaker 5: These hotels will be terrific representations of our W and all inclusive brands when completed. We expect to recycle our capital investment in these hotels by selling them with long-term agreements.

Speaker 5: Spending in 2023 also incorporates higher than typical investment in our customer-facing technology, which is overwhelmingly expected to be reimbursed over time.

Speaker 5: Our capital allocation philosophy remains the same. We're committed to our investment-grade rating, investing in growth that is accreted to shareholder value, and then returning excess capital to shareholders through a combination of a modest cash dividend and share repurchases.

Speaker 5: In 2022, we return 2.9 billion to shareholders.

Speaker 5: At the end of the fourth quarter, I'll leverage with at the low end of investment-praying in mittlerweile.

Speaker 5: For 2023, capital returns to shareholders could be between 2.7 and 3.6 billion.

Speaker 5: Before we open the lines, I too would like to express my gratitude to our incredible team of global associates around the world for their resilience and dedication.

Speaker 5: Tony and I are now happy to take your questions.

Speaker 5: now happy to take your questions. Operator?

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Speaker 2: We will pause for a moment to allow questions to cue.

Speaker 2: We'll take our first question from Stephen Grambling with Morgan Stanley .

Speaker 6: Hey, good morning. Thanks for taking the questions.

Speaker 7: Morning, morning.

Speaker 6: Wanted to start off on capital allocation here, actually. I guess given the moving parts within the rate environment, how are you thinking about the right leverage ratio and how rate may actually dictate the outcome in terms of that capital allocation that you were referencing or returning cash to shareholders?

Speaker 5: Sure, so overall Steven, as I stated in my comments, we are committed to a strong investment grade, credit rating, and we ended the year in terrific shape. I think you can tell from the range that we gave on Rev. par that we see ourselves being

Speaker 5: in really good shape this year from a cash flow perspective and earnings perspective that does give us great flexibility in how we think about our investing and our capital return. But from an interest rate environment, I think it's more about the overall...

Speaker 5: macroeconomic activity and global growth picture, then it is about a specific interest rate. Obviously, we need to see how it plays out, but being at the very low end of our credit ratio metrics I think gives us plenty of flexibility to deal with whatever may come.

Speaker 6: Great, and then maybe a little bit of a different follow-up. We've been seeing some volatility in the corporate booking data on R&N. I guess I'm wondering if you could discuss what you're seeing across large corporate demand versus small and medium-sized business. Perhaps tie this into how it might influence the strong IMF that we've been seeing.

Speaker 8: Sure, so...

Speaker 4: As I mentioned in my prepared remarks, the recovery for business transient broadly is still at about 90 percent. Interestingly, for small and medium-sized companies, which represent about 60-ish percent of our total business transient.

Speaker 4: They were actually up 6% quarter over quarter in the fourth quarter. So that continues to be strong. We've seen slower all the steady recovery from larger companies, but they've got a bit of a ways to go to get back to pre-pandemic levels.

Speaker 5: Steven, the other thing I'll add is I have a tape to call this a trend yet, but it's just worth mentioning that in January we saw our top special corporate accounts improve another nine points relative to 19. So in the classic areas of accounting and consulting or defense or healthcare.

Speaker 4: over our special corporate rates. And so as we went into the negotiating season this year, we felt like we were in a pretty good place and that really materialized as we saw negotiated special corporate rates in the high single digits.

Speaker 9: Make sense. Thank you.

Speaker 2: And we'll take our next question from Sean Kelly with Bank of America. Hi, good morning everyone.

Speaker 10: Good morning. I wanted to talk a little bit more about the demand side. So obviously we know the visibility is a little short in the industry from time to time, but obviously it looks like everything you're seeing coincidentally is pretty strong. So could you help us just unpack a little bit? You know, your January trends look well above.

Speaker 10: STR averages even in North America. And then, you know, so what's kind of powering that? And then specifically as we kind of work our way through the year, could you just talk about, you know, a little bit about, a little bit more about what you're seeing on maybe the lead generation side group and how you're underwriting China just to help us kind of bridge, you know, the full year outlook.

Speaker 4: Yeah, of course, Sean, maybe I'll start with group just because that's such a terrific story. If you heard the numbers about where we were in the quarter with group revenue for group in the US and Canada, about 10% ahead of where we were in pre-evident. When we look into 2023, there's two things I would point to that are really compelling. Number one. Number one.

Speaker 4: We're currently pacing up about 20% year over year. And interestingly, that's not just a quarter one phenomenon, given the favorable comparisons. We're seeing pretty steady pacing across all quarters in 2023. Secondly, I would remind you that.

Speaker 4: The shorter booking window is not specific to Transium. We're seeing a little more impress booking window in group as well. And so we think there is still meaningful upside to group as we watch in the year for the year of bookings materialized during the balance of 2023.

Speaker 5: And I'll jump in on China, Sean. And that is about two things. One, to your point about January being particularly strong. If you remember, Ongapron was particularly pronounced right as we got into January . And obviously, there's a significantly a rain of degree of comfort this year as we moved into Q1. So I think you saw.

Speaker 5: of the momentum that was building in Q4 and really all throughout 22 continue into January as we saw all parts of the business firing on all cylinders. And then when you think about China, we saw a tremendous, leisure demand associated with

Speaker 5: of the Chinese New Year, but we are really pleased with the overall pace of demand that we're seeing there. And just to give you a rough sense, we could see in greater China, we could see that rev-par for the year.

Speaker 5: 23 over 22 is over 30 percent increase and obviously the biggest increase will be in the first quarter.

Speaker 5: over 22 is over 30 percent increase and obviously the biggest increase will be in the first quarter. Thank you very much.

Speaker 2: Thanks, Sean. We'll take our next question from Joe Greff with JP Morgan.

Speaker 10: Good morning, everybody. Tony, can you talk about what's going on with pipeline signings in China, presently, and how much of a...

Speaker 10: I guess of a disruption, whether it be in the first quarter, given what's been going on there. And then when you look back at the fourth quarter and the development pipeline was down a little bit sequentially, there have been quarters in the last four years where it's down to quenchally, it doesn't mean anything necessarily. How much of the sequential pipeline?

Speaker 4: in the fourth quarter was explained by disruption in China signings. Sure, maybe I'll take the second question first. The pipeline tends, as you well know, to have in flow quarter to quarter. The statistic I look at related to pipeline that I think is a bit more telling.

Speaker 4: is the 2% year-over-year increase in the pipeline. Obviously, deals coming in and out of the pipeline in a year where nearly 30% of our openings were conversions we've talked in the past about the fact that some conversions never even make it into the pipeline, they get signed and opened.

Speaker 4: and we expect to see meaningful positive impact, certainly on demand patterns, but also on the health and the outlook of our development partners. And so we would expect an acceleration in DLL.

Speaker 5: And Jill, the only thing that I'll add is there was the obvious challenges for opening hotels in China tied to the shutdown in China that impacted permits and getting the teams trained and up and running. And so from that respect we certainly saw a few drift.

Speaker 5: from where we had expected them opening Q4 to opening Q1. And I think that was clearly to be expected as they saw the shutdown continue. But again, as things open up, we look forward to them increasing.

Speaker 5: and expect them to open in Q4 to open in Q1. And I think that was clearly to be expected as they saw the shutdown continue. But again, as things open up, we look forward to them increasing. Thank you.

Speaker 11: Thanks, Joe. And we'll take our next question from Robin Farley with UBS. Great, thanks. My question is on the Unigrow Outlook and there's some acceleration embedded in there. You mentioned China, obviously, is one of the drivers of that. And I guess the C express acquisition.

Speaker 11: wondering if you have any other acquisitions in that unit growth guidance just to clarify that. Okay, great, perfect, thank you. And then my other question was on City Express because you've talked about using that to grow in other regions. And I'm curious if you haven't mentioned potentially using it in the US. There are others out there sort of looking.

Speaker 11: to grow units in the more limited service segments and the mid-scale and economy segments. And that hasn't been a big focus for Mary-Anne. I'm just curious if you have any thoughts on those segments and then also sort of, you know, why are we not using this new brand that is more, it is further down the chain scale than some of your other brands in the US in the US market as well. Thanks.

Speaker 4: Of course, so we are very excited to get over the finish line with City Express as we outlined when we now start intent to acquire City. It represents our entry into the midscale segment which is very exciting. It increases our portfolio significantly in the important and growing calorie gem. So we are very excited to get over the finish line with City Express as we outlined when we now start intent to acquire City.

Speaker 4: We expect to grow that brand aggressively across Cala, and we are, as we move towards closing that transaction, evaluating the applicability of that brand in other markets around the world. We've not made definitive decisions about when and if we will roll out city express in other places, then you can rest assured those evaluations and discussions are going on as we speak.

Speaker 4: I do think if you look at our historical track record about physicians, many of those acquisitions initially either strengthened our leadership position or gave us a meaningful foot mold in a region where we weren't growing as quickly as we'd like organically. And then over the passage of time, we looked for opportunities to grow that platform more broadly. And I think so.

Speaker 5: anything going on there that you would call out. Thanks. Sure. Nothing in particular. They do vary. They can be something related to one hotel or a particular transaction. But you know they vary. We've talked about them before Robin. It's kind of varying anywhere from 20 to 40.

Speaker 2: Thanks. We'll take our next question from Richard Clark with Bernstein.

Speaker 12: Hi, good morning. Thanks for taking my question. The first one from the incentive fees, the incentive management fees seem to have recovered about 10% quicker than the base management fees. In the past you've talked about whether that's a small number of hotels paying a lot of incentive fees or whether that's becoming a more broad-based increase in profitability. So just wondering what you could comment on.

Speaker 5: what sort of supporting that out performance of the insensitivity? Yeah, sure, absolutely. So just while Q4 was spectacular, and we really had a wonderful performance in our insensitivities, the reality is they are still...

Speaker 5: uh... meaning for the lower than they were in two thousand nineteen uh... while the rest of our fees have grown quite nicely are based in franchise fees as rooms have grown uh... rep are has recovered as well as the non-repart feed growth has increased so when you look at i am asked as a percentage of total fees

Speaker 5: Compared to 19, they've actually gone down, and we would expect them to continue to be a little bit lower than they have historically been, and they do obviously reflect a little bit riskier fee stream for us than compared to the classic basin franchise scenes.

Speaker 5: But when you look at kind of where we are in terms of hotel's earning incentive fees, I think there are a couple interesting statistics. And that is that in 22, 61% of our managed hotels earned an incentive fee that compares to 72%.

Speaker 5: in 2019 and in the US 39% of our full service hotels earned and incentive fee versus 45 in 2019. I don't include MSB because there's a very big difference in the managed limited service hotel portfolio between

bit later than the US. So I think we're thrilled with the performance of our operating teams, very proud of the work that they have done, especially given wage increases. And I think to one point that you're raising, we're excited about what we see in 23 in the years ahead for the IMF potential for our hotels.

Okay, that's great. Just a quick follow up to someone's question earlier, they're a further acceleration in the net unit growth. If I do the maths right, it looks like you did 3.6% X rusherex in 2022 and that dropped down to 3.5% X city express in 2023.

Is that correct? And if you've got some China hotels moving into this year, where is that slowdown coming from? Well, again, so I want to make sure we certainly include city express. When we think about our rooms growth, that's a very important component of how we think strategically about how we're growing around the world.

So when I think about accelerating room's growth, that is a part of it. And then when I think of the timing, we've clearly got the reality that construction starts over the past couple of years in the US are having an impact in 23 in particular in the US for room openings.

But again, otherwise, with the signings that you heard Tony talking about, we're very enthused about what we see growing forward and then conversions have been a big component as well.

But again, otherwise, with the signings that you heard Tony talking about, we're very ensues about what we see growing forward, and then conversions have been a big component as well. Well, I'm going to say a little bit. Thanks very much.

We'll take our next question from Smeen's Rose with City. Hi, thank you. I just wanted to ask a little bit more about the capital spending in 2023 and you broke out a couple of the line items.

Are you thinking differently about the way that you allocate, I guess, key money, either for conversions or for developers who are considering their brand options or anything different there than maybe you've done in the past? Yeah, no, it's me. I thought you might ask this question. So I definitely think it would be helpful to break it down. So if you use kind of roughly speaking a midpoint of what I talked about about...

another 150 million and 23 that's higher than typical. That then gets you down to 500, which is quite similar to this year's 500. I think when you think about key money being, again, in the ballpark of perhaps 200, 225 million in 23, that actually lines up quite well with our historical kinds of numbers for the growth of the system.

And as you know, many, many of the deals that we sign do not require any capital investment on the part of Merriott. And I might just build on that, it's by reminding you of an obvious fact which is, and we've shared this in prior analyst days, the deals that we determine we may...

deploy some measure of merit capital even in the form of key money, tend to drive premium valuations and premium fees, and they tend to be much more heavily rated to our leading luxury portfolio and some of the up-or-up scale projects as well.

Thanks. And can I just follow up on Robyn's question about city express or are you sure in general with your larger, you know, I get US competitor, you know, making a move in what's in term premium premium economy. Do you feel that it's important for Marriott to also be in that segment in terms of sort of capturing?

I guess a wider range of customers. I mean, traditionally, you haven't really dipped down below, I guess we call it like upper mid-scale. I mean, that's sort of thinking strategically, is that something that you need to be more attentive to or making up so much? Yeah, I won't comment on our competitors. What I will tell you is...

Our growth strategy broadly is driven by what we hear from the two constituents that are most directly impacted, obviously our guests and our owners and franchisees. And what we hear from them loudly and clearly is at the right quality level, entry in the mid-scale is of great appeal.

an alternative lodging product like apartments by Mary and Bonvoy is equally appealing to both of those constituents. And that's where our focus lies right now in terms of expanding the portfolio.

Thank you. Appreciate it. We'll take our next question from Patrick Sholes with Truist Securities.

Good morning, everyone. Good morning. First question, and I apologize if I missed this, but on your international rev-part guidance for the first quarter and full year, can you just give us a little more quantification of how you would expect the various international markets to perform regarding...

or versus those reparlangist you gave, such as Europe , Pacific. Thank you. So broadly, you heard us talk about 47 to 49 percent for international in the first quarter. And as you think about kind of around the world, I would expect Asia Pacific both.

APEC in particular outside of China to be meaningfully above that, greater China probably, you know, somewhere in that ballpark, you clearly saw that, you know, Amia will also be...

kind of in that very high sort of range, with particularly Europe being a real outlier, very high given where they were a year ago in the first quarter. So I think the easiest way to think about it is where Omicron was having the greatest impact is where you'll see these outsized performances.

Because for example, a year ago, Emi of Mia, the Middle East, was not as impacted by Omapron, so their year over year increase will not be as strong. I think one of the messages that we want you to hear is that in this current environment, when you think about kind of moving from Q4 into Q1,

We're still seeing good opportunities for continued strength and growth in the occupancy and rates apart from any normal seasonal variations.

Okay, thank you. I'm going to ask to follow up question more of an operational issue. There's a bit of a debate out there whether housekeeping will be coming back. I was at Alice and I talked to some of the large managers and they're there the belief that housekeeping will be coming back.

Eventually, on a daily type of service, I'm curious what your thoughts are on that amenity. Thank you. Of course. I might repeat myself a little bit in the comment I made earlier about City Express. When we make these sort of operating protocol decisions, we are guided by...

both the evolving expectations of our guests and economic realities of our owners and franchises, weighing both of those sets of expectations and needs. What we've said is we will have modified housekeeping protocols by quality tier. So in our luxury portfolio, we are essentially back to

pre-pandemic, full daily housekeeping. In the upper upscale tier, we have daily tidy, so not a full cleaning, but making the bed, changing the tarry, emptying the trash, et cetera. And in our select service or MSB portfolio, we have every other day tidy. What we hear from our guests.

If you give us optionality, which we do both in the booking path and at check-in, and if you give us something we can count on consistently, you will need our needs and this blended approach captures a lot of the economics that we created during the pandemic for our owners and franchisees. Thank you for the call. Come on set no, time out of that.

Sure. We'll take our next question from Dory Kestent with Mulse Fargo.

Thanks. Good morning, Tony and Leanne.

Unbelievable. He'll be Resident Team again.

You mentioned higher technology costs this year. We've heard some pretty interesting plans on that front that owners are looking forward to. Can you just walk through what the changes are that we may see over the next several years? I'll start and give you the investment perspective and then Tom Shirtoni will jump in. I guess first I would say is it?

the company as being of critical importance over the next few years will really forever. And so in that regard, we're very excited about the work that we're doing on our tech systems that really will transform the experience for...

the mobile app and for our guests as they plan and execute their stays with us. It will also transform the experience for our associates, which is critically important as well as we think about how they take care of our guests.

most particularly as they are able to interact with our bond voice, guests, to really address their specific needs. So as we look at rolling in out of you probably seen, our announcements of working with several third party service providers to really transform several of our systems.

But I also think it's worth noting that we've already done incredible things on our app and the experience from the digital communications and platform with our customers and our ability to really address their specific wants and needs has already improved.

Hi, good morning, everyone. Thanks for taking my question.

I wanted to just look into the own and least profit within the guidance versus what you just reported. It looks like it is flatish or down a bit. And I just wondered was there something in 22 that...

You know, lifted it up or there's some, you know, what if you could help us unpack that a little bit? Sure, absolutely. So a couple of things, David, I would say, first of all, we do have two really important innovation projects going on in 23. No surprise, Barb Vegas.

was crushing it the past year as you think about leisure demand and as we really do a very full renovation of these properties that will have an impact on un-leash profits. I would expect termination fees to be a bit lower as we look at 23 versus 22. We had a couple other things that are close to offsetting.

pack of least U.S. hotels that involved a charge later in the year in 22 and obviously we won't have that in 23. So there will be a little bit between the quarters that moves things around, those two things largely offset each other.

So I really would look to both termination fees as well as the issue around renovations.

Okay, perfect. Thank you. And as my follow-up, I wanted to just touch on deletions quickly because I apologize if it sounds like a negative question. There's just been a lot of discussion about the Nug. But this one to one and a half deletions going forward, is that what we should think about as kind of a normal course number?

Hi, that's good question. I would suggest to you that the one and a half range is more reflective of some of the uncertainties that we need described in our remarks and that resulted ultimately in us providing forward guidance on red part in a wider range than we might historically have offered. Thank you.

Got it. Okay, thank you very much. Appreciate it. Welcome. We'll take our next question from Bill Crow with Raymond James.

Okay, and good morning. I might as well follow up on the non-question. Assuming no large acquisition repeats in 2023. Should we assume the 2024 is back in that kind of 3.5% range? Am I right?

Well, Bill, we were excited to be able to give you some visibility into 23. 24 is probably a little ambitious. What I will tell you though is notwithstanding some of the constriction in the debt markets, we are encouraged that we are seeing incremental acceleration of construction starts. I will be at not back to where we were in 2019.

the operating expensive environment in the US.

If you could just kind of give us a little bit of details on what you're seeing on the labor front, kind of a year of your increase and maybe all other expenses or the total expense growth expectation for this year.

Sure. As you've seen in our numbers, we've given you the expectation of 3 to 5 percent on the year. And that really, as you think about it, reflects just continuing to...

be more and more back in business. So whether it is higher travel expenses or a little bit more annualization of positions that we added in 21 and 22. But really other than that, I would say really quite normal. The wage pressures have moderated, Bill.

and we are seeing a more normalized environment, both at the property level as well as above property.

We'll take our next question from Brandt Montour with Barclays. Good morning everybody, thanks for taking my questions. Thank you so much. So maybe starting with you, Laney, excuse me.

If you could, you mentioned non-rev-par fees growing, could grow 4 to 7 percent. I was wondering if you would be willing to break that out a little bit and talk about the credit card fee portion, at least in relation to rev-par growth and then what that would imply for residential fees and other. Thank you.

Sure. So as you know, residential branding fees are bumpy. They really do very depending on the timing of the opening, of when a building is complete and people can actually move in and close their sales. So...

They tend to vary. They've gone anywhere from 40 to 70 million within space of two years. As you per to say, we have a really robust pipeline of residential projects. And so while I would expect the residential branding fees to be more flatish compared to 22, that's really...

we've added a bunch of other countries, as well as increased spends. I do think the average spend for an existing card holder, that will moderate in 23 as compared to 22. Those are tied into how I think generally we're seeing the economic view.

So for example, that might look more like inflation while the wonderful, terrific increase comes from more and more card holders.

That's hugely helpful. Thank you. And then just as a follow-up on the development outlook and discussion from earlier, obviously signings sound like they're really strong. Tony, you talked about, I'm curious if you could talk a little bit about the segment of the pipeline that's in the planning phases, not just signed, but maybe.

had been there for a little bit and not necessarily stale, but just curious if there's a dynamic in that pipeline that you're seeing that's any different in history.

No, I don't think so. I mean, maybe the best empirical metric to answer your question is fall out from the pipeline, which would be canceled projects. And that's running interestingly on pace with what we've experienced historically over a long period of time and with what we were experiencing prior to the pandemic.

As Leanie pointed out in response to an earlier question, the move from science to getting a shelf one the ground has not accelerated as much as we would like. But again, we're seeing the number of construction starts, particularly in the U.S., moving meaning away from the bottom of the trough, albeit not quite back to where we were prior to the pandemic.

Perfect, thanks everyone. We'll take our next question from Chad Spanien with McCleary.

Good morning. Thanks for taking my question. First, wanted to ask about group pace. Tony, you talked about kind of the movement in the year for the year and kind of how that's changed over the past couple of years. So as we look out to like 24,

what percentage of rooms are on the books now versus what would normally be on the books this early? And does that kind of affect how you think about RevPAR Outlooks? Thanks.

Sure, so as I mentioned earlier, the group has been a real bright spot for us and not just looking backwards, but even forward. If you look at what we have on the books for 24 on the January 1st of 23, that's about 5% ahead in Rose Revenue from where we were a year prior, meaning comparing that.

to what was on the books for 23 on January 1st of 2022. And so we are pacing ahead of where we were a year ago and we are infused at the prospect of those numbers continuing to expand because of the year for the year phenomenon that you described. Something that we'll probably talk a lot more about as we get through 23, Congress has talked about.

if uh... if they are banned thanks why you would expect we've listened with great interest to the president's comments during the state of the union uh... here if you listen to what he actually said his concern was quote hidden

And the matter in which we disclose resort fees or destination fees combined with the rigorous process we have to approve the implementation of one of those fees and the requirements for a meaningful value proposition before those fees are approved. Give us comfort that we have the right strategy.

The other thing I would remind you across our 8300 hotel portfolio, I think we've got less than 300 hotels that have those sorts of fees. So in terms of materiality, it's quite impactful for those individual owners, but less impactful on a portfolio-wide basis.

That's helpful. Thank you. Of course. We have reached the allotted time for questions. I will now turn the program back over to our presenters for any additional or closing remarks.

Well, I want to thank you again. These calls are a lot more fun to engage with you as we continue to see in pure evidence of the resilience of travel. We appreciate your thoughtful questions and look forward to seeing you on the road. Thank you. Thank you. That concludes today's teleconference. Thank you for your participation.

You may now disconnect.