Q3 2024 Marriott International Inc Earnings Call
Good day and welcome to today's Marriott International third quarter 2024 earnings Conference call.
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Following the prepared remarks, the floor will be opened for questions. If you would like to ask a question at that time. Please press star one on your telephone keypad, you may remove yourself at anytime by pressing star two.
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Speaker Change: I'll now turn the call over to Jacky mechanical thing.
Speaker Change: Thank you.
Good morning, and welcome to marry up third quarter of 2024 earnings call on the call with me today are Tony kept one O, our president and Chief Executive Officer, Cindy Oberg, Chief Financial Officer, and Executive Vice President development.
<unk>, our vice President of Investor Relations.
Speaker Change: Before we begin I would like to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws.
These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in.
Our implied by our comments.
Speaker Change: Unless otherwise stated our revpar and occupancy average daily rate and property level revenues.
Flex system wide constant currency results for comparable hotels, and all changes refer to year over year changes for the comparable period.
Speaker Change: Statements in our comments in the press release, we issued earlier today are effective only today and will not be updated as actually that's that's all you.
Speaker Change: 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.
Tony: Thank you Jackie Thank you all for joining us today.
Pleased with our third quarter results, which reflect continued momentum in our business.
Rooms grew nearly 6% year over year and development activity remains strong global Revpar increased 3% in the quarter driven by another quarter of solid rate with ADR up two 5%.
Globally, who was once again the top performing customer group.
Speaker Change: Group Revpar rose, 10% year over year for the second quarter in a row with robust increases in both room nights and ADR.
Speaker Change: At the end of September Global group revenues were pacing roughly flat for the fourth quarter, primarily due to negative impact from the election in the U S and up 8% with full year 2024.
Speaker Change: Given our industry, leading distribution of convention hotels at nearly double the number of rooms. So the next closest here. We're pleased say group strength is continuing into next year.
Speaker Change: Group revenues for 2025, and we're pacing up 7% at the end of the quarter.
Speaker Change: On a 3% increase in room nights, and a 4% increase in average daily rate.
Speaker Change: Globally business transient experienced another quarter of growth with third quarter Revpar rising 2%.
Speaker Change: Leisure transient revpar was flat to the year ago quarter, while still well above 2019 levels.
Speaker Change: If we look at trends by region Revpar rose over 2% in the U S and Canada driven by growth in average free rent.
Speaker Change: Revpar growths at luxury and full service hotels outperformed select service properties and weekdays surpassed weekends, reflecting strength in group and business transient compared to week.
Speaker Change: Revpar grew 5% internationally, driven by 9% Revpar increases in Europe, Middle East and Africa, and in Asia Pacific Excluding China.
Speaker Change: EMEA growth was helped by the Paris Olympics, and other special events as well as solid demand from U S travelers.
Speaker Change: APAC strength was broad based across the region and benefited from international guests, especially from greater China.
Cross border travel on a global basis is now well above pre pandemic levels at just over 20% of total room nights.
Speaker Change: Greater China Revpar declined two 8% in third quarter as macro economic pressures led to weak domestic leisure demand and restricted pricing power.
Speaker Change: Severe weather and higher end guests traveling to other regions also impacted the era.
Speaker Change: Despite the demand headwinds our hotels continue to outperform our peers getting revpar index across greater China in the quarter.
We also grew Revpar index on a global basis.
Speaker Change: Mary envoy, our industry, leading global travel and the loyalty program had a record quarter of enrollments with our membership base growing to over 219 million members at the end of September.
Speaker Change: We had a co branded credit cards in 11 countries and counting as well as do various collaborations and thousands of married bond way mogens experiences, including the Taylor Swift eras tour Sweepstakes, we are focused on enhancing engagement with our members both on and off the property.
Speaker Change: Thanks to our recent tie up the Starbucks even members with only one hotel stay can now redeem points for a cup of coffee.
Speaker Change: We're thrilled with our development activity in the third quarter, we added around 16000 net rooms, reaching more than $1 $6 7 million rooms at nearly 9100 properties around the world.
Speaker Change: Global signing activity has remained strong with more than 95000 organic room signings year to date in 2024.
Speaker Change: Compared to a quarter ago, our pipeline grew 5% to a record 585000 rooms.
Speaker Change: Our momentum in conversions, including multi unit opportunities continues to reflect owner preference for our brands worldwide.
Speaker Change: August we announced a multi unit conversion deals sondra for 9000 existing rooms, and a few thousand more in the pipeline.
Speaker Change: This deal expands our portfolio of longer stay accommodations in key global markets, including New York and Dubai.
Speaker Change: In the third quarter conversions, representing over 30% of room additions and over 50% of silence.
Speaker Change: In October we announced city expressed by Merit is the brand name of our new transient mid scale product here in the U S and in Canada with its highly effective operating model and the outstanding value proposition. We have already received extensive interest from owners, we expect to have signed agreements and even a few openings over the next few.
Months, our progress in the Midscale space around the World has been outstanding and we look forward to meaningfully enhancing our presence in this high growth segment of the market.
Speaker Change: Our strong 2024 net rooms growth and signings performance is exciting and I'm proud of our associates for their work in driving preference for our brands among both guests and owners Mary Bon voyage has never been stronger and we look forward to further expanding our presence around the world.
Speaker Change: Our business momentum is excellent and as a company that embraces change we continue to evolve our business to support our global growth to this end, we have undertaken an enterprise wide process to enhance our effectiveness and efficiency across the company.
Speaker Change: We want to further empower our teams closest to our markets guests owners and franchisees to operate even more nimbly. While this work is not yet complete we believe these efforts will drive increased profitability and enhanced value.
Speaker Change: I will now turn the call over to Lee, who will share more details and then walk through our financial results and updated guidance, leading thank you Tony at this point in the process. We expect these efforts to deal with 80 million to $90 million of annual pretax general and administrative cost reductions beginning in 2025.
Speaker Change: In addition, we expect to deliver cost savings to our owners and franchisees.
Speaker Change: This initiative is anticipated to result in roughly a $100 million of charges, primarily in the fourth quarter of 2020 for.
Speaker Change: The charges will be recorded in restructuring and merger related charges and in reimbursed expenses with meaningful growth opportunities around the world across our more than 30 brands. We're confident these efforts will make us even more competitive.
Speaker Change: Now turning to our third quarter results gross fee revenues rose, 7% in the quarter to 128 billion.
Speaker Change: The increase reflects higher global Revpar rooms growth an increase in residential branding fees helped by timing and higher co brand credit card fees.
Speaker Change: <unk> grew 11% to 159 million growth and I've asked was led by higher fees in the U S and Canada as well as strong growth in APAC and count, partially offset by a $5 million decline in greater China.
Speaker Change: G&A in the quarter rose, 15%, primarily due to a $19 million operating profit guarantee reserve for a U S Hotel, which was negotiated in connection with the company's acquisition of Starwood as well as an $11 million litigation Sir.
Speaker Change: Even with these $31 million of reserves.
Speaker Change: Third quarter, adjusted EBITDA grew faster than gross fees rising 8% to $1 2 billion.
Adjusted EPS increased 7% to $2.26.
Speaker Change: Now, let's talk about our outlook for the fourth quarter and full year 2024, global Revpar is expected to grow 2% to 3% in the fourth quarter.
Speaker Change: Still assume 3% to 4% growth for the full year.
Speaker Change: In the fourth quarter, our Revpar growth is anticipated to be higher in most international markets and in the U S and Canada.
Speaker Change: Fourth quarter Revpar growth in the U S. Canada is currently expected to be generally in line with the third quarter with strong leisure PBT trends in October offsetting weakness in November due to tomorrows election.
Speaker Change: Actually impact on U S and Canada Revpar is forecasted to be around negative 300 basis points in November and negative 100 basis points for the quarter.
Double that of past election cycles, as we have meaningfully lower transient and group room nights on the books for both this week and next.
Speaker Change: Greater China is still expected to post negative revpar growth in the fourth quarter and for the full year as a result of current weak demand and pricing trends in the region.
Speaker Change: In the fourth quarter gross fee growth is expected to be in the 45% range compared to our July guidance fees are expected to be impacted by softer performance at certain hotels under renovation and lower than previously forecasted residential branding fees due to timing.
Speaker Change: Our owned leased and other revenues net of expenses could total roughly 95 million.
Speaker Change: For the full year gross fees are anticipated to grow 6% to 7% to $5 one three to 515 billion.
I'm pleased and other revenues net of expenses could total around 346 million. We now expect full year G&A expense can rise, 4% to 5% year over year.
Speaker Change: Full year adjusted EBITDA is now expected to total $4 nine 3% to $4 96 billion, a 6% to 7% increase over 2023.
Speaker Change: 2024, and adjusted EPS is now anticipated to be between 919 at 927 with a 25% assumed tax rate.
Speaker Change: We're now forecasting full year investment spending of one one to $1 2 billion. As a reminder, this you're spending includes higher than historical investment and technology associated with the multiyear transformation of our property management reservation and loyalty systems the vast majority.
Speaker Change: Which is expected to be reimbursed over time.
Speaker Change: The rollout of these platforms is slated to begin later next year and we look forward to the many benefits that should accrue from elevated three major tech.
Yes.
Speaker Change: Our powerful asset light business model generates a great deal of cash and our philosophy on allocating that capital remains the same we're committed to our investment grade rating and investing in growth that is accretive to shareholder value.
Excess capital is returned to shareholders through share repurchases and a modest dividend, which has risen meaningfully over time.
Speaker Change: And now expect to return approximately $4 4 billion to shareholders for the full year.
Speaker Change: This factors in the 500 million of acquired cash for the purchase of the Sheraton Grand Chicago expected to occur later this month.
Speaker Change: As Tony mentioned, we're very pleased with the robust development activity across our global portfolio.
Speaker Change: This summer we raised our full year of 2024 net room guidance to six to six 5% round after signing the saundra deal.
Speaker Change: With increased visibility, we now anticipate 2024 rooms growth at the top end of this range or around six 5%.
Speaker Change: We still expect that room to grow at a solid three year CAGR of five to five 5% from year end 2022 to year end 2025. Thank you for your continued interest in Marriott and Tony and I are now happy to take your questions operator.
Thank you. The floor is now opened for your questions. If he would like to question at this time.
Speaker Change: On your telephone keypad.
Speaker Change: You may remove yourself from the queue at any time by pressing star two.
Speaker Change: Once again to ask a question please press star one.
Speaker Change: First question will come from Stephen Grambling with Morgan Stanley. Please go ahead.
Hey, good morning. Thank you I guess, a couple of related questions around the efficiencies.
Speaker Change: At a high level what was the impetus for taking these actions now and where do you see the biggest areas of opportunity to streamline and then also just how to think about the run rate of SGA growth, perhaps before factoring in these benefits.
Thanks, Steve and maybe I'll take the first part of your question and then turn it over a week.
I think the emphasis is.
Speaker Change: Maybe I'll start at 100000 feet one of the company's core values is this notion of always embracing change.
Speaker Change: And we think right now we operate from a position of strength business has really strong momentum that's beanie just described.
Speaker Change: And the company is quite different than the last time, we looked holistically at the organization do you think about the changes in the company over the last decade.
Speaker Change: We more than doubled in size over the last decade, we've added over 60, new countries now operating in 142 countries and so it felt like the right time to really look across the enterprise and figure out what adjustments, we can make to enhance and improve our efficiency.
Speaker Change: In terms of run rate, where you think you want to take that yeah. So thanks, Steven I think first of all let me talk a little bit about the 80 to 90 and that is really thinking about savings off of our current cost base. So when we think about moving forward. We've we've talked to you overtime.
Speaker Change: About eight and kind of typical longer term run rate of inflation, plus perhaps a point or so to support our above average growth and from that perspective, I think it's too early for us to give any specifics about next year and where we're really.
Beginning.
So our budget process.
But but really think about that 80 to 90 as being off of our current run rate.
Speaker Change: Got it and maybe as an unrelated follow up the pipeline improve sequentially and it looks like it's in good position for next year. I know you don't want to talk about 2025 too much but is there any major puts and takes to think about.
Rooms growth into next year and the fees per room contribution from that pipeline.
Speaker Change: Yeah, so in terms of.
Speaker Change: We're in the early stages of the 2025 budget process.
Speaker Change: I think that the visibility that we have so far underpinned miscellaneous comment about our confidence in the three year CAGR that we laid out during the security analyst meeting.
Speaker Change: On the fees per room question, Oh, that's obviously something we're digging into and if you look at fees per room for revpar related fees pulling out to non revpar, because they tend to grow fast start with them.
Both in 'twenty, four adding 25, we see average fees per room, growing which might seem a little counterintuitive given our push into mid scale, but I think there are two principal drivers. There number one we continue to see really strong momentum in the luxury tier which drives outsized fees.
And as Lee talked about we continue to see strong growth in incentive management fees.
Okay.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Thank you. Our next question will come from Shaun Kelley with Bank of America. Please go ahead.
Shaun Kelley: Good morning, everyone.
Good morning, John Good morning, I, just wanted to start with kind of the fee algorithm here. If we just kind of do the a couple of building blocks for everyone. Obviously revpar up three to four net.
Shaun Kelley: That growth coming in on the high side of expectation over six.
As we look at the kind of gross fee piece, obviously, it's a bit beneath a plus b. So just could you walk us through and remind us whats. The gap. This year is that a little bit of dilution from MGM just given.
Shaun Kelley: Those rooms, and the fee contribution there does have to do with IMF. Just wondering a couple of the pieces there and how do you expect it to more importantly trend kind of longer term. Thanks, yes sure. Thanks, Sean.
We found this conversation with a number of times, which is I think when you look at it quarter to quarter. It's.
It's very hard to see.
Shaun Kelley: The overall theme because there are there are just the typical lumpiness that comes with IMS. For example, you heard about the lower year over year, IMS and N I M M Rich territory like greater China.
Obviously, you got things like renovation impact, which are very important overall to the health of portfolio and we're really excited about what those renovations will produce but when do you put that all together combined with a little bit of FX et cetera out quarter over quarter. It is absolutely going to be lumpy, we do believe.
Shaun Kelley: We've got this algorithm works over time.
Shaun Kelley: But then you do have a bit of a ramp up issue as well as variations in revpar that can make it tougher.
Shaun Kelley: Just in one corner, but but again as we look forward I'm really pleased with what we see in terms of the rooms.
That are coming on to the system as we've talked about before.
Shaun Kelley: Room signings and very strong this year when you look at kind of year over year, where we are and the strength of the conversions coming in the system, we do see that that equation going forward it looks pretty good.
Shaun Kelley: Great and maybe just as my quick follow up and this is really just a clarification on the earlier question about G&A. Just so we have the right base for next year. The SG&A. This year. Obviously included the G&A. This year, obviously includes the 30 million of.
Shaun Kelley: Kind of a onetime reserve and guarantees.
Shaun Kelley: Should we back that out and then remove the incremental from that base or is this all working off the kind of stated number that 10 15 at 10 60, starting point this year.
Speaker Change: Right. So so I think generally your philosophy as Ryan Sean I want to caveat that that would work.
Shaun Kelley: We are way too early to be giving specifics about how you should come up with that number.
Shaun Kelley: We've obviously got to look at all the elements.
Of all the different pieces that go into G&A as you'll probably remember we've also got a.
Normal increases in bad debt that come with the growth of the overall portfolio et cetera et cetera. So it's not quite as simple as you're describing but philosophically you are right that down 31 million.
Shaun Kelley: It was not anticipated and not expected a normal run rate G&A.
Shaun Kelley: But right now that 80 to 90 comes right out of this year's run rate.
Speaker Change: Perfect. Thank you so much.
Speaker Change: Thank you. Our next question will come from Patrick Scholes with Truest. Please go ahead.
Patrick Scholes: Hey, good morning, everyone. Thank you.
Patrick Scholes: Tony you have some questions for you on China, it's been about a month since the economic stimulus went into play there have you seen any.
Patrick Scholes: Any uplift or changes from that yet and then my related question.
Patrick Scholes: Do you have any initial thoughts about.
Patrick Scholes: Revpar growth or decline for China for next year.
Patrick Scholes: Certainly China is a is a real wildcard.
Patrick Scholes: Could be negative 10, it could be positive said in past year I'm curious if you have a gift.
Patrick Scholes: Given your three days of visibility there any initial thoughts on our expectations for China next year. Thank you.
Speaker Change: Sure. So let me try it.
Patrick Scholes: Remind me if I missed so a few quick questions embedded in there on the first one.
Patrick Scholes: Stimulus we're watching.
Patrick Scholes: Closely.
Patrick Scholes: Most of the stimulus so far really has not been to the direct benefit of the consumer so we're not seeing any sort of immediate and material impact on performance metrics.
Patrick Scholes: The thing that is more interesting to me.
Patrick Scholes: Not a great deal of stimulus source support for the property sector, which is obviously quite.
Patrick Scholes: Quite a bit of duress, but despite that lack of a stimulus to support the property sector. We talked about this last quarter as well we continue to see really strong both.
Patrick Scholes: Both signings and openings volume across greater China, I think some of that is because we're seeing a real acceleration in our select service brands, which are marginally easier to get done from a.
Patrick Scholes: Capital stack perspective, but.
Patrick Scholes: The short answer to your question is really not much yet in terms of the impact.
Patrick Scholes: Stimulus.
Patrick Scholes: George you're absolutely right when we think about.
Patrick Scholes: Visibility expectations of outperformance in China are really all over the board and as Lee mentioned in her prepared remarks, we're early in the process what I would say to you is right now.
Patrick Scholes: As we start to peek into 2025.
Patrick Scholes: Absent any more significant stimulus.
Patrick Scholes: It could be as good as flat going into 'twenty five but again, that's a very early peek into the performance.
Patrick Scholes: The only thing that I would add to that is as we get into the weeds looking at Q3 and Q4 is that the margin greater China Revpar has been slightly better than we expected a quarter ago as we move through Q3 and as we looked into October.
Patrick Scholes: And one of the things that is interesting is we are starting to see a slight pickup in cross border travel into the tier one cities.
Patrick Scholes: You know kind of classic B T. Now again, it's only quite marginal because as you saw our revpar was down meaningfully.
Patrick Scholes: Meaningfully in Q3, and we do expect that to continue but at the margin slightly better than we thought.
Speaker Change: Alright, Thank you for the color I'm all set.
Speaker Change: Thanks, Patrick.
Speaker Change: Thank you. Our next question will come from Richard Clarke with Bernstein. Please go ahead.
Richard Clarke: Hi, Good morning, Thanks for taking my question just wanted to start on the IMF.
Patrick Scholes: 11% without.
Patrick Scholes: Sort of meaningful inflection on Revpar, So just to make sure kind of there and particularly on the US However, we can square a good IMF quarter with having to put in an operating reserve is that just one hotel and maybe any color on why youre needing to do that one that one hotel.
Patrick Scholes: The operating profit guarantee has nothing to do with Iron Mountain.
Patrick Scholes: When you look at IMS in.
Patrick Scholes: In Q3, it was the U S and Canada that was the outperformer.
Patrick Scholes: Right.
Speaker Change: Kind of a couple of different reasons. There was one element that was related to.
Speaker Change: Some insurance.
Patrick Scholes: Payments made from prior Hurricanes, but also very good strong performance on the part of our.
Patrick Scholes: Large city managed hotels, which helped to bed and then obviously you see in APAC as well we have a good growth in our Asia Pacific outside of China on biomass.
Patrick Scholes: Just to give you kind of go a little bit of a sense overall, 22% of our hotels are in the U S and Canada that are managed paid an incentive fee in Q3, that's the same percentage as a quarter ago. So.
Patrick Scholes: Think of that it's fairly consistent and then outside the U S. Also still quite strong I think greater China was the one change where a little bit lower as a result of their continued.
Patrick Scholes: Weakness in Revpar.
Patrick Scholes: As we look at Q4, and that's where I think you see when you look at the sea.
Our guidance that we gave you actually see a little bit and says reverse from the standpoint that several of the hotels undergoing renovation.
Patrick Scholes: Well, meaning that we expect the IMF to be a little bit.
Patrick Scholes: We encourage than a quarter ago as a result of that even though revpar is largely the same in U S and Canada.
Speaker Change: Okay. Okay. Thanks, and then maybe just a quick follow up when you talked about cost savings to franchisees and owners are you talking about then delivering them. Some operating cost savings or are you talking about dropping any of your fees do you charge to franchisees and owners.
Speaker Change: So we're looking at efficiencies and savings that we think will have clear benefits to the owners were looking at every facet of our engagement with them and we expect to have.
Patrick Scholes: Some some tangible savings opportunities identified for them in the very near future.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question will come from Robin Farley with UBS. Please go ahead.
Robin Farley: Great. Thanks, I Wonder if you could.
Robin Farley: Tell us a little bit about what kind of key money trends in terms of your new unit growth. Thanks.
Speaker Change: Yeah, sure Robyn and good morning, Yes, I would say more under the same way we've talked about.
Speaker Change: About this for several quarters from the standpoint that perhaps oh.
Speaker Change: A number of years, we've seen a bit more key money across.
Speaker Change: More interiors, but I think more importantly, when you talk about the percentage of deals using key money that still has about the same at about a third of deals and when we think about the amount of key money per deal.
Robin Farley: So quite similar so we aren't seeing trends that would mean you need to think about.
Patrick Scholes: Kind of a meaningful increases in that element of our investment profile.
Speaker Change: Maybe the only thing I would add Rob that we talked about this last quarter was really points out the overall percentage of deals where we're using key money hasnt changed really at all.
Patrick Scholes: We are seeing selectively.
Patrick Scholes: Key money being used in a broader section of quality tiers than maybe we have in the past.
Speaker Change: Okay, great. Thank you and then if I could follow up I guess, maybe it sort of just two housekeeping things. One is you mentioned the IMF included some hurricane payments that were kind of due to hurricanes in prior periods I don't know if you could just quantify that so we can think about next.
Patrick Scholes: Next you're comping that what would be not recurring and then I don't know if there are any other that starwood guarantee you mentioned it seems like it was a pretty long dated if it goes back to the acquisition is there anything else like that that sort of outstanding still left from from other starwood guarantees like that that we dealt with my team future.
Speaker Change: Thanks sure no the business interruption immaterial way too small to mention they send the laundry list of things that provide an outperformance in the U S. Canada. So.
Patrick Scholes: Really nothing that you would need to adjust out we are again as you always know quarter to quarter you can have.
Patrick Scholes: Kind of variations on exactly what you were expecting to earn from that hotel. So.
Patrick Scholes: Really no numbers that that would be meaningful at all yes, you're absolutely right.
Patrick Scholes: With an unusual operating profit guarantee that was part of a settlement that we did.
Patrick Scholes: And the acquisition of Starwood with an owner.
Patrick Scholes: And no meaningfully longer.
Patrick Scholes: Is that a typical operating profit guarantee is for us it was actually a total of $70 million operating profit guarantee. This now takes us up to the Max exposure that we have on that guarantee and really to your point, reflecting the fact that we had a number of years and co.
Patrick Scholes: And to work through.
Patrick Scholes: To have a view as to whether we would need to actually fund under that guarantee so.
Patrick Scholes: Once we came out of Covid could look forward over a number of years, we made the determination that we needed to take that reserve.
Patrick Scholes: But that is and to your point no. We do not have a remaining operating profit guarantees with that kind of links and seismic exposure.
Speaker Change: Okay, great. Thank you.
Patrick Scholes: Yeah.
Speaker Change: Thank you. Our next question will come from Joe Greff with J P. Morgan. Please go ahead.
Joe Greff: Hey, good morning, everybody.
Joe Greff: My first one.
Joe Greff: It goes back to your.
Joe Greff: She lives to improve efficiencies and take out some G&A costs.
Joe Greff: No the eating and knowing 80 to 90 million as it begins to yield at the beginning of 2025 and I know it's early in the process what would be a good outcome in terms of what you would expect to achieve next year and then as you head into 2026 would you.
Joe Greff: Still be expecting to be run rating ETF 90, or would you at that point expect to achieve all of it.
Joe Greff: Yeah.
Joe Greff: Yeah.
Speaker Change: At 90, just just to be clear, we do believe that is in 25. So that that that is beginning in 'twenty five off of this year's cost base now we obviously have all the normal other parts that you have to look in your budget for G&A and that's the part that we're in the process of GE.
Speaker Change: So I think at this point, we're really pointing to a sustainable 80 to 90 million and annual G&A.
Joe Greff: G&A cost savings.
Speaker Change: Great. Thank you for clarifying that.
Speaker Change: Then maybe falls into the bucket of it's still kind of early here, but when you think about 2025.
Speaker Change: All in investment spending do you look at one one to one two at the <unk>.
Joe Greff: Bo expectation or does it come down because there seems to be some at least some one time items. This year that you wouldnt expect to recur next year.
Speaker Change: Yes, no you know unless of course, there's always something comes up that that we're not currently planning for totally agree with you that you would expect both a 200 million is included in that number related to the purchase of Chicago.
Joe Greff: Graham Cherrington AR as well as a 50 million dollar land purchase that we made in June three for us.
Joe Greff: The Westin Peachtree, which really was to help us remove lack of clarity around the ground lease that made it difficult for any owner to know with the long term.
Joe Greff:
Joe Greff: Kind of cash stream from that asset could be so that with that cleared up that's terrific and that really is $250 million that to your point is not expected to be ongoing.
Joe Greff: Thank you guys.
Speaker Change: Thank you. Our next question will come from Brent Montara with Barclays. Please go ahead.
Brent Montara: Good morning, everybody. Thanks for taking my question I apologize if this was covered and I missed it but.
Brent Montara: Tony could you talk about the special corporate negotiated rate.
Joe Greff: Talks that are going on and how thats sort of coming together for next year.
Speaker Change: Of course, yeah, we haven't talked about that yet and again, we're relatively early in the process by our takeaway from that early set of discussions we are targeting a mid single digit increase for 2025 and I think the teams are feeling pretty good about that target.
Speaker Change: Okay, that's great.
Yes, just to add to that is that was definitely something we noticed was helpful. This quarter with the continued.
Speaker Change: Strengthening of BMT unless that ADR continues.
Joe Greff: To be useful.
Speaker Change: Okay. Thanks for that and then.
Speaker Change: A more of a bigger picture question for anyone.
Joe Greff: But I.
Joe Greff: I know developers are long term planners and thinkers, but.
Joe Greff: That said.
Joe Greff: And the sort of uncertainty around on interest rate movements here just curious if it's waned at all on developers mindsets in terms of how they're.
Joe Greff: For me there are capital planning for next year.
Speaker Change: Yes, but in the bulk would be of course I mean, they look at every variable in the equation that impacts their returns.
Speaker Change: I think they are encouraged that the fed did a 50 bps drop.
Speaker Change: They are obviously.
Joe Greff: On.
Joe Greff: Pins and needles waiting to see what action the fed takes through the balance of this year.
Joe Greff: But I would say to you availability of debt.
Joe Greff: And an elevated construction cost environment are bigger impediments to driving the sort of construction starts volume we saw pretty endemic than the current level of interest rates.
Speaker Change: Great Thanks for that.
Joe Greff: Sure.
Speaker Change: Thank you. Our next question will come from David Katz with Jefferies. Please go ahead.
David Katz: Hi, Good morning, everyone. Thanks for taking my question.
Speaker Change: Good morning.
David Katz: So I wanted to ask about leisure broadly speaking.
David Katz: Just taking in all the information so far through earnings season can.
David Katz: Can you talk about sort of areas.
David Katz: Strength versus weakness and what the.
David Katz: Range of levels is that Youre seeing right and just how broadly you know that is or is it should we call it flattish to straight across the board, which seems unlikely.
David Katz: Sure.
Speaker Change: So and as you heard us say earlier that that Q3 leisure.
Speaker Change: Transient was roughly flat to last year, although well over 2019 levels I think from a chain scale perspective.
Speaker Change: Basically flat or slightly growing with luxury and premium well really select service is where you saw slight declines.
Speaker Change: Understood.
Speaker Change: My second question or my follow up is really around net unit growth much longer term.
Speaker Change: I think it's fair to say past few years or postpone it any way, we've seen kind of a broader.
Speaker Change: Range of the kinds of things.
Speaker Change: <unk> being a case in point.
Speaker Change: Or.
Speaker Change: Bon voyage.
Speaker Change: With MGM that have been added to the nub process.
Speaker Change: How do you see nug evolving if we look out two three years. It does that kind of broadening of what is defined as does that continue to grow over time.
Speaker Change: Yes.
Speaker Change: As we said a quarter ago, you should reasonably expect the vast majority of our new units to be the sort of traditional management agreements and franchise agreements that you've seen when you hear illini talk about our three year CAGR of five to five and a half a percent growth and that is really.
Speaker Change: Predicated on that traditional model.
Speaker Change: Management agreement and seven franchise agreements.
What I will say is and maybe I'll poll M. G M at sondra apart because theyre a bit unique everybody seems to lump those together.
Speaker Change: Saunders is really structured like a very traditional franchise agreement.
Speaker Change: MGM is different in that we brought together two powerhouse families of brands and to pull those two brands together necessitated some real creativity in terms of structuring from both sides.
Speaker Change: But I will say in my prepared remarks, I talked about the really extraordinary momentum. This envoy house and so certainly we'll continue to get inquiries from prospective partners that want to take advantage of that momentum and we'll apply the same rigor and the same lens that we always have in.
Speaker Change: In evaluating those opportunities.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question will come from Dan Panzer with Wells Fargo. Please go ahead.
Dan Panzer: Hey, good morning, everyone and thanks for taking my questions.
Dan Panzer: I wanted to just double back on the leisure commentary I mean, obviously, it's been pretty choppy right now and certainly for the fourth quarter, but do you think about 2025 and you know comparing to this kind of environment. We've been in is there any expectation or line of sight to maybe growing next year as things may be cool down a bit.
Speaker Change: I'll say a couple of things I think the reality is we're in the middle of our budget process, which I'm happy to say is very granular and it gets down to the property level and exactly what's going on in every environment I think the broadest comment I would make is we see 2025 barring.
Speaker Change: Some major economic.
Speaker Change: Change to be more of the same. So if you think about kind of our back half of our Revpar. This year and how we're looking at 2025, I think you probably see some some quite similar trends where when.
Speaker Change: When do you think BT continues on groups still very strong and we've talked about these upper single digits really pays for next year and that doesn't mean that leisure.
Speaker Change: We'd be up slightly but also probably not taking a big jump up.
Speaker Change: And again, we will be getting much more into that in February when we've gone through the budget, but I would say 25 looks a whole lot like the back half of 'twenty four from where we sit today.
Speaker Change: Yeah.
Speaker Change: Great. That's helpful. And then just for my follow up is more of a housekeeping the non revpar fees, you mentioned something along the lines of lines of timing in the quarter.
Speaker Change: Is there I don't know if I missed it but maybe if you can give us that that actual non revpar fees for the third quarter and.
Speaker Change: Are we still on pace for that 9% to 10% growth in that line item for this year.
Speaker Change: Yeah. So we are.
Speaker Change: The three biggest items there are obviously the credit cards residential and timeshare and I think the one that really jumps out is what was going on with the residential branding fees, which as you know it can be quite lumpy because if a whole development itself out. So as an example in Q3 and 24 that was 18 million, while a year ago in Q3 it was.
Speaker Change: Seven so it more than doubled in one quarter and credit card fees was the more you know stereotypical grows in timeshare.
Speaker Change: Tends to be fairly flattish given the structure of that contract. So you put it all together, but yes for the full year, we continue to see.
Speaker Change: Top end of single digits, 9% to 10% is the right growth rate.
Speaker Change: Got it thanks, so much.
Speaker Change: Thank you. Our next question will come from Michael Bellisario with Baird. Please go ahead.
Michael Bellisario: Thanks, Good morning.
Michael Bellisario: Just want to go back to one more on cost savings and then zoom out on net unit growth, but any any impact of franchise sales or maybe even a reallocation to this team to support a faster organic net unit growth outlook and then.
Speaker Change: More broadly zooming out on net unit growth, maybe just an update just on the competitive landscape of where youre, winning or not winning deals today. Thanks.
Speaker Change: Yes, so I think what I would say Michael.
Speaker Change:
Speaker Change: Growing our market share is obviously, a top priority for us and it will continue to be.
Speaker Change: The growth potential we see across our family of brands, including the more recent entrants in mid scale is really strong and we think we haven't really competitive offering to the franchise community. We continue to be optimistic about those growth prospects as you heard Lee described and we certainly think.
Speaker Change: This initial initiative will add incremental support to that growth.
Speaker Change: And then I'm sorry, the second question Michael.
Speaker Change: Just an update on the broader landscape for conversions and signings, where you're winning or not winning deals today.
Speaker Change: Yeah, I mean, I think in <unk>.
Speaker Change: Prepared remarks, she talked a little bit about that.
Speaker Change: The momentum that we continue to see and conversions is really encouraging both single asset and multi unit Navy.
Speaker Change: Maybe I think I've said, this a quarter or two ago, but I'll reiterate it.
Speaker Change: I think it's a combination of factors I think we have as.
Speaker Change: Strong a portfolio of conversion friendly brands as we have in mind as we've had in my 30 years with the company I think the teams are much more focused on removing friction from the conversion process.
Speaker Change: And we've got really has dedicated resources in each of the continents that are singularly focused on driving conversion volume and so we expect that conversion activity to continue at pace.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question will come from Duane <unk> with Evercore ISI. Please go ahead.
Duane: Hey, Thanks, and good morning.
Duane: You you answered parts of this and in previous questions, but I just wanted to hit you with a high level macro question. If you look at.
Duane: Demand growth in the U S. This year, our room night growth.
Duane: Compared to headline GDP growth.
Duane: Has there been anything surprising about the way that has played out.
Duane: And as you think about 2025, which segments do you think could be better in sync with headline GDP growth whatever that ends up being.
Speaker Change: Yeah.
Speaker Change: So I'll start and then I'll have Tony jump in you know I do think part of what we saw in 'twenty. Four is the continued normalization in the U S and Canada. So for example in leisure.
Speaker Change: You you've definitely got in Q3, a year to date actually leisure nights are flat to a year ago in the U S and Canada.
Speaker Change: Overall Revpar is also year to date roughly flat in the U S in leisure and that I really ascribe to quite a bit of normalization as you think about people kind of coming out of Covid and frankly wanting to go anywhere anytime.
Speaker Change: Got it no matter what to make sure that they were able to get their travel I'm done and I think that is normalizing a bit Wow. What you also saw was business transient group kind of filling in to.
Speaker Change: To make up for where that <unk>.
Speaker Change: Slow down what's happening so it so you're actually local overall and overall in Q3, you saw room nights for year to date and in the U S and Canada up 1% and ADR up 2%. So in that regard I think you continue to see a healthy series.
Speaker Change: Demand.
Speaker Change: We believe that going forward youre going to continue to see travel.
Speaker Change: The priority for our customers whether it is crude.
Speaker Change: Our leisure and of course, it has a relationship to the macroeconomic environment, that's been proven in our industry cycle in and cycle out.
Speaker Change: Expect to continue to see with a strong economy strong demand.
Speaker Change: For our business and Duane part of your question was around anything that's been a surprise I don't know that I would characterize it as a surprise, but the continued strength quarter over quarter year over year. A group is a really encouraging sign I mean, we spent all of our spend a lot of time with both corporate and association meeting planners.
Speaker Change: The appetite they have for group meeting just continues to be at the high end of our expectations and it's really encouraging and as I mentioned in my my open, particularly given the composition of our portfolio and our significant lead in our group hotel portfolio, that's really <unk>.
Speaker Change: Terrific trend for our business.
Speaker Change: Okay I appreciate the thoughts.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question will come from Smedes Rose with Citi. Please go ahead.
Speaker Change: Hi, Thanks.
Speaker Change: You mentioned 2025, maybe the sort of local rep. Her why it kind of similar to the back half of 'twenty four I think which is kind of you know Jeff.
Speaker Change: Generally what we're hearing from other companies in industry Prognosticators and I'm, just wondering if that kind of scenario or just anything we should keep in mind relative to capital return expectations.
Speaker Change: Or would you just think about I know you had some.
Speaker Change: Property purchases. This year, you mentioned, which I guess won't repeat next year, but.
Speaker Change: And equally we should just bear in mind, when we think about forecasting that.
Speaker Change: Yeah, No I think our as I was saying in my comments are our philosophy is exactly the same which is.
Speaker Change: We are a growth company, we are all about investing in valuable grub for the enterprise.
Speaker Change: And continuing to take market share around the world, we are blessed with a.
Speaker Change: Our business model that produces more cash than we need to provide that growth and so from that perspective, we would expect to continue to stay.
Speaker Change: Very solidly in the investment grade leverage range and return excess capital to our shareholders.
Speaker Change: Okay.
Speaker Change: Thanks, and then I just wanted to ask you.
Speaker Change: Again, you mentioned sort of the ground lease purchases I mean, and I think theres sort of a view that next year, we could see sort of some pick up in hotel transaction activity would you hope to bring some of your owned assets.
Speaker Change: Assets to market next year, I mean is that I mean coming back into sort of maybe more focus now I know, it's a small portfolio, but I'm just kind of wondering what your updated thoughts there.
Speaker Change: So certainly all.
Speaker Change: All the time.
Speaker Change: The reality is we're looking at that all the time and evaluating what makes the most sense as you've heard us talk about the W Union square as well as the elegant portfolio in Barbados, we are nearing the end of the renovation of those properties.
Speaker Change: And obviously when you look to take.
Speaker Change: Take advantage of what we expect to be very strong performance on the part of.
Speaker Change: Those that portfolio in that hotel and so as we move forward, depending on the financing environment and the appetite.
Speaker Change: Between has always buyers and sellers.
Speaker Change: We will take advantage of that so always always searching for that.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question will come from Lizzie Dove with Goldman Sachs. Please go ahead.
Lizzie Dove: Thanks for taking the question I was just wondering if you could give a little bit of a pulse check on the consumer I know Tony you mentioned last quarter and then it skipped intra quarter, just a little bit of pullback on ancillary spend food and beverage things like that I'm curious how that has evolved in.
Speaker Change: Since that period of time, and what your kind of expectation is going forward.
Speaker Change: Yeah. Thank you Lizzy of course, we spend an enormous amount of time looking at the consumer from every possible angle.
Speaker Change: But I'll go to the ancillary spend since that was a topic, we talked about a quarter ago.
Speaker Change: When you look globally, you almost have to bifurcate it and we look at.
Speaker Change: Food and beverage for meetings and events versus food and beverage outlets and lounges.
Speaker Change: Beverage for meetings and events continues to be quite strong.
Speaker Change: We are seeing a little bit of pullback on outlets and lounges still growing and growing materially, but maybe not quite as strong as we saw the one thing I would tell you, though is we're not seeing that weakness in spending from customers of luxury hotels.
Speaker Change: You look at outlets and lounge revenue for the third quarter at our luxury hotels now this excludes greater China for some of the reasons, we discussed earlier, but if you look at our global luxury portfolio ex China, we actually saw spending in outlets and lounges and the luxury portfolio up 2% which was.
Speaker Change: The same increase we saw a quarter ago. So we'll continue to watch it but that's pretty encouraging for us.
Speaker Change: Got it that's helpful and then going back to the fee side of things you mentioned, the renovation headwind and the timing of the residential branding fees as you move into 2025 or is that expected to kind of normalize what those renovations b kind of broadly complete just curious how we should think about the kind of cadence there.
Speaker Change: Well, yes, and no yes on the ones that are finishing up we've always guide hotels going under renovation, but.
Speaker Change: And we obviously will be carefully looking at that as we go through the budgeting process and looking at our fee guidance for next year I don't expect Lindsay that it would impact things meaningfully.
Speaker Change: Got it thank you.
Speaker Change: Thank you. Our next question will come from Chad Beynon with Macquarie. Please go ahead.
Chad Beynon: Good morning, Thanks for taking my question Tony.
Chad Beynon: Tony you mentioned that the convention business or the pacing for 25 looks pretty good.
Chad Beynon: In terms of room nights and ADR I was wondering if you could elaborate a little bit more are you seeing the same companies just kind of renew or add another convention or are you actually seeing growth in some of the businesses or industries that hadn't come back fully from a group standpoint. Thanks, yeah. Thanks.
Speaker Change: The question Chad I would say both are we are seeing companies.
Speaker Change: Who have been traveling and meeting.
Speaker Change: Building out their calendar of meetings and we are seeing some of our partners, who perhaps were on pause.
Speaker Change: Turning to schedule and I think some of that is driven by I mean, this is a wonderful problem to have but the availability of data and space, particularly if you're a larger group youre, having to peer further and further into the future to find dates and space to accommodate those meetings.
Speaker Change: Great. Thank you.
Speaker Change: Then secondly, just on.
Speaker Change: City Express I know there you began offering the product in North America, and we heard from one of your competitors that they were seeing some deletions in those areas. So it's certainly a good area for conversion or Newbuild, but could you talk about any initial demand for this product.
Speaker Change: Here in the U S. Thank you yeah, yeah, the demand is quite strong.
Speaker Change: We had people banging on the door, saying would you. Please announce the names. So we can start signing deals and we're already seeing Apple franchise applications come in we're seeing deals get approved we think as I mentioned I think in my opening remarks, we hope to open in the first couple in the next couple of months so exactly what we.
Speaker Change: What are the expected we're seeing.
Speaker Change: Strong interest from both our strong portfolio of existing franchise partners and I think our entry into the mid scale. It gives us an opportunity to tap into a group of franchisees, who perhaps we've not grown with in the past.
Speaker Change: I appreciate it thank you.
Speaker Change: Welcome.
Speaker Change: Thank you. Our next question will come from Conor Cunningham with Melius Research. Please go ahead.
Conor Cunningham: Hi, everyone. Thank you there's a lot of noise, obviously with the corporate travel from the election I think there were some calendar noise in October but if you could just stripped back a lot of those those one time items like what's your general sense of overall corporate travel spend it seems like it's.
Speaker Change: Simply positive we continue to kind of go.
Speaker Change: Lined up but just any thoughts there would be helpful. Thank you.
Speaker Change: Yeah, I mean grind is not a bad word, but it's slow and steady over the last number of quarters as we've talked about in each of the calls we are encouraged by virtue of the fact that we continue to see.
Speaker Change: Revpar growth quarter over quarter in the business transient segment.
Speaker Change: And to me one of the most encouraging facets of that recovery is on the big corporates. It's been several years since we already got back to a pandemic level. So travel from the small and medium sized companies, but the continued growth and the continued return to the road by the Big Corporates is and encourage.
Speaker Change: <unk> facet of the recovery.
Speaker Change: Okay, and then maybe the 219 million members I think you mentioned on bandwidth whats the the direct contribution now what's O T a and not just any thoughts there. Thank you.
Speaker Change: Yeah. So otas is quite steady so direct bookings.
Speaker Change: Bookings are still in the low 70% and that's really quite consistent.
Speaker Change: Consistent and I would say kind of you can say close to 40% overall or in digital.
Speaker Change: So.
Speaker Change: That part consistent the Otas, 12% to 13% has also been quite consistent.
Speaker Change: A place that has had at the margin slightly higher has been the GDS, which is really more of a reflection of continued return of the larger.
Speaker Change: Larger corporations doing their own things, but could I say otherwise.
Speaker Change: <unk> continued movement from the phone and in person and digital but also overall a very steady.
Speaker Change: Sort of low 70% for direct bookings.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you we have reached our allotted time for questions today I will now turn the call back to Tony Capuano for closing remarks.
Tony Capuano: Great well again, thank you for your interest in Marion Thanks for your questions today.
Tony Capuano: A whole host of reasons, it's gonna be a busy week for all of us, but we appreciate your interest and well look forward to speaking with you next quarter have a great day.
Speaker Change: This does conclude the Marriott International third quarter 2024 earnings Conference call. You may disconnect. Your lines at this time and have a wonderful day.
Speaker Change: [music].
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Tony Capuano: [music].
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Tony Capuano: Okay.