Q4 2024 Marriott International Inc Earnings Call
Speaker Change: Good day everyone and welcome to the Marriott International Q4 2024 earnings call. At this time all participants are in a listen-only mode. Later you'll have the opportunity to ask questions during the question and answer session.
Speaker Change: You may register to ask a question over the phone at any time by pressing the star and 1 on your telephone keypad. Please note today's call will be recorded. We will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Jackie McConagha, Senior Vice President of Investor Relations.
Thank you.
Speaker Change: Good morning, everyone, and welcome to Marriott's fourth quarter 2024 earnings call. On the call with me today are Tony Capuano, our President and Chief Executive Officer, Leni Oberg, our Chief Financial Officer and Executive Vice President of Development, and Pilar Fernandez, our new Senior Director 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 security laws.
Speaker Change: These statements are subject to numerous risks and uncertainties as described in our FCC filings, which could cause future results to differ materially from those expressed in or implied by our comments.
Speaker Change: Unless otherwise stated, our REVFAR occupancy, average daily rate, and property level revenue comments reflect 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 and the press release we issued earlier today are effective only today and will not be updated as actual events unfold.
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. Now I will turn the call over to Tony.
Thanks, Jackie. Good morning, everyone.
Speaker Change: results in 2024 reflecting continued robust demand for customers, owners, and franchisees for our more than 30 brands.
Speaker Change: For the full year, we achieved net rooms growth of 6.8% and global REV PAR rose over 4%.
Speaker Change: We end the year on a high note with fourth quarter worldwide REVFAR increasing five percent.
ADR rose 3% and occupancy increased over 1 percentage point.
Speaker Change: All of our regions produce better Red Fort growth than we had previously expected with strength across all of our customer segments.
Speaker Change: The U.S. and Canada saw its best quarterly REVPAR growth of the year, with fourth quarter REVPAR rising over 4%, primarily driven by a higher ADR. The drop in occupancy around November's U.S. election was not as severe as we had anticipated.
with demand rebounding quickly after the election.
Speaker Change: International REVPAR rose over 7% in the quarter, driven by 4% rise in ADR and a 2% point gain in occupancy.
Speaker Change: APEC REVPAR increased 12.5% led by strong growth in Japan, India and Thailand and aided by strong cross-border demand especially from greater China.
Speaker Change: Red par in the EMEA region rose 8% with broad-based growth across the region led by strong leisure demand.
Speaker Change: RevPAR in Greater China declined 2% better than prior expectations as the region benefited from the recent expanded visa-free transit policy and better than anticipated demand across multiple holidays and citywide events.
Speaker Change: By region, REVPAR growth was positive in Tier 1 cities, Hong Kong, Macau, and Taiwan, while Hainan Island again saw the largest REVPAR decline.
Speaker Change: Haiyan was again impacted by weak domestic leisure demand as wealthier travelers continued to vacation across other parts of the region.
Speaker Change: However, Hynand did see nice sequential improvement with RevPAR down 16% in the quarter compared to down 24% in Q3.
Speaker Change: Turning to trends by customer segment, Leisure, which comprises the largest portion of global room nights at 44%, had its strongest REVFAR growth order of the year and was the fastest growing of our customer segments.
Speaker Change: Fourth Quarter Leisure RevCar rose 6% globally and 4% in the U.S. and Canada, driven by gains in both room nights and ADR, with strength across all tiers from luxury to select service.
Speaker Change: Business Transient contributed 33% of global room nights in the fourth quarter.
Speaker Change: Solid gains in ADR drove business transient REF bar up 3% globally and up 4% in the US and Canada.
Thank you.
Speaker Change: Group Red Bar, which comprised 23% of room nights, rose 3% in the quarter. As expected, this was Group's lowest growth quarter of the year due to fewer group events in the U.S. around November's election and a decline in Group Red Bar in Greater China.
Speaker Change: Looking at full year of 2024, all customer segments experienced solid ref part growth on a global basis.
Speaker Change: group increased an impressive 8% and leisure and business transient rising 3% respectively.
Speaker Change: As Leni will discuss during her remarks, we are pleased with the solid momentum we have in our business as we start off 2025.
Speaker Change: At the end of 2024, global group revenues were pacing up 6% for 2025 and 10% for 2026 on increases in both room nights and average daily rate.
Speaker Change: Conversions were again a large driver of growth in 2024, contributing about a third of our signings and over half of our openings.
Speaker Change: Our industry-leading global lodging portfolio now boasts over 1.7 billion rooms across 144 countries and territories.
with a record of over 1,200 deals signed last year.
Speaker Change: We ended the year with over 577,000 rooms in our pipeline.
Speaker Change: In the U.S. and Canada, our largest market, we led the industry in gross room additions, with around one-third of all rooms open during the year flying one of Marriott's flags.
Speaker Change: While financing in the U.S. remains particularly challenging for new construction, we also had the leading share of new-build construction starts in 2024, as banks have shown preference for deals associated with our strong brands and an experienced player like Merit.
Speaker Change: During the year we also meaningfully expanded the breadth and depth of our portfolio across customer tiers.
Speaker Change: from luxury to mid-scale and across both traditional and alternative lodging product offerings.
Speaker Change: We continue to have strong owner interest in all of our mid-scale brands given their compelling brand design, the power of our revenue engines, and their simple bundled affiliation costs, which we believe are the lowest in the industry.
Speaker Change: At the end of the year, we had over 300 open and pipelined Four Points Flex, Studio Res, and City Express by Marriott Properties, just a year and a half after entering the mid-scale tier.
Speaker Change: We also continue to expand our incredible luxury portfolio, with the opening of several notable hotels including the St. Regis on the Bund in Shanghai, and W's in Prague and Sao Paulo.
Speaker Change: In the non-traditional lodging space, in December, we announced our plan to launch an outdoor-focused collection, which will be anchored by founding deals with Postcard Cabins and Trail, two innovative outdoor hospitality brands.
Speaker Change: Ilma, the second luxury superyacht in the Ritz-Carlton Yacht Collection, had its maiden voyage in the Mediterranean last September, and our third superyacht, Luminara, is expected to set sail this summer, with itineraries in the Mediterranean, Asia, Alaska, and Canada.
Speaker Change: Our focus on offering fantastic travel experiences for every trip purpose is key to ensuring
that Marriott Bonvoy remains the industry's leading travel platform.
Speaker Change: We added over 31 million new members to our loyalty program last year, growing to nearly 228 million members at year-end.
Speaker Change: Bonvoy member penetration of room nights achieved historic highs in the fourth quarter at 73% in the U.S. and 66% globally.
Speaker Change: as we grow that member base and our global portfolio and add travel-adjacent products and collaborations.
Speaker Change: like our 33 co-brand credit cards and tie-ups with partners like Uber and Starbucks, we are deepening engagement with our members and capturing more of our customers share of wallet.
Speaker Change: Driven by a strong increase in global card spend, our program credit card fees rose nearly 10% last year.
Speaker Change: Our digital channels, and mobile in particular, remain key drivers of direct bookings at a lower cost to our owners.
Speaker Change: In 2024, Marriott Bonvoy app downloads rose nearly 30% year-over-year. We're excited about enhancing the customer experience across all our digital channels through the multi-year digital transformation we have underway that we expect to begin rolling out a little later this year.
Speaker Change: Before I turn the call over to Leni to discuss our financial results in more detail, I want to thank our teams around the world for their hard work and dedication, and for making Marion a place where innovation and excellence thrive. Leni? Thank you, Tony. I'll start by reviewing our solid financial performance.
Leni Oberg: Fourth quarter, total gross fee revenues grew 7% to $1.3 billion, primarily due to higher res bar, room additions, 13% increase in credit card fees, and a near doubling of residential branding fees.
Leni Oberg: Incentive Management Fees, or IMFs, decreased year-over-year as strength in APEC was offset by declines in Greater China and in the U.S. and Canada.
Leni Oberg: The decline in the U.S. and Canada was primarily driven by lower fees in Maui, given the timing of fee recognition in the prior year.
Leni Oberg: G&A declined 12% year-over-year to $289 million, primarily due to lower administrative bad debt and litigation expenses.
The fourth quarter adjusted EBITDA grew 7% to $1.29 billion.
Leni Oberg: At the hotel level, profit margins at our worldwide managed hotels rose 110 basis points in the quarter and 40 basis points for the year, helped by continued productivity improvement.
Leni Oberg: We were also pleased that our guest surveys indicated that customer satisfaction continued to rise, with our 2024 Intent to Recommend scores increasing in every one of our regions.
Leni Oberg: For the full year, gross fees and adjusted EBITDA both increased 7%.
Leni Oberg: We were pleased that with the power of our strong cash-generating, asset-light business model, and our disciplined investment, we returned over $4.4 billion to shareholders through a combination of dividends and buybacks.
Leni Oberg: I'll now talk about our 2025 expectations, starting with net rooms growth. With our industry-leading pipeline and strong momentum in conversions, we expect net rooms growth of 4 to 5 percent.
Leni Oberg: Conversions, of course, can enter the system quickly. Conversions that were added to our system in 2024 had been in the pipeline for 14 months on average and nearly 20% of conversions opened so quickly they were not in any quarter-end pipeline number.
Leni Oberg: Over the three-year period from year-end 22 to year-end 25, we continue to expect net rooms to grow at a compound annual growth rate of 5 to 5.5 percent we discussed at our 2023 investor meeting.
For 4-year-25, we expect global REVFAR growth of 2-4%.
Leni Oberg: With the exception of Greater China, red part growth in international regions, though continuing to normalize, is again expected to be higher than in the U.S. and Canada.
Leni Oberg: We currently anticipate RevPAR in Greater China to be roughly flat year over year. As Tony discussed, we're off to a great start with January RevPAR rising 6% globally.
Leni Oberg: The sensitivity of one percentage point change in full year 2025 REVPAR versus 2024 could be around 50 to 60 million of REVPAR-related fees and 5 million in owned leased profits.
Leni Oberg: For the full year, gross fees could rise 4 to 6 percent to around $5.4 to $5.5 billion.
Leni Oberg: Co-brand credit card fee growth could be a couple hundred basis points lower than the nearly 10% growth in 24, primarily due to the normalization of international card fee growth.
Leni Oberg: Residential branding fees could decline nearly 50% solely due to the timing of unit sales.
Leni Oberg: While timeshare fees, as usual, are expected to be relatively in line with the prior year at around $110 million.
Leni Oberg: FX is expected to negatively impact gross fees by roughly $25 million.
Leni Oberg: Owned, Leased, and Other Revenues Net of Expenses is expected to total $345-355 million, relatively in line with 2024's results, somewhat impacted by a larger number of renovations at our owned and leased hotels.
Leni Oberg: 2025 G&A expense is anticipated to decline 8 to 10 percent to $965 to $985 million.
Leni Oberg: This decline is the result of the expected $80-90 million of above-property savings from our enterprise-wide initiative to enhance our effectiveness and efficiency across the company.
Leni Oberg: As we previously noted, this process should also yield cost savings to our owners and franchisees.
Leni Oberg: In December, we announced that we would reduce our loyalty charge-out rates by roughly 5%.
Leni Oberg: Full year adjusted EBITDA could increase between 6 and 9 percent to roughly $5.3 to $5.4 billion.
Four-year adjusted diluted EPS could total $9.82 to $10.19.
Leni Oberg: EPS growth will be impacted by an expected effective tax rate of around 26% compared to under 25% in 2024, reflecting certain international tax rate changes.
Leni Oberg: Our underlying core cash tax rate is anticipated to remain in the low 20s percent range.
Leni Oberg: For the first quarter, Global Red Park had increased 3 to 4 percent, benefiting from Easter, shifting from March to April this year, as well as January's inauguration and the Super Bowl in New Orleans, benefiting the U.S. and Canada.
Leni Oberg: First quarter gross fees could increase two to three and a half percent.
Leni Oberg: Solid growth in management and franchise fees are expected to be partially offset by a decline in IMS, partly due to a decline in Greater China given their strong first quarter a year ago.
Leni Oberg: as well as certain properties in the U.S. and Canada undergoing renovations.
First quarter owned, leased, and other revenues
Leni Oberg: is expected to decline year over year, primarily due to the elegant portfolio undergoing renovations, as well as the timing of termination fees.
Leni Oberg: We expect a billion to 1.1 billion of investment spending in 2025. There are three major areas of expected spending that are each around a third of this total.
Leni Oberg: The first bucket is another year of higher than historical investment in technology.
Leni Oberg: Over half of this investment is associated with the multi-year transformation of our property management, reservations, and loyalty system.
Leni Oberg: The overwhelming portion of which is expected to be reimbursed over time.
The second bucket is spending for our owned lease portfolio.
Leni Oberg: This spending is expected to be above historical levels in 2025, with about half of the expected investment driven by the completion of renovations on the Elegant Portfolio in Barbados, as well as renovations on a handful of other hotels.
Leni Oberg: We expect to sell the Elegant portfolio after renovations are complete, subject to long-term contract to remain in our system.
Leni Oberg: The last bucket is expected investment in our contracts, largely for new units as we continue to expand our global portfolio.
Leni Oberg: Our capital allocation philosophy has not changed. We're committed to our investment rating and investing in growth that's accretive to shareholder value.
Leni Oberg: Excess capital is returned to shareholders through a combination of share repurchase and a modest cash dividend, which has risen meaningfully over time.
Leni Oberg: In 2025, we expect another year of strong capital returns of approximately $4 billion.
Leni Oberg: Full guidance, assumptions, and details for the first quarter and the full year are in the press release.
Tony and I are now happy to take your questions.
operator
Speaker Change: At this time, if you'd like to ask a question, please press the star and 1 keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing star and 2.
Speaker Change: We'll take our first question from Sean Kelly with Bank of America.
Please go ahead, your line is open.
Sean Kelly: Hi, good morning, everyone. Tony, Lainey, I was hoping you could just update us on your cost kind of transformation and efficiency program if you could. Obviously, this is sort of a unique initiative to Marriott. What did you learn out of that? What areas have been a focus on? We've heard a little bit about select service management and sort of what's been some of the response from the ownership community and internally. Thank you.
Speaker Change: Sure. Well, thanks for the question, Sean. It's obviously a little early.
Sean Kelly: The resultant impact to our org structure and model have really just been put in place.
Sean Kelly: So I think most of my responses are going to be a little more qualitative.
Sean Kelly: What I will tell you internally, I think there is energy across the enterprise about how streamlined our decision making will be as a result of this, particularly in the field. And I have heard parallel enthusiasm from the owner and franchisee community.
Sean Kelly: Their ability to engage with the continent teams who they deal with each and every day They can already feel the empowerment in the continents, and I think they have high hopes for how that will Improve the relationship we have with the owner and franchisee community
Thank you.
Sean Kelly: And then maybe, Lieny, just as a quick follow-up, the investment spending buckets are a bit higher than what was outlined kind of back at the Analyst Day a couple of years, or, you know, 18 months ago or so. Could you just, you know, expand on that a little bit? Sort of what's kind of a little different than maybe your expectations a little while ago? And then kind of back to the capital recycling point, when do you expect to get some of that, especially that technology spending back? Or when should we see that level off or start to decline? Thank you. Yeah, sure. Yeah, sure, Sean.
Sean Kelly: When I outlined those three, as I pointed out in the one-third that is
Sean Kelly: largely around investing in our owned leased properties. That is higher than normal because, as I pointed out, our investment...
Sean Kelly: in the Barbados properties which will be largely this year and should be completed at the end of this year and that is towards $100 million of that overall amount. And then you've also got a handful of
Sean Kelly: a bit larger than normal renovations in leased properties. And I would say those are also not ones that you should continue to expect on a normal run rate basis.
the transformational tech investing that we're doing, Levels.
Sean Kelly: As we've talked about, both in 24 and 25, we've got higher than typical tech investments in the system that we do expect to start rolling out later in 25. When you think about how those will be
Sean Kelly: paid back by the owners. I think one of the things you probably notice in our reimbursed depreciation ...
about the normal charges going to the owners reflecting
Sean Kelly: kind of the repayment of some of these CapEx expenditures. So I think you'll see it over the next several years.
Sean Kelly: as we move into implementing this throughout the system. So, again, the normal levels that we talked about, I think, are still the right ones for your longer-term model.
Thank you very much.
Speaker Change: We'll take our next question from Patrick Scholz with Truist Securities. Please go ahead, your line is open.
Great. Good morning, everyone. Thank you.
Speaker Change: What do you feel is your appetite for additional tuck-in acquisitions this coming year or would you see this year more as a year of should we say digestion of previous acquisitions?
and then I have a follow-up question. Thank you.
Speaker Change: Sure. So, you know, just as Leedy talked about our capital allocation philosophy remaining intact, I would say the same thing in response to your question.
Speaker Change: We obviously, if you'll look at our history over the last decade or so,
Speaker Change: When we have identified a gap either in our brand portfolio or in our geographic footprint that we thought could be more effectively filled through tuck-in acquisition.
Speaker Change: We've done that. In some instances, we've filled those gaps through the development of organic platforms.
Speaker Change: and we'll continue to look at both the breadth of the brand portfolio.
Speaker Change: and our expanding global footprint. And if we think there's an opportunity to fill those gaps, we will certainly consider talking to Acquisition, but we'll apply the same sort of rigor in terms of evaluating the economics.
Speaker Change: But you should certainly assume going forward the vast, vast majority of our roots growth will be organic growth.
Speaker Change: Okay, thank you. Now my follow-up question. I've been reading some news articles very recently.
regarding Canadian and Mexican travelers.
Speaker Change: canceling reservations or pulling back their travel plans and this is related to recent political tensions related to tariffs etc. Is that something that you are seeing as well in your reservations and bookings from these two customers from these two regions? Thank you.
Speaker Change: When you look overall, the U.S. and Canada is overwhelmingly driven by domestic travelers.
Speaker Change: The two largest international markets of travelers coming to the U.S. are from Canada and Mexico, but they
make up really a very small part overall, call it...
Speaker Change: you know, one to two percent of our Knights in the U.S. So, you know, we'll see over time, but certainly too early to say, and overwhelmingly a very small part of our business in the U.S.
Okay, thank you, that's all.
Thank you.
Speaker Change: We'll take our next question from Connor Cunningham with Mellius Research. Please go ahead, your line is open.
Connor Cunningham: Hi everyone. So there's been a, just going back to the whole, the tech migration, can you just, it seems like you're gonna be done with that at year end. Can you just talk about how that's gonna be implemented and then what that actually means for your business going forward? I assume it's gonna be a benefit to 2026. So if you could just talk about that a little bit more, that would be helpful. Thank you.
Sure, so as we mentioned in the prepared remarks
Connor Cunningham: Elements of that tech transformation will start to roll out later this year.
Connor Cunningham: We've talked about this a bit in the past. We think there are far-reaching impacts to this transformation to all the constituents we serve.
Connor Cunningham: starting with Marriott Associates. The simplicity and the streamlined training we think will be a big advantage as we go out there and try to attract best-in- class talent, especially from a next-generation workforce.
Connor Cunningham: For our guests, we think the transformation will create tremendous capacity at the hotel level so that our associates can better engage.
Connor Cunningham: the guests in person. It will also meaningfully help our call agents in their ability to help with broader travel planning questions.
Connor Cunningham: And then we think for the owners, really advantages or opportunities both on the revenue and expense side. Certainly on the expense side, we expect there to be enhanced efficiency, but one of the things that our owner community...
Connor Cunningham: is most excited about. There are a wide range of products and services that we offer our guests every day beyond guest rooms. Food and beverage, spa, golf, etc.
Connor Cunningham: The ease with which a guest can shop across all of those categories on our new reservations platform we believe represents meaningful revenue upside for our owners.
Speaker Change: The only thing I'll add is that given the size and scale of this transformation, which is, as you heard, involves our reservation staff,
Speaker Change: Our Property Management Systems and our Loyalty Program, this is going to be something that will take a number of quarters to roll out around the world. So you should expect this over the next couple of years or so.
Speaker Change: Okay. And then on the composition of Red Park, can you just talk about ADRs versus occupancy? Obviously, you saw nice gains in the fourth quarter, but just curious on how you're thinking about it for 2025 in general and just a big level set around that stuff. That would be great. Thank you.
Speaker Change: So the way I think about it is, as you've heard, we had in the full year this year, kind of grew with the.
Speaker Change: It was the big winner, up 8% for the full year, with BT and Leisure both also very strong.
Speaker Change: When I think about 25, I would say still think group.
Speaker Change: with the pace that's up right now of 6% for 2025, that that will likely be the leader in the clubhouse for RevPAR, with BT continuing to be sturdy in this macroeconomic environment in the low single digits.
Speaker Change: and I would say overwhelmingly ADR-driven. We do expect a little bit of occupancy gains as well, but when I compare it to this year, I would say it's going to be more— we would expect it to be more heavily weighted towards ADR in 2025.
Appreciate the details. Thank you.
Speaker Change: We'll take our next question from Richard Clark with Bernstein. Please go ahead, your line is open.
Richard Clark: Good morning, thanks for my question. I appreciate you gave some of this color for the first quarter but just on the full year basis.
Speaker Change: Revpar plus net unit growth is seven and a half percent. It sounds like you're going to grow the non-Revpar fees a bit above that, but you're getting to gross fee growth of only around five percent. So what's the bridge we should think about to get down to that five percent there?
Speaker Change: As you probably heard in my comments, there are a couple
Speaker Change: elements impacting fees that are not necessarily repeated every year. I'd say the first one is FX, which is a headwind for us of about 25 million. And then the other is lower residential branding fees.
Speaker Change: 50% reduction next year. Part of that is because they were so particularly strong in closings this year. We do expect, for example, by the time you get to 26, we'd expect them to pop back up. This is all around
Speaker Change: When these buildings are built and the units are closed So that the sales can occur and the fees recognized so they those fees tend to be fairly lumpy
Speaker Change: And then the last thing I'll point out is that you do have IMFs.
Thank you. Thank you.
really.
I'm late.
Speaker Change: changing slightly next year and that is a function of two things. One is obviously Greater China continues to have headwinds on the REVPAR front and their Q1 is particularly challenging because in Q1 of 24 they had a six percent REVPAR growth quarter. So for the full year in 25 I would expect to see their IMF decline.
Speaker Change: And then the U.S. and Canada, we've got some renovations going on that are going to also impact their IMFs in 2025. And you put that together, and that's where you'll see that the overall fee growth perhaps.
Speaker Change: slightly lower than you might have expected given our strong roots growth at Roquefort.
Speaker Change: So maybe just to follow up on that then, I guess at your CMD you guided to non-REV PAR fees growing 12% across 2024 and 2025. Where do you actually expect that to come out across those two years? Maybe I think I interpret it as credit card growth but all in, what do the non-REV PAR fees grow at across 2024 and 2025?
being a couple hundred basis points lower.
Speaker Change: growth than this year, and then obviously residential branding fees are dropping from the 80 million this year to likely roughly half, and then timeshare fees being essentially flat.
Those are the three big drivers.
Okay, that's very helpful. Thank you.
Speaker Change: We'll take our next question from Robin Farley with UBS. Please go ahead, your line is open.
Robin Farley: Great, thanks. Just circling back to your unit growth guide for the year, roughly what percent of that are you expecting to come from conversions versus new construction? Thanks.
Robin Farley: So, I think as you've seen this year, particularly high this year, Robin, as we were able to fold in the MGM and Sonder room space.
Robin Farley: so it was over half. I think this year's signings at 34% reflects how I think you should think about it going forward, which that clearly could be 30 to 40% coming from conversions in our openings in 2025.
Speaker Change: Okay, thanks. And maybe just one final question. On the one-third of the capital spend that's for contract investments for new units, are those, is that a mix of
Speaker Change: that key money, some loans, some equity slivers, sort of, how should we think about, if it's showing up in capital spend, that's probably not a loan that you get back from a hotel owner, or how should we think about?
The return on that.
Sure, so...
Robin Farley: Robin, as you as you point out, we've got lots of financial tools in our toolbox for those deals that we think will provide outsized volumes of fees
Robin Farley: Here in the U.S. and Canada, the competitive landscape has really shifted towards key money being the tool of reference in a lot of ways.
Robin Farley: As we look at trends in key money, we are seeing a bit more key money required across more tiers, meaning occasionally we're seeing it used in lower chain scales, which is a bit of a new
development
Robin Farley: Given our rapidly growing scale, we saw slightly less key money used per deal, which I think is interesting. If you compare 2019 to 2024, the absolute volume of dollars
Robin Farley: kind of grows as our system grows dramatically, but key money investment per deal is down compared to where we were back pre-pandemic.
Robin Farley: And Robin, when you think about the make-up, I would think about investments in growth to be overwhelmingly key money.
Speaker Change: We do have obviously debt service guarantees, operating profit guarantees, but when you think about the broad
Speaker Change: brush of it, that's going to be a relatively smaller amount. We do from time to time, we'll do a mezzlone into a deal which is recyclable and you've actually seen some of that recycling going on this year as we get that money back. But I think that
Speaker Change: The biggest component of that investment is in the form of key money.
Thank you.
Okay, great. Thank you very much.
Speaker Change: We'll take our next question from Steven Grandling with Morgan Stanley. Please go ahead, your line is open.
Steven Grandling: Hi, thanks. There's been a number of kind of puts and takes that people have been asking about regarding the September Analysts' Day back in 2023, and I guess if you could zoom out.
Steven Grandling: to compare the 2025 outlook versus then what's perhaps the prize for the upside, what's been a bit more of a challenge and what do you think all these puts and takes mean for the trajectory of EBITDA and pre-cash flow as we think about the longer-term growth potential?
Steven Grandling: Yeah, I think, um, thanks for the question. I think, uh...
When you get the classic question that I know
Steven Grandling: we are often asked is around this equation, around Roon's Growth and ResPAR. And as you can tell, this year, with the midpoint of the guidance that we've given in 2025 being around 7.5 to 8 percent,
Steven Grandling: That kind of fits pretty squarely in this view of RevPAR and rooms growth.
Steven Grandling: I think we see a lot of opportunity for us to continue to grow.
Steven Grandling: I think the basic equation that we laid out in September of 23 has held up very very well.
Steven Grandling: You have had a few puts and takes relative to things like FX and kind of what's going on with ResPAR in certain parts of the world, but I think overwhelmingly
Steven Grandling: The equation has worked really well and when you think about the capital return
Steven Grandling: and the growth and even that we see for many years to come, it's very robust.
And the only thing I would add, Stephen, the...
a specific point in time.
Steven Grandling: And, you know, since the time of that investor day, there have been some instances that underscore the importance from our perspective of looking at it over a multi-year basis.
Steven Grandling: The shift in timing of MGM may be being the most relevant illustration but we continue to feel really confident in our ability to deliver the 5 to 5.5% CAGR that we laid out on the investor day.
that the last thing I'll mention
Steven Grandling: The last thing I will mention is just a reflection that on that day when we talked about a tax rate we gave one that was really over the entire three-year period and as you heard me describe in 25.
We have seen with some jurisdictional...
Steven Grandling: tax rate changes in certain parts of the world that when we look at 25 and and frankly from what we can tell Probably a view of how you should think about it going forward is that
Steven Grandling: That roughly 26% effective tax rate is the updated one as compared to what we talked about in September of 23. And then obviously, REVPAR has been excellent.
Great, thank you.
Thank you for watching. And have a great day.
Speaker Change: We'll take our next question from David Katz with Jeffries. Please go ahead, your line is open.
Hi, good morning everyone. Thanks for taking my questions.
Speaker Change: Morning. A lot of talk about, you know, key money. Can you just sort of walk us around the rest of the terms as you're seeing them in the market, right? If key money, and I heard correctly, is, you know, starting to become more of a
Speaker Change: you know, bigger button. Do the returns shrink? Does the length of the contracts get longer? You know, how does that, how does that all sort of fit together compared to where it would have, say, five years ago?
Speaker Change: Yeah, I mean, I think, David, it's a good question, and I'm going to probably repeat myself a bit. The fundamental philosophy we have around deal-making remains consistent.
Speaker Change: we consider using the company's balance sheet in deals where we believe the use of those capital tools will drive outsized fees and so it's not a circumstance where we're getting
Speaker Change: The castle is getting attacked on all four walls, meaning we're not seeing deals where we're making a key money contribution, being forced to do shorter terms, being forced to deviate materially from the sorts of base and incentive fees or franchise fees that we've established.
Thank you very much.
Speaker Change: Right, so at the end of the day, it feels like it's become just a bit more competitive, but you're, you know, you feel like you're steadfast in the structure of what those management contracts are.
Speaker Change: So I'll just add a couple of numbers to help on this, David. When I think about the amount of money that we're going to put out the door in cash for key money in 2025, it's not materially different than in 2025.
Speaker Change: And the, we have talked before about getting a premium in net present value on contracts where we use key money And there continues to be
Speaker Change: a good premium for the deals that involve key money compared to deals that don't involve key money. So I think the best way to think about it is the way Tony described, which is that it's a tool in the toolbox.
and owners and franchisees use these various tools.
Speaker Change: you know, it's how we're thinking about how we participate in a renovation, etc. But I think overall, it is, we continue to see the contracts coming in with very, very strong returns on invested capital.
Speaker Change: And David, the last point I would make on key modding, while I mentioned in the first part of my response that we are seeing it leak into some of the lower quality tiers
Speaker Change: Occasionally, it is much more prevalent in the highest value tiers, upper upscale and luxury, and that represents 40% of our pipeline.
Speaker Change: And so, you know, our shareholders should want us to be holding those tools largely for those most valuable opportunities. And I think our focus on leading in those tiers is reflected in nearly
Speaker Change: are over 40% of the pipeline being in those two quality tiers.
Got it. Very clear. Thank you.
Welcome.
Speaker Change: We'll take our next question from Brant Montour with Barclays. Please go ahead, your line is open.
Thanks. Good morning, everybody.
Speaker Change: I want to drill in on the leisure commentary, Tony, which sounded like it was the big surprise for you in the fourth quarter, and yet, you know, the commentary about the full year,
Speaker Change: guide was sort of flat to up leaning and so I just kind of curious I wouldn't have thought that the first through third quarter comps were any tougher than the fourth quarter 23 but but maybe is it just sort of conservatism because there's not a ton of visibility on that business or or what do you what are you kind of seeing in that segment
Speaker Change: Yeah, I mean, I think there's a little bit of everything you identified. The booking windows are still relatively short, you know, kind of sub-three weeks. And so the ability to predict there, maybe we don't have as much visibility as we might like or we've had historically.
Speaker Change: But we looked at those fourth quarter numbers as really encouraging.
Speaker Change: many predictions of the end of the run on Leisure and understandably so. I mean since 19 you've seen a 40 percent improvement in Leisure Red Farm.
Speaker Change: And so to me, I think the fourth quarter numbers are reflective that there are still some legs in leisure and the guidance that Leany walked you through is reflective of an expectation that while we'll continue to see growth, it's kind of normalizing a bit.
Speaker Change: And I'll just add to your point, it was encouraging to see that RevPAR at our luxury and resort hotels, RevPAR in Q4 grew at 6%.
Speaker Change: and obviously that's helped by both Grube and BT and also this leisure that we saw. I think, as Tony talked about it being a little bit harder to predict, I would point to just the overall macroeconomic picture.
Speaker Change: that will always be a huge element to how leisure business develops at our hotels and we'll all be watching that very closely.
Speaker Change: Okay, thanks for that. And then Tony, I have a question about the other side of the key money coin. Just sort of the availability of capital is something you've talked a lot about at panels and conferences and things. I mean rates are high but they've been high for a while. It's the availability of capital which is the problem and that's sort of a separate issue. Do you think there's anything in the horizon that could sort of unlock that? I mean, you know, do you have to see deregulation from the sort of within capital
Speaker Change: or is it just sort of a, you know, getting past the hangover of the post-COVID, you know, office loan issues that are still a problem for some regional banks? What do you think is sort of the factors that could or should alleviate over time? Are you optimistic about that for 2025?
Speaker Change: Yeah, there is certainly a regulatory element here. The irony is when we talk to lenders, often the hospitality loans in their commercial real estate portfolios are the best performing sector.
Speaker Change: If they have reluctance to lend on new construction, it has little to do with the fundamentals of hospitality projects and much more to do with the unknown about what Basel III or other regulatory requirements might be imposed upon them.
Speaker Change: I think Lieny talked about this earlier. We are seeing an uptick in construction starts, not back to pre-pandemic levels to be sure, but that's encouraging. And the other thing I found really encouraging, and I mentioned this in my opening remarks,
they are using the same...
Speaker Change: criteria they've always used. They're looking at the track record of the developer and they're looking at the affiliation with the right brand family and I think that speaks really well to our ability to over index in terms of capturing the new construction originations that are out there.
Speaker Change: But, you know, our sense is, barring some significant regulatory change, slow and steady improvement in the lending environment.
Great. Thanks, everyone.
Thank you.
Speaker Change: We'll take our next question from Duane Fenningworth with Evercore ISI, please
Please go ahead, your line is open.
Hey, thank you. Good morning.
Can you just remind us your view regarding how recovered
Speaker Change: business transient is both from a volume and a revenue basis and then as you're thinking about the year any any deeper insights you can offer on how you see that recovering either from a geographic or industry vertical perspective
Speaker Change: Yeah, so I'll start and Tony can follow up with anything he's got. First of all, business transient has recovered.
of Corporates when you think about the large
Speaker Change: that have had more remote work since COVID, et cetera. You still see their nights meaningfully behind 2019 levels. Although I will say that some other of those large corporates, like in the financing,
Speaker Change: sector of the economy, they are actually back to more than recovered.
Speaker Change: So overall, the business has recovered. You have seen more growth in leisure as compared to the BT.
sector.
Speaker Change: One thing I thought was interesting when I looked at overall nights of the week, for example, you are seeing overall occupancy of our global system as being higher than 2019 levels, but Monday, Tuesday, Wednesday are still the nights whose occupancy has not recovered, while the other nights of the week are actually higher occupancy than we had pre-COVID.
Speaker Change: and we expect that to continue into 2025 but they are still not back to the level of 2019 while BT overall is.
Speaker Change: Thanks and then maybe just for a follow-up, maybe you could speak to it at a high level, can you just remind us the structure of your co-brand relationships?
Speaker Change: Are those global in nature? Are they country-specific? And when would we see an opportunity for a significant renewal or extension? Thanks for taking the questions.
Speaker Change: Our two biggest relationships are with JPMorgan Chase and American Express, which is largely a domestic set of relationships.
around the world. We tend to partner with local
Speaker Change: banks. We've got 11 of those relationships and continue to evaluate other countries where it might make sense to establish a local relationship.
Speaker Change: We're in great shape, as evidenced by the numbers on growth that Leany shared, and we're not ready to really talk about when we might enter into a renewal. They're multi-year agreements, so there is not a particular pressure.
on them, but always in discussions.
Thank you.
Speaker Change: We'll take our next question from Smitty's Rose with Citi. Please go ahead, your line is open.
Speaker Change: Hi, thanks for taking my question. I wanted to ask you, you mentioned investing in the Elegant portfolio and Barbados and then looking to sell, but are you, you know, actively seeking investors now or potential buyers? And I was just wondering, are there challenges to selling an all-inclusive portfolio that...
Speaker Change: you know, might be unique to that sector or that region of the world. It's something if you could maybe just talk about your sort of timeline there a little bit.
Speaker Change: Yeah, sure. I wouldn't have any particular expectations. I think given COVID and what would not be surprising to you and some supply chain challenges,
Speaker Change: related to that following COVID. We've got all the plans in place. We're executing. Some of it was done in 24, and we're really going to get the vast majority completed in 25.
So, that would be kind of the normal...
Speaker Change: pathway for us to complete that and then execute the sale.
Speaker Change: where you're not in a position where somebody is having to kind of do a quarter or a third of the renovation themselves. It makes it for a nice, clean sale of the hotels.
Speaker Change: Nothing in particular at this point to talk about the marketing process for that. Obviously as you've seen us do SME's over time, we're constantly evaluating market opportunities, buyer opportunities, and thinking about when is the appropriate time to sell it.
Speaker Change: And the only thing I would add, Smeets, the part of your question was any particular concerns.
Speaker Change: I think as we watch the competitive landscape, as we watch the transaction market, you are seeing more and more institutional investment dollars going into the all-inclusive space, and I think that bodes well when we're ready to recycle this capital.
Speaker Change: And we have, frankly, since we've acquired it, the performance has been excellent of those hotels.
Speaker Change: It is a wonderful addition for us, for our global Bonvoy traveler. We have not had a presence in Barbados before, so it's been a really wonderful set of hotels to add to the portfolio. It's done quite well.
Speaker Change: Great, and then just one, just small one, but did you complete the purchase of the Chicago Sheraton in the quarter, and is that, that would be included in your owned and leased outlook, I guess, going forward?
Speaker Change: Yes, we did. So we are the proud owners of the Sheraton Chicago and you know our value is performing well. We think it'll be a good cash flow generator in the owned lease line and we will embark on an evaluation of the assets capital needs.
Great, I think I appreciate it. Thank you.
Thank you.
Speaker Change: We'll take our next question from Ari Klein with BMO Capital Markets
Please go ahead, your line is open.
Ari Klein: Thanks and good morning. Maybe just going back to key money, I was curious maybe from a little bit of different perspective if there was an opportunity to actually be more aggressive on that front given that it's equated to growth and you have such a strong cost of capital. Maybe what are some of the puts and takes on that front from your point of view?
Ari Klein: and to the extent we see opportunities for deals that will generate higher than typical fees. We are certainly not shy about using that tool, but it's got to be through that disciplined lens.
Thank you.
Thank you. Bye-bye.
We'll take our next question from Chad Beynon with McLean.
Why?
Please go ahead, your line is open.
Speaker Change: Hi, good morning. Thanks for taking my question. Tony, at the outset, you talked about continued strength in 24 with the Bonvoy members. Can you just kind of touch on where you're seeing the growth or, you know, maybe a particular age or region and if this saw a nice benefit from the MGM deal? Thanks.
Speaker Change: Yeah, of course, Chad. The good news is we're seeing it everywhere. The continent teams around the world, the property teams around the world, have really embraced our efforts to continue to add high-value members to the program. I think we talked in my prepared remarks about the rapid progress we've made in our entry into the mid-scale tier.
Speaker Change: My view is that creates a great opportunity to open the aperture and bring in younger Envoy members, maybe less frequent those that are just starting the evolution of their travel journey. So I think that's a big opportunity for us, but it's really around the globe where we're seeing those opportunities. We'll continue to push at the property level in
Speaker Change: 25, and I think you'll see a renewed focus on leveraging some of the amazing partners we have like Starbucks and MGM to try to continue to grow the platform.
Thank you for joining us. Thank you.
big catalyst to get that going. Thank you.
Speaker Change: Yeah, I think we all hope that, but it's really too soon to say.
Leni Oberg: As you heard in Leni's remarks, Paul, we're quite encouraged by the January performance.
Leni Oberg: We've also got to temper that enthusiasm a little bit, because some of that is a byproduct of the timing of Chinese New Year, so we'll continue to watch.
Leni Oberg: You know, we are seeing some very small encouraging signs. The fact that the Tier 1 cities were positive is a good sign.
the fact that sequentially the weakness in INAM
Leni Oberg: is improving, albeit not anywhere close where we'd like it to be, is encouraging. We've seen some stimulus programs coming out of the central government, none of which to date, at least, we believe will have a material impact.
on the webinar.
Leni Oberg: We had record level of deal volume performance in 2024, and I think that's indicative of the development community's confidence long-term about China growth trends.
Thank you very much. Appreciate it.
You're welcome!
Speaker Change: We'll take our next question from Lizzie Dove with Goldman Sachs. Please go ahead, your line is open.
Thank you.
Lizzie Dove: Hi there, I'm wondering if you could just expand on your comments around international welfare being higher than the U.S.? You mentioned China would be flat, but anything you can share there, whether that's Middle East or Europe, I know you're lapping the Olympics but you have Jubilee in Italy, so just any kind of color you can give around that.
Lizzie Dove: Well, you know, obviously, first of all, basics on REVPAR are very much tied to GDP and you've got in some markets around the world, I'll point out India as an example, you've got meaning a faster growth in GDP and those are areas where our rooms are growing at double-digit rates.
So, there's obviously benefits like that.
percentage of cross-border guests at our hotels
Lizzie Dove: than pre-COVID this year. And I think trends like that continue to emphasize the fact that they could be on the higher end of the res par growth as compared to the US a little bit lower.
Okay, great. Thanks. That's all my questions.
Lizzie Dove: And that does conclude our allotted time for questions. I'll now turn the program back to Tony for any additional or closing remarks.
Lizzie Dove: Great, well thank you again for your interest and your questions. As we mentioned at the outset, our teams are energized by fantastic performance in 24 and excited to welcome you in 144 countries around the world. So safe travels and we'll talk to you soon.
Lizzie Dove: This does conclude today's program. Thank you for your participation and you may now disconnect.
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Speaker Change: Jackie McConagha, Anthony Capuano, Jackie McConagha, Anthony Capuano, Anthony Capuano, Jackie McConagha, Jackie McConagha,
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