Marriott International Inc (MAR)

• Marriott is experiencing strong demand in the group travel segment, with companies both renewing and adding new conventions, and larger groups scheduling further ahead to secure dates and space. This trend is expected to continue into 2025, benefiting Marriott's significant lead in the group hotel portfolio. -
• The expansion into the mid-scale segment with the City Express brand is showing strong initial demand in the U.S. and Canada, with franchise applications already coming in, deals being approved, and openings expected in the next few months. This enhances Marriott's growth prospects in a high-growth market segment. -
• Marriott's cost-saving initiatives are anticipated to yield $80 to $90 million of annual G&A cost reductions beginning in 2025, which should enhance profitability. Additionally, the company is looking at efficiencies and savings to benefit owners and franchisees, potentially strengthening relationships and growth opportunities. - -

• Elevated construction costs and limited debt availability are impeding Marriott's construction start volumes, hindering growth compared to pre-pandemic levels. -
• Marriott is increasingly using key money across more tiers, potentially impacting investment returns, as key money is now being used in a broader section of quality tiers than in the past. -
• Marriott had to reserve $70 million for an operating profit guarantee from the Starwood acquisition, which reflects an unusual exposure and could impact financials. -

1. G&A Cost Savings
   Q: What's the plan for G&A cost savings in 2025?
   A: We plan to achieve annual G&A cost savings of $80 to $90 million beginning in 2025, based on this year's cost base. This will result in sustainable expense reductions. -

2. China Performance
   Q: What's the outlook for China RevPAR growth?
   A: Despite limited impact from recent economic stimulus, we see China's performance potentially being flat in 2025, absent significant new stimulus. However, we've observed slightly better-than-expected RevPAR in Greater China as we moved through Q3 and into October, with a marginal pickup in cross-border travel to Tier 1 cities. -

3. Fee Growth and IMF
   Q: How are fee growth and incentive management fees trending?
   A: Fee growth can be lumpy quarter-over-quarter due to factors like lower year-over-year incentive management fees in regions like Greater China and renovation impacts. However, we're pleased with strong room signings and conversions coming into the system, supporting future fee growth. In Q3, 22% of our managed hotels in the U.S. and Canada paid an incentive fee, consistent with the prior quarter. - , -

4. Net Unit Growth Outlook
   Q: What's the outlook for net unit growth?
   A: We remain confident in our 3-year CAGR of 5% to 5.5% net unit growth, supported by a strong pipeline and continued momentum in signings and conversions. Our new mid-scale offerings, like City Express, are generating strong franchise demand, which will contribute to future growth. - , - , -

5. Corporate Negotiated Rates
   Q: What's expected for 2025 corporate negotiated rates?
   A: Early discussions indicate we're targeting a mid-single-digit increase in corporate negotiated rates for 2025, and the teams feel positive about achieving this target. -

6. Leisure Demand Trends
   Q: How is leisure demand expected to trend in 2025?
   A: We expect 2025 to look similar to the back half of 2024, with leisure demand up slightly but not taking a big jump. The normalization of pent-up leisure travel is being offset by continued strength in business transient and group segments. - , -

7. Group Business Strength
   Q: How is the group business pacing for 2025?
   A: Group business for 2025 looks strong in terms of room nights and ADR. We're seeing both existing companies renewing and growth from industries that hadn't fully returned. Availability of dates and space is becoming a challenge, pushing larger groups to plan further ahead. - , -

8. Capital Allocation and Asset Sales
   Q: What's the plan for capital returns and potential asset sales?
   A: Our philosophy remains to invest in valuable growth while returning excess cash to shareholders. We expect to stay solidly in the investment-grade leverage range. We're always evaluating our owned assets for potential sales, especially as we near the end of renovations on properties like W Union Square and the Elegant portfolio in Barbados. - , -

9. Key Money Trends
   Q: Any changes in key money usage for new deals?
   A: Approximately one-third of our deals use key money, consistent with past trends. While key money is used across more tiers now, the amount per deal remains similar. We don't see meaningful increases in this element of our investment profile. -

10. Developer Sentiment and Interest Rates
    Q: How are interest rates affecting developer plans?
    A: Developers consider all variables impacting returns, including interest rates. While they watch Fed actions closely, availability of debt and high construction costs are bigger impediments to new construction starts than current interest rates. - , -

11. Ancillary Spend Trends
    Q: How is consumer ancillary spend evolving?
    A: Food and beverage revenue for meetings and events remains strong. While there's some pullback in outlets and lounges, growth continues—especially in luxury hotels, where we saw a 2% increase in outlet and lounge revenue in Q3, excluding Greater China. -

12. Corporate Travel Recovery
    Q: What's the status of corporate travel recovery?
    A: Business transient RevPAR continues to grow quarter-over-quarter. Notably, large corporate travel is returning, complementing the recovery we've seen from small and medium-sized businesses. -

13. Non-RevPAR Fees
    Q: What's the outlook for non-RevPAR fees growth?
    A: We expect non-RevPAR fees to grow at the top end of single digits, around 9% to 10% for the full year. In Q3, residential branding fees more than doubled to $18 million from $7 million a year ago. -

14. Bonvoy Membership and Direct Bookings
    Q: How are Bonvoy membership and direct bookings trending?
    A: Bonvoy membership has reached 219 million members. Direct bookings remain steady in the low 70% range, with OTA bookings stable at 12% to 13%. We've seen slight growth in GDS bookings due to larger corporations returning to travel. -

15. Impact of Renovations on Fees
    Q: How will renovations impact fees moving forward?
    A: While renovations can temporarily affect fees, we don't expect them to impact things meaningfully as we move into 2025. We'll consider renovation effects in our budgeting process and fee guidance. - , -

Quarterly guidance for Q4 2024:

• Gross Fee Revenues: 4%–5% - - (no prior guidance)
• RevPAR Growth: 2%–3% - - (no prior guidance)
• Owned, Leased, and Other Revenue: $95M - - (no prior guidance)

Annual guidance for FY 2024:

• Net Room Growth: 6.5% - - (raised from 5.5%–6.0% - - )
• Gross Fee Revenues: $5.13B–$5.15B - - (no change from $5.1B–$5.2B - - )
• Global RevPAR Growth: 3%–4% - - (no change from 3%–4% - - )
• Adjusted EBITDA: $4.93B–$4.96B - - (lowered from $4.95B–$5.00B - - )
• Adjusted EPS: $9.19–$9.27 - - (lowered from $9.23–$9.40 - - )
• Investment Spending: $1.1B–$1.2B - - (raised from $1.0B–$1.2B - - )
• G&A Expense: 4%–5% - - (raised from 1%–2% - - )
• Owned, Leased, and Other Revenue: $346M - - (no change from $345M–$350M - - )
• Shareholder Returns: $4.4B - - (raised from $4.3B - - )

Annual guidance for 2025:

• Cost Reductions: $80M–$90M - - (no prior guidance)