The operator introduces the Marriott International Q4 2023 Earnings Call and reminds participants that the call is being recorded. Jackie McConagha, Tony Capuano, Leeny Oberg, and Betsy Dahm are all present on the call. McConagha reminds listeners that statements made during the call are considered forward-looking and subject to risks and uncertainties. Capuano thanks the team for their great results in 2023.

In the fourth quarter, Marriott experienced strong momentum in their business globally, with a 7% increase in RevPAR driven by gains in ADR and occupancy. Group revenues also saw a 9% increase globally and 7% in the US and Canada. Leisure transient, which accounted for 44% of room nights, saw the fastest growth post-COVID. Demand remained resilient, with a 5% increase in room nights and 6% growth in leisure transient revenue worldwide. Business transient, which contributed 33% of room nights, saw solid gains in ADR and revenues. Marriott Bonvoy loyalty program grew to over 196 million members and digital channels continue to drive growth at a lower cost to owners.

In 2023, Marriott saw a 22% increase in room nights booked through their Bonvoy app and is focused on improving the customer experience through technology. They also had record global acquisitions and growth in their credit card program. Despite a challenging financing environment, they signed a record number of agreements and have a strong pipeline for future growth. They anticipate a net rooms growth of 5.5% to 6% in 2024, including 37,000 rooms from MGM. The first set of these rooms are already available and the initial booking pace is strong. Marriott remains confident in their three-year net rooms growth rate of 5% to 5.5%.

Marriott is making progress in expanding their lodging offerings globally, with a focus on the high-growth mid-scale space. They have numerous deals in the works for their Citi Express and Four Points Express brands, and are also working on a new mid-scale brand for the US market. Their luxury division is also performing well, with a record number of signings and new hotels added to their portfolio. Overall, Marriott had a successful year in 2023 and remains optimistic about the future of the travel industry. Their strong financial results in the fourth quarter were driven by higher ADR in the US and Canada.

In the fourth quarter, international RevPAR increased by 17% due to higher occupancy and ADR. Asia Pacific saw the largest increase, with Greater China experiencing an 81% rise in RevPAR. Total gross fee revenues also grew by 10%, driven by higher RevPAR and room additions. Incentive management fees increased by 17%, reaching a record high for the full year. G&A expenses were impacted by a litigation reserve and higher professional fees. Adjusted EBITDA grew by 10% in the quarter and 21% for the full year. Thanks to tax planning efforts, there was a tax benefit of $267 million in the quarter. Despite wage and benefit inflation, profit margins were maintained at the hotel level in the U.S.

In 2023, the company saw a strong performance in managed hotels and an increase in customer satisfaction. Their asset-light business model generated significant cash and their loyalty program was a source of cash. For 2024, the company expects a steady global economy and normalized lodging demand, with RevPAR growth driven by group revenue, business transient demand, and leisure revenues. The year has started off strong with a 7% increase in January RevPAR, and for the full year, the company anticipates a 3% to 5% rise in global RevPAR, with higher growth in international markets, particularly in Asia Pacific.

In 2024, there could be a 6-8% increase in gross fees, with non-RevPAR related fees driving the growth. Owned, leased, and other revenues are expected to decrease due to lower termination fees and renovations. G&A expenses are expected to remain flat or increase slightly. Adjusted EBITDA could increase by 5-8%. The effective tax rate is expected to be 25%, while the core cash tax rate will remain in the low 20% range. First quarter results may be impacted by lower residential branding fees and owned lease and other revenue, as well as MGM integration costs. The company's capital allocation philosophy remains the same.

The company is committed to maintaining its investment-grade rating, investing in growth, and returning excess capital to shareholders. In 2023, they returned significant value to shareholders and expect strong capital returns in 2024. The company plans to spend $1 billion to $1.2 billion on investments, including technology and the purchase of the Sheraton Grand in Chicago. They also plan to renovate and recycle assets, and have a strong development and growth outlook. The first question from an analyst is about the MGM transaction and what fees will be contributed this year.

Leeny Oberg, Marriott's Chief Financial Officer, clarifies that the integration costs mentioned in her prepared comments are related to the MGM license deal and will have a modest impact on G&A. The transition of the hotels onto Marriott systems is expected to be completed in Q1 and the business is expected to ramp up over the year. Oberg also clarifies that the $500 million investment spend for this year includes $200 million for the purchase of land for the Sheraton Grand Chicago, while the remaining amount is a liability that was established on the balance sheet years ago. She also mentions that the unidentified capital expenditures in the range of $1 to $1.2 billion are quite modest.

Shaun Kelley from Bank of America asks about the current state of the development environment and how global interest rates and construction costs are affecting it. Tony Capuano responds that there is strong momentum in both new build projects and conversions, and that there is a sense of relief among owners and franchisees about potential interest rate relief and a more active hotel transaction market in the second half of 2024.

The gap between sellers and buyers is narrowing, leading to a more active transaction environment. However, lenders are still concerned about compliance with proposed regulations and may limit debt financing for new construction. The company is optimistic about its entry into the midscale market, where franchise partners have a good chance of securing debt. Additionally, growth in Asia Pacific and the Middle East is not significantly impacted by the availability of debt. While supply chain issues have improved and construction costs have come down, the ability to source debt for new construction is the main concern for the company.

During a conference call, Smedes Rose from Citi asks about the discrepancy between the company's core metrics and their operating EPS outlook for the year. Leeny Oberg, the speaker, explains that the difference is mainly due to a higher book tax rate and the impact of an extra termination fee in 2023. She also clarifies that the cash tax rate remains the same due to global tax planning. Adjusting for these factors, the adjusted EPS for 2024 is close to double digits.

The speaker, Tony, addresses a question about large corporate group bookings lagging compared to smaller groups. He clarifies that this is in reference to a pre-pandemic environment and that there has been incremental growth in large corporate demand quarter-over-quarter. The speaker also mentions that on the group side, there is still a strong pace and that 75% of the group expected in 2024 is already on the books. Another speaker, Leeny, adds that the corporate group and other types of group are still strong, with an 11% pace for 2024 and 12% for 2025 in the U.S. The next question is about SG&A costs being slightly higher, and the speaker gives some explanation for this.

The company's CFO explains that the fluctuations in Q4 were largely due to timing, including litigation reserves, staffing, and performance-related compensation. The company's guidance for next year reflects these factors and there may be an acceleration in RevPAR and unit growth in 2025 to reach the midpoint of their long-term targets. The CEO also emphasizes the importance of considering multiyear periods when looking at the company's NAV.

The paragraph discusses the delay of MGM rooms entering the system, which has led to a higher net unit growth in 2023. Despite the delay, the company remains confident in their ability to deliver mid-single-digit growth in the next three years. The company has not made any major changes to their longer-term outlook and is pleased with the demand for their hotels in 2024. The company also mentions their budgeting process and how it helps with modeling and predicting future growth.

The speaker discusses the growth of room revenue, RevPAR, and gross management franchise fees in relation to MGM's contribution and pipeline. They state that the fundamental model of RevPAR plus fees is still working well and that there have been no major changes to the multiyear algorithm discussed at the Investor Day in September. They attribute the stronger-than-expected 2023 results to the higher base and express confidence in the continued success of the RevPAR growth plus net rooms growth model.

The speakers discuss the relationship between G&A and fees in the company, noting a drop in G&A as a percentage of fees. They also mention the phrase "success is never final" and their focus on improving efficiency. The next question asks about RevPAR guidance and the strength of the premium segment. The speakers mention that upper upscale is currently the strongest and that there is potential for ADR increases in this segment due to demand from special corporate rates.

The premium segment is expected to benefit the most from the increase in demand, with high single-digit growth rates in 2023 and strong mid-single-digit growth rates in 2024. The select service segment is expected to remain steady but not see the same benefits as the premium segment. Luxury is also expected to continue performing well, with a 10% increase in RevPAR in the fourth quarter of 2023 compared to the same period in 2022. The company is also seeing strong momentum in extending their lead in luxury from a footprint perspective. In terms of IMF at the end of the year, the percentage of North American properties that were payers during the year is not specified, but the company is willing to provide that information for either the full year or by quarter.

The company's exit rate for 2023 is expected to be similar to 2019, with a decrease in IMFs due to the departure of some limited service hotels. However, international IMFs remain consistent. In China, development momentum remains strong, with an increase in MOUs and new deals. Construction on paused projects has resumed.

The company is seeing encouraging trends in all three categories of their early pipeline, including approved and signed deals and under construction deals. They are also experiencing strong demand for their brands in Asia Pacific, with a high single digit growth in rooms expected in 2023 and 2024. However, the financing environment for new hotel construction is limited, which may result in an air pocket in new hotel openings in the US in the future. The company is hoping to offset this with an increase in conversions and non-US development.

The speaker discusses the current state of new construction in Europe and the potential for growth in the mid-scale market. They also mention their enthusiasm for the MGM deal and the potential for more large partnerships in the future.

The speaker talks about their recent trip to Las Vegas for Super Bowl and how impressed they were with the city's ability to accommodate the event. They also mention the potential for future partnerships and conversions, including the possibility of acquiring smaller brands. They state that they are open to pursuing opportunities like the recent MGM partnership. They also discuss their consistent approach to growth.

The company has had successful growth through both brand acquisitions and organic growth, and will continue to be disciplined in evaluating potential opportunities. They consider factors such as unique portfolio additions and reasonable prices. They also have a history of launching new platforms and have seen significant growth in some of their acquisitions, such as Autograph and AC by Marriott.

The company is actively looking at strategies to add compelling platforms to their portfolio and will continue to do so. They expect a similar mix of existing franchisees and new owners for their new brand in the midscale segment. Conversions have always been an important part of the company's growth story and with the current climate, their importance has increased. In 2023, 25% of their openings and 40% of their signings are expected to be conversions.

The speaker discusses the current trend in hotel projects, which includes a mix of conversions from other brands and new builds. They mention a focus on pursuing conversion opportunities, particularly in the Asia Pacific region. In terms of credit card fees, there is expected to be a growth rate of 9-10% in 2023 and 2024, primarily driven by an increase in the number of cardholders. The Bonvoy credit card has been successful in several markets, such as Japan.

The company expects to see growth in fees from additional cardholders and non-RevPAR fees, particularly in the residential sector. They anticipate double-digit growth in non-RevPAR fees for the year 2024 over 2023. The company also expects unit growth to be in the 3-4% range for 2024, excluding MGM, and potentially accelerating to 5-6% in 2025 due to conversions and a recent franchise agreement in China.

The speaker discusses the impact of a franchising agreement with Delemex, a large hospitality company in China, on the company's growth in the upcoming year. They clarify that the agreement will contribute to overall rooms growth, but the specific impact is not quantified. They also mention that the company is seeing encouraging signings in Greater China and expects high single-digit growth in Asia. The speaker emphasizes that the company's overall rooms growth can be affected by various factors, such as deals with City Express and MGM, and the CAGR for the next three years is estimated to be between 5% to 5.5%, slightly higher than the previously stated range of 4.2% to 4.5%.

The paragraph discusses the strong demand for Marriott's brands and the company's plans for future openings and conversions. The speaker also mentions that 40% of last year's signings were conversions. The call is then concluded with closing remarks from the speaker.

This summary was generated with AI and may contain some inaccuracies.