Good day, everyone and welcome to today's Marriott International Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note this call is being recorded and I'll be standing by should you need any assistance. It is now my pleasure to turn today’s program over to Jackie McConagha.

Thank you. Good morning everyone and welcome to Marriott's fourth quarter 2023 earnings call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Leeny Oberg, our Chief Financial Officer and Executive Vice President, Development; and Betsy Dahm, our Vice President of Investor Relations. 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 or implied by our comments. Please also note that our discussion of revenues across different customer segments refers to property level revenues and unless otherwise stated, our RevPAR occupancy, ADR, and property level revenue comments reflect system-wide constant currency results for comparable hotels. 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. 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.

Thank you Jackie and good morning everyone. Our team produced fantastic results in 2023. We continued to experience strong momentum in our business around the world thanks to solid demand for travel and our diverse portfolio of 30 plus leading brands. Full year global RevPAR rose nearly 15% and net rooms grew 4.7%, leading to excellent earnings and cash flow growth. In the fourth quarter, global RevPAR increased over 7% year-over-year driven by roughly equal gains in the ADR and occupancy. Group, which comprised of 23% room nights, was again the standout customer set. Compared to the year ago quarter, Group revenues rose 9% globally and 7% in the U.S. and Canada. And Group is shaping up to have another solid year in 2024. At the end of last year, full year 2024 Group revenues were pacing up nearly 13% globally and 11% in the U.S. and Canada on a year-over-year basis, driven by robust increases in both room nights and ADR. Leisure transient accounted for 44% of global room nights in the quarter. This segment has by far grown the fastest coming out of COVID. With global leisure transient revenues in the fourth quarter nearly 50% above the same quarter in 2019. Even with this strong growth, demand has remained resilient. Fourth quarter global room nights rose 5% over the year ago quarter, leading to a 6% leisure transient revenue growth worldwide. In the U.S. and Canada, leisure revenues were up 2%. Business transient contributed 33% of global room nights in the fourth quarter. Demand from small and medium-sized corporates remained robust, and while large corporates are still lagging, they continue to post volume increases. Solid gains in ADR drove business transient revenues of 7% globally and 3% in the U.S. and Canada. Our powerful Marriott Bonvoy loyalty program grew to over 196 million members at the end of the year. Member penetration of global room nights reached new highs in the fourth quarter at 69% in the U.S. and Canada and 62% globally. Our digital channels and mobile, in particular, remain key drivers of growth at a lower cost to our owners. Our Marriott Bonvoy app contributed 22% more room nights in 2023 than in the prior year. We are focused on improving the customer experience across all our digital and other booking channels through the multi-year technology transformation we have underway. Enhancing engagement with our members outside of hotel stays through our numerous successful Marriott Bonvoy collaborations, including our co-branded credit cards also remains a priority. Our growing portfolio of 31 credit cards across 11 countries had record global card member acquisitions last year, and card spend for the year grew 11%. On the development front, despite a challenging financing environment in the U.S. and Europe, we signed a record 891 organic management, franchise, and license agreements in 2023, representing approximately 164,000 rooms. Additionally, we ended the year with a new high of roughly 573,000 rooms in our pipeline. We expect another year of strong global signings in 2024 and are already off to an incredible start. We also saw a meaningful acceleration in net rooms growth last year to 4.7%, the highest growth since 2019. Conversions helped again in 2023, accounting for 25% of organic room additions and 40% of organic room signings. For 2024, we anticipate net rooms growth of 5.5% to 6%. This includes around 37,000 rooms from MGM. The first set of these rooms at New York, New York became available on our Marriott channels at the end of January, with the remaining properties expected to be available by the middle of March. While it is very early days, we are incredibly pleased with the initial booking pace. We're excited about adding these amazing properties to our portfolio and enhancing our distribution in Las Vegas and other cities across the U.S. We remain confident in the three-year net rooms compound annual growth rate we discussed at our investor meeting in September of 5% to 5.5% from year-end 2022 to year-end 2025. As we focus on expanding our lodging offerings for owners, franchisees, and guests, we're making significant progress globally in the high-growth, mid-scale space. We are in numerous deal discussions for Citi Express in the Caribbean and Latin America, or CALA region, and for Four Points Express in Europe, the Middle East, and Africa. Here in the U.S., we celebrated the first groundbreaking for StudioRes in Fort Myers, Florida in January and have over 300 additional potential deals under discussion in around 150 markets. As we strive to offer more options for our stakeholders, we're also working on a new U.S. transient mid-scale brand for both new build and conversions. At the other end of the chain scale, our luxury distribution is currently over 50% larger than our next closest competitor and that lead is expanded. In 2023, we have record luxury signings with 58 new deals and we added 29 new luxury hotels to our portfolio. In closing, 2023 was a banner year for Marriott, and I am optimistic about what lies ahead. The demand for all types of travel remains strong, even as the rebound impact from the pandemic has waned. The fundamentals for our industry are outstanding, and we are determined to grow our industry-leading position. We remain focused on offering the best brands and experiences to the most valuable and engaged guests while expanding the broadest and deepest portfolio of global properties and offerings so we can continue to connect people around the world through the power of travel. I want to thank our Marriott teams around the world for their remarkable dedication and excellent work. And now, let me turn the call over to Leeny to discuss our financial results in more detail.

Thank you, Tony. I'll walk you through our strong 2023 financial results. In the fourth quarter, U.S. and Canada RevPAR increased over 3% year-over-year, primarily due to higher ADR. International RevPAR rose 17%, driven by an 8 percentage point gain in occupancy and a 4% rise in ADR. Asia Pacific experienced the largest year-over-year RevPAR increase. RevPAR rose 81% in Greater China, helped by the last quarter of easy comparisons to COVID lockdowns in the year ago quarter, and grew 13% in Asia Pacific, excluding China. Fourth quarter total gross fee revenues grew 10% to 1.24 billion, reflecting higher RevPAR, room additions, and strong growth in our co-brand credit card fees. Incentive management fees or IMF rose 17%, reaching 218 million driven by another quarter of significant increases in Asia Pacific. For the full year, gross fees rose 18% with record IMFs that were nearly 20% higher than our prior peak in 2019. Owned lease and other revenue net of direct expenses reached 151 million in the quarter and included substantially higher termination fees, primarily due to 63 million associated with the termination of a development project. G&A of 330 million was impacted by a $27 million litigation reserve for an international hotel, as well as timing of performance-related compensation, an increase in bad debt expense, and higher professional fees, which included costs associated with our intellectual property restructuring transactions. Fourth quarter adjusted EBITDA grew 10% to nearly 1.2 billion. For the full year, adjusted EBITDA was 21% higher than in 2022. Thanks to our team's excellent tax planning efforts that reflect evolving global tax laws, we had a tax benefit of $267 million in the quarter. This was due to over $400 million of favorable discrete items related to international IP restructuring strategies and the release of a tax valuation allowance. The fourth quarter effective tax rate was slightly higher than last year's and above our previous expectations due to jurisdictional mixed shift. At the hotel level, despite meaningful wage and benefit inflation, we maintained profit margins in our U.S. managed hotels in the quarter and for the year compared to both 2022 and 2019, a strong performance. Importantly, our guest surveys indicate that customer satisfaction continues to rise. In December, our intent to recommend score achieved its highest monthly score in over five years. Our asset-light business model once again generated significant cash with almost $3.2 billion of cash provided by operating activities in 2023, up 34% year-over-year. Our loyalty program was a source of cash even after factoring in the final year of reduced payments from the credit card companies resulting from the amendments we entered into in 2020. In 2024, we expect loyalty cash flow to be roughly neutral. Now let's talk more about 2024. Our full year outlook assumes a steady, albeit slower growing, global economy. It also reflects normalized lodging demand in most regions around the world, with Asia Pacific expected to see higher growth in other regions as it continues to have some benefit from COVID recovery, as well as additional international airlift. In 2024, RevPAR growth is expected to be driven by another meaningful increase in group revenue, continued improvement in business transient demand, which will be helped by mid-single-digit special corporate rate increases, and slower but still growing leisure revenues. We're off to a strong start with January RevPAR up 7% globally, reflecting continued strong demand around the world, particularly in international markets. International RevPAR rose 14% and U.S. and Canada RevPAR increased 4% in the month. With year-over-year comparisons easiest in January and Easter shifting from April to March this year, global RevPAR for the first quarter could increase 4% to 5%. For the full year, we anticipate a 3% to 5% rise in global RevPAR. Growth is expected to remain higher in international markets than in the U.S. and Canada, with particular strength in Asia Pacific. The sensitivity of a 1% change in full year 2024 RevPAR versus 2023 could be around 50 million to 60 million of RevPAR related fees. For the full year, gross fees could rise 6% to 8% to 5.1 billion to 5.2 billion with non-RevPAR related fees rising 9% to 10% driven by strong credit card and residential branding fee growth. Owned, leased, and other revenues net of expenses are expected to total 320 million to 330 million, 17% to 20% lower than 2023 due to meaningfully lower termination fees given the large termination fee in the fourth quarter of 2023, a property we sold last summer, and CALA flipping from owned to managed, and renovations at several owned hotels. We expect 2024 G&A expense could be flat to up 2% year-over-year. There are a few discrete one-time items from 2023 that are expected to offset wage and benefit increases. Full year adjusted EBITDA could increase between 5% and 8% to roughly 4.9 billion to 5 billion. Note that our 2024 effective tax rate is expected to be around 25% while we expect our underlying core cash tax rate to remain in the low 20% range. Guidance details for the full year and first quarter are in the press release. Please note that first quarter results are expected to be impacted by a few items. First, the timing of residential branding fees is expected to result in these non-RevPAR-related fees being meaningfully lower in the first quarter but up nicely for the full year. Second, owned lease and other revenue net of expenses will be lower due to the renovations on several owned properties, as well as the CALA property that flipped from owned to managed. And finally, G&A in the year-ago quarter benefited from several one-time items, while this year's first quarter includes MGM integration costs. Our capital allocation philosophy remains the same. We're committed to our investment-grade rating, investing in growth that is accretive to shareholder value, and then returning excess capital to shareholders through a combination of a modest cash dividend and share repurchases. We're pleased with the significant value we returned to shareholders in 2023 and expect strong capital returns again in 2024. For 2024, factoring in the 500 million of required cash in the fourth quarter for the purchase of the Sheraton Grand in Chicago, capital returns to shareholders could be between $4.1 billion and $4.3 billion. Full year investment spending could total $1 billion to $1.2 billion. This includes another year of higher than historical investment in technology, the vast majority of which is expected to be reimbursed over time. The $500 million for the Sheraton Grand Chicago consists of $200 million of CAPEX and $300 million elimination of previously reported guarantee liability. Investment spending is also expected to incorporate roughly 200 million for our owned-leased portfolio and includes spending for the renovation and the elegant portfolios in Barbados, and the completion of the W Union Square renovations. We'll look to recycle these assets and sign long-term management contracts after renovations are complete. As Tony mentioned, we're also thrilled about our development and growth prospects both inside and outside the U.S. We continue to gain market share with 7% open rooms and 18% of rooms under construction globally at the end of last year. Tony and I are now happy to take your questions.

Thank you. Now we'll take our first question from Joe Greff with J.P. Morgan. Your line is now open.

Good morning, guys. Thanks for taking my questions. Leeny, I was hoping you can review the MGM transaction and what's included in fee contributions for this year? And then if you can maybe clarify what the integration costs that you refer to in your prepared comments related to the MGM license deal?

Yeah, sure. So it's really a modest amount of G&A but it's just worth noting in the year-over-year comparison in Q1, that as we expect all of those hotels to transition onto Marriott systems that will all be done in Q1. When we think about the same contribution, as we've talked about before, Joe, they will be coming on in Q1 and we expect that business to ramp up over the year. And there's not a particular number that I would give you now, but just a reflection that it is related to a percentage of the hotel revenue that fits into our franchise fee model as a result of a license agreement over the year.

Great. You mentioned some details about investment spending this year, particularly highlighting that Sheraton Chicago represents a significant portion of that. Is the 500 million all cash outflow? I understand there's 200 million in CAPEX and 300 million related to exiting the guarantee. Can you clarify that further? And is the billion somewhat aspirational and not allocated at this time?

Yeah, no, no, it's a good clarification question, Joe. That 500 million is cash out the door and we would expect that to occur in Q4 of 2024. But to help you understand what we're really considering capital investment, we wanted to clarify to say that 200 million of the 500 million relates to the purchase of the underlying land on the Sheraton Grand Chicago. And so that is in CAPEX, while the rest reflects a liability that we established on the balance sheets, frankly, years ago as part of the overall transaction. So it does obviously impact our available cash for the year, but it is in there. And when you think about unidentified capital expenditures in that number of the 1 to 1.2, which really is quite modest.

Thank you. Your next question is from Shaun Kelley from Bank of America.

Hi, good morning everyone. Tony and Leeny, could you provide an update on the current state of the development environment? Tony, global interest rates have improved somewhat for developers, and I'd like to hear your thoughts on the construction cost landscape as well. As we sit here today, it's been about four months since your significant update at the Analyst Day. Can you share the latest insights on the situation, including how recent conversations have gone, and what to expect on the organic side for the initial signings and, more importantly, moving into construction?

Oh, of course. So, as we mentioned in the prepared remarks on the heels of a record signings year, it's more anecdotal than anything else. But in terms of deal volume through the first month of the year, it's really encouraging. And we're seeing strong momentum both on submissions for new build projects around the world as well as continued really encouraging momentum on the conversion side. In terms of the environment coming out of the Alice, I'm going to ramble here a little bit, because I think there are both some positives and negatives that we heard from the owner and franchisee community about their expectations for 2024. On the positive side of the ledger, as you point out, there is a sense that there will be continued relief on the interest rate side as we get in particularly the back half of 2024. There is an expectation maybe in parallel, but the hotel transaction market will start to be a bit more active in the back half of the year as well. And while there is still admittedly some gap in the bid and the ask between sellers and buyers, it feels like that gap is continuing to narrow, which will likely lead we expect to a little more active transaction environment, which has always historically been good news for us on the conversion front. When you pivot to the more challenging side of the ledger, you do still have lenders thinking about compliance with proposed regulatory environment that will perhaps impact their ability to really open the faucet in terms of the amount of debt to date and debt financing that they make available for new construction. But there again, it's one of the reasons we're so enthusiastic about our entry into midscale. When we talk to our franchise partners on the midscale front, they feel like the size of those commitments is something that they're going to have a decent measure of success in procuring debt. And then the last thing I would remind you is the obvious debt, while we stayed very focused on the availability of debt and its impact on our growth trajectory, that is largely a U.S., Canada, and Western Europe attribute. When you look at the pace of growth we're seeing across Asia Pacific, across the Middle East, that growth does not seem to be particularly impacted by the ups and downs of the availability of debt. I think you also had a question about construction costs and so maybe I'll expand my answer a little bit. When we think about potential impediments to growth, the availability of debt is the one that I think we're most focused on. Supply chain issues, which we were talking with you about a year ago, are not nearly as severe as we saw several quarters ago. Construction costs have come down a little bit and they're rising year-over-year at lower rates than we saw a year or two ago. So on that front, I think we're pretty encouraged. But it's really the ability to source debt for new construction is the area that Leeny and the team are most focused on.

Thank you very much.

Thank you. We'll take our next question from Smedes Rose with Citi. Your line is now open.

I was curious about the core metrics you provide, such as EBITDA for the year, unit growth, and capital return. All of these appear to align with or exceed our forecasts and seem consistent with the consensus forecast. However, your operating EPS outlook is significantly lower than consensus. Could you highlight one or two factors that might explain the difference between your expectations and the broader market consensus? It doesn't seem like it's related to a tax rate issue, so perhaps there are other considerations at play?

Yes. No, thanks Smedes very much. No, I appreciate that. Yes, tax rate is probably the biggest item when you think about it. First of all, just remember that in 2023 there is the reality of this extra termination fee. So when you look at year-over-year growth, that then impacts how you look at 2024 over 2023. And so if you adjust out for the odd balls of both the litigation reserve and the performance, the termination fee, and you take into consideration that we've got probably about a one point higher book tax rate, and I do emphasize, it's a book tax rate rather than cash. Our cash tax rate is essentially staying the same, thanks to the great work that the team has done in working through our global tax planning. But when you look at it from a book perspective, it's about a point higher overall. And you put those together and you can do your math there, and that is where you then get to something that looks from an adjusted EPS that looks on 2024 that looks close to double digits.

Okay, that's helpful. And then I was just wondering, Tony, you just mentioned in your opening remarks that some of the large corporate group bookings continued to lag, which is something we've kind of heard for a while relative to smaller groups. So I was just wondering, could you maybe just talk a little bit more about what you're hearing and maybe expecting as we go forward, do you think that's just kind of impaired for the foreseeable future, or is it something that you think could improve over time, just maybe some more color there?

Yes, of course. So really, my comment was that, let me break it down into two buckets. When I talked about business transient, the small and medium-sized corporates, the demand coming out of those groups continues to be quite robust. And my comment about large corporates lagging is really sort of in reference to a pre-pandemic environment. But with that said, we continue to see incremental growth even coming out of the large corporates quarter-over-quarter.

To clarify, that was related to the transient segment. Regarding the group segment, as we mentioned about the group pace, it remains a very strong figure. One interesting observation is that we are returning to a situation similar to what we saw before, where 75% of the group anticipated for 2024 is already secured, compared to just 65% a year ago. This still highlights that with an 11% growth rate projected for 2024 and 12% for 2025 in the U.S., both the corporate group and other types of groups are performing quite strongly.

Great, thank you, appreciate it.

Thank you. We'll take our next question from Richard Clarke with Bernstein. Your line is open.

Thanks very much for taking my questions. Maybe just one on the SG&A cost. You gave some color on why it was a little bit higher. But just wondering whether you can just do the bridge from the 255 guidance you gave at Q3. What wasn't anticipated there, was it this IP restructuring, and why did that suddenly happen in Q4, and maybe some color on the bad debt, is there anything to read across from that as well?

This situation primarily revolves around timing. We've discussed the litigation reserve, and you can expect typical quarter-to-quarter fluctuations influenced by various factors such as closing deals and travel expenses. If you recall, in the first quarter of 2023, we were still working on becoming fully staffed, which increased as the year progressed. Additionally, performance-related compensation is based on the company's achievement of its targets. When you consider all these elements along with the ongoing evaluation of receivables from our global hotels, the variations between the third and fourth quarters become clear. Looking ahead to next year, we anticipate growth of flat to 2%, reflecting the numerous factors we faced this year.

Okay, that makes sense. Maybe if I can just ask a follow-up. Just with the CMD you gave a RevPAR guidance for the two-year stack of 3 to 6, net unit growth guidance of 4 to 5. Obviously, both of those are going to have to accelerate into 2025 to kind of get to the midpoint. Is that what you're anticipating, that there are drivers to get RevPAR and acceleration in 2025?

Yes. So Richard, maybe I'll take the NAV question first. As we talked a little bit when we were together in Miami, we continue to think that, as you consider NAV, it is less constructive to look at a single year and much more instructive to look at rooms growth over a multiyear period. In some ways, the MGM rooms coming into the system slipping from the back of 2023 into early 2024 is the best illustration of that. Notwithstanding MGM sliding into 2024, as you know, we ended up a little higher than anticipated in 2023 at 4.7% net unit growth. We expect to be at a meaningfully higher number this year because of the impact of the MGM openings. And when we look at the three-year CAGR that we discussed at the security analyst conference, we continue to be very confident in our ability to deliver that mid-single-digit range of about 5% to 5.5%. Then I think just on a more macro basis, we've not made any major changes in terms of our longer-term outlook. We obviously have a little more visibility and clarity into this year now that the teams around the world have gone through all their numbers, but we've really not revisited anything beyond 2024 and continue to be quite confident in what we talked about from a RevPAR perspective.

And just a reminder that during the process, one of our goals at the security analyst meeting is to help you understand a range from a modeling perspective, and this happens before we begin the budgeting process. As you know, we had a very strong year in 2023. Overall, when we assess our hotel revenue growth, we are right where we expected to be and are very pleased about the demand we are observing in both the arc and rate areas as we look forward to 2024.

Okay, that’s helpful color. Thank you very much.

Thank you.

Thank you. We'll take our next question from Stephen Grambling with Morgan Stanley. Your line is now open.

Right, good morning. I know you touched on the introductory remarks, but could you help us bridge the gap from thinking about room growth and RevPAR growth versus the gross management franchise fee growth? I mean, essentially, is this a mismatch that should continue beyond 2025 due to what you see in the pipeline or is it more to do with the MGM contribution and how that may ramp?

Yes, definitely not from an MGM perspective. I think as we talked about the fundamental model still actually works very well. We had a couple of anomalies going on in 2023 but when you think about it broadly, the fundamental model of RevPAR plus fees continues to work fine. We've got the reality that, when you think about putting together the RevPAR scenario, you're getting benefit across the board from the growth in the rooms as well as from IMF. And as you saw, we're talking about really strong continued IMF growth. And then, of course, the reflection that our non-RevPAR fees are expected to grow 9% to 10% in 2024. So I don't expect the fundamental kind of growth and fee algorithm to be different than we've talked about before.

Great. And maybe one other quick follow-up to the last question, which was around the Investor Day in September. I guess just very, very big picture, what's changed from then to now as we think about that multiyear algorithm?

I would say very little has changed in terms of the basic equation. 2023 ended up being very strong. If you consider the guidance we provided, we finished $6 million above the high end of what we presented at the Security Analyst Meeting. This sets a higher starting point. A lot of the figures we discussed at the Security Analyst Meeting were projected over a three-year span, and now we can offer more specific insights about 2024. However, the core elements of RevPAR growth combined with net rooms growth and some operating leverage continue to be effective. Interestingly, if you examine G&A as a percentage of fees, which is important because we operate on a fee-driven model, in 2019 G&A as a percentage of gross fees was nearly 25%. Today's figures indicate that this number has dropped to below 20%, demonstrating the ongoing operating leverage we are achieving.

And I might just build on that a little bit. And as for those of you that have been covering us for a long time, you know there's a phrase that guides almost everything we do. That phrase being success is never final. And while we are very encouraged by the continued improvement in the G&A ratio, you can rest assured that as a principal focus area for the senior leadership team, with an eye towards continuing to improve that efficiency.

Great, thanks so much.

Thank you. We'll take our next question from Chad Beynon with Macquarie. Your line is open.

Good morning, thanks for taking my question. I wanted to ask a question related to the RevPAR guidance, I guess, kind of looking at the chain scales. So based on how you report, I guess, premium, which some of us would consider upper upscale continues to be the strongest in the third quarter and the fourth quarter, and that's kind of what we're seeing year-to-date. As you think about, I guess, luxury and upper upscale versus some of the other segments, do you have a view in terms of what will kind of lead 2024 and is there still a lot of room for ADR increases in upper upscale given what you're seeing with group pacing? Thank you.

Sure. Let me address a few points. First, regarding special corporate rates, we've noted a continued increase in demand. Although it's not quite back to 2019 levels, it is gradually improving. We experienced a high single-digit growth rate in this segment in 2023 and anticipate strong mid-single-digit growth in 2024. Additionally, considering the group strength, the group growth rate of 11% relates to approximately two-thirds from rooms and one-third from average daily rate. This indicates robust growth in that area. The premium segment seems poised to benefit the most from this rising demand. On the select service side, that segment rebounded quickly after COVID but has shown some moderation towards the year's end. We expect stable performance, though it may not experience the same benefits as previously mentioned. Luxury is also expected to perform well, presenting opportunities in both rate and occupancy. However, I believe the two segments I highlighted earlier are the most noteworthy as we look ahead.

And I might build on that last luxury comment from Leeny. You heard in my opening remarks about the momentum we have in extending our lead in luxury from a footprint perspective. And fourth quarter 2023 versus fourth quarter 2022 on a global basis, we saw luxury RevPAR up 10%. And so we continue to see pretty compelling economics in the luxury segment and are excited about the growth we're seeing in terms of our industry-leading footprint.

Thank you, appreciate it. And then just a housekeeping, IMF at the end of the year, North American properties, what percentage were payers during the year maybe versus peak?

Yes, sure. This work gets a little complicated, but let's do it. And that is in 2023, for the full year would you like quarter or year, which do you prefer?

Yes, year unless the exit rate is massively different.

Yes. So 31% for the full year in U.S. and Canada versus 56%. However, there's really as you remember, there was a big change in our limited service portfolio as a result of the HPT hotels leaving the system. So full-service hotels in 2023, 40% of our managed full-service hotels were earning IMFs in the U.S., 45% at peak, really limited services, the big change of 19% in 2023 versus 66% in 2019. But many of those hotels are no longer in our system. Then when you look at international, it's really overwhelmingly quite similar as to when it was in 2019. So for the entire company, at 2023 68% are earning IMFs versus 72%. And if you adjust for that limited service portfolio that I discussed, it was 70% in 2019. So we're really getting to quite similar levels. And as I said, international is really overwhelmingly the same as it was in 2019.

Great, thanks for all the details. Appreciate it.

Thank you. We'll take our next question from Brandt Montour with Barclays. Your line is now open.

Hey, good morning everybody. Thanks for taking my questions. So, maybe for Tony. Just curious in terms of the development momentum going on in the ground in China today, what's sort of baked into the guidance in terms of China openings or maybe you could answer it qualitatively, has that market opening momentum changed now versus three or six months ago?

Yes. So we continue to see the momentum on the development side in China that we talked about a quarter or two ago, both in terms of what I would call intake, meaning the volume of MOUs that we're signing, the volume of new deals that we're improving. But just as compelling in terms of driving opening volume, during the pandemic we saw a variety of projects across the pipeline pause construction. And we're seeing the vast majority of those paused projects back under construction, moving towards opening. So I think on early pipeline, if you will, approved and signed deals, and under construction deals, we see encouraging trends in all three of those categories.

Okay. That's encouraging. Go ahead.

I'd just add one thing that I think kind of helps frame your question, and that is when we look at our overall growth in rooms in Asia Pacific, we're in the high single digits, that we're looking at both in 2023 and 2024, including China and Asia Pacific outside of China. Just really strong demand for our brands across the various scales.

Thank you for that. As a follow-up on development, I have a longer-term question. Reflecting on 2023, it seemed that capital formation and debt financing were challenging, which impacted new hotel starts in the U.S. Do you think that when we look back at 2023 in 2025 or 2026, we will see it as a period of stagnation in new hotel openings, or do you believe the impact will not be as significant, and that other factors will balance it out? How do you approach this in your longer-term planning?

Yes. No, I think you make a good point. As Tony talked about in his response to the question about the financing environment, there's no doubt that financing availability for new build construction of hotels is limited. And the strong brands get the most of it, but you've got some uncertainty around bank capital regulations, etcetera. So it is clearly down meaningfully from the kind of pace of new build that was in 2019. I think what you have seen on the goods side is that our conversions as a percentage of room signings has gone up meaningfully, and we look forward to that continuing. But yes, I hope that that is the case and that we're kind of seeing a bit of an air pocket in the U.S. as we talked about, outside the U.S., not as dependent. I will call out Europe, which also has a lot of the same characteristics as the U.S. on the new build construction side. But we are really pleased with what we're seeing on the StudioRes demand side and ability to start getting those shovels in the ground. And so there, we are hopeful that you'll start to see that pace pick up as the construction costs, the demand side continues to be very strong, as well as financing ability improves.

I’d like to expand on the topic of mid-scale. Leeny and I are both quite enthusiastic about mid-scale opportunities. We see significant market potential driven by strong demand from our franchise community. The costs associated with developing mid-scale properties will assist our partners in navigating the currently challenging financing landscape. Additionally, we've observed a lengthening construction cycle across select service sectors in recent quarters. Recently, Leeny and I participated in a groundbreaking for the first StudioRes in Fort Myers, where our partners expressed optimism about opening the hotel in about 13 months, with hopes of achieving a 12-month timeline. The fact that we can secure mid-scale agreements, start construction, and open more rapidly than what we've experienced with other segments in our portfolio adds to our excitement about entering the mid-scale market.

Thanks everyone.

Thank you. We'll take our next question from Kevin Kopelman with TD Cowen. Your line is now open.

Thank you so much. Given how well the MGM deal is starting off, as you think about your pipeline talks, what's the outlook for other large partnerships akin to the MGM deal going forward? Thanks.

Yes. So Leeny and I were both in Las Vegas this past weekend for the Super Bowl, and so I'll make a couple of comments. Number one, when you look at the vibrancy of that market, you look at how effectively the city was able to accommodate an event like that. You likely heard the NFL Commissioner talking about how anxious the league is to get back to Las Vegas. I think both of us left the market really enthusiastic about what this partnership is going to offer our guests around the world and our Bonvoy members. In terms of your specific question, as we talked about when we announced the transaction, it is a creative opportunity for us where I think you will continue to see lots of activity for us in traditional conversions, but in the category of multiunit conversions. You heard us a quarter ago talk about a terrific multiunit conversion in Vietnam with a partner called Vinpearl, and our teams around the world are actively working on a number of multiunit conversions. To the extent, a unique opportunity like MGM presents itself, I think we'll roll up our sleeves and see if we can make sense of it. We're really excited about what MGM does for Bonvoy, and if those sorts of opportunities present themselves, we are certainly open to pursuing.

Great, very helpful. Thanks Tony.

Thank you. We'll take our next question from Michael Bellisario with Baird. Your line is now open.

Thanks, good morning everyone. Just on the capital allocation front, been a handful of reports, there's just a few smaller brands for sale, particularly domestically. Are you seeing any more interesting tuck-in M&A opportunities and does the math pencil any better or worse, especially relative to where your stock is trading today?

Well, some great questions. And as we have said for a long time, we've been very consistent in our message about really always being willing to entertain the way that we grow. We have grown very successfully, both in terms of tuck-in brand acquisitions as well as growing organic new brands, and growing that way around the world. We will continue to do that. We also are going to stay very price disciplined in terms of looking at both the price that you would be paying for the existing distribution as well as for the growth opportunities. We are really aware of looking at where something could add something unique to our portfolio, whether it is in a certain part of the world, as we did with the City Express deal, that really was a tremendous way for us to enter the mid-scale space in a really attractive market like Mexico at an absolutely reasonable price. So I think in that regard, you got to look at all the elements. And what's out there, as you know, depends very much on all the sellers' expectations of what they're looking for. I would say that, over time, we hope to see that those opportunities continue to be there and that we're going to remain as disciplined as we have before in looking at them.

I'll just build on Leeny's comment. I think this historical blend of considering acquisitions where we think they fill an opportunity in our brand architecture or accelerate our growth in a geography where we're not happy with our pace of organic growth, but also looking at the launch of organic platforms is a strategy that has served us well and a strategy that will continue to guide our thinking about adding new platforms. It's interesting, I was looking at some numbers last night. Autograph, which was a platform in the soft brand space that we launched from scratch, between the open and pipeline, we have more than 400 hotels. And AC by Marriott, which was a platform that we acquired in Spain, that at time of acquisition I think had 80 or 90 hotels, today between open and pipeline has nearly 400 hotels. And so there are a variety of strategies to add compelling platforms to the portfolio, and we'll continue to look at both.

Got it, that's helpful. And then just one quick follow-up on midscale. What's the owner profile there look like, thinking about the mix of existing Marriott franchisees versus new owners, and would you expect that mix to be similar for the new brand? Thanks.

Yes, very similar. A great mix. Always welcoming new owners into our stable of owners and franchisees. But I would say, when I think about the StudioRes, some of the blend of what we're seeing in terms of the what I call the onesies and twosies, where somebody is kind of in a particular market, been very successful and wants to build a hotel there, I would say many of them in the StudioRes space reflect multi-unit expectations on the part of partners of ours who we've been working with for a long time.

We'll take our next question from David Katz with Jefferies. Your line is now open.

Hi, good morning everyone. Okay, I apologize. I wanted to just drill a little bit deeper into the conversion discussion, if I may. Just looking at the percentage of your pipeline versus what we've seen elsewhere, if you could talk more about where those are coming from, what the strategies are, whether there's any change in the landscape geographies, whether there's a change in pricing, what's new with it, it's been such an important discussion for the past year or so among everyone, including yourselves?

Sure. So conversions have always been an important part of our growth story, in a climate where the debt markets for new construction are somewhat constricted, the importance of conversions is elevated. As we talked about in the opening, really compelling numbers in 2023 with 25% of our openings and 40% of our signings in the conversion category. They are coming in terms of type of project, pretty typical of what we've seen over the last number of years. A good mixture of conversions from other brands and with such a compelling stack of soft brands with Luxury Collection, Autograph, and Tribute. Lots of conversions coming from the world of independents as well. From a geographical perspective, not necessarily a shift in strategy, but we are seeing in, for instance, some of the Asia Pacific markets, which historically had been disproportionately new build, we are seeing some uptick in conversion activity. Our pursuit of conversion opportunities is quite deliberate, and it's resulting in deals like the one I mentioned earlier in Vietnam.

We will take our next question from Patrick Scholes with Truist Securities. Your line is now open.

Hi, good morning everyone. I want to drill down a little bit on the credit card fees. It looks like you're expecting a big step-up in, if I understand it correctly, a step-up in growth rate for 2024 which actually, I think you said 9% to 10%, which if I'm correct, is a little bit lower than the Investor Day of 12%. But specifically with that step up, are you expecting that from primarily new card sign-ups or more so from sort of same user spend? Thank you.

Sure. I want to clarify that the growth rates for 2023 and 2024 across the credit cards are not expected to differ significantly. They grew by 9% to 10% in 2023, and we anticipate a similar performance in 2024. This growth is largely driven by an increase in the number of cardholders. We've had considerable success in adding credit cards in various countries, especially in Japan, where the Bonvoy credit card has seen great acceptance. Therefore, the anticipated growth in fees is primarily due to having more cardholders, with only a minor contribution from typical cardholder spending. Regarding overall non-RevPAR fees, it gets interesting because these include residential branding fees that are linked to when those units become available for occupancy, making them somewhat unpredictable. As I mentioned in Q1, we expect these fees to be significantly lower in Q1 compared to Q1 2023, but overall for the full year, this segment is performing well. We expect to see substantial year-over-year growth in branding fees throughout 2024 compared to 2023. In summary, we are excited to see non-RevPAR fees continue growing at roughly double-digit rates for another year.

And we will take our next question from Robin Farley with UBS. Your line is now open.

Great, thanks for taking the question. Circling back to the unit growth, and I know you've given a lot of great color around it. Just looking at the kind of two-year CAGR you've given at the Investor Day, excluding MGM when the timing wasn't quite known, so it's kind of implying that 2024 and 2025 would be up, excluding MGM, in the kind of 4% to 5% range. And I think the 2024 guide today, ex MGM, is up in the kind of 3% to 4% range. So maybe expecting an acceleration to 5% to 6% growth next year. And just wondering, I know you talked about the likelihood that conversions will be a higher percent of that. You also recently announced a franchise agreement in China that the timing wasn't entirely clear. It was kind of potentially over the next three years it could be adding, I don't know if it would be like 50 basis points a year. I guess I wonder if you could tell us whether that franchising agreement, how much of that you expect to be driving the acceleration next year, just kind of help put some color around the acceleration? Thank you.

Sure. Let me address the last question first. Tony, feel free to jump in at any point to provide additional insights. First, let's discuss our relationship with Delemex, which we're really excited about, involving a large hospitality company in China. We look forward to converting several hotels, although we haven't specified a time frame for this. It will naturally be part of our ongoing growth in China and our overall rooms expansion, without any exact number of basis points linked to those hotel conversions. We remain enthusiastic about this opportunity, but it's just one aspect of our overall rooms growth. The signings we are observing in Greater China are promising for both 2023 and as we head into 2024. This is in addition to the Delemex deal and reflects our growth in Asia, which is in the high single digits, indicating strong demand for our brands. Regarding the compound annual growth rate for rooms growth based on the Security Analyst Meeting in September, it’s important to remember what Tony mentioned: these agreements can vary widely in impact, whether it's City Express, MGM, or a major conversion deal. The projected range for the three-year CAGR is still 5% to 5.5%, and we remain optimistic about that. We actually exceeded our projected net rooms growth for 2023, surpassing the range of 4.2% to 4.5%, reflecting robust demand for our brands. As we continue converting rooms from our pipeline to openings, we see this aligning closely with our previous expectations at the SAM, and it's important to consider this growth over a longer timeframe rather than just one year.

And Robin, I think the only other question embedded was about conversion volume. And we mentioned in the open that our openings in 2023 were about 25% conversions. Even if you look at 2024 expected openings ex MGM, we expect some acceleration to about 30% of those openings being conversions. And when you think about 40% of our signings last year being in the conversion category, that's logical.

And we have reached our allotted time for questions. I would now like to turn the call back over to Tony for any additional or closing remarks.

Well, as always, thank you again for your interest in Marriott. We are coming off a terrific year in 2023. Tremendously enthusiastic about 2024 or what 2024 holds. And we look forward to seeing all of you on the road. Safe travels.

This does conclude today's conference. Thank you for your participation. You may disconnect at any time.