Earnings Call Transcript - MAR Q1 2024

Operator, Operator

Good day, everyone, and welcome to today's Marriott International First Quarter 2024 Earnings Conference Call. Please note today's call will be recorded, and I'll be standing by if you should need any assistance.

Jackie McConagha, Senior Vice President, Investor Relations

Thank you. Good morning, everyone, and welcome to Marriott's First Quarter 2024 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. Unless otherwise stated, our RevPAR 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. 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.

Anthony Capuano, CEO

Thanks, Jackie, and good morning, everyone. 2024 is off to a solid start, as Marriott continues to deliver great experiences to travelers around the world. First quarter global RevPAR rose 4.2%, with ADR increasing around 3%, and occupancy reaching almost 66%, up nearly 100 basis points year-over-year. While overall industry RevPAR growth is normalizing post-COVID, we continue to gain RevPAR index across our portfolio and increase our market share of global hotels. Once again, we saw RevPAR growth across all three of our customer segments: Group, leisure transient, and business transient. Group, which comprised 24% of global room nights in the first quarter, was again the strongest customer segment. Compared to the year-ago quarter, Group RevPAR rose 6% globally. Full year 2024 worldwide Group revenues were pacing up 9% year-over-year at the end of the first quarter, with a 5% increase in room nights and a 4% rise in average daily rate. Leisure transient accounted for 42% of worldwide room nights in the quarter. Globally, both leisure demand and ADR growth have remained remarkably resilient, driving leisure RevPAR up 4% year-over-year. Business transient, which contributed the remaining 34% of global room nights in the first quarter, had a 1% increase in RevPAR. We are making great progress on the multiyear digital and technology transformation of our three major systems: reservations, property management, and loyalty. Through this transformation, we expect to unlock new revenue opportunities, further strengthen our efficient operating model, enhance Marriott Bonvoy, and elevate the associate and customer digital experience. We still expect to begin rolling out our new cloud-based systems to properties next year. In the meantime, we're enhancing the digital experiences that matter most to customers, primarily how they shop both through our channels. We also recently celebrated the 5-year anniversary of Marriott Bonvoy, which added nearly 7 million members during the quarter and had around 203 million members at the end of March. Member penetration of global room nights reached record highs in the first quarter at 70% in the U.S. and Canada and 64% globally. Since its introduction, Marriott Bonvoy has evolved to become a travel and loyalty platform, encompassing a portfolio of more than 30 brands across nearly 8,900 properties, and other travel offerings such as Homes & Villas by Marriott Bonvoy and the Ritz-Carlton Yacht Collection. Marriott Bonvoy also spans numerous additional collaborations and member benefits, including co-brand credit cards in 11 markets and counting and access to a broad range of unique, curated experiences through Marriott Bonvoy modes, including select Taylor Swift Eras Tour concert performances. Looking ahead, we continue to focus on new ways to enhance the platform and connect with our members in their daily lives and across their travels. We had a very busy first quarter on the development front. We added a record 46,000 net rooms, growing our distribution by 7.1% compared to the end of the first quarter last year. MGM Collection with Marriott Bonvoy has now launched with 16 properties in Las Vegas and other key U.S. cities now available on our system. While it's still early days, we've been extremely pleased with the initial booking pace and Marriott Bonvoy room contributions, which have both outpaced expectations. While the financing environment in the U.S. and Europe is still challenging, we have strong momentum in global signings after a record 2023 and have tremendous optimism for the full year. Both Greater China and APAC had notable deal production in the first quarter. Year-over-year, our open and pipeline rooms grew 6.7%, excluding the addition of our 17,000 City Express rooms. Conversions, including multi-unit opportunities, continue to be a meaningful driver of growth, representing 30% of global signings in the first quarter. Our new mid-scale brands, City Express by Marriott, Four Points Express, and StudioRes are seeing significant developer interest. Earlier this year, we signed our first City Express deal in the region since acquiring the brand, and we are in multiple deal discussions for other properties across the CALA region. We have also now opened our first Four Points Express in Turkey and have other properties in the pipeline. We also recently signed our first mid-scale deal in the APAC, a portfolio of more than a dozen hotels that are expected to be added to our system later this year. In the U.S. & Canada, we have commitments for around 140 StudioRes properties and are actively working on deals for over 100 more. Additionally, in about a month, we look forward to unveiling details on our next exciting brand launch, a conversion-friendly mid-scale brand in the region. As always, I've spent much of my time this year traveling around the world. It's been a pleasure to visit many of our amazing hotels and speak with our incredible associates. I want to express my gratitude to all of our associates for their continued hard work and dedication. As Leeny will now discuss further as part of her financial review, we are raising our full year 2024 earnings and capital returns guidance on the back of the strength of our diverse global portfolio, the continued resilient and steady demand for travel, our strong international performance, and our continued rooms growth. Leeny?

Leeny Oberg, CFO

Thank you, Tony. Our first quarter global RevPAR rose 4.2%. RevPAR in the U.S. & Canada, where demand has normalized, rose 1.5%. Growth in the U.S. & Canada was led by strong Group and large corporate business, with our top 100 accounts seeing the most sequential improvement in 8 quarters. Leisure RevPAR was flat in the U.S. & Canada, with more customers going abroad to find warmer weather. Our quarterly RevPAR results in the region were impacted by negative growth in March, due to the timing of Easter, given less business and Group travel that we booked before the holiday. The impact on the month's RevPAR was roughly negative 300 basis points. Of course, we expect a similar favorable impact in April's RevPAR. First quarter international RevPAR increased 11%. Growth was led by a remarkable 16.5% RevPAR gain in APAC, helped by strong macro trends, sustained leisure and business growth, and an uptick in cross-border demand, especially from Mainland China as international airlift improved. RevPAR and CALA rose nearly 12% in the quarter, with excellent leisure demand coming from the U.S. RevPAR grew 10% in EMEA with strong growth across most of our largest markets. Greater China experienced a 6% increase in RevPAR while growth was strong in January and February, rising 10% for those two months. Demand weakened a bit after the Chinese New Year with slower macroeconomic growth and more outbound travel, especially from high-income travelers. First quarter total gross fee revenues were above our expectations, rising 7% year-over-year to $1.21 billion. The increase reflects higher RevPAR, rooms growth, and 10% higher co-brand credit card fees. Card acquisitions grew 18%, and card spend rose 10%, driven by significant growth in our international card programs. Incentive management fees, or IMF, rose 4%, reaching $209 million in the first quarter. Significant increases in each of our international regions were offset by a decline in the U.S. & Canada, in part due to lower fees in Mali. First quarter adjusted EBITDA grew 4% to nearly $1.14 billion. Now let's talk about our outlook for the full year. Our 2024 outlook still assumes continued sturdy travel demand and a continuation of current macroeconomic trends. Global RevPAR is expected to grow 4% to 5% in the second quarter and 3% to 5% for the full year. By customer segment, RevPAR growth is still anticipated to be driven by another year of strong growth in Group revenue, continued improvement in business transient revenues, and slower but still growing leisure revenues. RevPAR growth is expected to remain higher in our international markets than in the U.S. & Canada. While our full year global RevPAR guidance is not changing compared to our prior expectations, we now expect higher year-over-year RevPAR growth in APAC, EMEA, and CALA and lower RevPAR growth in the U.S. & Canada and Greater China. As a result, we are raising our full year adjusted EBITDA and adjusted EPS expectations, primarily due to higher performance from our international regions. In the second quarter, RevPAR growth benefits from Easter timing. Fee growth is expected to be in the 7% to 8% range. Our owned, leased, and other revenues, net of expenses, are anticipated to be lower than the prior year, largely as a result of a few favorable items in the year-ago quarter. For the full year, gross fees could now rise 7% to 9% to $5.2 billion to $5.3 billion, with non-RevPAR-related fees rising 9% to 10%, driven by strong credit card and residential branding fee growth. 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. Owned, leased, and other revenues, net of expenses, could now total $335 million to $345 million. We now expect 2024 G&A expense could rise 1% to 3% year-over-year. Recall that there are a few discrete one-time items from 2023 that are expected to offset wage and benefit increases. Full year adjusted EBITDA is now expected to rise between 7% and 9% to roughly $5 billion to $5.1 billion. Our 2024 effective tax rate is expected to be just above 25%. 2024 adjusted EPS is now expected to be between $9.31 and $9.65. We still anticipate net rooms growth of 5.5% to 6% for the full year. Additionally, we remain confident in the 3-year net rooms compound annual growth rate we discussed at last year's investor meeting of 5% to 5.5% from year-end '22 to year-end 2025. For more details on second quarter and full year metrics, please see our press release. 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 but rising cash dividend and share repurchases. For 2024, factoring in the $500 million of required cash in the fourth quarter for the purchase of the Sheraton Grand Chicago, given our higher adjusted EBITDA expectation, capital returns to shareholders could now be between $4.2 billion and $4.4 billion. Full year investment spending is still expected to 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. As a reminder, the $500 million for the Sheraton Grand Chicago consists of $200 million of CapEx and $300 million elimination of a previously recorded guarantee liability. Investment spending is also expected to incorporate roughly $200 million for our owned-lease portfolio. It includes spending for the elegant portfolio in Barbados as well as the renovations for the fabulous W Union Square in Manhattan. We'll ultimately look to recycle these assets and sign long-term management contracts after renovations are complete. Tony and I are now happy to take your questions. Operator?

Operator, Operator

Our first question comes from Shaun Kelley with Bank of America.

Shaun Kelley, Analyst

Leeny or Tony, I'd love to dig in actually on China a little bit. I thought the comment in Leeny's prepared remarks about some of the slowdown you're seeing there was incremental. So my questions are two-fold. One, seeing that continue at all into April? If you could give us just kind of a little bit of a real-time feel. And Tony, I'm sure you've probably been over in that region. So maybe if you could help us break it down by, is this in Hong Kong, Macau? Or is this sort of more broadly across some of the cities? And then secondarily, probably as importantly, is any of this translating into what you're seeing on the development front?

Leeny Oberg, CFO

So let me answer the latter part first because that's very easy to point out, and that has absolutely no impact on the development front. Matter of fact, as Tony pointed out, we actually had a tremendous quarter of signings in Greater China in the first quarter as well as APAC for that matter. So really excellent continued demand for our brands and from owners there. From Q1 was a little interesting in Greater China, Shaun, a little bit of a tail of each month. And from that standpoint, you've had a really strong domestic demand coming in January and February and with the Chinese New Year, but also reflecting the fact that last year in Q1, for example, Hainan, we're seeing a stunning increase in demand, all domestic as they were coming out of COVID. So when you think about it for the full quarter, Hainan actually had a decline in RevPAR year-over-year, although very strong demand. And in Hong Kong and then Macau with much more relaxed restrictions, we had almost a 30% increase in RevPAR in Q1. So super strong. The Tier 1 cities were very strong. Classic Shenzhen, Shanghai, Beijing, they did really well. It's really where we saw, interestingly in March, the new Tier 1 cities is where I think you were seeing the impact of the overall macroeconomic picture in China, where it wasn't quite as strong as we might have expected. But again, overall, still really strong RevPAR for Greater China at 6%. And again, for the full year, we still expect nice strong RevPAR for Greater China. But yes, a bit of a view that the macroeconomic situation there may mean that RevPAR is a little bit lower than we expected a quarter ago.

Anthony Capuano, CEO

And Shaun, the only maybe qualitative observation I would share with you, and I'll try to underpin it with one statistic. I was there recently. I was in Shenzhen, I was in Hong Kong, I was in Macau. And while it certainly does not feel as balanced and populated with international visitors as maybe we were accustomed to in a pre-pandemic world, it felt better than when I was there a year ago. And in fact, if you look at the first quarter, international guests represented about 15% of our room nights in Greater China. That compares to about 28% in the same quarter back in 2019. So it is improving steadily and the availability of airline seats is improving steadily. But I think over time, that represents some additional upside for us as more and more international visitors return to China.

Operator, Operator

Our next question will come from Stephen Grambling with Morgan Stanley.

Stephen Grambling, Analyst

Would love to just clarify a couple of things on the guidance. On the fee increase to the guidance. Is that all IMS? Or is there any change as we think about non-RevPAR-related contributions? And then I would love to just hear some of the moving parts for the increase on the owned and lease side too.

Leeny Oberg, CFO

Yes, sure. Absolutely. So again, I'm going to address one of the last points first, and that is this increase in fees does not reflect an increase in the non-RevPAR-related fees. We still anticipate strong growth, around 9% to 10% year-over-year in those fees, but this does not differ from our prior guidance. I would say, Stephen, approximately 75% of the increase is attributed to IMF, primarily from our international markets. To give you a sense, a year ago in the first quarter, international made up 58% of our IMFs, whereas this year in the first quarter, it was 64%. For example, in APAC, 90% of our managed hotels paid IMF in the first quarter, with overall figures close to 80%. Both segments experienced nice increases, indicating that we clearly outperformed, particularly in the IMF sector. The remaining growth is primarily due to non-RevPAR-related fees, such as from international hotels with strong food and beverage sales, and from the ramp-up of our fast-growing segments in Asia-Pacific. New hotels coming online are contributing positively to fee growth as well, but 75% of the increase is really from the IMF, especially highlighted by the outperformance in Q1.

Operator, Operator

Our next question comes from Joe Greff with JPMorgan.

Joseph Greff, Analyst

Leeny, in your prepared remarks, you went through the 3 main customer segments going through your full year '24 outlook and you talked about leisure seeing slow but still positive RevPAR growth. I think that was on a worldwide global basis. What baked in for U.S. leisure RevPAR growth for the balance of the year?

Leeny Oberg, CFO

Well, so generally speaking, we do see leisure relatively speaking, at the lower end of the growth, but still being positive. But I would put it towards the lower end. Group is going to be the home run hitter. Again, for the full year, we do see BT being up as well and continuing to progress. As you know, Joe, in Q1, obviously, BT was weaker because of the month of March. But when we look at it overall for the year, we do expect BT to continue to gain ground. And if I can, I'm going to go back for one second and answer Shaun's question on owned lease, which the increase in guidance there is overwhelmingly from a stronger performance in our international owned and leased hotel portfolio. Sorry, Joe, I'm going to hijack your question there to make sure I answer what I was asked before.

Anthony Capuano, CEO

And I think, Joe, the further answer to your question, the differences we're seeing in leisure in the U.S. & Canada relative to global leisure are broadly reflective of demand patterns we're seeing across segments. If you look at the guidance we're giving, we're not changing our RevPAR guidance, but it's shifting a little bit. We're seeing a little more normalization in the U.S. & Canada, but continued increases in strength in the international markets. And I think that applies specifically to your question on leisure.

Operator, Operator

Our next question will come from Patrick Scholes with Truist Securities.

Charles Scholes, Analyst

I wonder if you can talk a little bit about how 2025 and 2026 group revenue pace is looking? Maybe break that out both by occupancy and ADR. Certainly seeing a very good group business this year, but comps do get harder going forward. And I'm curious if you could give us some color on the future years with that segment?

Anthony Capuano, CEO

Yes. So Patrick, it's early to start talking about 2026, but I'll try to give you some visibility into a Group pace in 2025. Right now, we're tracking up about 13%, and it is driven by both gains in demand and ADR. We're up about 7% in definite rooms and up about 5% in ADR.

Operator, Operator

Our next question will come from Brandt Montour with Barclays.

Brandt Montour, Analyst

I wanted to talk a little bit about construction activity. Your pipeline went up. It looks like nicely quarter-over-quarter. You back out MGM out of the construction pipeline. And so I guess, Tony, is there a sense that there's been any change in the developer mood with sort of latest notion that the Fed could be on hold for longer? And maybe you could talk through the lens of U.S. starts?

Anthony Capuano, CEO

Sure. So maybe I'll go follow Leeny's trend of going in reverse order. I'll talk a little bit about the pipeline and then let Leeny provide some insights on both developer sentiment and construction starts. I agree with your observation. I think the trends on the pipeline are really encouraging. And the thing that was really encouraging to me, if you look at the pipeline and just compare Q1 '24 to Q1 '23, because it's a decent apples-to-apples comparison, neither of those would have had MGM, were up 9% year-over-year on the pipeline. And I think that's reflective of some of the broad trends that Leeny described in her prepared remarks.

Leeny Oberg, CFO

And when you think about the kind of the overall environment, I think you've got a couple of things going on. You've still got a constrained lending environment, certainly in the U.S. and Europe. I think at the same time though, there is more confidence in a steadier economic picture, if you will, so that we are, for example, we've seen an increase in construction starts in the U.S. at about 25% compared to a year ago. So really seeing nice pickup as people start to move forward and look at a more positive environment with perhaps not quite as much volatility. And again, as Tony is always quick to remind everyone, this is a long-term business where folks are used to weathering the economic cycles and recognize that if there's a great place to put a hotel with strong demand fundamentals, it's good to get it going, especially with a beautiful new product. So from that perspective, we feel really good. We added 31,000 rooms to our pipeline in the first quarter and really had strong momentum around the world in terms of developer interest across all brands.

Brandt Montour, Analyst

Well, that's super helpful. And then just as a quick follow-up, maybe not so quick. Tony, you mentioned that you guys gained RevPAR index. Is there any brands or regions or segments you would highlight where you're taking the most share?

Anthony Capuano, CEO

Yes. So certainly, I think that the strength of our luxury footprint is an area where we continue to lengthen our lead. We're pleased with RevPAR Index and the substantial premium that we enjoy really across the portfolio. I think the one maybe caveat I would give you is that as our scale continues to grow, I don't know that RPI is as informative as it might have been a decade or two ago. Particularly in a post-Starwood world, we've got many competitive sets now where the bulk of our assets is our own distribution. And so I don't know that it's as relevant, but it's certainly a metric we track, and we're certainly pleased with the continued progress that we make.

Leeny Oberg, CFO

The only thing I'll add to it is that as we look over time, we are very pleased to see these RevPAR indices really globally and also generally within the continent at some of the strongest levels that we've seen over time. So I think it's a great sign of the power of Bonvoy and our brands to see that it's kind of consistently some of the strongest numbers that we've seen over time.

Anthony Capuano, CEO

And when you look at the regions of the world that are outperforming, I'll use APAC as an example. One of the powerful drivers to the strength of our index in a market like that is our leading footprint. I mean when you look across some of the best-performing markets there, having the industry's largest footprint in markets like India, Japan, and South Korea is helping us drive really strong RevPAR performance.

Operator, Operator

Our next question comes from Richard Clarke with Bernstein.

Richard Clarke, Analyst

Maybe just to start off with, you made a couple of comments about strong outbound travel out of the U.S. and China. How well hedged do you see yourself for that? Do those consumers stay in Marriott hotels when they travel to other cities? Or if that normalizes, does that become a tailwind for you if domestic travel begins to pick back up again?

Anthony Capuano, CEO

Yes, it's a great question. I think the way I would answer it is to point to the comments I made at the outset about the Bonvoy penetration. It is not a coincidence against the backdrop of the environment you described that we set all-time records for Bonvoy penetration, both in the U.S. and globally. And to me, the strength of the loyalty platform, combined with the breadth of our footprint in the international destinations where our guests want to travel, I think does create a tailwind for us.

Leeny Oberg, CFO

And the only thing I'll add is kind of the interesting fact that we're really essentially back to where we were in terms of cross-border penetration. And while it may vary a bit here and there, we clearly still got lower cross-border penetration in China. And we've got, in some other areas, a bit higher. I think CALA was particularly high in Q1. In the U.S., it's very steady as she goes, where we've got basically only 5% of the customers in the U.S. are coming from outside the U.S. And that broadly speaking, our global distribution is just tremendously helpful as folks find the places they want to go within our system. But that overall, a lot of the variations really don't drive that big of a change in RevPAR.

Richard Clarke, Analyst

Okay. Great. Maybe just as a follow-up on the loyalty comment there. One of your peers has been making, I guess, a bit of noise out the fact that they think they will overtake you in terms of total loyalty members. Is that a relevant metric to you? And is any of that tech investment you're doing looking to engage a higher number of customers overall?

Anthony Capuano, CEO

Well, without a question, on the long list of loyalty metrics we look at, I think we have enthusiasm about having the industry's largest platform. But from my perspective, it goes much deeper than that. Size is important, of course. Engagement to me is a much more important facet of the program, and the work that we are doing to drive that engagement through our large, powerful, and growing credit card portfolio through the breadth of experiences that we offer our members, those are the powerful drivers of engagement with our members.

Leeny Oberg, CFO

I think the penetration is obviously critically important as you look at making sure that you are helping your customers understand the value of the program and of all the options that they have, whether that be going to 141 countries or actually thinking about things like Ritz-Carlton Yacht and things like the Bonvoy moments that Tony talked about. So a number is a number but I think it's can actually not be a true guide for the power of a program.

Operator, Operator

Our next question comes from Smedes Rhodes with Citi.

Bennett Rose, Analyst

I just wanted to ask a little bit more about the trends you're seeing in the U.S. It sounds like you revised your U.S. expectations down a little bit, and it sounds like that's primarily due to the leisure component, maybe more people going abroad staying with your hotel there. And I get that your worldwide RevPAR outlook hasn't changed. But is there anything else you're seeing in the U.S. that you can share that maybe led you to expect a little bit lower coming out here nationwide for the year? Or is it all just because of what you're seeing on the leisure side?

Leeny Oberg, CFO

Yes. No, it's absolutely solely because of what we're seeing on the leisure side. And again, we still do expect to see that it roughly will be up a little for the year, but on the leisure side. But we do view that BT and group are absolutely as strong as we expected. And leisure is still fine. But when you look at the change, which I would say kind of broadly speaking, maybe a point lower in the U.S. than we expected a quarter ago, and maybe a little bit more than one point higher internationally kind of gets us to roughly the same place from a RevPAR picture globally. The other thing I'll point out is as we do expect that our tiers across the segments in the U.S., we do expect that they will all be up for the year in terms of RevPAR from select service all the way up through luxury. But again, to your point, yes, it was the leisure segment. It was a bit lower.

Bennett Rose, Analyst

Okay. And then I just wanted to ask you, you mentioned in your opening remarks a conversion-friendly brand. Could you just talk a little bit more about that, kind of what are you targeting there? And is that primarily, I guess, for the U.S. or?

Anthony Capuano, CEO

Sure. No, it's global. And I think while we have a terrific track record of doing conversions across many of the brands in the portfolio, when we find ourselves in an environment like this where conversions are particularly important given some of the challenges in the debt markets, we feel like our transactors are very well armed with brands like the three soft brand platforms. So Luxury Collection, Autograph, Tribute. Great examples where they have a level of flexibility, not on quality, but on aesthetic that is particularly appealing to a broad cross-section of the owner and franchisee community.

Operator, Operator

Thank you. Our next question comes from Dan Politzer with Wells Fargo.

Daniel Politzer, Analyst

Leeny, I think you mentioned that within group, the Fortune 100, you've seen the strongest quarter-over-quarter growth in quite some time. Can you maybe give a little bit additional color in how that maybe compares with the small and medium-sized business customers? And maybe remind us, which typically leads the other within the cycle?

Leeny Oberg, CFO

So a couple of things. One reminder that small and medium-sized businesses, that is probably the hardest segment to actually pinpoint all the specifics on the travel. I think you did see in Q1, you did see relatively speaking, slightly lower percentage of small- and medium-sized BT business across the portfolio, showing up in the lower end. On the special corporate on the larger company side, we absolutely continue to see recovery of that business, as you saw, for example, finance. The finance segment is now 8% up relative to 2019. You saw a really strong continued momentum in manufacturing and communications. And actually, while accounting, consulting, and technology are still down meaningfully compared to 2019, they also continue to see meaningful momentum into Q1. When you think about the typical trends in a cycle, I think one quarter does not a trend make. We know that the month of March had some real calendar issues. And you also know that January tends to be a little online in terms of being able to determine trends because of the timing of when Christmas and New Year's are. So I think it will take a little time. We aren't expecting a big difference. You may remember that we used to have pre-COVID kind of a 60-40 split between classic negotiated rate versus the small and medium, but it flipped coming out of COVID. And now, I would say we're kind of more towards the 55-45 with the small and medium still being the 55%. But yes, from a relative growth perspective, we did see that it was the special corporate end of things that really grew.

Daniel Politzer, Analyst

Got it. And just for my follow-up, I think non-RevPAR fees, they were up maybe 6% in the quarter. I think you had been talking about them being down and credit card fees in there, I think you also said were up. So within that residence and timeshare and other bucket, was there a shift around in terms of the fees there from 1Q to maybe 2Q? Or is there something else that we should be aware of?

Leeny Oberg, CFO

Yes. I think as you're probably familiar, our residential branding fees tend to be quite lumpy. Literally can go from $10 million one quarter down to $3 million next quarter because as units are sold, we burn those fees. They are onetime fees on the residential sales, branding fees. So if a unit sells out, we get them all at once. So that is purely timing. For the full year perspective, we don't anticipate anything different from what we thought before.

Operator, Operator

Thank you. Our next question comes from Bill Crow with Raymond James.

William Crow, Analyst

I wanted to follow up on Smedes' question from earlier. And Tony, you talked about normalization in U.S. demand. And certainly, we've written the same thing. But industry-wide demand has been flat to down over the past year, which really doesn't seem so much as a normalization as it does a slowdown, especially given the economic growth, which is a surprise to the upside. I'm just curious, at what point do we start to worry about the consumer and maybe a change in spending patterns?

Anthony Capuano, CEO

Yes, that's a valid question. I would have more concern if we were seeing negative RevPAR in the U.S. and Canada. The fact that we increased by 1.5% this quarter, despite the holiday timing effects mentioned by Leeny, reassures me. Looking at the segments, leisure remained flat compared to last year's first quarter, but is still significantly ahead of where we were in 2019. In response to an earlier question, I shared some optimistic statistics about the ongoing strength in group bookings. We spoke with the team yesterday involved in the advanced sales for the Gaylord Pacific project under construction, and they are performing exceptionally well, experiencing high volumes and strong demand on the group side. Additionally, regarding business transient, Leeny's comment about the growth in the U.S. and Canada highlights that we saw significant improvement with our top 100 corporate accounts, marking the best sequential growth in the last eight quarters. Overall, when I consider all of this, it feels more like we are settling into a normal pattern rather than experiencing a serious decline.

Leeny Oberg, CFO

If I can, I'm going to throw in a little bit of a glass half-full relative to what I think seems like a little bit of a glass half-empty question. And that is when we look at the rest of the year, we are looking both U.S. and international, like gains in both occupancy and rate for the full year. We also saw that in the first quarter, you saw through luxury, premium, and select, you saw that you had generally rate and occupancy gains overall with the exception that in the select, you saw a slight decline in occupancy. But for the full year, we are expecting that we will continue to see growth. So broadly speaking, we still feel like we really benefit from these different types of travel demand. There's no doubt that we appreciate when leisure strengthens, when leisure quiets down a little bit, and there is overall more normalization of travel types than a couple of year ago. But when we think about the overall demand levels, we feel really good about it.

William Crow, Analyst

That's really helpful. I would like to follow up quickly. There has been a lot of optimism that especially during the summer, we would see the inbound-outbound travel relationship in the United States sort of normalize, which would boost demand. I'm curious if there has been any change in that perspective since you've shifted your RevPAR growth to favor international over domestic. Perhaps the strong dollar is affecting things. Any insights you have would be appreciated.

Kathleen Oberg, CFO

I honestly couldn't quite hear the question.

Anthony Capuano, CEO

Yes, I believe the question relates to the comparison between U.S. travel and international travel. Bill's point about the ongoing strength of the dollar is an important aspect to consider. In 2024, we will see a significant increase in U.S.-Japan tourism due to a partnership between the two countries. I recently met with the Japanese Ambassador, who mentioned the impressive influx of U.S. tourists to Japan. I jokingly asked him how we could encourage more Japanese visitors to the U.S., and he suggested that weakening the dollar against the yen could help. This is an important factor as it positively impacts our international distribution. While we haven't changed our overall RevPAR guidance, we're experiencing significantly stronger performance in international markets for this reason.

Leeny Oberg, CFO

So the only other thing I'll add is that one of the interesting parts is that when you look at Asia Pacific's RevPAR, while some of that benefits from Tony's comment about U.S. traveler, a whole lot of that is the reality that now China is opening up more for cross-border. So you are seeing global travel preferences, not just U.S. travelers. Interestingly, our U.S. proportion of domestic travelers has been remarkably consistent over time, where it was, for many years, it was roughly only 5% are from outside the U.S., and that the domestic business is overwhelmingly 95% U.S. traveler, and that is still the case now. So we aren't seeing that the U.S. business is really suffering from everybody leaving the U.S. I think it is more the reality of global growth travel in general.

Operator, Operator

Our next question will come from David Katz with Jefferies.

David Katz, Analyst

Tony, one of the last notes that you dropped in was about your forthcoming conversion brand and not to steal any thunder, but if we could borrow a couple of cracks of lightning. And just talk about sort of why, why now? What the sort of philosophical thought processes about sort of bringing that to market would be great.

Anthony Capuano, CEO

Of course. I think, David, you and I have had the chance to talk in the past about our overarching growth strategy, and that strategy is really guided by this desire to make sure our portfolio offers the right product everywhere our guests want to travel for every trip purpose. And we learn with increasing frequency that more and more members and prospective members of Bonvoy for certain trip purposes seek the price point and the value proposition of platforms in the mid-scale tier. The reality is, given the climate for new construction debt in the U.S., having a platform that can easily pivot between both new build and conversion opportunities, the timing seems ideal to launch something in that space. Leeny, I don't know if you want to add.

Leeny Oberg, CFO

And the only thing I would add is that a lot of this is both market research and conversations with our owners and franchisees. So when you think about the supply that's out there, where supply is growing and where it is not, we definitely believe that there is some great opportunity for us to add more new Bonvoy members, choices for them across the spectrum. And then frankly, also need owner and franchisee demand for Marriott product that allows for conversions in markets that over time may have moved and changed, etc. So we think it's a tremendous opportunity. As you know, StudioRes, which is also a new mid-scale brand for us is overwhelmingly new build, and it's extended stay. And we just think from our conversations that there'll be great demand for us in this space as well.

Operator, Operator

Our next question will come from Robin Farley with UBS.

Robin Farley, Analyst

Great. When considering how investors typically assess top line growth, it's often a combination of unit growth and RevPAR growth contributing to that figure. This quarter, that would have totaled the other four plus seven for an 11% increase, but your actual top line is more in the 6% to 7% range. Is there anything you would suggest regarding how investors should approach this moving forward? I understand there are different types of room unit growth, so is it incorrect to view top line growth as RevPAR plus unit growth?

Leeny Oberg, CFO

So a couple of things. First of all, the algorithm definitely shows its effectiveness over time. It's important to be cautious about analyzing quarterly results or focusing too much on specific figures, as the overall trend is what really matters in the long run. This year, our guidance for room growth is between 5.5% to 5.9%, with a midpoint of 4% for Revenue Per Available Room (RevPAR), and we've indicated that gross fee revenues could be as high as roughly 9%. These figures align closely with the algorithm, and we firmly believe in its validity, emphasizing the need to consider multiple years rather than just one in isolation.

Robin Farley, Analyst

Okay. I have a follow-up question about conversions. I'm not sure if you provided the conversion percentage excluding the MGM deal. I'm looking at the traditional conversions as a percentage of total unit growth. Your guidance for next year seems to indicate an increase in conversions as a percentage of unit growth. Is the new brand you mentioned launching in the mid-scale segment, which is conversion friendly, what you believe investors should consider as the main contributor to this increase in conversions in 2025 compared to 2024? Or are there other factors or brands you haven't discussed yet that might also play a role? I'm curious if this upcoming brand would be the key factor driving that growth.

Leeny Oberg, CFO

So just as a reminder, conversions were roughly 30% of our signings this year in the first quarter, and we've got a very strong stream of conversions moving through the pipeline. So no, while we do see tremendous opportunity there, the kind of numbers that we've talked about and talked about last September did not include, assumed expectations, would be from this new brand on conversions. We said roughly 30% of the room adds ex-MGM would be from conversions, and we continue to believe that. But that's not really a change for us over the last couple of quarters.

Operator, Operator

Our next question will come from Chad Beynon with Macquarie.

Chad Beynon, Analyst

I have two questions regarding the upcoming domestic election. In the last presidential election, there was some softness in Washington, D.C. as people were focused on other activities. Will this have any impact on the fourth quarter, or is it negligible? Additionally, is there anything related to the election that you believe could influence the travel outlook based on the candidates' positions?

Anthony Capuano, CEO

Yes. Well, we better add another hour to the call to take the second part of your question, I think. Maybe the way I would answer the second part of your question, on a global basis, travel and tourism thrives in relative stability. I think uncertainty around the election creates all sorts of question marks. We'll get through the election and then post-results. We hope we'll settle into a little bit more stability. In terms of some of the policy issues that directly impact Marriott and travel more broadly, my sense is we will likely still end up with a bit of division in Congress. So you may not see strong moves one direction or the other. And I'm sorry, your first question was on the impact of the election itself in D.C., I think.

Leeny Oberg, CFO

Right. And generally speaking, I would say we do see that there is a dip in government travel after Labor Day, and that group and business transient, obviously, is going to not be traveling during election week. But our forecast incorporates the experiences that we've seen before in presidential elections.

Operator, Operator

Thank you. Our next question comes from Michael Bellisario with Baird.

Michael Bellisario, Analyst

Question on your owned assets. When might we see some of those hotels get sold, especially international? I think they come about an improved outlook would suggest maybe the market or at least the transaction backdrop is better there. And if not, could you expand on that? And then secondarily, any CapEx plans next year for the Sheraton in Chicago? Or should we expect a big year-over-year step down in owned CapEx?

Leeny Oberg, CFO

I'm going to address the second question first regarding the Sheraton Grand Chicago. This hotel has undergone a room renovation over the past three years. Therefore, aside from usual maintenance, I don't anticipate significant capital expenditures in 2025 for that property. We're developing a comprehensive plan for the hotel's public spaces and food and beverage offerings, working ideally with a partner to manage the costs off Marriott's balance sheet. Concerning our other owned and leased assets, each has its unique circumstances. For instance, we are currently in the middle of a major capital improvement program for our elegant portfolio in the Caribbean and Latin America, and we are excited about the results so far and look forward to reinvesting that capital, particularly focusing on the all-inclusive offerings of those hotels. The W Union Square renovation is nearing completion, and we are very pleased with the outcome. I highly recommend visiting and enjoying the living room and its outstanding bar. The rooms are impressive, and they represent our W brand well in North America. We will soon start evaluating the timing and pricing for selling that asset. The other assets in our portfolio are in a similar situation. As the outlook for interest rates becomes more stable, we believe it could improve the transaction market. While it's still early to predict the timing of potential sales, we hope that in the latter part of the year, there will be more clarity on how the next couple of years will unfold. It's clear that interest rates may remain elevated for a longer duration, and a stable outlook is promising for asset sales and the markets where those assets are located.

Operator, Operator

Our last question will come from Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth, Analyst

Saving the best for last. I like it. Just wanted to follow up on the SMB commentary at the lower-end chain scales. I know it's a much smaller percentage of your mix. But can we think about maybe the drivers or any industries that may stick out if we want to call it, drive to business travel? Maybe less goods transportation, maybe less disaster relief in some markets? I know it's harder to analyze these trends because in many cases, they book direct. But wonder if you had any industry commentary on the lower-end SMB trends.

Anthony Capuano, CEO

Yes. I think it's a little hard to look at maybe individual industries. Probably the one demand source we're keeping a close eye on is government-related business, which in that tier, is quite relevant.

Operator, Operator

Thank you. That concludes our question-and-answer session. I will now turn the call back to Tony Capuano for closing remarks.

Anthony Capuano, CEO

Great. Well, thank you again for your participation and interest. We all hope to see you on the road soon. Safe travels.

Operator, Operator

This does conclude the Marriott International Q1 2024 Earnings Conference Call. You may now disconnect your line and have a wonderful day.