Earnings Call Transcript
MARRIOTT INTERNATIONAL INC /MD/ (MAR)
Earnings Call Transcript - MAR Q4 2021
Operator, Operator
Good day, everyone, and welcome to today's Marriott International's Fourth Quarter 2021 Earnings Call. Please note this call may be recorded. It is now my pleasure to turn today's program over to Jackie Burka, Senior Vice President of Investor Relations.
Jackie Burka, Senior Vice President of Investor Relations
Thank you. Good morning, everyone, and welcome to Marriott's Fourth Quarter 2021 Earnings Call. On the call with me today are Betsy Dahm, our Vice President of Investor Relations; Leeny Oberg, our Chief Financial Officer and Executive Vice President, Business Operations; and Tony Capuano, our Chief Executive Officer.
Tony Capuano, CEO
Thanks, Jackie. Before we begin our prepared remarks, I wanted to take a moment and reflect on this day, which marks the 1-year anniversary of Arne's passing. I know everyone on this call, especially our Marriott associates, miss our dear friend, an inspirational leader, a great deal. We can take comfort knowing his amazing legacy lives on in the incredible work of the thousands of people around the world who wear a Marriott name badge. Let me turn the call back over to Jackie to get us underway in discussing this quarter's results.
Jackie Burka, Senior Vice President of Investor Relations
So let me quickly 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. 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. Please also note that unless otherwise stated, our RevPAR, occupancy and average daily rate comments reflect system-wide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19. RevPAR occupancy and ADR comparisons between 2021 and 2019 reflect properties that are defined as comparable as of December 31, 2021, even if they were not open and fully operating for the full year 2019 or they did not meet all the other criteria for comparable in 2019. Additionally, unless otherwise stated, all comparisons to pre-pandemic for 2019 are comparing the same time period in each year. 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. Tony?
Tony Capuano, CEO
Thanks, Jackie. We're very pleased with the remarkable progress we made in 2021 across the entire global portfolio despite the ongoing challenges of the COVID-19 pandemic. We finished the year on a real high note with the emergence of Omicron having a limited impact on results in the fourth quarter. In December, global ADR was 3% above 2019 levels, and occupancy for the month gained further ground compared to December of 2019, driving global RevPAR to an 11% decline versus 2019. This was a 53 percentage point improvement from the RevPAR decline in January of 2021. In the fourth quarter, global RevPAR was 19% lower than pre-pandemic levels. Global occupancy for the quarter came in at 58%, 12 percentage points below 2019, while ADR was only 2% shy of 2019 levels. In the U.S. and Canada, fourth quarter RevPAR declined 15% compared to 2019. Results were driven by strong ADR, which was less than 2% below pre-pandemic levels. Further strengthening of already robust leisure travel and steady improvement in the recovery of business transient and group demand also helped results. Fourth quarter group room revenue in the U.S. and Canada was down 32% versus 2019, a 9-percentage point improvement from the third quarter decline. With booking windows still much shorter than usual, in the quarter bookings were up 45% versus the fourth quarter of 2019. Group cancellations ticked up late last year and early this year due to Omicron mostly for arrival dates in January and February, but those cancellations have slowed more recently. New group bookings have also been gaining momentum, especially in the year for the year. In fact, just last week, Salesforce held a large company meeting in New York City that was booked just 1 month before the event. It was the largest internal meeting Salesforce has held since the start of the pandemic with over 25,000 room nights across 11 of our properties. While special corporate demand in the U.S. and Canada was still well below 2019 levels, there was gradual improvement in the fourth quarter. Relative to pre-pandemic levels, bookings in the quarter were down 33%, 11 percentage points better than the decline in the bookings in the third quarter. Weekly bookings around the end of last year were impacted by Omicron, but they have recovered since the trough in early January. All of our international regions, except for Greater China, posted sequential RevPAR recovery from the third to the fourth quarter as more borders reopened and travel restrictions eased. Greater China's fourth quarter 27% RevPAR decline compared to 2019 was in line with the decline in the third quarter as their zero COVID policy once again resulted in the lockdown of several cities. The Middle East and Africa or MEA region performed particularly well in the fourth quarter, really demonstrating the resilience of travel demand. With relatively high vaccination rates and low travel restrictions during the quarter, the Middle East has become a safe, easy place to visit. Led by strength in the UAE, fourth quarter RevPAR in MEA rose 8% above 2019 driven by 20% higher ADR. Fourth quarter occupancy in MEA topped 65%, the highest of our regions. Leisure demand was remarkably strong, benefiting from a significant increase in international visitors. Room nights from international guests rose nearly 60% from the third to the fourth quarter. Throughout the pandemic, strengthening our valuable loyalty platform and engaging with our Marriott Bonvoy members have been key areas of focus. In the fourth quarter of '21, 52% of room nights globally and 58% of room nights in the U.S. and Canada were booked by Bonvoy members. And global membership grew to over 160 million members at year-end driven by strong digital sign-ups. Turning to development. Both room additions and signings were strong in '21 despite ongoing challenges associated with the pandemic. Despite industry-wide preconstruction and construction delays, some labor shortages and supply chain issues, we added a record 86,000 gross rooms and 517 properties leading to 6.1% gross rooms growth for the year. Our global net rooms growth was 3.9%, above our previous expectation, given deletions were towards the low end of those expectations. Our deletion rate for 2021 was 2.1% or 1.2% excluding the exit of 88 Service Properties Trust hotels. We are also pleased that we continue to grow our share of rooms globally. In 2021, around 15% of all global new build rooms opened under our brands compared to our year-end room share of 7%. This share is expected to continue as we had 18% of all global rooms under construction at the end of '21, more than twice our current share of open rooms. Our development team signed franchise and management agreements for approximately 92,000 rooms during 2021, and our year-end global pipeline totaled roughly 485,000 rooms. The composition of our pipeline dovetails nicely with current demand trends. Leisure demand has led to recovery, and we are well positioned to continue growing our lead in resort destinations, including in the high-growth, all-inclusive space. We've also been seeing strong preference for our luxury properties. With luxury rooms accounting for more than 10% of our pipeline, we are poised to further expand our industry-leading portfolio in this valuable high-fee segment. Conversions were a significant growth driver in 2021, accounting for 21% of room additions and 27% of signings. With the breadth of our roster of conversion-friendly brands across chain scales and the meaningful top and bottom-line benefits associated with being part of our system, we anticipate that conversions will remain an important contributor to growth over the next several years. For 2022, we expect gross rooms growth to approach 5% and deletions of 1% to 1.5%, leading to anticipated net rooms growth of 3.5% to 4%. While signing activity has been picking up nicely, 2022 gross room additions are expected to be impacted by the diminished construction starts the industry has experienced throughout the pandemic, particularly here in the U.S. As a reminder, average construction timelines are currently around 2 years for limited service deals and often longer for full service deals. Yet given the improving global environment, the attractiveness of our brands, our strong development activity, our conversion momentum and our industry-leading pipeline, we are confident that over the next several years, we will return to our pre-pandemic mid-single-digit net rooms growth rate. Before I turn the call over to Leeny, I did want to share a few highlights of the company's ESG efforts over the course of the year. The Board of Directors and our management team are keenly focused on these important areas as we're committed to making a positive and sustainable impact in the communities where we live and work. In June, as part of our diversity, equity and inclusion efforts, we announced we were setting new internal diversity goals for our group of Vice Presidents and above. The new targets aim to achieve global gender parity by 2023, an acceleration of our prior timetable and to increase representation of people of color in the U.S. to 25% by 2025. In July, we updated our human trafficking awareness training, which will be made widely available to the entire industry. More than 900,000 associates have now taken training in this area. And in September, we pledged to set science-based emissions reduction targets in line with the 1.5-degree Celsius emissions scenarios. As I finish my first year as CEO, I want to again thank our incredible associates for all their hard work through these challenging times. I've spent most of the last few months on the road, traveling across the U.S. from New York to Los Angeles and also abroad and have seen firsthand their dedication to serving our guests. I'm so proud of all we've accomplished over the last year and continue to be very optimistic about our outlook for 2022 and beyond.
Leeny Oberg, CFO
Thank you, Tony. Our fourth quarter results reflect the clear resilience of travel, our strong focus on cost containment and the benefits of our asset-light business model. Gross fee revenues reached $831 million in the fourth quarter. Our non-RevPAR-related franchise fees were again particularly strong, totaling $186 million in the fourth quarter 19% ahead of 2019 levels driven by robust global card spending and new account acquisitions as well as outstanding performance in our branded residential business. Incentive management fees, or IMF, totaled $94 million in the quarter. Just under half of these fees were earned at resort properties with IMF from our comparable luxury resorts up almost 45% compared to the fourth quarter of 2019. Our owned and leased portfolio generated $19 million of profits, a nice increase from a loss of $50 million in the fourth quarter of 2020 as results improved at hotels in the U.S. and Europe. Our operating teams have done extraordinary work to adapt quickly and return these hotels to breakeven profitability or better despite continued lower-than-normal occupancy levels. G&A and other expenses totaled $213 million in the fourth quarter, higher than prior expectations as a result of higher compensation costs, including true-ups and higher legal expenses. For full year 2021, G&A and other came in at $823 million, 12% lower than full year 2019, reflecting ongoing savings resulting from our significant restructuring activities in 2020. At the hotel level, we have partnered with our owners and franchisees throughout the pandemic, working diligently to lower costs, bring down breakeven occupancy levels and drive cash flow. With the recovery well underway, we're committed to delivering consistent and positive guest experiences while keeping hotel operating costs down. Many of the cost reduction and productivity enhancement initiatives we put into place will be maintained as occupancies rebound. While the labor environment is slowly improving, we're keeping a close eye on wage and benefit inflation. We're optimistic that our cost reduction efforts could mitigate inflation in future years. As always, we are also carefully managing cash outlays at the corporate level. We were pleased with our cash flow generation during 2021 and with our year-end liquidity position of over $4.8 billion, which covers near-term debt maturities with significant cushion. Our full year cash flows from the loyalty program were positive before considering the reduced payments received from the credit card companies. After factoring in these reduced payments, which effectively repaid around 1/3 of the total $920 million we received in 2020, loyalty cash flows were modestly negative. Looking ahead to 2022, there is still too much uncertainty and volatility to give specific RevPAR or earnings guidance. But I will again share some general observations and provide color on certain specific items where we do have some visibility. I'll start with some thoughts on the first quarter of 2022. Omicron meaningfully impacted global group and business transient demand in January, historically the lowest occupancy month of the year. While we saw minimal disruption to leisure travel, global RevPAR for the month declined 31% compared to January of '19, primarily due to lower occupancy as rates were just 4% below 2019. We expect to see the recovery pace pick up nicely in February and March given weekly bookings across customer segments have now returned to pre-Omicron levels. However, with some countries reinstituting strict travel restrictions earlier this year, we could see first quarter 2022 RevPAR compared to 2019 levels take a step back from the 19% decline in the fourth quarter of 21 versus 2019. We then expect significant forward progression in the global recovery each quarter through the end of the year. Following the temporary Delta-related slowdown during the third quarter of last year, demand picked up meaningfully through the end of last year. That bolsters our optimism that by the end of the year, the 2022 fourth quarter gap to 2019 fourth quarter RevPAR will narrow meaningfully compared to the 19% decline in the fourth quarter of 2021. As additional markets reopen and more employees return to the office, we expect robust ADR, sustained strong leisure transient demand and significant improvement in business transient and group. We also expect to see growth in trips that blend business and leisure. International travelers getting back on the road should also drive further improvement in RevPAR. In 2019, nearly 20% of global room nights were from cross-border guests. So far, most global demand during the pandemic has come from domestic visitors. Cross-border room nights in 2021 were down more than 60% compared to 2019 while domestic room nights were down 16% over the same time period. Our fourth quarter performance in the Middle East illustrates how impactful the return of international travel can be. We're encouraged by the swift pickup in booking activity that we've seen in the last few weeks in places that are opening up, such as Thailand and the Cayman Islands. Turning to fees. At current RevPAR levels, we expect the sensitivity of a 1% change in full year '22 RevPAR versus full year '21 could be around $25 million to $30 million of fees. As we've seen, the relationship is not linear given the variability of IMF and the inclusion of non-RevPAR-related franchise fees. This sensitivity is no longer compared to 2019 as the compounding impact from new rooms growth contributions makes the comparison less relevant three years out. In 2022, we expect continued growth from our non-RevPAR-related fees driven by higher contributions from credit card fees. We also anticipate profit growth from our owned and leased portfolio as the global environment improves. For the full year, interest expense net is anticipated to be roughly $350 million, and our core tax rate is expected to be around 23%. G&A and other expenses could total $860 million to $880 million, still well below 2019 levels but higher on a year-over-year basis primarily due to higher compensation costs and assumed higher travel expenses. As always, driving cash flow will be a priority in 2022. We anticipate full year investment spending of $600 million to $700 million, which includes roughly $250 million for maintenance capital and our new headquarters. We expect cash flows from loyalty to be slightly positive in 2022 before factoring in the reduced payments received from the credit card companies. We made great progress in improving our credit ratios during 2021 and remain focused on bringing our leverage in line with our target of 3 to 3.5x adjusted debt to adjusted EBITDA. Assuming the recovery continues largely as anticipated, we could be in a position to restart capital returns in the back half of 2022. We would likely begin by paying a dividend with a payout ratio a bit below our traditional 30%. We can then see more meaningful levels of capital returns, including share repurchases, along with dividends in 2023 and beyond. Over the last 2 years, our business has been tested in ways we never could have imagined. We're incredibly proud of how our teams have adapted and how well our company has performed. We made significant progress in 2021 and are excited about continued recovery and our growth opportunities ahead. Tony and I are now happy to take your questions.
Operator, Operator
We will take our first question from Shaun Kelley with Bank of America.
Shaun Kelley, Analyst
So Tony, I wanted to start with development activity. Thank you for the net unit growth guidance, which seems appropriate considering our current position in the development cycle. I'm curious about your thoughts on the long-term outlook. Do you believe we have reached the lowest point and that these levels are sustainable given the current CapEx and development cycle? What are your expectations for 2023? Will these levels remain steady, or could we see some improvement? Should we be cautious considering the timing of openings in full service?
Tony Capuano, CEO
Thanks, Shaun. Well, as we've said the last couple of quarters, the ripple effects of the pandemic create less visibility beyond '22 than we might like. With that said, I think you heard the momentum on signings in my prepared remarks. We continue to see good volume on the conversion front. In the short term, obviously, we've got a bit of challenges in terms of construction starts, particularly in the U.S. But in some ways, that causes us to think about it as a when, not an if. And in fact, one of the statistics we look at most closely is fallout from the pipeline. If we were seeing wholesale project cancellations, that might cause us to think differently about the medium to long term. But in fact, what we saw in 2021 was about 6.5% lower than our average fallout over the last decade.
Shaun Kelley, Analyst
Really encouraging. And then maybe just as my follow-up, your comment on the RevPAR cadence, Leeny, in your prepared remarks, was interesting as we get to kind of the 4Q '22 area. Just any possibility that we could actually see maybe a month or a point in 2022 where we actually return to 2019 levels of RevPAR? Or kind of what's your sense about that cadence? That's it for me.
Leeny Oberg, CFO
Thank you very much. It's interesting to note that in December, for instance, the U.S. and Canada experienced only a 6 percentage point decline compared to 2019. This suggests that the mix of business and how countries reopen, along with seasonal occupancy patterns, could lead to variability in outcomes. While it is possible that we'll see changes, much depends on the global recovery pace. Achieving our ideal scenario requires various segments of the business to perform well, including leisure, corporate, and group travel. However, we are optimistic about the current momentum. Additionally, when countries lift their restrictions, the immediate response from our reservation centers is significant, which reassures us that this positive trend may continue to grow.
Operator, Operator
And we will take our next question from Robin Farley with UBS.
Robin Farley, Analyst
Great. I'm curious about the outlook for recovery. Could you share some details on the group bookings for the second half? It's clear that Q1 was significantly impacted by Omicron. How do the second half bookings compare to 2019 levels? It seems likely that there will be an increase in groups that haven't gathered in a while, which should be positive. I'm just wondering if you have noticed any signs of that turning point in your future group bookings.
Tony Capuano, CEO
Yes. Thanks, Robin. And maybe I'll refresh some of the data that we shared with you last quarter. I'm going to give you some comparisons between at the end of '19, what we saw as definite bookings on the books for '20 and '21 and how that compares at the end of '21, what we see on the books for '22 and '23. So at the end of December of '21 as we looked at definite bookings for '22, we were down just a shade under 22% compared to end of '19 for '20. When we look at what's on the books for '23 at the end of 2021, we're down just a shade under 15% versus what we had on the books at the end of '19 for 2021. And so to your specific question, we are seeing steady and encouraging forward bookings in the group segment. And the other thing I would point out, Robin, you heard in my prepared remarks the comment about that big piece of Salesforce business that was booked just 1 month before. We expect to continue to see improvement from the levels I just described to you because we're seeing more short-term bookings, and that's been the trend over the last number of weeks and months.
Leeny Oberg, CFO
Just to add one point, Robin, when you look at Q1, understandably, with Omicron, clearly, you're looking at a weaker group picture than you are as you get into Q3, which is meaningfully better. So your point is well taken that it should move as we go through the year. And I think the other part that is just fantastic is that rate both in '22 and '23 already from what's on the books is up 3% to 4%.
Robin Farley, Analyst
Okay, that's helpful. I have a follow-up question regarding the visibility of business transient or transient in general. Has that changed? I understand it’s been challenging over the last six weeks, as things may have initially been improving but now seem to have contracted a bit. How far in advance are you able to book? It seems like pre-pandemic, you mentioned a 30-day booking window, whereas last year it was around a 7-day window. I'm curious if you are seeing more visibility in transient bookings or any improvement in their pace.
Leeny Oberg, CFO
The booking window has extended, but it's not the same as it was in 2019. There has been some improvement, but we still haven't returned to previous levels. For example, in Q1, January showed particularly weak corporate bookings due to the impact of Omicron. I believe as we progress through the year, we will gain more visibility on this. However, it is slightly better compared to 2020.
Tony Capuano, CEO
And Robin, let me just give you a little more granular information to try to address your question. This is a global number. But if you look at the global booking window, it really got the shortest in the second quarter of 2020, where it was down to 5 days. If you look at the fourth quarter of 2021, it had risen to about 17 days. So to Leeny's point, certainly not back to where we were pre-pandemic, but trending in the right direction.
Operator, Operator
We will take our next question from Joe Greff with JPMorgan.
Joe Greff, Analyst
Throughout much of last year, leisure demand was fairly inelastic to rate in the industry's fairly robust rate gain as you alluded to this morning. Can you talk about leisure price elasticity thus far in 2022 in your forward bookings? And are there any changes relative to last year, i.e. are you seeing demand become more sensitive to further ratings, maybe more pronounced in markets or chain-scale segments where service levels might be constrained by labor availabilities?
Tony Capuano, CEO
Of course. Obviously, we're early in the year, but maybe a good indication that addresses your question as we gear up for President's Day weekend here at the end of the week, this is U.S. data, but the RevPAR numbers are pacing up about 12% ahead of where we were in '19 for Friday through Sunday. And to your specific question about pricing power, ADR is pacing up about 20% versus '19.
Joe Greff, Analyst
Great. And then a follow-up question on new development. Can you talk about the cadence of net rooms growth or net rooms growth rate this year? Is it even throughout the year? Is it more heavy in the second half? And lastly, how does the full service select service mix of net room development in '22 compare to that mix the last couple of years?
Tony Capuano, CEO
Of course. What I will tell you is pretty consistent for the last decade or more is our transactors, they are a big fourth quarter team. We tend to see a big pop in signings volume in the fourth quarter. But because our conversion volume was meaningfully higher in '21 versus history, when you have a deal like Sunwing, which I think was in the second quarter, that can impact the quarter-to-quarter numbers. But fourth quarter tends to be the biggest volume of signups.
Leeny Oberg, CFO
And for openings, Joe, I think we definitely saw in Q4 of this year that you clearly saw a bunch of owners wanted to get ahead of this recovery that's moving forward. So we had a great fourth quarter. But we have traditionally been fairly steady unless there is a certain group of hotels that have all kind of come on at the same time. So I would say we've always tended to have some quarter-to-quarter variations, but that should march forward fairly squarely throughout the quarters on the opening side. I guess the only other thing to point out is just a reminder that construction for a limited-service hotel takes, broadly speaking, 2 years, and full service takes longer. So as you start to think about 2020 and recognize that as you get into Q3 of 2020, you were in the depths of the pandemic and starting to really see the impact on construction starts. That will start to obviously then have an impact as you go into '22.
Operator, Operator
We will take our next question from Thomas Allen with Morgan Stanley.
Thomas Allen, Analyst
So your non-RevPAR fees have been really encouraging. And Leeny, thanks for the commentary that you expect growth in 2022. Can you just give us a little bit more color there? I think I calculated that your 2021 non-RevPAR fees are about 15% above 2019 levels. What's giving you the confidence that that should continue to grow?
Leeny Oberg, CFO
Yes. So first of all, thanks very much. Just as a reminder that our credit card fees make up roughly 2/3 of our non-RevPAR-related fees. And so obviously, that's a big driver. They ended up, up 4% over 2019 levels for the full year in '21. And that was with really quite a weak Q1 as we were still in the heaviest part of the pandemic. So as we continue to see great card acquisitions and credit card average spend, I think we feel very good about those. I think residential branding fees, that business has been doing extremely well. And we expect to continue to see strong openings of those, which is when we get the fees. And then we continue to have application and relicensing fees as obviously, our business continues to grow on the franchise side. So we feel quite confident in the growth of that fee stream based on a continued strong economy.
Thomas Allen, Analyst
Just to follow up, Leeny, I'm not asking for guidance on 2023, but when we consider starts, there is an impact from openings and closures. There is also an effect on starts for residential branding fees, for example. Do you expect that to continue growing as we move beyond 2022?
Leeny Oberg, CFO
No, that's a good reminder, Thomas, to keep in mind that while we receive annual management fees, they represent a smaller portion of the revenue we generate from residential. Most of these are one-time fees accrued when a unit is ready for occupancy. As such, even in 2022, I anticipate our fees will be slightly lower than those in 2021, which was a strong year for residential sales. I expect them to decrease a bit, although they will still be significantly higher than our usual levels for residential branding fees. You're correct that these fees can be inconsistent; one unit out of 100 might sell and close within a quarter or two, while another might not occur for several more quarters. Therefore, it is likely to be uneven. Overall, we are very optimistic about the new signings in the residential branded business, and I believe you will continue to see that segment grow nicely.
Operator, Operator
We will take our next question from Patrick Scholes with Truist Securities.
Patrick Scholes, Analyst
Great. Tony, I have a question and a follow-up question. Tony, my first question, a high-level question. Last year, in March and April, we certainly saw a very large acceleration in U.S. leisure demand. And what that means is we certainly have a very tough comp for U.S. leisure demand coming up. As far as your intuition, Tony, do you think U.S. leisure demand once we hit those tough comps in April onwards could actually eclipse last year's very strong levels? Just curious what you think about that.
Tony Capuano, CEO
Of course. Thanks, Patrick. Well, we continue to be really optimistic that there's still a significant tailwind for leisure demand. And I think part of that is because of the evolution of the way folks work. The incremental flexibility that you're seeing in working from home, working from anywhere has been an accelerant for leisure demand. And if anything, we expect further acceleration in that regard. And then when we look at our forward bookings, we already have more leisure on the books for months further out than we did in the same months last year. So we continue to be quite bullish on accelerated growth in leisure. And remember, leisure was already growing much more rapidly than business transient even pre-pandemic. And maybe the last part of my answer would be you heard Leeny talk a little bit about how modest cross-border travel has been. We've really only seen domestic leisure travel. And as more and more borders open, we think that influx of international leisure travel will also serve to accelerate the pace of leisure demand growth.
Patrick Scholes, Analyst
That's definitely encouraging and good points on the international situation. Shifting gears to my follow-up question, it's been challenging for the hotel industry in China due to the COVID policy. With RevPAR still significantly down in China, have you noticed any impact on your pipeline considering the struggles the industry is facing there?
Tony Capuano, CEO
That's a good question, but thankfully, the answer is no. We continue to see really strong momentum, both on the signings and the openings front. And I think in many ways, our owners and partners in China are the mirror image of our owners and partners in other areas of the world. They don't try to time the market for the next quarter or 2. They tend to be long-term investors. Many of the projects that are getting done are parts of larger mixed-use projects. And the hotel components, in some ways, define those projects, so they are critically important. So we've not seen any sort of meaningful slowdown, quite the contrary. We continue to see really strong demand for our brands from a development perspective across China.
Patrick Scholes, Analyst
Okay. Good to hear.
Leeny Oberg, CFO
Just one quick follow-up on that. Currently, we have around 140,000 rooms in Greater China, and our pipeline is about 20% to 25% less than that. So, it looks like we have the potential to double that business in the near future.
Operator, Operator
We will take our next question from Smedes Rose with Citigroup.
Smedes Rose, Analyst
I wanted to follow up on your comments regarding conversion activity, which you mentioned was approximately 18,000 rooms in 2021. You also indicated that you believe it will remain strong. Do you think it could exceed the numbers from 2021? Additionally, could you share some insights on the regions from which you're seeing these conversions? Is it primarily in the U.S.?
Tony Capuano, CEO
Sure. So I will remind you that one of the most significant contributors to our conversion volume in '21 was the conversion of about 7,000 all-inclusive rooms in the Caribbean with Sunwing. And I raised that not to apologize. Those sorts of large portfolio conversion opportunities are a meaningful part of our strategy and something that we'll continue to look for. But in terms of baseline conversions, we are seeing elevated interest from the owner and franchise community for our brands. And so we expect to see really strong volume continuing into 2022 and beyond. And as we talk with our owners and franchisees, not only do they like the flexibility of some of our soft brands, they like the fact that we've got conversion-friendly platforms across multiple chain scales. And they are focused not just on the ability of the company's revenue engines to drive top line revenue, but also some of the margin efficiencies that result from affiliation with our brands.
Leeny Oberg, CFO
And Smedes, just as a reminder, 27% of our signings in 2021 were for conversions. One of the things that's been really gratifying to see is a number of owners who want to do a conversion, but with meaningful investment in the property.
Tony Capuano, CEO
Yes, I think that's a great point.
Leeny Oberg, CFO
They may take 12 months to actually get open, but they're turning it into a beautiful representation of one of our brands and putting meaningful investment in it. So whether it opens specifically in '22 or '23, it's all going to be great for our guests and frankly, for our associates and for the owners.
Tony Capuano, CEO
And that 27%, Smedes, was about 10 percentage points higher than what we saw in the signings in '20 and in '19.
Smedes Rose, Analyst
Great. And then I just wanted to ask you when we were out at Atlas meeting, we met with a lot of owners. And there continues to be a lot of discussion, as you guys have commented on as well, of helping to reduce their costs being affiliated with large brands. And I'm just wondering, do you think there's a lot more to go there? Or do you feel like you're sort of streamlining and brand standards are changing sort of customer expectations is kind of reset now? Or how is that sort of relationship sort of panning out? I mean, we heard frankly, like just a broad range of commentary. Wondering how you're seeing it from your side.
Leeny Oberg, CFO
Sure. So I think, first of all, I think the partnership during the pandemic between us and our owners and franchisees has never been better in terms of trying to manage these dramatically lower occupancy levels. And as I said in my comments, I think there is quite a bit of the savings that we put into place that is permanent, that will mean kind of significantly lower costs and significantly better productivity as we move forward. Now as you know, we've got the reality that for more complex hotels, it's a much higher percentage of costs that are labor-related. And we're obviously seeing a lot of pressure on that side, just like every other industry in the U.S. So there, we will continue to find ways to try to improve the margins. Rising occupancy, obviously, always ultimately helps you when you're spreading costs at a hotel. But it also means you've also got to make sure to have enough people there to deliver the service that our guests expect, and we are committed to making sure that we deliver those experiences that bring them back to our hotels over and over. And then the last thing I'll mention is just the great part about our business is we do reprice our rooms every day. And so when you think about what's been going on with our ADR, that has been a fabulous mitigation of what's been going on the labor cost side. So we will certainly continue to find new ways, but we are determined to make sure to deliver what our customers want.
Operator, Operator
We will take our next question from Michael Bellisario with Baird.
Michael Bellisario, Analyst
Just a question for you on loyalty and your top customers. Maybe help us understand how are they spending today versus pre-pandemic levels? And then when you think about the lifetime value of that, say, top-tier platinum customer, has your view changed on who that customer is, who that platinum customer is on a go-forward basis?
Leeny Oberg, CFO
Michael, sorry. You're breaking up. Can you start the question from the beginning?
Michael Bellisario, Analyst
Can you hear me better?
Leeny Oberg, CFO
Yes.
Michael Bellisario, Analyst
Just a question for you on loyalty and your top-tier customers. How are they spending today? And where are they spending differently versus pre-pandemic levels? And then when you think about lifetime value, say, of a top-tier platinum customer, has your view changed on who that customer is going forward, given the changes in travel patterns today?
Tony Capuano, CEO
I apologize, Mike. You were cutting out a bit. I believe I caught your question. Our penetration rates, particularly in the U.S., are likely the best indicator. We reached 57% penetration in the fourth quarter, which is nearly where we stood before the pandemic. We are quite optimistic about these penetration rates, the passion and enthusiasm within the Bonvoy base, and as I mentioned in my prepared comments, the ongoing growth of the program. One of the most exciting aspects for us is that as our credit card platforms expand, they provide us with a unique chance to stay connected with our most valuable Bonvoy customers, even when they paused their travel volumes before the pandemic began.
Leeny Oberg, CFO
And just to add fuel to Tony's fire, I'll mention 2 things. Number one, we have started doing credit card programs in other countries and found them to be really well received by the customers and seeing nice card acquisitions on that front. And then also just when you think about the growth in our digital share, and that is very much tied to the Bonvoy platform. And when you look at our digital share compared to '19, the share of reservations has gone up almost 500 basis points on our digital channel. And overall, we've grown up 300 basis points in our direct channels up to 76%. So I think that all ties very well into the power of Bonvoy.
Operator, Operator
And we will take our next question from Richard Clarke with Bernstein.
Richard Clarke, Analyst
Just first, just following up from some of the questions you've had already on inflation and particularly with regard to your incentive fees and the owned and leased portfolio profitability. If we get a full RevPAR recovery kind of into 2023, is that enough to get the incentive fees back to pre-pandemic levels? Or what's the dynamics that will kind of keep us away from that? And then a similar question on the owned and leased profitability. Is inflation going to hold back the recovery there?
Leeny Oberg, CFO
You are correct that the nominal level of RevPAR differs from the real level. Currently, the real recovery of RevPAR is approximately three points lower than the nominal due to inflation in 2021. One positive aspect has been the impressive work of our operating teams. Previously, we believed that breakeven levels for a full-service hotel required 40% to 50% occupancy. However, their effective management has allowed hotels to achieve neutral profitability at significantly lower breakeven occupancies. This will help mitigate the impact of inflation. Regarding incentive fees, the situation is quite dependent on various factors. In 2019, nearly 72% of our hotels were earning incentive management fees, but now we are slightly below 50%. The most noticeable difference is in the U.S., where owners' priorities mean we need to achieve actual real profit levels before receiving our incentive fees. In contrast, internationally, where there are more hotels without the owner's priorities, a higher percentage are earning incentive management fees. There's great potential in international hotels that have been restricted from welcoming visitors, particularly those reliant on international travelers, like in Asia Pacific outside of China. In the U.S., as I've mentioned, the incentive management fees from our resorts have been excellent and in many cases have already surpassed 2019 levels. For major U.S. cities, which rely more on international travel, this provides a lot of confidence for recovery. However, predicting whether this will happen in 2023 may be too optimistic, though we are definitely moving in the right direction.
Richard Clarke, Analyst
And just as a follow-up. Last year, you talked about trying to cut some of the kind of cost reimbursement fees for the underlying hotels to help out their profitability. In Q4, it looks like that cost reimbursement revenue is about 85% of 2019 levels. So it's recovered basically in line with your other fees. So just where are we in that process of sort of lowering that sort of reimbursement contribution from the owners?
Leeny Oberg, CFO
So a couple things. One is a reminder that 85% of our reimbursed costs are based on the top line revenues of the hotels. So an overwhelming part, like, for example, our sales and marketing fees are contractually set at a percentage of revenues of the hotels. So they are, by nature, going to move up and down. The other thing is to recognize that we worked very hard on certain parts of the fees where we were able to impact kind of the fixed and floating component. And so that we do believe that there is more efficiency as we grow larger in terms of what we can do for the hotels. And as an example, when you're a digital share, your direct share of reservations is growing as well as it is. It's just a reminder that those are some of the lowest cost reservations for a hotel as possible. But we did lower our fixed costs by roughly 30% for the system. But as I said before, overwhelmingly, the charges are based on a function of hotel revenues.
Operator, Operator
We will take our next question from Vince Ciepiel with Cleveland Research.
Vince Ciepiel, Analyst
You mentioned delivering the service that guests expect, and when I hear that, I think about food and beverage and housekeeping. I'm curious about what percentage of the way back you are regarding your breakfast buffets and select service hotels, your three-meal-a-day restaurants, and more full-service options. Can you also remind us what percentage of guests are on the opt-in model, and what percentage of guests are opting in for housekeeping?
Tony Capuano, CEO
Sure. So on housekeeping, we continue to evolve our approach. Today, in our select tier hotels, it is an opt-in approach. Daily housekeeping is available at the discretion of the guest. And at luxury, we are doing daily housekeeping. We're testing those options today. We're using those learnings to try and strike the right balance between guest expectations and economic realities for the owners. And as we work through those tests, we intend to launch a definitive approach sometime here early in 2022.
Vince Ciepiel, Analyst
Great. And how about on the food and beverage side? What percentage of the way back are you there?
Tony Capuano, CEO
Yes, we're making progress. We are mostly back to our previous state in the markets that have recovered quickly. If you have the chance to stay at our hotels, especially in resort areas, you'll notice that our food and beverage services are very much like what you experienced before the pandemic. For instance, during our recent Board meeting in South Florida, most of us opted for in-room dining because the restaurants were fully booked and couldn't accommodate us until after 10:45 p.m. In regions where demand recovery is slower, we are gradually reintroducing our food and beverage services, aligning the pace of our offerings with the demand recovery.
Vince Ciepiel, Analyst
That makes a lot of sense. My second question is on distribution. With special corporate being down, I imagine OTA contribution is up. But can you just remind us, I think pre-pandemic, I think you were in the low double digits for OTA contribution. What did that end up being in 2021? And then I think your digital direct channel was growing pretty fast, maybe even faster than OTA. How has that evolved? And where do you see that going in 2022?
Leeny Oberg, CFO
Sure. I want to highlight a couple of points. In 2019, special corporate contributions were typically handled through what we refer to as GDS, which has seen the largest decline. Currently, their percentage share is down by 600 basis points compared to 2019. Meanwhile, OTAs have increased their share by 200 basis points due to the surge in leisure business, reaching 14% in 2021. In contrast, our direct share of total room nights has risen to 76.3%, an increase of 340 basis points. Our direct channels have shown significant growth compared to OTAs. While OTAs have gained from the leisure segment, GDS, which is primarily related to business travel, has lost the most market share. It's also noteworthy that the growth in our direct share corresponds with a shift from voice to digital bookings. This trend aligns with our Bonvoy technology and the number of app downloads, indicating that our guests are increasingly comfortable using digital channels, which are highly efficient in both cost and customer value delivery.
Operator, Operator
And we will take our next question from Rich Hightower with Evercore.
Rich Hightower, Analyst
Just on the development pipeline and as I think about supply chain delays and the like, maybe help us understand, if we go back to the beginning of 2021, what your outlook was for the room’s growth at that time? How many of those projects got delayed versus your original outlook and maybe pushed into 2022? And then likewise, what sort of cushion do you get to the 2022 forecast as you think about ongoing delays and so forth?
Tony Capuano, CEO
Yes, I’ll give it a shot, and Leeny might add some thoughts. I view the pipeline somewhat like a conveyor belt. We have several projects, and one reason our openings were robust in the fourth quarter is that some projects we initially expected to open in Q1 2022 actually completed ahead of schedule and opened in December. We do encounter some delays on the back end. However, the most significant figures to consider are the rate at which construction begins and the extension we’re seeing in the construction cycle. Leeny mentioned that the average for our select-service hotels in the U.S. is about 24 months from start to finish. There’s not much we can do to speed this up. In fact, we face some challenges with the supply chain. Nevertheless, that 24 months seems to be the norm, which is why we are concentrating on conversions this year.
Leeny Oberg, CFO
And as Tony said, for what it's worth, when we build our budget, we do go project by project, country by country. So it is a quite detailed estimate. But as Tony pointed out, there are some that finished a little bit earlier, and some that end up being a little bit later. And we do our best every year at estimating. But the other part that I'll point out when we talked about where we were at the beginning of '21 is that we actually expect the deletions to be higher. And I think you all will remember that my comments then reflected probably about 50 basis points of an expected COVID-related hedge that it was hard to predict at that point where exactly all these hotels would go as we move through the pandemic. And I think happily with a lot of work on everybody's part, including the owners in revenue management and on the cost side, and the banks have been very good partners to work with as well. We have seen deletions come in better than we expected. And that has also ended up helping the net rooms growth number even compared to where we were 4 months ago.
Rich Hightower, Analyst
That's really helpful color. And if I could just add one follow-up. Maybe back to, I think, one of your responses on the leisure side and thinking about demand and pricing power in that segment. If we look at some of the non-traditional short-term rental companies, for instance, Airbnb and so forth, everybody sort of talks about their leisure customer the same way. And a lot of this is the business has improved meaningfully with work from home and a hybrid workforce and all that kind of stuff. I mean, would you say that there's more or less or about the same customer overlap as you think about your core leisure customer versus what we see in the short-term rental space? And how has that changed over the course of COVID?
Tony Capuano, CEO
Well, I think if you look particularly at the performance we've seen in our luxury tier resorts and our full-service resorts, one of the things we hear from our customers pretty clearly is their desire for a full complement of services and amenities. And as we've said in response to versions of this question in the past, that's probably the most significant differentiator between our product offering and some of the short-term rental offerings that are out there.
Leeny Oberg, CFO
The other thing I'll mention is clearly in the beginning of the pandemic when you were kind of imagining searches for people wanting to get away, there was a larger proportion of searches that were for places that are out of the way, truly places where people felt comfortable going where they could be away from others. And we have seen that gap narrow in terms of the searches for kind of classic room-sharing type places as well as hotels. We've seen that gap narrow, which I think makes sense given the progress as we move through the pandemic.
Operator, Operator
And we do have another question, and that will be from Stephen Grambling with Goldman Sachs.
Stephen Grambling, Analyst
On the owned and leased segment, can you give us a little bit more color on some of the puts and takes that could impact that segment RevPAR and margin performance versus the system-wide trends in 2022? And maybe even tie in how you're thinking about any asset sales there, if possible, given how strong the transaction market has been?
Leeny Oberg, CFO
Sure. I think on the asset sales, we will obviously continue to be opportunistic, Stephen. And it really depends on where the hotel is both in terms of its stage of CapEx. As you know, in a number of hotels that we own, we really want to get them to be great representations of our brands. And in cases where the markets have really not recovered, we are not going to feel compelled to rush that sale. So in that regard, it will really vary. We've also got JV interest as you know. For example, our St. Regis Punta Mita JV was sold during 2021. That market was doing great. The hotel was in great shape, and we were able to get a really good sales price on that asset. So I think it really does depend a lot on the situation. Remember that owned and leased also has termination fees, and that also I would expect not to be growing, but also to continue to provide somewhere in the ballpark of $40 million in fees a year. And then on the owned leased profit, I think you will continue to see progress. But do remember that we have a chunk of leased hotels. And there, you obviously need to get to where you're covering your fixed rent payment to the extent it is fixed rent, which will mean it behaves a little bit more like a U.S. owner's priority where you need to get to a floor before you're actually getting any profit. So I think we look forward to seeing the numbers get better and better. But in terms of getting back to the full levels of 2019, I think it will take a little bit of time.
Stephen Grambling, Analyst
Makes sense. And perhaps as a big picture follow-up, Tony, now that we're coming up on the roughly 1-year mark that you've taken over as CEO, I'm curious how you could characterize where your thought priorities are now position the company, not only for this unique recovery, but longer term, and how they may have shifted over the course of the year, particularly given you've met with folks in the field more recently?
Tony Capuano, CEO
Sure. Thanks. I don't think they've shifted meaningfully. I mean, I think we are encouraged, as you've heard this morning, about the pace of demand recovery. But the priorities really continue to revolve around our key constituents, leading with our associates, certainly our guests and as we've discussed at length this morning, the economic health of our owners. Okay. Well, thank you all for your questions this morning, for your continued interest in Marriott. And with increasing frequency, we look forward to seeing you on the road. Thanks, and have a great day.
Operator, Operator
This concludes today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.