Marriott Stock

All right, everybody. Welcome back. We will keep going this morning with -- it's my pleasure to welcome Tony Capuano, President and Chief Executive Officer of Marriott International. Tony?

Thanks for having me. Good to be back.

Thanks for doing this. We've actually got to spend some time together this year, right?

Yes.

I participated in a couple of Marriott events. I was at your Global Growth Summit in Las Vegas. So that's -- so last time we did this together on stage. It was at the O theater at the Bellagio.

That's right.

Which no one tells you is -- on top of water.

Water. That's right.

So how many hours were you up there in a...

A lot. Quite a bit, but amazing venue.

And the key, though, is that they can't drop the temperature a certain degree. Right, because the performers can recognize like a 1 degree temperature difference in the water. So it's got to always be same temperature so not always designed for speakers.

No. But beautiful venue and the team loved having you. So thanks for attending.

It was a great experience.

So Tony, speaking of great experiences, it's been a heck of a ride, but a year ago, we were sitting here questioning all the things about the hotel industry and why demand wasn't doing what it was supposed to be doing. And here we are a year later, and it's probably one of the best demand environments we've been in, in close to a decade.

So let's just start there. [ 10,000-foot ] level view, talk to us for a moment about what you're seeing on the demand side and how it feels out there.

Yes. It's really interesting to me. We've -- every time we're together, we talk about all the way back to the early days of the recovery from the pandemic. You'll recall, I hated this phrase revenge travel. And the reason I hated it is that, that phrase suggested it was just going to be this little sort of fleeting moment in time. And I think I and many in the industry had a point of view that there was a more foundational shift. And that has proven to be the case. And we see it in the credit card spending data. We see it in the performance of our business that consumers are across demographics, prioritizing travel and experiences over consumption of hard goods.

And we're many years removed from that recovery, and we're still seeing it across every age group, and that reveals itself in the business. In Q2, we were at 3.4% global RevPAR growth ahead of our expectations. And you look at the July numbers that I was just going through, we see a continuation. We saw 7% RevPAR growth in July. We saw 8% RevPAR growth in the U.S. and Canada.

And one of the things that's really encouraging to me, even if you back out the impact in U.S. and Canada of this extraordinary FIFA World Cup, we were still up 5% in July. And then you even go to what has been for the last quarter or 2, the most challenging geography, which is the Middle East. You might recall in Q2, we were down 43%, I think, in RevPAR. We were down just 12% in July, again, ahead of expectations.

And then maybe the last comment I would make about demand broadly, the most encouraging thing to me it's across geographies, it's across chain scales and it's across demand segments. Typically, I would sit with you and I would say this geography is weak or the strength we're seeing is principally in the luxury tier, or it's principally in leisure but we're seeing really solid sustained strength across each of those 3 sets of categories.

So as we think about that dynamic, in particular, it sounds like as we get into the setup for the fall, I think there's some questions we're starting to receive about how much of this is just the easy compares for last year. There were a lot of things going on, right? It's hard to rewind, but we go back through. It was the trade war and the tariffs that kind of started a year ago, a big hit to government travel, a lot of corporate uncertainty.

Once we start to lap some of these things, and I think the last thing will be the government shutdown kind of around October, how does it feel as we start to kind of look out there? What do you think that baseline level of maybe demand feels like as we start to look out a little further?

Yes. And again, we've talked in the past about the fact that particularly the transient booking window is short just a couple of weeks. So I'll caveat my perspective with that fact because things can shift but it does not feel simply like the benefit of some easy comparisons.

When you look at the numbers we saw in July, when you look at the strength across segments, when you look at the strength across chain scales, to me, that tells me it's a bit more sustained, and that's really driving our enthusiasm about demand patterns going into the back half of the year. We are clearly seeing a lot of the RevPAR growth come out of ADR, which is terrific for our owner community because so much of that drives margin and returns.

But we're seeing occupancy growth as well. And so you're seeing both components of RevPAR in a really compelling trajectory.

Let's hit on the consumer for a certain point, we'll go through a few of those different areas. Last year, I mean, you probably couldn't escape a conversation where we weren't talking about the K shaped economy, right? We were seeing this continued strength, the high-end consumer was traveling, but there were -- there was that softness in those lower end price points. It seems like -- and I'm a big data hawk as a lot of people are in here, we're starting to see some signs that post-World Cup, those 2 pieces are starting to narrow a little bit.

How would you frame that dynamic? And also just talk about what you did see over the summer [indiscernible] because you do well in parts of that K just given sort of the natural brand mix that you have?

It's part of the story that gives me so much enthusiasm about what the back half of the year sets up like, it's not just even in the few weeks since the World Cup. We were talking about it in Q1 and in Q2. And again, while I don't want to pick a singular month as defining a trend, I thought this was really interesting.

If you look at our business in July on a global basis, luxury, which, in many ways, has been a bright shining star, RevPAR was up 5%. If you look at premium and select brand, RevPAR was up 4%. And if you look at mid-scale, we're still in some ways in our infancy, although between open and pipeline, we've got about 500 mid-scale hotels now. They were up 5%. And so this notion that the RevPAR trends are almost singularly led by luxury is just inaccurate. And that's why I say, looking at the strength kind of uniformly across chain scales is a really encouraging set of data.

We started to talk to people kind of during Q2 and after the other area that was really resilient felt like just business travel, right? That was a segment that, again, I think last year, you might have seen that, that freeze or that pause from people after some of the uncertainty kind of leading out of April.

And that made this change in decision-making patterns, but it feels like that's come roaring back. You have that unique vantage point, you're talking to corporate customers you're talking to large industry leaders, how are those conversations going right now? What are they saying out there?

So we continue to see good strength and growth in business transient tends to be more rate driven than occupancy driven. But again, I think when you think about some of the areas that our owner community is navigating, that strength in ADR is a real positive for them.

I think the big multinationals are being a bit more targeted. They are to be sure traveling, but they're really looking at travel that they think is high impact. we're seeing much stronger growth trends in the small and medium-sized component of our business transient world. And then obviously, we are back to a world where we're seeing positive growth in government demand as well.

And then group is sort of a key area for Marriott. You've got a lot of large-format hotels upper upscale being a lot of where the DNA traces back to. And so that also gives us little bit of that lead in terms of what we're seeing out there. How does that feel? That segment has benefited a lot from low supply growth for a long period of time, especially in the U.S. But where do we sit right now? And are people still comfortable booking for those kind of larger pattern groups?

Yes. It's a critically important segment for us, as you point out, particularly here in the U.S. by a pretty wide margin. We've got the largest convention and group hotel network. A lot of the big boxes, whether that's the partnership we have with Ryman on Gaylord the MGM partnership, which gives us some big box capacity as well.

We're seeing -- you have more visibility than we have in transient because the booking window is longer. But even there, and one of the things that's so interesting to me, Jackie and I were talking this morning, and we were saying, maybe we shouldn't guide as much as we do on group.

When you look over the last number of years, by the midpoint of the year, only 40%, 45% of group room nights are on the books for the following year, right? And so we still have months of run time to tell the story of what group is going to look like in '27. We talked in Q2 about group demand for '27 being flattish. In July, we saw a turn upwards in a really encouraging way. But I think when you and I are talking towards the end of the year, we'll have much better visibility into '27, but we're feeling pretty good about it. I was in Indianapolis maybe 2 months ago, we hold an event called the Exchange.

And we bring in about 600 corporate and association meeting planners. And this is not a statistical view. This is an anecdotal view. But they all were talking about booking patterns that would suggest more group meeting bookings in '27, '28 and '29, than they saw in '25 and '26.

I want to switch gears for a second on demand topic, but this environment has been one where we can also start to see a positive dynamic for your owners, right? So finally, some RevPAR growth and more importantly, RevPAR growth that outpaces unit level or line level inflation, which owner has been dealing with for years. I'd like to kind of just start maybe with the high level of where do you feel like that owner health dynamic sits? And kind of what's some of the message back from franchisees? Because it's been -- I mean, I think in all fairness, it's been a tough go, right, 8, 9 years, first, very low single-digit RevPAR growth, 2017 and 2019, then COVID where it was just a game of survival right? And then you got your revenge travel for a period, but then we have the inflation on the back end. So it's been a tough go. So just how are those conversations going? Let's start kind of at the highest level and then we'll dig a layer deeper on some Marriott level initiatives.

So to state the obvious, if you have an asset-light model, the relative health of your owner and franchisee community is critical. Our success and their success inexorably linked. And so every day, we are engaged both internally and with the owner community talking about what we can do to drive enhanced top line performance, what we can do to drive margins.

We're looking at every variable in the equation that drives hotel level margins and returns. That served us well for decades, and that will always be the case. There is a broad recognition that our business models are fundamentally different, right? But 1 of the most powerful levers of our model is net unit growth. That's on the shoulders and balance sheets of our partners. And so we've got to be driving performance that encourages them to continue to invest in our portfolio of brands.

I would say they are encouraged. I mean we all know in any business, you can drive bottom line 2 ways, right? You can cut costs or you can drive revenue. To your point, I think there is a level of encouragement about what we're seeing in RevPAR trends across sectors, across chain scales. But they expect us appropriately to leverage our industry-leading scale and attack every one of those variables in the equation. And we do that every day in a proactive way.

Most recently, there's been a fair amount of coverage about some reactive work we're doing. I said it on the Q2 call. I'm appreciative that the owners care enough about their relationship with Marriott and the recognition of how linked our performance is, our respective performance to engage us the way they have. And I think we're making good progress. But that's going to happen every day for as long as Marriott's in business and has an asset-light model.

So you did outline on the second quarter some new initiatives, though for the owners. So one of the biggest costs when we think about the unit economics that they bear is the overall full franchise fee plus the programs and service some of the common charges that are necessary that Marriott provides for those owners on their behalf, right?

These are going to be marketing, loyalty reservations of some of the big categories. So what are you doing just maybe lay it out for us a little bit more specifically, what are some of those initiatives that you've now started to lay out? And what kind of -- what are the owners starting to react to what's been the initial response?

I think there is a broad recognition both in the owner camp and the brand camp despite looking really hard, there's not a single silver bullet, right? And so the way I've characterized it in the discussions with many of our owners and franchisees, we've got to find lots of nickels and dimes. But if you find enough of them and stack them up, we ought to be able to drive pretty significant improved performance.

So what are we doing? We are leveraging some of the efficiencies we created a year ago when we went through our exercise that resulted us in reducing almost $100 million in net admin. Last year, we reduced the loyalty charge-out rate for the Bonvoy program by 5%. We're doing a lot of work in the procurement space to, again, leverage our economies of scale and pass on those efficiencies to our owners. We're looking at emerging technologies like AI and the benefits we think will emerge from our technology transformation and how those can drive margins.

Just last month, we announced an intent to recommend incentive that can drive about a 50 basis point reduction in affiliation costs. So we're looking at, again, every variable and saying where are there opportunities to try and drive performance. And I want to go back to the technology transformation for a minute. I think rightly, when people hear about the scope of this technology transformation, they say there should be real operating margin efficiencies that will emerge.

And we agree. But I think what gets talked about less is the revenue enhancement opportunities. And that's 1 of the pieces that we're all really excited about, both on the Marriott side and on the owner side. If you think about the suite of products and services that I would like to sell you in the booking path the old central reservation system was suboptimal in terms of its efficiency.

The new system will allow you to book food and beverage reservations. Spa appointments, golf times, all of these sort of things during the booking path, which we think represents really significant revenue upside. And even in the rooms business, I was just in London, I was touring one of our Autograph hotels, beautiful old historic building, but it probably had 100 different room types and the ability to merchandise those 100 different room types and price those commensurate with the unique attributes of those rooms, I think represents real revenue upside as well.

If we look at analogies out there strategically, and it's going to get to the tech transformation let's go ahead and hit on it now. On -- the airline industry has done a lot, right, in terms of resegmenting the cabin figuring out different ways. I think cruise line industry as well, right?

They find different ways I've got a view. I don't have a view. If we think about that, can you just -- I think this could be actually quite a big deal for Marriott. So why like -- why was this not available or customizable before? Just what is that feature set? Because I think these are -- you think about this ancillary business and this ability to upsell even just to enable if it's not a hard sell, the ability to enable that capability to your associates working at the front desk. It seems like it's a big opportunity.

Yes, no question. And it is a massive undertaking, right? Because redoing our central reservation system for a portfolio of 10,000 hotels would be a significant undertaking. The fact that simultaneously, we're changing out the PMS system and the loyalty platform. It was really making sure we had done the research, we had found the right partners and we have thought about the right sequencing so that it would be incrementally positive rather than terribly disruptive to the business is why you might look from the outside and say, "Oh, you should have done this 5 years ago." we were working on it 5 years ago, but in a way to ensure that we did it as efficiently and as impactfully as possible.

And just maybe to wrap up on the owner and franchisee side. One thing that did come out a little bit was that some of the costs of what you're going to be returning to owners are actually going to be borne by Marriott as opposed to just efficiencies. It sounds like both variables are in play. We're going to get more efficient. They're going to be doing things there, but we're also going to bear some of these costs directly. And it wasn't a huge number, but it was a bit of a commitment there. Why was that the right approach for Marriott?

Yes. And for those of you that didn't read it, on the list of things I mentioned that we're working on to try and drive owner performance, the one that we pointed out that we'll be paying for on our own P&L was this ITR incentive. And...

Intend to recommend.

Intent to recommend incentives. That's right. And we looked at it and we said, what an ideal place for us to invest in the business. And the reason I say that, we always talk about the constituents that we serve every day. It is a clear and powerful message to the owner and franchisee community about our commitment to them and where they are in the recovery cycle.

And then when you think about our associates and guests, they want to be in the best hotels in every market where we operate. What a terrific way to incent and provide benefits to that guest community because our owners are saying, okay, maybe we've been holding off on a renovation or a reconcepting of a food and beverage outlet. Here's an opportunity to make that investment. And the benefit of that will be to the guests. The associates will be energized in it. And we think and ultimately, what we're doing is we're investing in the equity in our portfolio of brands. That was the rationale.

And strategically, you weren't even the first kind of company where this debate or discussion of owner health kind of came up this quarter. One of the concerns we feel, Tony, is this -- maybe just at the margin, a question mark as to whether or not we might be seeing a new level or a new breed of competition, right? This is a new dimension from which -- and yes, I don't think it's as acute as, hey, we're changing the fee algo that the business model but it is the broader fee structure of what owners are bearing and the balance. So how do we get some comfort that this isn't the beginning of sort of a new dimension of kind of competition here? How far are we willing to...

It's the right question to ask. Maybe I'd answer it 2 ways. Number one, the full year guidance we provided is reflective of our expectations of the efforts that we're making around owner health. The second, to me, more powerful illustration. We talked on the Q2 call. This is our 99th year in business, 69th year in the lodging business. In the first half of 2026, we signed more management and franchise agreements than in the first half of any of the prior 68 years.

And so in so many ways, we can try and cobble together unrelated data points and try to weave them into some sort of narrative. To me, the owner and franchise community votes with its wallet. And there is no more powerful endorsement of their belief in the strength of our revenue engines, the reach of our loyalty platform and the equity in our brand portfolio than them voting with their wallets and generating record levels of deal volume.

I mean sort of tubed me up perfectly for the segue of development, which is, I think, is a topic near and dear to your heart. So let's talk about it. I mean, first of all, the new development at the second quarter was there was a little bit of like a wiggle in some of the pipeline. I think you framed it as timing related, just unpack what's happening because there's a lot going on and...

There is a lot. The -- so -- there is a lot in there. So I'm going to try to stack it up here. I think in the U.S. and Canada market and in at least Western Europe, we still do have this triumvirate of challenges around development costs and regulatory environment and the lending environment, which makes some of the new build a little more difficult than we've seen in prior cycles.

With that said, conversions continue to be a critically important part of Marriott's growth story. In the quarter, we saw something like 30% to 40% of both openings and signings in conversions. And I think that will continue to be an important part of the growth story that we tell.

You've got the conflict in the Middle East and while the Middle East represents only about 3% of our global fees, it's 6% of our pipeline. Now the good news, from my perspective, we've not seen any sort of measurable project cancellations in the Middle East, but whether it be because of the interruptions in supply chain or interruptions and capital flows, we have seen some project delays, which is why we guided to the lower end of our full year guidance on net unit growth.

The only other thing I would say to you and I've said this in the past, sometimes, I think we collectively do ourselves a bit of a disservice picking 1 specific moment in time to measure the trajectory we have in growth. And I've talked to you in the past about the way we look at multi-year CAGRs. If you look at our NUG CAGR since the end of '23, we're at 5.2%, which dovetails very nicely with the long-term guidance, we've given about our confidence in our ability to deliver mid-single-digit NUG into the foreseeable future.

We've talked about this in the past, but sort of this elevated level of conversion activity that is in the industry, you obviously have soft brands and things that can really lean into this opportunity. Is there a way you can help frame what this looks like on sort of a more medium term basis, because I think it's hard for investors to fully appreciate what -- I think when it's new build -- it's in pipeline. I see it for years before it opens. There's a contract that's signed. So -- and there's a lot of certainty to it. I mean, over 90% of what's signed ultimately gets built. Very different conversions. It can be in and out quickly...

Sometimes they never hit the pipeline.

Could be multi-brand. So help us with that kind of that visibility equation. How are we leaning in? And where are you seeing that growth headed?

Well, I appreciate the question. If you would ask me to write one question for myself, this probably would have been it. Because you're right, there are multiple layers to it. The first thing I would say to you, I spent a big portion of my career in development. And early -- in my tenure in development, I used to look and say, really fascinating dynamic. It was almost a little bit like a seesaw.

When you were in really strong economic environment, the seesaw would tilt this way. You'd see a big uptick in new build activity and conversion activity would fall by the wayside. Then when you would start to pivot to a weaker economic environment, seesaw would invert, you'd see a slowdown in new build activity but a big uptick in conversions. Since that time, at least at Marriott, we have made a number of very deliberate steps to strengthen our competitiveness and conversions. What does that mean?

We've built a -- while we'll convert almost any brand in the portfolio, we've built, I think, a really compelling stack of conversion-friendly brands across quality tiers. From Series by Marriott and City Express all the way through our luxury brands like luxury collection.

Number two, we've been much more creative and pragmatic in how we think about conversions. That doesn't mean lowering standards. That doesn't mean taking any [ mangy ] dog that limps across the threshold, what that means is recognizing many owners maybe don't want to go naked in terms of their access to a distribution system while they're doing the renovation.

So in the right strategic circumstances, we'll look at things like white label. And what that means, an example of this would be we are converting the Pelican Hill Resort in Newport Beach, California to the first St. Regis estate, which is a spectacular asset. But it's going to undergo a $100-plus million renovation, you can book it as the Pelican Hill resort on marriott.com today. Once the renovation is done, it will be flagged to St. Regis estate, but that was an opportunity to bring it into the system, give them access to the strength of our revenue engines and then eventually flag it once the renovation is done.

So my expectation is, on a go-forward basis, even in an environment where the economy is strong and you see a big uptick in new build, you won't see that historical fade of conversion activity. You take all of the factors that I've described, combine it with the fact that we've added development resources around the world who are laser focused just on conversion volume, and it's not just single asset conversion volume, it's portfolio conversions as well. You throw all of that together, I think our future holds the promise of a strong economic environment where new builds are flowing again, but not at the expense of conversion volume.

And then 2 areas to take that down. Let's stick with conversion. I think international conversions in particular, very, very hard to pin down, right? Now we're talking about geographies where we typically haven't had as good a data or a good understanding. And maybe even one phenomenon we're starting to hear about is kind of first-generation turnover in markets like China, where all of a sudden, you might have a conversion opportunity where we've never had that before.

So where does that -- kind of where does that balance? How much does international makeup of that balance, do you think?

Yes. I think it will be an increasingly important part of the growth story outside the U.S. borders. I mean what's interesting, conversions tend to come from 2 pots, right? You've got conversion of other brands where either that brand has been terminated or a contract expires. And then you have conversions of unbranded inventory. In the U.S., it sounds surprising.

But even today, you've got approaching 30% of the inventory in the U.S. is unbranded. But when you move outside the U.S. borders, you've got 50% to 60% of the inventory out there is unbranded. And so in terms of relative fertility of the fishing hole, there is really an enormous amount of opportunity for conversion of unbranded product internationally.

And then just to wrap up on new build. You mentioned the sort of the delicate balance of all the constraints on -- we got interest rates, we've got unit level inflation. We got inflation. It's even higher on the constructions and the trades competing against lots of areas that people want to build maybe data centers these days.

So what -- just where is the appetite right now? Like what's the -- has the conversation shifted because the 1 good silver lining is all of a sudden, they might be looking at the demand curve saying, "Oh but, wait, like starting to come back, starting to feel a little bit better." And I always feel like the most optimistic people in the world have to be real estate developers. Because not only are you making the bet, but you're making the bet like 3, 4, 5 years out, staking, zoning and permitting and all these things. So a naturally optimistic group.

Yes. But I also think there's one other factor that drives the phenomenon you described and particularly in the U.S. market, we're going on a decade now of below historical average supply growth. That's one of the big drivers of the performance that we've seen. But I think increasingly, you have developers. And remember, Sharks never stops swimming or they die, right? Developers similarly have built these shops to develop, their objective is to get out there and develop when they see opportunities.

Most of them are not trying to time the market for a quarter or 2. They tend to be long-term holders of that real estate. And so they're investing in many cases, through a multi-decade lens. But I think they look at the current environment, the demand curve and these historically low levels of supply growth and you see some inventory coming out of the lodging supply being converted to housing uses, being scraped for data centers or whatever it might be. And I think they are starting to see a window of opportunity to gear back up their development engines.

And specifically in the U.S., is there a chain scale or a prototype that sticks out that's meeting that need or...

yes, I mean. It tends to be in the select and mid-scale brands. Those are more easily financed. But even in the premium and luxury and big-box convention hotel, because of the strength of our brands, because of our lender relationships, it feels like we're getting a disproportionate share of those limited construction starts as well.

Another theme here that came up on the second quarter call was you've actually raised your investment spending outlook. And a piece of that was earmarked for opportunities on the development side, whether that's equity financing, mezzanine lending or key money. Talk to us about the sort of decision to kind of raise that budget, but what competitively makes that kind of need happen today? And what are you trying to see as a result.

I say the big drivers, it is a -- we have the industry's largest luxury both portfolio and pipeline. Given the outsized fee contribution and earnings potential of those luxury hotels, that's a lead we would like to extend -- the economics of luxury hotels are such that often, they require some brand financial participation as part of the capital stack. The good news for us, I think, Shaun, we don't have to chase every deal in pursuit of scale. We are fortunate to enjoy industry-leading scale. So the same rigor that we've always used in the financial evaluation of deployment of any Marriott capital remains in place. We've got decades of empirical data that suggests if we follow those metrics, the deals where we ultimately decide to deploy Marriott capital, whether it's key money, whether it's mezz debt, whether it's guarantees. Those deals end up driving outsized fee volume. And so we'll continue to have that same discipline we've always had.

The luxury piece makes a ton of sense. We know the cost inflation. We also know the ADR inflation that has moved through with that, given the success there. And maybe we just got a commercial on a St. Regis estate component or brand. I don't know if...

[indiscernible] Extension. Yes, we talked about it. So we've converted a hotel in Kapalua in Maui to St. Regis estate, and we'll convert Pelican Hill as well.

And we have Ritz-Carlton Reserve, too. So now my list of places that I really want to go and stay out just continues to grow.

Well, just one more on the investment spending, but we know that on the quarter, you also did mention that there were some more demands, and then just maybe the competitive factoring in a little bit moving down chain scale of where those are. Is that more to jump-start new brands? Or what might be driving some of the needs a little bit lower down?

Some of it could be a little bit of high-profile urban select brand. I think for us, I mentioned in one of my earlier answers that we're still sort of in our infancy and our entry into mid-scale. And I think as that proves itself out, we may use a little bit of investment, particularly on some of the portfolios. I think about what we're doing with something like Series by Marriott. We did a big transaction in India with a group called Fern, where I think we've already converted more than 40 of their hotels. And so for some of those portfolios, we might use judiciously a little bit of Marriott capital as we prove out the thesis of some of these new mid-scale platforms.

I'm digging back into the memory banks here, Tony, but it starts to be as you do this...

The younger [indiscernible] the longer.

It starts to get interesting. And one area I found that people always discounted was Wall Street is quick to jump to the amount of money that's spent on the outgrow. We can easily calculate that. But they actually missed some recycling opportunities. Can you talk about that? You do have a few things that you've invested in over time that I think that we publicly know about, but just maybe even more philosophically, how do you see the ability to maybe get some of this capital back out over time as well.

Yes. I mean if you look at the entirety of our owned lease portfolio, it's less than 50 hotels of the 10,000 in the system. So it's a relatively modest piece. They've ended up on our balance sheet through a variety of events, whether that was the Starwood acquisition, whether that was some brand reboots that we've done, whether it was entry into a new segment.

But it's always done with an eye towards the right time recycling of that capital. So the ones that I see in the future right here in New York as we tried to send a message, both to the consumer and the owner community about the next version of the W brand. We've done a complete reinvention of the W Union Square. Here in Manhattan came out spectacular performing really well. That's an asset that we will clearly recycle.

When we entered into all-inclusive segment, we bought a portfolio called the Elegant portfolio in Barbados. I think 6 of the 8, we've completed head-to-toe renovations. We're finishing up the last 2 when those are done and have some run time with performance, I would anticipate recycling those assets as well.

I'm just having a moment, the W Union Square, I'm pretty sure they had a bar underneath called like the Underbar.

Way back when -- we came into the light. Now we have a rooftop [indiscernible].

This is all pre-camera phones. So there are probably some stories there that I prefer not to...

It was dark down there.

Yes. All right. So let's wrap up on -- we talked about tech transformation a little bit ago, but we obviously can't hold the conversation about technology and not mention AI. So a year ago was really when LLMs are coming on the scene. People are starting to download ChatGPT is exploding on the consumer use case. We now know a lot more about the technology a year in. So take us through that journey, how would you characterize the use case for AI? And where are you starting to see it in practice in the hotel industry?

Sure. So I mean, to me, the biggest impact you'll see on our industry is the distribution landscape. And so we're attacking that a few ways. We are -- whether it's with Google or OpenAI, we're trying to give them access to as rich a pool of content about our portfolio as possible so that we show up in a really both authentic but prominent way. I read reports recently from both [ Skift ] and from Lighthouse saying the Marriott portfolio is showing up in those platforms more readily available than any of our peers, which I think is a good way to start to partner with some of those big platforms.

And then I think within our 4 walls, we now have 100% availability to our 300 million members of Ask Bonvoy, which is a plain language, verbal search function or written search function within the Bonvoy app, which is off to a great start. Again, it's early, but those that are using it, we're seeing a much higher conversion rate than we have in some of [indiscernible] they so choose. We continue to experiment with OpenAI and their ads platform. So again, I think it's early, but I do think it is going to have a meaningful impact on the landscape distribution for the entirety of the industry. And we want to be at the front edge of that transformation.

There's a lot more we can talk about here, but we are running out of time. So I just want a brief commercial, but we do have plans to host Marriott Chief Revenue and Technology Officer, Drew Pinto. He's going to be here on October 2. So definitely flagged that if you're interested in this topic, we're going to go a lot deeper about everything from distribution to booking channels to that, maybe the travel funnel a little bit. So that will be a great opportunity to do that. And thanks to Jackie for helping us put that together. That's an exciting meeting for us to have.

So Tony, thank you for your time. [indiscernible].

My pleasure. Thanks for having us. I think that will be -- I brought Drew to one of these sets of investor meetings once and it was the easiest day I ever had because they only wanted to talk to Drew. And so I would encourage you to participate. He will be a terrific speaker for you.

Thank you for having me.

Good to see you.

Hello, and welcome, everyone, joining today's Marriott International Q2 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. We are standing by if you should need any assistance.

It is now my pleasure to turn the meeting over to Jackie Burka McConagha. Please go ahead.

Good morning, everyone, and welcome to Marriott's Second Quarter 2026 Earnings Call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Jen Mason, our Executive Vice President and Chief Financial Officer; and Pilar Fernandez, Senior Director 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 revenues 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.

Thanks, Jackie, and good morning, everyone. We reported a very strong second quarter this morning with RevPAR and financial results above our prior expectations. We grew net rooms by 4.5% over the 12 months ending June 30, further expanding our industry-leading global portfolio to over 1.8 million rooms across more than 10,000 properties. Second quarter global RevPAR rose 3.4%. RevPAR in the U.S. and Canada region rose 5%, the highest quarterly increase in 13 quarters, with strength in World Cup and non-World Cup markets. Excluding the World Cup, second quarter RevPAR rose 4%.

Luxury and resort hotels continued to lead in the region in the quarter with luxury RevPAR up over 9%. Importantly, strength was pervasive across chain scales with select service RevPAR increasing over 4%. With the conflict in the Middle East weighing on results, second quarter international RevPAR declined slightly year-over-year. RevPAR in EMEA declined just over 5% as solid performance in Europe was offset by a meaningful decline in the Middle East. RevPAR in Europe rose over 4% in the second quarter, driven by strength in leisure, particularly in the Mediterranean countries, including Italy, Spain and Greece. Middle East RevPAR declined 43% in the quarter, a bit better than prior expectations on better-than-expected domestic leisure demand.

Second quarter RevPAR in APEC rose over 5%. While Middle East travel corridor disruptions did weigh on select APEC markets in April, RevPAR surpassed our previous expectations in May and June, thanks to improved flight capacity as well as strong intra-regional demand. RevPAR in Greater China rose over 3%, led by strong inbound leisure demand recovery as our hotels continued to gain share in an uneven consumer spending environment.

Luxury, Hong Kong, Taiwan and Hainan remain the key drivers. RevPAR in CALA rose 3% in the second quarter, driven by strong luxury and leisure demand across the Caribbean. Looking ahead, as Jen will discuss further, with strong broad-based demand generally expected to continue, we are raising our full year 2026 guidance range to 3% to 3.5% global RevPAR growth.

Now let's turn to results by customer segment. In the second quarter, leisure RevPAR rose 5% globally and 7% in the U.S. and Canada. Group RevPAR rose 3% globally and 4% in the U.S. and Canada. Second quarter business transient RevPAR rose 2% globally and 3% in the U.S. and Canada. Within business transient in the U.S. and Canada, government RevPAR increased 5%, benefiting from easier year-over-year comparisons, while nongovernment business transient RevPAR rose 3% with mid-single-digit ADR increases offsetting slight declines in room nights.

On the development front, we experienced record global signings in the first half of the year. Our global pipeline grew nearly 7% year-over-year to a new record of approximately 629,000 rooms at the end of June. We led the industry with over 279,000 rooms under construction, including pending conversions. Conversions, including multiunit deals remain a significant driver of growth, representing 34% of signings and 40% of openings in the first half of the year.

One multiunit deal to highlight. In June, we announced a strategic agreement to introduce Series by Marriott to Greater China, with plans to add approximately 100 hotels under this collection brand with the first openings expected later this year. With our growing pipeline and strong momentum in conversions, we still expect net rooms to grow in the mid-single-digit range over the next few years.

In fact, our compound annual growth rate since the end of 2023 is 5.2%. Our full year 2026 net rooms growth is now more likely to be towards the low end of our previous 4.5% to 5% range, primarily due to construction delays in the Middle East and including our typical assumption of between 1% and 1.5% room deletions. As we grow our global portfolio, we are also intensely focused on working with our hotel owners who are foundational to our business, to help strengthen hotel level economics and drive owner returns and long-term value across the system. As part of these efforts, we've implemented productivity enhancements from our prior enterprise-wide efficiency exercise, and we continue to identify ways to enhance top line performance and improve productivity at the hotel level.

Let me outline some of the specific steps we've taken. At the beginning of the year, we lowered loyalty charge-out rates across our global system by roughly 5% to what we believe are the lowest in the industry across all chain scales. In addition, earlier this year, we enhanced owner reimbursement for Bonvoy redemption stays on high-demand nights. We have also introduced streamlined brand standards, which simplify operations and reduce costs, and we have rolled out flexible renovation scopes that focus on customer-facing elements of the hotels.

As Jen will discuss further, we are also now planning to roll out a new ITR or intent to recommend incentive in the U.S. and Canada that will provide a fee discount for top hotels that receive strong guest satisfaction scores. I am also pleased to announce that we recently executed new long-term agreements for our co-branded credit card program in the U.S. with our valued long-standing market-leading partners, JPMorgan Chase and American Express.

These agreements reflect the strength of the Marriott Bonvoy brand and the extraordinary value of our brand portfolio, the continued growth of our global lodging system and the powerful combination of scale and engagement represented by our cardholders and more than 295 million loyalty program members. We expect the new economics and cardholder benefits to drive significant value across the Marriott Bonvoy ecosystem, including to our hotel owners, cardholders and loyalty program members.

Additionally, we continue to make great progress in our multiyear technology transformation while increasingly leveraging AI across the enterprise to help deliver revenue to owners more efficiently as well as elevating the guest experience and automating workflows for associates. In June, we began our phased rollout of Ask Bonvoy, our AI-powered conversational search experience on marriott.com and the Marriott Bonvoy app, reflecting our commitment to using technology to enhance the customer experience, strengthen engagement with our members and drive greater operational efficiency. With our well-respected brands and industry-leading scale, we are also working closely with Google and other leading AI platform providers as their travel search and commerce tools evolve.

Before I end my prepared remarks, I want to thank our Marriott teams around the world. Our results today would not have been possible without their hard work and dedication.

And now I will turn the call over to Jen for more details on our financial results. Jen?

Thanks, Tony. I'll start by reviewing our strong second quarter results. Second quarter total gross fee revenues increased 13% year-over-year to $1.58 billion, reflecting higher RevPAR, rooms growth and increases in co-branded credit card fees and residential branding fees. Incentive management fees, or IMF, rose 6% to $212 million in the second quarter, led by a significant increase in the U.S. and Canada, which more than offset a meaningful decline in EMEA due to the Middle East.

Owned, leased and other revenue, net of owned, leased and other expenses totaled $49 million compared to $78 million in the second quarter of last year, primarily due to a $27 million property-related litigation accrual as well as lower termination fees. Second quarter G&A rose 5% year-over-year, primarily due to timing of compensation costs. Adjusted EBITDA increased 13% to $1.59 billion and adjusted diluted EPS rose 20% to $3.19.

Now let's talk about our outlook for the third quarter and the full year. We are raising our full year global RevPAR guidance to 3% to 3.5% growth, reflecting our second quarter global outperformance as well as stronger outlook for the second half of the year for all regions. Note that the strong World Cup performance in June and July provided a slightly larger boost to full year global RevPAR than expected at closer to 45 basis points globally, above our prior expectation of 30 to 35 basis points.

Third quarter global RevPAR is expected to increase 3.5% to 4%. In the U.S. and Canada, we expect the strong demand trends that extended into July across chain scales and customer segments to continue. Third quarter RevPAR is expected to be helped by the strong World Cup performance, while the fourth quarter could see a small negative impact from November's midterm elections.

In Greater China, full year RevPAR is expected to be up 2% to 3%. In APEC, we anticipate continued strength in the back half of the year, driven by solid domestic and international demand, especially from the U.S. CALA performance continues to be led by strong leisure demand across the Caribbean, offsetting weakness in Mexico. EMEA is expected to continue to be impacted by the conflict in the Middle East, though to a lesser extent than previously anticipated. Year-over-year RevPAR in EMEA is expected to improve in the third quarter relative to the second quarter before moderating again in the fourth quarter. In the fourth quarter, the Middle East faces difficult comparisons from the fourth quarter of 2025, where several large events drove meaningful ADR increases.

In addition, because the Middle East enters its peak tourism season in October, the region's performance will have a greater impact on EMEA's fourth quarter results than it did in the third quarter. We are also raising our full year 2026 gross fee guidance. For the full year, gross fee revenues could rise 11% to $6.03 billion to $6.06 billion. IMF are now expected to rise 3% to 5% year-over-year. The sensitivity of 1% change in full year 2026 RevPAR versus 2025, could be around $55 million to $65 million of RevPAR-related fees.

Turning to our co-branded credit card fees. The improved economics from our new U.S. agreements with JPMorgan Chase and American Express are expected to benefit the overall loyalty program. Our owners and franchisees, our cardholders and loyalty program members and our co-branded credit card fee stream. As a reminder, Marriott recognizes a portion of the global credit card funding as co-branded credit card fees in our franchise fee line, reflecting the royalty or compensation Marriott takes for licensing Marriott's intellectual property to the credit card issuers.

The expected incremental impact to our 2026 co-branded credit card fees solely from a partial year of the new terms of our cards under the Chase and Amex agreements in the U.S. is approximately $30 million. We are now expecting global credit card fees to rise in the high 30% range this year, reflecting the terms of the new deals, partially offset by lower expectations for fees in Japan due to the decline in the yen. The benefit to the loyalty program and to our fees from our new U.S. co-branded card deals is expected to build over time as new and refreshed U.S. card products with new cardholder benefits are introduced, supporting anticipated growth in new accounts and cardholder spend.

Full year residential branding fees are now expected to increase 55% to 65% due to the timing of unit sales. Timeshare fees are still expected to be relatively in line with the prior year at $110 million to $115 million. Owned, leased and other revenue, net of owned, leased and other expenses is now anticipated to total $175 million to $185 million in 2026. Full year results are expected to be impacted by the timing of renovations at certain large hotels in the portfolio, a slower expected ramp-up of Marriott Media Networks, the second quarter litigation accrual and the second quarter sale of a hotel in the U.S. that will remain in the portfolio under a new long-term management agreement.

Additionally, this updated outlook includes the impact from the ITR incentive that Tony discussed, which will be paid for by Marriott and not the system fund and will be in our owned, leased and other expenses. We view this as a reinvestment in our business that benefits our owners, enhances the experience of our guests and further strengthens Marriott's brand equity.

2026 G&A expense is still anticipated to increase just 1% to 3% compared to 2025 levels as year-over-year comparisons are expected to benefit from timing in the second half of the year, particularly in the fourth quarter. Full year adjusted EBITDA could increase between 11% and 12% to $5.97 billion to $6.03 billion. Our 2026 adjusted effective tax rate is expected to remain between 26% and 26.5%. Our underlying core tax rate for cash is anticipated to remain in the low 20% range. Strong adjusted EBITDA growth, combined with a meaningful reduction in share count leads to the expected full year adjusted diluted EPS growth between 16% and 18%.

In the third quarter, gross fees are expected to rise 10% to 11%, even with residential branding fees expected to be down 15% to 20%. Third quarter IMF are expected to rise in the high single-digit to 10% range. Adjusted EBITDA is expected to increase 7% to 9%. We now expect 2026 investment spending to be $1.25 billion to $1.35 billion, an increase versus our prior expectations with slightly higher expectations across most categories. Contract acquisition costs are now expected to be around 40% to 45% of the total spending. The second largest bucket at around 25% of the total is expected to come from continued spending on our digital tech transformation, the overwhelming portion of which is expected to be reimbursed over time as well as corporate systems. The remaining portion is spending related to renovations at owned and leased hotels as well as other investing activities.

Our capital allocation philosophy has not changed. We are committed to our investment-grade rating and investing in growth that is accretive to shareholder value. Excess capital is returned to shareholders through a combination of share repurchases and a modest cash dividend, which has risen meaningfully over time. We now expect to return over $4.5 billion to shareholders in 2026. Full year guidance details for the third quarter and the full year are in the press release.

Tony and I are now happy to take your questions. Operator?

[Operator Instructions] We'll take our first question from Shaun Kelley with Bank of America.

Tony and Jen, just wondering if we could dig in a little bit on some of the commentary around the kind of the owner reinvestment here. For Tony, if you could just talk a little bit about especially the new ITR program, sort of what kind of in your mind, are you thinking about just trying to kind of get across to owners through this? Any feedback you've had thus far? And then, Jen, if you could just elaborate a little bit on kind of the timing of how this may flow through. It sounds like maybe a partial year impact that's starting to be factored in here in the owned and leased line, but maybe help us think a little bit more holistically as we look out at our models beyond 2026.

Thanks for the question, Shaun. As I think you know, we're deeply appreciative of the engagement we've had with our owners. We have, for as long as I've been around certainly and probably decades before that, believe that our success and our owners' success is inexorably linked. Our owners are foundational to our business and the health and owner of that owner and franchisee community is of paramount importance, and it's always a big focus area for us. That long-standing recognition leads to regular constructive discussions with that community on a whole range of issues, sometimes and most of the time, proactively and sometimes reactively. But that's reflective of the way we approach the business broadly and the way we approach the partnership.

We're very focused on hotel level economics. And that really means looking at every variable in the equation and looking for opportunities both to drive improvement in top line and look at every element of expenses and see if there are opportunities to drive margins and as a result, ultimately drive returns. I think the ITR incentive that Jen talked about in her prepared remarks is just one step in that process to both look for opportunities to improve owner economics. And as Jen said, an ITR incentive, I think, benefits all the constituents we serve.

Yes. And Shaun, a bit of a follow-up on your question. We are launching the ITR incentive this week to our owners. It's up to 50 basis points of gross room revenue, fee reimbursement for achieving defined ITR thresholds. And so that will start to be baked in for the back half of the year. As a reminder, though, there's multiple things impacting our owned, leased and other revenue, as I talked about in my prepared remarks. We also have the timing of renovations at large hotels, media network, the litigation accrual and the sale of a U.S. hotel asset.

We'll move on now to Stephen Grambling with Morgan Stanley.

Maybe another follow-up just on the co-brand side. Just wondering if there's anything that investors should be thinking about in terms of how that will ramp over time? And also if there's any changes to the agreement as we think about either new cards being launched, new geographies or other factors that may be different versus prior agreements?

Yes. Great. Thank you, Stephen. The -- as Jen said, the $30 million number she referenced, that is solely from the new credit card terms for the balance of this year. The full benefit to the program is really expected to build over time as new and refreshed card products are introduced. Our experience in the past is the development and introduction of those new cards take several quarters. But I think the way you should be thinking about it is by full year 2028, the impact on Marriott's co-brand card fees from these new deals could be somewhere between $100 million and $125 million at our current royalty rate of 26%.

Yes. And I would just add a reminder that the majority of the benefits do go into our loyalty program that benefits owners and guests and our loyalty program members.

We'll move on now to Trey Bowers with Wells Fargo.

Just a bit of a modeling question for the balance of the year. As I look at the new fee revenue growth, about $60 million higher than where it was before. Just the credit card fee and the branded license fee alone kind of explain a lot of that increase, especially with a nice beat in Q2. So is this just conservatism? Or is there any kind of offsets to fees we should think about for the balance of the year?

Yes. So a few things. As a reminder on the credit card fees, we have the new credit card deal of about $30 million, but we have some FX headwinds with our Japanese card because of the decline in the yen. And -- but the rest of the RevPAR pull-through, you see that in our beat. We do expect that Q4 RevPAR is a bit lower than Q3. I would say there are two primary drivers of that. First, we still see very strong global demand around the world other than the Middle East. But U.S. and Canada does not benefit, obviously, from the World Cup in Q4. And the Middle East has a more significant impact in Q4 than it did in Q3. We are definitely seeing that when the conflict resolves, that business picks up quickly, but -- and we are seeing ramping occupancy impact.

The challenge in Q4 is that is by far the -- in the Middle East, that is the largest quarter for revenue. It's something like 35% of the Middle East full year revenue happens in Q4. And while we're expecting recovering occupancy, ADR is up against a very impactful Q4 of last year where we had multiple events that were compressing ADR.

We'll move on now to Michael Bellisario with Baird.

Just on the net rooms outlook, any initial thoughts on trends into '27? And then what's the recent feedback been from developers regarding their appetite to sign deals and put shovels in the ground now that the demand backdrop is a little bit more favorable today?

Great. Thanks for the question, Michael. The -- as we mentioned in the prepared remarks, the guide to the lower end of the range is largely driven by perhaps not terribly unanticipated project delays in the Middle East given the conflict. As we've talked about in prior calls, to me, looking at a multiyear CAGR on NUG is a little more instructive rather than a single quarter. And I'm quite encouraged by the 30-month CAGR of 5.2%, which is right in line with the broad guidance we've provided in the past about mid-single-digit growth.

And then on the second part of your question on owner sentiment, I think the best illustration of owner sentiment, not that they are immune to some of the economic factors and headwinds that are out there, but we signed more deals in the first half of 2026, than in any first half of the year ever. And so I think that is a great testament to the confidence that the owner and franchisee community has investing in our portfolio of brands long term.

We'll move on now to Dan Politzer with JPMorgan.

I wanted to touch on the investment spend. I think it ticked up a few hundred million. And I think in the prepared remarks, you mentioned the contract acquisition cost and digital tech transformation. I guess a couple of things there. Can you maybe unpack the trends that you are seeing in terms of the key money front? And then in terms of the digital tech transformation, I guess, what inning are we in? And going forward, how should we think about that net investment spend in the next couple of years?

Great. Thank you. The competitive environment gets more and more fierce. Whether we like it or not, key money seems to be the weapon of choice in many of those competitive circumstances. I think for Marriott, nearly 40% of our pipeline rooms are in the top 2 quality tiers, luxury and full service, which tend to have more key money, but in parallel, generate much higher fees and value. Maybe the one emerging trend, we are seeing some small amounts of key money being used in some of our newer mid-scale brands as we prove out the value proposition for those brands. And the momentum we're seeing is really encouraging to us.

And then maybe the only other comment I would make from a trend -- a broader trend perspective, if you compare back to 2019, of course, the proportion and the absolute money of key money is up, which you would expect given the growth of the system size, but we are using less key money per signed deal. And this is anecdotal. But when we review transactions in our development committees, it feels like we are able to negotiate a bit less key money than some of our peers are offering, which I think is reflective of the strength and performance of the brands in the portfolio.

Yes. And I'll take your next two questions. On DTT, we're making excellent progress. We're still in the early phases of deployment. We have over 2,000 select service in U.S. Canada hotels that have transitioned. And as you think about your third question in terms of what to expect for investment spending going forward, obviously, we're too early to talk about 2027, but maybe a little bit of color on each of the buckets.

On tech and DTT spend, that over time will go down, but we will continue to invest in technology given the critical importance that it has in our business. Key money, as Tony talked about, as our system rises, right, you're likely to see key money grow with that. And owned, leased and other is the next big category. We're never done with owned, leased, right? We're renovating hotels, and we have others that are there. So just big picture, that's where we are.

We'll move on now to Lizzie Dove with Goldman Sachs.

Thinking about the U.S., I'm curious kind of how you're thinking about the rest of the year in terms of group versus business and leisure. And I suppose even longer term, we heard from one of your peers some building blocks in terms of how to think about 2027 RevPAR. I appreciate it's early, but anything you'd share in terms of how you're thinking about that longer term?

Yes. So I'll start with '26, and then Tony will jump in on '27. So we continue to expect all segments to be up for the full year with leisure continuing to lead, followed by group and then BT. So think about similar trends to what we saw in Q2. Leisure has been especially strong, especially in the U.S., but across all of our regions outside of the Middle East. Full year group pace is up about 5%. That's the same as a quarter ago, but could moderate over the year given fewer in the year, for the year bookings. And then BT revenue, which was up 2% in Q2, we expect kind of similar for the rest of the year.

And then let me try to tackle '27, acknowledging it's a little early given that we're just starting work on '27 budgets and the ability to have great clarity is further compounded by the short transient booking window we see around the world. But with that said, we continue to be quite bullish on the global outlook. We could see continued strong global RevPAR growth next year. And I think the thing that's most encouraging is the broad-based strength we're seeing in both rate potential and demand. Both across chain scales and across geographies outside the Middle East. Now we will have the challenge of the comp of the World Cup next year. But I think the flip side of that coin is we could see strong year-over-year growth in EMEA as the Middle East recovers.

We'll move now to Patrick Scholes with Truist Securities.

A question, Tony, for you that I'm sure you and counsel are well prepared for. You certainly have alluded to a number of positive changes to currently and upcoming to help owners. But I'm wondering if you could give a specific official public response directly to that owner letter at this time.

Well, yes, I'm not going to give an official response. That's a matter between us and our owners. But maybe I'll reiterate what I said earlier. The success and financial strength of our owner and franchisee community is closely tied to Marriott's success. Given our asset-light model, we continue to work every day to address issues, concerns and opportunities with the broad owner and franchisee community around the world. And those discussions have gone on for decades and will continue to go on for decades.

The letter that we received, I think, is reflective of the passion and commitment that, that group of owners has to the relationship and to -- and is an acknowledgment of that linkage between our mutual success. And we have had a number of meetings already with that group, continue to have those discussions and are encouraged with the progress we're making.

We'll move on now to David Katz with Jefferies.

Along the same lines, one of the conversations we've been having, and I think to the degree that you can discuss it here is helpful are the ongoing updates and/or changes within platform fees or reimbursed elements versus what you've talked about taking on some of your own P&L, right? I assume that there's ongoing evolution in both of those. And I think, frankly, just understanding how much you're doing that passes through versus how much you're taking on. Again, if you can discuss it here, it would be, I think, helpful or instructive for everybody.

Sure, David. Thanks for the question. The -- as I've said now a couple of times, the discussions are collaborative and constructive and ongoing. In terms of potential impact to the Marriott P&L, our guidance is reflective of our expectations of the impact of those discussions on Marriott's P&L going forward.

We'll move on now to Brandt Montour with Barclays.

So I want to circle back on net rooms growth. I know that the guidance update was related to the Middle East. But just sort of as it relates to '27 and the momentum that you have in conversions, we see contract acquisition costs coming up a little bit. RevPAR in those middle chain scales where you've launched conversion brands, RevPAR has kind of flipped positively in a meaningful way. So the question is, is there any sort of countercyclicality or risk to net rooms growth as you see that segment do better on a fundamental basis and maybe those -- the brands and distribution are needed a little bit less on the margin by those hotel owners.

Yes. Brandt, I would actually respectfully say what we see and what we hear from the owner community is just the opposite. As they look at the impact of affiliation with our revenue engines and our loyalty platform and the impact that has on performance, we're actually seeing a strengthening in the interest. You look at the performance we've seen with platforms like Autograph and Tribute. I think that illustrates that the power of that affiliation continues to drive developer interest and that developer interest manifests itself in the strongest first half of the year of signings we've ever experienced.

We'll move on now to Duane Pfennigwerth with Evercore ISI.

I understand the revised credit card agreements will build out with new products and new cards. But just in trying to get to the underlying run rate, can you confirm this is 2 full quarters or 6 months of impact here in 2026? And then relatedly, have you sized full year impact from the Middle East to both EBITDA and RevPAR?

So on your first question, yes, the $30 million of incremental fees is for 2 quarters of 2026. I had mentioned before that we are seeing some headwinds from the Japanese cards because of the decline in the yen that somewhat impacts the overall credit card fees. In terms of the Middle East, we are now expecting the impact to our full year global RevPAR to be about 100 basis points. Last quarter, we said between 100 and 125 basis points. So a bit better than our last guide. And as we talked about, those hotels are predominantly managed and certainly have an impact on our IMF, but that's all reflected in our updated guidance that we provided.

We'll move next to Robin Farley with UBS.

I wanted to ask about the conversions. You mentioned that signings in the quarter were about 1/3, about 40% of openings. Should we think about conversions being a smaller or bigger percent of net unit growth when we think about next year and this year, kind of how that's trending as a percent of total?

Sure. So thank you for the question, Rob. We've talked about this a few times. Maybe I'll reiterate some comments I've made in the past. Early in my career in development, you tended to see an ebb and flow when new build ramped up, conversions receded. When you found yourself in a softer economic environment where there was less new build activity, you saw conversions ramp up. I don't personally believe that will be the trend going forward. And I don't believe that for a few reasons.

I think number one, from an approach perspective, in terms of the dedicated resources we've put in place around the world to chase both individual asset conversions and portfolio conversions in terms of the responsiveness on things like PIPs and time line to get them into the system. And when I look across the composition of the portfolio, I would submit to you, we've never had a stack of brands across quality tiers that are better suited to conversions than what we have today.

And so it's a long-winded way of saying when you throw all of that into the blender, even when we find ourselves in a market where new build activity ramps up sharply, I don't think it's binary. I don't think that will be at the expense of conversions. I think the approach and the tools that we have in place today should drive conversion volume for the foreseeable future.

We'll move now to Conor Cunningham with Melius Research.

You've covered a lot today. But I was hoping you could talk a little bit about the growth on the international pipeline. I mean I totally understand the Middle East construction issue that you're facing. But are you seeing that linger like that impact at all in Asia? And maybe you could just talk a little bit about what you're seeing specifically in Asia and China just in terms of growth.

Sure. So the answer to your first question is we really aren't. I think in terms of business conditions, as we mentioned, the first month of the quarter, we saw a bit of a ripple impact in APEC as the load factors for some of the big Middle East carriers going into markets like India and the Maldives had some impact on operating performance, but the team pivoted quickly to focus on intra-region travel, and you saw really strong May and June across APEC.

From a deal perspective, we continue to see very strong both MOU approvals and signings across both APEC and China. And I think one of the facets of our China growth that is particularly encouraging is the select brand momentum that we have. I mentioned in my prepared remarks, the launch of Series across China, which we think will generate something on the order of 100 incremental hotels starting with openings later this year. So really good news across the board in terms of development momentum in the Asia Pacific region.

We'll move now to Aryeh Klein with BMO Capital Markets.

The luxury segment has continued to outperform. Did that segment benefit more from the World Cup than select service? And what's your view on just K-shape versus C-shaped more broadly? And do you think the high-end piece of the market can sustainably outperform?

Yes. I think we saw the upside impact from World Cup across chain scales, which was really encouraging. Your opening comment is spot on. Despite rumors that eventually we're going to run out of steam in terms of luxury demand, the momentum that we continue to see and take advantage of given our industry-leading portfolio in luxury is really encouraging. To get to almost double-digit RevPAR growth in our luxury business in U.S. and Canada is a great illustration of that continued strength.

We'll move next to Smedes Rose with Citi.

I was just wondering if you could talk a little bit more about what you're seeing specifically in the group segment for 2027, if you could share revenue pace and if you're seeing just really for the U.S., any kind of change in composition between kind of larger corporates booking, larger groups or if it's more sort of smaller business enterprises or kind of anything you can share on how that's shaping up for next year?

Sure. So I'll start with '26, which we touched on briefly. It's a good group year. We have paced up 5% which is flat to a quarter ago. In the U.S. specifically, pace is up about 6% versus 5% a quarter ago. To your question on 2027, as we look out, it looks flattish, rate up and room nights down slightly. But just a reminder, right, as we sit here today, about 40% to 55% of the following year's group is usually on the books by midyear of the current year. So we still see, obviously, a lot of runway on group for 2027. And one other point I would just make is that we've seen a lot of strength in the select service space, and that definitely tends to book closer in.

We've reached our allotted time for questions. I'll now turn the call back to Tony Capuano.

Great. Well, thank you all again for your interest and your continued coverage. We appreciate all the effort and the thoughtful questions and look forward to talking to you a quarter from now. Have a great day.

Thank you. This does conclude today's program. You may now disconnect your lines. We appreciate your time and participation. Have a good day.

All right. So kicking right off with a company that needs no real introduction, which is the world's largest hotel company, Marriott International. But we're honored to have Jen Mason, newly appointed CFO, to help kick things off. I think this is your first public investor conference.

It is indeed.

So thank you for joining us. So as an intro, let's just -- maybe if you can just talk about your background at the company and how that might inform your perspective as you take on this new seat.

Great. And so happy to be here with you, Stephen. Thank you. Good morning, everyone. Yes. So I have been with Marriott for over 3 decades and worked across many different disciplines and areas within the company.

Prior to the CFO role, I was a Treasurer and Head of Risk Management and before that, a CFO of our U.S. and Canada division, our largest division. But I've also had the opportunity to work in our global technology organization and the strategy function as well as sales and marketing. So I certainly bring to the role kind of a breadth and depth of -- across the business and certainly well steeped in the culture at Marriott as well.

So given my last role as Treasurer and Risk Management and Head of our Capital Markets Strategy, I'm deeply familiar with our financial approach and discipline to how we think about capital allocation and long-term growth strategy. And so I bring that perspective into the CFO role and continue -- we will continue to focus on financial discipline, our capital allocation approach and investing in areas that deliver long-term growth and shareholder value.

That's great. The other topic [ du jour ] that I referenced is just the demand environment. So I would love to hear what you're seeing across different segments and how maybe the summer is looking as we look across different regions.

Sure. So I'll start with April. April RevPAR grew just over 1% year-over-year, and that is very much in line with where we were expecting in our Q1 earnings call.

U.S. and Canada continues to be strong. We have RevPAR up just over 4%. Luxury continues to lead the way there, but we saw strength across our chain scales. International RevPAR in April was down 6%, predominantly because of the Middle East. Our other regions were up year-over-year.

And for the Middle East in April, RevPAR was down about 60%. May, though, is not down as much, and we still feel good about our Q2 forecast of RevPAR down 50%. And there in the markets you would expect in terms of Middle East impact, it's UAE, Qatar, Saudi Arabia, where occupancies were below 50%.

Travel in Europe is holding up. We have positive year-over-year RevPAR growth in April, really driven by leisure destinations like Spain, Italy, Turkey and Greece.

If you look at summer, over Memorial Day weekend in the U.S. and Canada, our RevPAR was up nearly 3% year-over-year. Our June and July bookings in the U.S. and Canada are pacing up nicely, and that's both in World Cup markets and non-World Cup markets.

And then in Europe, bookings for the summer are pacing up slightly. Demand is relatively in line with last year, but our rate is up low single digits year-over-year. Demand from U.S. travelers into, which is the largest source market for Europe, makes up about 30% of bookings is down slightly year-over-year, but that is being offset by growth in Canada and China.

So you touched on this a little bit, but as we think about these different segments and regions, are there any that you feel more or less confident? And what do you think is the biggest swing factor as you look to the full year guide that you really have your eye on?

Yes. Great question. Certainly, based on what we've been seeing to date, we're very confident in the leisure segment. It continues to be strong. Group travel also has been healthy with group RevPAR up over 5% in the first quarter, and we continue to see great pace for the full year.

In terms of key swing factors, Middle East, obviously, given the fluidity uncertainty, the situation there and the ripple effects, we are certainly keeping an eye on that. And as you know, our outlook really assumes that, that fluidity uncertainty continues. We are expecting the impact to full year RevPAR to be about 100 to 125 basis points, mainly coming from that Middle East impact.

The U.S. and Canada market, obviously, it's our largest market and an important driver of our outlook. We are still projecting RevPAR at the high end of our global RevPAR 2% to 3% for full year. The back half of the year, we are expecting to be slightly lower growth than the first half of the year.

We'll keep an eye on the health of the consumer. You talked about this earlier about -- certainly, we've seen strength in the first half of the first part of the year, and we're keeping an eye on whether the drag-on effect of higher oil prices will start to keep in there.

Great. So maybe we can turn to development a little bit. It definitely seems like from an investor standpoint, people have shifted their focus towards fee growth and room revenue or I should say, room growth as a big component of that. So how is Marriott's pitch to developers changed as you think about both during your career and how do you think about how that might be changing or how you want to influence how that will change over the next 1 to 3 years?

Great question. Our development pitch, I'd say, is stronger than ever. We -- over the last decade, we've really built out kind of unmatched scale. We have 8 million rooms globally. We have the largest kind of loyalty platform with 283 million members.

We have very strong distribution channels. And I think what really sets us apart is we're able to leverage our economies of scale and the power of our brands and our revenue engines to drive premium top line results. And so -- and we continue to really focus on that in our value proposition. We're rolling out new technology around the world and continuing to lean into AI. And so we're super excited about the development momentum. We're still projecting 4.5% to 5% net rooms growth for the year, and we're -- we feel good about mid-single-digit range thereafter.

Maybe one follow-up on that. So RevPAR last year decelerated over the year. It sounds like this year is certainly on a better footing. Is that translating to greater confidence on behalf of developers? Or what do you see to try to assess that?

Well, certainly, better RevPAR helps in that regard. But many of our developers are looking through the cycle, right? These are long-term asset holds. And so they really want to be in great locations with great brands to drive those economics over the longer term.

So certainly, if you look globally around the world, owner sentiment is still strong in the lodging space. And despite kind of what's happening geopolitically and from an economic standpoint, you touched on this in your remarks, I think there's still travel demand holds up, and that certainly bodes well for development.

And you signed a multiyear deal with Sun Group and you continue to expand in APAC. How do you think about the long-term opportunity in some of these markets? And how does the margin profile or the contribution compared to the domestic markets?

Yes. So we certainly see long-term growth opportunity across international markets, specifically Asia Pacific and Greater China are really strong markets for us. You're really seeing rising travel demand there and the expanding of the middle class, and that really translates into support for hotel supply growth.

Our newer conversion-friendly mid-scale brands also create growth momentum for us, certainly in those markets. One -- for a bit of context, our international market share of open rooms is about 4% and our share of global new construction pipeline rooms is nearly 4x that level. So it just shows the growth in development momentum and what we're seeing. More than half of our 618,000 room pipeline is located outside the U.S. and Canada. And so we continue to see that international growth is a great momentum.

And do you do invest in developers or technology or infrastructure as part of that? Or is it just purely layering in?

We have a strong network of developers around the world already. So we're able to leverage that infrastructure, so to speak. And so we're able to grow without adding significant G&A.

Great. And then there's the Series Collection brand. Can you just remind us of the driver behind this launch and how it compares and contrast with other soft brands?

Sure. So Series, think about it as regional and local. And it really enables us to reach new customers and even existing customers when they're at different price points. And so the brands are really able to have their own identity and keep their own identity, but leverage the Marriott channels for revenue generation growth.

And Series really focuses on mid-scale to upscale and very domestic traveler based. So we're excited about that. And a bit of a difference between our other soft brands like Luxury Collection and Autograph and Tribute, they tend to play more in the upper upscale to luxury space with a bit more amenities.

I guess maybe that goes into a broader question of just how do you decide where to expand a brand or even new brands and how to think about the TAM of these different segments as well as does it create any additional complexity when you're talking to developers in terms of understanding each one?

Yes. So as you can imagine, we have a very rigorous process when we look at new brands. We're really trying to look at white space, and we listen and work with our developers very closely to see what they're seeing in the local markets. And we really -- before we move forward with any new brand launch, we make sure that there's clarity of what space it's playing in, what value proposition it drives for the consumer and making sure there's a meaningful runway for growth. But we work very closely with our developers around the world on that.

One of the other big investor questions we get is around fees per room and the trajectory of growth there. I know Tony has touted Marriott's quality of the development in the past. If you think about that 4.5% to 5% and then mid-single digits that you talked about, how should that translate to fee growth? Or maybe more broadly, how do you just characterize the quality of the pipeline versus the existing base?

Great question. So just for context, our pipeline is very well diversified across chain scales and regions and segments around the world. So at the end of Q1, about 38% of our pipeline rooms were in luxury and full service and mid-scale was just about 5% of that pipeline growth. About half of the pipeline is international markets.

So back to your question on fees per room in 2025, it grew slightly year-over-year compared to the year before. And that's despite a relatively low RevPAR environment and certainly our growth into mid-scale. And while mid-scale certainly helps drive growth, it is still a small proportion of our overall pipeline.

If you look at this year, total fees per room are growing meaningfully year-over-year, predominantly driven by credit card increase. And so I think you'll continue to see just given the breadth and growth in chain scale RevPAR across our portfolio, you'll continue to see that fees per room in that same range.

Right. And as part of the room growth that you been able to drive last year. And as you think about the guidance this year, a component of that's been conversions versus necessarily new development. It's a balancing act there. But how much of that strength in conversions is a structural change in individual segments versus a cyclical component where we should assume that if development does accelerate, maybe the conversion activity goes down. How do you think about that balancing act?

Yes. I do think conversion growth is structurally improving. And that's across the industry, certainly at Marriott as well. We continue to see a lot of momentum around conversions. We have an impressive roster of conversion-friendly brands. Our owners are seeing great benefit when they plug into our channels, both top line and bottom line. So that will continue.

You might see the mix of conversions to overall openings change a bit as new construction starts to pick up about, but the sheer number of conversion hotels, I would envision continuing to increase because of that. I mean there's still a lot of hotels, especially outside the U.S. that are unbranded, nearly half of the supply there is. So there's still a lot of opportunity.

Right. That's great. So you did talk to the co-brand credit cards is contributing to fee growth this year. I do believe that your outlook excludes any of the impact from renegotiating your card agreements. So what are the range of outcomes, timing and the durability of any uplift associated with these negations?

Yes. So we do look forward to some additional upside for our credit card deals once they're signed. These are U.S. card deals. Though the full impact of that is after the cards have been relaunched, right? And so that does take time. It's important to keep in mind, we already are the largest by far, credit card business in the lodging industry. So any incremental growth from that should really be in that context.

In terms of the durability, non-RevPAR fee growth, credit cards is the largest contributor there, but we also have a residential business as well and a few others. And so the durability of that, we still feel very good about that over time. And so we look forward to continuing to leverage our platforms to grow in that space.

What are the drivers that we should be thinking about for some of these other non-room fees that aren't co-brand credit card?

I mean the drivers, I think more broadly, look, our entire business, if you step back from it, it is driven by the macro environment and prioritization of travel. And we'll continue to look at ways to leverage our platform to deliver kind of opportunities to grow in the space kind of beyond traditional hotel fees.

And I know that with the co-brand, it was helpful during the pandemic. There's less data available back in, call it, 2008, 2009. So how do you assess the cyclicality of co-brand credit card fees across different cycles, but also some of the other fees that are in there like nonresidential -- sorry, the residential business or even timeshare?

Yes. Look, we did see during COVID and other downturns that the credit card business continues, right? And it's not quite as cyclical as the hotel seats. But look, the broader macroeconomic outlook is obviously going to impact all of this, right, as it's driven by the health of the consumer. So there's certainly an impact. It just may not be as dramatic as RevPAR would be.

Fair enough. You started off by saying that one of the things that will continue in your new role as CFO is the financial discipline.

Talk about acquisitions. How does the acquisition environment look today versus history? As we think about things like synergies, valuation, opportunity within development, maybe there's pipelines of rooms.

Look, the vast majority of our growth comes from organic, and we are constantly looking for and studying consumer behavior and expectations to make sure we are creating experiences and we are in locations and price points that they're very interested in being a part of. So our approach to growth isn't going to change, right?

Again, predominantly focused on organic. We do opportunistically look at acquisitions, but they would need to be really filling white space or a location or a region that we don't have a presence in. And of course, we put a lot of due diligence and rigor to make sure that, that would be something that's worth investing in and has a real growth trajectory.

So I guess the follow-up there is, is it then more likely that you'd be looking at more kind of small, midsized deals? Or is there still potential for larger scale consolidation? It seems like the FTC has been a little bit more lenient. I don't know if I'm supposed to say that out loud, but I'm sure our bankers are stay tuned into that panel, but what are you seeing out there?

Yes. I mean, look, again, we predominantly focus on organic growth. And we, in the past, as you know, have done small tuck-in type acquisitions that are hitting kind of a niche area that we think is worth investing in an acquisition versus growing the brand organically, and I would expect that would continue.

Great. Does AI or new technology that you're implementing influence that at all? Or is that creating greater synergies, greater outcomes?

Look, I think technology and the pace with which it is rapidly evolving impacts every aspect of our business. Certainly, as you think about acquisitions and the investments we're making in technology that enables us to get folks online faster, and that helps.

We also are constantly looking and learning from what's happening in the ecosystem and pulling in those learnings across the portfolio. And our technology transformation really helps us in these aspects of both traditional, think about your reservation platform, your PMS, but also AI investments. All of those things pulled together is something that continue to help our growth.

I'd say another part of financial discipline is around costs. You went through a major G&A cost containment exercise last year. You're still guiding to very limited G&A growth this year. What's the right way for investors to think about G&A going forward? And how much flexibility is there in this line when you think about different macro environments?

Yes. So we're always looking for ways to do things smarter, faster, more innovative, and we continue to challenge ourselves to do that. As you referenced, we did go through a pretty extensive exercise. We saw the benefit of that last year, where we really looked at efficiencies and improved productivity. And we're always looking for ways to continue to do business smarter as we grow.

So you can -- I would think about G&A is we'll continue to be very focused on maintaining that at a low level relative to our growth trajectory, which will create operating leverage.

To answer your second question on how would other environment, if we were to go into a downturn, I mean, for sure, it is not as linear, right? If RevPAR were to decline. It's not purely variable, but we do always certainly in an environment, if we were to have a recession or a downturn in RevPAR, we would look at things, projects we can stop, other things that we can do to constrain G&A in an environment like that.

At the same time, you went through that cost containment exercise, you've also been in the middle of a multiyear technology transformation that includes investing in reservations, property management, loyalty systems. What are some of the tangible KPIs that investors should expect from this transformation?

Yes. We're very excited about the transformation. As you referenced, it's pretty extensive in terms of our -- the areas that we're focused on. And so some of the things we're looking at from a KPI standpoint, think about revenue upside with the new technology we'll have in our reservation system, we'll be able to have the ability to sell things to customers like connecting rooms or easier to upgrade rooms or sell the corner room with a great view or the ocean view versus an interior view. So we'll be able to merchandise that better.

So revenue upside is one of the KPIs we're looking at, improved conversion on our marriott.com site or our apps. Are we converting folks faster because they can find what they're looking for easier. Intent to recommend scores, right? With our new property management system, we're going to free up time at the front desk for our associates to better engage with our customers, so that they can do more value-add things versus being behind the computer with 14 keystrokes trying to check somebody in.

We also will have shorter training on the desk as well. These are much more intuitive systems that when you bring somebody in and you hire them, they're going to be able to get going a lot faster. So we always think about things through the lens of our associates, our guests, our owners, and this technology transformation really drives value across all 3.

And I guess, are there milestones that we should be looking out for? What's the timing on this? Where are we in that process?

Yes. So as we talked about on our last earnings call, we're over 1,000 properties deployed, and we're going around the world on that. So our rollout continues for at least another year or so. And it takes -- right, it will take a minute to get folks up to speed and rolling on it, and then we should start to see. Yes.

Maybe going back to a bit of development, a bit of capital return or capital deployment. We're hearing more and more about the use of key money to drive growth in the industry and also to protect some brands from encroachment. How are you thinking about the use of key money? And how is that varying across the globe?

Yes. So increasingly, competitors are offering a bit more key money, as you referenced, right? It's a competitive industry. We -- our philosophy continues to be the same. We really approach the use of key money, as you can imagine, very rigorously looking at the net present value and -- both from a new unit development and any existing unit renewals or renovations. It really does vary across the globe in terms of usage of key money.

U.S. and Canada, it's much more prevalent, although we are starting to see other pockets of the world use it as well. And the deals that have key money and then drive more value than those that don't. So we still feel really good about our usage of that.

Let's turn to AI and maybe just remind us of what you're currently testing and implementing as it relates to AI with a focus perhaps on Agentic AI specifically.

We have a lot going on in AI, as I know many do. And again, we really our Agentic AI strategy through the lens of value creation to associates, guests and owners. And so we have use cases in all of those areas.

From a marriott.com and a Bonvoy app, we're launching conversational search. And so we're super excited about that, and that will help it be more native when you're searching for places to stay and things to do within our ecosystem. We also are partnering with Google and on their Google AI mode where you can actually book and that experience.

We're also working with OpenAI in their ad pilot program, and we also were launching a Marriott ChatGPT app. I think the clear thing we're doing is where this all goes is very difficult for any one of us to say today, but we want to be in the conversation. We want to influence what's happening.

We certainly see an opportunity here in distribution. And so we want to be at the forefront of that. We really feel like our brands, our experiences, our hotels around the world really create a competitive advantage and that content and that information helps create that moat to push people to book direct or even if it's not direct in a lower cost way. And so we really are leaning into this.

And our loyalty program, all these other -- this ecosystem that we've built, we feel like really helps drive that stickiness. And so that's what we're looking for. And so we're just very involved in this space to we think there's great potential.

Are there initial KPIs you can share or things that you're tracking to try to ascertain the success of some of these that are being rolled out here? It sounds like the analogy of throwing spaghetti against the wall seeing what sticks, but anything initially that is?

Yes. I would say what we're looking at is level of engagement and stickiness, right? Are customers interacting with our -- in our ecosystem and how do we keep them in there. So we're looking at things like conversion rates. We're looking at things like down the line of hotel revenue. And so there's a lot of great, I think, work going on here, and we'll continue to focus on conversions and revenue.

Is there a risk that over time, the LLMs become effectively an AI gatekeeper that could end up driving distribution costs higher? Or how do you safeguard against that? Because I know there was the stop clicking around campaign and OTAs reviewed at one point is this frenemy and that they could take control of the customer. So how do you think about safeguarding against that or the outcomes?

In terms of safeguarding, again, our strategy is to have the best brands, the best hotel experiences around the world and having that content and having that moat, let's say, the loyalty moat that creates customers that want to stay in your ecosystem is the best strategy in this type of environment.

Our -- the reason we partner with a lot of different companies is we want to influence what the future becomes in terms of those additional distribution channels potentially. But where there's more competition, it's usually you see pricing go down, right? It just big picture philosophically. And so we do see as an opportunity from a distribution cost standpoint. But again, we will always want our customers to book direct. They're going to get the best pricing. They're going to get the best experiences because we have their information to help ensure the stays and their experience is the best that it can be.

So we're playing in both fronts, right? How do we pull people in direct, but then also partner with others in this space that are innovating and moving fast on the distribution space to influence how that -- those models evolve.

And this is a little bit maybe of a definitional question, but distribution costs, would that end up flowing then to the owners and then that creates the flywheel or would that end up being in your RevPAR as well?

That would be -- so think about online travel agents today, our owners pay a fee for that. Tomorrow, if some of that business moves more to -- like a ChatGPT, Gemini, you insert name there, those distribution costs would be borne by the owner. But if you shift from an online travel agent to a ChatGPT or something like that, you could see a cost decrease. Does that make sense?

Yes.

It's not net new incremental, it could be a shift.

Yes. Makes sense. And one of the things that you've also cited on the call is this optimizing content for Gen AI. Can you just elaborate on what you mean by that? I think you talked about it a little bit with some personalization, but anything concrete in terms of optimizing content for.

Yes, it's a great question. We want to make sure as the search algorithms change to more LLM or large language models that the way people search that our content shows up as easily as it can. What do I mean by that? So when people are searching and they -- if it's a long sentence, we want to make sure we get the most common or frequently asked questions and then develop content that the AI agents can find quickly and then learn from and iterate on so that the content is most effectively used. So we're looking at how we're working on how our content is more fine-tuned to AI agent models versus the old way...

CEO for AI.

Correct. Well said, yes.

With the last few minutes here, I'm going to go through my lightning round question and ask for all the companies. You talked about this a little bit at the beginning, but you've got oil prices moving around, interest rate questions, rate volatility. How is this impacting customer behavior? And as you look out over the next 1 to 3 years, do you generally anticipate demand will be kind of consistent with what you're seeing, accelerate, decelerate?

Yes. So I'll start with current trends. And you referenced this in your opening remarks, travel continues to be prioritized by consumers as they spend. And around the world, travel demand is still very solid, apart from Middle East countries, which obviously have -- are impacted by the conflict.

We continue to guide 1.5% to 2.5% RevPAR growth for Q2 and 2% to 3% for full year in a healthy demand environment. We obviously are mindful of the headwinds, and we'll continue to keep a close eye on that, specifically higher oil prices kind of an inflation and whether that creates tailwinds in the back half of the year.

And our forecast, as we've talked about, does show a bit of deceleration in RevPAR growth in the U.S. and Canada in the back half of the year, although still very positive.

Beyond 2026, as you know, it's a lot harder to forecast with our booking window and will very much be driven by the macro environment and geopolitical risk. Although I would say longer term, and again, I've been here for 3 decades in this industry, travel is very resilient, and we've seen kind of its recovery even when there are times of shock to the system or recessions. And so longer term, I feel very good about it.

Sounds good. And then on margins, just working down the P&L, how do you think about Marriott's margins and then maybe industry-wide margins or perhaps even your franchisee margins over the next 1 to 3 years?

Yes. So I'll start with Marriott margins. As we've talked about, and we did a lot of work. We saw the benefit of that last year in terms of G&A margins, which helped create the operating leverage inherent in our business with fee growth and G&A relatively constrained. But the work that we did was not just G&A savings. It was savings across all of the system funds and programs and services.

Our hotel, our franchisees' operating margins are the top -- one of the top priorities for our executive team. We are doing a tremendous amount of work looking at every variable in operating margin for an owner. We want to drive top line. We want to ensure that there -- the costs are -- we continue to focus on and innovate with technology and find ways to optimize the margin performance at our hotels.

We lowered the Bonvoy loyalty charge-out rate last year. We've just improved the owner redemption for high demand nights. So we'll continue to -- we're rolling out a new technology. We're looking at brand standards. I mean you name it, we're looking at it and working on it.

Last one, just on artificial intelligence since we're running over a little bit, you got to pick just one thing where you see the biggest opportunity from AI tools and technology.

That's tough. I will go back to distribution because I think that's where we all spend a lot of our time. We have some great use cases with sales planning tools and marketing and all these other areas. But distribution, I think, represents a great opportunity for all of us to help redefine what that looks like, book direct as much as we can, but also is there other cost savings for owners if we can influence the distribution channels.

Awesome. Well, next up, we're going to have our macro team come up here or our economists come up here to talk about the macro. But please join me in thanking Jen Mason and the entire Marriott International team for joining us today. Thank you.

Thank you, Stephen.

Hello, and welcome, everyone, joining today's Marriott International Q1 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. We are standing by if you should need any assistance.

It is now my pleasure to turn the meeting over to Jackie McConagha, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Marriott's First Quarter 2026 Earnings Call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Jen Mason, our new Executive Vice President and Chief Financial Officer; and Pilar Fernandez, Senior Director 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.

Thanks, Jackie, and good morning, everyone. We reported excellent first quarter performance this morning with RevPAR and financial results above the top end of our guidance ranges. Development activity remained robust with record first quarter global signings and net rooms growth of 4.5% over the trailing 12 months through March. First quarter global RevPAR rose 4.2%. RevPAR in the U.S. and Canada region rose 4%. Luxury and resort hotels continued to lead in the region, though strength was broad-based across segments and chain scales. While luxury RevPAR rose nearly 7%, select service RevPAR increased 3.5%, a meaningful improvement from the fourth quarter when select service was down more than 1% year-over-year.

While the conflict in the Middle East weighed on results in March, first quarter international RevPAR increased 4.6%. First quarter RevPAR in APAC rose over 7%, driven by strong ADR growth and an increase in demand from Chinese guests. Beginning in March, Middle East travel corridor disruption started to impact select APAC markets, including India and the Maldives. In Greater China, our hotels continued to gain market share and stronger leisure demand drove first quarter RevPAR up nearly 6%. RevPAR growth was led by Hong Kong and Hainan Island, which were both up around 20% year-over-year on the back of very strong ADR growth.

RevPAR in CALA rose 2%, led by record leisure results in the Caribbean, partially offset by a decline in RevPAR at Mexican luxury resorts. First quarter RevPAR in EMEA increased over 3% with increases in Europe and Africa, partially offset by a decline in the Middle East. In March, RevPAR in the Middle East declined over 30%, while RevPAR in Europe rose 4% as the impact of the conflict in the Middle East on European markets was relatively minimal and largely contained to countries near the Middle East, such as Cyprus and Azerbaijan.

Since day 1 of the conflict, our top priority has been the safety of our associates and our guests. While we expect continued volatility and ongoing impact from the conflict, particularly at our Middle East hotels, looking ahead, as Jen will discuss further, we are raising our full year global RevPAR guidance and now expect growth of 2% to 3%.

Now let's turn to results by customer segment. In the first quarter, leisure RevPAR rose 6% globally and 5% in the U.S. and Canada. Group RevPAR rose 5%, both globally and in the U.S. and Canada. And first quarter business transient RevPAR rose 1% globally and 2% in the U.S. and Canada, with mid-single-digit declines in government room nights and slight declines in other BT room nights, partially offset by higher ADR.

We remain focused on steadily expanding our industry-leading portfolio and presence to reach new markets and new travelers worldwide. Global signings are off to an excellent start this year with first quarter deal signings up 9% year-over-year. Key recent multiunit deals signed include another agreement with Sun Group to add 10 hotels across 8 brands in Vietnam over the next few years. We also signed deals to bring our regionally rooted collection brand, Series by Marriott, to Europe, signing 6 projects in Italy and 5 in the United Kingdom. Additionally, we announced that Lefay, our first brand dedicated exclusively to luxury wellness is expected to enter our portfolio later this year.

Our global pipeline rose over 5% year-over-year to a new record of nearly 618,000 rooms at the end of the quarter, with 43% of pipeline rooms under construction, including rooms that are pending conversion. Marriott has more rooms in its pipeline and more pipeline rooms under construction than any other global lodging company.

Conversions, including multiunit deals, remain a significant driver of growth, representing over 35% of signings and over 40% of openings in the quarter. With our growing pipeline and strong momentum in conversions, we still expect net rooms growth between 4.5% and 5%, including our typical assumption of between 1% and 1.5% room deletions.

Our powerful industry-leading Marriott Bonvoy loyalty program had nearly 283 million members at the end of March. As we focus on enhancing engagement with our members, we've continued to roll out new co-branded credit cards around the world. Today, we have 37 cards in 13 countries after recently launching cards in Indonesia and Brazil. Our scale, combined with strong engagement helps drive more direct bookings, more repeat stays and value for owners across our worldwide system.

And our multiyear technology transformation is well underway. Just yesterday, we transitioned our 1,000th hotel over to our new tech ecosystem. Our new technology platforms automate multiple processes that used to be done manually and are expected to enhance owner returns while positioning our hotel associates to focus more time on quality of service to deliver on customer expectations.

We're also excited about increasingly leveraging AI across the company to assist our associates, serve our guests and drive results for our owners. Some examples are rolling out AI-powered desktop assistance at our customer engagement centers and using AI for guest pre-arrival communications. As AI platforms continue to enrich the trip planning experience, we believe our unparalleled depth of inventory and global reach are significant competitive advantages. While it is early days for travel searching and planning in AI, we believe AI presents an exciting opportunity to connect directly and in a more personalized manner with our customers, and we're optimistic about the potential for AI to help strengthen our lower-cost direct booking channels.

We continue to optimize our content for Gen AI services and are working with multiple players across the space. We're also very excited about beginning a phased rollout of robust natural language search experience on marriott.com, and our app planned by the end of the second quarter. This experience will leverage real-time inventory to respond to guest inquiries and help them explore our portfolio more easily from answering hotel-level questions to supporting multi-destination searches.

Before I end my prepared remarks, I want to express my sincere admiration and gratitude to all of our associates around the world for their hard work and dedication with a special thanks and recognition for those who have been impacted by the conflict in the Middle East.

And now I will turn the call over to Jen for more details on our financial results. Jen?

Thank you, Tony. Very happy and honored to be here with you all this morning. While I have listened to over 130 earnings calls over my 33 years with Marriott, this is, of course, my first time on the call as CFO. I will start by reviewing our strong first quarter results.

As Tony noted, global RevPAR rose 4.2%. First quarter total gross fee revenues increased 12% year-over-year to $1.43 billion, reflecting higher RevPAR, rooms growth, a 37% increase in co-branded credit card fees and an over 70% increase in residential branding fees. Incentive management fees, or IMF, rose 9% to $222 million in the first quarter, led by a 13% increase in the U.S. and Canada. Owned leased and other revenue, net of owned leased and other expenses rose 21% due to higher termination fees and strong results at the Elegant Hotels in Barbados and certain other portfolio hotels. First quarter G&A rose 5% year-over-year, primarily due to timing of compensation costs, partially offset by lower litigation expenses. Adjusted EBITDA increased 15% to $1.4 billion and adjusted diluted EPS rose 17% to $2.72.

Now let's talk about the outlook for quarter 2 and full year. For the full year, we now expect 2% to 3% global RevPAR growth. This outlook incorporates our outperformance in the first quarter as well as higher than previously anticipated RevPAR growth in the U.S. and Canada, with the strength seen across chain scales in the first quarter continuing into April. We are also raising our outlook in Greater China, where we now expect full year RevPAR growth in the low single-digit range, primarily reflecting strong first quarter performance. We expect lower than previously anticipated RevPAR growth in the near term in APAC, driven by softer long-haul demand into certain markets that rely on golf hub connectivity. Additionally, we are slightly reducing our outlook versus prior expectations in CALA for the rest of the year, primarily due to Mexico.

Turning to EMEA. We assume that air capacity and travel sentiment will continue to be impacted, particularly in the Middle East through the end of the year. As a reminder, the Middle East accounts for 3% of open rooms, 7% of pipeline rooms and for full year 2025, 3% of global gross speeds. We are lowering our RevPAR outlook in EMEA, reflecting continued year-over-year declines in our Middle East properties with the most severe decline expected to occur in the second quarter. Our guidance assumes the conflict in the Middle East could impact full year global RevPAR growth by 100 to 125 basis points.

Finally, I'll note that the World Cup is still expected to add 30 to 35 basis points to global RevPAR growth this year. We are raising our 2026 gross fee guidance to $5.93 billion to $5.99 billion, up 9% to 10% IMFs are expected to be around flat year-over-year as outperformance in the first quarter is expected to be offset by year-over-year IMF declines in the Middle East in the last 3 quarters of the year. The sensitivity of 1 percentage point in full year 2026 RevPAR versus 2025 could be around $55 million to $65 million in RevPAR-related fees.

Co-branded credit card fees are still expected to increase around 35%. As you know, this does not include any impact from new deals in the United States. Our discussions with Visa, Chase and American Express are going well, and we still expect to have new deals in place later this year. Full year residential branding fees are now expected to increase around 45% to 50%. Timeshare fees are still expected to be relatively in line with prior year at $110 million to $115 million. Owned leased and other revenue, net of owned leased and other expenses is now expected to total $215 million to $225 million. Results are expected to be impacted by renovations at certain large hotels in the portfolio, including W Barcelona and the Frankfurt Marriott as well as the expected sale later this quarter of a long-held hotel in the United States that will stay in the portfolio under a new long-term management agreement.

2026 G&A expense is anticipated to increase just 1% to 3% compared to 2025 levels as year-over-year comparisons are expected to benefit from timing later this year, particularly in the fourth quarter. Full year adjusted EBITDA could increase 9% to 11% to roughly $5.88 billion to $5.97 billion. Our 2026 adjusted effective tax rate is expected to remain between 26% and 26.5%. Our underlying core tax rate is anticipated to remain in the low 20% range. Strong adjusted EBITDA growth, together with meaningful reduction in share count is expected to result in full year adjusted diluted EPS of $11.38 to $11.63, representing growth of 14% to 16%.

In the second quarter, global RevPAR is expected to increase 1.5% to 2.5% and gross fees are expected to rise 10% to 11%. Credit card fees and residential branding fees are both expected to be up meaningfully with residential branding fees anticipated to more than double. Second quarter IMFs are expected to be down in the mid-single-digit range, driven by significant declines in the Middle East. Second quarter adjusted EBITDA is expected to increase 8% to 10%, driven by higher fees with a decline in owned leased and other net and a mid- to high single-digit increase in G&A due to timing of certain compensation expenses.

We now expect 2026 investment spending to be around $1.05 billion to $1.15 billion, an increase versus our prior expectations, primarily due to an anticipated investment in Lefay. Investment in our contracts are still expected to be around 35% to 40% of the total spending. The second largest bucket at around 30% to 35% of the total is expected to come from continuing spend in our digital tech transformation, the overwhelming portion of which is expected to be reimbursed over time as well as other corporate systems. The rest is spending related to renovations at owned leased hotels as well as other investing activities.

Our capital allocation philosophy has not changed. We are committed to our investment-grade rating and investing in growth that is accretive to shareholder value. Excess capital is returned to shareholders through a combination of share repurchases and a modest cash dividend, which has risen meaningfully over time. We now expect to return over $4.4 billion to shareholders in 2026. Full guidance details in the second quarter and for the full year are in the press release.

Tony and I are now happy to take your questions. Operator?

[Operator Instructions] We will take our first question from Shaun Kelley with Bank of America.

Welcome, Jen. Nice to hear you on here. Look forward to working with you.

Thank you, Shaun.

So Tony, batting lead off here, I think it would be really helpful to just unpack a little bit about what you're seeing on U.S. trends to date. Obviously, a big resurgence of activity. I think you called out the low end. But could you just walk us around a little bit whether it's the segment components that you talked about, what do you think is driving the growth right now in the U.S.? And what are you excited about based on what you're seeing kind of real time through April?

Thanks, Shaun. I think at a high level, obviously, really encouraged by the Q1 results globally, but in the U.S. and Canada, in particular. April, we've seen continued strength across the U.S. and Canada. And I think one of the things that's encouraging is it's really across segments, right? We talked in our prepared remarks about the continued strength in leisure. Group continues to be solid. And if you exclude government, business transient is pretty solid as well.

We're also seeing strength across sectors, which I think is quite exciting to me. We have talked for the last number of quarters about the continued strength in luxury. But over the course of a quarter to go from relative weakness in the select service tiers to about 3.5% RevPAR growth in the first quarter. I think it's a really, really encouraging sign about continued strength really across all the tiers where we operate.

And then lastly, I would say you heard Jen's comments about World Cup. And notwithstanding some of the things that we continue to hear in the press more broadly, we continue, at least across the Marriott portfolio to feel really good about that 30 to 35 bps of impact that Jen referenced.

We will move next with Richard Clarke with Bernstein.

Welcome to Jen as well. I look forward to working with you. Maybe just dialing in a bit more on the Middle East. Qualitatively, have you seen any improvement since the cease fire? How are kind of full year booking trends there? And then quantitatively, I guess your 100 to 125 basis point assumption looks like that 30% in the March, you're kind of holding that through the rest of the year. Maybe what are you assuming for Q2? What did you see in April? And then what are the assumptions maybe baked into the second half to get to that 100 to 125 basis points impact?

Thanks for the question, Richard. So clearly, our forecast reflects the fluidity and certainty of the situation in the Middle East. We have certainly seen booking activity showing some signs of recovery from the lows that we experienced in March. But we do expect that the impact to the Middle East properties will continue through the end of the year. The hardest hit quarter we are looking at or we're anticipating about a 50% reduction in RevPAR in Q2, but that it will continue to impact Q3 and Q4, but it will get better consecutively across the quarters. And just a reminder, Q4 of last year was an incredible quarter in the Middle East, driven by some large citywide events that drove high ADR. So we do expect recovery in the back half of the year sequentially, but we clearly are still seeing an impact.

We will move next with Stephen Grambling with Morgan Stanley.

I may have missed in the remarks, but it looks like the investment spend ticked up a bit versus the prior guide. I know you talked about some of the automation that's happened on the back end of some of the technology refresh that you've had underway, and you also touched on the optionality from AI. Can you perhaps talk bigger picture on how to think through investment spend from here? And is the AI component of this something that we should be thinking about will require incremental investment? Or is that a lower capital spend and actually create some potential optionality for either fees or owners?

Thanks, Stephen. So maybe just to clarify or reiterate what Jen said in her prepared remarks. For this year, the bit of an uptick is almost entirely tied to the investment we're making in Lefay, our new luxury wellness platform. But I'll let Jen answer the second part of your question.

Yes. So if you think broadly, as I talked about in my prepared remarks of where we spend our investment dollars between investment in contracts, the big technology investment and then investment in own lease. To Tony's point, the reason we raised guidance about $50 million was predominantly Lefay. As you think about 2027 and beyond, I would consider with our size and scale and growth, you would expect about the same amount of investment. We are not guiding for '27 for sure, but the categories of spend relatively stay the same.

Our next question comes from Michael Bellisario with Baird.

On the group segment, I think, Tony, you mentioned it being solid. Have you seen a similar uptick in bookings and pace as you have on the transient side? And then on a related note, are there any of your tech upgrades? Are they going to be benefiting either the group meeting planner or your potential Marriott market share going forward?

Sure. So I'll take the first part of your question. Obviously, we're very pleased with group performance in the quarter, and we expect group to be a nice driver of growth for the remainder of the year. Our pace for the year is up about 5%. And while pace is not indicative of where group RevPAR will actualize, we certainly are encouraged by the base of business on the books and continue to be -- expect that to be a growth driver.

Yes. And then I think on the second part of the question, Michael, we expect the tech upgrades to help all the constituents we serve, our guests, our associates and our owners and to be impactful across every sector where we do business. The most notable place where I think there will be an impact of both the new technology platforms and our continued work on the AI front is in the generation of group RFPs.

We will move next with Dan Politzer with JPMorgan.

Jen, look forward to working together. I wanted to go back to the U.S. demand, and I think you guys specifically called out a broadening of demand. And Tony, I think you mentioned that select service really seemed to start to inflect in the first quarter. Can you maybe talk about what specifically is driving that? And how -- what do you think has changed over the last kind of 90 or 180 days?

Yes. It's a few things. I think, again, not or I suppose, notwithstanding some of the reported weakness in consumer confidence. I do think you're seeing some pivot to domestic travel because of some of the uncertainty. You are seeing some pivot to drive to destinations versus fly to destinations given the impact of rising fuel prices on airline fares. And I think all of those dynamics are positively impactful to the lower chain scales where we operate.

Yes. And a few other things I might add to Tony's comments. First, I think the tax refunds, the increase in those year-over-year have had an impact and the relative low supply growth in the U.S. and Canada over the last few years.

Yes. And then the last thing I might mention, Dan, we've spoken for the last few quarters about really digging into the consumer spending data that we get from our credit card partners. And really across demographics, we continue to see a prioritization of travel and experiences over consumption of hard goods. And even in lower-income households, you're seeing that shift. And I think that's having a pretty materially positive impact on the performance of our select brands.

We will move next with Aryeh Klein with BMO Capital Markets.

Tony, I think you mentioned business travel room night -- business transient room nights declined outside of government slightly. Hoping you could provide a little bit more detail on what you're seeing there. And then just on the World Cup, you touched on the expectations being maintained there. Obviously, a lot of reports on softer demand and maybe some group cancellations. So any other color would be helpful.

Sure. Maybe I'll take the first one, and then I'll let Jen chat a little bit more about World Cup. So just to ground you, in Q1, global business transient RevPAR was up 1%, which compares favorably to being down 2% a quarter ago. To get to that 1% improvement, we saw a 3% increase in ADR. That's a global number, while room nights were down 2%. In the U.S. and Canada, business transient RevPAR was up 2%, again, largely driven by 3% ADR gains, and that was offset a little bit by a 1% room night decline. U.S. and Canada business transient RevPAR, excluding government, was up 2%. Government transient RevPAR was down 6%. Government RevPAR was down 12% to 13% in January and February and then rose about 8% in March because the comps became a little bit easier.

Great. So -- and I'll take your question on World Cup. Despite what you're hearing and reading in the press, we continue to feel confident in our 30 to 35 basis point impact globally from World Cup. We did extensive research before we guided that number. We benchmarked against other large citywide events that we had experienced. The total revenue is pacing up nicely over the match dates and in line with our expectations, though there obviously is still a lot left to book, which is expected given where we are in this booking window and the fact that we haven't gotten the exact matchups for the latter half of the competition.

The FIFA room block cancellations, we expected for this type of event and had baked that into our forecast. And just a little bit on the mix. We expect the group occupancy for this type of event to be closer to the 15% range versus something like the Super Bowl that's in the 40% range. So we continue to be optimistic about the opportunity.

We will move next with Lizzie Dove with Goldman Sachs.

Just wanted to ask on rooms growth and your latest thinking in terms of percent of that, that might come from conversions and new builds, any brands you're leaning into? And then you mentioned upfront, I think about 7% of your pipeline is from Middle East. So just any impact that you're expecting there on the rooms growth side of things near term?

Sure. So there's a lot in there. Let me try and answer most of it. I think on your first question or the first part of your question, I suppose, the -- we continue to feel really good about the guidance we've given you. The conversion story continues to be a terrific story for us. In the quarter, 35% of the signings and 40% of the openings were conversion related. I referenced a couple of portfolio conversions, Sun Group in Vietnam and some Series activity across Europe. As we've discussed the last few quarters, while our development teams around the world are out there fighting tooth and nail for every single asset conversion opportunity that exists, they are doing that in parallel with some very focused efforts supported by some very focused resources to chase portfolio conversion opportunities. And the results that are coming from those focused efforts, I think, are a pretty compelling part of the Marriott growth story.

I think the second part of your question, remind me, Lizzie, I'm sorry. I don't know if they muted you. Specific brands, sorry, yes. The other piece I'd like to focus on a little bit is the traction we're getting in mid-scale. Mid-scale is an area that, as you know, we just entered a couple of years ago. And we already between open and pipeline have hit the 500 hotel mark. And so that's not -- it's not a binary choice. We're not shifting resources to mid-scale at the expense of our growth in the other tiers where we compete. It is incremental, but I think the speed with which we've seen our ramp-up in mid-scale openings and pipeline is a really, really encouraging part of the growth story as well.

And Lizzie, your third part of your question was on net unit growth openings and impacts in the Middle East. We still feel comfortable with 4.5% to 5% global outlook for full year. Though as a reminder, it's more instructive to look over a multiyear CAGR. We still expect anticipated openings in the Middle East to generally proceed as planned, although we are absolutely watching it very closely. We've already opened a few hotels there this year even since the war started. But to give you some context, Middle East hotels yet to open this year only account for about 4% of our full year expected net rooms openings.

We will move next with David Katz with Jefferies.

Welcome, Jen. Look forward. I wanted to go back to the AI efforts. Seeing one of the industry participants launching a native app this morning, probably with intent. What can we literally expect to see and put our hands on? And I suppose I'd like to get a sense for what are the gating factors or success factors? How can we tell if you're doing well with it between now and the end of the year?

Great. Well, let me take a shot at that. And Jen, feel free to jump in and help me out. So I'm going to give you sort of a 3-pronged answer, David. I think broadly, Marriott's focus is to implement a unified enterprise-wide generative AI strategy, again, with a focus on elevating the experience of all of our core stakeholders, associates, guests and owners. As we sit here today, I'll give you a few, not an exhaustive list, but a few examples of how we've already incorporated AI into our day-to-day business.

The business transient sales tool that we put in place for our sales teams. In our customer engagement centers, the real-time call assistance that we have, event planning intelligence tools that we've made available to our team, marketing campaign assistance. And then probably the most impactful this quarter will be the rollout of our conversational search across the marriott.com platform. How will we measure success? I think a few ways. On the sales side, clearly, conversion rates, the direct impact on hotel revenue from the implementation of these tools. And then I would say the third area that we would look at in terms of measuring success would be in the above property opportunities that we see in both in regional and headquarters disciplines in areas like legal, like global finance, where we think there's a real opportunity.

And then the last thing I would say is we talked about this a quarter ago, but the manner in which we are working with some of the most advanced players, whether that is Google's AI mode travel product, whether that's being one of the first participants in travel with OpenAI on their ad pilot program, there are a wide range of parallel activity streams meant to impact our above property and our on-property effectiveness and efficiency to drive top line and margin improvement.

We will move next with Brandt Montour with Barclays.

Welcome to Jen. So Tony, I was hoping maybe you could even take that -- some of those comments a little bit further, specifically with regards to the distribution side of things for AI. Obviously, we all know or we don't know exactly where the tech giants will sort of land and what the sort of AI interface will look like in that economic model and how that will evolve. But from what you're seeing on the ground today, what is your sense on where it's -- how it's evolving and where it could kind of land between you and the other players that sort of compete in that sort of top of funnel for customer attention?

Great. I appreciate the question. You stole the start to my response to your question, which is exactly what you said. None of us know exactly how the online booking space will evolve and transform. But we do think that Marriott's industry-leading scale creates a really advantageous position due to our physical and geographic footprint, our scale and data, that creates a natural digital content and search advantage relative to some of our peers. We've got more stays. We've got more reviews. We've got better insights into preferences, rates, the ability to refresh availability in real time. I think those are all meaningful advantages.

How Marriott's distribution costs could evolve as a result of changes in the distribution landscape. I think we're very optimistic about the potential for AI to bring more consumers into the Marriott Bonvoy ecosystem and to help strengthen our direct booking channels. I mean it's quite interesting to watch some of the experimentation that the big AI players have made. They've got decisions to make about how they monetize these platforms. The 2 areas that we've seen experimentation are in advertising and in transactions. At least in the early days, you've seen a heavy predisposition towards monetization through ads. There's been some experimentation. But we think the ability of these platforms to drive customers to book in our proprietary channels and take advantage of all of the loyalty benefits that you get from booking directly represent a significant opportunity for us.

And then the last thing I would say is some of the pilots that we're launching, while we're not ready to share really detailed specifics, we do believe they will have favorable cost benefits for our owner and franchise community.

We will move next with Duane Pfennigwerth with Evercore ISI.

Just on Middle East, can you speak to not what is embedded in your guidance, but just how quickly markets have historically bounced back after conflict, if that's quarters, years or if it sort of surprises you that they can kind of come back more quickly? And then you mentioned markets that are dependent upon airlift from the Middle East, which is a little bit surprising because I do think some of that has shifted to other global connecting hubs. What markets would you consider those to be?

Yes. Thank you for the questions. I wish that you could look at a single or a couple of regional conflicts and draw deep conclusions about what the impact of this conflict will be. As you well know, they're all quite different. I think that the -- maybe the most notable aspect of this conflict is how quickly the impact on fuel prices might change and what the impact will be on travel more broadly.

On your second question, as I'm sure you're aware, we are, for instance, the largest hotel company in India. And so the impact of some of those Middle East carriers into India, you are absolutely right. You're already seeing a pivot to some other carriers. But -- the reality is the Middle East accounts for 10% of global transit traffic demand. And so that ripple effect, particularly for a company like Marriott that has such a dominant footprint in markets like India is something we've got to watch closely.

Now Jen talked to you a little bit about how we're thinking about guidance. I think the APAC team believes the most significant impact to their business will be in the current quarter in Q2, and they've made some assumptions about that softening a bit as some of the other carriers fill the breach of some lost capacity coming out of Emirates and Etihad and some of the other regional carriers.

We will move next with Conor Cunningham with Melius Research.

Congrats, Jen. Just trying to tie together a couple of things you said. So you're seeing improvement in the select service and steady trends in luxury. I don't get the sense that you're fully endorsing the C-shaped economy, but I'm just trying to understand the uplift a little bit. So when you look at your initial guidance relative to where you are today, like what is -- from a travel type, what has actually advanced the most? It seems like it's business transient, but I don't -- I just -- if you could give me a little bit more color there, I think that would be helpful.

Sure. Thanks for the question. I -- look, we clearly have seen strength across all chain scales and segments in Q1. We're seeing that continue in U.S. and Canada in April. So relative to our last guidance, we have raised U.S. and Canada expectations. And if you think about how that fits into our global guidance, it's on the higher end of the global guidance. We do see -- we are expecting higher strength in the first half of the year versus the second half. A lot of that is -- and I'm talking U.S. and Canada right now. A lot of that is we expect uplift from the World Cup in Q2 and Q3. In Q4, we do expect a bit of an impact from the midterm elections. So relative to our last guidance, we certainly feel better about U.S. and Canada. And then as we've talked about, I think if you go around the world, Middle East is by far the biggest impact. We're expecting 100 to 125 basis points.

That being said, it's a very fluid uncertain situation, and we are watching it closely and reacting. But that if things perform better there, that would be uplift to guidance. China, we are raising to low single digits. We had a great first quarter, predominantly driven by leisure. So we feel good about that. APAC, Tony talked about that, that in the near term, we are impacted by long-haul flights. And -- but we expect that we will pick back up to where we were in the back half of the year. And then CALA, a little bit of reduction mainly from Mexico. But otherwise, relatively, we feel good.

We will move next with Trey Bowers with Wells Fargo.

I noticed in the press release, you stated that the guidance does not include the impact of renegotiation of the credit card deals. I guess two parts of the question. One, how would you view kind of success in renegotiating those deals? And then two, could there actually be an impact from the renegotiated deal in '26? I thought that was more of a '27 impact, but would love a little clarity around that.

Sure. Thanks for the question. I'll start with we're very pleased with how things are going. We're in active negotiations, as I talked about in the prepared remarks, with Visa, Chase and Amex, and we do still expect to have new deals in place the latter part of the year. Your comment on timing, I think, is spot on. These deals take time to -- there's a renegotiation of the card that will bring benefit both to the loyalty program for guests and owners and to our royalty fees. So we -- you can expect some upside this year, but the real opportunity is when you refresh the cards and relaunch them, and that will take some time. It is important to keep in mind the size and scale of our credit card program already. We are largest among the lodging companies. And so everything -- we have to think about it in that context already.

We will move next with Smedes Rose with Citi.

I know you've covered a lot of ground here, but I guess I wanted to ask specifically just on the leisure side, as you look out into kind of the summer vacation. I mean, do you have -- you kind of hinted at this, I think. But I mean, do you see sort of solid evidence that Americans might be leaning into domestic travel here versus international travel, given you talked about a little bit weaker in Mexico specifically, but just a lot of other things going on. And I'm just wondering if that's something you definitely see sort of a pattern of how you think about how the vacation period could shape up?

Yes. Thank you for the question, Smedes. What I would tell you is while I am very encouraged by what we saw in April, you heard in the prepared remarks some commentary about the pretty modest booking window of plus or minus 3 weeks for transient business. So anecdotally, are we feeling good about the summer travel season? We are. We're hoping that the benefit of tax refunds and the like will ripple through to that. But in terms of hard advanced booking data, that short transient window is really making it a little blurry right now.

Yes. And I would just say in terms of travel patterns, in the first few weeks of the conflict, we did see that U.S. travelers slowed their international bookings a bit, but those trends have normalized. And so we're back to kind of pre-conflict trends in terms of domestic versus international travel bookings from the U.S.

We will move next with Steve Pizzella with Deutsche Bank.

Just wanted to follow up a little more on the development as it seems like conversions overall are going to be a bigger driver of net rooms growth longer term, including the licensing deals and multiunit deals as you referenced. What do you view as the addressable market for these? And is there any difference in the fee structures?

Yes. So the -- maybe I'll go in reverse order. The vast, vast majority of the deals that we do are under fee structures that should be very familiar to you. They are -- even if it's a multiunit conversion deal, the fees, whether they are managed fees in a managed scenario or franchise fees in a license deal, they are very typical to the sorts of deals you've grown accustomed to over the year.

In terms of the addressable market, Jackie may kick me if I say infinite, but it's something approaching infinite. I mean, notwithstanding the really tremendous market share we enjoy in the U.S. and Canada and globally, you've got markets around the world where we've got mid-single-digit market share. So the runway for growth and the runway for conversions, you think about markets like Europe where you've still got a very significant portion of the lodging supply that are independents, which is fertile hunting grounds for us.

And then the last thing I would say is the fact that we've got such compelling conversion platforms across effectively every quality tier where we operate allows us to think pretty aggressively about the trajectory for conversion volume for the next number of years.

And at this time, we have reached our allotted time for questions. I will now turn the call back over to Tony Capuano for closing comments.

Great. Well, thank you again. It is a delight to be here with Jen. I look forward to lots of upcoming quarterly earnings calls with Jen going forward. We, as always, appreciate your interest and look forward to seeing you on the road. Thanks, and have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone. Thank you for joining bright and early. I know everybody here got a great night of sleep and went to bed very early.

We're thrilled to have Marriott management team here. We have CEO, Tony Capuano; and then Drew Pinto, EVP and Chief Revenue and Technology Officer. I'll lead it off with questions. This is a fireside. We'll leave some time at the end for Q&A. But I think I'm excited for a very thorough and informative discussion.

Me too. Thanks for having us.

Let's just start high level, strategic priorities. Where would you say Marriott's top priorities are for 2026? And is there a difference in how you think about the priorities for the U.S. versus internationally?

Yes, not really. I mean the U.S. is a bit more mature market, but I think broadly, the priorities are similar. I would say, number one, we're trying to build this ecosystem, right, that has little to no leakage and Bonvoy is the connective tissue for that ecosystem. So that starts with make sure we have the best brands and experiences on a global basis. That's about accelerating net unit growth. The notion being if we have the right product everywhere our members want to go, everywhere in the world for every trip purpose, then they really don't feel the need to look outside that ecosystem. So that's a big part of it.

And then I think technology, which is part of the reason I'm so happy that Drew is here. And I really sort of think about that through two lenses. As we've talked about in the past, we're in the midst of a massive re-platforming of our three most important technology systems, property management system, central reservations and loyalty. And that should be pretty transformational, and Drew can give you some details on that, but also all the emerging technologies, AI, for anybody that bet the -- under that AI would be said in the first 2 minutes, you lost. But how that can impact certainly our above-property efficiency, but also some of the processes at the hotel level that have historically been manual and can be made more efficient.

And then as we kind of zoom in a little bit more on the fundamentals, right, I guess, can you give us an update on current or year-to-date RevPAR trends? And obviously, given the volatility or turmoil in the Middle East. What are you seeing there? And how do you think about the impact to the region?

Sure. So maybe not dissimilar to last year, January and February, really, really strong start on a global basis, ahead of our expectations for those 2 first months of the year, both in terms of absolute demand and ADR growth. March, obviously, you're seeing the impact of the conflict in the Middle East. For the most part, today, the impact of the conflict seems largely limited to the region. We've seen cancellations, as you would expect. You obviously have had significant disruption in airline capacity, and that's impactful. But to date, we've not really seen it ripple out beyond the Middle East.

And then just to ground you, if you look at our global inventory today, about 4% of our global rooms are in the Middle East, about 7% of our pipeline and about 4% of our global fees come out of the region. But we're 15, 16 days into the conflict. And so I'm talking to the teams every day, and we're watching closely to get a sense of -- we actually, interestingly, in markets like the UAE, you had very high occupancy at the start of the conflict because of the inability of folks to get commercial flights out of the region. But we're running pretty weak occupancies right now. And obviously, from a human perspective, but also a business perspective, hoping for a swift and peaceful resolution.

How do you think about the impact to other regions or kind of the knock-on here, whether it's Europe or outbound U.S. into Europe or into the Middle East?

Yes. I mean we look at forward bookings, you are seeing some weakness and some cancellations into the Middle East. Europe is holding up fine today. If the conflict expands, there's obviously real risk. I think the bigger question is around oil prices and the ripple effect that has on commercial flight pricing and how that might impact. We've seen spikes in oil prices over our 99-year history. Sometimes that translates in particularly for the U.S. outbound market, maybe they choose more drive-to destinations than fly-to destinations, but we're obviously well distributed in drive-to destinations as well.

Understood. If we get -- one of the bright spots for 2026 is the World Cup. You've given some parameters around that. But I guess, what are your latest assumptions? How much business is on the books? What are you seeing? And maybe how are you yielding the hotels to maximize...

So it's still early. I mean we continue to think there's probably about 40 basis points of upside on a global basis -- or excuse me, on a U.S. basis, about 35 on a global basis. But it's early. The bookings are about where we would expect, given that many of the future rounds, nobody knows who's going to be playing in those matches. International inbound, normal course, we see about 10% to 12% inbound international. About 24% or double of the bookings we've seen for World Cup are inbound international, which I think is a pretty encouraging sign.

Do you have any data points or anecdotes on people that are coming into these -- into the 11 or so cities in the U.S. or even 16 in North America, they're extending their trip and they're traveling to these other areas or they're staying x amount of days...

Yes, it's a little too early. I mean I think we have some expectation that, that will be the case. But again, when you look at what we saw in Qatar and prior World Cup host cities, a lot of it depends on who advances, right? Sometimes you have folks that book a one-way ticket in with the hope that their team is going to advance and they're going to extend their stay.

If you think about the macro, consumer health, how are you monitoring kind of the week-to-week, month-to-month state of the consumer? And how do you think about that high end, where you certainly have a big presence, versus kind of the low end where over time, you'll probably have more growth?

I'd say a couple of things. I think, number one, we look at all the same metrics that all of your audience does. We look closely at GDP, we look at employment numbers, we look at corporate earnings, all good indicators about how the consumer confidence trends are evolving. I think we're feeling pretty optimistic set aside -- if you assume that the conflict remains relatively concentrated in one geography, we look into the coming months and we say, with tariff relief, as tax refunds start to roll in, we think that, that will be a boost to U.S. consumer confidence that could be great news for our business.

And then on the luxury end, it's probably been the most fun story to tell for the last number of quarters on our earnings call. There have been understandably lots of questions about the resilience of that luxury consumer, but we continue to see really strong demand and really strong pricing power, which for us, given that we've got such a large portfolio and pipeline globally is really encouraging.

And then as you think about your brands, right, I mean, I don't know the exact number, let's call it 30-ish...

Me neither. I think it's about 40.

40-ish, yes.

Depending on how you count them.

How do you think about that level expanding or contracting over time? Are there brands that need more work, brands where you're very happy with?

Yes. I love the breadth of our brand portfolio. I love the breadth of choice that offers both to our guests and Bonvoy members and also the breadth of choice it offers to our owner and franchise community. But if your strategy contemplates that broad and diverse of a brand portfolio, the requirement that comes along with that is that you ensure you have a well-articulated distinct positioning for each of the brands in the portfolio.

One of the guiding principles at Marriott is this idea that success is never final. So there's always still more work to be done. But I think we've achieved that with the vast majority of the brands. That well-articulated and distinct positioning is more clear in some brands than other, and we continue to try to ensure that we've got that across the portfolio.

And then in terms of the unit growth and on the development side, you're guiding to 4% to 4.5%...

4.5% to 5%.

Sorry, 4.5% to 5%. Yes.

Jackie almost got out of her chair.

Misread my notes here. With the conversions, obviously, that's a big driver. What are the biggest opportunities and risks to sustaining this pace, especially in this kind of touch-and-go financing and development environment?

Yes. I mean we've got a pipeline of over 600,000 rooms, good mix between new build and conversions. We've seen over the last number of quarters pretty consistently, both signings and openings, 30% to 40% conversions. The new builds that we'll open this year, obviously, are well under construction, and we've got great visibility into the status and the projected opening dates of those new builds.

On the conversion side, the piece I feel like maybe we don't talk about enough. Of course, we're out there every day, our transactors around the world chasing individual hotel conversions, whether those be conversions of independent hotels or conversions of competitive brands. And we'll continue to do that, and that will continue to be a really strong source of growth for us. But the focus we have and the resources we have dedicated to portfolio conversions.

Obviously, MGM is a terrific example of that. We launched a platform called Series by Marriott, which gives us the ability to bring in mid-scale and up-scale portfolios into the system. We announced a deal last year with a group in India called Fern, which in a single transaction, I think we got something on the order of 8,000 rooms. Not an M&A deal, not an acquisition, but a portfolio conversion. And I think that will continue to be a really important focus area for us.

And how do you think about those bigger kind of portfolio-type deals and ensuring you get those economics? Because I think that we want -- we all like the unit growth, we all like the visibility, but we also want to make sure that there's corresponding economics as well.

Yes. You should reasonably expect that the vast majority of conversions we do, whether they are single unit conversions or portfolio conversions, the fee structure on those will be very typical, very traditional. MGM was unusual. But in effect, you brought together the world's biggest lodging company and the world's biggest gaming company. Both parties felt they brought a lot to that relationship, and that required some creativity around the deal structure. But the vast, vast majority of our conversion deals will be very typical fee structures.

Okay. And then in terms of the entire pipeline, can you talk about the chain scale and the geographic mix and what you're most excited about?

Had you not asked that, I would have volunteered it anyway because I think it's a great part of our growth story. Roughly 40% of that 600,000 room pipeline is in upper up-scale and luxury, which are obviously the tiers that generate the most significant and premium fees. So that's a great part of the story. The other piece that I think bears watching is our entry into mid-scale, which is only a couple of years old. It's only, I think, about 5-ish percent of the pipeline today, but those platforms are among the most rapidly growing platforms.

And when you think about this bifurcation of the consumer that we've seen, the ability to accommodate lower-income households who still have an appetite for travel, but in a more economical way through our growth in mid-scale and to accommodate that high-income household with our industry-leading luxury portfolio, I think, is a pretty powerful combination.

If we fast forward 5 or 10 years down the line, how do you think about your chain scale mix in terms of mid-scale, upper mid-scale versus luxury?

Yes. I mean they -- I don't necessarily think of them as mutually exclusive. In other forums, I've gotten a question around, so did you -- have you sort of pulled back on your growth in upper up-scale and luxury in support of mid-scale? Absolutely not. It's not a binary decision. We're pushing hard because we've got a long, long runway for growth in mid-scale, but we continue -- we had one of our committee meetings this morning and approved three new U.S. luxury deals. So we are pushing very hard to try to extend that lead in luxury.

Okay. And then if we talk about your owners and franchisees, I think that there's growing frustration, and it's a very tough environment operationally. How are you working with them to lower their costs and continue to offer a compelling value proposition?

Yes. It's one of the biggest focus areas in the company today. I did the ALIS Investment Conference in L.A. a few weeks ago, and I was on the CEO panel. And my friend, Elie Maalouf from IHG made, I thought, a very insightful observation. He said, these asset-light models are great as long as you have a willing asset-heavy partner on the other side of the equation. And so the health and the financial strength of our owner and franchise community is of paramount importance.

So how are we trying to help them? We're looking at every variable in the equation that drives their returns. You can talk to Drew a little bit, part of his day job is revenue generation, but we're doing everything we can to try to aggressively grow top line. We're looking at every expense line in the P&L and looking for opportunities to find efficiencies, whether that's efficiencies embedded in rethinking how we operate our hotels or whether those are efficiencies as a result of emerging technologies and AI, we're looking to try to improve operating margins. We're looking at our affiliation costs. Are there opportunities as we become more and more efficient at the above-property level to pass some of those efficiencies on to our owners. Last year, we meaningfully lowered the charge-out rate for Bonvoy, which was a big boost for our owners. So we'll continue to look at each of those variables.

And then I guess that's a good segue to the next question in terms of the Bonvoy and charge-out and relationship with owners there. Your 35% increase in credit card fees, that was a big driver of your 2026 guidance and the growth there. Can you, I guess, walk us through the process and rationale behind that royalty rate increase and how you see the economics of the co-branded program evolving over the next few years?

Yes. So I mean, the big drivers were multipronged. Number one, we had an existing relationship, contractual relationship that put some limitations on us, and we renegotiated that relationship in a way that gave us some flexibility. But the single biggest driver is the efficiencies we continue to drive. You know we went through a pretty significant review of our above-property costs that resulted in approaching $100 million of net admin savings that created. And then the third prong is really the continued growth, growth in the system, growth in the credit card programs, growth in spend by the credit card holders. And you throw all of that in the blender together, and it gave us the opportunity to make this change.

But I would share with you that as we contemplated that change, there were a number of gating factors that we considered. We wanted to ensure that the credit card -- or excuse me, the Bonvoy program itself, its financial health and stability remained as strong as ever. And in point of fact, it's as strong as it's ever been. Number two, we wanted to make sure if we made this change, we did not meaningfully dilute the value proposition to the Bonvoy members. And in fact, we are not. And then third, we wanted to make sure we wouldn't have done it if it had resulted in a massive increase in the charge-out rate to our owners and franchisees. And in point of fact, as I mentioned, we had actually reduced that charge-out rate. So it's really the growth of the system broadly that allows us to make that modification.

Has there -- have you gotten feedback from owners post that? And maybe what has that sounded like?

Engaged, I would say. They ask essentially the same three questions around the same three categories that I said. They wanted to understand why. They wanted to understand how it would impact them. Would this result in an increase in the charge-out rate. They care deeply about Bonvoy and what a powerful driver of demand that is for their hotels. Would this somehow destabilize the program in terms of its economic foundation, and we assured them it would not. And they said, if you look at what the loyalty bloggers put out there, the value proposition for members for Bonvoy is very compelling. They wanted to make sure we weren't going to materially dilute that value proposition.

And then in terms of the -- not to get into the mechanics, but is there an additional step-up opportunity as far as where you are today versus where you could go? And then just to confirm my understanding, at least, this is completely separate from the interchange negotiation that you have with...

Yes. We're very comfortable where we landed, and we're comfortable because it hits those three gating factors. And it is separate and distinct from the ongoing negotiations we have with our credit card partners.

Okay. Maybe we can turn to AI. We hit the [ war ] a little bit. For Drew, and obviously, Tony, feel free to comment as well. How do you think about generative AI fundamentally changing the guest journey and experience and then Marriott's competitive positioning over the next 3 to 5 years within this segment?

First of all, thank you very much for having me and excited to talk to you about our plans here. I would say, overall, we see it as a really great opportunity for us. As you're experiencing in your own personal life and use of the AI tools that are out there, I think it's really reinventing commerce and in a good way for customers.

So number one is it's much easier to find the breadth of products that a company may offer. And certainly, as Tony was just mentioning, we have a breadth of our portfolio, both hotel products, but also experiences that go along with that. And so to be able to discover that in an easier way is very valuable to the customer. The other thing, too, which I have also been enjoying personally as I use these tools is it also can tailor not only here's all the selection in the market, but here are the things that are right for you based on what you're looking for.

So we see it as a good opportunity, and we feel really confident about our position to be uniquely qualified to take advantage of it, given our scale, given the loyalty program that we have, the strength of our direct channels and also not to be forgotten, the strength of our partnerships across the ecosystem, given our scale, given how active we've been on the distribution side, how deep of relationships we have with these partners, we're able to work with them in a way that I think few others can because of the relationships we've built over time. So we can really innovate together.

So if we can hit first on the distribution side, I mean, how do you -- what programs have you started to pilot so far? Where have you seen success? And what could we see roll out in terms of the customer experience in the next kind of 3 to 6 months?

Sure. If it's okay, let me give a little broader context and then we'll go to that specific question because it's important to see, as Tony mentioned, we're doing a full digital and technology transformation of our company. So it goes way beyond AI. So everything from our core systems to our data platform to re-platforming our digital site, that all comes part of this to really create a great experience.

I would also say, too, in our AI efforts right now, we're moving from -- we started out doing pilots and proofs of concept. We have a genAI studio that we stood up a couple of years ago. That was successful, but what we really needed to move to was scaling. And so that's what we've been doing over the past 9 months is building all the things underneath that aren't that exciting but are critical in order to scale at the size and the fidelity that we have to have as a company.

So we've been building that out, and we have use cases on the customer side. We have use cases for our associates to really make their lives easier so they can spend more time with the guests and use cases for our owners and franchisees. I'll give you an example, we're working on giving them better insights about their top-line productivity, right, and their top-line opportunities so that they can drive RevPAR in their hotels. AI starts to unlock this along with all the other things that we're doing.

But to give you some specifics, a couple of things that you can see. Number one is that we want to make sure our direct channels are strong and relevant and that the customer loves coming to us. That's always our #1 point in our distribution strategy. So one of the things you'll see coming out that will be very visible will be natural language search on marriott.com and on our app. We're working on that now. We're going to be shooting to get that out in pilot in the next couple of months and then by midyear to have it more fully rolled out. We're very excited about that.

That also then enables us to do the next thing, which is we're going to really increase the ability for the guests in the hotel to correspond with each other before arrival. So we've had chat through our app, while you're in your stay, for a long time. We're going to improve that, but we're also now with the new technology, be able to extend that. So pretty much across your entire journey, you can have that connection with the hotel.

So those are just a couple of examples of the things that we're working on. And I think those are just the beginning of what these underlying efforts that we're going through are going to enable us to do.

And then as you think about your relationship with OpenAI, the Geminis of the world, where do you see that evolving over time? And bearing in mind, it's obviously fluid, things are moving very quickly. But as you think about kind of preempting what happened 20-plus years ago with the OTAs and you're looking at this opportunity set, how do you kind of envision it evolving? What would be your best case or dream scenario?

Yes. It's too soon to tell, which is exactly why we're doing what we're doing. I think you touched on it perfectly. I think as an industry, we can only speak for ourselves, but I spent a lot of time in the distribution space. As an industry, I think we all recognize that we sat on the sidelines for too long when this whole paradigm got defined about 20 years ago or so. And as you're seeing across the industry, that's different this time.

So we're really involved with the OpenAIs and Google for a couple of reasons. Number one, this is all exploration. We're trying to learn. They're trying to learn. It's all developing. That's why it's too soon to really say where is this all going to land. But what we want to make sure is that we were in there and learning along the journey. Second thing and probably even more importantly is influence. So we want to be able to be influencing this model to make sure that it adheres to our distribution standards, that it helps our owners and franchisees have a customer acquisition strategy and approach that's going to work for them. It's going to be sustainable. And also just to make sure that there's good competition there and that it's really going to be a place where we can benefit on behalf of our hotels.

So that's why we're in early and really trying to figure it out as we go. Literally, I get an update each week from the team, and there's a new like merchandising idea that we might do with Google as part of this pilot, for example, it's really like in development as we speak today.

So bearing in mind, it's still very early, but what are some of the kind of more successful endeavors so far? Or any metrics you could share in terms of just engagement or level of bookings or something along those lines?

It's really early to -- there's nothing specific we can share. I'll give you, though, the one place that we've had natural language search running for a little while has been our Homes & Villas by Marriott Bonvoy site. So this was one of those test cases we did, and we actually launched it about 2 years ago, almost today. Our original plan was to run that for a short period of time and then move to our bigger services, marriott.com and our app. But there was so much to discover and things were changing so quickly that we took our time a little bit to learn.

And it was -- it's been very interesting to see the behavior and kind of the results on that site. So I'll just give you kind of two general observations, but I think you'll find them interesting. Number one is my expectation is it's going to take a little longer for customers to adopt than we expect because we've had this out there and the #1 search that the customers still do in the natural language search box is basically what we call rate, states and space. Like you know where you're going, you want to go to these states. It's the same inputs you put into the search bar today.

So I heard, I think it was Skift that coined the term, the tyranny of the search box, right? We've all been living with this for so long that the behavior change is going to take a little while. We've even done things like done suggestive prompting on Homes & Villas like, "oh, here's the things you can ask it. You can discover homes like this." So that's number one, and I think it's been interesting.

Probably number two, which has guided our development of what we're going to launch even more so is that when the customer -- when you open up the box for a customer to say, ask me what you'd like, you get a lot of questions that may have nothing to do with that specific, hey, I want to find a certain hotel or a certain home. We get questions about what's my Bonvoy loyalty balance, pet policies at different hotels, you name it. And so for us, it's very important that we build a really integrated, really great experience that's very rich because we want our customers to love this when they go there. We want to make sure that we can predict where they're going to go and help them get the answers that they're looking for.

So I guess putting it into financial terms, not hard and fast numbers, obviously, because it's so early. But do you think about this as a revenue maximization opportunity, as a margin opportunity? It kind of puts you on a different plane for owners, and [ resonating ] so it can grow units. How do you kind of think about it flowing through in terms of your actual operating performance?

I think probably the two primary metrics are going to be traffic and kind of stickiness of the site, either for our direct channels and, of course, with the partners that we're going to be working with. But I think there's a big conversion opportunity here. Don't know what that is yet, but just the fact that you're going to be able to really find the hotel you're looking for, the experience you're looking for.

Within that, too, is then ancillary kind of basket size. As you know, we're one of the biggest restaurant, golf, spa operators in the world. We have all these great products. Our #1 challenge has always been in this very limited space, how do you expose that to customers in a relevant and very personalized way. That's all getting unlocked with what we're doing. So I think there's opportunity there as well.

And back to your question about owners, that's one of the things they're most intrigued by. They tend to think about new technology platforms, emerging technologies as an opportunity to drive margins. And to be sure, there are lots and lots of opportunities. But what I hear from the owner community quite frequently, you think about the menu of products and services that we make available to our guests, the ability to incorporate those into the booking path at time of booking, I think, represents really meaningful revenue upside.

Interesting. And then in terms of your -- on the cost side or more, I guess, still a little bit on the acquisition side, OpenAI, Google, you're working with them. How do you think about the economics of these channels evolving versus traditional search and OTAs?

Well, that's, again, too soon to tell and probably the most fundamental question we have. That's why we're in there early is to be part of that conversation, we need to ensure that the commercial model that's going to come from this development and change in the paradigm is something that we can support and we can sustain and that our owners and franchisees can sustain.

They are very vocal and rightfully so, and we're in partnership with them to make sure that the customer acquisition model and retention model in our industry is something that can be supported and is profitable. And that is what we wake up thinking about every single day. Whether it's technology, AI, marketing, it all comes back to that. We need to make sure that we're healthy and growing in a way that can be sustained.

And then you've been investing a lot in technology for the past few years. Now we're starting to see, I think, some of the impact and benefits of that, at least on the cost side. I think your G&A was up a couple of percent or should be up a couple of percent this year. It didn't grow much last year. So I guess, how much of this efficiency is sustainable? Do you feel like there's more opportunity ahead in terms of this focus on the corporate and the cost side?

I definitely think there's opportunity because a lot of the investment we're making is to make -- again, we're scaling. So we're trying to make things broad-based so that it could be used in a variety of places. So while we may not have a use case in a certain area at this point, we're building the underlying infrastructure so that it can be leveraged. So I do think that there are opportunities for us to keep rolling out, whether it's AI or broader technology to help either automate things or take manual processes or data and make that more efficient. So I do think that there's some opportunity in front of us.

But probably the bigger thing I'm seeing, which is encouraging is while we're working on these big projects and scaling them within our AI group, the thing -- the trend that I'm seeing even more so is AI is now permeating everything we do. So projects that we were going to make investments in that maybe didn't have an AI component, that we never thought would be AI relevant, now suddenly, it's almost a requirement by us that within there, there are AI solutions and that we're designing for that. As part of it, it's not the full story, but anything we do, whether it's finance or HR or marketing or anything that -- we're saying, where is the AI portion of this solution so that we can feel comfortable that we're making the right investment.

Interesting. So it sounds like it's fully embedded in every day-to-day decision almost operationally.

It is. And the speed at which it -- I mean, everyone knows outside of just our company how fast this whole space is moving. But even within our company, we're just moving so quickly to pivot, and we've built optionality in here so that we can emphasize the places that we think are going to get the best return. And that seems to be right now the place that's even more promising than, say, one specific capability that we're going to launch.

And then you've been re-platforming your core tech systems, right? I mean are there limitations on leveraging AI given where you are in that process? Or do you feel like you're kind of at the tail end and now you can go on offense, so to speak?

The good news that -- now admittedly, when we started the design of that big transformation, AI wasn't what it is today. The good news is that we built our architecture in a way, though, that's very flexible and easy to scale and also to adapt. So bringing AI in is almost a nice additive component that helps amplify what we were doing. So we feel really good about that.

The other thing that it's doing is that it's opening up a whole source of data that we didn't have before. So things like property data or customer data, it used to be limited to us to be able to do the things we wanted to do because of these very localized old systems. That's now unlocking all this opportunity to then apply AI to that to help those constituents that we mentioned, which we didn't have before. So if anything, this has been really good foundational work that opens up capabilities that we didn't think were possible before.

Did we miss anything on AI that you feel like is -- we're overlooking, and it feels like it evolves so quickly, so -- when we wrote the questions two weeks ago?

No, I don't think so. I think my -- probably my biggest perspective on this is that it's becoming more and more of a critical component within a broader strategy, whether that's technology strategy or -- what Tony and I have really been trying to do is not just talk about technology for technology's sake, but how does it apply to driving the results of the business, whether the commercial results or the other KPIs we have. We're doing it for a purpose. And so we're making sure the investments and the effort goes towards that purpose. We're now plugging AI into that instead of it being this discrete thing that stands on its own.

And I think that's really important because you can get enamored with a certain AI solution and think, okay, this is going to solve everything. And what we're learning is it has to be really integrated, whether it's data or security or -- the customers, like I said at the beginning, it's not going to stay in one lane, and they're going to want to know that you've thought this through and thought their experience through. And so that's really where we've been focused.

The only thing I might add, it's sort of piggybacking on Drew's comment. There's all sorts of opportunity in distribution; above property, lots of opportunity for margin efficiency; on property, opportunity for margin efficiency. But we probably don't talk enough about the guest-facing opportunity. And that's about using these emerging technologies to create capacity for our associates, right? We are in the human connection business. And if this technology creates capacity for them to better engage our guests, I think that's a huge win for us.

Yes. And then they're feeling it on the sites.

Exactly.

We'll go back to Tony actually as it relates kind of a little bit to AI, but more kind of broadly. I mean, Marriott has historically grown both organically as well as acquisitions. I mean with the stock trading where it is and the multiple that investors are ascribing it, how do you think about M&A at this juncture for the company? And to the extent that we've just spent a lot of time talking about AI, the benefits on the cost side, does that start to come into the equation at some point as you think about the M&A opportunity?

Yes, I don't think the technology landscape necessarily changes our core philosophy in terms of how we think about M&A. On the long list of benefits of our industry-leading scale, we don't feel this burning need to go do an M&A deal to gain scale. We have scale. So we're very thoughtful about it.

And when you look at the M&A deals we've done over the years, there's some common DNA. Number one, they tend to fill a gap. That can be a gap in our brand architecture, that can be a geographical gap or both. And then secondly, we look at it and we say we think it's scalable. That can be scalable on a regional basis, that can be scalable on a global basis.

When I look and when the team looks at our brand architecture today, there's not necessarily an obvious gap. Geographically, we're about to open our 10,000th hotel. We're in 143 countries. There's 20-some-odd additional countries in the pipeline behind that. But there are geographies where we don't have the sort of footprint we'd like to have today. So we'll continue to look. But we'll use the same financial discipline that we've always used as we consider M&A. But there are spots. The most recent one we've done is citizenM. We're really excited about how that slots in the brand architecture. And our owner community is very excited about the growth prospects for that brand.

Have there been any kind of surprises or learnings from that? I know it wasn't huge, but just the extent that...

I don't think surprises, but I think we're off to a great start, Drew, maybe you want to talk about that. But I think our early learnings validated an intuition we had when we were evaluating the acquisition, and that's that they are terrific from a technology perspective, right? We have experimented with kiosks for as long as I've been with the company. They've figured it out. Their kiosk product is excellent, very intuitive, works really well.

Similarly, all of us have had the experience of staying in hotels that had an iPhone or a tablet or something that was meant to manage the whole room. And we often just sort of toss it aside in frustration because it's too hard to figure out. Similarly, they've figured it out. They have a very intuitive tablet product that manages lighting, temperature, you can order, you can chat with the staff, all those sorts of things. So there are some learnings that I think you'll see us adopt a version of in other parts of the portfolio. Anything you want to talk about...

Yes. I'll just add, yes, from the kind of the revenue, demand side, we've been very pleased with the response of our customers that have been on our platforms. The interest in the brand has been significant. We've driven a lot of volume. The channel mix has been really strong and a big improvement. So we've been very happy about that. In particular, as well, too, so we also have the B2B side of the world, those customers that my group represents, and they've responded really well, too. So they're very interested in the brand.

So from a revenue side, we're really happy. From a loyalty, Bonvoy side, really happy. And as Tony mentioned, we're constantly learning and trying to get better. We saw their technology early on and said, "wow, this is good. How can we learn from it? How can we leverage it?" So we're in those conversations right now.

Interesting. We have about 5 minutes left. I still have a few more, but I definitely want to open it to the floor for questions. There's got to be...

It's the hazard of an 8 a.m. slot in Las Vegas.

All right. I'll keep it going, and then I think we'll have a break. So in terms of the brands and the extensions, we touched on a little bit earlier just in terms of the number, but where do you see the white spaces or opportunities just given you're already in 40-plus kind of subsegments?

Yes. I mean the one that comes to mind, I talked in response to some of your earlier questions about the lead we enjoy in luxury. A growing subset of luxury is pick your adjective, wellness, longevity, whatever you might want to -- just however you might want to describe it. I think that's a real opportunity for us.

One of the most successful brand extensions we have is Ritz-Carlton Reserve, which to date has been a destination resort application. I think selectively, there's an opportunity for an urban version of Ritz-Carlton Reserve. And then just not far, over in Newport Beach, we're converting the Pelican Hill Resort in Newport Coast, and it will be our first St. Regis Estate, which is a bit of a brand extension for St. Regis. And I think there are some select opportunities for that as well.

Are there -- outside of the luxury area, I mean, at the lower end, are there also kind of these white spaces? Or is it...

Yes, I'd like to think we're relatively in our infancy into our entry in mid-scale. We're 2.5 years in. I think we've done a good job with both transient-focused mid-scale and extended-stay focused mid-scale. There is extraordinary both consumer and developer demand in that extended-stay mid-scale space. I feel like we've built out a good portfolio, but we'll continue to monitor that. And notwithstanding the way Sonder ultimately played out, I do think we believe there is real opportunity in alternative accommodation extended-stay, and we'll continue to look at that.

Okay. Last chance. All right.

All right.

Thank you so much.

Appreciate it. Thanks for having us.

Hello, and welcome to today's Marriott International Q4 2025 Earnings Call. [Operator Instructions]. Please note that this call is being recorded, and we are standing by should you need any assistance. It is now my pleasure to turn the meeting over to Jackie McConagha, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Good morning, everyone, and welcome to Marriott's fourth quarter 2025 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 Pilar Fernandez, Senior Director 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, ADR and property level revenues or 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.

As you all know, this is Leeny's last earnings call. There is no doubt that everyone listening has benefited greatly from her leadership, wisdom and insight. Leeny, thank you for everything. You will be greatly missed by us all. And now we'll turn the call over to Tony.

Thanks, Jackie, and good morning, everyone. I'll have some comments about Leeny and her incredible career with Marriott at the end of the call. But for now, let's move on to our prepared remarks.

Our team produced excellent results in 2025 as Marriott continued to experience solid momentum in our business around the world. With rooms growth as one of the top company priorities, I'm proud that Marriott's industry-leading global portfolio stood at nearly 1.78 million rooms across more than 9,800 properties in 145 countries and territories at the end of December.

Conversions remained a key driver of growth, contributing around 1/3 of our signings and openings during the year. With an incredibly strong fourth quarter for signings, our team inked nearly 1,200 deals, representing 163,000 rooms, excluding M&A during the year. At the end of December, our pipeline had grown to a record 610,000 rooms, up 2% from the prior quarter and up 6% from the prior year. Nearly 265,000 of the pipeline rooms were under construction, including rooms that are pending conversion, up 15% year-over-year. In 2025, 75% of our conversion rooms joined the system and began contributing to fee growth within 12 months of signing. For full year 2026, net rooms growth is expected to accelerate up to 4.5% to 5%. Our intent to recommend scores rose in every region around the world, and we continue to gain market share, with RevPAR index increasing globally year-over-year.

Full year global RevPAR rose 2%, with RevPAR in the U.S. and Canada, rising 0.7% and International RevPAR increasing over 5%. Leisure and Luxury led the way with Leisure RevPAR up 3%, while group RevPAR rose 2% and business transient RevPAR was flat for the full year. Full year Luxury RevPAR increased over 6%, while Select Service RevPAR declined 30 basis points. Our portfolio is well positioned to benefit from continued expected strength at the upper end as higher-end consumers remain resilient and continue to prioritize spending on experience and travel over goods. 10% of our open rooms globally and 10% of our pipeline rooms are in the Luxury segment.

Turning to the fourth quarter. We were pleased that worldwide RevPAR ended up at the high end of our guidance range. RevPAR increased 1.9%, thanks to a strong end of the year with December RevPAR coming in well ahead of our prior expectations. December global RevPAR rose 2.8%, showing the strongest monthly year-over-year growth since February, led by strong leisure demand, particularly for our Luxury and Resort Hotels. By region, fourth quarter RevPAR was again strongest in APEC, which continues to benefit from double-digit rooms growth as well as solid macroeconomic growth in many countries. Fourth quarter RevPAR and APEC increased nearly 9%, with growth broad-based across the region and double-digit RevPAR gains in key markets, including India, Japan and Australia. Fourth quarter RevPAR in EMEA rose 7% with strong growth across most of the region, led by 17% growth in the UAE. RevPAR and CALA rose over 2% as resilient leisure demand, especially during the festive season, was partially offset by the impact of comparisons to some citywide events in 2024.

City Express hotels across the region are benefiting from being integrated into our ecosystem and are performing very well, contributing to strong signings for this brand in CALA during the year. While the operating environment in Greater China remains challenged by weak macro conditions and soft consumer sentiment, robust leisure trends and continued inbound travel recovery helped RevPAR return to growth in the fourth quarter. RevPAR rose over 3%, driven by ADR. ADR growth was driven by stronger rates in Hong Kong Taiwan, [indiscernible] and Tier 1 markets, offsetting continued softness in tertiary markets within the Chinese mainland.

In the U.S. and Canada, fourth quarter RevPAR was around flat. Luxury again saw solid growth, which was offset by declines in the select service tier. Leisure transient RevPAR rose 2% in the quarter, while group RevPAR increased 1%. These gains were offset by a 3% decline in business transient RevPAR largely due to a meaningful decline in government RevPAR in the quarter. Government RevPAR was down over 30% during the 43-day U.S. government shutdown, though it has since moderated to down around 15%.

During the year, we meaningfully expanded the breadth and depth of our portfolio across customer tiers from luxury to mid-scale and across traditional as well as alternative lodging product offerings. We extended our lead in luxury with the opening of several notable hotels, including the St. Regis Aruba, The Lake Como Edition and [ Nekohui ] a Ritz-Carlton Reserve in Costa Rica. We also signed a record 114 luxury deals during the year. We continue to have growing owner interest in all of our mid-scale brands, given their compelling brand design, the power of our revenue engines and their simple bundled affiliation costs, which we believe are the lowest in the industry. Since entering the segment, less than 3 years ago, we've experienced incredible growth. At the end of the year, we had over 450 open and pipeline, Four Points Flex, Studio Res and City Express by Marriott properties in 26 countries and territories around the world. We also had 100 open and pipeline Series by Marriott properties.

During 2025, we were pleased to add several new brands to our portfolio. Lifestyle brands, CitizenM, which was fully integrated onto our platforms in November, Series by Marriott, our new global collection brand for the mid-scale and upscale segments and The Outdoor Collection by Marriott Bonvoy. Our focus on being in more places with best brands and experiences helps fuel the growth of our powerful Marriott Bonvoy Loyalty Program. Last year alone, 43 million new members joined Bonvoy, propelling the membership base to 271 million members worldwide at year-end. We continue to augment the Bonvoy platform with popular collaborations like Uber and Starbucks and with new bespoke ongoing moments and immersive experiences. We recently won the Point Sky Award for the Best Hotel Loyalty Program for the third year in a row, and we're thrilled that Marriott Bonvoy is now the official hotel supporter of the 2026 FIFA World Cup, with our extensive portfolio of hotels across the 16 host cities and curated fan activations poised to provide incredible memorable experiences throughout the 104-match tournament.

We are actively investing in technology, data and AI, both internally and with partners to transform the guest and the associate experience. The multiyear transformation of Marriott's three major tech systems property management, reservations and loyalty is well underway, and we're rolling out the new systems to a meaningful number of our hotels around the world in 2026. We see AI as an opportunity to potentially redefine the customer acquisition paradigm that has governed our industry for the past several decades. We believe our industry-leading scale, the breadth and depth of our global portfolio, our large and engaged customer base and our strong relationships with partners across the ecosystem position us well to capitalize on the significant opportunities Gen AI represents. While AI search and commerce models are still emerging, we're excited about AI's ability to further personalize and simplify the travel search and the booking process, and we're optimistic about the potential for AI to bring more consumers into the Marriott Bonvoy ecosystem and help strengthen our direct booking channels in a very efficient manner.

In the first half of this year, we plan to start deploying natural language search on marriott.com and on the Bonvoy mobile app. We're also optimizing our content for generative AI technologies. So our properties are well positioned wherever and however consumers are searching. Furthermore, we are actively collaborating with numerous tech companies across the space. For example, we are one of the initial companies working with Google on their forthcoming Google AI Mode Travel product and with OpenAI on their Ad Pilot Program.

Before I end my prepared remarks, I want to thank our team around the world for their hard work and care that they bring to Marriott every day. And Leeny, for the last time, I'll turn the call over to you to discuss our financial results in more detail.

Thank you, Tony. Good morning. I'll start by reviewing our strong financial performance. Fourth quarter total gross fee revenues grew 7% to $1.4 billion, ahead of expectations. Growth was primarily due to higher RevPAR, room additions and an 8% increase in credit card fees partially offset by a 20% decline in residential branding fees. Growth in credit card fees reflected higher spending on our co-brand credit cards with particularly strong increases in international markets, including Japan and the UAE. Incentive management fees, or IMF, rose 16% to $239 million primarily due to strong results in the U.S. and Canada, where IMF rose over 30%, led by New York City and resorts in Florida.

Fourth quarter adjusted EBITDA rose 9% to $1.4 billion. Our adjusted results for the fourth quarter and the full year exclude the onetime charges related to Sonder exiting our system in November. For full year 2025, gross fee revenues rose 5% to $5.4 billion, with IMFs up 3%. Co-branded credit card fees rose over 8% to $716 million and residential branding fees declined 10% to $72 million.

As noted in our press release, during the fourth quarter, we moved the Other costs that had been in our G&A and Other line to owned, leased and other expense. This should help enhance understanding of our G&A costs as our G&A line now captures only true general and administrative expenses, the above property costs needed to support and operate Marriott's business. The other expenses that were reclassified from general administrative and other are certain costs associated with our property-related fee revenues such as guarantee expense, bad debt expense and certain brand-related or property-related expenses as well as costs associated with certain third-party agreements.

Unlike G&A expenses like wages, benefits and rent, these other expenses tend to vary more with RevPAR and system size. In the new presentation format, full year owned, leased and other revenue net of owned, leased and other expense totaled $218 million, including $23 million of Sonder-related charges. Owned, leased and other revenue net results prior to the reclassification were $378 million, which was ahead of our prior expectations. The year-over-year increase in the amounts prior to the reclassification reflects the inclusion of the Sheraton Grand Chicago and strong property results more than offsetting the impact of renovating hotels and lower termination fees.

In 2025, the company benefited from over $90 million of above-property cost savings related to our enterprise-wide initiative to enhance productivity across the company, that is also yielding cost savings to our owners. Full year G&A declined 8% to $870 million. G&A and other before the reclassification totaled $1.03 billion, and excluding the $23 million of Sonder-related charges totaled just over $1 billion, a decline of 6% year-over-year. G&A expenses were a bit above prior expectations primarily due to compensation expenses. Full year adjusted EBITDA rose 8% to $5.38 billion and adjusted EPS rose 7% to $10.02 billion. We were pleased that with the power of our strong cash-generating asset-light business model and our disciplined investment approach, we returned over $4 billion to shareholders through dividends and buybacks in 2025.

I'll now talk about our 2026 expectations. With our growing pipeline and strong momentum in conversions, we expect net rooms growth between 4.5% and 5%, including our typical assumption of between 1% and 1.5% room deletions. For full year 2026, we expect similar global RevPAR growth to 2025 and between 1.5% and 2.5%. This assumes a relatively steady macroeconomic environment. With the exception of Greater China, RevPAR growth in international regions is expected to remain higher than it was in the U.S. and Canada. Although we do expect RevPAR growth in the U.S. and Canada to be a bit stronger than in 2025. We currently anticipate RevPAR in Greater China to again be roughly flat year-over-year. The World Cup is expected to contribute around 30 to 35 basis points of global RevPAR growth for the full year. The sensitivity of 1% change in full year 2026 RevPAR versus 2025 could be around $55 million to $65 million of RevPAR related fees.

For the full year, gross fee revenues could rise 8% to 10% to $5.9 billion to $5.96 billion. IMFs are expected to be flat to up slightly year-over-year. As we have discussed, we're currently in discussions with Visa, Chase and American Express and expect to have new deals in the U.S. in place later this year. At this point, our guidance does not include any impact from these new deals. As a reminder, our program is already the largest by far in the industry and has been for some time. If you remember, we combined the Starwood, American Express and Marriott Chase Visa program when we acquired Starwood, and these two programs have been the strong power leaders in this industry since then. However, our guidance does include a meaningful expected year-over-year increase of around 35% in co-branded credit card fees going into our franchise fees line. The increase is primarily the result of two factors. The first, is continued strong growth in spending across our global card portfolio. The second, is an increase in the royalty rate or the share of payments from the card companies that Marriott recognizes in our franchise fees line.

We received money from the credit card companies to pay for point, to permit funding the benefits in our Loyalty Program and Marriott receives a royalty for our licensed intellectual property that we recognized in the franchise fee line. Since the launch of Marriott Bonvoy in early 2019, we've dramatically grown our global portfolio of hotels and the number of Loyalty Program members and Bonvoy penetration has increased from 58% to 68%. We've added 6 countries to our co-branded credit card program since '19 and now have 34 cards in 11 countries, and we expect to continue to add cards in new countries around the world. With COVID now in the rearview mirror and a very strong Marriott Bonvoy program, we have increased Marriott's royalty rate. We were able to do this because we recently amended a long-standing contractual limitation affecting the royalty rate. The increase in the royalty rate is supported by GAAP required valuation analyses that were performed by third parties when the credit card deals were signed. We remain keenly focused on enhancing the value Bonvoy brings to each of its constituencies: our customers, our hotel owners and the company.

Moving on to full year residential branding fees. These fees could increase around 40% in 2026. As a reminder, this powerful fee stream that reflects our industry-leading position in residential branded properties is very lumpy depending on the timing of unit sales. Timeshare fees, as usual, are expected to be relatively in line with the prior year at $110 million to $115 million. Owned, leased and other revenue net of owned, leased and other expense is expected to total $230 million to $240 million. Results are expected to be impacted by renovations at certain large hotels in the portfolio, including W Barcelona and The Ritz-Carlton Tokyo. 2026 G&A expense is anticipated to be up just 1% to 3%, compared to 2025 levels.

Full year adjusted EBITDA could increase between 8% to 10% to roughly $5.8 billion to $5.9 billion. Our adjusted effective tax rate for 2026 is expected to remain between 26% and 26.5%, and our underlying core cash tax rate is anticipated to remain in the low 20% range. Strong adjusted EBITDA growth, combined with a meaningful reduction in share count leads to expected full year adjusted diluted EPS growth between 13% and 15%. For the first quarter, global RevPAR could increase 1% to 2%, reflecting the positive impact of the Olympics and EMEA being offset by the negative impact of the timing of Easter and Chinese New Year as well as the U.S. and Canada having tough comparisons versus the U.S. inauguration last year.

First quarter gross fee revenues could increase 7% to 8%. The increase is expected to be driven by meaningful growth in co-branded credit card fees, partially offset by an approximately 10% to 15% decline in residential branding fees due to timing. IMFs are expected to be around flat compared to the first quarter of last year. Owned, Leased and Other revenue net of Owned, Leased and Other expense is expected to ramp up over the year. In the first quarter, it could total around $15 million compared to $29 million in the first quarter of '25, largely due to renovations at several large hotels and a couple of other small items. Of course, this is with our new reclassification.

Our first quarter adjusted effective tax rate is expected to be around 24.5%, 2 percentage points higher than last year's tax rate, which was lower due to last year's release of a reserve. We expect $1 billion to $1.1 billion of investment spending in '26, similar to 2025 spending, excluding CitizenM. Let me talk about the three broad buckets of investment.

First, around 25% is related to renovations to owned and leased hotels. Second, roughly 35% to 40% is expected to come from continued spending on our digital tech transformation, the overwhelming portion of which is expected to be reimbursed over time as well as other corporate systems. The remaining 35% to 40% is expected investment in our contracts for both existing units typically used in connection with valuable contract renewals, extensions or renovations that result in incremental fee revenue over time and for new units as we continue to expand our global portfolio. Our approach to using key money has not changed, and deals that use key money historically have yielded significantly more value than deals without key money. Our capital allocation philosophy has not changed. We're committed to our investment-grade rating and investing in growth that is accretive to shareholder value. Excess capital is returned to shareholders through a combination of share repurchases and a modest cash dividend which has risen meaningfully over time. In 2026, we expect another year of strong capital returns of over $4.3 billion. Full guidance details for the first quarter and the full year are in the press release, and Tony and I are now happy to take your questions. Operator?

[Operator Instructions] Our first question will come from Shaun Kelley with Bank of America. .

Leeny, it's hard to believe it's been a decade of working together. So congratulations on an outstanding career. And thanks for all you've done. It's been a real privilege. So I appreciate it.

Thank you, Shaun.

So forever who wants to take it, Tony, I think as is often the case of these calls, a lot of attention on net rooms growth and that's our first look for 2026. So an acceleration is obviously great to see and especially your size and scale. So can you just talk a little bit about what you think is kind of most important in driving the pipeline forward and obviously, what you're seeing in terms of openings this year? What brands you're going to lean on the most within that pipeline to drive the numbers that you're seeing on the 4.5% to 5%?

Sure. I'll give you a broad answer, and then I'll let my Head of Global Development, to chime in with some color commentary. I think again, you heard in the prepared remarks that both in terms of signings and openings about 1/3 are coming from conversions. We've talked about that phenomenon in some of the prior quarters. We -- it's a combination of factors, Shaun, that gives me a lot of confidence about the momentum we have in conversions. Number one, we have a more attractive stack of conversion-friendly brands than at any time in my career. I think we've got dedicated resources in the continents that are specifically focused on both individual asset conversions and portfolio conversions. And I think the organization has rallied around a level of creativity in terms of how we both identify close transactions for conversions and get them open.

You heard in the opening comments, it is a remarkable statistics that about 75% of our conversion openings opened within 12 months of signing. So to be sure, conversions and some of the conversion-friendly brands like our soft brand Collections, Luxury Collection, Autograph and Tribute certainly Series. Some of those sorts of brands will be among the biggest drivers, and then when you look internationally, there is an almost insatiable demand for luxury. We're seeing that across many of our markets, and we're seeing a parallel momentum in luxury demand. Finally, mid-scale, it's hard to believe we haven't even been in the mid-scale tier for 3 years, but we shared some of the statistics by brand and across our mid-scale portfolio. I expect that to continue to accelerate.

Yes. The only thing I would add, Shaun, is a reminder of the work that we've been doing over the last 18 months, which obviously, a chunk of it was about making sure that we were streamlined as possible from an expense perspective as we really saw the back end of COVID. But more importantly, [indiscernible] to be able to be quicker, to be faster. And that was really related to every single part of the company, whether it was through Bonvoy, whether it was through development, in everything that we do to try to really accelerate the pace at which we grow. And from that perspective, I think you see in the pipeline, when you look at the year-over-year pipeline and even the pipeline growth from the end of the year, you can see those numbers show forth.

And frankly, I'm really proud to say I expect the company to do a lot more of that after I retire. And that I'm excited about their opportunities to do that going forward and that we're very comfortable with this 4.5% to 5%.

Our next question comes from Dan Politzer with JPMorgan.

And Leeny, certainly echo that sentiment. Congratulations. It's been a pleasure working with you, and we wish you the best of luck.

I wanted to touch on the credit card fees and that 35% step-up. Can you maybe talk about why now, why were you able to kind of increase the royalty rate? What drove that any order of magnitude on that rate? And is this something you've done in the past? And as you think about going forward and the credit card bill that you're in the process of negotiating, is this -- is this effectively a mark-to-market that could lead to some element of a pull forward from that?

Yes. So maybe we'll try the same approach. I'll make some overarching comments and then Leeny can get a little more granular. As you heard in Leeny's remarks, there was an existing contractual agreement that had to be modified, and we did that. But I think the other two important factors in response to the question of why now?

We wanted to ensure that we preserve the financial strength and stability of the Bonvoy program and simultaneously, we want to ensure that we preserve the value proposition for our 271 million members. And so the confluence of those three factors really were catalyst to making this adjustment.

Yes. And I'll point to my prior answer, which is a reminder that we have spent a lot of time and energy in making sure that we found efficiencies. That certainly is a helpful component to making sure that we're balancing the needs of all our constituents. It's really critical, the value of our Bonvoy program to our customers and to our owners, and also to the company itself. And so it's been a very careful evaluation of the appropriate level, and we're confident and comfortable with this new level of royalty fee percentage.

Our next question comes from Stephen Grambling with Morgan Stanley.

Leeny, thanks as well for all of the insight and look forward to keeping the dialogue going in the future. Tony, I think you mentioned that the Google and OpenAI partnerships were something that's in the nascent stages, but I was hoping to get more detail on what these partnerships entail. Are these more about testing distribution channels? And are you providing access to inventory and data? Or is it more about comparing these as an advertising channel? And if so, how do those costs compare to traditional search channels?

I'll try and answer that, although I would view the caveat, often in our industry, people talk about various facets of the business through the lens of what inning are we in? I would suggest to you that we're pulling into the players' parking lot. We're not even in uniform or on the field. So it is quite early.

But with that said, we are end of last year, November of '25, we began working with Google, and that was really to design a priority search experience that will help facilitate bookings through Google's AI-mode. As part of that experience, users will get to describe exactly what they're looking for in plain language, and then they'll get to compare different hotels and browse information, room photos, amenities, reviews, prices and the like, and then they'll be able to follow up and refine those options, and then the booking will be processed through AI mode.

With OpenAI. This is really just the early days of their Ad Pilot Program. So what I would say to you is philosophically, we are working very closely and very collaboratively with the subject matter experts, the biggest most innovative and creative companies in the space, both to learn from them, but also to shape or have some word in shaping the evolving distribution landscape.

Our next question will come from Michael Bellisario with Baird.

First, congrats, Leeny on a great run. Questions for Tony. You really talked about in an interview of just sort of the economic model for franchisees becoming less favorable. But maybe that was more about new construction. But could you just expand on that a little bit? I guess what are you doing to make the math better pencil for both existing and prospective franchisees.

Thanks for the question. I appreciate it. The reality is, while you've seen tremendous performance from the big global brand companies, we recognize and focus every day on the fact that the owner and franchise community is at a different stage in their recovery from the damage done by pandemic. And our recognition of that really drives our focus around looking at and attacking every variable in the equation that drives owner returns. To state the obvious, we are an asset-light business model with a focus on high growth. So we have got to do everything in our power to ensure that those returns recover and recover quickly. So what does that mean precisely?

Of course, the work we do every day to drive top line revenue, the work we do every day to enhance margins. looking at every facet of affiliation costs with a Marriott brand and seeing if there are opportunities. You'll recall from a few quarters ago, we shared with you that we had lowered the charge-out rate for Bonvoy program. We'll continue to look at every aspect of the affiliation costs and see what we can do to try and drive margins. We're also -- maybe the last piece -- we are, in some ways, looking with a blank sheet of paper at the entirety of the hotel operating model. The services we provide, the staffing models that we use, how we schedule, how we purchase all of the things that influence the profitability at the property level are being evaluated by our teams around the world.

Our next question comes from Lizzie Dove with Goldman Sachs.

And echo everyone's sentiment, Leeny, you'll definitely be missed. I'm wondering if you could maybe expand a little on what you're seeing a bit of a pulse check on the consumer here, I suppose, particularly in the U.S. You mentioned U.S. and Canada RevPAR be a little bit better, this year, some World Cup in that, but any more details you can share on just what you're seeing, whether in booking windows, leisure, business transient group kind of across the board any more color?

Sure. Thanks, Lizzie, very much. I'd say steady as she goes. Clearly, leisure continues to be the meaningful out-performer. Of Q4 globally, leisure was up 4%, group up 2%, while BT was down. Some of that was related to the government shutdown. But clearly, when you look overall, you continue to see both nights and rate very strong globally in the leisure sector, and that extends down into our premium resorts and certain large cities where you've got great leisure demand, and when I think about kind of group, it also continues to be steady. Attrition has actually been positive. And as we look at the group pace going into next year, it's up 6%, and while that's down 1 percentage point compared to a quarter ago, that's quite normal as you enter a year. And we actually expect to see across all 3 segments in '26 that they will be up low single digits when you look about Leisure, BT and Group.

In terms of the booking window, again, fairly similar 22 days in the fourth quarter. Business transient, always about a week shorter and Leisure a little bit longer. And we continue to see the same trend in Greater China, which is that they have a meaningfully shorter booking window. So I think we've clearly got some extraordinary events in the U.S. and Canada that will help us to the tune of probably 40-ish basis points from our expectations from World Cup. But I think you'll also -- you can recognize that we really start to see extraordinary events and experiences happening almost every year that we start explaining the benefit from it because the reality is people love to travel to have experiences. So that trend of those expenditures by consumers growing faster then goods continues, and we expect that to go forward.

At the same time, that view of [indiscernible] distribution where our lower end consumer and guests have had a tougher time. I think that we expect to also stay the same. Government business ended up the year about 15% down, and that clearly impacts our lower-end hotels. So this disparity between the top end and the bottom end, we expect to continue although perhaps not to be quite as wide as it was in '25.

Our next question will come from Richard Clarke with Bernstein.

Yes, just echoing, been a pleasure working with you the last 6 or 7 years, Leeny. Just a couple of sort of follow-ups, I guess, on the credit card points you've made. Would you have expected credit card spending to have accelerated? Or is the acceleration up to sort of 35% growth all to do with the royalty changes?

And secondly, has there been any sort of change in anything, maybe on negotiations with Chase or American Express since there's concerns around interest rate caps or the CCCA reform negotiations. Has that changed those negotiations? Are those fully on track as they were before?

So thanks very much, Richard, and likewise. So good reminder. No, we do expect the basic credit card business to show the same high single-digit growth rate that we've been seeing continue on into '26. And that, again, is separate and apart from a new credit card deal, and then it is the other component that leads us to the approximately 35% increase in the credit card guidance for 2026. On the second question...

Yes. On the second question, Richard, obviously, we are in close contact with both Chase and American Express. But broadly, we've not seen some of the discussions on Capitol Hill have any measurable impact on the pace or the progress we've made on our credit card deal negotiations.

Our next question will come from David Katz with Jefferies.

Thanks for taking my questions, Leeny, at the risk of dating both of us, for a new person picking up the space, the [indiscernible] in grace to the IR team sets the tone for everything, all the best.

I wanted to ask about [indiscernible] and the investment spending there. At the risk of parsing your words, Leeny, I think you said policy on key money and investment hasn't changed. Is the amount year-over-year that's included in this guide versus last year's [ 1:1 ] changing in some way. And hypothetically, if you wanted to accelerate your [indiscernible] right? We always look at the growth rates versus everyone else's. Could you theoretically spend more to drive it higher? Just curious what's all in there.

Yes. Sure. Absolutely. Great question. I'll try to cover what I can and leave the rest or Tony. There were several questions in there. So first, to your point, over time, we have seen a bit more key money required across all the tiers. And I emphasize the a bit, when you think about the way that financing interest rates, cost of construction and you think about the cap stack for a hotel, that makes sense, and you can be sure it is industry-wide, that is the case. We also have a distinctly strong pipeline in luxury and full service, which at the margin tend to have a bit more key money but generate meaningfully higher fees and NPV, from that perspective.

The other thing is that when I talk about that roughly 40%, remember that it is in the border line of kind of close to 50% that you will see spent on extending, renovating, getting new and better agreements for existing hotels that then also improve our fee stream as well as for new developments. So when I look at the overall new development, the numbers relative to last year for new development are not meaningfully different. And I remind you of our business model. We don't have an issue with having to constrain key money. When we have great deals come to us, we have, as you know, the free cash flow to absolutely go and spend it. However, we're very disciplined. And we do find that where we use our key money, those deals are more valuable per key than deals that don't require key money. I think that financial discipline to make sure that we're getting great ROICC, is very important overall. And I'll turn it to Tony.

Yes. And David, the only thing I would add, the I might just double-click on Leeny's comment of the discipline we use. I suppose there is a path out there to just buy deals in a noneconomic way. That has not ever been our model nor will it be going forward. We deploy the company's capital when we think we can drive outsized economics for the shareholders, as you heard from Leeny, and I'll just give you one statistic maybe that underscores that a little bit.

While the aggregate amount of key money may have increased when you're driving the sort of record deal volumes we have with 1,200 deals signed just last year. The amount of key money per deal signed last year was actually lower than what it was back in 2019 at about flat to where it was in '24. So I think that's a good illustration of the continued discipline we apply to the deployment of [indiscernible] capital.

Our next question will come from Brandt Montour with Barclays.

Congratulations, Leeny. Thank you for everything you will be missed. So I'm just going to ask the record question in a slightly different and perhaps a little bit more direct way. But does this adjustment change the way that we should think about upside from the ongoing negotiations?

So again, I'll reiterate what I said, Brandt in my comments during the script is that, first of all, the two are total separate. This is a function of an agreement that has been changed as well as the strength and the power and size and scale of Bonvoy and the efficiency with which we run it. So that is really regarding the royalty rate.

Relative to the credit cards, I just point you to the fact that we already have by far, the largest credit card program in the industry, combining the former Amex SPG program as well as Chase Bonvoy. We were, by far, the largest then. So again, that's not anything to do with what's going on with the royalty rate. But just a reminder that you've really got already a huge program with over in fees. And then also just to know that the way these credit card deals roll out is they involve introduction of new cars and refresh, and that all has to be put through the systems for the consumers. And we do expect that, that will take some time for that to roll out and stabilize.

So again, the two items are separate but it's also a good reminder of the size and scale and the amount that we are already producing from our credit card programs.

Our next question will come from Aryeh Klein with BMO Capital.

I'll echo the congrats, Leeny. Tony, I think you talked a little bit about some of the investments you're making on the tech side. So you can unpack a little bit. Where do you think we are in that investment process? And could the spend potentially accelerate as you invest in AI? And then just separately, a quick one on the World Cup. Curious what you're seeing as far as international demand. I know it's early, but I imagine booking windows there might be a little bit longer.

Sure. So as we've talked about in multiple discussions, we are -- the bulk of the investment is the re-platforming of our three most important technology platforms, central renovations, property management system and the loyalty platform. We have moved from development into deployment. We have started portfolio of test hotels. Those rollouts are going great. A lot fewer bugs than we expected and a lot more rapid resolution of those bugs than maybe we had hoped. So you should start to see that ramp up in a really meaningful way throughout the balance of 2026.

By design, we've started to deploy these platforms in select service hotels, which have a few less layers of complexity as we start to roll out into the full service tier and even into the luxury tier, we'll move as judiciously as we have today to ensure we identify and resolve any bugs, but we're feeling really, really good about the pace of spending, and I don't know that it will be materially different than what we've described over the last few quarters.

And then I think on the second question about World Cup. Again, it's early. I happen to be with the FIFA leadership over the weekend. I asked them specifically whether they were seeing any hesitancy from inbound international bidders for the World Cup. And the -- these are their words, they were stunned by the volume of ticket requests they've seen from around the world, as soon as the website launched. So it's early, but we're feeling really good about the early returns.

And just as a reminder, we did see in 2025, a decline in guests to the U.S., although for our entire system, cross-border was actually up 1% because of international travel. And we do so far see some increase in international guests booking in our hotels. It's still quite early days, as you know, on many of the match dates, you don't know exactly yet which countries are going to be playing. But we are very pleased at what we're seeing so far. We went through an exhaustive set of work to really evaluate the number of matches, 104, the attendance expected comparing to other events like this to come up with our estimates, and obviously, it is early days.

I would expect that as you get closer and closer to the finals that you see the booking windows really get smaller and smaller. But for now, we are very pleased with what we're seeing from broad demand. But I would say it's too soon to say any more than that.

Our next question will come from Conor Cunningham with Melius Research.

Congrats again, Leeny. Just maybe two points of clarification. Just on the change in royalty -- to talk about this more, but just is it a change in revenue recognition? Or is there an increased cash conversion rate as well. And then if you could just give a little bit more color on owned and lease. I think you talked a little bit about that in your prepared remarks, but just any more color there would be helpful.

Yes. So just real quick on the owned, lease. That is really, I'd say, all things fairly similar with the exception that we've clearly got a couple large owned leased renovations. We do also later in the year, have the Barbados [indiscernible] coming back into the system more fully, which does offset some of that. The other thing in the owned lease to net is where the payment that we make to a third party, they do share a very modest immaterial amount, and as our royalty rate goes up, they will also share in that increase. But again, a very modest immaterial amount. And it is not related to revenue recognition. This is a function that as we have the payments that are negotiated with our credit card companies of what they pay to be associated with Bonvoy. We then divide that into the buckets that I talked about before, to make sure that the program has the resources it needs to provide great value to our guests and our members as well as paying for the actual cost of the points to support the program and then also to compensate Marriott for its licensed IP.

And given both the size and scale and work we've done on efficiencies and the relief from a contractual requirement, we are now able to increase that royalty rate to a level that we're comfortable with.

Our next question comes from Smedes Rose with Citi.

Let me say best of everything to you going forward. It's been a pleasure. I wanted to ask, you guys have covered a lot of ground, but I just wanted to ask a little bit, you mentioned the strength in Leisure. That's obviously been sort of a highlight in hotel world, especially for you guys over the course of this year. And I just wanted to ask you, are you seeing -- if anything you can just comment sort of underlying trends within leisure? Are you seeing an uptick in interest in all-inclusive platforms? Are you seeing incremental redemptions for loyalty points to support -- your stays? Or anything that you could just point to, I'm just wondering kind of just the sort of overall changes, if anything, within the user category. .

Sure. I'll start, and Tony can fill in. On your question about redemptions, it continues to be roughly about 5% of nights. That is, frankly, where it's been for a while with some slight variations. So that part remains fairly stable. We obviously are much more dynamic in our pricing now and we are able to help for hotels that are seeing a low occupancy period, can then make it more attractive to customers to redeem and then similarly make sure that the highest end are getting rates that reflect the demand that they have there.

And then I would also say that within the leisure space overall that obviously, the fundamental strength of the economy matters a lot. And so continued strong economic performance in the markets where our hotels are is a big driver. And then when you look at the leisure demand overall resource and luxury continue to be the leaders.

And Smedes, maybe the only thing I would tack on. We were talking about this yesterday. At some point, there are so many tentpole special events around the world that we shouldn't call them special anymore. They become sort of a norm. But this phenomenon of event travel is becoming more and more consistent. You heard some of the comments at the open about the impact we expect to hear and see from the World Cup. We've got the Winter Olympics now going on in Italy, we expect a Q1 impact of about 100 basis points on EMEA RevPAR as byproduct of travel to both Milan and Cortina. And so I think the reality is -- we'll continue to see in sports and music these major events. That will just be a further bolster to the base trends we're already seeing in leisure.

The several percentage points, Smedes, that leisure gained in share of nights since COVID has absolutely stuck. So you're seeing leisure at 45% of our nights globally. Group continues to be in the ballpark of a quarter, and BT is the one that's still several percentage points lower than it was in 2019.

Our next question comes from Robin Farley with UBS.

Great. And Leeny, definitely best wishes. I want to add that to everyone else's comments. Two clarifications. One is on the unit growth, increased 4.5% to 5%. Can you just clarify, is that all organic would acquisitions be on top of that? Or could that 4.5% to 5% be a mix of organic and acquisitions to be determined?

And then my other question, I think you've pretty much answered it. I know there's been a number of questions on the step up in the credit card, co-brand fees. So the royalty rate this sort of 20% or so of the step-up in credit card fees. Is that sort of a onetime adjustment, but you're not giving guidance for 2027 yet? But in other words, the idea is you really probably -- that high single-digit increase from usage and things is what the ongoing increase would be after this sort of step-up that's more of a onetime step-up in '26?

Thanks, Robin very much. And yes, our 4.5% to 5% is organic. That is organic growth from the work that the team has been diligently going after and also all the work that goes into opening. So yes, that's all organic.

And then yes, on the royalty rate, we have -- as we have described earlier in this call, we've worked very hard to make sure that we are doing what's in the best interest of our constituencies, and we're very comfortable with the change that we've made and where we are.

Our next question comes from Trey Bowers with Wells Fargo.

Leeny, sorry to see you go, especially as I transition to this side of the aisle, but it's been great working with you all these years.

I'm just going to build on an earlier question around business transient travel. Do you guys expect that, that does get back to kind of pre-pandemic levels? Or has just the world changed a little bit? In that case, has it changed at all, just your thoughts around where you're looking to drive [indiscernible], even the design of the hotels? Or is your expectation eventually that fully recovers?

Well, so first of all, 2019 is getting to be a longer and longer time away and you think about just how the market has evolved and how much we've grown. I mean we've grown probably 25% since then and a lot of that is International and across all chain scales. So it does get harder to truly compare apples-to-apples.

But I do think when you look at a classic business travel related to the level of economic activity that, that part will continue to have the same trends that had before, which is that people need to meet person-to-person to do business. There are also other elements, for example, not as many companies having 5 days a week in the office all the time that I think make your traveling consultant at 25 years old, not necessarily quite on the road quite many days.

But we do expect that certainly, overall, I think you'll see the level of demand get back to 2019 levels. The counter to that is, I think leisure is going to continue to be stronger -- and so from that perspective, this percentage of leisure being greater than it was before and business being less, I actually think will continue to be as it is, although, again, perhaps not quite the way it is right now.

And I might just reiterate something I said a year or 2 ago. And that is, while I think it is a fantastic phenomenon for our business, our ability to tell you with perfect precision, the trip purpose of every guest in our hotel has become a little murkier because you see these combined trip purposes with folks tacking on leisure to business travel. So while we might not be able to give you the exact same precise answer we might have given you in the past on market mix, I think we feel really good about the overall recovery of travel volumes.

Thank you. At this time, we've reached the end of our allotted time for questions. I would now like to turn the call back over to Tony Capuano for any closing or final remarks.

Well, thank you all for calling today. For those of you that attended or may have read about the ALIS Conference, Leeny received the Financial Adviser of the Year Award. She should have received the financial adviser of the quarter century. She has been an extraordinary leader, an extraordinary partner. She has an unwavering belief in the power and potential of travel and of Marriott and has steered us through some of the most difficult complex challenges that the company has faced over all these years. She will be deeply missed, as you might expect, for those of you that know her well, she's not spent the last year taking a victory lap. Instead, she spent the year getting everything buttoned up, preparing Jen so that we'll have a seamless transition. But Leeny, thank you. We'll miss you.

Thank you so much. I consider myself incredibly fortunate to have spent my career at Marriott. The travel and hospitality industry is extraordinarily dynamic and, frankly, tons of growth opportunity and innovation ahead of us. And I know that you and Jen and Sean and the team are going to absolutely take the company to new and greater heights after I retire. Best of all, frankly, the reality that the way you win in our business is by taking care of people and treating people well, doesn't get any better than that. So with that, I thank you, and I thank everybody on the phone very much for all your time and energy that you put into helping understand Marriott and our strategies.

Thank you all.

Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everybody. Welcome to day 3 of the Eat, Sleep, Play, Shop Conference. I will say it's a bittersweet moment for me as I'm joined here by Leeny Oberg, the CFO of Marriott. And it will undoubtedly be her last time sitting up here with me. She's retiring in March. So I'd just like to say thank you, Leeny, for the years. I'm not going to choke up. I know you can hear it. It's actually -- it's just I didn't have my coffee yet. The years of amazing leadership within this industry, you will be missed.

Thank you very much, Brandt. And it's been a pleasure to work with you, and I know that you'll be in very good hands. As we move forward and really appreciate all the support. And great questions.

No pressure. Let's dive into those questions. So we'll start with the U.S. Maybe if you could just walk through the year, how we got here and then what you're seeing in the demand environment post third quarter earnings, how are bookings trending post and the government post government shutdown as well?

So that's a good, long question. And I think what I'll do is I'll try to answer it fairly briefly and then you can pick at what you'd like to. If you remember, as we started the year, we were kind of imagining first of all, we had an environment where we were looking at overall RevPAR for the company globally that had a midpoint of 3%. We are now where the midpoint is 2% for the year. So we started out the year with a view of not knowing whether there would be a fair amount of uncertainty kind of where things would go on certain topics, everything from tariffs to kind of how the new administration would come in, et cetera, how the business would roll out and GDP.

And I think what you've seen as you've moved through the year is that leisure has been quite sturdy. And when we began the year, we kind of imagined that leisure would perk long positive RevPAR, group probably have the highest RevPAR and BT somewhere in between. And I think where we've ended up is that group in BT have ended up underperforming a little bit relative to the beginning of our year expectations, although I will say group RevPAR is still expected to be positive -- and that leisure has completely and utterly held up exactly where we thought it would be. And that in the year for the year group bookings is where we saw things not fill in quite the way that we had hoped at the beginning of the year rather than cancellations and attrition. And then the other part on BT, which I'm sure we'll get into at some point is, I think, in many respects, more a function of the government cutbacks and government shutdown, uncertainty in general, smaller businesses trying to deal with margin pressures, et cetera.

So then as you get to the end of the third quarter, as we talked about, we expected fourth quarter RevPAR to be a little bit better in many respects with some shifts in holidays for the fourth quarter. And we still do expect to see our RevPAR kind of be that way. But I think probably more at the lower end of the range that we gave for 1% to 2% in the -- for Q4, and that's really overwhelmingly because of the U.S. So when you talk about October, October RevPAR was globally 2%, and that was absolutely right on the money relative to what we expected when we gave guidance at the end of Q3. The reality is, though, at the margin, the U.S. was a little bit lower than expectations and international was a little bit higher. The U.S. was actually 20 basis points down in the month of October. And I think you clearly saw that connected to continued uncertainty around the pace of the economy. And kind of decisions around possible government shutdown, et cetera.

And then also the reality that international continued to be quite sturdy. International was 7% for the month of October. And as we get into November, clearly, the government shutdown extended longer than anyone expected. And I think that is part of what you're seeing when you think about Q4 RevPAR overall.

Okay, great. And maybe we can just roll that right forward -- right into 2026, you gave a preliminary look at '26. I think you said 1.5% to the 2.5% area you gave 30 basis points for the World Cup for the -- for the for Global, which I assume would be something maybe 50 basis points for the U.S.

Yes, I'd probably say 40-ish.

Okay. Got it. And any further color on 26 maybe by region?

We're smack in the middle of all the budget work. So I can't really -- we're still wrapping that all up together. So I wouldn't give -- wouldn't have all the data pulled together that has a comprehensive view. I think the trends that we've talked about before, Brandt, about U.S. being better next year but still not as good as international. All of those things, I think, will continue to be what we would expect and that, again, as we talked about, the 1.5% to 2.5% is the right range.

Great. Okay. Let's drill into maybe leisure. You said bang on what you thought it was going to be. We have seen a noticeable decoupling, right, from the high end versus the low end. You guys see a whole swath of types of consumers. You've got a little bit more mid-scale than you had in, let's say, past decades, right? You moved a little bit down, chains going to be maybe not material, you'd say. But what are you seeing across the database? And are you starting to see further decoupling from those sort of like upscale brands. We can clearly see what's happening in the lower -- like the mid-scale and below. But what about the sort of upscale and this mid-scale.

No, it's a great question. And I think it's not going to surprise anybody that leisure has been particularly strong in the luxury and in the premium sectors as you see higher income travelers continue to spend and feel confident about their net worth. The stock market has continued to be strong. You've seen interest rates a little bit lower. So as people think about their borrowings at the margin, perhaps a little bit more comfortable. So clearly, on the leisure side, you are seeing a very good, solid, steady pace of demand across the markets. And I think when you then look at the RevPAR terrific on that front for leisure at the luxury and many of the premium hotels. And then I would say in Flex service flat. So that's better, right, in select service, that's better than what you're seeing overall.

So leisure is roughly flat. On the mid-scale, that would be a universe of 6. so it's probably not enough hotel I'll be able to talk about the trend. Now I'm happy to say we've got 150 in the U.S. pipeline, and they'll all be rolling on very soon, and we continue to be really pleased with the pace of demand for new signings in mid-scale, but there's really not enough to kind of make any comments. But I think on the select service side, kind of the fact that leisure is steady is good and clearly better than some of the other segments.

Yes. You mentioned luxury because it really shows no sign of cracking. It looks bulletproof. I hate those words. And maybe given where the stock market is that's not expected to change anytime soon. But in past cycles, that segment wasn't immune to shocks. And in fact, it was usually more sensitive because of all the business higher in business travel as well as some group because those are generally big box, right, full-service amenity hotels. Is that still the case? I mean, is it still -- like in the next cycle or the next downturn is it going to look more like last cycles? Or do you think it's kind of changed to this day and age?

So I think the answer is yes to both. Clearly, when you have a meaningful recession, there is bound to be an impact. We've all been talking about a possible recession for the last 4 years. And we've continued to kind of move along. I think this year, while GDP hasn't turned out to be quite as strong as hoped for, we're still not in a recession. So it's kind of bumped along. And hopefully, next year, GDP will be a bit higher in the U.S. And so I think that would continue to emphasize this continued spending on the leisure side. And on the luxury side, -- but I do think it's always a good reminder of what's happening with U.S. household net worth, which is -- that has grown faster than GDP over the last 20 years on a compound basis, and it is increasingly in the hands of people who are 55 and over.

And even if you end up with a softer stock market, et cetera. In many cases, you've got people who are starting to think about retiring, thinking about how they want to be with their families. Experiences are only stronger than they were, call it, 15 years ago. So I do expect that there will, on a relative basis, perhaps be less sensitivity. Will you always have the reality that business travel can be impacted by a real recession, of course, and that would impact some. The best thing that can happen at a luxury hotel is where you've got strong demand -- strong business across all 3 segments, group, BT and leisure. And so I think that's where you'll continue to see the hotels that have that base. I mean, we look at New York as an example, where you've got that robust demand across 3, you can have 1 be a little bit weaker and the other helps fill in. I do think they're going to continue to outperform. But obviously, if you have a meaningful recession, of course, you're going to see them in.

Yes. It still feels like the sort of -- the possible variability within greater branded lodging really goes with corporate transient, there's low lead time to bookings, et cetera, but that's just more sensitive. So when you think about that segment going forward, I mean, what are sort of the top factors we've got potential interest rate cuts. We have a policy that could shift more domestic next year. You have obviously easy comps, but then you have structural changes like zoom and those things still sort of weighing on the overall picture? How do you look at that?

That's so funny. I know you probably remember way back and we had the great recession, it was just immense amount of talk about how group business would fall by the wayside because everybody was going to hold all their group meetings kind of over -- kind of over the computer. And the reality is that I think if anything, group has only become more important, especially with the emphasis of COVID, is that the value of getting people together and what that does for culture, for getting things done faster and better kind of family get together, et cetera. It's only been emphasized by COVID. And so I can still remember back when I was doing Investor Relations at Marriott Group was about 1/4 of our business. And sure enough today, group is still about 1/4 of our business and continuing to really thrive.

We've talked about group bookings for next year being up really nicely as you consider of the business. So yes, interest rates, obviously it is really all about economic activity. It really, in many respects, gets down to the pace of business activity across many sectors. The government impact, obviously, very little on luxury, but has definitely this year been something that has had an impact on RevPAR overall. And the other thing I think is interesting to think about is -- the reality that the U.S. is particularly dependent, if you will, on domestic travel. Many of our other markets outside the U.S. have a broader international cross-border base of customers. We know that travel into the U.S. this year is down a little bit. It's still 5% of our rooms. It's not enough to have a dramatic impact.

But that 95% that makes up U.S. demand in our business means that as the U.S. economy goes it has a real impact on U.S. RevPAR. So I think we all continue to pay a great deal of attention to the fundamental pace of the U.S. economy. Now next year, you've got a couple of different events relative to the World Cup, et cetera, which I think will only be helpful. But it's good to remember that the U.S. is overwhelmingly domestic travel.

You did touch on group there. I think maybe the short-term filling in a group with the lack thereof in the midyear, that was maybe the surprise and no one was kind of expected because group is so rock sold, there's sort of a demand supply imbalance, which creates better pricing power that we all know about, and that's not going to change. But maybe talk about the second derivative of group bookings and as of the third quarter was fine, but do you see any stabilization in that second derivative? And when you look next year, if you don't see an economic uplift and a policy shift per se, can group still have a good year sitting here today?

Yes. Well, I mean, group is up nicely when you think about 8% and has stayed -- that's for the U.S. And that has stayed constant between the end of Q2 and the end of Q3. You normally see that start to revert to what you actually think the group RevPAR will be up. So it tends to come down. And the fact that it has continued to stay strong. Now you probably can argue there is some grouping up in the industry overall. But I think that's healthy. It's a very healthy business, tends to have food and beverage along with it that is relatively higher margin than your day-to-day retail food and beverage revenues in a hotel because the larger groups tend to be a little bit more profitable on the food and beverage side.

So I think maybe at the margin, there's a little bit more grouping up than there was a couple of years ago. But again, we typically begin the year with at least 75% of the business of the group already on the books. And again, clearly, this year, we have seen some changes relative to unexpected changes in pricing for either supply chain pricing, et cetera, for businesses, particularly small and medium-sized businesses. And I think that uncertainty may have weighed on in the year for the year bookings this year. While next year, hopefully, there's a bit clearer picture about the economy.

The other thing I'll say is, obviously, you've got midterm elections coming on. I think there'll be a lot of attention on the part of lawmakers and the administration about how the overall economy is doing as you go into those midterms. So I think that's another interesting element to keep an eye on.

Okay. Maybe we should shift gears to development. Okay. I mean, I'm going to...

One of my favorite slides.

I'm going to -- let's get the not so great stuff out of the way and just quickly talk about Sonder. What went wrong with Sonder? What have you learned from the experience? And how does that experience potentially change the way Marriott will do deals in the future?

Well, so first, I'll say our business is not risk-free. We rarely have a counterparty declare bankruptcy, but it has happened from time to time. This one obviously very unfortunate and one that we desperately tried to do everything we could to not have an impact on the customer. But if you kind of go back in time, as you remember, there was a recapitalization of Sonder that provided $146 million of new capital in '24. That was when we signed our license agreement and began with all the appropriate processes of extensive due diligence, various running of different scenarios, running through all the expectations of what was needed to fold them into our system making sure we had the lay out because they have both apartments as well as some small hotels.

So really went through all of that. The reality is Sonder management ran that company they ran the hotels and the buildings. We were the licensor. And they ran into financial difficulties and did immense amount of work trying to come up with scenarios that would help them get through it. They were a least-heavy model. And cash flow became a clear crisis. We were involved in trying to work through that. I'm sure you've seen from the filings is that we agreed to defer some reimbursables for a while to help them through this cash crisis. When things begin to look really dire, we actually were willing to pay a little bit of payroll to kind of make sure that we weren't having customers kind of rapidly impacted and really tried to do the best we could to help. But in the end, they weren't able to get to the other side or come up with a way to restructure the business and ended up, as you know, filing a Chapter 7 bankruptcy filing.

So we're obviously very disappointed. We were pleased with how the system was doing when it was on integrated into our system, we were pleased. I'm sure you've heard the occupancy was 86% when they filed. So it was what we viewed as a really terrific strategic license agreement that would offer our customers more choice and more locations than they had before. And one is, as I know you know, that did not have an immense amount of financial exposure for Marriott.

So when you talk about lessons learned, we will continue to look at strategic deals of all types. I mean, I think one of the most important things is that you learn from it, but at the same time, you continue on with your strategy and what you're trying to do for your customers and frankly, for all your constituencies. And doing all the appropriate homework, the due diligence, the integration requirements, the financial capabilities of your partners, I mean all of that work, we will continue to do -- but some of the strategic alliances that we have done like the MGM partnership, we view as absolutely being fantastic and very accretive deals for our system. And from that standpoint, we will continue to do that.

Okay. Great. Looking at the core business, both of you and your -- well, actually both of your major U.S. peers for their net unit -- for their net rooms growth for the year, they both brought up there at the lower end of their guidance, but you guys give a point guidance. You don't give a range. And so ex Sonder, would you say that you are tracking in line or slightly better versus your initial rooms growth guidance for?

Yes, in line. I mean, again, I think openings this year have tracked along kind of exactly where we thought they'd be. I think you've probably heard us say this before, hotels that are going under construction, we've seen that number of hotels go up 25% this year compared to last year. Now that's still obviously down from '19 meaningfully, but still good to see a little bit greater sense of stability about moving forward on the part of our developers. So obviously, that will start helping roll into net rooms growth in '26 and '27.

And the difference, obviously, is on the deletion side as a result of Sonder, which just -- again, we've always talked about having deletions in the ballpark of 1% to 1.5% of our system. And obviously, this year, we'll be at the high end of that as for the last few years, we've really been at the low end of that.

Okay. That actually is a good segue into '26 setup. I think you just gave an idea of U.S. construction starts. It sounds like it's accelerating. But the mix has changed in this industry and you're more reliant on conversions. So maybe talk about the setup for how momentum can shift into '26. We're looking at rate cuts that could maybe spur some hotel transactions. And what are the other factors that when you think about how '26...

I mean I agree with you on hotel transactions. I think that's one of the kind of hopefully, one of the things that will continue to help next year. I think if you talk to the major hotel brokers out there, they will tell you that they're starting to see a bit of a pickup in transactions. Now it tends to be in markets that are very solid and sturdy, viewed as less volatile. But even seeing some transactions in markets that really were experiencing some real uncertainty in tough times like a West Coast market that they are starting to see some pick up there. So that we do see as potential opportunity.

And then obviously, the under construction. But on the conversions, as you know, we've announced series and we've got a range of conversion options for hotel owners. And in an environment where there is low supply growth, the opportunity for those owners to do a little bit of investing in the hotel, join a brand, whether it's a soft brand like Series, where we just signed a deal with 5 Found Hotels that will -- that's an upscale collection brand that will literally -- some of those will open this year, even though the deal was just signed a few months ago.

The demand side on -- for those conversion brands all the way from luxury collection all the way down through City Express, is we are so pleased. And so yes, I think you should expect that next year, even with the continued growth in under construction rooms in the U.S. that you should continue to see a very strong proportion of our room openings coming from these conversions.

Okay. That's helpful. We have 10 minutes left. I have 2 critical questions, but one of them includes AI. So I've got to keep moving along. The first one is the credit card deal, which you talked about on your most recent earnings call, you're up for your renegotiation with your credit card financial partners. Next year, maybe you can share a little bit of additional color. You gave a lot of context. I don't want you have to go through all that again. You give us a little additional color about when the deals will be -- can be in place and then a potential upside to adjusted EBITDA or at least how we can think about that for those deals, if you were us like what you...

So I would think of it in a couple of ways. One is that on the timing perspective, I can't give you any more than we had before, which is that we do expect them to be next year. I can't really be any more specific about exactly when we're in the middle of negotiating right now. These -- we've got 2 credit card partners. We will have 2 going forward. This is in the U.S. And from that perspective, they are quite detailed and take some time. But we're obviously incredibly pleased with our relationship with these partners and with, frankly, what we have to offer.

Our system has grown dramatically since we -- I don't have the exact numbers, but it's probably 50% bigger system than we had even that's post Starwood. So a really tremendous growth to be able to offer as part of the Bonvoy proposition to these credit card partners. And I think we've also proven -- we've really proven the benefit to them from the standpoint of great growth in numbers of cardholders, solid spend on the part of those cardholders. So I think those equations will be similar. And obviously, we, of course, hope for -- to improve on our position, and that will all fold out in the negotiations.

But part of what obviously you try to do in these is not only are you trying to work what is the best for the 2 parties in terms of the product offerings. What are the cards and what are the offerings of these cards, where do they fit in terms of price points, et cetera. So it is not only the actual pricing that the credit card companies pay us. It's also trying to make sure you're putting into place something that will help accelerate the number of cardholders and the amount they spend. So I think you put that all together. And obviously, we'll be able to talk more once it's done. but we're moving along.

Okay. Okay. That's great. So on to AI.

And adding international cards as well, which I obviously don't ever want to forget that.

Post that first deal, right? You didn't have -- cards were not abroad and now they are.

I think we had a couple back in '17. We probably had a couple, but obviously, now 11 countries, many more cards, a couple of countries, we now have 2 cards. So I think you will continue to see us add additional countries as well.

Okay. Great. So on to AI, there's -- we could spend another hour on this. We only have 6 minutes. This is by design. And there's lots of buckets that you've spoken publicly about where you're using AI internally, externally. I want to focus on the distribution side because that's the most topical for us. And really, given OTA is still a meaningful percentage of your mix, what are the different scenarios with regards to how Marriott can utilize what the LLMs are building in terms of distribution. And what are the most likely outcomes in your mind and timing really?

Yes. So I think we all know this is very nascent, right? You've still got the reality of quite a number of AI players of sizable AI players and the business models that they are considering is still I think, kind of under consideration, particularly as it relates to travel. And so while classically now, if you're going on to these AI channels, you're going -- if you -- and we are working very hard to make sure our content that we have on our experiences and our hotels are easy for the AI searches to pick up. They will send you to m.com. You're not actually booking on these AI platforms. They will send you to m.com.

Now ultimately, I think they want to be able to do actual bookings. We recently announced that we're working with Google along with several other players to be looking at the design of kind of how they're thinking about it. But honestly, exactly how all those economic models work out and how the OTAs fit in there. It is too soon to say. I think the thing you want to hear from us is that we are very involved. We are talking to all of them. We are paying an incredible amount of attention to it and making sure that we're right in there as this evolves. Exactly where this ends up, does remain to be seen. You could see a variety of scenarios where you could be doing those bookings, which I would expect could potentially be cheaper than the OTAs. But again, this is still in information and for a number of players, not just for Google.

Do all roads lead to either no change or incrementally better for Marriott?

We definitely see this as a glass more than half full. Exactly how much more full time will tell. I think, again, the key is that we are very, very involved, both from a technology standpoint and from a relationship standpoint and being on the front edge rather than kind of watching it evolve for the next 2 years and then jumping in. I think what is really critical is that we are a lockstep in the process with them as it evolves.

Okay. Any questions from the audience on anything?

I was just wanted to follow up on what you said that the bookings there could potentially be cheaper than OTAs?

I mean, again, as I said, a Brandt asked for what our scenarios. The answer is, of course, there is a scenario where the business structure, the economic structure of the deal is cheaper. As I said, there it is not possible yet you don't actually book on these channels yet. Exactly how that plays out, I think, is still very much in formation. As we announced with the Google is we are working with them to design a process that is just one of a number of players. So again, I really strongly urge you not to take this any further than it is at this point, which is that it is very early days. Is there a scenario where it is cheaper than the OTAs, of course. But the OTAs aren't going to sit still either. I mean, they're very worthy both the frenemies term continues to come to mind. I mean, we have great partnerships with the OTAs, and they are very competitive and great players.

So you can be sure they're not sitting still either. But I think this is -- the key point is it's still early and that we are right in there at the beginning to see where it evolves. But any sort of conclusion about where this ends up would not be what I'm saying.

Any other questions in the room? Leeny, which sport are you going to -- which sport are you going to pick up? Or how many sports, maybe the question, how many different sports you can pick up?

I haven't gotten that far.

It's going to be something.

Yes, for sure, more hiking for sure which I love.

Top hiking destination in the world.

Yes, I'm thinking the Dolomites would be a special one.

Awesome. Great. Okay.

Thank you, all. It's been a pleasure to work with all of you.

Thanks, everyone.

Good day, everyone, and welcome to the Marriott International Q3 2025 Earnings. [Operator Instructions]

Please be advised that today's call is being recorded. [Operator Instructions]

I'd now like to turn the floor over to Jackie McConagha, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Marriott's Third Quarter 2025 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 Pilar Fernandez, our Senior Director 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 revenues 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.

Thanks, Jackie, and good morning, everyone. We are pleased with our third quarter financial results, which were ahead of our previous expectations. Development activity remained strong, and we grew our industry-leading global portfolio of rooms by 4.7% year-over-year to over 1.75 million rooms across more than 9,700 properties at the end of September.

As expected, RevPAR growth in the quarter was modest, reflecting ongoing global macroeconomic uncertainty. Our hotels continued to gain RevPAR index. Third full quarter global RevPAR rose 0.5%. International RevPAR grew 2.6%, again outperforming the U.S. & Canada, where RevPAR was down 0.4%.

By region, RevPAR growth was strongest in APEC, which has been benefiting from solid macroeconomic growth in many countries and double-digit rooms growth. Third quarter RevPAR in APEC increased nearly 5% driven by robust ADR growth and higher demand from international travelers, particularly from Greater China and Europe. Third quarter RE in EMEA rose 2.5% on increases in both ADR and occupancy, led by strong regional demand.

Excluding the impact of the Olympics in France and the Euro 2024 in Germany last year, EMEA RevPAR would have been up 5%. RevPAR in CALA rose nearly 3% with gains in both ADR and occupancy and helped by citywide events in Puerto Rico and Rio. City Express hotels across the region are seeing meaningful benefit from being integrated into our ecosystem and are performing very well.

The operating environment in Greater China remains challenged by weaker macro conditions, though our market share across the region continued to grow. With year-over-year comps easing and demand stabilizing, RevPAR was flat and would have been slightly positive, excluding the impact of multiple typhoons.

Leisure demand was solid, offsetting a decline in business transient demand. The slight RevPAR decrease in the U.S. & Canada was driven by declines in select service brands, which offset nice gains in luxury along with calendar shifts impacting group. Third quarter group RevPAR decreased 3% while leisure was up slightly and business transient was down slightly compared to last year.

Business transient was further impacted by government RevPAR declining 14%. Globally, RevPAR growth was again strongest at the higher end as high-end consumers have demonstrated resilience to macroeconomic uncertainties and continue to prioritize traffic. Luxury RevPAR rose 4% as performance weakened down the chain scales. Our portfolio is well positioned to benefit from outperformance at the upper end as 10% of our rooms are in the luxury segment and another 42% are in the full-service premium segment. By customer segment on a global basis, leisure transient continue to lead RevPAR performance, rising 1%. Business transient RevPAR was flat and group RevPAR declined 2%, reflecting timing of events.

As Leeny will discuss further, RevPAR growth is anticipated to accelerate from the third quarter, with RevPAR expected to increase 1% to 2% in Q4 compared to the prior year. Full year 2025 RevPAR is still anticipated to rise between 1.5% and 2.5% year-over-year.

We also still expect strong net rooms growth in 2025 and beyond, as owners continue to show a preference for our brands. Despite higher construction costs and the challenging financing environment in both the U.S. and Europe, we still have excellent momentum in our global signings. During the first 9 months of the year, signings reached a record year-to-date level.

Our pipeline grew to a new high of more than 596,000 rooms at quarter end with over 250,000 pipeline rooms under construction. Conversions remain a key driver of our portfolio expansion, reflecting the many revenue and cost-related benefits of being part of the Marriott ecosystem. Conversions accounted for around 30% of both signings and openings in the first 9 months of the year.

We remain keenly focused on driving growth and are being in more places around the world with the best brands and experiences. In September, we launched outdoor collection by Marriott Bonvoy, which includes post card cabins and trail barn hotels. This new portfolio offers guests unique outdoor-focused stays with easy access to popular activities like skiing, snowboarding, biking and hiking.

We also announced the U.S. debut of Series by Marriott less than 3 months after the brand's initial launch with an agreement to convert 5 select-service hotels in major U.S. cities. As largest global lodging loyalty program, Marriott Bonvoy serves as a powerful engine for guest engagement and bring significant value to our owners and franchisees.

Membership grew to nearly 260 million members at the end of September, up 18% year-over-year. The power of Marriott Bonvoy is evident across our many adjacent businesses, including Marriott Bonvoy boutiques, Marriott Media Network, Homes & Villas by Marriott Bonvoy and our portfolio of 32 co-branded credit cards across 11 countries.

Our U.S. cards are by far the largest contributor of our credit card fees. Our current U.S. deals were signed in 2017 and extended in 2020 and we are currently in active discussions with our current credit card partners. Our best estimate right now is that we could have new deals in place, sometimes next -- sometime next year that reflect the increased relevance of Marriott Bonvoy and the significant growth of our global lodging portfolio.

On the technology front, we continue to progress in the multiyear evolution of our property management, reservations and loyalty platforms and the deployment of new cloud-based systems across our global portfolio, which we believe will enable Marriott to have an industry-leading technology stack, leveraging best-in-class technology architecture and proprietary innovations this tech transformation is expected to deliver a new ecosystem of capabilities and revenue-driving opportunities on property.

Owners are excited about the potential top and bottom line benefits at their hotels. The first few hotels recently started to transition onto the new systems and associates have shared very positive feedback about the new capabilities and how they empower them to deliver on the customer experience.

We plan to continue deploying our systems to hotels around the world over the next few years. We're also excited about increasingly leveraging AI across our business with a focus on areas like content creation, augmented business intelligence for associates and more efficient processes that help associates deliver elevated customer experiences.

Before I turn the call over to Leeny, I want to thank our fantastic teams around the world for all that they do. Their commitment and perseverance are invaluable to our continued success and among the many reasons I remain incredibly optimistic about Marriott's future. Leeny?

Thank you, Tony. Our results today demonstrate the power of Marriott's business model and the numerous levers driving our earnings growth. Despite continued macroeconomic uncertainty and modest global RevPAR growth, our third quarter adjusted EBITDA rose 10% and our adjusted EPS grew 9%. As Tony noted, third quarter global RevPAR increased 50 basis points, in line with expectations, driven by nearly 1% ADR growth, offsetting a 30 basis point decline in occupancy. .

Third quarter total gross fee revenues increased 4% year-over-year to $1.34 billion. The increase primarily reflects rooms growth and strong co-branded credit card fee growth. Co-branded credit card fees rose 13%, reflecting robust card acquisitions and meaningfully higher global card spending as well as the timing of point transfer promotions.

Fees from our international cards, which continue to ramp nicely, rose nearly 20%, driven by particularly strong performance in Japan and the UAE. Incentive management fees, or IMF, totaled $148 million higher than previously anticipated, down 7% year-over-year. The change was primarily due to declines in the U.S. & Canada, reflecting some large hotels undergoing renovations in the third quarter this year and certain hotels in Florida benefiting from insurance proceeds in the third quarter last year.

Owned, leased and other revenue, net of expenses, surpassed expectations, I think, 16% compared to the prior year. The year-over-year increase was largely driven by contributions from the Sheraton Grand Chicago, which we purchased in the fourth quarter last year as well as improved performance at other hotels in the portfolio.

Third quarter G&A declined 15% compared to last year's third quarter, which included a $19 million operating guarantee reserve for a U.S. hotel. The year-over-year decline also reflects timing and lower compensation costs as we continue to benefit from the work we did last year across the enterprise to enhance our efficiency and productivity.

The strong growth in gross fee revenues and owned leased and other net coupled with the decline in G&A led to adjusted EBITDA increasing 10% to $1.35 billion, above the high end of our guidance.

Now let's talk about our outlook. With ongoing economic uncertainty, we expect global RevPAR to increase 1% to 2% in the fourth quarter. The acceleration in global RevPAR growth from the third quarter to the fourth quarter is partially due to calendar shifts and onetime events. RevPAR growth is anticipated to still be meaningfully stronger internationally than in the U.S. & Canada, and higher-end chain scales are expected to continue to outperform lower-end chain scales.

As we look ahead to next year, while we're still working on our budget, our preliminary view is that 2026 year's year-over-year global RevPAR growth could be similar to the 1.5% to 2.5% growth expected this year. Growth is expected to a gain internationally than in the U.S. & Canada. And next summer's World Cup, could contribute around 30 to 35 basis points to full year global RevPAR growth.

Turning to this year's P&L in the fourth quarter, gross fee growth could be in the 4% to 5% range. Compared to prior expectations, this outlook reflects slightly lower expectations for IMF and fees on F&B revenues in Asia. Fourth quarter IMF are now expected to rise in the low to mid-single-digit range, partially reflecting the timing of some fees that shifted to the third quarter.

Full year IMFs are anticipated to be around flat with last year. Fourth quarter RevPAR fee growth will still be impacted by the timing of residential branding fees, which are expected to be down year-over-year. Fourth quarter adjusted EBITDA is expected to increase 7% to 9%.

For the full year, we expect gross fees to increase around 4.5% to 5% year-over-year. Full year co-brand credit card fees are now anticipated to grow roughly 9%, primarily reflecting stronger-than-expected third quarter performance. Timeshare fees are still expected to be around $110 million, and full year residential branding fees are now anticipated to decline around 20%, a meaningful improvement compared to expectations at the beginning of the year, reflecting the continued success of our residential business and the volatility in the timing of residential project sales.

Owned, leased and other revenue, net of expenses, is expected to total around $370 million. 2025 G&A expense is anticipated to decline 8% to 9% to $975 million to $985 million. This decline reflects roughly $90 million of above property savings from our enterprise-wide initiatives to enhance our effectiveness and efficiency across the company that is also expected to yield cost savings to our owners.

Full year adjusted EBITDA could increase between 7% and 8% to $5.35 billion to $5.38 billion. Full year adjusted EPS could total $9.98 to $10.06. Our full year adjusted effective tax rate is expected to be just over 1 percentage point higher than a year ago, given the shift in earnings to higher tax rate jurisdictions. Our underlying full year core cash tax rate is still anticipated to be in the low 20% range.

Our 2025 net rooms growth is still anticipated to approach 5%. As we look ahead to the next few years with our strong momentum in global signings and conversions in particular, we still expect global net rooms growth in the mid-single-digit range. Full year total advertisement spending is expected to be roughly $1.1 billion or $1.45 billion, you include around $350 million for the citizenM transaction. Our capital allocation philosophy remains the same, committed to our investment-grade rating, investing in growth that is accretive to shareholder value, and then returning excess capital to shareholders through a combination of a modest cash dividend, which has risen meaningfully over time and share repurchases.

We're pleased with the company's strong year-to-date cash flow performance and outlook. Given strong cash flow generation, we expect full year capital returns to shareholders to be roughly $4 billion while maintaining our leverage in the lower part of our net debt to EBITDA range of 3 to 3.5x. The operator can now open the lines for questions. Please ask us 1 question each so we can speak to as many of you as possible. Thank you.

[Operator Instructions]

We'll take our first question from Shaun Kelley with Bank of America.

Tony or Leeny, obviously, the language around the credit card program and renewal conversation there is new. So I think we're going to field a lot of questions on the parameters of what that deal could look like. So obviously, these things are delicate while they're in negotiation. But maybe you could put it in perspective, a couple of things for us. One, just current size of the program; two, how we should think about maybe what's on the table or what be renegotiated relative to maybe some of the growth rates that you saw back when you combined the programs and did the renegotiation back in 2017. I think just some parameters around that would be helpful.

And then third, if I can sort of add it into the general gist. Earlier late in the year would be helpful just because it could be a meaningful earnings contributor. So just any timing refinement would be useful, too.

Thank you, Shaun. Well, the good news is you've been asking for a few quarters, so I'm going to make you happy that we talked about it. That news, I'm probably not going to give you the specificity you want for exactly the reason you described that we are still -- we are in active and fluid negotiations.

But maybe I can give you a little bit of atmospherics around how we're thinking about it. And then if it would be helpful, I might ask Leeny, just to remind you about how the mechanics of the program work. As we said in the prepared remarks, we're in active discussions with our current partners. The power of Bonvoy, the value of Bonvoy owing to our customers, the strength of the portfolio and the brands, the broad array of experiences that we offer. Without question, make us one of the most attractive customer groups in any industry for our partners in financial services as they think about credit card products.

Number one. Number two, as Bonvoy continues to grow, that growth translates to more cardholders, more spend. And we expect to see that reflected in growing co-brand credit card fees. And you heard Leeny talk a little bit about that. And then I would just remind you that when we did the deals originally in 2017 and then extended them in '20, the value that Marriott Bonvoy brings to these partnerships has grown exponentially.

So I mean, when we did the deal in '17, Bonvoy didn't even exist. We launched it in '19. The membership in our loyalty platform has more than doubled from 110 million members back in '17 to the nearly 260 million that we described earlier in the call. Since the end of '17, the number of co-brand accounts and global spending on our cards have both grown by about 80%. And our system size has grown from around -- or has grown around 50% from 6,400 properties globally back in 2017 to over 9,700 at the end of Q3. So with that, Leeny, I might ask you to remind Shaun and the rest of the participants just exactly how the mechanics of the program work.

Sure. And thanks for the question, Shaun, I think it's definitely too early to talk about potential upside from these deals. But I think kind of a reminder about how the basic economics of the credit card partnerships work is useful. Our credit card partners basically pay us overwhelmingly variable amounts with the funding mostly based on the volume of cardholder spend with some additional smaller payments based on items like number of free night certificates, et cetera, a number of loyalty program points actually purchased by cardholders. .

And it's really worth remembering that the co-brand card payments actually account for more than half of the Marriott Bonvoy program funding. And the co-brand financial services companies actually pay a higher amount per point than what our hotel owners pay. So it's an important part of the overall benefit to our hotel owners and frankly, to the power of Marriott Bonvoy and what we can provide in value to our Bonvoy members.

And then as you think about what then bodes into Marriott's income statement, obviously, we recognized revenue in our franchise schemes that gives a compensation for the licensing of our intellectual property. And so we take a royalty rate to earnings that is essentially a percentage of the total credit card funding.

And so as we move forward, well, it would actually, of course, not make any sense for us to talk about specifics in the negotiations. I think Tony was clear in pointing out the the increased relevance of Bonvoy overall. And we're very excited about the how our cards have done and how they continue to perform and are very optimistic about the outcome next year of these discussions.

And then I think, Shaun, your last question was you were hoping for some specificity on timing. Again, we are in the throes of negotiation. Hard to give you a specific other than to tell you, given the value we think these projects will unlock for our financial services partners for Bonvoy and our owner community and for Marriott International. The teams will work diligently to try to get them done as reasonably quickly as possible.

And just as a reminder about how we're performing this year, in 2024, our credit card branding fees were $660 million, and we're looking at that growing this year, 9% in 2025 from, again, the continued powerful of the credit card partners and Marriott Bonvoy.

We'll hear next from Michael Bellisario with Baird.

Can we dig into the health of the franchise, I think just this year, you've reduced loyalty chargebacks, you've expanded your renovation scopes framework, I think, to our brands. And obviously, RevPAR has slowed. So I guess two parts. What are owners still asking for what else can you provide them to ensure that economics remain attractive, and you can go back to your mid-single-digit net unit growth target?

Yes. So there's a lot in that question. I'll try to unwrap. I think the fact that through the first 9 months of the year, we have on a global basis, achieved a record signings. It is indicative that I think we're hitting the right mark with the owner and franchise community. .

We are focused on driving enhanced top line performance. And we think that, that's one of the most compelling features of technology transformation journey that we're on. We think that represents some really exciting opportunity to continue to drive top line. The reduction in the loyalty charge-out rate was an example of an ongoing effort to identify across the landscape opportunities to reduce affiliation costs. And then we continue from the work we started last year, not just to lower corporate G&A expense, but to look for opportunities for margin enhancement across the portfolio.

And I'd just add to that, that as we do all the normal comparisons of our affiliation costs against our competitors, we believe we have the lowest affiliation costs relative to revenue in the industry, and we expect that our economies of scale to continue to work on improving that even more.

We'll go now to David Katz with Jefferies.

One of the observations is the investment spending has sort of moved up to the high -- I think the higher end of the range for what the guidance was before. I can venture some guesses as to what's driving that, but I'd love to have you sort of unpack that a little bit. And in particular, give us some color on key money and how that is trending because I suspect that's one of the drivers there. .

Yes. Well, thanks, David very much for the question. I'm happy to. As you remember, when we talked at the beginning of the year, we talked about these expenses, these investments breaking up into roughly 3 fairly even categories, which is key money, tech investments and then CapEx expenditures in our owned, leased and existing portfolio.

And from that standpoint, it's actually not development-related key money. The increase is really around clear visibility around the nondevelopment-related expenditures. So for example, the timing of tech transformation investments, owned, leased CapEx, timing, investment in our existing hotel base when there may be a particular asset sale, et cetera.

So in that regard, it's really not reflective of any sort of change in our key money philosophy or actually the amounts that we're spending relative to key money. As you know, very often, the deals that you signed or for hotels that are either converting over the next year or so or for new build hotels, which then don't actually open for several years. And the comments that we've made about our key money used in new unit development are actually quite consistent in terms of both amounts and the way that we're using it.

We'll turn now to Dan Politzer with JPMorgan.

I wanted to go back to the 2026 outlook, the 1.5% to 2%, 2.5% RevPAR growth. I mean it seems like you guys are kind of extending or assuming a status quo mostly hold here, but maybe you can unpack that a bit in terms of what you're seeing across leisure, business transient and group for next year? And any kind of color on pacing there, too.

yes. sure. Absolutely. We'd be happy talk about that. So first of all, just a reminder that we have talked -- we said in our prepared remarks, we continue to expect that U.S. will be lower than international and that overall, broadly speaking, we'd expect it to be roughly the same globally. I will say that we would expect the U.S. to end up slightly higher next year than this year, and a lot of that benefit is related to the World Cup. .

So when you think about the World Cup next year, having a very healthy impact on U.S. and Canada that from that standpoint, we expect 30 to 35 basis points globally is heavily squarely in the U.S. and Canada benefit side of things. When I think about group, I think it is, again, very encouraging to see that our group pace for next year is up 7%. That's similar to a year to a quarter or 2 quarter ago. And actually group pace for the U.S. is up 8%. So I think -- as we look into next year, I do agree with you that I expect leisure to continue to be a stronger performer on a relative basis and in particular in the upper chain scales. But overall, a fairly similar environment globally.

Yes. And I might just reemphasize the comment I made in the prepared remarks, and that is to remind yourself of the distribution of our portfolio with 10% of the rooms in the luxury tier and another 42% in upper upscale. We've had questions the last couple of quarters about the sustainability of the high end and to post another quarter with 4% RevPAR index leading the charge, I think, is a pretty powerful illustration of the strength and appetite of that luxury consumer.

We'll go next to Conor Cunningham with Melius Research.

Sorry to go back to the credit card for a quick second here. Can you talk about the benefits of being between Amex and Chase? Is there -- is there anything that that's helpful having 2 partners rather than one? And then if you could just high-level talk a little bit about the opportunity there. Like is it further -- is there just like a scale opportunity from having 2 different providers in general?

Yes. Thanks for the question. Happy to take it. We are obviously delighted with the success of the dual insurer strategy we've had since 2017. Having 2 issuers, it's really the success of that strategy is demonstrated by the growth of our branding fees and our partners' contributions to the loyalty program. And you heard Leeny provides some context to that. Going with the dual issuer approach gives us access to what we think are 2 very complementary customer bases, gives us the ability to achieve really broad market coverage while providing customers with a unique set of choices. So we think it's a really powerful opportunity for us. It also gives us or gives our cardholders greater trial and point transfer sales with their proprietary card base.

We'll go now to Stephen Grambling with Morgan Stanley.

Just wanted to dig into the pipeline a little bit. I think you touched on this a little bit in your intro remarks, but it looks like you had a sequential improvement in the under construction in particular, also grew pretty substantially year-over-year. So just curious where some of that strength is coming from? And if you've seen any kind of change in the environment from changes in rates or otherwise?

Yes. Sure, absolutely. First, I'm going to point out, Stephen, what has continued -- which continues to be a real trend, and that's all around conversions. So the momentum around conversions has not stopped, and that obviously feeds into our under-construction pipeline in a material way. .

And we fully expect 1/3 of our room openings this year to be conversion rooms. And frankly, when you look at our signings that trend, it's not doing anything except staying the same, if not actually moving up a little bit. So I think that's very encouraging as you look at rooms growth.

But when you talk about the under construction pipeline is probably a good reminder that in the U.S. that Marriott has kind of the leading share of both signings for new build construction hotels as well, it's actually what's under construction at 29% of signed and 28% of under construction.

And we did see a pickup in Q3 of rooms going under actually digging the shovel in the ground. But I would say overall, the trend is fairly similar. We are still meaningfully below construction starts for compared to 2019. And when you think about the environment, we don't see a major trend. Clearly, as you look at dropping rates that should help. We are seeing a bit of a pickup in asset sale transactions in proven markets with proven brands. But I would say we still need to see more improvement on the financing environment to see a dramatic pickup in new build construction starts. But again, every little bit of momentum is appreciated that we are seeing a little bit.

We'll go next to Patrick Scholes with Truist.

In relation to the last question, can we drill down a little bit about the development -- the latest trends in the development environment and APAC and China?

Yes, sure. So basically, we're thrilled with what we see in terms of both rooms growth and continued signings in Asia. Let me talk first about Greater China, again, broadly speaking, both areas are seeing double-digit rooms growth and continued disproportionate share of signings as we move forward. So when you look at the pipeline, I would say we've got a situation where in APAC, you've got 8% of our existing rooms while 15% of our pipeline and in Greater China 11% of our existing rooms and 18% of our pipeline.

So really quick progress there. And they have different situations where in APAC, you've got a number of economies that are growing rapidly and meaningful need of greater lodging supply to meet the demand growth. And so when we think about markets like India, Indonesia, Japan, we just see continued outperformance for Marriott as compared to our competitors in signing new deals across all the chain scales.

We're continuing to do lots of premium deals there, but also now seeing more extension down into the upscale and even mid-scale space. In Greater China, it's obviously a little bit of a different story where there, while we see the same big increase in signings growth. It is much more concentrated in the upscale tier. And from that standpoint, you're seeing investors appreciate the relatively lower volatility and lower unit cost for developing a hotel as compared to a luxury hotel in a Tier 1 city, for example.

So as we see the continued growing strength of our brands in Greater China, the demand for a strong model that has the power of Marriott Bonvoy and also very competitive affiliation costs and operating costs, those brands are doing particularly well. So we've seen very strong improvement there.

And again, just as a reminder from a Greater China perspective, we are right now still seeing a bit higher percentage of domestic travelers than we did pre-COVID in the low 8 percentage. And I think it's a good reminder that our hotels provide jobs for Chinese citizens. They're overwhelmingly for Chinese customers. And as our brands grow in strength, you are seeing this growth across markets and across chain scales for Marriott International.

And Patrick, just to quantify some of that greater China momentum that Leeny described. Year-to-date through the end of the third quarter, our room signings in Greater China are up 24% year-over-year.

We'll hear next from Brandt Montour with Barclays.

I was hoping we could double-click on business transient. It doesn't sound like you guys are baking in a dramatic recovery in the fourth quarter or your comments on '26, but trends did seem to sort of worsen as of late. So just wondering how much of that was the government shutdown or government-related and ex government, have you seen trends stabilize or any sort of green shoots there you can talk about?

Yes. Let me give it a try. The global business transient in the quarter was effectively flat, but there was a sequential improvement versus Q2 when global BT was down 2%. And Global BT RevPAR, if you exclude government, to your point, was actually up 1% year-over-year, but we saw government transient down 15% year-over-year. And I think as we look into 2026, a little bit more of the same, the larger companies that make up BT, we're seeing actually pretty encouraging strength but you are seeing a bit of hesitancy from some of the SMEs as they try to navigate the volatile economic environment.

And the only thing I'll add is that on a -- from a kind of relative basis of the larger corporate BT versus the small and medium-sized businesses, we did see relatively more weakness in the smaller and medium-sized businesses, which, as you might imagine, has a bit greater impact on our select service brands.

Your next from Aryeh Klein with BMO.

Going back to the credit cards, there's been some pretty big program renewals for premium cards at both Capes and AMEX with their own offerings. I'm curious if you view that as competition in any way? And what, if anything, that might mean for the upcoming?

Yes. Listen, I think it's not limited to those companies. There is a broad recognition across the financial services players about the strength and the long runway for travel-related spending. Certainly, in the context of the discussions we've been having with our partners. We think those cards can exist and be complementary, but it's something that will be incorporated into the ongoing discussions.

We'll hear next from Richard Clarke with Bernstein.

I guess you gave some helpful color on how you're using AI artificial intelligence internally. Just any comments on the sort of external use, making your hotel discoverable, bookable through ChatGPT and other platforms. Do you see that as an opportunity? Is that something that's being worked on at Marriott?

Yes. Without question, when we think about our distribution strategy broadly, we are increasingly certain that AI platforms can and will be helpful new distribution channel for us. more and more guests are going to use them for trip suggestions, trip planning.

While the search and the commerce models are still, you could argue in their infancy, we are certainly optimizing the content across our platforms to take advantage of GenAI services. Our channel strategy broadly is designed to ensure we've got broad reach across all traditional and emerging channels. And certainly, generative AI, Agentic AI falls squarely in that emerging category.

We'll turn now to Duane Pfennigwerth with Evercore ISI.

Wanted to ask you about any changes you're seeing in underlying seasonality. One of the things we've heard from the airlines has been a shift in the underlying seasonality to Europe, a little less focus on peak summer, July and August and better trend in the fall with October seeing more demand versus maybe the pre-pandemic period. I wonder if you're seeing this elongated peak seasonality too? And can you just remind us how much of your Europe demand comes from U.S. point of sale?

Yes. While Leeny's pointing that, I want to give you the precise number, I'll give you maybe a more anecdotal answer. I've been on the road for the last 6 or 7 weeks. I was in a few cities in Europe, I was in Rome and Milan and Venice. And walking around in October in those markets felt like the traditional rounds in June and July. I do think some of that is weather related. I was in Florence talking to our teams there, and they said the pretty significant press coverage about elevated temperatures during traditional peak season caused a bunch of rebookings into the fall. .

As I talk to our operators across Europe, there is certainly a view that the season, it's extending earlier into the spring and later into the fall. And Leeny and I were in Japan for the opening of our new JW Marriott in Tokyo. And I think we saw the same thing there, a really strong extension of peak season into the fall.

Yes. So just from a just straightforward numbers perspective, the mix of U.S. customers in Europe in Q3 this year was 36%. For the full year last year, it was 33%. So there's not really a huge shift. I think, generally speaking, looking to see if there are any other of kind of categories that look meaningfully higher. And just a little bit more from certain other parts like APAC, et cetera. But I'd say overwhelmingly, pretty similar.

I would have thought that with FX with the weakening dollar that you might have seen more of an impact, but we still saw a very strong summer results. And then just as a reminder, there were certain events that happened in Q3 a year ago as compared to this Q3, like the Paris Olympics, which I think also is just a point to mention. But from an overall seasonality, we've got the boomers, obviously, traveling all over, but I'd say no major shifts.

We'll go next to Smedes Rose with Citi.

I just wanted to go back to the rooms growth expectations. Just a little bit, just because we keep hearing a lot of discussion, which we have for some time now around kind of the Canada economy the lower end consumer not doing that well, and we certainly see it showing up in kind of select service, limited service RevPAR numbers and that softness, I think, in general, is expected to continue.

Do you have a sense of how developers in the U.S. are thinking about returns on that kind of products have they come down? Do you feel like you'll take more share given the strength of your brands within what is being built or -- just kind of curious like how does the developer decide to put a shovel on the ground now, given what we're seeing at least on the revenue side?

So I'm going to talk about 2 effects of this, and one is on conversions and one is on new build because I do appreciate the opportunity to have a little advertisement regarding our growth in mid-scale. We've only been in the mid-scale space a couple of years. We've already got 200 rooms open, and we've got well over 200 more in the pipeline in the mid-scale space across our Studio Red, City Express and Four Points Flex.

Hotels.

Hotels Yes. And in the U.S. and Canada, for example, we've got 150 mid-scale hotels in the pipeline. So it's really very excited about the opportunities there. And to your point, we actually see meaningful interest in the conversions to our brands for the strength that we provide relative to revenues as well as extremely competitive affiliation costs.

I think on the new build side, there continues to be a host of factors that have meant that there is a bit more reluctance and put this is around expectations on interest rates, i.e., when might it be that money is cheaper on the financing side and when the constraints around exactly how much debt and equity you have to be put in, whether that will change.

Now we've also got the reality that you've seen labor cost and construction costs also have gone up meaningfully over the last few years. And so seeing those moderates be helpful as well. That being said, we continue to see a steady drumbeat of new hotels going under construction. But I think we all have to recognize that compared to 2019 when the financing costs were close to 0, that it is a different environment.

But we think from an attractiveness of the asset standpoint that it still fits many of the qualities for a limited service hotel, where you see strong cash on cash yields, fairly steady performance over time and a good environment. So I think some of this is about standing on the sidelines and waiting to go back in rather than not doing the deals at all.

We'll go now to Lizzie Dove with Goldman Sachs.

I just wanted to ask if you have any kind of appetite for whether it's kind of small tuck-in M&A or partnerships similar to kind of citizenM. And if so, if there's any kind of areas of the portfolio you'd be looking to kind of fill out more?

Sure. So at the risk of being repetitive, I'll give you the answer I've given you in the past, which is I don't think the team feels any burning need to chase M&A in pursuit of scale. Thankfully, we enjoy industry-leading scale. We'll apply the same lens that we've applied historically to opportunities that may present themselves.

And the lenses we have applied if we see a geographic area that we think represents real opportunity for growth and/or represents an important outbound demand generation market, and we are dissatisfied with our pace organic growth, we might look for an opportunity.

If we scan our brand architecture and we see a gap that we think is more effectively filled by a tuck-in M&A acquisition versus the launch of an organic platform, we would consider it there. But again, I think we'll be quite deliberate and will apply same financial rigor that we always do and as was evidenced in a deal like citizenM.

We'll turn now to Meredith Jensen with HSBC.

Maybe following on a little bit from what Richard and Lizzie asked. On the launch of the Bonvoy Outdoor, I was hoping you might speak a little bit about how this sort of dedicated digital vertical within Bonvoy might sort of serve as a framework for future loyalty sub kind of ecosystems or if this was more opportunistic given that homes and villas and some of the properties were already on a sort of separate platform for digital integration. And maybe just to add on to that, if sort of looking at these platforms like citizenM or the outdoor platform sort of shift your way of thinking about digital distribution in a broader sense.

Yes. Let me give it a try. The -- some of this is really inexorably linked to the central reservations transformation, which we think will be quite reflective of how our customers want to shop. So the ability to search our portfolio through passions as opposed to simply a geographic search. Homes and villas is a good example of that. Outdoor collection is a great example of that. So rather than saying I want to go to Costa Rica or I want to go to Hawaii, I made search surfing options within the portfolio. And the new central res system will give our guests a seamless ability to do that. citizenM, I would view it a little more traditional. It's a terrific product, but I think that will likely benefit from a more traditional geographic search. .

I think the only thing I would add is as you talk about kind of the broader view of what our digital channels provide and how we think about that platform, obviously, we want people to be coming to the Bonvoy platform and then being able to do their shopping and their communication with us however they choose, whether it's by city or whether it's by activity.

But one thing just as a really critical piece that we view an ultimate critical component of it is that we control the experience that our customers have. And that is where we really want to be the providers of fantastic experiences of being able to communicate with them about what they want, what they need, how they want that to go. And so while yes, the digital shopping is very important. At the end of the day, the face to base person-to-person way that people experience their lodging stays is something that we feel very strongly about, and we'll want that to be part of the overall advantage.

And ladies and gentlemen, with no further questions at this time. I'd like to turn the floor back over to Tony Capuano for any additional or closing comments.

Great. Well, thank you all again for your continued interest and coverage of Marriott. Leeny and I have both been on the road quite a bit. We have some extraordinary hotels and some new additions to the portfolio. Our teams continue to be as passionate as engaged as you would hope, and we look forward to seeing you on the road and hosting you. Have a great afternoon.

Thank you. Ladies and gentlemen, that will conclude today's event. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.