Marriott International Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Reported strong Q2 results, beating prior guidance with global RevPAR up 1.5%, net rooms growth of 4.7%, and an industry-leading RevPAR index driven by over 5% international RevPAR gains.
  • Negative Sentiment: US & Canada RevPAR was flat year-over-year (nearly +1% after adjusting for Easter), with select-service and extended-stay RevPAR down ~1.5% due to declines in government and small-business demand.
  • Negative Sentiment: Lowered full-year RevPAR guidance to the lower end of the prior range at 1.5–2.5%, expecting international to meaningfully outperform US & Canada and continued luxury outperformance versus lower chain scales.
  • Positive Sentiment: Pipeline reached a record of over 590,000 rooms (+5% YoY) with a 35% increase in Q2 deal signings, 40% under construction, including strong midscale conversions (Series by Marriott and Fern affiliation) and ongoing luxury portfolio expansion.
  • Neutral Sentiment: Launched the Marriott Media Network, leveraging Bonvoy member insights and in-room digital touchpoints to create a new advertising revenue stream to be shared with owners.
AI Generated. May Contain Errors.
Earnings Conference Call
Marriott International Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Marriott International Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you'll have the opportunity to ask a question during the question and answer session. Please note, today's call may be recorded. And it is now my pleasure to turn the conference over to Jackie McConaugh, Senior Vice President of Investor Relations. Please go ahead.

Jackie Burka McConagha
Jackie Burka McConagha
SVP, Investor Relations at Marriott International

Thank you. Good morning, everyone, and welcome to Marriott's second quarter twenty twenty five 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.

Jackie Burka McConagha
Jackie Burka McConagha
SVP, Investor Relations at Marriott International

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 in the press release we issued earlier today are effective only today and will not be updated as actual events unfold. You can find our earnings release and reconciliations of all non GAAP financial measures referred to in our remarks today on our Investor Relations website. And now I will turn the call over to Tony.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Thank you, Jackie, and good morning, everyone. Marriott reported strong second quarter financial results this morning, ahead of our previous guidance during a period of notable macroeconomic uncertainty. The company's pipeline reached a record level and net rooms grew 4.7% since the end of the twenty twenty four second quarter. Second quarter global RevPAR rose 1.5%. Our industry leading portfolio continued to gain share, and our RevPAR index, which is already at a substantial premium to peers, rose again in the quarter.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

International RevPAR rose over 5% led by growth in both APAC and EMEA. RevPAR in APAC rose 9% driven by strong ADR growth and higher demand from international guests. Key markets like Japan and Australia saw double digit RevPAR increases. Second quarter RevPAR in EMEA rose 7% on solid increases in both ADR and occupancy, with strong transient demand from both in country and cross border guests. Despite June being impacted by the conflict in The Middle East, second quarter RevPAR rose over 10% in The Middle East and 4% in Europe.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

With its high reliance on US travelers, Cala was impacted by weaker leisure and government related demand. But strong ADR, especially at our luxury hotels, drove RevPAR up 3%. RevPAR in Greater China declined zero five percent year over year due to the weaker macro environment, with lower business and group results, though our properties continued to gain market share. RevPAR in The US and Canada region was flat year over year and grew nearly 1% when adjusting for the Easter shift. RevPAR growth was again strongest at the high end with luxury RevPAR up 4% and it weakened going down the chain scales where results came in below our prior expectations.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Second quarter US and Canada select service and extended stay RevPAR declined around 1.5% year over year, primarily due to a decline in government demand, as two thirds of government revenues are in the select service segment, as well as weaker demand from smaller business customers. Across chain scales, group RevPAR in The US and Canada was also softer than previously anticipated, primarily due to fewer near term bookings and elevated attrition rates. Looking at RevPAR by customer segment, leisure transient grew the fastest this quarter, with leisure transient RevPAR rising 3% globally and 1% in The US and Canada. Group RevPAR rose 2% globally and 1% in The US and Canada. Second quarter business transient RevPAR declined 2% globally and in The US and Canada, in part because of a shift in Easter timing.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

With ongoing economic uncertainty, we now estimate full year RevPAR growth to be in the lower end of our prior range, an increase between 1.52.5% over last year. Leeny will share more details on our outlook during her remarks. We still expect strong net rooms growth in 2025 and beyond, as owners continue to show preference for our brands. Even with higher construction costs and the challenging financing environment in The US and Europe, second quarter deal signings rose 35% with every region signing more projects than in the same quarter last year. As a result, our pipeline grew to a record of over 590,000 rooms at the end of the quarter with 40% of those pipeline rooms under construction.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Conversions remain a significant driver of growth, representing nearly 30% of both room signings and openings during the first half of the year. As we continue to focus on being in more places with the best brands and experiences, we are making excellent development progress across all of our chain scales. With their highly efficient operating models and strong value propositions, our existing midscale brands, City Express by Marriott, Four Points Flex, and Studio Res are attracting significant interest from owners. At the end of the second quarter, we had around 200 open midscale hotels with another nearly 200 in the pipeline. In May, we announced the global launch of our latest collection brand in the midscale to upscale segment, Series by Marriott.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

We created Series by Marriott to bring established quality regional hotels into our portfolio and to further our reach among value conscious travelers, provide additional choice for our existing Marriott Bonvoy members and guests, and offer more affiliation opportunities and growth for local owners. In conjunction with the launch, we announced a founding deal to affiliate the Fern portfolio, which has over 100 open and pipeline hotels across India with series by Marriott. We also recently closed on the acquisition of the innovative tech forward lifestyle brand, CitizenM. We see meaningful opportunity for global growth for both of these recent brand additions. At the upper end of the chain scale, we continue to expand our leading global luxury portfolio, where our distribution of nearly 168,000 rooms across six seventy open luxury properties is currently over 40% larger than our next closest competitor.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

This year, we plan to open an additional 27 luxury properties, and we have an additional two seventy projects in the pipeline as we look to provide new opportunities to deliver bespoke experiences in iconic destinations. Recent notable highlights include the openings of the all inclusive W Punta Cana and the JW Marriott Crete Resort and Spa. And last month, we celebrated the inaugural voyage of Luminara, the third addition to the Ritz Carlton Yacht Collection. Delivering exceptional guest experiences helps fuel the growth of our powerful global loyalty program. With an acceleration in enrollments, our Marriott Bonvoy loyalty program grew to nearly two forty eight million members at the June.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Marriott Bonvoy member penetration rose again, reaching a record of 69% of rooms globally and 74% in The US in Canada. In June, we announced the introduction of the Marriott Media Network, a media network that will help brands connect more meaningfully with guests across their travel journey. Leveraging our leading scale and Marriott Bonvoy loyalty program, Marriott Media Network will allow advertisers to use our deep insights into traveler behavior and preferences to reach high value audiences through curated touch points, like the Marriott Bonvoy app and in room televisions. Everyone has likely seen the news that Leaning will be retiring from Marriott in March. As you all know, Leeny is an incredible leader with an unwavering commitment to excellence and the creation of shareholder value.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

It has been an absolute privilege to work with her, and I am one of the many, many people who will miss her greatly when she retires next year. Leaning will remain the company's CFO through the filing of this year's 10 k in early twenty twenty six, and I am pleased that upon her retirement, two longtime veterans will succeed Leaning. Jen Mason, our current global officer, treasurer, and risk management, will become our CFO. And Sean Hill, currently the head of development of APAC, will become our global head of development. I'll now turn the call over to Leanie. Leanie?

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Thank you, Tony, and thank you for your kind words. This was a hard decision and very bittersweet, and it's never easy to leave a company and job that you love. I have the utmost confidence in Jen and Sean, and look forward to working with them on a smooth transition. As Tony noted, I'm not leaving anytime soon. So now let's talk about our financial results and outlook.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Second quarter global RevPAR increased 1.5%, driven by nearly 2% ADR growth, offsetting a 30 basis point decline in occupancy, largely reflecting declines in US and Canada select service hotels. Average daily rate has held up well in most regions, demonstrating excellent revenue management across our system despite short booking windows. Second quarter total gross fee revenue increased 4% year over year to $1,400,000,000 The increase reflects rooms growth and higher RevPAR and co branded credit card fees, partially offset by an $8,000,000 decline in residential branding fees related to the timing of unit sales. Incentive management fees, or IMF, rose 3% to $200,000,000 in the second quarter, with roughly twothree earned by international hotels. Higher IMFs in all international regions were partially offset by declines in The US and Canada, primarily due to some large hotels undergoing renovation.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Owned, leased, and other revenue, net of expenses, was ahead of expectations and rose 14% compared to the prior year, largely driven by contributions from the Sheridan Grand Chicago, improved performance at other hotels in the portfolio, and favorable currency impacts. Second quarter G and A declined 1% year over year, primarily due to lower compensation costs as we continue to benefit from the work we did last year across the enterprise to enhance our efficiency and productivity. Our adjusted EBITDA rose 7% to $1,420,000,000 Now let me talk about our third quarter and full year 2025 outlook. With ongoing economic uncertainty, we expect global RevPAR to be flat to up 1% in the third quarter and up 1.5% to 2.5% for the full year. Our full year RevPAR growth is still expected to be meaningfully stronger internationally than in The US and Canada, even with greater China RevPAR still anticipated to be around flat compared to last year.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

The luxury and full service segments, where we are extremely well positioned, accounting for over half of our open global rooms, are expected to to nicely outperform lower end chain scales. Globally, fourth quarter RevPAR growth is anticipated to accelerate from the third quarter, in part due to holiday shifts and the timing of certain large events. Examples include the positive impact of the Paris Olympics and the Euro Cup in the twenty twenty four third quarter, the positive impact of the Republican and Democratic conventions in the twenty twenty four third quarter, and then the negative impact of the US presidential election in the twenty twenty four fourth quarter. Plus, F1 in Singapore is shifting from the third quarter last year to the fourth quarter this year. At the June, on a global basis, revenues per group, the customer segment where we have the most visibility, were pacing down 2% for the third quarter and pacing up 6% for the fourth quarter, reflecting some of these calendar impacts.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Full year 2025 group revenues were pacing up 3%, below the pace we saw a quarter ago, primarily due to fewer near term bookings. However, group bookings for future periods have strengthened, with group revenues for 2026 pacing up 8% in The US and Canada, and globally up from 7% a quarter ago. On a global basis for the full year, we now expect leisure transient and group RevPAR to grow in the low single digit range. Business transient RevPAR is now expected to be around flat year over year, with government demand expected to remain weak. Government room nights in The US and Canada were down 16% year over year in the second quarter, more than in March, but do appear to have stabilized around these levels.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Turning to the P and L. In the third quarter, gross fee growth could be in the 2% to 3% range. Third quarter growth will be impacted by the timing of residential branding fees, which are expected to be down significantly year over year. IMFs are expected to see declines around 15% in the third quarter, largely reflecting tougher year over year RevPAR comps, continued renovations at some large properties in The US and Canada region, and the receipt of business interruption insurance proceeds at certain Florida hotels in the last year third quarter. Fourth quarter IMFs are expected to increase in the mid to high single digit range, partly due to easier comps as a result of hurricanes impacting some Florida hotels last year, as well as improved performance at renovating hotels.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Full year IMFs are anticipated to be flattish to slightly down year over year. Third quarter adjusted EBITDA is expected to increase 5% to 7%. For the full year, with a reduction in the upper end of our RevPAR range, we now expect gross fees of 5,370,000,000.00 to $5,420,000,000 up 4% to 5% year over year. For the full year, co branded credit card fee growth is still expected to be a couple 100 basis points lower than the nearly 10% growth in 2024. And timeshare fees are still expected to be around 110,000,000 With a shift in the expected timing of sales for certain properties, full year residential branding fees are now anticipated to decline around 30%.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Owned lease and other revenue, net of expenses, is now expected to total $360,000,000 to $370,000,000 primarily reflecting the flow through of second quarter results. 2025 gs and A expense is still anticipated to decline 8% to 10% to $965,000,000 to $985,000,000 This decline reflects the expected 80,000,000 to $90,000,000 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 78% to $5,300,000,000 to 5,400,000,000.0 Full year adjusted diluted EPS could total $9.85 to $10.08 Our full year adjusted effective tax rate is still expected to be roughly one percentage point higher than a year ago, given a 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. Let me also share some sensitivities to help with modeling.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

The sensitivity of 1% change in full year 2025 US RevPAR versus 2024 could be around 35,000,000 to $40,000,000 of total RevPAR related fees. The impact of a 1% change in full year 2025 global RevPAR versus 2024, assuming equal changes across all hotels around the world, could be $50,000,000 to 60,000,000 Our 2025 net rooms growth is still anticipated to approach 5%. As we look ahead with our strong momentum in global signings, we still expect long term global net rooms growth in the mid single digit range. Total investment spending is still expected to be $1,360,000,000 to $1,460,000,000 or 1,000,000,000 to $1,100,000,000 excluding $355,000,000 for the Citizen M transaction. Our capital allocation philosophy remains the same.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

We're committed to our investment grade rating, investing in growth that is accretive to shareholder value, and then returning excess capital to shareholders through a combination of a modest cash dividend, 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 still expect full year capital returns to shareholders to be around $4,000,000,000 while maintaining our leverage in the lower part of our net debt to EBITDA range of three to 3.5 times. Before ending our prepared remarks, Tony and I want to express our gratitude to our incredible team of associates around the world for their continued hard work and dedication. The operator can now open the lines for questions.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Please ask just one question each so we can speak with as many of you as possible. Thank you.

Operator

Thank you. We'll go first to the line of Steven Grambling with Morgan Stanley. Please go ahead.

Stephen Grambling
Stephen Grambling
MD & Senior Equity Research Analyst at Morgan Stanley

Thanks. Leeny, I know you still have time, but congratulations, and thanks for all of your consistent insight and support.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Thank you, Steven.

Stephen Grambling
Stephen Grambling
MD & Senior Equity Research Analyst at Morgan Stanley

So I I think we've talked about this in the past, but maybe this is a this is a big picture question. But given all of the advances technology, particularly around AI, where are we in the technology transformation project as it relates to timing and spend? And what are some of the major changes both owners and travelers can expect to see over the next few years?

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Sure. Thank you, Steven, for the question. As you know, we are in the midst of a multiyear transformation of our three main systems, loyalty, reservations, and PMS. We expect to start deploying the new cloud based central reservations, PMS in The US and Canada select service hotels later this year. The strategy is intended to do a few things.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

It is intended to meaningfully enhance the ease with which our associates are trained on those platforms, in turn enhancing our competitiveness, particularly for next generation future associates. It should make the experience for our guests both on property and when they're engaging with our customer engagement centers much more seamless, much, more efficient. And then from an owner perspective, it should drive both some opportunities to improve the efficiency of our operations, but maybe even more compelling the ability to better merchandise and sell the full range of products and services that we wanna make available to our guests. Ideally, representing some revenue upside for the owners. Pivoting to AI, I think I talked about this last quarter.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

We have stood up a Marriott AI incubator that is working on a variety of proof of concepts. Some of those early proof of concepts were in areas like reimagining the concierge function, where we think there's a real opportunity to take advantage. We're also looking at pilots in our customer engagement centers to help those agents navigate such a broad and diverse portfolio. As you as you may know, we've incorporated AI into the Marriott Homes and Villas platform. And while it's early, the early reaction of our guests has been terrific.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And then we've also launched an ambassador trip planning tool that is fueled by AI. So lots of work going on in the AI space, but again, all of it focused on number one, serving each of the constituents that we serve every day, and number two, creating capacities for our associates to better engage guests.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And Steven, just on your question about the funding of the project for the tech transformation, the heaviest spend levels are really 24, 25, and '26. And as you know, there will be several 100,000,000 that will go on to Marriott's balance sheet and be paid off over time. But the delta is not huge compared to normal, but probably is, call it, dollars 100,000,000 more than you might typically expect on the tech spend side for those years.

Operator

Thank you. And we'll go next to the line of Kelley with Bank of America. Please go ahead. Your line is open.

Shaun Kelley
Shaun Kelley
Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch

Hi. Good morning, everyone. And Lainie, I'll pass along my sentiments as well. You'll be sorely missed when we get to that moment, but I think we have another quarter or two together. So appreciate all you've done.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Thank you. But Sean, you can share those sentiments the next two quarterly calls.

Shaun Kelley
Shaun Kelley
Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch

It's it's just gonna be a a really long farewell. So

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

so so

Shaun Kelley
Shaun Kelley
Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch

Tony, so where I wanted to go with with my question was actually some of the implications on the one big beautiful bill. So obviously, some certainty here for the sort of broader kind of investment community and the way people think about it. But if you could put your development hat on for us for a second, given some of the expensing features in that legislation, I'm curious on whether or not you think this can drive some renovation capital to the space, possibly some more development or optimism on that side. And then Leeny, for you, anything on the Marriott corporate side in terms of interest deduction, accelerated depreciation, anything that would matter for Marriott corporate? Thank you.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Yeah. Thank you, Sean. Maybe I'll talk macro, and Leeny can be a little more granular. In some ways, the best thing about the big beautiful bill is it's done. Right?

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And so the the level of uncertainty both among consumers and among our owners and franchisees improves meaningfully with the the signature on on that bill. Most of our owners, we've talked about this in the past, are long term investors in the sector. They don't tend to jump in and out based on the ups and downs of what's going on in Washington. But I do think the stability that comes from no more talk about it and the implementation of the the various components of that bill are a net positive for us. With that said, the the factors that our owners consider as they think about putting shovels in the ground are all around yields.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And so to the extent that there remains uncertainty around tariffs, that will give them some measure of pause. But again, they're long term investors, and so we've seen a bit of an uptick in construction starts. Certainly not to where we'd like to see it in a a pre pandemic world. We continue to see really strong and accelerating traction on the conversion front. You heard in my prepared remarks, in just a quarter, we've seen our global, pipeline of mid scale double from a 100 projects a quarter ago to 200 at the '2.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Leeny, I don't know if you wanna add any color there.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Yeah, so let's talk for a minute about the broader picture that you're asking about, Shaun. And clearly, as it relates to certain kind of depreciation factors, etcetera, that is one element that can be encouraging. But I think it's, again, it's a broader picture about economic stability, about interest rates, about where the transaction market is and bid ask spreads, etcetera. And I do think that with, as Tony said, the bill passing and hopefully a more concrete view about where tariffs are going to end up, that we've got the possibility of the transaction market starts to open up some more, that is certainly helpful as we think about having some assets that we're finishing fantastic renovations in, and we would like to recycle that capital. So from that standpoint, we're looking forward to opportunities on that front.

Operator

Thank you. And we'll go next to the line of Dan Pulser with JPMorgan. Please go ahead.

Daniel Politzer
Daniel Politzer
Executive Director, Equity Research - Gaming and Lodging at JP Morgan

Hey, good morning everyone. And Leeny, thanks for everything. I'm glad we'll help you for a bit longer though to help us out. Wanted to go and zoom in on the group business a bit. It seems like it's been choppier near term, but you mentioned 2026 is actually tracking a little bit better than even last quarter.

Daniel Politzer
Daniel Politzer
Executive Director, Equity Research - Gaming and Lodging at JP Morgan

Can you maybe unpack that a little bit in terms of what you're seeing in terms of lead volumes versus some of the deferrals possibly? And is it an actual change in the type of customer or booking that you're seeing? What exactly is going on there?

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Sure. I'll give it a try. The as you rightly point out, the a quarter ago when we gave you visibility into group pace for 2026, we were tracking up 7%. That's tip ticked up a 100 basis points. We're now tracking at up eight.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Not a meaningful shift in in distribution across the various sources of group. I mean, as you know, we get 45 ish percent of all group comes from corporate. That seems to be staying pretty consistent. About a quarter comes from association. That is remaining fairly consistent as well.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

We are not seeing any sort of above normal volume of cancellations in the group segment. I think in our prepared remarks, we may have mentioned little uptick in attrition here in in q two and and into the back half of '25. But again, those those case numbers for 2026 are really encouraging. I would the other thing I would say, we talked in response to one of the earlier questions about some of the the fluidity in the macro environment. That's really, I think, been the driver in a little drop in the year for the year bookings, certainly in q two of this year, and an expectation for the back half of the year.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And just to for for one follow-up, when you think about how much of the drop in q two grew relative to our expectations a quarter ago, not quite half was from attrition, and the rest was from weaker in the quarter for the quarter bookings. So kind of a fairly even mix of the two. And then as Tony said, I think some real uncertainty around the state of play in the economy. The other thing that's worth noting is that obviously with a number of both holidays and events shifting, that's also partly what you're seeing in the group outlook for Q3 and Q4 being different between those two quarters.

Operator

Thank you. And we'll go next to Connor Cunningham with Melius Research. Please go ahead.

Conor Cunningham
Director – Travel & Transports Research at Melius Research LLC

Hi, everyone. Thank you, and congrats, Leeny, on on the retirement. I also look forward to to getting some more insights over the next couple of quarters. But I was hoping you could talk a little bit about the the Marriott media opportunity. I realize it's still very, very new, but other travel companies talk talk up this opportunity, you know, on on media and ads and as just a significant driver of of profits and whatnot. And I'm just trying to understand the potential opportunity set ahead.

Conor Cunningham
Director – Travel & Transports Research at Melius Research LLC

Is it on the level of, like, a cobranded credit card contribution at full maturation? And and maybe you could just talk about how you view it. Is it is it people is it companies that are coming into the the Marriott ecosystem, or is it an ad based type platform? Just any thoughts would be would be helpful. Thank you.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Yeah. Connor, happy to talk about it. And, I was with Peggy Rowe and her team at Cam Lyon, earlier this summer where we did our official launch. And, certainly, if the the early level of of interest that we saw from prospective advertisers is any indication, I think we ought to be really optimistic about, the future of the network. It's really fundamentally, Connor, a network that helps brands connect with audiences throughout the guest journey.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

It allows us to take both the deep insights we have into travelers and their preferences, and then provide that guidance and then access for those advertisers across our digital platforms and our physical environments in our guest rooms to try and offer really bespoke campaigns that that appeal to traveler interest. It's really too early to give you a sense of of what the economics might look like. We're in very early days. But again, the the level of interest, I think, has exceeded our expectations, and it gives us a lot of optimism about the future of the network.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

The only thing I I would add to that is we do expect to be sharing the returns with our owners as well. I think it's one of these great examples of complementary adjacent businesses that help our overall power of Bonvoy, but also help the P and L of both the company and our owners.

Operator

Thank you. And we'll go next to the line of Richard Clark with Bernstein. Please go ahead. Your line is open.

Richard Clarke
Analyst at Bernstein

Hi, thanks for taking my questions. And just continue the thanks, Salini. It's been a pleasure working with you the last few years. I guess I just want to ask a question on the residential branded feed. It seems to be coming up every quarter as a piece of volatility.

Richard Clarke
Analyst at Bernstein

And I guess investors in hotel stocks don't like volatility very much. So just your commitment to the residential business and how you're feeling about the long term outlook in continuing to pursue that opportunity.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Sure. Thank you very much for the question. And I will kind of double down, emphasize excitement about this business. We are the clear leader in the branded residential business across a number of our brands around the world. And we are thrilled with what we see in terms of continued openings, continued strength of the prices that these units are selling for, which then feeds into branding fees for us.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

It's worth mentioning that we also do get management fees from these, are in our base management fees. They are obviously a smaller amount, and they do not have the same volatility associated with them. But as an example, last year was $80,000,000 So while I hear your point about investors not liking the volatility of them, it's still not a huge part of our overall fee stream. And this year, we now expect them to, just from a timing perspective, to be more like 30% down. That's actually better than it was a quarter ago when we had talked about them being down close to 50%.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And again, in the big scheme of things, not such a huge impact on earnings. But they are high return on investment fees and typically also associated with a hotel next door and provide tremendous value to those hotels as well. So no, we huge fans of our residential business, and I would

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

be remiss not to thank that team for the extraordinary work that they do in delivering these results. And Richard, the only other, color commentary I would add, I talked both in my prepared remarks and and in response to an earlier question about the continued strength we see in luxury. I think with the the impact that our branded residential business has on the perception of the of those brands, on the confidence in the quality and service delivery in those brands. Residential is a meaningful contributor to that growing lead that we enjoy in the most valuable tier.

Operator

Thank you. And we'll go next to the line of Brandt Montour with Barclays. Please go ahead.

Brandt Montour
Brandt Montour
Director - Equity Research at Barclays

Good morning, everybody. And I want to extend a heartfelt congratulations to Leeny. You'll definitely be missed. I wanted to ask about business transient trends, obviously down in the quarter and low visibility within this business. But maybe if you could break out non government business transient and just give us a sense on what you sort of baked into your assumptions going into the third and fourth quarter within guidance.

Brandt Montour
Brandt Montour
Director - Equity Research at Barclays

What are you hearing Tony from the larger corporates especially that we know you have good relations with and what they're thinking?

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Yes. So maybe I'll start with the government piece just to ground you and remind you that last year in full year '24, about 3% of global room nights and about 4% of US and Canada room nights were US government workers. That's federal, state, local. And we've done our best to try to estimate government adjacent room nights as well. And in The US and Canada, we would guess that would be about another 1%.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And and it's it's sort of scales by chain scale. Meaning, you go to the select service scale, about 6% of room nights come from government, about 3% in full service, and about 2% in the luxury tier, which maybe speaks a little bit to some of the trends that we've seen. Talking more broadly about business transient, You know, most of the the corporates that we work with are to a certain extent, I would characterize them as back to normal. A lot of the travel restrictions they had coming out of the pandemic are largely gone. You're seeing more and more return to the office, either voluntary or mandated.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And I think that's having some impact on business transient volume as well. But the volatility and the uncertainty that both Leanie and I talked about in our prepared remarks appears to be the biggest contributor to the bit of softness we saw in

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

the quarter. And and, Brad, to break out kind of your specific question about the impact without the government, Globally, business transient RevPAR was down 1% if you exclude the government. Because government transient RevPAR was down 17% in the quarter. And that's a bit more than it was, say, in March 2025. But it does appear to be kind of steadying out.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So I think if you kind of unpack that a bit, you continue to see that BT, apart from government, is experiencing this kind of lower growth that fits what's going on with global economic activity, which is clearly lower than what was expected at the beginning of the year, but also not falling dramatically.

Operator

Thank you. And we'll go next to Robin Farley with UBS.

Robin Farley
Robin Farley
Managing Director - Leisure Analyst at UBS Group

Great. Thank you. And I wanna echo everyone's sentiments about Leaning as well. My question is on the pipeline and rooms under construction. Obviously, the development environment is different than it's been historically.

Robin Farley
Robin Farley
Managing Director - Leisure Analyst at UBS Group

It looks like about 40% of your pipeline is under construction. And if we without the change in how you count conversions, that would be somewhere in the 30% range. And if we think about how that was close to 50% kind of pre pandemic or like what the old normal was, can you help us think about what conversions as a percent of openings needs to grow to next year for to hit that same kind of mid single digit range in unit growth, just what the conversions as a percent would have to grow to kind of offset maybe what's not kind of being newly built? Thank you.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So Robin, I think the best way to talk about this is the reality that conversions have been, call it, a 30, even a little bit over often, a percentage of our signings for several years now. So really it's not as comparable to the specific of the pipeline in 2019, because you've now seen some rolling years of these higher percentages of conversions that stay in your pipeline for, in general, a shorter period of time. So we would expect to continue to see over the next few years that we would have, call it, roughly a third rooms opening that are conversion rooms. And that includes adaptive reuse in Greater China, which are kind of a mix of new construction and conversion rooms. And continue to see this strong amount of signings being in the conversion space.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And as we look at a pipeline that is over five percent higher than a year ago, with again this heightened element of several years of conversions, we're confident that we're building the track record for this mid single digits net rooms growth over the next several years.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And Robin, only thing I'd add two things to that. Think I mentioned this in my prepared remarks. We're just getting started in the mid scale tier where we think there is tremendous opportunity. As I mentioned, the number of mid scale deals in the pipeline globally doubled just from a quarter ago. And with the introduction of something like series, that really enhances an effort that we've talked about the last few quarters around portfolio conversions, which is really encouraging to us.

Operator

Thank you. And we'll go next to the line of Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Pfennigwerth
Senior Managing Director - Equities at Evercore

Hey, good morning. As you think about the expected improvement from third quarter to fourth quarter, just a couple of assumptions I wanted to check with you. Is this primarily a domestic pickup? Or are there other regions of the world where you also expect sequential improvement? And then relatedly, by segment, it sounds from your commentary clearly group the group pace is higher.

Duane Pfennigwerth
Senior Managing Director - Equities at Evercore

Is that the biggest sequential driver? I mean, our sense is BT is actually improving. Business travel is improving. We're in a peak leisure period now, so it's a little bit hard to measure. But how are you thinking about pickup for BT specifically into the fall?

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Yes. So I think you make a couple of good points. And let me first talk about your broad question about q four over q three, which is, again, the items clearly that we mentioned clearly pointed out in The US. But you've also got things like easier comps in China as you move through the year, and that becomes even more heightened as you get to Q4, which obviously, at close to 10% of our systems, is a nice help as you look at the overall pickup. And then obviously, you pointed out the group difference.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

But I would also agree with you that just from a BT standpoint, that it is a generally heavier period of BT travel. And with some of the revolution of things like either the bill or continued progress about tariffs, and potentially interest rates, that there is a bit more of a open view about where the economy is going. We are not assuming a fundamental shift in business transient, but more seasonality impacts, as you pointed out. But from a general level of economic activity, we are assuming pretty much steady as she goes and not some sort of big pickup in the economy that is is different than what we're generally seeing overall. And, Dwayne, the only thing I would

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

add, we talk about group. One, the the trends are encouraging. Two, we've got a little longer term visibility than we have on the transient side. And so just to remind you in the quarter, the global average booking window for transient was only twenty days. And for BT, it was only sixteen days.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And so I think, I I your observations are spot on. We just don't have as much visibility into transient as we do in group. That's a great point.

Operator

Thank you. And we'll go next to the line of Smedes Rose with Citi. Please go ahead.

Smedes Rose
Smedes Rose
Director at Citigroup

Hi. Thanks, Leeny. I know it's a long goodbye, but we'll definitely miss you.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Thank you.

Smedes Rose
Smedes Rose
Director at Citigroup

I wanted to just I just wanted to follow-up on the group a little bit because it sounds like, you know, maybe the pace has stalled a little bit through the balance of this year, but you you and other companies are talking about picking up into next year. And I'm just wondering, you know, at this point of the year, like, how much confidence do you have that that pace can continue? Because it doesn't really feel like, I mean, you said sort of constant economic growth, but, you know, it feels like, I don't know. The I mean, there just seems to be much more uncertainty, I guess, on a lot of levels despite, you know, maybe some tax certainty and things. And I guess I was just wondering, you know, how confidence do you feel in that that that pace can continue?

Smedes Rose
Smedes Rose
Director at Citigroup

Do you do you think people are just holding space and they might just cancel later?

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Yeah. It's a good question, Smedes. But as I said, you know, while it's a little early, the, I I might have a different answer for you if the weakness we saw in the back half of this year was the result of wholesale cancellations. The fact that the contracts are holding pretty firm, and really as you heard from Lenny, it's it's a matter of some attrition likely related to some of the macro uncertainty. Coupled with the fact that we're up a 100 basis points since a quarter ago on definites on the books for '26, does give us a measure of confidence about the continued strength in the group segment.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

The the other thing I'd point out, which is a smaller fact, but just interesting, is that the food and beverage component of this group business has not been bad. I mean, F and B's been up 4% and has generally been sturdy. So sometimes what you see is everybody scales back down to the bare knob on the on the group meeting that they're having. And and what we're seeing is that it has continued to be robust. There clearly, I would say, there is more uncertainty

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

about the near term in the year for the year bookings in '25 than we thought a quarter ago. But I will say for the group that continues to roll through, the quality of it is excellent. And maybe just to build on Leanie's point, we've talked a lot on this call about luxury. Those numbers in food and beverage spend are even more compelling in the luxury tier. In the quarter, globally, luxury F and B spend was up 6% and up 7% in The US and Canada.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And if you just look at food and beverage spend for meetings and events, it was up 9% globally and 10% in The U. S. And Canada within the luxury tier.

Operator

Thank you. And we'll go next to the line of David Katz with Jefferies. Please go ahead.

David Katz
David Katz
Managing Director at Jefferies

Morning, everybody. Thanks for taking my question. Leeny, thanks is probably not enough, but I'd rather spend the next two quarters trying to talk you out of it, if I can.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

You and me both.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Thank you, David.

David Katz
David Katz
Managing Director at Jefferies

You're welcome. Look, I think we've covered a lot on sort of the cadence of quarters, and I'd rather sort of talk a little big picture. With the discussion about Residential and some of the affiliation deals that we've seen, Leeny, you hosted a bunch of us on a tour of a yacht not too long ago. Can we just sort of talk about those other channels and what could be for Marriott longer term? And the follow-up to it obviously is thinking about the economic intensity of those other channels and how attractive they may or may not be relative to the core business that you've grown so far? Thanks.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Yeah, David, thank you for the question. Maybe I'll talk a little strategically and then let Leeny chime in. You and

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

I talked about this maybe last time we were together in person in New York. Broadly, as demonstrated by some of the recent deals we've done, our strategy continues to be on this focus of keeping our loyal guests within the Marriott ecosystem. And so it is not adding brands for the sake of adding brands. It's not adding things like homes and villas, outdoor collection, Ritz Carlton Yacht, simply to have stuff to talk about on the earnings call. It's about really listening to our guests across every tier, understanding how their preferences and how they travel continues to evolve, and filling in gaps in in our our our or making additions to our core lodging business in a way where irrespective of trip purpose, irrespective of destination, we have a platform that that allows them to satisfy all their travel needs within that Bonvoy ecosystem without ever looking outside.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So on the economic model, David, I'd point to a couple things. And that is that kind of let's first talk about the ever widening range of travel opportunities with Marriott. And I would say what you're seeing, for example, with the announcement that we talked about is kind of classic franchise economics. MGM, to be fair, while it is essentially franchise economics, is a different structured sort of contract, given that we are largely sharing two incredibly powerful brands. But when you think about some of these other multiunit deals we're doing, they do fall much more in the classic franchise, super high ROIC economic models.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And then when you think about broadening it to things like co brand credit cards, there you again are seeing also a very high return sort of adjacency that actually extends beyond just earning on travel expenses, but on the ability for people to be buying gas. And we ultimately earn branding fees. Tony talked about Marriott the Media Network with the opportunity to kind of there again expand our adjacency to be able to help link customers to great experiences and great products in a way that economically advantages both Marriott and owners without, frankly, a tremendous amount of investment. So I think the opportunities are terrific as we look longer term. And I think we all believe we're just beginning.

Operator

Thank you. And we'll go next to Steve Bezella with Deutsche Bank. Please go ahead.

Steve Pizzella
Steve Pizzella
Equity Research Analyst at Deutsche Bank

Good morning, and thank you for taking our question. Also wanted to echo the comments to you, Leeny. Wanted to follow-up on conversions, we could. You talk about what you're seeing in the current environment, both domestically and internationally, from a competitive standpoint, including how much key money is being used? And in addition, what do you view as the addressable market for conversions and license licensing agreements, including some of the more bulkier, say, 100 to a thousand plus room deals?

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

I didn't hear the last part of the question, but I'll start in terms of kind of what we're seeing broadly. Just as a reminder, globally, about half the hotels in the world are branded. Obviously, that's dramatically higher in The US and dramatically lower outside The US. So we see just extraordinary opportunities for conversions extending, as far as you can see, into the future, particularly with the layout of soft brands that we have when you think about luxury collection series, autograph, tribute, etcetera. And then you've also got, just from a standpoint of the ability to make that work economically, in many cases, you've got hotel owners who are evaluating taking an existing hotel.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So rather than building a whole new one, it's a question of how much do they need to reinvest in it to make it fit one of these conversion brands. And also with the affiliation cost efficiency Sorry. I don't understand. We've been able to drive. In that case, you see just really great returns for the owner for being able to put a little bit of money into their hotel and then not having to pay too much to affiliate with one of our brands.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So we see great possibilities on the conversion front. On the use of key money, frankly, it's the same as we've talked about before. There's really not a substantial difference this year relative to what is required. Is it extremely competitive? Absolutely.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And key money is part of that. So are the terms of the contracts and the way that the investment is required as well. We do see a bit more key money in the lower chain scales than we saw, for example,

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

in 2019. But when you think about it, broadly speaking, this year over last, it hasn't changed dramatically. And then just to remind you, we may have talked about this a quarter ago. Nearly 40% of the pipeline rooms are luxury and full service, which by their nature tend to command a bit more key money investment, but obviously generate meaningfully higher fees.

Operator

Thank you. And we'll go next to the line of Lizzie Dove with Goldman Sachs. Please go ahead. Your line is open.

Lizzie Dove
Lizzie Dove
VP - Equity Research at Goldman Sachs

Congratulations, Leeny. I echo everyone's sentiments, and thank you for everything you've done. On the development side, going back there for a second, I'm curious specifically just around China and what you're seeing there. Feels like so far, the development trends have kind of defied the mix RevPAR outlook or environment. So just curious kind of what you're seeing the latest there.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

So yes, we have continued to see fantastic room signings this year in Greater China. And again, really appreciate all the team's hard work. We've seen particular strength in the select service brands, which if you think about it makes sense given the perspective of hotel owners. These are relatively speaking, lower risk, less complex assets, allow for greater diversification. They are lower cost per key and have solid returns.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

And so in that regard, that's where we've seen about 70% of the rooms in the first half of this year have been in select service brands in China. And we're very excited about how our select service brands are performing against competitors for these signings. And we continue to see solid movement as they go into the pipeline and then start moving through to come through opening. The rooms growth that we have in Greater China is in the high single digits and I think reflects the success that we're having with all of our brands there.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

And just to give you a little more quantitative context to Leeny's remarks, if you look at the 2025, our room signings are up almost 20% year over year.

Operator

Thank you. And we will take our final question from Kevin Kopelman with TD Cowen. Please go ahead.

Kevin Kopelman
Managing Director - Equity Research at TD Cowen

Thanks so much, and I'll add my congratulations to Leeny. Thank you for your help and for your kindness.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Thank you.

Kevin Kopelman
Managing Director - Equity Research at TD Cowen

I have a just a question on leisure transient. Can you touch on how you would characterize current underlying leisure transient trends after you strip out any calendar changes?

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

Yeah. So I have to admit, this has probably been the surprise out performer for us. And again, I will point to the luxury and certain parts of the premium segment. For example, resorts have just performed extremely well. So I think when you think about wealth movements in age groups around the world, that demographics probably plays a role.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

But the reality is people with these levels of unemployment, you're still seeing people take vacation. And they love to travel. This desire for experiences over goods continues, and the underlying trends that we see are excellent. Now, as Tony pointed out earlier, the booking window is obviously quite short. So I can't really predict much more than three weeks in advance.

Leeny Oberg
Leeny Oberg
CFO & EVP, Development at Marriott International

But so far, we continue to see solid leisure trends. But again, I would not call them that they're accelerating.

Operator

Thank you. At this point, we have used up our allotted time, but we'd to thank everyone for their questions. I will now turn it back to Mr. Capilano for closing remarks.

Anthony Capuano
Anthony Capuano
President & CEO at Marriott International

Great. Well, thank you all again. We I promised I wouldn't make Leanie cry on this call, but there's more of that to come. So thank you all for your kind sentiments. Thank you for your continued interest in Marriott, and we look forward to seeing you on the road in the coming weeks and months. Thanks. Thank you.

Operator

We would like to thank everybody for their participation today. Please feel free to disconnect your line at any time.

Executives
    • Jackie Burka McConagha
      Jackie Burka McConagha
      SVP, Investor Relations
    • Anthony Capuano
      Anthony Capuano
      President & CEO
    • Leeny Oberg
      Leeny Oberg
      CFO & EVP, Development
Analysts
    • Stephen Grambling
      MD & Senior Equity Research Analyst at Morgan Stanley
    • Shaun Kelley
      Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch
    • Daniel Politzer
      Executive Director, Equity Research - Gaming and Lodging at JP Morgan
    • Conor Cunningham
      Director – Travel & Transports Research at Melius Research LLC
    • Richard Clarke
      Analyst at Bernstein
    • Brandt Montour
      Director - Equity Research at Barclays
    • Robin Farley
      Managing Director - Leisure Analyst at UBS Group
    • Duane Pfennigwerth
      Senior Managing Director - Equities at Evercore
    • Smedes Rose
      Director at Citigroup
    • David Katz
      Managing Director at Jefferies
    • Steve Pizzella
      Equity Research Analyst at Deutsche Bank
    • Lizzie Dove
      VP - Equity Research at Goldman Sachs
    • Kevin Kopelman
      Managing Director - Equity Research at TD Cowen
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