MAR
#February 2015.
It's a good question.
Certainly in the group space if you have got shrinkage that is occurring sort of real-time so that groups are showing up with meaningfully lower numbers than what they anticipated before, that could be a warning that group participants or that the company sponsoring groups are less bullish about things than they were when the reservation group booking was first made.
But again, we haven't really seen movement in that so there is not data there that would tell us to beware because of that.
In fact you can tell from our comments about group, group is one of those things that we look at that give us some solidity in our point of view about the future and the group attendance has been good and the food and beverage spending has been good and so that is sort of reassuring.
It is a good question around transient cancellation.
Again, I don't think we have seen a shift there but I can't tell you whether in prior cycles that would be a canary in the coal mine.
My guess is it is not very much because corporate transient business is booked so short before the stay that actually it doesn't show up so much in cancellation, but probably just shows up in the booking itself.
Very good question.
So a couple of things.
I would say we are still in the land where we don't have kind of open sesame yet into all of the information.
So full knowledge about exactly how we are thinking about some of these technological platforms and merging them and what we will choose and exactly how we will do it remains to be seen.
I think we continue to believe this is a two-year process, that this integration of these two companies when you think about it kind of what we have got to do, get in there, look at it and then figure out from a transition standpoint, that it is a two-year integration is definitely something that you should expect.
In terms of loyalty, we've got a host of issues.
In addition to both the technological issues around platforms and reservations, etc.
, we've also got some other things like credit cards and timeshare businesses where we need to work with our partners to get where we all want to go in terms of the relationship with the customer.
And that one is a little bit harder to pick exactly a time.
I think we have said before that we are hopeful by 2018 to have merged the loyalty program.
So I think the two-year sort of estimate is for right now as good as we can give you.
Great, so you are right.
We have talked about in general what we expect to do in terms of $1.5 billion to $2 billion of asset sales over the next couple of years when we do this deal.
So first of all you can tell what Starwood has done so far this year.
They have done a great job of moving through their asset sale program and getting some nice deals done.
We, like you, basically take our cue from them in terms of hearing how they are doing on that front and from that perspective, we know that they are talking to a number of parties out there about some very good size transactions.
And we look forward to as soon as the deal is closed to getting much more involved in understanding exactly where things are with the negotiations and the terms of the deals and the pace of those discussions.
I wouldn't really be able to hazard where we are in Q3, Q4, Q1 of 2017 except to know that I'm sure you have seen Marriott's track record and that is that we don't want to be a real estate owner and we will be moving as quickly as a practical to recycle that capital.
But frankly I would expect that you will hear more from us at the end of Q3 when we have closed and we've got a better handle on where things are.
Yes.
You hit the nail on the head.
That is exactly right.
There is lots of business out there that we don't have in our hotels by definition obviously.
We think we've got about 11% of the rooms in the United States and a smaller share in the rest of the world, usually dramatically smaller than that 11%.
We tend to run meaningfully higher rates than the market as a whole and we obviously do that with a purpose.
That is partly because of the way our hotels are skewed in terms of their level of luxury and level of services.
That is partly about simply our approach to pricing.
So there is lots of business out there that is more rate sensitive and can be pursued by us if we think it is in our interest to pursue it.
Obviously we are also adding new units around the world and whether that is at 6.5% or 7% it is meaningful growth into our system and so we are with those new hotels making sure we can also grab new customers in order to fill them and do what we need to do and the performance there has been great.
So I think there is plenty of business for us to continue to go and grab.
I think that business cannot always be grabbed at exactly the rates that the highest rated business we have in hotels but we do our best through revenue management and mix management and the like to drive optimal performance and I think we have done well with that.
Obviously that is a topline focus sort of number.
I would ---+ let me stress something on the bottom line too and maybe brag about it a little bit.
But I think the 100 basis point improvement in margins in the managed portfolio in the United States in a 3% RevPAR growth environment is extraordinarily impressive and that is a bit about good management at the topline but it is also great management of the cost elements of those hotels.
And both of those things I think tell you that we've got tools that we can use even in this sort of anemic GDP growth environment that we are experiencing today that can cause us to deliver maybe it is low-ish single-digit RevPAR growth but when you put unit growth and cost management and capital return to shareholders into the equation, you end up with this high teens or maybe even better EPS growth, 18% EPS growth in Q2.
And that is with $20 million less in gains on asset sales because we had that in Q2 of 2015.
Yes, I think there are two big American lodging companies whose brands are in first demand and of course we believe our brands are in first demand and we have data to support that.
But I think there is a significant shift towards quality.
I think that shift in many respects the accelerates when there is more anxiety in the market and whether that anxiety is manifested by the way the equity investor approaches it or by the approach that the lender takes and we obviously talked about that a little bit in the prepared comments.
Lenders are more cautious today and that caution is also going to force them to put their [borrowers] in a position where they are going with the strongest brands that pose the least risk in a weaker environment and that is very much to our benefit.
RevPAR index, okay.
Yes, who are we taking it from.
Well, remember the way RevPAR index is done, it is not Marriott against <UNK> B but it is how does the Marriott Marquis in Times Square in New York compare to the four hotels or five hotels or six hotels that they have in that hotel's competitive set.
And as a consequence in some markets, it is going to be for the Marriott Marquis, I don't know off the top of my head what the competitive set is but I suspect that it is a number of big branded hotels within about a mile of that hotel.
In other markets we may have a Marriott that is competing against a limited service hotel because that is the only other hotel in the market or some other products like that or some independent hotels.
All of these get rolled up and when we talk about 90 basis points of index growth, that is a collection of taking from lots of different kinds of competitors.
Asia is really a bright spot, you can look at it for our total RevPAR numbers that we reported in the quarter.
We obviously called out a number of the individual markets but you look across the region and see more often than not good strong performance.
Sometimes in markets like South Korea that is aided by an extraordinarily easy comparison because of the MERS crisis last year.
But you look at India with its 10% RevPAR growth, that is driven by core economic growth in the country.
China, we talked about with Mainland China RevPAR up about 3% in Q2 and if anything, that understates China's performance.
We did have a shift in the way we report RevPAR year-over-year which has something to do with service fees and service charges and some other fine tuning of that which has about a 2 point impact on reported RevPAR in China in the quarter.
And so if anything, China is doing even better than the numbers that we reported.
We have been pleased with China on the development side.
Year to date we obviously read the same newspapers that you do and there is some anxiety there as there is in many other markets around the world but it seems that people are continuing to move forward with projects that have strength.
On the negative side, Hong Kong has been sort of a tougher market mostly because Chinese visitation has ---+ Mainland Chinese visitation has declined.
Some of that is currency driven given Hong Kong's dollar is essentially pegged to the US dollar and so as a consequence has become more expensive as the US dollar has continued to appreciate around the world.
We wouldn't expect the story in Hong Kong is going to change for the better anytime real soon.
And Thailand is strong too, but I think of across the region generally we are pretty bullish about Asia-Pacific.
Maybe I will have <UNK> do that but before <UNK> jumps in on this, let me mention Australia given that you are with Macquarie.
So I apologize for not having done that.
But Australia is a bright spot in the Asia-Pacific too.
So on incentive fees, you will see that what we've got for the first half of the year and the back half of the year is a fairly similar growth rate.
Now we are looking so far this year whatever 64% earning incentive fees and by the end of the year that will probably climb up a few percentage points.
We've got a great breadth and depth now with greater international exposure across our portfolio where it is not quite the same in terms of the fall off.
I think as long as we are staying in the kind of ballparks that we have talked about for RevPAR without a meaningful change, I think we are in the right spot and you've got a right kind of numbers.
We aren't seeing that we automatically would have to kind of imagine that all of a he sudden you are going to go back and reverse the ones that you have.
We have got a large portfolio of limited service hotels that added nicely to incentive fees in Q2 and their performance looks to continue to be strong.
So it is IMF performance was really nice and broad, both in North America as well as internationally obviously impacted by some tough international markets but overall kind of strong growth overall.
The other thing I would say on our IMFs is that as you think about where we are from a margin perspective, this performance is really top-notch in terms of the kinds of IMF growth that we are having relative to the RevPAR growth, this really great performance and we feel great about the rest of the year in that regard.
Just one other comment on that.
If you look at our reported numbers and pay attention to the managed page as well as the system-wide page, obviously managed hotels deliver the IMF.
Managed hotels have a higher group mix than the system as a whole.
We only really end up talking about RevPAR.
We often don't talk about food and beverage and other contribution that comes from group but that does very much drive profitability of the managed hotels.
And with the relatively stronger group, there is I think all of the things that <UNK> said are that much even clearer because the performance in those hotels should continue to be a bit better than those that are more reliant on transient and less on food and beverage.
Yes, I mean I think it is a good question.
I think our number for Q4 has gotten a bit better over the last quarter.
I think obviously we're talking about three quarters, a quarter ago left in the year not two and so we didn't give it to for each quarter although I think we did say that Q3 was relatively stronger than Q4.
I think Q4 numbers look a little better today than they did a quarter ago.
My guess is that often the way this works is if Q3 for example were plus 10 or plus 9 point-something in group business, we are more likely to end up with a group number which is a bit lower than that when the dust settles because there is not likely to be availability to take as much in the quarter for the quarter group business as we probably took last year.
The opposite may be the case for the fourth quarter though.
So the fourth quarter hopefully will end up with actual group RevPAR numbers which are better than zero.
How those two things balance out for the second half in the aggregate I couldn't tell you but it shouldn't be dramatically different than the kind of 5% number that we are talking about today for second half.
Yes, though you are taking us well into next year.
I think that is possible.
I think the good news here though is the 7% booking is a real year-over-year comparison.
That is a data point that is compared to the same data point at the same time last year for 2016 and that is a real increase of 7% in group revenue.
I don't think there is much more we can say than what we have already said.
I will give it a little bit more color.
Obviously we have got folks in China that are helping us navigate through this and through them and through our teams, we have been in touch with the Chinese authorities who are doing this process.
I don't think it is political.
I don't think it is extraordinary.
I think it is the wheels of government working and as you can tell from our comments, we expect ---+ we at least hope that we will be done here real shortly and be able to close transaction and close it on the terms that we have explained to all of you.
Obviously RevPAR is a function of both supply and demand.
Supply growing now at 1.5% to 1.6% something like that which in historic terms is not particularly alarming, maybe a little bit more than we have had last year or the year before that but not a frightening sort of figure.
It is very much factored into the guidance that we are providing, both our supply growth in industry supply growth and we are trying to make a real world set of assumptions about the way we think our business will perform.
Supply growth could be a little higher next year but I wouldn't think it is going to be dramatically different than what we are seeing this year and that will continue to have an impact into performance.
Generally an incremental point of GDP growth is about 2 points of demand growth for the industry and as a consequence, we could see occupancy for comp hotels continue to grow even in this kind of supply growth environment.
But it does depend on GDP growth and the more GDP moves the more occupancy is likely to move.
We have in some markets of the world push advanced pay marketed at a little bit more aggressively.
I know the European team has driven a significant increase in advanced pay reservations.
I can't tell you operate top of my head what the percentage of transient business is that is advanced pay in Europe although I know it is growing.
I suspect it has grown modestly for the <UNK> but not dramatically.
But that is one of the tools obviously that can be used as well.
Crystal, any other questions.
Thank you everybody very much.
Have a great summer and keep traveling.
Bye-bye.
