Marriott Intl (NASDAQ:MAR) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
View the webcast at https://edge.media-server.com/mmc/p/burkvihg/
Summary
Marriott Intl reported strong Q3 2026 financial results, with RevPAR and financial outcomes exceeding prior expectations. Global RevPAR increased by 6.5%, driven by strong performance in the US, Canada, and the APEC region.
The company raised its full-year 2026 RevPAR growth guidance to 4.5% to 5%, citing robust travel demand despite geopolitical uncertainties.
Marriott is seeing strong development activity, with record global organic signings and a pipeline of over 634,000 rooms. Conversions accounted for over a third of signings and 40% of openings in the first nine months of the year.
New technology initiatives include an in-app upgrade list for loyalty members and expanded use of AI to enhance hotel performance and guest experience.
Q3 2026 financial highlights include a 14% increase in gross fee revenues and a 12% increase in adjusted EBITDA. The company expects full-year 2026 adjusted EBITDA growth of around 13% and plans to return at least $4.8 billion to shareholders.
Marriott’s loyalty program, Bonvoy, has grown to approximately 309 million members, driving direct bookings and strengthening guest relationships.
The company is focused on owner relations, emphasizing long-term collaboration to enhance property-level economics and value.
Middle East RevPAR showed improvement but remains challenged due to geopolitical tensions, with expectations of gradual recovery.
Marriott continues to pursue both new builds and conversions, with a focus on driving brand-accretive conversion volume, especially in the midscale tier.
Full Transcript
OPERATOR
Hello and welcome everyone joining today’s Marriott Intl Q3 2026 earnings call. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star 1 on your telephone keypad. 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 McConaugh, Senior Vice President of Investor Relations. Please go ahead.
Jackie McConaugh (Senior Vice President of Investor Relations)
Thank you. Good morning everyone and welcome to Marriott Intl’s third quarter 2026 earnings call. On the call today are Anthony 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, ADR, and property-level revenues comments reflect systemwide constant-currency results for comparable hotels, and all changes refer to year-over-year changes for the comparable period.
Statements in our comments and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our investor relations website. And now I will turn the call over to Tony.
Anthony Capuano (President and Chief Executive Officer)
Thanks Jackie. Good morning and good afternoon everyone. We’re joining you today from the beautiful JW Marriott Grosvenor House in London and we’re excited to share our third quarter results. We reported an excellent quarter this morning with RevPAR and financial results above our prior expectations. Development activity remained strong and we grew net rooms by 4.6% over the 12 months ending September 30th. Third quarter global RevPAR rose 6.5%. RevPAR in the US and Canada region rose 7.4%, improving on a strong first half of the year and reflecting strength in both World Cup and non-World Cup markets. Excluding the World Cup, third quarter RevPAR in the US and Canada rose 6.2%. Growth continued to be broad-based across customer segments and chain scales. Luxury and resort hotels again led the region in the quarter, with luxury RevPAR increasing 12% while select service RevPAR had its third quarter of solid year-over-year growth, rising over 6% compared to the prior year quarter.
Third quarter international RevPAR rose over 4%, led by the APEC region where RevPAR increased more than 9%. Performance in APEC reflected broad-based sustained demand across the region supported by robust intra-regional and long-haul international travel. RevPAR in Greater China was around flat in the quarter, reflecting an uneven consumer spending environment and the impact of major typhoons across the region. Continued strength in luxury and in the Hong Kong, Taiwan and Hainan markets was offset by slower domestic leisure demand across much of the rest of the Chinese mainland.
RevPAR in the Caribbean and Latin American region rose over 3% in the third quarter, driven by strong luxury and leisure demand across the Caribbean which offset continued softness in Mexico. RevPAR in EMEA rose over 4%, with Europe and the Middle East both outperforming prior expectations. RevPAR in Europe rose over 6% in the third quarter with strength broad-based across key markets, chain scales and customer segments. Middle East RevPAR declined 12% in the quarter, a meaningful improvement from the second quarter when RevPAR declined over 40%, helped by healthy local and regional demand.
As Jen will discuss further. With strong base demand across chain scales generally expected to continue, we are again raising our full-year 2026 guidance. We now expect 4.5 to 5% global RevPAR growth. This is well above the 1.5 to 2.5% growth range we initially forecast on our year-end 2025 earnings call, as travel demand has been remarkably robust this year despite geopolitical uncertainty. Turning to results by customer segments in the third quarter, leisure RevPAR rose 7% globally and 9% in the US and Canada as people around the world continue to prioritize in-person experiences like travel. Group RevPAR rose 6% globally and 7% in the US and Canada. Third quarter business transient RevPAR rose 4% globally and 5% in the US and Canada.
On the development front, signings activity remained strong, particularly in international markets, and we achieved record global organic signings in the first nine months of the year. We continue to have the largest pipeline in the industry. Our global pipeline grew over 6% year over year to a new record of over 634,000 rooms at the end of September, with an industry-leading 278,000 rooms under construction including pending conversions. We are still seeing terrific momentum in conversions, including multi-unit deals.
Given the many top- and bottom-line benefits of joining the Marriott Intl portfolio, in the first nine months of the year, conversions accounted for over a third of our signings and over 40% of our openings. For the full year 2026, we still expect net rooms growth towards the low end of our prior 4.5 to 5% range, including our typical assumption of between 1 and 1.5% room deletions. With our growing pipeline and conversion momentum, we still expect net rooms growth to grow in the mid-single-digit range over the next several years.
Our relationships with our hotel owners are of paramount importance to us. We remain deeply committed to working alongside them to continue to leverage our industry-leading scale to enhance property-level economics and deliver sustainable long-term value. As we’ve discussed before, we’ve taken a number of steps to drive hotel-level economics. These steps include lowering loyalty charge-out rates, enhancing reimbursement for Bonvoy redemption stays on high-demand nights, rolling out flexible renovation scopes and streamlined brand standards, and introducing an intent-to-recommend incentive in the US and Canada.
Our owners, associates and guests are also expected to benefit from our significant multi-year technology transformation which is well underway. We are excited about the benefits this transformation will deliver across our stakeholder groups. One recent innovation developed in-house on our proprietary technology platform is an in-app complimentary upgrade list that is currently in beta. The feature will give eligible elite members greater visibility into potential upgrades before arrival by showing their position on the upgrade list and an estimate of available upgrades that match their reservation, while still preserving premium room upsell opportunities for our owners. Additionally, we’re expanding our use of AI across the enterprise to enhance hotel performance, drive measurable business value and enhance the associate and guest experience.
As AI reshapes how people discover, plan and book travel, we are focused on optimizing Marriott Intl’s presence in the AI-generated arena, introducing conversational AI in our own channels through features such as Ask Bonvoy, and testing new search and commerce experiences through integrations with leading platforms like Google and OpenAI. Our powerful, award-winning Marriott Bonvoy loyalty program now has approximately 309 million members around the world. Members continue to engage with us across our unmatched portfolio of brands and experiences, as well as through our numerous collaborations including our co-branded credit cards. Marriott Bonvoy deepens our relationships with guests, drives valuable direct bookings for our owners and is a key reason owners and developers choose to join the Marriott Intl system.
Before I conclude, I want to thank our Marriott teams around the world whose hard work and dedication help make these strong results possible. And now I’ll turn the call over to Jen for more details on our financial results. Jen
Jen Mason (Chief Financial Officer)
Thank you, Tony. I will start by reviewing our strong third quarter results. Total gross fee revenues rose 14% year over year to $1.52 billion, driven by higher RevPAR, rooms growth, and higher co-branded credit card fees. We delivered this growth even as residential branding fees declined 35% due to timing of unit sales. Incentive management fees, or IMFs, rose 22% to $181 million in the third quarter, led by a meaningful increase in the U.S. and Canada that reflected strong RevPAR growth and a solid improvement in hotel margins.
Third quarter IMFs also grew year over year in all international regions, including EMEA, where strong results in Europe more than offset a decline in the Middle East. Owned, leased and other revenue, net of owned, leased and other expenses, totaled $41 million compared to $70 million in the third quarter of last year. The decline reflected lower owned-leased hotel results including the impact of renovations, the second-quarter sale of a hotel in the U.S., and higher costs associated with a third-party agreement, partially offset by a $12 million expected insurance recovery associated with the accrual taken in the second quarter for a property-related litigation matter. Our disciplined focus on controlling costs combined with lower litigation expenses led to third quarter G&A rising just 2% year over year.
Third quarter adjusted EBITDA increased 12% to $1.51 billion and adjusted diluted EPS rose 22% to $3.02. Now let’s talk about our outlook. As Tony mentioned, we are raising our full year 2026 global RevPAR guidance to 4.5% to 5%, reflecting our third quarter global outperformance as well as a stronger outlook in the fourth quarter. Recall that the strong World Cup performance in June and July provided a slightly larger boost to full year global RevPAR than expected at around 45 basis points. Global RevPAR in the fourth quarter is anticipated to increase 4.5% to 5% in the U.S. and Canada.
We expect the strong demand trends that we saw in the third quarter across chain scales and customer segments to continue, although there could be a small negative impact from the November midterm elections. Internationally, fourth quarter RevPAR growth is expected to decelerate compared to third quarter growth primarily due to an anticipated year-over-year RevPAR decline in EMEA. In EMEA, continued strength in Europe is anticipated to be more than offset by declines in the Middle East.
As we have discussed, the Middle East faces difficult comparisons from the fourth quarter of 2025 when several large events drove meaningful ADR increases. Saudi Arabia has also recently seen the cancellation of some large events following the heightened tensions there. As a result, we expect a more meaningful year-over-year RevPAR decline in the Middle East in the fourth quarter than in the third. And because the Middle East enters its peak tourism season in October, the Middle East region’s performance will have a greater impact on EMEA’s fourth quarter results than it did in the third quarter.
As we look ahead to next year, while we are still working on our budget, we currently expect continued strong demand trends. Our preliminary view is that the 2027 year-over-year global RevPAR growth could be 3.5% to 4.5%. Note that while we are comping the World Cup, this is expected to be offset by easier comparisons in EMEA. Turning to this year’s financials, in the fourth quarter gross fees could rise 13% reflecting robust RevPAR and rooms growth as well as strong growth in residential branding fees and credit cards. IMFs are expected to be around flat year over year with increases in the U.S. and Canada, APAC and Europe offset by declines in the Middle East and Greater China. Fourth quarter adjusted EBITDA is expected to increase 12% to 14%. For the full year, we are raising our gross fee guidance to an increase of around 13% with IMFs now expected to rise in the high single-digit range.
The sensitivity of a 1% change in full year 2026 RevPAR vs. 2025 could be around $55 to $65 million of RevPAR-related fees full year. Co-branded credit card fees are still expected to rise in the high 30% range. Residential branding fees are now expected to rise over 90%. Timeshare fees are still expected to be relatively in line with the prior year at $110 to $115 million. Owned, leased and other revenue, net of owned, leased and other expenses, is now anticipated to total $170 to $175 million in 2026.
Note that the full year outlook reflects the sale of two U.S. hotels. One was sold in the second quarter and one is expected to be sold later this quarter. The first hotel is now under a new long-term management agreement and we expect the second hotel will be as well upon closing. We are pleased with the sale of these two properties and remain focused on recycling owned and leased assets when the timing and pricing are right. 2026 G&A expense is anticipated to rise just 1% to 2% compared to 2025 levels.
Full year adjusted EBITDA is expected to rise around 13%. Strong adjusted EBITDA growth combined with a meaningful reduction in share count leads to expected full year adjusted diluted EPS growth of 20% to 21%. Our outlook for full year 2026 key money and total investment spending has not changed. Investment spending is still expected to be $1.25 to $1.35 billion, with key money anticipated to be 40% to 45% of the total amount. Spending on technology is expected to be another 25% to 30%, and the remaining portion is spending related to renovations at owned and leased hotels as well as other investing activities. Our capital allocation philosophy also remains the same.
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. Considering our strong year-to-date cash flow performance and our higher adjusted EBITDA outlook, our full year 2026 capital returns to shareholders are now expected to be at least $4.8 billion.
Full year guidance details for the fourth quarter and the full year are in our press release. Tony and I are now happy to take your questions.
OPERATOR
Thank you. At this time, if you would like to ask a question, please press star then one on your keypad to enter the queue. At any time, please press star two. We do ask that you limit yourself to one question. Once again, that is star then one to ask a question. We’ll take our first question from the line of Sean Kelly with Bank of America. Please go ahead.
Sean Kelly (Analyst)
Hi, good morning everyone and thanks for taking my question. Tony, Jen, congrats on the strong results. It’s great to see the travel environment where it sits. Tony, I want to take it in a slightly different direction though. I’d love to just get your updated thoughts on the owner relation topic. You gave a lot of color on this last quarter and mostly what I wanted to get your sense was from, as we said a quarter later, some of the feedback you received from owners specifically around the ITR incentive things you’re looking to adjust or improve and just kind of where we sit from this time right here today.
Anthony Capuano (President and Chief Executive Officer)
Of course. Thank you for the question, Shawn. Yeah, I do have some more to add. We’ve continued to be engaged with a broad cross section of the owner community. To state the obvious, our owners are foundational to our business. The health of the owner and franchisee community is of paramount importance and we are, across the leadership team, appreciative of the consistent and in many cases decades-long engagement we’ve had with those owners. We also appreciate the mutual recognition of how intertwined our success is, and we’re equally appreciative of the recognition that structurally our business models are different.
And I think it’s that longstanding recognition that leads to the sort of regular constructive discussions we have on a wide range of issues—normally quite proactively, in the case of a subset of the owners in a reactive way. But I think that communication is reflective of how we approach the business more broadly. We are laser-focused on hotel-level economics, both on driving top line and looking at every expense line in the P&L. You heard in my prepared remarks a number of the steps we’ve already taken and continue to take to try and drive hotel-level economics. We’ll continue to talk to this subset of owners, but we’ll continue to talk to all of our owners regularly and I think we’ll continue to make progress with this specific group. The tenor of these discussions that I’ve been involved with I would describe as transparent, I would describe as collaborative, and I would describe as constructive.
The other thing I would share with you: since we spoke about this a quarter ago, many of Marriott Intl’s senior leaders were down in Miami for a U.S. and Canada full-service and luxury owner conference we had the middle of last month. Again, lots of candid, productive conversations, lots of mutual acknowledgment of how inexorably linked our success is, and lots of focus on Marriott’s ability to leverage its industry-leading scale in a way that directly impacts their economic performance.
And then the last thing I would say to you, sometimes I get the sense there is an expectation of a big reveal. We will continue to focus on each of the constituents we serve every day. We work every day to create opportunities for our associates. We work every day to enhance the travel experiences of our guests and Bonvoy members. And we have and will continue to work every day to drive economic performance for our owners.
OPERATOR
Thank you. And we’ll take our next question from Richard Clarke with Bernstein. Please go ahead.
Richard Clarke (Analyst)
Hi, good morning. Thanks for taking my questions. I guess you used in your prepared remarks language around broad-based demand across the different chain scales. But if I look at the gap between your luxury performance in the U.S. and the select service, I think it’s actually widened a bit to 5.5% RevPAR growth. If you look ahead to kind of Q4 and maybe into your remarks you gave on 2027, are you expecting that to continue or are you expecting the gap between the different chain scales maybe to actually contract from here?
Jen Mason (Chief Financial Officer)
Yeah, we’re certainly pleased with the performance across all chain scales. You’re correct that luxury continued to outperform, but select service being up 6%—and that’s an improvement quarter over quarter. And we continue, in bookings through October, to feel good about the performance of our select brand hotels.
Anthony Capuano (President and Chief Executive Officer)
Yeah, I think that’s right, Richard. Maybe not a surprise that luxury continues to be so strong, but a really encouraging sign to see three consecutive quarters of such strong RevPAR performance at the other end of the chain scales.
OPERATOR
Thank you. And our next question comes from Stephen Grambling with Morgan Stanley. I apologize. Please go ahead.
Stephen Grambling (Analyst)
Hey, thank you. So your comments on the owner relationship is probably a good segue into agentic AI, actually. I recognize this is still an evolving topic, but would love to hear any color on the initial impact to distribution as we think about mix or commissions and then more broadly just how you think about both the near term and maybe longer term impact to both owners and your business. Thanks.
Anthony Capuano (President and Chief Executive Officer)
Yeah, thank you. There’s a lot in there, Steve, and I’ll give it a shot. Jen may jump in and help me a little bit. You know, I continue to be a firm believer that AI is going to profoundly impact virtually every industry, certainly the travel vertical. As we’ve discussed in the past, the real challenge and opportunity for us is to take advantage of these emerging technologies without losing the human-centric approach that’s guided us for nearly a century.
In some ways, we’re in the early innings of AI’s entry into travel. Right now our view is that AI is largely reshaping travel discovery. That doesn’t mean at some point it won’t have a similar impact on booking, but that piece seems to be moving more slowly. So we are very engaged with a number of the AI platforms to ensure that as discovery and search is out there, we are populating these platforms with as accurate and rich a set of content as possible, so those users really have terrific insights into all that our portfolio has to offer.
In terms of distribution costs, again, I think it’s early. A number of the platforms, if they are looking to monetize, they’re leaning more towards more traditional advertising monetization as opposed to booking. They are starting to dip their toe, some of them, into what that might look like. Intuition would suggest it would be compelling from an economic perspective for our owners, but I think that’s a story that largely remains to be told.
OPERATOR
Thank you. And our next question comes from Patrick Scholz with Truist Securities. Please go ahead.
Patrick Scholz (Analyst)
Thank you. Good morning, everyone. Good morning, Tony. When we think about that initial 3.5% to 4.5% RevPAR guidance for next year, within that, what is your expectation for the composition of room rate growth versus occupancy? Certainly in the most recent quarter, with the upside for incentive management fees and high ADR growth, it’s increasingly important to think about the composition. So just your thoughts around that. Thank you.
Anthony Capuano (President and Chief Executive Officer)
Sure. It’s probably a little early for me to give you too much insight. We are up to our eyeballs in the budget process right now. What I can tell you, and I might ask Jen to give you a little more texture to this, but when we look at the performance through the first couple quarters of this year, one of the things that’s been encouraging is in many of the markets we’ve seen a nice blend of both room night and ADR growth. And we’ll obviously be investigating that closely as we put the finishing touches on the 27 budget.
Jen Mason (Chief Financial Officer)
Yeah, well said. Tony, on your question on IMF. Right. For Q4, while certainly we see upside in the U.S. and Canada and APAC, in other places, the Middle East, as we’ve talked about on our call, we expect to continue to be impacted in Q4. So that offsets the upside from the other comments.
OPERATOR
Thank you. And our next question comes from Trey Bowers with Wells Fargo. Please go ahead.
Trey Bowers (Analyst at Wells Fargo)
Hey guys, thanks for the question. I think we talk about this most of these calls, but maybe you guys could just dig in a little bit on capital intensity thoughts as we move forward, especially around key money, kind of in that now $500 to $600 million range. Is that the new normal from here? Is that expected to grow from here? And just any color around that would be great. Thank you.
Anthony Capuano (President and Chief Executive Officer)
Sure. Thank you for the question. I’ll let Jen give you a little perspective on a go-forward basis. But to state the obvious, it is a competitive environment out there, particularly given the increasing importance of conversions. Whether we like it or not, key money seems to be the weapon of choice against that competitive landscape. The two things I would want to leave you with. One, the rigor that we’ve always applied to the use of Marriott Intl capital, irrespective of what type of capital remains—we put all deals where we consider investment through that rigorous evaluation. And anticipating we might have some conversation about that, we did a little work. One of the things that’s quite interesting, I think deals that use key money historically have yielded significantly more value than deals without key money.
And I’ll just give you two statistics to frame that. If you look at all the deals we did in calendar 2025, the deals where Marriott participated with key money had an average value premium per room of about 65%. Year to date through the first three quarters this year, those deals where we deployed key money had an average premium per room of about 75%.
Jen Mason (Chief Financial Officer)
Yeah. And on your question on, broadly, investment spending, as we talked about in the prepared remarks, we still expect investment spending this year to total $1.25 to $1.35 billion. As a reminder, 40% to 45% of that is for contract acquisition costs, which includes both new and existing units; 25% to 30% of that is for the digital technology transformation; and the rest is spending at renovations on owned-leased hotels. For next year, it’s really still too early, right? We’re working through our budgets, but you could expect kind of similar color and market dynamics on that. Key money and contract acquisition costs are likely to continue to rise given the system growth. And while DTT and technology spend is expected to come down a bit, we’ll continue to invest heavily in technology. And then for owned-lease and other investment, some of our properties undergoing renovations in 26 will be done, but we’ll also have others that will go under renovation next year.
OPERATOR
Thank you. And our next question comes from Michael Bellisario from Baird. Please go ahead.
Michael Bellisario (Analyst)
Thanks. Good afternoon, everyone. Tony, on development, can you just update us on the trajectory of construction starts and how that part of the pipeline is trending in both the U.S. and ex-U.S. markets, and also any early kind of directional comments on your view of rooms growth into next year versus this year’s 4.5%? Thank you.
Anthony Capuano (President and Chief Executive Officer)
Yeah, of course. Michael, thank you for the question. New-build construction starts in the U.S. and Canada last year were up about 7% versus the prior year. Through the first three quarters this year, new-build construction starts are up 20% year over year. Again, we’re not quite back to where we were in 2019, but the trend line is certainly encouraging. Globally, which I think was the second part of your question, year to date through the first three quarters of the year, new-build construction starts were down about 24%. But I would maybe put an asterisk on that data. The quality of the data we get is maybe not as precise as what we get in the U.S. But I think the fact that construction starts, while building, are not back to where we were pre-pandemic probably illustrates the importance of the success we’re having on the conversion side, where, as I mentioned, about a third of our signings, about 40% of our openings, are being derived through the very deliberate approach our development teams are taking to capturing a disproportionate share of the conversion opportunities that are out there.
OPERATOR
Thank you. And our next question will come from David Katz with Jefferies. Please go ahead.
David Katz (Analyst)
Hi, good morning. Thanks for all the detail and information. I wanted to just focus on the Middle East, and if we were to use an assumption of kind of an ongoing low-intensity circumstance over there—I assume you’re looking through various permutations of what could be for the market—but given it’s so important for NUG and RevPAR, how can we think about that market? Can we be comfortable that the units that have been in the pipeline can still get done?
And can that market get back to at least flat RevPAR, or enough where it’s not an offset to otherwise pretty strong results everywhere else in the world? Thanks.
Anthony Capuano (President and Chief Executive Officer)
Thank you, David. Maybe before I try to answer your couple questions, let me just, for the group, remind you or ground you: while a critically important market through a lot of different—or set of markets through a variety of lenses—the Middle East represents just 3% of our open rooms globally, about 6% of our pipeline, and last year represented about 3% of our global gross fees. Your intuition is right as we start to take an early peek into what 2027 might look like. On one hand, we’ll benefit, once we get through the first quarter, from relatively easier comps. We’re currently assuming ongoing travel disruption with some gradual improvement during the course of 2027. I wish I had a better crystal ball. It’s obviously a highly volatile situation. But what I will tell you is we are not seeing fallout from the pipeline, whether it be in the Middle East or on a global basis, that is anywhere close to outside what we have experienced around the world in normal circumstances.
I will tell you, I was in Dubai for a few days last week. I had dinner with 65 of our UAE general managers, who expressed an enormous amount of confidence in the steepness of the recovery curve when they get a sense in the region that there is some stability or resolution to the conflict. And the other thing I would tell you—you asked about pipeline and NUG—just last week I was with our local partners and the ruler of Ras Al Khaimah signing three new deals in that emirate.
And so the teams continue to move projects forward, our owner community continues to invest based on their long-term confidence in the region.
OPERATOR
Thank you. And our next question will come from Dan Pulitzer with JPMorgan. Please go ahead.
Dan Pulitzer (Analyst at JPMorgan)
Hey, good morning, everyone, and thanks for the question. I just wanted to follow up again on that 2027 kind of early puts and takes. As you think about that 3.5% to 4.5% RevPAR growth, could you maybe unpack that across business, leisure, and then kind of where group is pacing? Thanks.
Anthony Capuano (President and Chief Executive Officer)
Yeah, I would love to, Dan. We’re just not there yet. We are early in the budget process. As I mentioned, we are giving you a sneak peek into what we’re hearing having just gone through our quarterly business reviews around the world. But we’re probably a month or two premature to be able to give it to you with the sort of specificity that you’re looking for.
OPERATOR
Thank you. And our next question will come from Lizzie Dove with Goldman Sachs. Please go ahead. Your line is open.
Lizzie Dove (Analyst)
Hey, thanks for taking the question. Going back to net rooms growth, you mentioned that conversions are about 40% of openings and that you’re capturing a disproportionate share of those opportunities. How do you think about that environment? We’ve heard mixed things this earnings season and about the impact of higher rates there and other dynamics. And as we look into next year and beyond, should we think about conversions as being a bigger or kind of smaller part of net rooms growth?
Anthony Capuano (President and Chief Executive Officer)
Yeah, Lizzy, thank you. I love the question. I spent a big portion of my career leading the company’s development organization, and for a long time you used to see the relative volume of new builds and conversions ebb and flow based on the macroeconomic environment. In strong economic environments, you’d see a big uptick in new build and you’d see conversion activity start to recede a bit, and then that would invert in weaker economic times. As I’ve talked about on the last few calls, we’ve been quite deliberate in terms of how we think about conversions, and what I mean by that.
We’ve built what we think is an extraordinary stack of conversion-friendly brands. We are aligned between our development organization and our operating organization to show, not at the expense of quality, but a level of creativity and flexibility in deal making. We have development teams who are specifically focused on driving conversion volume both in the categories of individual asset conversions and portfolio conversions, which has been a tremendous success story for us.
And so my expectation is while the percentages may move around a little bit, even when we get to an environment where we see a meaningful uptick in new build, I don’t anticipate that it’ll be at the expense of conversion volume. We’ve built this supertanker that’s really built to take advantage of the wide range of conversion opportunities that are out there, and we intend to continue to stand on that accelerator. And then the last thing I would say to you is, as we’ve discussed, we are in our relative infancy of entering the midscale tier. It’s going great between open and pipeline. We’re already approaching 600 hotels in the system. But it’s early. And what that earliness demonstrates to me is we’ve got lots and lots of conversion opportunities to be discovered in that quality tier as well.
OPERATOR
Thank you. And our next question will come from Brandt Montour with Barclays. Please go ahead.
Brandt Montour (Analyst)
Great. Thanks for the question. So, Tony, I was hoping you could give us a little bit of a state of the union on the China business. You called out slowing domestic leisure demand over there, but remind us the split between business and leisure if you have a view on maybe the near- to medium-term operating outlook, and then if that’s affected capital formation at all and how that affects the net rooms growth outlook there. Thank you.
Anthony Capuano (President and Chief Executive Officer)
Sure. Let me talk sort of broadly, and I might ask Jen to jump in with some statistics. You know, we went from negative in RevPAR to essentially flat. We continue to see pretty good strength in the lower chain scales, both in terms of development activity and relative performance. We continue to see pretty broad strength across what we call the tier one markets. And you heard me talk about Hainan and Taiwan and some of the other tier one markets that are driving particularly strong performance.
But Jen, do you want to talk a little bit about mix between segments in China?
Jen Mason (Chief Financial Officer)
Yeah. So broadly speaking, in Greater China, our leisure segment is the largest segment, followed by business and then group. In terms of performance, I’d say group, at least for the quarter, was a bit less of a mix than leisure and business transient. But overall, to Tony’s point, it’s kind of a softening of consumer sentiment and spending, and the environment is certainly difficult in terms of growth.
OPERATOR
Thank you. And the next question will come from Wayne Bennington with Evercore ISI. Please go ahead.
Wayne Bennington (Analyst at Evercore ISI)
Thank you. Good morning. Similar question, different region. I wonder if you could weigh in on what is driving what seems to be acceleration in European RevPAR. Is this primarily a seasonal leisure dynamic with U.S. point-of-sale demand, or is there something else at work?
Anthony Capuano (President and Chief Executive Officer)
Well, without question, leisure is sort of the bright, shining star, particularly when you look at Western and Southern Europe. Beyond that, you almost have to go submarket by submarket to look at the relative contribution from each segment. But if your question is for a broad generalization, I would say leisure is among the most impactful drivers of our RevPAR performance.
Wayne Bennington (Analyst at Evercore ISI)
Thank you.
Anthony Capuano (President and Chief Executive Officer)
You’re welcome.
OPERATOR
Thank you. And our next question will come from Robin Farley. Please go ahead.
Robin Farley (Analyst)
Great. Thank you for taking the question, and thank you for the early 2027 commentary. Just kind of circling back to—
Anthony Capuano (President and Chief Executive Officer)
That was for you, Robin. So I pushed Jeff to make sure we gave you a little peek.
Robin Farley (Analyst)
Okay, excellent. So drilling in on that—yeah. So just looking at rooms under construction today in the release, they’re a little bit lower than they were in July. And just the comments about conversion next year, it sounded like you were sort of saying conversion, you know, is going to stay, like it’s going to be as good as new construction. Or maybe the suggestion was sort of like the same percent of room openings next year. Would it actually—should we think about conversions maybe being higher?
I know they’re elevated a little bit this year, but would they be higher next year, just given the rooms under construction, you know, kind of just like slight downtick sequentially? Or I don’t know if that’s just something seasonal or one-time in nature. Thanks.
Anthony Capuano (President and Chief Executive Officer)
You see, Robin, I give you an inch and you try and take a mile. I’m not quite ready to really give you much more of a peek into ’27, but let me try at least qualitatively to address your question. The point I was trying to make—while I can’t tell you with certainty what the percentage mix will be, because a lot of that’ll be driven by whether we continue to see this continuation in an uptick in construction starts—the point I was attempting to make was our focus, the focus of our teams on trying to continue to drive brand-accretive conversion volume.
We won’t let up. And so we would expect strong conversion volume again, both single asset and portfolio, to continue to be a top growth priority and a big driver of NUG into ’27 and beyond.
OPERATOR
And our next question comes from Connor Cunningham with Melius Research. Please go ahead.
Connor Cunningham (Analyst)
Hi, everyone. Thank you. Just on BT, I was a little surprised by the growth in the quarter. I thought it would be a little bit stronger just given what we’ve heard from some of the other travel companies. You can feel free to push back on that. But just curious on how your view on the corporate travel market—large, managed versus small and medium. And just I would suspect that the performance throughout the quarter was a little bit more diverse. So if you could just talk about how you started, how you ended, I think that would be helpful. Thank you.
Jen Mason (Chief Financial Officer)
Yeah, so I’ll take that. We continue to see strength across all segments—right—both group, BT, and leisure. BT revenue was up about 4% in the quarter, predominantly driven by rate growth, and we expect those trends will continue. Obviously, leisure was our strongest performer and continues to be so. And group has also been strong this year as well. So we feel good across the segments and kind of across small, medium, large business.
OPERATOR
Thank you. And we’ll take our next question from Ari Klein with BMO Capital Markets.
Ari Klein (Analyst)
Thanks, and good morning. Tony, you touched a little bit on tech investments you’ve been making. Curious about the PMS rollout, where that stands, and what kind of impact you’ve seen so far. Thank you.
Anthony Capuano (President and Chief Executive Officer)
Yeah, of course. It’s a terrific story, and I think our global tech team will appreciate you asking the question so that Jen and I can thank them in a public forum. As of yesterday, we had successfully moved more than 3,000 of our hotels to the new technology ecosystem. We’ve successfully achieved scale for our deployment wave size. Full waves will continue throughout 2027. We have largely finished deployment in a lot of our U.S. select-service hotels.
We’ve started to cut over some of the full-service hotels, so lots of good learnings there. We were quite deliberate in starting with some of the—I say this in quotes—simpler hotels so that we could learn along the way. Now, as we move into full service and luxury, there will be some additional layers of complexity, but our teams are well prepared to do that, and I think we’re quite pleased both with the pace at which we’re moving, the speed with which the integration is improving with every wave.
And again, it’s anecdotal as opposed to particularly statistically valid, but really encouraging about the on-property impact that we’re seeing from the cutover.
OPERATOR
Thank you. And we’ll take our next question from Alex Brignall with Rothschild & Co. Please go ahead.
Alex Brignall (Analyst at Rothschild & Co)
Thank you very much. Just one question, please. If we look at your fee growth and we strip out the year-on-year increase in credit card fees, and then obviously you’ve changed your residential fees, which is quite a meaningful change year on year, then your underlying fee growth is lagging net unit growth and RevPAR growth, or put differently, there’s a slight compression in your effective royalty rate. If we look at gross system sales, could you just talk about that?
And then in the context of FY27, if you could give us anything on the trajectory of credit card fees and residential fees, so then we can have a think about what that royalty rate might do next year. Thank you so much.
Jen Mason (Chief Financial Officer)
Yeah. In terms of fee growth overall, from your question on royalties—franchise royalty and base royalty—there is no compression there, and we are pleased with the year-over-year growth in our franchise fees. In terms of 2027, as Tony referenced, we are still early days of giving any guidance yet on fee growth.
OPERATOR
Thank you. And we’ll take our next question from Chad Binyon with Macquarie. Please go ahead.
Chad Binyon (Analyst)
Good morning. Thanks for taking my question. On the leisure side, I wanted to ask about the booking window. Obviously we’ve seen some really nice consistent strength. You kind of gave us a preview into 2017. I don’t think this has expanded, but can you just kind of drill into that a little bit? And what we’ve seen from some of the elevated airline prices—if you think that will remain compressed. Thanks.
Jen Mason (Chief Financial Officer)
Sure. So on the booking window, in Q3 the global average booking window was about 21 days. BT was at 17 days and leisure was about 24 days, which was relatively flat year over year. So not a dramatic change on any of those fronts.
OPERATOR
At this time, we’ll take our final question from Meads Rose with Citi. Please go ahead. Your line is open.
Meads Rose (Analyst at Citi)
I just wanted to ask if you could share a little more on the investment management fees. What percent of the North American portfolio is generating fees for you, and if you’re able to do, say, the midpoint of that RevPAR range for next year, would those properties continue to sort of be in the money, or will the expenses that will also be going up next year maybe mute that fee stream a little bit? Just kind of wondering how that might work.
Jen Mason (Chief Financial Officer)
Yeah. So maybe I’ll start with your second question first. Again, it’s too early to give you a read on what incentive management fees would be next year, as we need to work through our budgets certainly around the world. In terms of percentage of hotels earning incentive fees, that varies around the world, as I know we’ve talked about in the past. But kind of weighted average around the world, it’s a little over 60 percent.
OPERATOR
Thank you. At this time, I would like to now turn the call back over to Tony Capuano. Please go ahead.
Anthony Capuano (President and Chief Executive Officer)
Well, I want to thank you all again for your interest and your terrific coverage in Marriott Intl. I wish you safe travels, and I look forward to seeing many of you at our analyst reception in New York in December. Thank you.
OPERATOR
Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
Recent Comments