Marriott International, Inc. (MAR) Q4 2021 Earnings Call Transcript

Marriott International, Inc. (NASDAQ: MAR) Q4 2021 earnings call dated Feb. 15, 2022

Corporate Participants:

Jackie Burka McConagha — Senior Vice President, Investor Relations

Anthony Capuano — Chief Executive Officer

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Analysts:

Shaun Kelley — Bank of America — Analyst

Robin Farley — UBS — Analyst

Joe Greff — JPMorgan — Analyst

Thomas Allen — Morgan Stanley — Analyst

Patrick Scholes — Truist Securities — Analyst

Smedes Rose — Citigroup — Analyst

Michael Bellisario — Baird — Analyst

Richard Clarke — Bernstein — Analyst

Vince Ciepiel — Cleveland Research — Analyst

Rich Hightower — Evercore — Analyst

Stephen Grambling — Goldman Sachs — Analyst

Presentation:

Operator

Good day, everyone, and welcome to today’s Marriott International’s Fourth Quarter 2021 Earnings Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn today’s program over to Jackie Burka, Senior Vice President of Investor Relations.

Jackie Burka McConagha — Senior Vice President, Investor Relations

Thank you. Good morning, everyone, and welcome to Marriott’s fourth quarter 2021 earnings call. On the call with me today are Betsy Dahm, our Vice President of Investor Relations; Leeny Oberg, our Chief Financial Officer and Executive Vice President, Business Operations; and Tony Capuano, our Chief Executive Officer.

Anthony Capuano — Chief Executive Officer

Thanks, Jackie. Before we begin our prepared remarks, I wanted to take a moment and reflect on this day, which marks the one-year anniversary of Arne’s passing. I know everyone on this call, especially our Marriott associates, miss our dear friend, an inspirational leader, a great deal. We can take comfort knowing his amazing legacy lives on in the incredible work of the thousands of people around the world who wear a Marriott name badge.

Let me turn the call back over to Jackie to get us underway in discussing this quarter’s results.

Jackie Burka McConagha — Senior Vice President, Investor Relations

So let me quickly remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Statements in our comments and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. Please also note that unless otherwise stated, our RevPAR, occupancy and average daily rate comments reflect system-wide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19. RevPAR occupancy and ADR comparisons between 2021 and 2019 reflect properties that are defined as comparable as of December 31, 2021, even if they were not open and fully operating for the full year 2019 or they did not meet all the other criteria for comparable in 2019. Additionally, unless otherwise stated, all comparisons to pre-pandemic for 2019 are comparing the same time period in each year. You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our Investor Relations website. Tony?

Anthony Capuano — Chief Executive Officer

Thanks, Jackie. We’re very pleased with the remarkable progress we made in 2021 across the entire global portfolio, despite the ongoing challenges of the COVID-19 pandemic. We finished the year on a real high note with the emergence of Omicron having a limited impact on results in the fourth quarter.

In December, global ADR was 3% above 2019 levels, and occupancy for the month gained further ground compared to December of 2019, driving global RevPAR to an 11% decline versus 2019. This was a 53-percentage point improvement from the RevPAR decline in January of 2021. In the fourth quarter, global RevPAR was 19% lower than pre-pandemic levels. Global occupancy for the quarter came in at 58%, 12 percentage points below 2019, while ADR was only 2% shy of 2019 levels. In the U.S. and Canada, fourth quarter RevPAR declined 15% compared to 2019.

Results were driven by strong ADR, which was less than 2% below pre-pandemic levels. Further strengthening of already robust leisure travel and steady improvement in the recovery of business transient and group demand also helped results. Fourth quarter group room revenue in the U.S. and Canada was down 32% versus 2019, a 9%-point improvement from the third quarter decline. With booking windows still much shorter than usual, in the quarter for the quarter bookings were up 45% versus the fourth quarter of 2019.

Group cancellations ticked up late last year and early this year due to Omicron, mostly for arrival dates in January and February, but those cancellations have slowed more recently. New group bookings have also been gaining momentum, especially in the year for the year. In fact, just last week, Salesforce held a large company meeting in New York City that was booked just one month before the event. It was the largest internal meeting Salesforce has held since the start of the pandemic with over 25,000 room nights across 11 of our properties.

While special corporate demand in the U.S. and Canada was still well below ’19 levels, there was gradual improvement in the fourth quarter. Relative to pre-pandemic levels, bookings in the quarter were down 33%, 11 percentage points better than the decline in the bookings in the third quarter. Weekly bookings around the end of last year were impacted by Omicron, but they have recovered since the trough in early January.

All of our international regions, except for Greater China, posted sequential RevPAR recovery from the third to the fourth quarter as more borders reopened and travel restrictions eased. Greater China’s fourth quarter 27% RevPAR decline compared to 2019 was in line with the decline in the third quarter as their zero COVID policy once again resulted in the lockdown of several cities.

The Middle East and Africa or MEA region performed particularly well in the fourth quarter, really demonstrating the resilience of travel demand. With relatively high vaccination rates and low travel restrictions during the quarter, the Middle East has become a safe, easy place to visit. Led by strength in the UAE, fourth quarter RevPAR in MEA rose 8% in 2019, driven by 20% higher ADR — excuse me, 8% above ’19, driven by 20% higher ADR. Fourth quarter occupancy in MEA topped 65%, the highest of our regions.

Leisure demand was remarkably strong, benefiting from a significant increase in international visitors. Room nights from international guests rose nearly 60% from the third to the fourth quarter.

Throughout the pandemic, strengthening our valuable loyalty platform and engaging with our Marriott Bonvoy members have been key areas of focus. In the fourth quarter of ’21, 52% of room nights globally and 58% of room nights in the U.S. and Canada were booked by Bonvoy members. And global membership grew to over 160 million members at year-end, driven by strong digital sign-ups.

Turning to development. Both room additions and signings were strong in ’21 despite ongoing challenges associated with the pandemic. Despite industry-wide preconstruction and construction delays, some labor shortages and supply chain issues, we added a record 86,000 gross rooms and 517 properties, leading to 6.1% gross rooms growth for the year. Our global net rooms growth was 3.9%, above our previous expectation, given deletions were towards the low end of those expectations. Our deletion rate for 2021 was 2.1% or 1.2%, excluding the exit of 88 Service Properties Trust hotels.

We are also pleased that we continue to grow our share of rooms globally. In 2021, around 15% of all global new build rooms opened under our brands compared to our year-end room share of 7%. This share is expected to continue as we had 18% of all global rooms under construction at the end of ’21, more than twice our current share of open rooms. Our development team signed franchise and management agreements for approximately 92,000 rooms during 2021, and our year-end global pipeline totaled roughly 485,000 rooms. The composition of our pipeline dovetails nicely with current demand trends.

Leisure demand has led to recovery, and we are well positioned to continue growing our lead in resort destinations, including in the high-growth, all-inclusive space. We’ve also been seeing strong preference for our luxury properties. With luxury rooms accounting for more than 10% of our pipeline, we are poised to further expand our industry-leading portfolio in this valuable high-fee segment.

Conversions were a significant growth driver in 2021, accounting for 21% of room additions and 27% of signings. With the breadth of our roster of conversion-friendly brands across chain scales and the meaningful top and bottom line benefits associated with being part of our system, we anticipate that conversions will remain an important contributor to growth over the next several years.

For 2022, we expect gross rooms growth to approach 5% and deletions of 1% to 1.5%, leading to anticipated net rooms growth of 3.5% to 4%. While signing activity has been picking up nicely, 2022 gross room additions are expected to be impacted by the diminished construction starts the industry has experienced throughout the pandemic, particularly here in the U.S.

As a reminder, average construction time lines are currently around two years for limited service deals and often longer for full service deals. Yet given the improving global environment, the attractiveness of our brands, our strong development activity, our conversion momentum and our industry-leading pipeline, we are confident that over the next several years, we will return to our pre-pandemic mid-single-digit net rooms growth rate.

Before I turn the call over to Leeny, I did want to share a few highlights of the company’s ESG efforts over the course of the year. The Board of Directors and our management team are keenly focused on these important areas, as we’re committed to making a positive and sustainable impact in the communities where we live and work. In June, as part of our diversity, equity and inclusion efforts, we announced we were setting new internal diversity goals for our group of Vice Presidents and above. The new targets aim to achieve global gender parity by 2023, an acceleration of our prior timetable, and to increase representation of people of color in the U.S. to 25% by 2025. In July, we updated our human trafficking awareness training, which will be made widely available to the entire industry. More than 900,000 associates have now taken training in this area. And in September, we pledged to set science-based emissions reduction targets in line with the 1.5-degree Celsius emissions scenarios.

As I finish my first year as CEO, I want to again thank our incredible associates for all their hard work through these challenging times. I’ve spent most of the last few months on the road, traveling across the U.S. from New York to Los Angeles and also abroad, and have seen firsthand their dedication to serving our guests. I’m so proud of all we’ve accomplished over the last year and continue to be very optimistic about our outlook for 2022 and beyond. Leeny?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Thank you, Tony. Our fourth quarter results reflect the clear resilience of travel, our strong focus on cost containment and the benefits of our asset-light business model. Gross fee revenues reached $831 million in the fourth quarter. Our non-RevPAR-related franchise fees were again particularly strong, totaling $186 million in the fourth quarter, 19% ahead of 2019 levels, driven by robust global card spending and new account acquisitions as well as outstanding performance in our branded residential business.

Incentive management fees, or IMF, totaled $94 million in the quarter. Just under half of these fees were earned at resort properties with IMF from our comparable luxury resorts up almost 45% compared to the fourth quarter of 2019. Our owned and leased portfolio generated $19 million of profits, a nice increase from a loss of $50 million in the fourth quarter of 2020 as results improved at hotels in the U.S. and Europe. Our operating teams have done extraordinary work to adapt quickly and return these hotels to breakeven profitability or better, despite continued lower-than-normal occupancy levels.

G&A and Other expense totaled $213 million in the fourth quarter, higher than prior expectations as a result of higher compensation costs, including true-ups and higher legal expenses. For full year 2021, G&A and Other came in at $823 million, 12% lower than full year 2019, reflecting ongoing savings resulting from our significant restructuring activities in 2020.

At the hotel level, we have partnered with our owners and franchisees throughout the pandemic, working diligently to lower costs, bring down breakeven occupancy levels and drive cash flow. With the recovery well underway, we’re committed to delivering consistent and positive guest experiences while keeping hotel operating costs down.

Many of the cost reduction and productivity enhancement initiatives we put into place will be maintained as occupancies rebound. While the labor environment is slowly improving, we’re keeping a close eye on wage and benefit inflation. We’re optimistic that our cost reduction efforts could mitigate inflation in future years.

As always, we are also carefully managing cash outlays at the corporate level. We were pleased with our cash flow generation during 2021 and with our year-end liquidity position of over $4.8 billion, which covers near-term debt maturities with significant cushion. Our full year cash flows from the loyalty program were positive before considering the reduced payments received from the credit card companies. After factoring in these reduced payments, which effectively repaid around one-third of the total $920 million we received in 2020, loyalty cash flows were modestly negative.

Looking ahead to 2022, there is still too much uncertainty and volatility to give specific RevPAR or earnings guidance. But I will again share some general observations and provide color on certain specific items where we do have some visibility. I’ll start with some thoughts on the first quarter of 2022.

Omicron meaningfully impacted global group and business transient demand in January, historically the lowest occupancy month of the year. While we saw minimal disruption to leisure travel, global RevPAR for the month declined 31% compared to January of ’19, primarily due to lower occupancy, as rate was just 4% below 2019. We expect to see the recovery pace pick up nicely in February and March, given weekly bookings across customer segments have now returned to pre-Omicron levels. However, with some countries reinstituting strict travel restrictions earlier this year, we could see first quarter 2022 RevPAR compared to ’19 levels take a step back from the 19% decline in the fourth quarter of ’21 versus 2019. We then expect significant forward progression in the global recovery each quarter through the end of the year.

Following the temporary Delta-related slowdown during the third quarter of last year, demand picked up meaningfully through the end of last year. That bolsters our optimism that by the end of the year, the 2022 fourth quarter gap to 2019 fourth quarter RevPAR will narrow meaningfully compared to the 19% decline in the fourth quarter of 2021. As additional markets reopen and more employees return to the office, we expect robust ADR, sustained strong leisure transient demand and significant improvement in business transient and group. We also expect to see growth in trips that blend business and leisure.

International travelers getting back on the road should also drive further improvement in RevPAR. In 2019, nearly 20% of global room nights were from cross-border guests. So far, most global demand during the pandemic has come from domestic visitors. Cross-border room nights in 2021 were down more than 60% compared to 2019, while domestic room nights were down 16% over the same time period. Our fourth quarter performance in the Middle East illustrates how impactful the return of international travel can be. We’re encouraged by the swift pickup in booking activity that we’ve seen in the last few weeks in places that are opening up, such as Thailand and the Cayman Islands.

Turning to fees. At current RevPAR levels, we expect the sensitivity of a 1% change in full year ’22 RevPAR versus full year ’21 could be around $25 million to $30 million of fees. As we’ve seen, the relationship is not linear given the variability of IMF and the inclusion of non-RevPAR-related franchise fees. This sensitivity is no longer compared to 2019 as the compounding impact from new rooms growth contributions makes the comparison less relevant three years out.

In 2022, we expect continued growth from our non-RevPAR-related fees driven by higher contributions from credit card fees. We also anticipate profit growth from our owned and leased portfolio as the global environment improves. For the full year, interest expense net is anticipated to be roughly $350 million, and our core tax rate is expected to be around 23%. G&A and Other expenses could total $860 million to $880 million, still well below 2019 levels, but higher on a year-over-year basis primarily due to higher compensation costs and assumed higher travel expenses.

As always, driving cash flow will be a priority in 2022. We anticipate full year investment spending of $600 million to $700 million, which includes roughly $250 million for maintenance capital and our new headquarters. We expect cash flows from loyalty to be slightly positive in 2022, before factoring in the reduced payments received from the credit card companies.

We made great progress in improving our credit ratios during 2021 and remain focused on bringing our leverage in line with our target of 3 times to 3.5 times adjusted debt to adjusted EBITDA. Assuming the recovery continues largely as anticipated, we could be in a position to restart capital returns in the back half of 2022. We would likely begin by paying a dividend with a payout ratio a bit below our traditional 30%. We can then see more meaningful levels of capital returns, including share repurchases, along with dividends in 2023 and beyond.

Over the last two years, our business has been tested in ways we never could have imagined. We’re incredibly proud of how our teams have adapted and how well our company has performed. We made significant progress in 2021 and are excited about continued recovery and our growth opportunities ahead.

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

Questions and Answers:

Operator

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

Shaun Kelley — Bank of America — Analyst

Hi. Good morning, everyone. Good morning, Tony and Leeny.

Anthony Capuano — Chief Executive Officer

Good morning.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Good morning.

Shaun Kelley — Bank of America — Analyst

So Tony, I just wanted to start with development activity. So thank you for the net unit growth guidance, and I think it makes sense relative to where we are in the development cycle. I sort of wanted to get your sense a little bit longer term. Do you think this is the bottom, and these levels are pretty sustainable just given where we are in the broader kind of capex and development cycle? Or do you think 2020 — just help us think through maybe 2023? And are the levels going to be consistent with that? Could we even be a little bit better? Or do we need to be cautious there just given the timing on openings in full service?

Anthony Capuano — Chief Executive Officer

Thanks, Shaun. Well, as we’ve said the last couple of quarters, the ripple effects of the pandemic create less visibility beyond ’22 than we might like. With that said, I think you heard the momentum on signings in my prepared remarks. We continue to see good volume on the conversion front. In the short term, obviously, we’ve got a bit of challenges in terms of construction starts, particularly in the U.S. But in some ways, that causes us to think about it as a when, not an if. And in fact, one of the statistics we look at most closely is fallout from the pipeline. If we were seeing wholesale project cancellations, that might cause us to think differently about the medium to long term. But in fact, what we saw in 2021 was about 6.5% lower than our average fallout over the last decade.

Shaun Kelley — Bank of America — Analyst

Really encouraging. And then maybe just as my follow-up, your comment on the RevPAR cadence, Leeny, in your prepared remarks, was interesting as we get to kind of the 4Q ’22 area. Just any possibility that we could actually see maybe a month or a point in 2022 where we actually return to 2019 levels of RevPAR? Or kind of what’s your sense about that cadence? That’s it for me.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

So thanks very much. And it is interesting. When you look at December, for example, the U.S. and Canada in the month of December was really — was down only 6 percentage points compared to 2019. So it is absolutely the case that you could see, depending on the mix of business and exactly how countries open up and kind of the classic occupancy from a seasonal pattern standpoint. I could imagine that it’s possible that you have that happen, Shaun. I think though, so much of this really depends on the global picture in terms of the pace of the recovery. So you need lots of things happening on all the points of business, not just leisure but also special corporate as well as group to see us get to that delightful place. But at the same time, I think we feel great about the momentum.

The other comment I’ll make is when you see countries open up their restrictions, the kind of jolt that our reservation centers feel is impressive. And I do think that momentum gives us confidence that we could see this resilience continue to build.

Shaun Kelley — Bank of America — Analyst

Thank you.

Operator

And we will take our next question from Robin Farley with UBS. Your line is now open.

Robin Farley — UBS — Analyst

Great. Thanks. Just thinking about the visibility of recovery. Can you give us some insight into what group bookings for the second half look like? Because understandably, of course, Q1 would have been very disrupted by Omicron. But for second half, how is that compared to 2019 levels in terms of — it seems like at some point, there should be an accumulation of groups that haven’t met in a while, and that that should start to look good. And I’m just wondering if you can see that turning point yet in your future group bookings.

Anthony Capuano — Chief Executive Officer

Yes. Thanks, Robin. And maybe I’ll refresh some of the data that we shared with you last quarter. I’m going to give you some comparisons between at the end of ’19, what we saw is definite bookings on the books for ’20 and ’21 and how that compares at the end of ’21, what we see on the books for ’22 and ’23.

So at the end of December of ’21, as we looked at definite bookings for ’22, we were down just a shade under 22% compared to end of ’19 for ’20. When we look at what’s on the books for ’23 at the end of 2021, we’re down just a shade under 15% versus what we had on the books at the end of ’19 for 2021. And so to your specific question, we are seeing steady and encouraging forward bookings in the group segment.

And the other thing I would point out, Robin, you heard in my prepared remarks the comment about that big piece of Salesforce business that was booked just one month before. We expect to continue to see improvement from the levels I just described to you because we’re seeing more short-term bookings, and that’s been the trend over the last number of weeks and months.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Just to add one point, Robin, when you look at Q1, understandably, with Omicron, clearly, you’re looking at a weaker group picture than you are as you get into Q3, which is meaningfully better. So your point is well taken that it should move as we go through the year. And I think the other part that is just fantastic is that rate both in ’22 and ’23 already from what’s on the books is up 3% to 4%.

Robin Farley — UBS — Analyst

Okay. Great. That’s helpful. And then just one follow-up question is in terms of the visibility of just sort of business transient or transient in total, has that moved out? And I know it’s tough after the last six weeks because maybe it was moving out and now contracted a little bit. But how far in advance — I feel like pre-pandemic, you used to talk about a 30-day booking window, and maybe last year, it was like a seven-day booking window. So just wondering if you’re seeing transient a little more visibility or a little bit of improvement in the pace of that? Thanks.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

So the booking window has extended, but it is not the way it was back in 2019. So it’s improved, but it is still the case that we’re not back to where we are. And I think, clearly, in Q1, Robin, January is a great example where you saw special corporate particularly weaker with what was going on with Omicron. So I think part of this, you’re going to see it get — see more visibility as we get further and further into the year. But it is a bit better than it was in 2020.

Anthony Capuano — Chief Executive Officer

And Robin, let me just give you a little more granular information to try to address your question. This is a global number. But if you look at the global booking window, it really got the shortest in the second quarter of 2020, where it was down to five years.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Five days.

Anthony Capuano — Chief Executive Officer

Excuse me, five days. If you look at fourth quarter of 2021, it had risen to about 17 days. So to Leeny’s point, certainly not back to where we were pre-pandemic, but trending in the right direction.

Robin Farley — UBS — Analyst

Great. That’s very helpful data. Thank you.

Anthony Capuano — Chief Executive Officer

You’re welcome.

Operator

We will take our next question from Joe Greff with JPMorgan. Your line is now open.

Joe Greff — JPMorgan — Analyst

Good morning, everyone.

Anthony Capuano — Chief Executive Officer

Morning.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Morning, Joe.

Joe Greff — JPMorgan — Analyst

Throughout much of last year, leisure demand was fairly inelastic to rate in the industry’s fairly robust rate gain as you alluded to this morning. Can you talk about leisure price elasticity thus far in 2022 in your forward bookings? And are there any changes relative to last year? i.e., are you seeing demand become more sensitive to further ratings, maybe more pronounced in markets or chain-scale segments where service levels might be constrained by labor availabilities?

Anthony Capuano — Chief Executive Officer

Of course. Obviously, we’re early in the year, but maybe a good indication that addresses your question as we gear up for President’s Day weekend here at the end of the week, this is a U.S. data, but the RevPAR numbers are pacing up about 12% ahead of where we were in ’19 for Friday through Sunday. And to your specific question about pricing power, ADR is pacing up about 20% versus ’19.

Joe Greff — JPMorgan — Analyst

Great. And then a follow-up question on new development. Can you talk about the cadence of net rooms growth or net rooms growth rate this year? Is it even throughout the year? Is it more heavy in the second half? And lastly, how does the full service select service mix of net room development in ’22 compare to that mix the last couple of years? Thank you.

Anthony Capuano — Chief Executive Officer

Of course. What I will tell you is pretty consistent for the last decade or more is our transactors, they are a big fourth quarter team. We tend to see a big pop in signings volume in the fourth quarter. But because our conversion volume was meaningfully higher in ’21 versus history, when you have a deal like Sunwing, which I think was in the second quarter, that can impact the quarter-to-quarter numbers. But fourth quarter tends to be the biggest volume of signups.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

And for openings, Joe, I think we definitely saw in Q4 of this year that you clearly saw a bunch of owners wanted to get ahead of this recovery that’s moving forward. So we had a great fourth quarter. But we have traditionally been fairly steady unless there is a certain group of hotels that have all kind of come on at the same time. So I would say we’ve always tended to have some quarter-to-quarter variations, but that should march forward fairly squarely throughout the quarters on the opening side.

I guess the only other thing to point out is just a reminder that construction for a limited service hotel takes, broadly speaking, two years, and full service takes longer. So as you start to think about 2020 and recognize that as you get into Q3 of 2020, you were in the depths of the pandemic and starting to really see the impact on construction starts. That will start to obviously then have an impact as you go into ’22.

Joe Greff — JPMorgan — Analyst

Thank you.

Anthony Capuano — Chief Executive Officer

Thanks, Joe.

Operator

We will take our next question from Thomas Allen from Morgan Stanley. Your line is now open.

Thomas Allen — Morgan Stanley — Analyst

So your non-RevPAR fees have been really encouraging. And Leeny, thanks for the commentary that you expect growth in 2022. Can you just give us a little bit more color there? I think I calculated that your 2021 non-RevPAR fees are about 15% above 2019 levels. What’s giving you the confidence that, that should continue to grow? Thank you.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Yes. So first of all, thanks very much. Just as a reminder that our credit card fees make up roughly two-thirds of our non-RevPAR-related fees. And so obviously, that’s a big driver. They ended up, up 4% over 2019 levels for the full year in ’21. And that was with really quite a weak Q1 as we were still in the heaviest part of the pandemic. So as we continue to see great card acquisitions and credit card average spend, I think we feel very good about those. I think residential branding fees, that business has been doing extremely well. And we expect to continue to see strong openings of those, which is when we get the fees. And then we continue to have application and relicensing fees as obviously, our business continues to grow on the franchise side. So we feel quite confident in the growth of that fee stream based on a continued strong economy.

Thomas Allen — Morgan Stanley — Analyst

And just a follow up, Leeny, not asking for 2023 guidance, but there is some — when we think about starts, right, like there is some impact from openings and close — sorry, there is some impact with starts not only the non [phonetic], but like for residential branding fees, for example. Does that look like it’s going to continue to grow as you go past 2022?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

No, that’s a good reminder, actually, Thomas, to remember that while we do get annual management fees, that is the smaller part of the fee stream that we get from residential. And those are overwhelmingly onetime fees that we get when the unit is ready for occupancy. So in that regard, even in ’22, I would expect our fees to be a little bit lower than they were in ’21 because in ’21, it was — we just had so many sales in residential.

So I expect them to be a bit lower, although still meaningfully higher than our traditional levels of residential branding fees. And yes, you’re right, they’re lumpy because you can have 1 unit of 100 units goes into sales and closes literally within a quarter or two, and then another one might not happen for two more quarters. So it is likely to be lumpy. And again, overall, we’re really pleased with new signings that we’re getting in the residential branded business. So I think you’ll continue to see that business grow very nicely.

Thomas Allen — Morgan Stanley — Analyst

Thank you.

Operator

We will take our next question from Patrick Scholes with Truist Securities. Your line is now open.

Patrick Scholes — Truist Securities — Analyst

Great. Thank you. Good morning, everyone.

Anthony Capuano — Chief Executive Officer

Good morning.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Good morning.

Patrick Scholes — Truist Securities — Analyst

Good morning. Tony, I have a question and a follow-up question. Tony, my first question, a high-level question. Last year, in March and April, we certainly saw a very large acceleration in U.S. leisure demand. And what that means is we certainly have a very tough comp for U.S. leisure demand coming up. As far as your intuition, Tony, do you think U.S. leisure demand once we hit those tough comps in April onwards could actually eclipse last year’s very strong levels? Just curious what you think about that.

Anthony Capuano — Chief Executive Officer

Of course. Thanks, Patrick. Well, we continue to be really optimistic that there’s still a significant tailwind for leisure demand. And I think part of that is because of the evolution of the way folks work. The incremental flexibility that you’re seeing in working from home, working from anywhere has been an accelerant for leisure demand. And if anything, we expect further acceleration in that regard. And then when we look at our forward bookings, we already have more leisure on the books for months further out than we did in the same months last year. So we continue to be quite bullish on accelerated growth in leisure.

And remember, leisure was already growing much more rapidly than business transient even pre-pandemic. And maybe the last part of my answer would be you heard Leeny talk a little bit about how modest cross-border travel has been. We’ve really only seen domestic leisure travel. And as more and more borders open, we think that influx of international leisure travel will also serve to accelerate the pace of leisure demand growth.

Patrick Scholes — Truist Securities — Analyst

Okay. Thank you. That’s definitely encouraging and good points on the international. Shifting gears on my follow-up question here. Certainly, it’s been tough sledding for the hotel industry in China due to the zero COVID policy. With RevPAR really still significantly down in China, have you seen that any impact on your pipeline given how much the — in China, given how much the industry is struggling in China? Thank you.

Anthony Capuano — Chief Executive Officer

That’s a good question, but thankfully, the answer is no. We continue to see really strong momentum, both on the signings and the openings front. And I think in many ways, our owners and partners in China are the mirror image of our owners and partners in other areas of the world. They don’t try to time the market for the next quarter or two. They tend to be long-term investors. Many of the projects that are getting done are parts of larger mixed-use projects. And the hotel components, in some ways, define those projects, so they are critically important. So we’ve not seen any sort of meaningful slow down. Quite the contrary, we continue to see really strong demand for our brands from a development perspective across China.

Patrick Scholes — Truist Securities — Analyst

Okay. Good to hear.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Just one quick follow-up for you on that. When you look at how many rooms we’ve currently got in Greater China, it’s around 140,000. And our pipeline is only about 20% to 25% less than that for the pipeline for Greater China. So it’s really — you’re looking at doubling that business potentially in not too long.

Patrick Scholes — Truist Securities — Analyst

Excellent. Good to hear. Thank you.

Anthony Capuano — Chief Executive Officer

Thank you.

Operator

We will take our next question from Smedes Rose with Citigroup. Your line is now open.

Smedes Rose — Citigroup — Analyst

Hi. Thanks. I wanted to just circle back on your commentary around conversion activity, which I think you said was about 18,000 rooms in ’21. And I know you had said that you think it will continue to be strong. But can you maybe just — do you think it can surpass what you saw in ’21? And maybe you can talk a little bit about where you’re seeing the conversions coming from on a regional basis? Is it mostly U.S., or –?

Anthony Capuano — Chief Executive Officer

Sure. So I will remind you that one of the most significant contributors to our conversion volume in ’21 was the conversion of about 7,000 all-inclusive rooms in the Caribbean with Sunwing. And I raised that not to apologize. Those sorts of large portfolio conversion opportunities are a meaningful part of our strategy and something that we’ll continue to look for. But in terms of baseline conversions, we are seeing elevated interest from the owner and franchise community for our brands. And so we expect to see really strong volume continuing into 2022 and beyond.

And as we talk with our owners and franchisees, not only do they like the flexibility of some of our soft brands, they like the fact that we’ve got conversion-friendly platforms across multiple chain scales. And they are focused not just on the ability of the company’s revenue engines to drive top line revenue, but also some of the margin efficiencies that result from affiliation with our brands.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

And Smedes, just as a reminder, 27% of our signings in 2021 were for conversions. One of the things that’s been really gratifying to see is a number of owners who want to do a conversion, but with meaningful investment in the property.

Anthony Capuano — Chief Executive Officer

Yes, I think that’s a great point.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

They may take 12 months to actually get open, but they’re turning it into a beautiful representation of one of our brands and putting meaningful investment in it. So whether it opens specifically in ’22 or ’23, it’s all going to be great for our guests and frankly, for our associates and for the owners.

Anthony Capuano — Chief Executive Officer

And that 27%, Smedes, was about 10 percentage points higher than what we saw in the signings in ’20 and in ’19.

Smedes Rose — Citigroup — Analyst

Great. Thanks for that. And then I just wanted to ask you when we were out at Atlas meeting, we met with a lot of owners. And there continues to be a lot of discussion, as you guys have commented on as well, of helping to reduce their costs being affiliated with large brands. And I’m just wondering, do you think there’s a lot more to go there? Or do you feel like you’re sort of streamlining and brand standards are changing sort of customer expectations is kind of reset now? Or how is that sort of relationship sort of panning out? I mean, we heard frankly, like just a broad range of commentary. Wondering how you’re seeing it from your side.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Sure. So I think, first of all, I think the partnership during the pandemic between us and our owners and franchisees have never been better in terms of trying to manage these dramatically lower occupancy levels. And as I said in my comments, I think there is quite a bit of the savings that we put into place that is permanent, that will mean kind of significantly lower costs and significantly better productivity as we move forward.

Now as you know, we’ve got the reality that for more complex hotels, they’re — it’s a much higher percentage of costs that are labor-related. And we’re obviously seeing a lot of pressure on that side, just like every other industry in the U.S. So there, we will continue to find ways to try to improve the margins. Rising occupancy, obviously, always ultimately helps you when you’re spreading costs at a hotel. But it also means you’ve also got to make sure to have enough people there to deliver the service that our guests expect, and we are committed to making sure that we deliver those experiences that bring them back to our hotels over and over.

And then the last thing I’ll mention is just the great part about our business is we do reprice our rooms every day. And so when you think about what’s been going on with our ADR, that has been a fabulous mitigation of what’s been going on the labor cost side. So we will certainly continue to find new ways, but we are determined to make sure to deliver what our customers want.

Smedes Rose — Citigroup — Analyst

Thank you. Appreciate it.

Operator

We will take our next question from Michael Bellisario with Baird. Your line is now open.

Michael Bellisario — Baird — Analyst

Thanks. Good morning, everyone.

Anthony Capuano — Chief Executive Officer

Morning.

Michael Bellisario — Baird — Analyst

Just a question for you on loyalty and your top customers. Maybe help us understand how are they spending today versus pre-pandemic levels? And then when you think about the lifetime value of that, say, top-tier platinum customer, has your view changed on who that customer is, who that platinum customer is on a go-forward basis —

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Michael, sorry. You’re breaking up. Can you start the question from the beginning?

Michael Bellisario — Baird — Analyst

Can you hear me better?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Yes.

Michael Bellisario — Baird — Analyst

Just a question for you on loyalty and your top-tier customers. How are they spending today? And where are they spending differently versus pre-pandemic levels? And then when you think about lifetime value, say, of a top-tier platinum customer, has your view changed on who that customer is going forward, given the changes in travel patterns today?

Anthony Capuano — Chief Executive Officer

Okay. I said — Mike, I apologize. You were breaking up a little bit. I think I heard your question. I think maybe our penetration rates, especially in the U.S. are maybe the best indication. We were back to 57% penetration in the fourth quarter, which is almost back to where we were pre-pandemic. So we’re quite encouraged about the penetration rates, the passion and the enthusiasm we see within the Bonvoy base and as you heard in my prepared remarks, the pace at which the program continues to grow. And I think one of the really exciting things for us was as our credit card platforms continue to grow, they really gave us a unique opportunity to stay engaged with those most valuable Bonvoy customers even when they had hit the pause button on the volume of travel they experienced prior to the start of the pandemic.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

And just to add fuel to Tony’s fire, I’ll mention two things. Number one, we have started doing credit card programs in other countries and found them to be really well received by the customers and seeing nice card acquisitions on that front. And then also just when you think about the growth in our digital share, and that is very much tied to the Bonvoy platform. And when you look at our digital share compared to ’19, the share of reservations has gone up almost 500 basis points on our digital channel. And overall, we’ve grown up 300 basis points in our direct channels up to 76%. So I think that all ties very well into the power of Bonvoy.

Next question?

Operator

And we will take our next question from Richard Clarke with Bernstein. Your line is now open.

Richard Clarke — Bernstein — Analyst

Good morning. Thanks for taking my questions. Just first, just following up from some of the questions you’ve had already on inflation and particularly with regard to your incentive fees and the owned and leased portfolio profitability. If we get a full RevPAR recovery kind of into 2023, is that enough to get the incentive fees back to pre-pandemic levels? Or what’s the dynamics that will kind of keep us away from that? And then a similar question on the owned and leased profitability. Is inflation going to hold back the recovery there?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Right. So a couple of things. You are right to point out that nominal level of RevPAR is not the same as real. And so when we think about it, for example, now, the real recovery of RevPAR is about 3 points worse relative to the nominal just because of — in ’21, to your point about inflation. At the same time, one of the things I think is what’s been so impressive about the operating teams is we used to think about breakeven levels for a full-service hotel of 40% to 50% occupancy. And what you’re finding is that with the great work that they’ve done on managing the hotel and dramatically lower occupancies that they’ve been able to return these hotels to either neutral profitability at dramatically lower levels of breakeven occupancy. And so I think that will really help offset on the inflation side.

The other comment I’ll make is on the incentive fee side is just a reminder that it depends a whole lot on where. So just when you think broadly speaking, we were at almost 72% of our hotels were earning IMF in 2019, and we’re now still a tad under 50%. And where you see the biggest difference is really domestically in the U.S. And that is that with owners’ priorities, that is going to mean you really need to get back to those hurdles of levels of actual real profits before we’re going to get our incentive fees.

Now internationally, no surprise, where you’ve got quite a bit more of hotels without the owner’s priority. There, you’re already seeing dramatically higher percentages of hotels earning IMF. So I think we’ve got some great potential in the international hotels where there have been such restrictions on entering the country, and they’re more dependent on international travelers. I think of Asia Pacific outside of China as an example there. And in the U.S., I think as you heard me say in our comments, the IMF that we’re getting from the resorts have just been fantastic and in many cases, are already above 2019 levels.

So when you think about the large cities in the U.S. and their greater relative dependence on international travel, I think it delivers a lot of confidence that we will get back. I just think predicting whether that is ’23 or not is probably a bridge too far, but certainly moving in the right direction.

Richard Clarke — Bernstein — Analyst

Thanks. And just as a follow-up. Last year, you talked about trying to cut some of the kind of cost reimbursement fees for the underlying hotels to help out their profitability. In Q4, it looks like that cost reimbursement revenue is about 85% of 2019 level. So it’s recovered basically in line with your other fees. So just where are we in that process of sort of lowering that sort of reimbursement contribution from the owners?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

So a couple things. One is a reminder that 85% of our reimbursed costs are based on the top line revenues of the hotels. So an overwhelming part, like, for example, our sales and marketing fees are contractually set at a percentage of revenues of the hotels. So they are, by nature, going to move up and down. The other thing is to recognize that we worked very hard on certain parts of the fees where we were able to impact kind of the fixed and floating component. And so that we do believe that there is more efficiency as we grow larger in terms of what we can do for the hotels. And as an example, when you’re a digital share, your direct share of reservations is growing as well as it is. It’s just a reminder that those are some of the lowest cost reservations for a hotel as possible. But we did lower our fixed cost by roughly 30% for the system. But as I said before, overwhelmingly, the charges are based on a function of hotel revenues.

Richard Clarke — Bernstein — Analyst

Okay. Thank you.

Operator

We will take our next question from Vince Ciepiel with Cleveland Research. Your line is now open.

Vince Ciepiel — Cleveland Research — Analyst

Thanks for takin my question. You spoke about delivering the service that the guests expect and when I hear that, I think about food and beverage, I think about housekeeping. I’m curious kind of what percent of the way back you are as it relates to your breakfast buffets and select service hotels, your three-meal-a-day restaurants and more full service? And can you remind us what percentage of guests are kind of — are you on the opt-in model? And what percentage of guests are opting in for housekeeping? Thanks.

Anthony Capuano — Chief Executive Officer

Sure. So on housekeeping, we continue to evolve our approach. Today, in our select tier hotels, it is an opt-in approach. Daily housekeeping is available at the discretion of the guest. And at luxury, we are doing daily housekeeping. We’re testing those options today. We’re using those learnings to try and strike the right balance between guest expectations and economic realities for the owners. And as we work through those tests, we intend to launch a definitive approach sometime here early in 2022.

Vince Ciepiel — Cleveland Research — Analyst

Great. And how about on the food and beverage side? What percentage of the way back are you there?

Anthony Capuano — Chief Executive Officer

Yes, we’re here. So we’re getting there. It’s — we are largely back to where we were in the markets that have seen the most rapid recovery. So if you are lucky enough to visit our hotels, particularly in resort destinations, you’ll experience food and beverage services and offerings very similar to what you saw pre-pandemic. An example of that, we just had our Board meeting down in South Florida. Most of us had to order in-room dining because the restaurants couldn’t offer us reservations prior to 10:45 p.m., and they were full.

In those markets where we’ve seen demand recover more slowly, we are moderating the pace at which we bring back our food and beverage offerings and trying to have that pace match the pace of demand recovery.

Vince Ciepiel — Cleveland Research — Analyst

That makes a lot of sense. My second question is on distribution. With special corporate being down, I imagine OTA contribution is up. But can you just remind us, I think pre-pandemic, I think you were in the low double digits for OTA contribution. What did that end up being in 2021? And then I think your digital direct channel was growing pretty fast, maybe even faster than OTA. How has that evolved? And where do you see that going in 2022?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Sure. So I think a couple things. And that’s just a reminder that in 2019, you also had — special corporate is classically done through what we call GDS. And that is what is obviously taking the biggest dip. So now when you look at kind of their percentage share, they’re down 600 basis points as compared to ’19. Now the OTAs are up with all this leisure business by 200 basis points, and they’re at 14% in 2021. But at the same time, a direct share of total room nights is up to 76.3%, and that’s actually up 340 basis points. So actually, our direct channels have grown meaningfully more than the OTAs. The OTAs have clearly obviously benefited from the leisure business. And GDS classically and more related to business travel has been the one that has lost the most share. And the only other thing that I’ll mention because I just find it interesting that also within the direct share growth is the movement off of voice to digital. And I think that all makes sense when you think about our Bonvoy technology and our app and how many downloads we get that our guests are feeling more and more comfortable using the digital channel, which, again, is an incredibly efficient channel from a cost perspective and from a value delivery to the customer.

Vince Ciepiel — Cleveland Research — Analyst

Great. Thank you.

Operator

And we will take our next question from Rich Hightower with Evercore. Your line is now open.

Rich Hightower — Evercore — Analyst

Hey, good morning, guys. Thanks for taking the question.

Anthony Capuano — Chief Executive Officer

Good morning.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Good morning.

Rich Hightower — Evercore — Analyst

Just on the development pipeline and as I think about supply chain delays and the like, maybe help us understand, if we go back to the beginning of 2021, what your outlook was for rooms growth at that time? How many of those projects got delayed versus your original outlook and maybe pushed into 2022? And then likewise, what sort of cushion do you get to the 2022 forecast as you think about ongoing delays and so forth?

Anthony Capuano — Chief Executive Officer

Yes, I’ll take a try at that one, and Leeny may chime in. I think about it a little bit — I think about the pipeline a little like a conveyor belt. We’ve got some projects, one of the reasons that our openings were so strong in the fourth quarter is we saw some projects that in our earlier forecast, we assumed would open Q1 ’22. And they actually got done a little more quickly and opened in December.

We do see some delays that come out the back end. But I think maybe the most relevant statistics are the pace at which shovels are going in the ground and the lengthening we’ve seen in the construction cycle. You heard Leeny in her remarks talk about roughly 24 months start to finish as an average for our select service hotels here in the U.S. There’s not a lot we can do to accelerate that. If anything, we’ve got some challenges with supply chain and the like. But that 24 months seems to be holding. It’s one of the reasons we continue to be so focused on conversions in the year for the year.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

And as Tony said, we do — for what it’s worth, when we build our budget, we do go project by project, country by country. So it is a quite detailed estimate. But as Tony pointed out, there are some that finished a little bit earlier, and some that end up being a little bit later. And we do our best every year at estimating. But the other part that I’ll point out when we talked about where we were at the beginning of ’21 is that we actually expect the deletions to be higher. And I think you all will remember that my comments then reflected probably about 50 basis points of an expected COVID-related hedge that it was hard to predict at that point where exactly all these hotels would go as we move through the pandemic.

And I think happily with a lot of work on everybody’s part, including the owners in revenue management and on the cost side, that — and the banks have been very good partners to work with as well. We have seen deletions come in better than we expected. And that has also ended up helping the net rooms growth number even compared to where we were four months ago.

Rich Hightower — Evercore — Analyst

That’s really helpful color. And if I could just add one follow-up. Maybe back to, I think, one of your responses on the leisure side and thinking about demand and pricing power in that segment. If we look at some of the nontraditional short-term rental companies, for instance, Airbnb and so forth, everybody sort of talks about their leisure customer the same way. And a lot of this is the business has improved meaningfully with work from home and a hybrid workforce and all that kind of stuff. I mean, would you say that there’s more or less or about the same customer overlap as you think about your core leisure customer versus what we see in the short-term rental space? And how has that changed over the course of COVID?

Anthony Capuano — Chief Executive Officer

Well, I think if you look particularly at the performance we’ve seen in our luxury tier resorts and our full-service resorts, one of the things we hear from our customers pretty clearly is their desire for a full complement of services and amenities. And as we’ve said in response to versions of this question in the past, that’s probably the most significant differentiator between our product offering and some of the short-term rental offerings that are out there.

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

The other thing I’ll mention is clearly in the beginning of the pandemic when you were kind of imagining searches for people wanting to get away, there was larger proportion of searches that were for places that are out of the way, truly places where people felt comfortable going where they could be away from others. And we have seen that gap narrow in terms of the searches for kind of classic room-sharing type places as well as hotels. We’ve seen that gap narrow, which I think makes sense given the progress as we move through the pandemic.

Rich Hightower — Evercore — Analyst

Great. Very helpful. Thank you.

Operator

And we do have another question, and that will be from Stephen Grambling with Goldman Sachs. Your line is now open.

Stephen Grambling — Goldman Sachs — Analyst

Hey. Thanks for sneaking me in. On the owned and leased segment, can you give us a little bit more color on some of the puts and takes that could impact that segment RevPAR and margin performance versus the system-wide trends in 2022? And maybe even tie in how you’re thinking about any asset sales there, if possible, given how strong the transaction market has been?

Leeny Oberg — Chief Financial Officer and Executive Vice President, Business Operations

Sure. I think on the asset sales, we will obviously continue to be opportunistic, Stephen. And it really depends on where the hotel is both in terms of its stage of capex. As you know, in a number of hotels that we own, we really want to get them to be great representations of our brands. And in cases where the markets have really not recovered, we are not going to feel compelled to rush that sale. So in that regard, it will really vary.

We’ve also got JV interest as you know. For example, our St. Regis Punta Mita JV was sold during 2021. That market was doing great. The hotel was in great shape, and we were able to get a really good sales price on that asset. So I think it really does depend a lot on the situation.

Remember that owned lease also has termination fees, and that also I would expect not to be growing, but also to continue to provide somewhere in the ballpark of $40 million in fees a year. And then on the owned/leased profit, I think you will continue to see progress. But do remember that we have a chunk of leased hotels. And there, you obviously need to get to where you’re covering your fixed rent payment to the extent it is fixed rent, which will mean it behaves a little bit more like a U.S. owner’s priority where you need to get to a floor before you’re actually getting any profit. So I think we look forward to seeing the numbers get better and better. But in terms of getting back to the full levels of 2019, I think it will take a little bit of time.

Stephen Grambling — Goldman Sachs — Analyst

Makes sense. And perhaps as a big picture follow-up, Tony, now that we’re coming up on the roughly one-year mark that you’ve taken over as CEO, I’m curious how you could characterize where your thought priorities are now to position the company not only for this unique recovery, but longer term, and how they may have shifted over the course of the year, particularly given you’ve met with folks in the field more recently?

Anthony Capuano — Chief Executive Officer

Sure. Thanks. I don’t think they’ve shifted meaningfully. I mean, I think we are encouraged, as you’ve heard this morning, about the pace of demand recovery. But the priorities really continue to revolve around our key constituents, leading with our associates, certainly our guests and as we’ve discussed at length this morning, the economic health of our owners Okay.

Stephen Grambling — Goldman Sachs — Analyst

Awesome. Thanks so much.

Anthony Capuano — Chief Executive Officer

Okay. Well, thank you all for your questions this morning, for your continued interest in Marriott. And with increasing frequency, we look forward to seeing you on the road. Thanks, and have a great day.

Operator

[Operator Closing Remarks]