Richard Clarke: Okay, that’s helpful color. Thank you very much.
Anthony Capuano: Thank you.
Operator: Thank you. We’ll take our next question from Stephen Grambling with Morgan Stanley. Your line is now open.
Stephen Grambling: Right, good morning. I know you touched on the introductory remarks, but could you help us bridge the gap from thinking about room growth and RevPAR growth versus the gross management franchise fee growth, I mean, essentially, is this a mismatch that should continue beyond 2025 due to what you see in the pipeline or is it more to do with the MGM contribution and how that may ramp?
Leeny Oberg: Yes, definitely not from an MGM perspective. I think as we talked about the fundamental model still actually works very well. We had a couple of anomalies going on in 2023 but when you think about it broadly, the fundamental model of RevPAR plus fees continues to work fine. We’ve got the reality that, when you think about putting together the RevPAR scenario, you’re getting benefit across the Board from the growth in the rooms as well as from IMF. And as you saw, we’re talking about really strong continued IMF growth. And then, of course, the reflection that our non-RevPAR fees are expected to grow 9% to 10% in 2024. So I don’t expect the fundamental kind of growth and fee algorithm to be different than we’ve talked about before.
Stephen Grambling: Great. And maybe one other quick follow-up to the last question, which was around the Investor Day in September. I guess just very, very big picture, what’s changed from then to now as we think about that multiyear algorithm?
Leeny Oberg: I would say very little, in terms of the basic equation. I mean, frankly, 2023 ended up being very strong. And if you think about the guidance that we gave, we ended up higher than the high end of what we gave in the Security Analyst Meeting by $6 million. So you are starting off with a higher base. And then again, we’re looking, a lot of the numbers that we talked about at the Security Analyst Meeting were over a three-year time frame, and now we’re being able to give you more specificity about 2024. But the fundamental about RevPAR growth plus net rooms growth, some operating leverage, continues to work. One thing I do think is interesting, when you look back at G&A as a percentage of fees, which being a fee-driven business, that is I think, the best relationship given the fluctuations in owned/leased as we sell hotels, and that is you look at 2019, we are in G&A as a percentage of gross fees around close to 25%.
And the numbers that we’ve given you today show that number having dropped down to under 20%, which I think does show you the continued operating leverage that we’re getting out of –.
Anthony Capuano: And I might just build on that a little bit. And as for those of you that have been covering us for a long time, you know there’s a phrase that guides almost everything we do. That phrase being success is never final. And while we are very encouraged by the continued improvement in the G&A ratio, you can rest assured that as a principal focus area for the senior leadership team, with an eye towards continuing to improve that efficiency.
Stephen Grambling: Great, thanks so much.
Operator: Thank you. We’ll take our next question from Chad Beynon with Macquarie. Your line is open.
Chad Beynon: Good morning, thanks for taking my question. I wanted to ask a question related to the RevPAR guidance, I guess, kind of looking at the chain scales. So based on how you report, I guess, premium, which some of us would consider upper upscale continues to be the strongest in the third quarter and the fourth quarter, and that’s kind of what we’re seeing year-to-date. As you think about, I guess, luxury and upper upscale versus some of the other segments, do you have a view in terms of what will kind of lead 2024 and is there still a lot of room for ADR increases in upper upscale given what you’re seeing with group pacing? Thank you.
Leeny Oberg: Sure. So let me comment on a couple of things. First of all, when we think about special corporate rates, you’ve heard us talk about kind of continued building of that demand. And while it’s not back to 2019 levels, it is continuing to at the margin grow a little bit faster. And we had high single-digit growth rate in that segment in 2023, and we’re looking at strong mid-single-digit rate growth in that segment in 2024. So that is absolutely — as you look at that, plus the group strength, which when I think about the group pace of that 11%, I would say, between rooms and ADR, that is probably two thirds, one third rooms and ADR. So you’re still seeing some very nice growth there. So clearly, the premium segment is, I think, going to be the biggest beneficiary of that increase in demand.
On the select service side, you saw that segment really come out of COVID the fastest and one that has moderated, as you’ve seen towards the end of this year. We would expect that to be Steady Eddy, but not really get the benefit of some of the things that I just mentioned. And then we continue to expect to see luxury continue to do really well. And so there is opportunity there, both on the rate and OCC side. But I think the two areas I mentioned before are probably the ones to highlight as you think about the tiers.
Anthony Capuano: And I might build on that last luxury comment from Leeny. You heard in my opening remarks about the momentum we have in extending our lead and luxury from a footprint perspective. And fourth quarter 2023 versus fourth quarter 2022 on a global basis, we saw luxury RevPAR up 10%. And so we continue to see pretty compelling economics in the luxury segment and are excited about the growth we’re seeing in terms of our industry-leading footprint.
Chad Beynon: Thank you, appreciate it. And then just a housekeeping, IMF at the end of the year, North American properties, what percentage were payers during the year maybe versus peak?
Leeny Oberg: Yes, sure. This work gets a little complicated, but let’s do it. And that is in 2023, for the full year would you like quarter or year, which do you prefer?
Chad Beynon: Yes, year unless the exit rate is massively different.
Leeny Oberg: Yes. So 31% for the full year in U.S. and Canada versus 56%. However, there’s really as you remember, there was a big change in our limited service portfolio as a result of the HPT Hotels leaving the system. So full-service hotels in 2023, 40% of our managed full service hotels were earning IMFs in the U.S., 45% at peak, really limited services, the big change of 19% in 2023 versus 66% in 2019. But many of those hotels are no longer in our system. Then when you look at international, it’s really overwhelmingly quite similar as to when it was in 2019. So for the entire company, at 2023 68% are earning IMFs, versus 72%. And if you adjust for that limited service portfolio that I discussed, it was 70% in 2019. So we’re really getting to quite similar levels. And as I said, international is really overwhelmingly the same as it was in 2019.
Chad Beynon: Great, thanks for all the details. Appreciate it.
Operator: Thank you. We’ll take our next question from Brandt Montour with Barclays. Your line is now open.
Brandt Montour: Hey, good morning everybody. Thanks for taking my questions. So, maybe for Tony. Just curious in terms of the development momentum going on in the ground in China today, what’s sort of baked into the guidance in terms of China openings or maybe you could answer it qualitatively, has that market opening momentum changed now versus three or six months ago?
Anthony Capuano: Yes. So we continue to see the momentum on the development side in China that we talked about a quarter or two ago, both in terms of what I would call intake, meaning the volume of MOUs that we’re signing, the volume of new deals that we’re improving. But just as compelling in terms of driving opening volume, during the pandemic we saw a variety of projects across the pipeline pause construction. And we’re seeing the vast majority of those paused projects back under construction moving towards opening. So I think on early pipeline, if you will, approved and signed deals and under construction deals, we see encouraging trends in all three of those categories.
Brandt Montour: Okay. That’s encouraging. Go ahead.
Leeny Oberg: I’d just add one thing that I think kind of helps frame your question, and that is when we look at our overall growth in rooms in Asia Pacific, we’re in the high single digits, that we’re looking at both in 2023 and 2024, including China and Asia Pacific outside of China. Just really strong demand for our brands across the various scales.
Brandt Montour: Okay, thank you for that. And then just as a follow-up also on development, just a longer-term question, sort of thinking about reflecting back on 2023 as a year where capital formation and debt financing was harder to come by and that sort of weighed on U.S. new hotel starts. Is this — do you think we’ll be looking back on 2023 when we get to sort of 2025 or 2026 and be talking about something of an air pocket in terms of new hotel openings because of 2023 or do you think it’s not as meaningful and there’s other things that will offset, how do you think about that when you do your longer-term planning?
Leeny Oberg: Yes. No, I think you make a good point. As Tony talked about in his response to the question about the financing environment, there’s no doubt that financing availability for new build construction of hotels is limited. And the strong brands get the most of it, but you’ve got some uncertainty around bank capital regulations, etcetera. So it is clearly down meaningfully from the kind of pace of new build that was in 2019. I think what you have seen on the goods side is that our conversions as a percentage of room signings has gone up meaningfully, and we look forward to that continuing. But yes, I hope that that is the case and that we’re kind of seeing a bit of an air pocket in the U.S. as we talked about, outside the U.S., not as dependent.
I will call out Europe, which also has a lot of the same characteristics as the U.S. on the new build construction side. But we are really pleased with what we’re seeing on the StudioRes demand side and ability to start getting those shovels in the ground. And so there, we are hopeful that you’ll start to see that pace pick up as the construction costs, the demand side continues to be very strong, as well as financing ability improves.
Anthony Capuano: And I might just build on that comment about mid-scale. It’s — Leeny and I tend to climb over each other with enthusiasm to talk about mid-scale. We think there’s a tremendous market opportunity from a demand perspective. There is a deep appetite from our franchise community. We think the cost of developing mid-scale will help our partners navigate what is still a challenging financing environment. And the other thing that is exciting to us, you’ll recall the last number of quarters, in select service broadly, we talked about a lengthening of the construction cycle. Leeny and I were both down in Fort Myers putting a shovel in the ground for the first StudioRes. And our partners there talked about an expectation of opening that hotel in at most 13 months with an eye trying — towards trying to get it open in 12 months.
And so the ability to get mid-scale deals signed, shovels — financed, shovels in the ground and open more quickly than what we’ve seen with a lot of other tiers in our portfolio, is another factor in our enthusiasm for our entry into midscale.
Brandt Montour: Thanks everyone.
Operator: Thank you. We’ll take our next question from Kevin Kopelman with TD Cowen. Your line is now open.
