Q2 REVIEW
THE IMPACT OF THE CHANGE IN OUR OUTLOOK FOR GREATER CHINA HAS A DISPROPORTIONATE IMPACT
– LEENY OBERG , CFO AND EVP OF DEVELOPMENT , MARRIOTT INTERNATIONAL
deals in the U . S .: the now Marriottmanaged Resort at Pelican Hill in Newport Beach , Calif ., which will become a St . Regis at a later date ; the former Conrad Midtown in New York now The Luxury Collection Hotel Manhattan Midtown ; and Turtle Bay Resort in Hawaii , now rebranded as The Ritz-Carlton O ’ ahu , Turtle Bay and owned by Host Hotels & Resorts .
Marriott committed key money to secure the Turtle Bay deal , reports said , and it ’ s something Capuano indirectly referred to on Marriott ’ s Q2 call with analysts . Key money , an up-front payment to an owner to secure a management franchise agreement , is typically deployed sparingly and only in specific circumstances when a lodging company truly covets a project . This usually means for deals that are in the upperupscale to luxury chain scales , like Turtle Bay . Now , said Capuano , the deployment of key money is changing some . Competition to secure deals through conversions is prompting lodging companies to put forth key money into what he referred to as “ lower-quality tiers .”
“ The environment is more competitive . For strategic deals and fee upside , we will consider leveraging our balance sheet . The bulk of key money is in upper upscale and luxury . We are now seeing need to deploy key money into lower-quality tiers ,” he said , which can be construed to mean limited- and select-service hotels . Capuano did offer that the percentage of deals that necessitated key money in 2023 was lower than in 2019 .
Despite the concentration on conversions , construction starts are inching higher having risen 40 % YOY in the U . S . and Canada for Marriott .
As Marriott signs and develops new properties , it ’ s also spending large on new technology . Oberg pointed out that Marriott would likely spend as much as $ 1.2 billion in 2024 on what is called “ investment spending ,” inclusive of capital and technology expenditures , loan advances , contract acquisition costs and other investing activities . “ Spending ,” she said , “ includes higher than historical investment in technology associated with the multiyear transformation of our property management reservations and loyalty systems , the vast majority of which is expected to be reimbursed over time .”
8 hotelsmag . com September 2024