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Marriott 2Q17 Earnings Call Notes

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Arne M. Sorenson – Marriott International, Inc.

Europe hotels benefitting from greater US demand

“our Europe hotels are benefiting from improving economic growth and greater U.S. demand, driven by the stronger dollar. As a result, Europe’s RevPAR rose 7% on strong transit performance in the second quarter. Constant dollar system-wide RevPAR in the U.K. increased 8% with London up 12%. RevPAR in Spain also increased 12% as the economy has rebounded and U.S. demand has increased. ”

Even though corporate profit growth has been strong, GDP has been anemic

“I think GDP probably is still a better reference point for assessing demand than corporate profits are. Obviously, they’re both averages of lots of economic activity and lots of participants in the economy. But GDP is a broader measure. Obviously, GDP has been quite anemic. The numbers that have been reported initially for the second quarter feel a little bit better at 2.6%. And if they really are meaningfully better, that will ultimately show up in demand. But GDP has been fairly anemic.”

Radical transparency may impact our ability to move prices

“Second, I think, is that the occupancy, you look at the quarter numbers are fabulous. System-wide across North America, we’re nearly 80% for the full quarter, which is a pretty impressive kind of number. And so, you would expect a little bit more pricing movement. But, I think underneath that, you’ve got relatively more strength in leisure, which is more price-sensitive than the corporate business is. And I think one of the things we need to keep in mind is, while there are a few iconic companies in the lodging space, it sometimes looks like the industry is fairly concentrated, you’ve got to remember that we have thousands of franchisees who are pricing their own hotels on a day-to-day basis. And it is a market with radical transparency in pricing. And that may have some impact on our ability to move rates in this cycle compared to prior cycles.”

Some companies are spending like they’re having a party, others are being cautious

“when you look across that segment, you’ll see that there are companies in there that are being very cautious about travel and very cautious about managing expenses, and others which seem to be spending as if they’re having a great party. And that pops up in different ways in different markets. But, I think generally, it leads to a sort of anemic corporate transient business. Especially corporate, which tends to be the bigger accounts, is weaker than sort of what we would call corporate rack rate transient.”

View on select service market

“The corporate environment is probably, in some respects, less relevant to the select-service brands than to the full-service brands. It’s not irrelevant. Obviously, you’ve got individual business travelers that are staying there, particularly midweek. But the portfolios are broad. They tend to be a bit more sub-urban, they probably tend to be more in energy markets than the full-service brands would be, and energy, obviously, is an industry that’s tough. So, there’s some dynamic of this which is about the distribution of that product. Could there be a supply piece to it, too? Of course, I mean, the supply growth which is occurring in the industry is disproportionately in upscale, not in upper upscale. And so that has an impact. But generally, our view is the sky is by no means falling in the select-service space. These are hotels that are performing quite well and are quite profitable, and when you look at what’s happening on the development side, you see that our development partners want to do more of them, not less.”

Don’t under appreciate the optimism that seems to exist

“To me, it feels comparable to last year’s negotiating session on special corporate rates, maybe actually a little bit better. Don’t under-appreciate the optimism, which still seems to exist in the market and in corporate America these days. And compare it to the point of view last August, September, and October, you’re talking about a pre-election time. I think there was not a sort of robust optimism. Economy seemed to be producing, again, fairly anemic GDP growth. And I think in some respects, while that fairly anemic GDP growth has continued into 2017, there is still some optimism. You can see it reflected in certainly the equities markets and other places. That will flavor a little bit those sorts of conversations.”

Marriott International 1Q17 Earnings Call Notes

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Arne M. Sorenson – Marriott International, Inc.

*Home sharing phenomenon has been less impactful than imagined

“You know, it’s a good question, Ryan. I think, the answer is that Airbnb and the home-sharing phenomenon has probably been less impactful to the RevPAR numbers that we’ve posted the last number of years than folks might first have imagined. And similarly, is probably less impactful today even with what’s happening on the regulatory side in a number of cities and states. Now, we will continue to analyze this data as much as we possibly can to understand it, but I think by and large, they are serving a mostly different customer than what we serve at Marriott. They are skewed much more towards leisure. They are skewed much more towards a value-centric customer in the bulk of their business, and if their business is under pressure because of a regulatory environment, I’m not sure necessarily that that customer immediately pops up and shows up in our hotel suites.”

Marriott 4Q16 Earnings Call Notes

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Arne M. Sorenson

Continue to expect steady as she goes in NA

“Looking ahead to 2017, we continue to expect a steady-as-she-goes economy in North America. For the 2017 full year, North America group revenue pace for company-operated full-service hotels across the combined portfolio is currently up about 3%. Roughly 80% of special corporate business for 2017 is already priced at a low-single digit rate increase for comparable customers, but we are also signing up more accounts. We continue to aggressively market to leisure guests, and we’re adding contract business at attractive rates. At the same time, we continue to see modest levels of corporate transient demand and somewhat hesitant short-term group bookings. Therefore, for 2017, we still expect North America RevPAR for the combined portfolio will be flat to up 2%”

Definitely feel more optimistic but data does not reflect stronger confidence yet

“The obvious first question, of course, is do we feel more optimistic about 2017 than we did a quarter ago? The short answer is yes. There is considerable data that shows broad expectations for stronger GDP growth in 2017. We have also completed our budget since our last quarterly call, giving us greater confidence in our range than we had before. A somewhat longer answer to the question starts with our data. Looking at group booking trends and special corporate negotiations, and of course at Marriott and industry RevPAR data, we do not yet have clear enough proof that GDP is in fact growing at a higher rate, or that the greater prevailing optimism is impacting our business. For this reason, we have left our guidance for North American RevPAR at 0% to 2% for 2017, consistent with the budgets that roll up from our properties.”

Planning to keep all of our brands

“Thanks, Harry. Basically, the short answer is, we’re going to keep them all. We do have a – it’s obviously a big portfolio of brands. I think we would acknowledge that if we were starting with a plain piece of paper, we wouldn’t necessarily start 30 brands. But having 30 brands that already have distribution with strong owner investment in hotels that carry those flags, and recognizing that our principal tool for going to market is the portfolio and the loyalty programs. We think offering more choices and in some respects more brands is a positive, not a negative.”

Greater optimsm in Energy and finance

“Yeah, I think, there might be one place where the greater optimism would hopefully come to pass. You look at energy and finance, I think there is some optimism that the energy patch bottomed and that while we may not be seeing strong signs of a rapid recovery out of that level that we’re not necessarily seeing further decline. I think we did see further softness in Q4, but the anecdotes and the comments that are coming out now are a bit more encouraging. I think secondly with respect to finance, matters are changing so quickly, almost on a day-to-day basis, but it’s really the first of the year where you start to get this building momentum that there will be strong regulatory relief in the financial world and the optimism that is in some respects derived from that. If that optimism shows up in greater performance of those two segments of our economy, obviously that will be good demand from those customers.”e respects more brands is a positive, not a negative.”

Marriott 3Q16 Earnings Call Notes

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Marriott International (MAR) Q3 2016 Results

NA demand continues to moderate

“Clearly, North American demand growth continues to moderate. In the third quarter, hotels with the weakest RevPAR were generally in oil and gas markets, or in gateway cities affected by continued weak international visitation, or impacted by new supply.”

Group business has been worse than anticipated

“Yeah, I mean, I think it’s faster than we would have expected. If you go back to the full year, I think we started – and Laura can maybe pull this out as we talk – but I think we started 2016 with group business up almost 10% for 2017 compared to where we were at the first of 2015 for 2016. And I think we cautioned folks that that was not likely to hold because as we got farther into the year, we would see that we could book less because we had less capacity. And so we expected that we would tail down towards the maybe mid to high single digits. But I think the experience in the last quarter or so going from roughly 7% to roughly 2% is worse than we anticipated.”

Companies are cautious probably reflect the anemic GDP growth environment that we’ve been operating in

“I think there are a couple of – one positive thing that can be said next to that, when you look at bookings done in Q3 for all future periods, we were up about 8%, if memory serves. So people are still making commitments on group business and there’s good growth. But when you look at the near term, when you look at group bookings in the year for the year, or you look at group bookings for the next 12 months, we see less robustness there. And to us that’s a sign of some caution by corporate customers probably particularly who – in the sense that’s where group business gets most like corporate transient business too. And there I think we’re seeing companies be just a bit cautious and probably reflect the sort of anemic GDP growth environment that we’ve been all operating in.”

30 brands post starwood

” We’ve said a couple of things here that are sort of obvious. I think if we had not merged with Starwood, would we be trying to build 30 brands from scratch? I think the answer is probably not. At the same time, having done this deal, the 30 brands all exist. They all have substantial capital that has been invested in them, particularly by the hotel owners who have made deliberate bets about which flag they put on their hotels. And we don’t have the power to, nor the desire to, try and convince them that those bets have not been good bets.”

Going to market with brands as a portfolio

“I think the other thing that’s really important to recognize here is the biggest expense from a brand perspective, in theory, is about marketing the brands. And, obviously, that’s the most expensive when each brand has to be marketed on its own. And in that context, you would want as much definition as you could have between brands. And it would still be expensive to go out and market each one alone. I think in many respects that’s no longer our model, if it ever was. I think the principal model today is we go to market through our loyalty platform, through our dot com site, through our app. And those things allow us to essentially market a portfolio and offer through that portfolio an incredible range of choice to our customers, which drives, actually, conversion from looking to booking that much higher and makes the economics of each brand better, not weaker. And so you put all that together, and I think that’s why we conclude that we’re going to keep these brands and we’re going to continue to grow them. I don’t really think that there are material incremental costs to having a brand given that that’s the business model that we have.”

Marriott 2Q16 Earnings Call Notes

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Marriott’s (MAR) CEO Arne Sorenson Q2 2016 Results

Received regulatory clearance for starwood from everyone except China so far

“The big news this year for Marriott is the Starwood Acquisition. As you know we have received all of the necessary regulatory clearances throughout the world with the exception of China. We are in the second phase of China review and we have been working cooperatively with the regulatory authorities”

US economic growth has been slower than we anticipated

“you will not be surprised that U.S. economic growth has been slower than we anticipated when the year began. In fact over the last three quarters, room sales of our nearly 300 largest corporate customers have gradually weakened from 4% growth year-over-year in the fourth quarter to 2% in the first quarter and less than 1% in the second quarter.”

Strong dollar is impacting international guests

” with the stronger dollar we are seeing fewer international guests coming to our U.S. hotels. With the impact most pronounced in a few key gateway markets. We estimate the number of room nights occupied by international guests at comparable hotels in New York and Miami declined by 10% to 15% in the second quarter.”

Strength of the economy is the biggest question mark

“Obviously the strength of the economy is the biggest question I think in terms of forecasting how we are likely to perform in the coming quarters. And to some extent is the place maybe you can see this up a little bit over the second quarter. I think as we guided a quarter ago we have an overly rosy view about the strength of GDP in the United States particularly and as a consequence we continue to stick with our 3% to 5% REVPAR for the full year that we have provided at the beginning of the year.”

But it is still positive GDP growth

“But it is still positive GDP growth, I think to some extent the question you and we could ask of ourselves is we what more solid, more confident in the kind of guidance we are giving today than what we gave a quarter ago. And I think the best answer to that is that we now are making forecast based on essentially the current face of GDP growth in the United States which is weak not on a more rosy scenario.”

The economy should continue to grow but maybe somewhat anemically

“Is it possible the U.S. economy performs worse than that, of course it is. But when you look at the range of economic data that comes out including recent employment reports and consumer confidence reports and corporate profits and some of those sorts of things, it looks to us like it’s a reasonable good bet that the economy will continue to grow, albeit grow maybe somewhat anemically.”

Seeing construction projects take a little longer to complete

“And I think in some respects that in a somewhat weaker market, somewhat more anxious market that allowing the construction to take a little longer is a rational thing that some of our partners are doing. And as a consequence we see that the construction pace has expanding just a little bit. We are not seeing cancellations of projects however and I think generally what we’re talking about is projects that formally we would have expected to open probably in the fourth quarter of the year opening some time in 2017.”

Projects in China continue to move forward but slowed in Hong Kong

“We have been pleased with China on the development side year-to-date we obviously read the same newspaper that you do and there is some anxiety there as there is in many other markets around the world but it seems that people are continuing to move forward with projects that have strength. And then, on the negative side Hong Kong has been sort of tougher market mostly because Chinese visitation has, Mainland Chinese visitation has declined. Some of that is currency driven given that Hong Kong’s dollar is essentially pegged to the US dollar and so as a consequence has become more expensive as the US dollar has continued to appreciate around the world. We wouldn’t expect that Hong Kong is going to change for the better anytime real soon”

Marriott Starwood Acquisition Update Call

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Arne Sorenson

We think we can accelerate unit growth

“On Unit Growth Opportunity, we think there are a number of places where we can accelerate growth in the Starwood portfolio, first we should commend the Starwood team for the growth that they have already accelerated over the course of the last year or so, it’s great to see that and great to see the momentum that’s already underway. But again we think that with the relationships we have with owners and franchisees around the world, with the development team that we have all around the world and with a proven track record we have for growth, we can bring that growth to St. Regis and The Luxury space, we look at what’s happened with The Luxury Collection and compare that on launch of the Autograph Collection just about five years ago, ”

Debt to EBITDAR will be 3.5x after the deal

“cash is obviously the cheaper currency for us to use, it does drive a bit higher debt level at closing we think roughly will be between 3.5 times and 3.6 times adjusted debt to adjusted EBITDAR at debt close, but given the power of the cash generation machine that these companies represent, we believe we’ll be well within our 3.0 to 3.25 target by year end 2016.”

There are opportunities for synergies

“With respect to the Hotel top-line and margin performance, this was an area that I carry in my briefcase actually about a dozen of very specific ideas for each one of those things which we’re optimistic we’ll be able to achieve, but because we are still competing with each other until this deal is closed, we will continue to compete. We have not had a chance to go through Starwood’s hotel level P&L for example and sit down and compare them side-by-side as if this was already our business. But we do know that there are areas like procurement, there are a number of system areas where we can combine two systems into one and share it across a broader platform and therefore deliver efficiencies to the hotels. And we also know that there are opportunities through the loyalty programs and through the salesforce to drive incremental share for those hotels.””

Leeny Oberg

Managed full service hotels have performed particularly well ytd

“Thanks, Arne. In a separate release today, Marriott announced that we have reiterated guidance for comparable system-wide RevPAR growth of 2% to 4% for the first quarter and 3% to 5% for full year. Year-to-date through February, we saw a constant dollar RevPAR at our comparable system-wide hotels increase 3.4% in North America, 3.9% outside North America and 3.5% worldwide. Couple of comments overall is that, the managed full service hotels performed particularly well year-to-date, rebounding from some renovations and with some great Group outperformance. Outside the U.S. we’ve seen very nice performance in Asia-Pacific and although Europe is still perhaps lower growth than we’d all like to see, is still a bit stronger than expected. Not surprisingly in the Middle East we’ve continued to see struggles there.”

Smith travel projects that demand growth will be higher than supply in 16 and 17

“And just kind of from a perspective from the whole industry in the U.S., we continue to see that Smith Travel projecting that on demand side that growth would be higher than supply for ’16 and ’17. And with supply still under its long-term average of 2 to a little bit over 2.”

Marriott 4Q15 Earnings Call Notes

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Acquired Starwood

“the biggest Marriott news in 2015 was our announced acquisition of Starwood. The transaction is on track and we expect to close around mid-year 2016.”

Not going to try to put everyone on the same property management systems

“it won’t surprise you to know there are many systems. On the property level, the property management systems, they both have the same core engine running them. And I think actually unlike in prior deals, we will not try and move all of one portfolio of hotels to some other property management system from the one that they’ve got, and instead find a way to make those systems communicate above the property in a way that hopefully will be much easier.”

Anxiety in the marketplace leads us to forecast more conservatively

“Let me just talk a little bit more about the philosophy around our RevPAR guidance from 3% to 5% for 2016 which has been noted obviously in a number of early reports that have come out of that, that’s a point lower than what we thought a quarter ago. What’s changed between then and now, I think, we look at a world in which there’s obviously more anxiety in the marketplace. There’s a bit more anxiety about what GDP growth is going to look like in 2016 and as a consequence, we’ve been a bit more conservative in the forecast that we provided.”

The sky is not falling when we look at our data

“what we see is, again, reasonably encouraging. The sky is not falling when we look at our data. That is profoundly the case when you look at group business but it is also very much the case when you look at transient business. We mentioned the 2.5% transient demand in January. We look at U.S. system-wide RevPAR numbers and they were up a hair over 3% in the month of January…all things considered, that’s not bad and we’d expect February to be better.”

Not seeing any cause for concern in group bookings

“No, we’re not. The only thing we’ve seen and we mentioned this in the prepared remarks is we are seeing a bit of a lengthening of the group booking window. So we talked about how in the fourth quarter we had an increase in group bookings for all future periods of about 10%. Actually, when you look at that by year, 2016, 2017 and 2018, the weakest booking year-over-year would be 2016. That is not a function of a slowdown in demand. That is a function of the fact that bookings are already up 7%, and there’s not that much space left.”

China doing much better than you read in the papers

“Let me start with the Asia piece, particularly China. Obviously, we’ve been bombarded with news about the Chinese economy over the last couple of quarters. Most of it not very positive in what we read in the papers here. And obviously a big chunk of that is related to their manufacturing and export business. To some extent, it’s related to their infrastructure spending, and to some extent to their financial markets and financial institutions. I think underneath all of that you’ve got China continuing to move towards a consumer economy. You’ve got a growing middle class that has resources to expend on things other than bare necessities. And as a consequence, I think we see in our industry and certainly at Marriott, stronger performance in China than you might expect from reading that newspaper.”

What we see so far in 2016 makes us positive about China

“Obviously, it is a very big market. And so the performance in different cities will vary from place to place. We had some of the numbers in our prepared remarks. Shanghai continues to be a very strong market all the way through 2015. Hong Kong, by contrast, has been a market which has been under pressure, in part because of the political implications of some of the street protests and other decisions that are made that derive from that. But then you look at other markets like Japan. China visitation to Japan was up something like 25% or 30% last year, if memory serves. And it is driving great performance in our Japanese hotels. And you see that sort of growth in outbound China business continuing to perform really well. And what we see so far in 2016 continues to make us quite positive about China.”

Kathleen Kelly Oberg – Chief Financial Officer & Executive VP

In most cases it’s so expensive to hedge currencies that you’re better off with the risk

“I mean, in terms of – no, in terms of the debt that Marriott takes on, no. I think we’re always looking at kind of new ideas on the hedging side and hedging the fees but to be quite honest in many cases the costs of those hedge are so prohibitive that it’s really better off to stick with the risk.”

Not expecting the same volatility in 2016 as 2015

“Now, I will also say that we do – we are hopeful that the dollar doesn’t strengthen at the same kind of rate that it did in 2015 in 2016 and I think our forecast does take into consideration that we’re not expecting quite the same level.”

Marriott 2Q15 Earnings Call Notes

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Now offering Netflix in room

“Speaking of entertainment, as of the second quarter, we were the first hotel company to offer Netflix programming in our guest rooms. Our collaboration with Netflix reflects changing consumer preferences in how guests want to access and watch content while they travel. ”

Don’t see RevPAR growth slowing any time soon

“there’s been a lot of discussion about the strength of demand and the pace of RevPAR growth. Undoubtedly a slower pace of RevPAR growth is likely to occur at some point in North America as economic growth matures. Trees don’t grow to the sky. In fact, you may recall, at our Analyst Meeting last year that we started our four year RevPAR growth rate scenarios with a 4% handle. While this slower pace is likely at some point, we think it is premature to call it today. Based on our data, we believe North American industry RevPAR growth will be solid for the foreseeable future”

Group bookings are very strong

“Recent group bookings are very strong. North American Full-Service Group business booked in the second quarter for all future periods rose over 8% year-over-year. In fact, meeting planners are worried about securing availability more than negotiating hard on rate.”

There’s been limited supply growth

“Supply is another common question about our industry. In the U.S., the modest pace of economic growth combined with lender caution has constrained lodging supply growth for the past five years. While construction starts are picking up, STR doesn’t expect U.S. supply will reach even the historical average growth rate until 2017”

I think we see apprehension because people are wondering how long can this upswing last, but we don’t see anything that says it shouldn’t keep going

“I think we’ve got some apprehension as a marketplace, in part maybe driven by the fact that we’re in the sixth year of a strong lodging recovery. I think all of us kind of wonder how long can it last and we’re constantly looking for clues that maybe we’re reaching a point where we can somehow say that we’re transitioning to a different phase, and I understand that. In many respects we look at the same questions and we ask the same questions here. We don’t see evidence that would suggest that we’re entering a different phase of the cycle. We see supply growth continuing to be low. We see demand growth continuing to be high. When you look at group business, when you look at pricing power, all of those things look good.”

We have a lot of respect for trip advisor and have been in a mating dance for some time

“We’ve got a lot of respect for TripAdvisor. They have built a platform for customer reviews that has tremendous strength and obviously a broad application for hotels around the world. And we have been in a bit of a mating dance with them for some period of time, sort of feeling each other out and trying to figure out how the partnership would work between us”

Overwhelmingly for airbnb you’re talking about leisure travel at lower rates than you would pay for a hotel

“Overwhelmingly in this space you’re talking about leisure travel, overwhelmingly you’re talking about travel which is at relatively lower rates than would be available in a traditional hotel. And so while there are some business travelers, probably particularly younger business travelers who use these kinds of platforms for their business travel, they are still the exception rather than the rule.”

Corporate customers area little more concerned about risk involved in staying at an airbnb

“When we listen to our special corporate and significant corporate customers, I think usually what we hear is that they would like to make sure that their people when they’re traveling are taken care of and that the risk profile is acceptable to them, and there are attractive features of hotels when it comes to those kinds of considerations”

Marriott 2Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“We were pleased with our results in the second quarter. North American company-operated REVPAR increased 5.3% with 4.3% higher room rates. Occupancy rates and room rates were largely at 2007 peak levels or higher.”

“Fortunately, transient business continues to strengthen, but short-term group has not. Corporations are watching their bottom line and given the economic climate, are cautious about discretionary spending. Not surprisingly, austerity is even more pronounced among government meeting planners. In 2010, government group represented 5% of the Marriott brand group business. In 2013, we anticipate only 2% of our group business will come from Uncle Sam.”

“Occupancy at comparable company-operated Marriott hotels in the U.S. totaled 78% on average in the second quarter”

“We saw particular strength in France and Russia.”

“n the Asia Pacific region, occupancy totaled 72% and constant dollar REVPAR across all brands increased 2.5%. We saw particular REVPAR strength in Indonesia and Thailand. In Greater China, despite slower economic growth, occupancy across all brands totaled 72% in the quarter and REVPAR rose nearly 1% on a constant dollar basis, or nearly 3% using actual currencies.”

“In the last 24 months, our worldwide development pipeline has increased 40%, from 100,000 rooms to more than 140,000 rooms.”

“Development in China, India and Thailand is accelerating and global room openings in 2014 should increase from 2013 levels.”

“To be sure, today’s development environment for full-service hotels in North America remains challenging, but we see some loosening of credit for limited-service development”

“once again this quarter, 1 in 4 hotels under construction in the United States will fly one of our flags. And worldwide, 1 in 8 hotels under construction will be flagged with the Marriott brand.”

“The growth appetite from our partners is as strong as it’s ever been for Fairfield. And so we’ve decided to move that franchise fee up to the same level that Fairfield’s principal competitors are already charging. And again, as we said, this will apply really to new hotels and relicensings of old hotels, meaning, when those old hotels trade, but will not apply to the existing owners”

“The Chinese economy looks to us to be performing. Maybe it’s growing a little bit weaker than it did a year or 2 ago, but still broadly recovering, with really powerful trends in domestic travel, particularly in China. And so we see, even within this quarter, we saw Shanghai for example, I think up about 6% in REVPAR.”

“Folks have asked about supply growth in China, and clearly there has been some supply growth. It varies a little bit market by market. I suspect we’ll continue to see supply growth be fairly high. But we expect we’ll continue to see the Chinese economy produce more and more domestic travel — travelers as well as global inbound travel growth, and still think it’s an extremely exciting market to bet on long term.”

“On the negative side, we’ve got Egypt, which is falling apart. And I probably shouldn’t say it that way, but from a hotel perspective, it’s not looking very good, why don’t I say that.”