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April 26, 2018 Owner & Franchise Communications

2018 Franchise Disclosure Document Updates

U.S. Only | We have completed updates to Marriott’s annual Franchise Disclosure Document (FDD) and we want to highlight certain system changes that may impact your hotel(s). These changes are effective for all new development and relicensing deals as of March 31, 2018.

Global Design Fees 
The following changes are effective as of March 31, 2018 for various Global Design review services:

  • Development – Design & Construction Review Services (Marriott Select Brands)
    1. Prototype – No charge
    2. Modified Prototype – $5,000
    3. Custom Design, Conversion or Adaptive Reuse – $20,000
    4. Unapproved Designer (AC & Moxy Only) – Additional $15,000
  • Development – Design & Construction Review Services (Full Service)
    1. All Projects – $50,000
    2. Unapproved Designer – Additional $50,000
  • PIP/Reno – Design & Construction Review Services (Marriott Select Brands)
    1. $10,000 to review work to complete a PIP (paid by buyer in relicensing) or a periodic renovation to comply with standards. Note: only applies to custom MSB hotels.
  • PIP/Reno – Design & Construction Review Services (Full Service)
    1. $20,000 to review work to complete a PIP (paid by buyer in relicensing) or a periodic renovation to comply with standards.

Non-Compliance Fee for All Brands (Franchise Only)
For franchise agreements signed after March 31, 2018, there will no longer be a non-compliance fee (formerly 1% of gross room sales (GRS) per month) charged to hotels that fail to comply with the franchise agreement.

Relicensing Application Fee (Franchise Only)
An updated relicensing application fee will be implemented for AC, CY, FF, and RI hotels:

Brand

Applications Received After Mar. 31, 2018
AC Hotels by Marriott The greater of $175,000 or $500 per guestroom
Courtyard by Marriott The greater of $175,000 or $500 per guestroom
Fairfield by Marriott The greater of $125,000 or $400 per guestroom
Residence Inn by Marriott The greater of $175,000 or $500 per guestroom

For transactions for which we have previously received a request for an application but have not received the completed application, we will charge the 2017 application fee provided that we receive the completed application (including payment of the application fee) within sixty (60) days of our sending the 2018 FDD. For all other transactions, the new fee will apply.

Look No Further (LNF)

The Look No Further Best Rate Guarantee is a cornerstone of Marriott’s long-standing commitment to build consumer trust in our direct channels (i.e., Marriott.com, SPG.com, Marriott Mobile APP, SPG Mobile APP). Hotels realize a cost of sale savings of approximately $36 on average for every booking that shifts from an online intermediary to Marriott’s direct channels.

As communicated, as of June 2018 (for Marriott Rewards Hotels) and January 2019 (for SPG Hotels), charges for LNF violations will be applied based on the below parity scores (as opposed to a flat charge for all hotels regardless of LNF performance):

  • Green Parity Score: $50 per LNF violation
  • Yellow Parity Score: $75 per LNF violation
  • Red Parity Score: $150 Per LNF violation.

As we work towards a single price guarantee policy, we will be more closely aligning with the Supernova process and requiring all hotel-level disputes of customer-facing approved claims to be completed by the 15thof each of month (for claims approved in the previous month). Additional details will be in a forthcoming communication.

Programs & Services Fee/Contribution
Marriott will implement a Programs and Services Fee (“PSF”) for the majority of required, system-wide (managed and franchised), above-property Programs and Services (P&S) on January 1, 2019. The PSF is a bundled-fee approach that simplifies Marriott’s P&S costs, allows for improved cost management and provides predictability to owners. The PSF will include the costs of Central Reservations and a majority of required system-wide P&S such as Mobile Guest Services, One Yield (Marriott’s Revenue Management System), EMPOWER (Guest Relations Platform), and guestVoice but will exclude costs from the Loyalty Program and consumer-driven commissions. The rate will be a combination of fixed and variable components (cost per property, cost per key, and percent of room revenue), with rates varied by segment/tier.

Integration & Loyalty Updates
In 2017, we focused on building scale and capability by combining organizations and preparing for common platforms. In January 2017, we lowered charge-out rates by 10 basis points and eliminated the charge for new enrollments at Marriott Rewards and The Ritz-Carlton Rewards hotels, consistent with SPG hotels. On April 16, 2018, we also announced to members that Marriott Rewards, The Ritz-Carlton Rewards, and SPG will become one combined program with one set of benefits beginning in August 2018.

As part of 2018 budget instructions, we instructed hotels to budget flat for reservations costs. While we had anticipated that there would be incremental costs associated with license and maintenance fees for SPG Opera PMS hotels, we also announced that we will be using our balance sheet to minimize financial impact for this cost in 2018.

In addition to the above-mentioned integration updates, we also recently announced the below loyalty updates, which will take place during Q3:

Additional Reduction in Charge Out-Rates in 2018: Late in Q3, all programs – Marriott Rewards, The Ritz-Carlton Rewards, and SPG – will standardize charge-out rates by chain scale for Luxury, Full Service, Select Service, and Extended Stay. Most brands will benefit from lowered total effective charge-out rates.

Sliding Scale Reimbursement Rates: In an effort to simplify the reimbursement guidelines, we are launching a single reimbursement policy across Loyalty programs in late Q3. The new policies will result in an increase of $40M reimbursement activity to hotels. On average, hotels can expect increased reimbursement, at lower occupancy rates, from what they receive today. All hotels will receive a % of their prior year ADR on nights below 85% occupancy. On nights above 85% occupancy, hotels will receive a % of that day’s ADR which will increase on a sliding scale of occupancy.

Interchange Rate Savings: As announced in early December, we have reached agreements to extend our relationships with both American Express and JP Morgan Chase for our U.S. co-brand credit cards. Reduced interchange fees are in effect as of Jan. 1, 2018 due to Marriott’s new 7-year global Card acceptance agreement and co-brand credit card partnerships with American Express and JP Morgan Chase. Additional information and instructions on recognizing these property savings can be found on MGS.

Enhanced Member Benefits: In addition to delivering $200M+ in annualized property savings, we have been working to enhance and create consistent member experiences across all 30 brands.

  • Member Points Earnings: Eligible Revenue, the basis of how members earn and how charges are assessed, will be harmonized to include full-folio across all brands. This will award points consistently on Room, F&B, Spa, and ancillary services. This may offset some or all of the property savings anticipated from the reduction in charge-out rates at The Ritz-Carlton, EDITION and Gaylord Hotels.
  • Elite Benefits: To deliver the strong benefits to members, consistently across the portfolio, changes to some Elite benefits are being finalized as well.

We thank you for your continued support as we remain committed to protecting your investments while continuing to improve each brand’s economic business model.