Marriott International (MAR) Q3 2018 Earnings Conference Call Transcript
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Marriott International (NASDAQ: MAR)
Q3 2018 Earnings Conference Call
Nov. 6, 2018, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Marriott International third quarter 2018 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. To withdraw your question, press the # key. Thank you. I will now turn the conference over to Arne Sorenson. Please go ahead, sir.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning, everyone. Welcome to our third quarter 2018 earnings conference call. Joining me today are Leeny Oberg, Executive Vice President and Chief Financial Officer; Laura Paugh, Senior Vice President, Investor Relations; and Betsy Dahm, Senior Director, Investor Relations.
I should note 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. Forward-looking statements in the press release that we issued last night, along with our comments today are effective only today, November 6, 2018 and will not be updated as actual events unfold.
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In our discussion today about the income statement, we will talk about results excluding merger-related costs, reimbursed revenues and related expenses, the year-to-date net adjustment to the tax charge related to the U.S. Tax Cuts and Jobs Act of 2017, and the year-to-date adjustment to the Avendra gain. Of course you can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks at www.marriott.com/investor. So let's get started.
We are now past the second anniversary of our acquisition of Starwood, and just last week we met with our North American owners at a largely upbeat, full-service owners conference. When we announced our intention to acquire Starwood in 2015, our hotel owners were supportive, and upon completion of the deal remain so. They have provided great feedback throughout the process as we set our priorities for the integration. Today, they are now reaping the benefits from increased cost efficiencies, higher guest satisfaction, and the upcoming impact of a more powerful loyalty program.
Over those last two years, we have integrated our operations, sales, marketing, hotel development, and finance organizations and systems. We are halfway through moving legacy Starwood hotels under our Marriott reservations platforms, and the process is going very well. We've enhanced guest satisfaction by applying Marriott's deep operational knowhow and made solid progress on product scores.
Costs for both legacy Marriott and legacy Starwood hotels have been reduced as we captured synergy cost savings at properties, reduced loyalty program charge-out rates across the systems, and realized procurement savings. We also lowered corporate, general, and administrative expenses meaningfully. After two years of planning, we integrated our loyalty programs on August 18, creating one powerful, unified program, allowing our members to earn, book and redeem across more than 6,700 hotels.
This was an extremely complicated systems challenge, as we essentially created a new loyalty platform. While there are always unanticipated challenges with complex systems integrations, our liability and IT teams were driven to make this integration go as smoothly as possible. In the days following cut-over, many loyalty members checked this online statements, and some discovered errors.
Telephone volume to our loyalty lines increased, running up 35% at peak. Our team immediately identified the problems and our loyalty telephone agents were quickly trained to help customers with these issues. To be sure, wait times were sometimes too high. Today, call volume to our loyalty lines is running roughly 2% to 3% over seasonal norms, and wait times are back to normal. While we have solved the most significant problems, we are still addressing issues for some customers. For those loyalty members who were affected, we appreciate your patience.
One powerful learning from this aspect of the integration, we discovered just how passionate our members are about our loyalty program. We are already seeing the positive results from the loyalty integration. Our total loyalty membership is now 120 million members. Post-program integration data reveals accelerated bookings from loyalty members, higher luxury redemptions, and a growing proportion of bookings from our direct digital channels.
Notwithstanding our focus on integration over the last two years, we have not stood still. We entered into a joint venture with Alibaba in Asia; introduced a pilot of Tribute Portfolio Homes in Europe; introduced new loyalty credit cards with J.P. Morgan Chase and American Express; expanded our mobile offerings to include food and beverage at hotels; and again taking cruise reservations for the first Ritz-Carlton yacht.
Beginning in 2019, we are implementing a new program services fee structure for owners that will allow us to manage costs for programs and services in a manner that is simple and predictable. Under this new structure, we expect over three-quarters of hotels will see costs for these programs and services decline. Our new enhanced reservation system, which we call ERS, has been rolled out to over 500 hotels. ERS allows guests to select rooms based on a greater variety of room characteristics, such as bed type, view, high or low floor, corner room, balcony, and so on, with more photography and hotel descriptions allowing greater customer choice and more effective marketing.
Earlier this year, we introduced intermediary commissions for group business from 10% to 7%. Our largest competitors have followed, albeit months after us, which may have permitted them to temporarily benefit from some customer shift. While not all group business is intermediated, these commissions have been a significant and growing cost for large group hotels.
Group meeting customers choose our hotels because of our high-quality service, outstanding rooms and meeting space, and reasonable cost. Over the last 12 months, our group RevPAR index is steady. In the third quarter, RevPAR at our largest group hotels in North America rose 3%.
In revenue management, we are focused on profitability, as well as RevPAR. As a measure, RevPAR is easy to understand, readily available in weekly SDR reports, but is a blunt instrument for measuring success. Some distribution channels are just too expensive for the value of the business they deliver. In North America, our revenue management systems now consider these distribution costs when deciding which channels to open on any particular night. This has resulted in a decline in OTA business during peak occupancy nights and an increase in direct bookings.
On a worldwide basis, OTA share of our room nights was flat year-over-year in the third quarter, and declined in North America. We believe this likely had a few tenths negative impact on RevPAR growth, but a favorable impact on hotel profits. Global RevPAR rose roughly 2% in the third quarter, with a modest increase in North America, and continued robust trends in most international markets. We expect global RevPAR will increase roughly 2% in the fourth quarter, and based on our early budget work, 2% to 3% for the full-year 2019.
For North America, third quarter RevPAR increased 0.6%. Group RevPAR increased over 1% with good attendance at meetings and fewer cancellations. While we anticipated a negative comparison to last year's hurricanes, the decline in U.S. industry transient demand in September was more significant than we anticipated. October looked better than September, with stronger transient demand and considerable group business on the books. We are nevertheless taking a slightly more conservative view as we enter the seasonally slow holiday periods, so we are forecasting North American RevPAR growth of 1% for the fourth quarter.
For 2019, estimates for U.S. GDP growth point to a slightly slower pace of growth than in 2018, which benefited from the tax cut earlier in the year. U.S. lodging supply growth is expected to moderate slightly next year, largely due to shortages on skilled subcontractors, higher construction costs, and higher interest rates, despite the continued favorable economic climate. As we consider our 2019 outlook, we note that group revenues on the books in North America for comp hotels in both 2018 and 2019 are modestly higher, consistent with constrained meeting space capacity. Our sales organization is doing a great job.
We are negotiating 2019 special corporate rates with our largest corporate clients right now, and while only a few negotiations are complete, we expect 2019 special corporate rates for comparable accounts in North America to rise at a low single-digit rate. Given all this, we expect RevPAR in North America will increase 1% to 3% in 2019, which reflects our continued steady-as-she-goes view of lodging demand.
Let me take a moment to address the strikes that are occurring at 21 of our hotels in 6 North American cities. This is out of a portfolio of 6,700 hotels. We have been negotiating in good faith for many months and we are making progress. We have already reached tentative agreement on national issues, and we have reached a number of local settlements. Just this weekend, we welcomed our associates back to work after contract settlements in Oakland and Detroit. We hope to welcome more of our associates back to work soon. We don't expect the strikes to have a material impact on our earnings in the fourth quarter.
We are humbled by the determination and grace of the associates working today at these 21 hotels who have been steadfast in their commitment to our guests, and we are grateful for the associates across Marriott who have stepped up to work at hotels impacted by strikes, including thousands of people who have traveled from other cities to help. Due to their efforts, our hotels continue to operate, in many case with full occupancy. I couldn't be prouder of the extraordinary dedication of our people.
Turning to our international regions, in the Asia-Pacific region, systemwide constant dollar RevPAR increased 6% in the third quarter, while RevPAR in Greater China rose 5%, constrained by the timing of the mid-autumn festival and golden week holidays, as well as the Typhoon Mangkhut that struck Hong Kong, Macau, and South China. We expect our fourth quarter RevPAR in the region will increase at a mid-single-digit growth rate. Our hotels in Indonesia should benefit from a World Bank event and easy comparisons to last year's volcanic eruption in the fourth quarter. For 2019, we expect Asia-Pacific RevPAR will grow at a mid-single-digit rate, reflecting somewhat more modest economic growth assumptions.
In Europe, systemwide constant dollar RevPAR rose 6% in the quarter, driven by strong results in France, Turkey, and Russia, as well as greater U.S. travel to the entire region. The 2018 World Cup doubled our RevPAR in Russia. We expect fourth quarter RevPAR in Europe will continue to grow at a mid-single-digit rate with easier comps in Spain and stronger demand in Munich, Vienna, and Rome. For next year, the World Cup will be a touch comparison, but we expect the Europe RevPAR will grow at a mid-single-digit rate in 2019.
In the Middle East and Africa region, systemwide constant dollar RevPAR was flat in the third quarter, due to the timing of holidays, continued political tensions in parts of the region, and considerable new supply ahead of Expo 2020 in Dubai. RevPAR in Africa alone rose over 7%, reflecting strength in Egypt. We expect RevPAR in the fourth quarter will decline at a low-single-digit rate, largely due to the new supply in the UAE, and a tough comparison to last year's result at the Ritz-Carlton Riyadh. For 2019, we expect MEA RevPAR will be flat year-over-year.
In CLA, our Caribbean and Latin America region, RevPAR rose 6% in the quarter, with RevPAR at our hotels in the Caribbean up 13%, as they continue to benefit from strong transient demand, as well as lower industry supply following last year's hurricanes. We expect fourth quarter RevPAR in CLA will increase at a mid-single-digit rate, benefiting from the upcoming G20 Summit in Buenos Aires and favorable comps to last year's earthquakes in Mexico. In 2019, we expect RevPAR in the region will increase at a low-single-digit rate.
Our brands are strong and continue to be preferred by developers and lenders alike. As of the end of the quarter, our development pipeline totaled roughly 471,000 rooms, including more than 212,000 rooms under construction. According to SDR, we continue to have the largest pipeline of rooms under development in the world, including more high-value, luxury, and upper upscale rooms than our next three competitors combined.
Based on third quarter SDR industry pipeline data worldwide, 1 in 5 hotels under construction will open under one of our brands. In the U.S. alone, 1 in 3 hotels under construction will fly one of our flags, and in the valuable upscale and above tiers in the U.S., 50% of hotels under construction will be under a Marriott International brand.
With this pipeline in 2018, we expect our rooms will grow by nearly 7% gross. Deletions in 2018 should total nearly 2% of our existing portfolio. Our brand improvement efforts and owner workouts account for the unusually high level of deletions of legacy Starwood product in 2018. In total, we continue to expect net rooms growth to be roughly 5% in 2018.
For 2019, we expect gross room growth will be similar to this year, while room deletions should moderate to 1% to 1.5%. Net unit growth should total roughly 5.5%. We do not see an economic downturn on the horizon, but given recent stock market volatility, there is clearly uncertainty about the direction of the U.S. economy. Regardless of the economy's performance, given long construction cycles, our strong unit growth should continue for some time. In fact, looking back at the last downturn, our gross room additions totaled 6% in 2008, and 7% in 2009. Our unit growth bottomed at 3% in 2012, but was back to 5% just two years later.
We are committed to our asset-light business model by managing or franchising hotels rather than owning them. Our unit growth is faster; significant economies of scale benefit our owners and customers; our return on investment is higher; and we generate considerable excess cash flow to invest or return to our shareholders. For more about our business model and the third quarter, here's Leeny.
Leeny Oberg -- Chief Financial Officer
Thanks, Arne. Our third quarter financial performance was solid. Adjusted diluted earnings per share totaled $1.70, 62% over the prior-year quarter, and $0.41 over the midpoint of our guidance. Our gross fee revenue line yielded about $0.01 of the outperformance, largely due to strong branding fees. $0.04 came from better-than-expected performance on the owned and leased line, largely related to termination fees. $0.03 came from better-than-expected general and administrative expenses, reflecting continued synergies and favorable timing. $0.15 came from gains on the sale of assets, including the sale of a hotel and a joint venture. $0.14 came from favorable discrete items, and the tax impact of asset sales, with the balance of the outperformance from depreciation, amortization, and net interest expense.
Gross fee revenues totaled $932 million, a 13% increase year-over-year, largely from unit growth, RevPAR gain, and higher incentive fees and branding fees. Credit card branding fees alone totaled $101 million, including $6 million associated with the true-up of fees earned in prior periods. Credit card branding fees totaled $69 million in the year-ago quarter.
For our company-operated hotels, house profit margins increased 20 basis points worldwide on continued property synergy savings, despite accelerating wage increases. Incentive fees increased 9% in the third quarter, driven by strength in Asia-Pacific and Europe. Owned, leased, and other revenue net of expenses totaled $82 million in the third quarter, flat with the prior year. Property dispositions reduced owned lease results in the quarter by $23 million year-over-year. Termination fees totaled $23 million in the quarter, compared to $5 million in the prior year. For owned or leased hotels that were opened in the third quarter of both years, profits increased nearly 5% in the quarter.
General and administrative expenses totaled $221 million, 8% higher than the prior year. The 2018 quarter included the company-funded supplemental retirement savings plan contribution totaling $7 million, while in the year-ago quarter, we recognized a $6 million tax incentive benefit. Gains and other income totaled $18 million, including a $12 million favorable adjustment associated with the sale of two hotels in Fiji made earlier in the year, and a $4 million gain on the sale of our interest in a joint venture. We also reported a $55 million gain on the equity and earnings line as one of our joint ventures sold a JW Marriott hotel in Mexico City.
Third quarter adjusted EBITDA rose 12% to $900 million, despite a $19 million negative impact from sold assets. Looking ahead, given our worldwide RevPAR and unit growth assumptions, we expect gross fee revenue for the fourth quarter will total $900 to $910 million, a 4% to 6% increase over the prior year. Year-over-year, we don't expect foreign exchange to have a material impact on our fourth quarter gross fees.
Fourth quarter fee revenue is about $30 million lower than the midpoint of our prior guidance. Unfavorable foreign exchange accounts for about $10 million of that decline. A modestly lower RevPAR estimate accounts for about $15 million, with the timing of residential branding fees covering the balance. We expect owned, leased, and other revenue net of direct expenses will total roughly $90 million in the fourth quarter. Compared to last year, results should reflect stronger hotel results and higher termination fees, as well as a $13 million negative impact from sold hotels. Our guidance assumes no further asset sales beyond those that have been completed.
G&A should total $245 to $250 million in the fourth quarter, including roughly $6 million for our contribution to the company-funded, supplemental retirement savings plan and associate support program. The increase compared to our prior fourth quarter guidance is largely related to timing. We expect net interest expense will total $90 million in the fourth quarter. Compared to our prior forecast, this reflects higher fixed-rate borrowing, higher interest rates, and lower interest income.
These assumptions yield $1.37 to $1.41 adjusted diluted earnings per share and 7% to 9% growth in adjusted EBITDA for the fourth quarter. For the full-year 2018, we expect adjusted earnings per share will total $6.15 to $6.18, and adjusted EBITDA should increase 10% to 11%.
We are not prepared to provide guidance for 2019, as we have not yet finished our budget process, but as you consider your models for 2019, we want to note that our 2018 full-year forecast for owned, leased, and other revenue net of direct expenses includes roughly $70 million of termination fees largely associated with the rooms deleted in 2018. A more normal run rate for termination fees is $20 to $30 million annually.
Year-to-date, we've recycled nearly $630 million of capital through asset sales and loan repayments, and recycled more than $1.8 billion of capital since our acquisition of Starwood. Compared to our last view of 2018, cash flow has improved due to lower cash taxes, lower investment spending, and higher asset sales. We repurchased nearly 21 million shares from January 1 through yesterday for approximately $2.7 billion, already exceeding our guidance for the full-year 2018. As a result, we now expect to return roughly $3.7 billion to shareholders through share repurchases and dividends in 2018.
Our asset-light business model is attractive because of its low risk profile, with most of our cash flow coming from hotel base and franchise fees, typically earned as a percentage of the hotels' top lines. Of course, incentive fees are sensitive to demand trends. This is particularly true for management agreements that include a priority return to the owner, which in a significant downturn can drive a property's incentive fee down meaningfully. Marriott has limited exposure to this risk. Our incentive fees represent less than 20% of our total fees, and of those, nearly two-thirds come from international markets, which frequently have no owner priority, and therefore hold up better in a weak economy.
Over the last 10 years, Marriott fee revenue has become relatively less risky, as we have increased our proportion of both franchise and international business. You may recall that we spun off our timeshare business in 2011. In 2007, our timeshare segment alone accounted for roughly one-quarter of our operating income. Today, we only earn a largely fixed franchise fee from our timeshare business. Overall, while our business has been asset-light for many years, we have also meaningfully improved our risk profile with our growth strategy and expect to continue to do so. Now I'll turn it back over to Arne, who has a few more comments before we go to Q&A.
Arne M. Sorenson -- President and Chief Executive Officer
Thanks, Leeny. Before opening it up for questions, let me pause for one more moment to thank the Marriott associates around the world who have worked so extraordinarily effectively on our integration journey. We have had thousands of associates working around the clock to pull these two technology platforms together, and based on their work and the work that precedes it by every measure, we can now say we are one company, and we are very bullish about the long-term opportunities we can pursue. We are excited about our future and plan to talk to you, the investors, more about it at our analyst day in New York scheduled for Monday, March 18, at the New York Marquis. Please save the date.
Let's turn to your questions. So that we can speak to as many of you as possible, we ask you to limit yourself to one question and one follow-up. Christie, we'll take questions now.
Questions and Answers:
Operator
Thank you. As a reminder, to ask a question, press * then the number 1 on your telephone keypad. Your first question is from Robin Farley of UBS.
Robin Farley -- UBS Securities -- Analyst
Great. Thank you.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning, Robin.
Robin Farley -- UBS Securities -- Analyst
Good morning. I wanted to ask a little bit about the deal with Host Hotels that they talked about in their release last week, where you'll be sort of guaranteeing some profits during disruption of renovations. I wondered if you could talk a little bit about why you're doing that. It seems unusual. I don't recall you having done that before. Would that be a reduction in your fee revenue or somehow capital spend for you or just how would should think about that? Thanks.
Arne M. Sorenson -- President and Chief Executive Officer
Thanks, Robin. It's a great question. Let me start just by saying the relationship between Marriott and Host today is as strong as I've seen it in many, many years. The companies are working together extraordinarily well with high transparency between the two companies, and a strong sense of collaboration about what we can accomplish together. I think the deal that Host described in their call is just the most recent example of that, and an exciting one for us and for them, I think, both.
Obviously, it is focused on 17 very prominent hotels in our system, including the New York Marriott Marquis, the San Francisco Marquis, the Orlando World Center, just to name a few. I think what Host and we saw together was that by increasing the renovation capital that went into [inaudible] we could drive better returns for Host as an owner, and if the models are right, for Marriott International as manager of those hotels. Because it was a substantial amount of incremental capital that Host was preparing to commit into these hotels, and in light of numerous aspects of these deals, including our incentive fee formulas and base management fees, it was very much in our interest to participate fortunately in incenting that program.
We have roughly $80 million of key money which will be provided over four years, which is a partial incentive to Host to get that done. There will be adjustments in the incentive fee formulas, which is quite typical in many respects when new capital -- in other words, capital over and above if any reserve gets put into hotels, typically an owner will get incremental owner's priority for that. At the same time, we believe that if the hotels perform the way we anticipate them to perform, we will see an incentive fee formula that maybe gives them a higher priority, but also produces more dollars for us as well as more return for them. So we're really excited about it and just can't to see the way these hotels will be transformed.
Robin Farley -- UBS Securities -- Analyst
That's great. Thank you. Maybe just as my follow-up, just looking at your RevPAR guidance for 2019, it looks like the first time in many years that your range has only been 100 basis points, and typically over the years you've given a 200-basis-point range. I'm just wondering if anything sort of maybe increased on certainty about next year, why the tighter range or what was the thought there? Thanks.
Arne M. Sorenson -- President and Chief Executive Officer
Maybe we just want to drove that old dogs can learn new tricks. We obviously go through this carefully. Probably we should start by restating the obvious here, which is we have not done the full budgeting process, so we're not completed. We have looked carefully at the preliminary things that we've got coming in, and using the tools that we have. What we see is something that we think looks a fair bit like 2018. As we did the math, we thought 2 to 3 was a more relevant 1-point range to give you, than to give you a 2-point range that could be either below or above that. But neither of those seem to be as accurate as we wanted to be at this point in time. And so 2 to 3 is what was came up with, obviously with a broader range in the U.S. guidance.
Robin Farley -- UBS Securities -- Analyst
Okay, great. Thank you very much.
Operator
Thank you. Your next question is from David Katz of Jefferies.
David Katz -- Jefferies -- Analyst
Hi, good morning, everyone.
Arne M. Sorenson -- President and Chief Executive Officer
Hi, David.
David Katz -- Jefferies -- Analyst
If I can go back in the prepared remarks, Arne, I think you mentioned some uncertainty around the economy, but that your unit growth should continue. Can we just pick that a little bit deeper from the perspective that if the economy were, and I'm not asserting that it will, but if it were to turn in a less positive direction, wouldn't the implication be harder that getting projects open and on the board, etc. would become more challenging as well? Why are you comfortable with that?
Arne M. Sorenson -- President and Chief Executive Officer
Well, I think the biggest reason -- it's a good question, David. But I think the biggest reason for that is that the near-term openings, and I would think about those as being not just 2019 actually, but probably 2019 and 2020, are well under way. Overwhelmingly, they are under construction today, and while it is not necessarily the case that they proceed without a bump, no matter what the economic environment, what we've seen in prior economic cycles is projects like that proceed toward completion and opening. The intake of new deals into the development pipeline will for certain be impacted by a materially weaker economic environment, but probably will not impact openings until we get a few years out.
David Katz -- Jefferies -- Analyst
All right. Got it. And if I can just ask on the heels of the impressive integration that you've gone through and talked about, and I apologize if you've commented on this, but with respect to SPG members in particular, there's been a focus on retaining and enhancing that relationship. What measurements or what are you looking at to feel comfortable that those people, those members are still on board, and is there any sort of data to support that?
Arne M. Sorenson -- President and Chief Executive Officer
Good questions. Obviously, this is something that we will continue to be watching like a hawk. Ultimately, we will have access to quite granular data, which allows us to look at the spending pattern of SPG members, and look at whether we see any signs that those spending patterns have increased or decreased in the wake of the merger of the loyalty programs. As a reminder, it was August 18, so we are a couple of months into it now, but it's still quite recent.
We know and we put this in the prepared remarks, we know already that we are seeing a substantial increase in digital procurements [inaudible] -- somebody's not go us on mute, I think. Sorry about that. I don't know where the laughing is coming from. We are seeing a substantial increase in digital volume. We are seeing more and more eyeballs look at hotels in the combined set. And so our preliminary data gives us considerable comfort that what is logically obvious will turn out to be reality. And what is logically obvious is that by offering our customers more choice with more places both to earn and redeem points, and more of our customers going to one single site to see all of our portfolio, that we will increase share of wallet from the customers, as well as through the loyalty programs. But stay tuned for that. We'll have data over the next number of quarters. It'll be [inaudible] the most important thing we're looking at.
David Katz -- Jefferies -- Analyst
Thanks for taking my questions. Sorry about the background noise. It was on my side. No one's laughing at you.
Arne M. Sorenson -- President and Chief Executive Officer
Okay, thanks, David.
Operator
Thank you. Your next question is from David Beckel of Bernstein.
Chengxuan Li -- Sanford C. Bernstein & Co. -- Analyst
Hello, this is Apple on behalf of Dave. Thank you for taking my question.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Chengxuan Li -- Sanford C. Bernstein & Co. -- Analyst
Good morning. Could you please give us an update on your home-sharing trial, and do you think that will become an official project and what [inaudible] is proving out? Thank you.
Arne M. Sorenson -- President and Chief Executive Officer
We've been very pleased with the pilot so far. We started in London, I would say 4 or 5 months ago, although I may be a bit imprecise on the precise start date. The plan in London was to work with a partner who essentially curates the units that would be available on our site. Those units would obviously have a linkage to our loyalty program, and we looked for units which were (a) big enough to be distinct from a traditional hotel room, and (b) of a kind of quality that we felt good about having our loyalty program and brands associated with.
The first wave of that pilot was really about assessing what happened in London. We saw really good results. For example, I think 85% of the folks that booked were our loyalty members. It looked like mostly leisure and business, which was not surprising to us. And it looked like it was accretive to our total business in the market. With, by the way, good synergy with hotel bookings too. So we saw people that would look at our home-sharing units and ultimately many would book with those, but many would come and book with hotel rooms too, because they were looking at essentially both portfolios.
In any event, it went well enough that we have now expanded that to Phase 2, which includes Paris, Lisbon, and Rome. So we're in 4 markets in Europe, and we are very encouraged by what we've seen so far. So stay tuned, we'll see where it goes.
Chengxuan Li -- Sanford C. Bernstein & Co. -- Analyst
Thank you.
Operator
Your next question is from Jared Shojaian of Wolfe Research.
Jared Shojaian -- Wolfe Research -- Analyst
Good morning, everyone. Thanks for taking my questions.
Leeny Oberg -- Chief Financial Officer
Hi, Jared.
Jared Shojaian -- Wolfe Research -- Analyst
Your net room guidance implies that the exits may have stabilized. Are you guys feeling more confident that the uptake in your guidance from last quarter, which I think was largely involuntary exits, but are you feeling more confident that was more of a one-off? What gives you that confidence going into 2019?
Arne M. Sorenson -- President and Chief Executive Officer
I'll let Leeny talk about 2019, but let me just make a comment about 2018 and what we saw in terms of deletions. Obviously, there was a lot of Q&A about this a quarter ago. I think we brought up the numbers by roughly half a point in terms of number of units that would leave our system in 2018, compared to what we had talked about the quarter before. Not entirely involuntary. I'll quibble with you a little bit on that. It's not as if every hotel leaving our system is something that we want to leave, but many are. And actually when you look at Q3 numbers, we deleted about 6,000 rooms in Q3, just a bit over that.
There was a big portfolio of generation 2 Fairfield Inns, maybe about 1,300 rooms that we worked with our franchisee and hotel owner to have exit the system. That was the right answer, because those hotels did not justify the kind of capital they needed to remain competitive, and we think from a product quality perspective and an ability to replace probably in a number of those markets, that was a no-brainer for us.
There was a story in Dubai, which I think is familiar to everybody, about an owner who really wanted to operate it under a franchise contract and we decided to part ways with them. We don't really have much more to say to that, but that was another 1,700 or 1,800 rooms. Then there was another 1,700 or 1,800 rooms which were in Las Vegas. That was a negotiation with the owner of those projects, but there is a significant quality aspect of those conversations. I think we are quite satisfied with the way all of those discussions came out.
The challenge, of course, when you have a few big ones like that, whether they be a portfolio of Fairfields or a couple of individual projects, is that can have an impact on what happens in a quarter. I think we would have loved to have been able to say, I think you probably would have loved to hear from us that it was only about repositioning Sheraton, for example, which we are doing and making great progress on that. That would be a bit of an oversimplification. It is a mix of things, but they do include in the fullness of the year, some about repositioning the Sheraton brand, significantly about product quality, and to some extent, about discussions with owners that have been left unresolved for too long and we're now getting around to getting those resolved. But as we've looked early in 2019, and Leeny can talk about this, we're optimistic that we're going to sort of return a bit more toward normal levels.
Leeny Oberg -- Chief Financial Officer
Just to follow on Arne's comments, we continue to do a scrub as we do all the time, about hotels that are either coming to the end of their contract or discussions that we're having on ongoing product improvement, etc. As we look through in each and every continent, both legacy Marriott portfolio, as well as legacy Starwood, we do feel good about the 1.% to 1.5% that we've described today. If you remember what we talked about a quarter ago, we talked about the more normal rate for the legacy Marriott portfolio of 1% to 1.5% in 2018 for deletions, while a number that would be well over 2% for the legacy Starwood portfolio.
As we again described for a host of reasons, to some extent, some issues that may have been hanging around since before the merger, while as we've worked through them and now look forward, we see the number for the legacy Marriott portfolio in '19 continuing to be the stereotypical 1% to 1.5%, and the legacy Starwood moving down much closer to a more normal level, as we look at the termination. So overall, looking at 1% to 1.5%.
Jared Shojaian -- Wolfe Research -- Analyst
Great. Thank you. That's helpful. I just want to go back to the comments about a weaker transient environment in September. Do you think you just underestimate the calendar and the holiday impacts, or do you think there was more to it than that? And I guess even though October, it seems like that was better, but it seems like you may be taking a more conservative approach to November and December, if I'm hearing you right. So to what extent is that cautiousness toward the latter months of this year also extrapolated into your 2% to 3% RevPAR guidance for next year? Thank you.
Arne M. Sorenson -- President and Chief Executive Officer
That's exactly the right question, I think. The surprise, the disappointment to us in Q3 was purely about U.S. RevPAR performance in September. It had an impact, obviously, in the Q3 RevPAR number, and it does impact in a way I'll describe a little bit more fully in a second our expectations for Q4. By and large, it is not impacting our early guidance or early ranges for 2019. When you look at September RevPAR, let's start with Smith Travel. Interestingly, you see luxury performing reasonably well at 1.8%. These are Smith Travel numbers for the month. Not surprising because luxury often has got a bit more skew toward resort hotels than other segments of the market. And when you end up with some holiday performance, for example, you end up with relatively better performance in the leisure space.
Upper upscale was only 0.3%, so barely better than flat. And all other segments -- again, these are Smith Travel numbers -- were down 1%. Those are the RevPAR numbers. Our systemwide number in September was down 1%, roughly. So it was a disappointment month. Now, to let it all hang out there, our performance was better than 2 points worse than what we thought internally heading into September. That's what gave us cause, and, of course, when you see that, you say OK, let's figure out everything that can happen.
The most obvious explanations, and we think are still probably the most relevant explanations are the tough comparisons in the hurricane markets in Houston and Florida, and the midweek Jewish holidays that occur in September. So we had both the holidays shifting into September, but because they were midweek, they probably had a more significant impact on business transient travel.
But when you miss by over 2 points, that's a little bit sobering, and so we've done everything we can to tease and test and sweat that data to see if we can figure out what happened. There is a bit of September's numbers which were cautionary to us. It was a little bit slower transient pickup than we had seen in prior months. So we went into October with, again, some concern. Not overwhelming because of the hurricane and holiday pieces of this, but some concern.
The best news here is that October was by and large reassuring. We don't have that data in enough depth yet to be able to tease it and test it in the way that we've done for supply, but the headline RevPAR number we think we will be back toward the prior trend line. There still is though enough concern, I suppose for us that as we head into November and December, which are weaker months of the year, less group business, more dependent on transient. Obviously, you get into the quieter part of the year. We want to be thoughtful about that very short transient pickup, and our assumptions are to be sure more conservative for Q4 than they would've been had we not had the experience we had in September, probably by about a point of RevPAR in Q4.
Again, it does not impact our expectations for 2019; in part because we return to stronger, more normal traveling months; in part because when we look into Q1, we see fairly good group bookings on the books, and all of this tells us that we should expect sort of a steady-as-she-goes for the whole-year kind of numbers from 2018 as we head into 2019. So that's a long-winded answer, but I think it's an important question and it's one I would say the sky is not falling, notwithstanding the weak September.
We do think September was more an industry story than it was a Marriott story. In fact, when we look at our RevPAR index for the month of September, we held our own, which was very gratifying. And so stay tuned; let's watch it. We're a bit more cautious simply because September happened, but we're not particularly fearful.
Jared Shojaian -- Wolfe Research -- Analyst
That's very helpful. Thank you.
Operator
Thank you. Your next question is from Harry Curtis of Nomura Instinet.
Harry Curtis -- Nomura Instinet -- Analyst
Hi. I just wanted to follow up on that line of questioning.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Harry Curtis -- Nomura Instinet -- Analyst
Good morning. Year-over-year in November, December, do you find that you're up against some tough comps? I'm wondering if that might be part of the reason for conservativism?
Arne M. Sorenson -- President and Chief Executive Officer
Well, we have tough comps, of course, because the hurricanes in Houston and Florida. Our expectation is that the hurricane comps hurt us by about a point year-over-year. And so while none of us loves putting a 1%-ish number on the table as a guidance for a quarter, which is our expectation for U.S. systemwide, that number based on hurricane comps alone would be about 2 points if it weren't for that. That's not far off of the kind of run rate we have seen. Again, it does include a more conservative assumption about short-term transient pickup than we've had in place for the first 3 quarters of the year, and whether that turns out to be more conservative than needed or not, we'll have to see as the quarter comes to a close.
Harry Curtis -- Nomura Instinet -- Analyst
Okay. Very good. Then similarly, in your sales department conversations with your corporate customers, is there anything that they're seeing with respect to the fourth quarter and next year that would indicate that demand is at risk of softening?
Arne M. Sorenson -- President and Chief Executive Officer
No.
Harry Curtis -- Nomura Instinet -- Analyst
Okay. That's good to hear.
Arne M. Sorenson -- President and Chief Executive Officer
Is that [inaudible] enough?
Harry Curtis -- Nomura Instinet -- Analyst
I think no is a good answer. Just a similar line of thought, my last question is, if corporate profits are still expected to grow roughly 10% in 2019 and your occupancy levels are pretty close if not at or above historic highs, why not get your property managers to push the rate a bit more? I'll stop there.
Arne M. Sorenson -- President and Chief Executive Officer
I'm entirely with you on that too, Harry. I think the relative lack in rate, given where we are in occupancy is obviously something we have talked about in prior quarters. We are trading at essentially historic peaks in occupancy. We would have expected, and probably still do expect, more rate growth than occupancy growth going forward, and are optimistic that we will see some occupancy growth, particularly if we see the economy continue to perform strongly.
Having said that, it is not just a question of the instructions we give to the hotels that we manage, but it is a question about the decisions that are made by thousands of franchised hotels in our system who are setting their own pricing. And obviously we compete in a highly competitive industry. And so we would love to ignore the way hotels are priced by both independents and some of our competitors, but you can't really do that. And so we are doing the best we can to drive rates. I think we're making some progress in that, but we hope to see more progress in the months ahead.
Harry Curtis -- Nomura Instinet -- Analyst
Okay. Good luck with it. Thank you.
Arne M. Sorenson -- President and Chief Executive Officer
Thank you.
Operator
Thank you. Your next question is from Joe Greff of J.P. Morgan.
Joseph Greff -- J.P. Morgan Securities -- Analyst
Good morning, guys.
Arne M. Sorenson -- President and Chief Executive Officer
Hey, Joe.
Leeny Oberg -- Chief Financial Officer
Good morning, Joe.
Joseph Greff -- J.P. Morgan Securities -- Analyst
Arne, am I wrong in interpreting your North American 3Q results as indicated that maybe you lost a little bit of RevPAR index? I know you're reporting same-store North America, and we tend to look at U.S. SGR data, which isn't same-store. Maybe when answering the question, if you could discuss the difference between limited service and the North American full-service results.
Arne M. Sorenson -- President and Chief Executive Officer
Yeah, I mean, obviously, you can see that in our press release. You've got our luxury systemwide numbers at about 3% RevPAR, upper upscale at about 1.5%, a little bit less, and then the limited service at -0.5%. That is obviously in a way looking at the relative strength of the segments. I think part of that is also a function of the kind of customers that essentially are most predominant in those hotels. So the limited service hotels are often, particularly during the week, dependent on the individual business traveler. The upper upscale hotels are going to be dependent on that traveler, but also on group. And the luxury hotels, as I mentioned before, are going to have a bit of a skew toward resort and therefore are going to be a little bit more leisure dependent.
In a sense, you can look at that stack and see the relative strength during the quarter. That is that leisure probably strongest group next, and the individual business transient traveler next. That plays through reasonably well. Now vis-à-vis Smith Travel, don't forget we've got different geographic areas of concentration compared to the industry. Because of our 91-year history in Washington, we are very strong in Washington. If you look at the Smith Travel RevPAR numbers by city, you'll see that Washington was the weakest big number out there, for a mix of reasons. Obviously today is mid-term election day. In the months before a mid-term election, you've got a lot of politicians who are out on the hustings, and there's not that much happening in Washington that drives business.
We also had during Q3 a hurricane warning that includes Washington, D.C., and an emergency I think was called here, even though the hurricane never showed up, but it was called with enough advance warning that it had an impact on business. And in Houston, we got strong select service distribution, and that's a tough year-over-year comparison. It's a long-winded way of getting to your question, which is did we lose share in the quarter. Our share in the quarter, actually, I mentioned September. September we held our own. And in the quarter we held our own. So this is not fundamentally about Marriott lagging the market. This is fundamentally about how the market performed by geographically and by segment in both September and in the quarter.
Joseph Greff -- J.P. Morgan Securities -- Analyst
Got it. Thank you for the answer. I don't know if you gave any specifics about October in the U.S. other than you're saying it was better than September. But when we look at your 4Q 1% U.S. RevPAR growth guidance, does that assume then the next two months of quarter are basically flat?
Arne M. Sorenson -- President and Chief Executive Officer
I will say this. October will be the strongest month of the quarter, based on our present expectations. It's a normal travel time. It's a more normal group business time. And to some extent, we knew it would rebound from September because some of the things that happened in September were to the benefit of October. So October we think will be stronger than November and December. Obviously, we don't have, again, really final numbers yet for October. We have some preliminary views, but we don't have final enough numbers to hang them out for you this morning.
Joseph Greff -- J.P. Morgan Securities -- Analyst
Great. Thank you very much.
Operator
Thank you. Your next question is from Anthony Powell of Barclays.
Anthony Powell -- Barclays Capital -- Analyst
Hi, good morning, everyone.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Anthony Powell -- Barclays Capital -- Analyst
Good morning. Slower trade in demands around holidays seem to be a consistent trend this year. Is there anything Marriott can do from a revenue management or a marketing standpoint to help generate some better demand during these holiday periods?
Arne M. Sorenson -- President and Chief Executive Officer
What we've talked about internally is whether or not we could lobby the government to force that all holidays happen on weekends. Obviously, we can't do that. But we have had kind of a funny year, which is July 4th on a Wednesday, if I remember right, and the Jewish holidays midweek. It's no surprise that when it's right in the middle of the week, you end up with a temptation, particularly around July 4th time, to maybe take weekends on both sides, but maybe not to do any business travel during that entire week. I think with the Jewish holidays, it's probably the impact on business travel, not so much people taking 10-day vacations.
We are doing what we can do around leisure promotion, where there are real leisure opportunities. But in some markets, I won't pick on any particular city, but it won't surprise you that in some suburban markets, you're not going to find a lot of leisure to replace the business travel that has disappeared. You're going to do the best you can obviously, but you're going to end up with lower occupancy, and that has some impact on rate too.
Anthony Powell -- Barclays Capital -- Analyst
Got it. Thanks. And on buybacks and leverage, does the increase in interest rates and some [inaudible] RevPAR growth change your approach to buyback as you look forward to the next year, or is it steady-as-you-go?
Leeny Oberg -- Chief Financial Officer
Steady-as-she-goes. Just remember one thing, and that is that you've got to take into consideration asset recycling. As you know, this year we've had over $600 million of assets recycled. You can net that against the purchase of the Sheraton Grand Phoenix, but there is, call it a net roughly $400 million that we would going into the year for '19 we would not put in any forecast for the numbers. But otherwise, I would definitely say steady-as-she-goes.
We talked on our last call about how in our conversations with the rating agencies as we look at the combined business models, both as we've moved away from owning the timeshare business, as well as with the combination with Starwood, that we've got a stronger, more sustainable, more cash-rich operating model, and with the discussions with the rating agencies, talked about broadening our leverage target range. So instead of 3% to 3.25%, it's not 3% to 3.5%.
So I would expect from that standpoint relative to maybe a year ago that we may dance a little bit higher within that range, but it'll all still be comfortably within the range that we discussed. And again, with the same sort of process that it is before, which is to first make sure that we invest in the growth of our business and do that with great value-added projects, but then with the remainder return it to shareholders through a combination of dividends and share repurchase.
Anthony Powell -- Barclays Capital -- Analyst
Great. Thank you.
Operator
Thank you. Your next question is from Patrick Scholes of SunTrust.
Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst
Hi. Good morning.
Arne M. Sorenson -- President and Chief Executive Officer
Hi, Patrick.
Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst
Good morning. Are you seeing any changes to Chinese demand and also your pipeline in China from trade wars?
Arne M. Sorenson -- President and Chief Executive Officer
Not yet is the answer. Obviously, it's a question we have been talking about and watching carefully with our Asia team over the last number of months. Obviously, the GDP numbers that China has posted are modestly lower than what we saw in prior quarters. You would expect, other things being equal, to see that have some impact on hotel demand. But the numbers for Q3 were really very strong in China. Obviously, we had some impact from the hurricane that really bore down on Hong Kong most centrally. But what we're seeing is good, steady performance, both in terms of intake on new deals on the development pipeline openings, as well as performance of existing hotels. We'll obviously watch this into next year.
We talked about mid-single-digit RevPAR expectations for next year. We don't want to get too granular yet because the budgets haven't been done, but I think our expectation is a point or so lower maybe in RevPAR, a point and a half lower than we're likely to experience in 2018. But still in absolute terms, good year-over-year growth, and strong optimism in China.
Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst
Okay. Thank you very much.
Operator
Thank you. Your next question is from Stephen Grambling of Goldman Sachs.
Stephen Grambling -- Goldman Sachs -- Analyst
Thanks for taking the question. Maybe a follow-up to one of Anthony's questions earlier.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Stephen Grambling -- Goldman Sachs -- Analyst
Good morning. I guess what would be the run rate free cash flow generation this year, excluding some of the one-time puts and takes? Are there any other one-time items to think about for next year that may dictate how much free cash flow you will generate relative to EBITDA?
Leeny Oberg -- Chief Financial Officer
Yeah, well the one I mentioned before, Stephen, is kind of the most obvious one, which is the asset recycling less what we did on the Phoenix Sheraton. I think that's really the main one. The other one that we'll continue to keep in mind is that, as you know, we have committed to spend some of the Avendra dollars that we had in the gain on sale, which we've taken the benefit of from our cash position, and obviously as we look forward, we would continue to expect to invest some of that in our hotel system. I think we gave guidance this year that expected something like maybe $100 million of Avendra investing this year, which is essentially a use of cash within the cash flow. I would expect something somewhat similar to that in that ballpark next year. But otherwise, cash taxes, I would expect that this year we had a meaningfully cash tax bill because of the Avendra gain.
So the cash that was received at the end of '17, and we had higher cash uses for that because of that. That will obviously be done in '19, so you will not have that carry forward in '19. Again, a decent run rate to use for taxes apart from any other oddballs will be the roughly 22% that we've talked about before. We're in the process of doing our budget, so from the standpoint of investment spending, we don't have a range yet for you. But obviously, when we get to the beginning of the year, we will.
Stephen Grambling -- Goldman Sachs -- Analyst
Thanks for the color. And then I guess one unrelated follow-up. You mentioned I think in the remarks a decline in OTA bookings and the strength of direct bookings in North America. But I believe you mentioned that overall you were still flat. Can you just elaborate on what you're seeing in the international markets that may make the effectiveness of some of your direct booking efforts more or less effective? Thanks.
Arne M. Sorenson -- President and Chief Executive Officer
It's a big world out there, obviously. The OTAs from an American lens, we think, really of Expedia and booking. You look around the world and you see additional OTAs that have sometimes business models that are quite similar to those two and sometimes they're different, but regional focus and regional strength, which is different. I don't know that I've got any deep insights on your question.
There are parts of the world which are more leisure dependent. This is where OTAs are probably the strongest, for obvious reasons. So look at a market like Thailand, for example, or Indonesia with Bali. These are markets in which OTAs, whether they be Asian-based or global OTAs are going to tend to deliver business which is more incremental because it is more leisure than elsewhere. I think to some extent there is probably also a difference in the familiarity of our brand names and distribution.
Obviously, we've been in the hotel business in the United States the longest, with the deepest distribution, with really high penetration of our loyalty programs. All of those give us tools to use here in terms of yielding away from these platforms, expensive platforms on high occupancy, midweek nights, which are probably a bit more powerful than they would be in the rest of the world where our presence has been relatively shorter, and our market share is probably a little bit lower. Those would be the things that come to mind, but I don't think they're dramatically different from place to place.
Stephen Grambling -- Goldman Sachs -- Analyst
Thanks. Best of luck into year end.
Arne M. Sorenson -- President and Chief Executive Officer
Thank you very much.
Operator
Thank you. Your next question is from Shaun Kelly of Bank of America.
Shaun Kelly -- Bank of America Merrill Lynch -- Analyst
Good morning.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Shaun Kelly -- Bank of America Merrill Lynch -- Analyst
Arne, following up on the OTA comment from a moment ago, I think in the prepared remarks you also called out on the distribution cost front you saw maybe some changes in mix that could've actually impacted RevPAR growth. Could you elaborate on those comments a little bit? I think you said a few tenths on RevPAR. Was that for the quarter, for the year? Again, maybe elaborate a little bit on what exactly the initiative is and what may be having that impact?
Arne M. Sorenson -- President and Chief Executive Officer
Yeah, we called out two initiatives in the prepared remarks. One is our commission reduction for group intermediaries, which is essentially a United States issue. The second was our use of a new revenue management platform that really allows us to factor in cost of business as we're making decisions about what business to take. That piece has really caused us to meaningfully reduce the midweek contribution that we're taking from OTAs, because we are using our revenue management system basically to say we can fill our hotel with business which is less expensive to us.
It is in the latter context that we said, yeah, it could be a couple tenths maybe of RevPAR impact from yielding that business. We think even though we might be giving up a little bit in the top line, we're if anything growing the bottom line because we are replacing some of the business we would've taken with lower cost business. And obviously, if you do that enough, you can afford to give up certainly a modest amount of net business that might've come to us if we hadn't used that revenue management tool.
And so that's maybe a couple tenths in the quarter is what we meant to communicate. I'm not sure if we were clear in the timeframe in that paragraph of the remarks. Still clearly to us, it's the right call. Again, we're not offering that as an explanation for our macro numbers in the quarter. In the quarter, we held our own in RevPAR index, notwithstanding the merger of these loyalty programs and the noise around it, notwithstanding what we've done with group intermediaries, notwithstanding the yielding we're doing with the OTAs. We're actually very gratified that we continue to post good index numbers, even with lots of change that we are very deliberately pursuing across the company.
Shaun Kelly -- Bank of America Merrill Lynch -- Analyst
Great. Thanks for that. As my follow-up, maybe just to touch on the gross unit growth side as you look out to 2019 and beyond. This is not to take anything away from all of the initiatives that you've got and how much work everybody's done on the integration, but I'm curious. In the past, you actually have done some smaller, tuck-in brand M&A here. Is that something that's still on the radar screen for you? How do you think about that as you think about gross unit growth and capital allocation?
Arne M. Sorenson -- President and Chief Executive Officer
No, we will continue to look at whatever is available on the M&A side. Obviously, it's hard to predict whether anything would happen, and we do have our hands full in many respects, but we believe that it's an industry we love, and we believe we're just getting started.
Shaun Kelly -- Bank of America Merrill Lynch -- Analyst
Thank you very much.
Operator
Thank you. Your next question is from Chad Beynon of Macquarie.
Chad Beynon -- Macquarie Capital -- Analyst
Thanks for taking my question. Good morning.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Leeny Oberg -- Chief Financial Officer
Good morning.
Chad Beynon -- Macquarie Capital -- Analyst
One of the main motives of your acquisition of Starwood was I believe around their lifestyle brands, which from a room standpoint came with I think Westin the biggest one, and then W and some smaller ones. Now it seems like lifestyle demand has moved more toward wellness or wellness features. Do you think you have the right properties for these guests? Particularly your Platinum members with respect to wellness and the new lifestyle image? Thanks.
Arne M. Sorenson -- President and Chief Executive Officer
It's a good question. I think it's a really interesting place. Obviously, lifestyle and luxury and resort all of, we would say, are important growth areas for us and important features for us to have in our loyalty portfolio. So I don't think we want to say it's only about lifestyle, but we do think that one of the things that motivates regular business travelers who are the folks for whom the loyalty program is most relevant is where can I go when I take my free vacation if I've earned enough points to get a free vacation?
They are interested in resorts. They're interested in luxury. They're interested in lifestyle. They're interested in breadth of distribution. All of those sorts of things. By acquiring Starwood, we think we meaningfully increased our attractiveness in all of those places. So I think that reason for pursuing the deal is very much alive and is working very strong. Lifestyle means different things to different people.
You've just suggested one thing, which is maybe a wellness piece of it. I actually think the Westin brand itself, I'd probably include Element not far behind, but those two are, in our view, the most meaningful, broadly distributed brands that have got a lifestyle focus. So I think we are quite strong in that space. But I think there are other aspects of lifestyle too which have to do with maybe you'd look at W and say the liveliness of a bar and club and restaurant scene is something that is very strong in that brand, and I think is still very attractive to many lifestyle travelers.
So while I think the portfolio is great, I think we believe we're in many respects leading in the lifestyle and luxury and resort space and believe that's one of the strengths of our loyalty program. We're certainly not satisfied and will continue to seek more distribution in those spaces.
Chad Beynon -- Macquarie Capital -- Analyst
Okay. Thanks. And then unrelated, I don't think there were many companies that announced retirement savings match plans like you guys did at the beginning of the year. I'm wondering if you're seeing I guess lower attrition because of the program. Anything that could be quantified going forward in terms of either fewer training fees or better Net Promoter Scores. I know it's early, but just anything that you're seeing as a result of that initiative?
Arne M. Sorenson -- President and Chief Executive Officer
I love you asking that question. Thank you for that. We do a couple of things regularly. Every year, we are surveying our associates around the world to try and understand how they feel about their work and our associate satisfaction is at an all-time high, up from last year. We're asking a lot of our people because there's a lot of extra work to pull these two companies together. But I think our people around the world are very motivated to be part of the team. I think they're proud to be working for Marriott, and I think they feel good about their careers and that comes through in that survey loud and clear.
The second thing we look at, and it gets more focused on the supplemental $1,000 401(k) match that we did in the United States, is we look at the participation among our associates in our retirement plans, and that number is about 80% of all eligible associates, which is an extraordinarily high number, and tells you that there's always been good participation. It has gone up. I think it's gone up in substantial part because of what we did with the supplemental 401(k) match. And so notwithstanding the strike noise we've got in a few markets, we think actually the overwhelming bit of data that we've got about our relationship with our people around the world is very encouraging.
Chad Beynon -- Macquarie Capital -- Analyst
Okay. Thank you very much.
Operator
Thank you. Your next question is from Michael Bellisario with Baird.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
Thanks. Good morning.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Leeny Oberg -- Chief Financial Officer\
Good morning.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
Just one more on the merger integration front. I want to focus not on the consumer side, but more what are you hearing and seeing from the corporate accounts, and then the group travel planners with respect to their views of the merger? Maybe any concerns they're having about it and how that may be impacting their booking decisions?
Arne M. Sorenson -- President and Chief Executive Officer
It's a big community out there, and so it's hardly monolithic in its voice, but we have regular dialogue with our big corporate customers as it relates to both group and their transient travelers. We have regular sessions with group planners. Sometimes those are folks in intermediary platforms, and often those are folks internally at corporate or association customers. I think overwhelmingly the response has been not just positive, but enthusiastically positive. They appreciate the breadth of choice. They appreciate the execution that we're bringing to the portfolio of both group boxes, of which we are far and away the biggest in the industry. I think we're hearing from our association and corporate group customers that they love the breadth of choice that we offer within our portfolio.
Similarly, I think we hear from the business transient travelers that they like very much the breadth of choice that we're offering. So when we see our share of the total travel book of some of our biggest corporate clients, we see that share generally growing and the relationship is generally very robust.
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
That's helpful. Thank you.
Operator
Thank you. Your next question is from Kevin Kopelman of Cowen and Company.
Arne M. Sorenson -- President and Chief Executive Officer
Good morning.
Kevin Kopelman -- Cowen and Company -- Analyst
Good morning. Thanks a lot. So you mentioned you're seeing, just a question on loyalty, you mentioned you're seeing uptick on direct online booking since the unification. Can you give us any sense of where you are on direct online as a percentage of total post-unification, and how you see that trending over the next year? Thanks.
Arne M. Sorenson -- President and Chief Executive Officer
Yeah, we will continue to see direct digital grow in the next year for certain. I should be careful about saying the words "for certain" ever, but we have a number of things happening that include a continued organic shift toward all things digital. That's a tailwind which should continue to help us. I think our direct digital -- don't hold me to the precise number, but it's nearing 30% of our total business, which is coming in through our direct digital channels, which is good, healthy, year-over-year growth.
Kevin Kopelman -- Cowen and Company -- Analyst
Okay. Thanks. Just a follow-up on that and to follow up on your previous comments on OTAs in the mix, can you talk about how you see OTAs trending in the fourth quarter, given it's a more transient-heavy quarter, and any update you can give us our your new contract negotiations with the large U.S. OTA? Thanks a lot.
Arne M. Sorenson -- President and Chief Executive Officer
Yeah, I can't give you any particular insight into the fourth quarter. Maybe I should know that, but you've stumped me on this. We'll have to wait to see how the fourth quarter comes in. Maybe you can work on Laura Paugh and see whether she has any of this later. We are in negotiations with Expedia. Our contract with Expedia expires, I think, November 18th. Other than to say those two things, there's nothing we can report.
Kevin Kopelman -- Cowen and Company -- Analyst
Okay. Thanks so much, Arne.
Leeny Oberg -- Chief Financial Officer
Your comment on the overall share of OTAs, I think generally you've seen that their share of overall room nights on the OTAs has gone up about a percent a year over the last several years. I think the interesting comment that Arne talked about is that in Q3, that share remained flat year-over-year worldwide. So obviously the work that we're doing in revenue management, we're hopeful that this is helping to encourage all the work we're doing on loyalty, etc. is encouraging our consumers to book direct.
Kevin Kopelman -- Cowen and Company -- Analyst
Thanks so much.
Operator
Thank you. Your next question is from Vince Ciepiel of Cleveland Research.
Vincent Ciepiel -- Cleveland Research Company -- Analyst
I had a big picture question on North America. It seems like 2% had kind of been the number for a few years now, and your best guess the midpoint of next year's range is also 2%. So just curious, there's been narratives of acceleration and deceleration along the way. What do you think you've actually seen in terms of the core trends in the last few years? And then what would it take to get to the upper end of your 1% to 3% North America next year? What are the pieces that would have to fall into place to actually see domestic accelerate?
Arne M. Sorenson -- President and Chief Executive Officer
That's a good question. That's why we continue to use this phrase, "steady-as-she-goes." When you look at all of '17, and we've now got three quarters of 2018 in the books, and one quarter in which we've talked about in terms of guidance, there's been pretty little variation over those eight quarters. I think to be fair, if we look at each of those quarters and adjust out holidays and hurricane comps and all those sorts of things, we were in the high 1s, 1.6%-1.8% in the first three quarters of last year. I think we crested over 2% in the fourth quarter of last year and the first couple of quarters of this year. It looks like implicit now in a true apples-to-apples comparison, it's probably just a hair under 2% in Q3 and what's implicit in Q4.
So over eight quarters maybe you see a variation of three-tenths or four-tenths. But really, that's not very much over an eight-quarter period of time. You're right. Our 2019 view at the moment is for more of the same. A midpoint number that feels pretty much like what we've seen over the last eight quarters. What will get it better, obviously the better GDP does, the better we'll be. That is still the right single correlating measure to look at.
I also think we'll see a little bit less supply growth next year. That could be helpful. We could see even within the supply growth some shifting in what markets it shows up in. I suspect we'll see supply growth weaken a bit more in New York, than we do in some other markets. And so that could be helpful for New York numbers and maybe to some extent New York is an important market for the industry and for Marriott, so that could be a little bit helpful. I think when we look at the Marriott story as opposed to the industry story, we are really optimistic about the single loyalty program and the way that can drive us, and the fully stabilized one company that we'll be managing as we get into 2019. So those things should be helpful to us as well.
Leeny Oberg -- Chief Financial Officer
The only comment I'll add is that as you look at GDP forecast out there, generally for '19 versus '18 they are slightly down. So we're not assuming in these numbers a meaningful acceleration in the U.S. economy, which may or may not be true.
Vincent Ciepiel -- Cleveland Research Company -- Analyst
Got it. That's helpful. Then one other thing. In years past, sometimes you've commented on the quarterly cadence of growth, and I know that the Easter shift turns out to be saleable for the first quarter of next year, but maybe just helping investors with the trend line going into the next year domestically. 4Q you're thinking approximately 1%. Is it just as simple as the hurricane compares get a little bit easier going into next year and that helps you get toward the midpoint of that range? Or how should we think about the --
Arne M. Sorenson -- President and Chief Executive Officer
It's a good question. We should be careful about saying too much by quarter next year, given we haven't done the budget. I did mention that in part it's because of the Easter comparison. But Q1 looks like a good quarter. I think you've got, we'll have less impact from the hurricane comparable. Although there will be some, because I think the first quarter of 2018 in Houston, for example, was still quite strong because of relief work and that sort of thing. But group business looks good. The calendar looks good. So I think Q3 should be probably better than average for the quarters next year, but again, let's wait until we get the detailed work done before we talk too much about individual quarters for next year.
Vincent Ciepiel -- Cleveland Research Company -- Analyst
Thank you.
Operator
Thank you. Your final question is coming from Bill Crow of Raymond James.
Arne M. Sorenson -- President and Chief Executive Officer
Hi, Bill.
William Crow -- Raymond James and Associates -- Analyst
Good morning. Thanks for staying late. I appreciate it. Arne, my first question is on Sheraton. Other than selling assets, trying to drive quality through consistency, anything you can point to that shows success in reviving the brand that Starwood spent more than a decade trying to get going?
Arne M. Sorenson -- President and Chief Executive Officer
Well, we're above fair share. The brand is above fair share for the first time in memory as far as I know. We've moved it a few full points since the deal was done. Guest satisfaction figures have moved globally, we think, by about 3 points, maybe 3 to 4 points. That is, as far as guest data is concerned, a massive shift to positive. We're not done with that, and we think there's still upside associated with it. I think when we look around the world and see developer partner interest in the brand, we see that strengthening. We know that we can look at the renovation commitment and schedules for the portfolio as a whole, but particularly on the weaker hotels, which we've talked about in the past. We feel we're making really good progress.
I think the last point I'd raise, which is a little harder to prove because it's a little bit more about tenor of the conversation, but I mentioned during our prepared remarks we had our U.S. full-service owners together last week here in Washington for our annual MINA meeting. We feel really good alignment with them about where we're taking the Sheraton brand. So all of those things -- this is a multi-year progress challenge to be sure. We're a long way from being completed. But I think we are proving that we're making steady progress.
William Crow -- Raymond James and Associates -- Analyst
That's helpful. The follow-up and unrelated is on the special corporate negotiated rates. I think you said you were up low-single-digits. I don't know if you could put a finer point on that. But I'm sure every year you get pushbacks from the companies you're dealing with. Is the pushback this year any different than it has been in past years? And is special corporate negotiated rates as important as it used to be, given that a lot of the economic growth has come from smaller companies?
Arne M. Sorenson -- President and Chief Executive Officer
Yeah, I think that's a good reminder, actually. Laura might be able to tell us, or Leeny maybe you know. I think special corporate is more important in the U.S. than any other market, any other big market. There may be some cities in various parts of the world where special corporate is important. And I believe that special corporate as a percentage of our total business in the U.S. is only about 12% or 13%. Something like that. What have we got here, Laura? 16% in full service and closer to 20% in limited service. And so it's relevant, but it's not massive. I think it gets the attention it does because it's negotiated, so it gives us a little more predictability on pricing than other transient business that's coming in.
I think when you look at the way we've approached this, Starwood was higher with special corporate as a percentage of total business than Marriott was. That was because they had more special corporate accounts. They went to smaller companies. We've reduced, actually, compared to what Starwood had in some of those special corporate accounts. We'd obviously just as soon have as much of the business traveling public showing up and paying, in effect, rack rate or a non-discounted rate as possible. So we're not necessarily always looking to expand the special corporate book.
Having said that, we've got great corporate customers who expect to have special arrangements. And for the right customer, we're certainly doing that.
William Crow -- Raymond James and Associates -- Analyst
Okay. Thank you very much.
Arne M. Sorenson -- President and Chief Executive Officer
All right. Thank you all very much for your attention this morning. Get out there and travel. Get out there and vote, I suppose, first, but then come and stay with us. Thanks.
Operator
Thank you. This does conclude today's conference call. You may now disconnect.
Duration: 86 minutes
Call participants:
Arne M. Sorenson -- President and Chief Executive Officer
Leeny Oberg -- Chief Financial Officer
Robin Farley -- UBS Securities -- Analyst
David Katz -- Jefferies -- Analyst
Chengxuan Li -- Sanford C. Bernstein & Co. -- Analyst
Jared Shojaian -- Wolfe Research -- Analyst
Harry Curtis -- Nomura Instinet -- Analyst
Joseph Greff -- J.P. Morgan Securities -- Analyst
Anthony Powell -- Barclays Capital -- Analyst
Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst
Stephen Grambling -- Goldman Sachs -- Analyst
Chad Beynon -- Macquarie Capital -- Analyst
Michael Bellisario -- Robert W. Baird & Co. -- Analyst
Kevin Kopelman -- Cowen and Company -- Analyst
Vincent Ciepiel -- Cleveland Research Company -- Analyst
William Crow -- Raymond James and Associates -- Analyst
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