Q2 2021 Hilton Worldwide Holdings Inc Earnings Call

Our effective only as of today, we undertake no obligation to publicly update or revise these statements for a discussion of some of the factors that could cause actual results to differ please see the risk factors section of our most recently filed form 10-K. In addition, we will refer to certain non-GAAP financial.

On this call you can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call and our earnings press release and on our website at IR Dot Hilton Dot com.

This morning Christmas onto our President and Chief Executive Officer will provide an overview of the current operating environment Kevin.

Measure, our Chief Financial Officer, and President of Global Development will then review our second quarter results. Following their remarks, we'll be happy to take your questions with that and pleased to turn the call over to Chris. Thank you Jill good morning, everyone and thanks for joining us today as I think our second quarter results demonstrate we continue to make.

Significant progress towards recovery working hard to serve all of our stakeholders.

For our guests to deliver reliable and friendly experiences and a very demanding environment for our team members to maintain and award winning culture by creating an inclusive safe and welcoming environment full of opportunity.

Kevin Jacobs for owners to drive value through premium market share and efficient and effective operating models for our communities to remain a positive force for good at.

And at a time when it is needed most and finally for our shareholders to maximize profits free cash flow and overall total return.

Turns and we're pleased to see that our diligence and determination and are beginning to pay off as much of the world reopens. The pent up demand for travel we've been anticipating is happening.

And the pace of recovery varies and Covid variance remain a risk we are seeing significant sequential improvement and every.

<unk> region, and the second quarter system wide Revpar grew 234% year over year.

<unk> 2019, Revpar was down 36%, improving 17 percentage points versus the first quarter with June revpar, and improving 24 percentage points.

Every may versus the first quarter and down only 29 points versus 2019. Additionally, 30% of systemwide comparable hotels exceeded 2019 revpar levels in June and.

Adjusted EBITDA was 400 million up 684%.

Year over year performance was driven by strong leisure demand and rate growth.

For the second quarter U S leisure demand exceeded prior peak levels with the rate at 90% of prior peaks. This positive momentum continued into July with systemwide and U S.

Leisure room nights and rate exceeding 2019 levels.

Business transient also increased meaningfully throughout the quarter with June Revpar for this segment, increasing 20 percentage points from the first quarter, we saw improving results and small and medium sized businesses.

<unk> and positive momentum across larger accounts and June business transient room night demand was 70% of 2019 levels with rate over 80% of 2019 levels. We continue to see progress and July was similar room night demand and rates at 90%.

And of 2019 levels.

Group performance and the quarter also improved sequentially, driven primarily by social groups, given seasonally higher leisure demand overall.

Overall group demand increased nearly 20 percentage points sequentially from the first quarter ending June at more than half of 2000.

<unk> levels. Additionally.

Additionally group bookings for next year are at rates above 2019 peaks.

Approximately 99% of our hotels are now open and operating including some of our largest urban and group properties and in the last few months, we were thrilled to see.

The reopening of the legendary Palmer House Hilton, the Chicago Hilton and the Hilton San Francisco Union Square.

And as government restrictions loosen and more people are vaccinated, we continue to see positive momentum and demand and an increasing ability to push rate.

For July month to date system.

And wide demand is 85% of 2019 levels with rate equal to 2019 in the U S. July Revpar is roughly 85% of 2019 levels and and China Revpar is now above prior peaks.

With increasing <unk>.

Transient bookings.

Bookings digital traffic and group sales leads we are optimistic about the forward trends turning to development, we delivered another robust quarter of growth with net units, increasing 7% year year over year ahead of expectations due to strong openings and the U S and fewer overall removals during the quarter, we added 190.

<unk> 19 hotels totally totaling nearly 20000 rooms and celebrated the 5 year anniversary of true with the opening of its 200th property with nearly 270 hotels and development true continues expanding across the U S and Canada as well as moving into new markets and the Caribbean.

Latin America we.

We were also thrilled to celebrate the highly anticipated opening of resorts World Las Vegas last month.

Marking the first ground up resort development on the strip and over a decade.

Property features 3 of our premium brands Hilton Conrad and Alex Azar and.

And literally 500 rooms to our portfolio.

With expansive meeting and event space of 120000 square foot Casino 40 World class food and beverage options and a concert and entertainment venue with capacity for 5000 attendees. This spectacular property raises the bar for Las Vegas and delivers on our.

And I had some standing promise to return to the strip.

Along with the recently open Virgin hotels, Las Vegas Curio. We are now we now have more than 30 properties totaling a 11000 rooms across 12 brands and the city. Las Vegas is also the first U S market to house, all 3 of our luxury.

Our long and.

Earlier. This month, we debuted we debuted our premier meetings and events focused brands and Cigna by Hilton with the opening of the Cigna Orlando Bonnet Creek, the property will undergo a multi phase transformation featuring the addition of more than 94000 square feet of multi functional meeting.

Bring event space designed for and elevated meeting experience and the quarter. We also broke ground on the nearly 1000 room Cigna Atlanta scheduled to open in 2023.

Our exceptional brands and industry, leading revpar premiums continued to drive a high quality pipeline.

And the quarter, we signed nearly 26000 rooms up 40% year over year and increasing from our first quarter pace given strength in the Americas and Asia Pacific regions.

We ended the quarter with approximately 401000 rooms and development more than half of which are under construction, we had a record.

Number of conversion signings and the quarter, representing 40 hotels and accounting for approximately 30% of our total signings, including the Conrad Chia Laguna Sardinia, the Conrad Shanghai, which will be our largest Conrad and Asia with more than 725 rooms, and the hotel 1000 and <unk> located.

And Jeff steps away from Seattle's iconic Pike place market.

Further expanding our all inclusive and luxury portfolios, we announced the signing of 3 beachfront resorts and Mexico earlier this month.

The Hilton buyer by Arda Revere all inclusive resort.

The Hilton to loom, all inclusive resort and the Conrad to loom will add more than 1500 rooms to our existing 70 hotel portfolio and Mexico, demonstrating our commitment to continued expansion across the region and are growing our all inclusive resort footprint travelers will soon be able to choose.

From an even wider variety of Hilton branded all inclusive resorts globally.

We expect positive development trends to continue and remain confident and our expectations to deliver mid single digit net unit growth over the next several years for 2021, we expect net unit growth and the 5 to 5.

And 5% range.

Above prior expectations, given the pace of openings year to date.

Delivering on guest desire for more flexibility and their travel experience and solving a longtime travel frustration last month, we launched confirm connecting rooms, a first and the industry. This innovative technology.

<unk> enables guests to easily book and instantly confirm at least 2 connecting rooms as families and friends begin to reunite reconnect and travel again, we're excited to create a seamless travel experience from booking through stay.

We continue to prioritize unique opportunities to engage our nearly.

120 million and honors members driving value for them through our enhanced partnerships and points redemption offerings and the quarter membership grew 10% year over year on average our premium members are staying with us even more frequently than in 2019 for the quarter honors.

<unk> accounted for 58% of occupancy, reaching a high of 61% and May only.

<unk>, 2% below may of 2019.

As we head into the back half of the year. We know it's critical to lead with our culture, which was recently earned which recently earned us the number.

Number 1 spot on diversity, Inc. List of top 50 companies for diversity. We were also thrilled to invite all of our team members to return to our headquarters last week, the energy and excitement and the office is palpable and we're thrilled to be back fostering a collaborative environment, which allows for innovative thinking as we remain focused on.

And remember strategic priorities and the bright future ahead with that I'll now turn the call over to Kevin to give you more details on our results for the quarter.

Thanks, Chris and good morning, everyone. During the quarter system wide Revpar grew 233, 8% versus the prior year on a comparable and currency neutral basis as recovery.

<unk> accelerated driven by strong global vaccine Rollouts relax government restrictions and surging leisure demand, particularly in the U S. As Chris mentioned system wide Revpar was down 36, 1% compared to 2019 performance was largely balanced between occupancy and rate growth adjusted EBITDA was 400.

<unk>.

And the second quarter and those results reflect relax travel restrictions and strengthening global demand manner.

Management and franchise fees grew 220% demonstrating the resiliency of our fee based business model. Additionally results were helped by continued cost control at both the corporate and property levels.

Our ownership.

Portfolio posted a loss for the quarter due to the more challenged demand environment throughout Europe, and Japan and related suspensions of hotel operations.

Fixed operating costs further weighed on performance overall, the ownership segment performed better than expected largely due to continued cost control.

For the quarter diluted earnings per.

Adjusted for special items was 56.

Turning to our regional performance.

Quarter comparable U S. Revpar grew 234% year over year and was down 31% versus 2019 demand.

Demand improved sequentially throughout the quarter with occupancy averaging roughly 70% in June.

Per share strong leisure demand combined with improving business transient trends drove rate improvement across the U S with weekend ADR, finishing June down mid single digits as compared to 2019 rate and weak day rates down and the high single digits.

And the Americas outside the U S second quarter Revpar increased 3.

390% year over year and was down 54% versus 2019, while limited international travel weighed on overall performance easing restrictions and strong leisure demand drove improving trends in June.

And Europe, Revpar grew 470% year over year and was down 72%.

And since 2019.

While the region saw a month over month improvement rising Covid cases, and prolonged travel restrictions continued to weigh on performance.

And the Middle East and Africa region, Revpar increased 287% year over year and was down 35% versus 2019 performance benefited from.

Strong domestic leisure demand with a rate now nearly recovered to 2019 levels in July.

And the Asia Pacific Region second quarter, Revpar grew 143% year over year and was down 33% versus 2019.

Revpar in China was down less and 9% as compared to 2019 with rising.

Sent for Covid cases, and June temporarily disrupting strong performance trends in April and May how.

However, as Chris mentioned and China has since rebounded with Revpar now trending above 2019 levels.

And the rest of the Asia Pacific Region performance was tempered due to Lockdowns in India and continued travel restrictions across Japan.

Turning to development as Chris mentioned and the second quarter. We grew net units, 7% our pipeline grew sequentially totaling 401000 rooms at the end of the quarter with 62% and pipeline rooms, located outside the U S.

Despite the challenges brought about by the pandemic develop our appetite for Hilton brands remained strong.

Strong across the globe as travel as travel restrictions ease and regions prepare for recovery and owners focus on growth opportunities development activity and interest is gaining momentum.

For the full year, we expect signings to increase and the high single to low double digit range year over year, we expect net unit.

<unk>, 5% to 5.5 per cent.

Turning to the balance sheet during the quarter, we fully repaid the outstanding $1.2 billion balance on our revolving credit facility. As we look ahead, we remain confident and our balance sheet and financial flexibility as we move forward into the recovery and move closer towards our target leverage.

Growth for details on our second quarter can be found and the earnings release, we issued earlier. This morning. This completes.

Our prepared remarks, we would now like to open the line for any questions. You may have we would like to speak with all of you. This morning. So we ask that you limit yourself to 1 question Chad can we have our first question. Please.

Thank you we will now begin the question and.

The answer session to ask a question you May Press Star then 1 telephone keypad.

And we're using a speakerphone please pick up your handset before pressing the keys.

And your question. Please press star 2.

And we'll just pause momentarily to simple roster.

Okay.

And.

And the first question will come from Stephen Grambling with Goldman Sachs. Please go ahead.

Thanks, you gave some great color on Doug, but I would like to Peel back the onion a bit more specifically can you discuss how net unit growth expectations have evolved over the quarter as we look around the world where your increased confidence comes from across.

Across things like brand ads and leased conversions and how the financing environment is changing as we consider not only this year, but sustained growth beyond.

And it's Steven Thank you good question and happy to give a little bit more color have you think about around the world on the development side I think so goes the recovery sort of so goes the development is probably.

The simplest way to think about it so versus our earlier expectations.

And why we're a bit more optimistic obviously and have raised our outlook for the year as well.

Largely driven by what we're seeing and faster recovery and the U S and faster recovery and Asia really.

Really China.

And I would say those those are sort of the largest drivers.

If you think about recovery, that's where as we as we suggested in the prepared comments, that's where we see the steepest slope of recovery.

Europe is obviously, we knew would be lagging and isn't isn't contributing.

As much as.

The U S and China is at this point, but obviously our expectation there is.

The U K and Europe continue to open.

And we'll see.

Meaningful uptick there. So I think it's I think it's pretty much that simple slope of recovery steeper and.

More activity on the development side in terms of both signings.

And openings people and are back at it and and picking up steam on the conversions.

I would say.

And modestly better.

As you would note from prior calls we've been we've had high expectations for conversions, we have some great conversion brands. The system is performing at the highest levels.

<unk> from a market share point of view that it's ever performed in our history and I think that's a great leading indicator for opportunities to convince.

And folks who are independent to come into the fold as well as folks that have weaker brands that are looking for a better performance to come into the fold both both of which are.

Bidding at a little bit better than our expectations and so while we had we expected things to pick up and the conversion area I would say this year and then leading into next because a lot of the some of the signings will take some time most of them have pretty quickly, but some of them will take some time in terms of capex were properties.

Improvement programs and like it's.

It is modestly better than what were pretty.

High expectations in terms of the financing environment.

There's a lot to discuss I think so.

So we can get to lots of other questions. I think the simple answer is it's improving I mean, the world is a big place. So again followed.

Knowing the slope of recovery.

U S and China I would say the financing markets are recovering most rapidly because markets are efficient when performance is starting to really pick up and not just from an occupancy, but youre getting back to rate levels very rapidly probably more rapidly than I've ever seen and my 40.

The years of doing this.

Happens as the lender community starts to have more confidence rates are obviously, hyper low and have been low and and lenders need yield and so the more comfort they get that recoveries of foot.

And that theres going to be a recovery.

Back to where we were and then beyond.

The more they're willing to take the risk of a little bit further out on the risk spectrum and underwrite it and so you're seeing pretty robust financing markets and China. The U S.

Still has a ways to go I mean, you can look at the data out there, it's not anywhere near where it was but it's improving and my expectation.

And as you get into the fall and I'm sure. We'll talk about this I'll leave it for other questions and our belief my belief is that we're going to continue to have very very strong recovery in the fall and into next year Youre going to continue to see a gradual increase and financing.

Thats available.

Certainly certainly here in the U S I think Europe Europe.

We will take it.

We will take a little longer so our ways to go and not saying it's back anywhere near where it was it's a long way out but.

Off sort of off the off the floors of what we had seen last year.

Thank you.

The next question is from Carlos.

And those have to really work with you.

Bank. Please go ahead.

Hey, guys. Thanks for taking my question, Chris could you talk a little bit about how you guys plan to use key money and develop and expand and obviously in light of the financing environment that you just talked about and the way that's coming around.

Is it.

Something you guys, maybe rely on a little bit more and the near term and then start to we and away from it is as we get more comfortable with kind of the outlook for new unit growth and things of that nature.

Yes, that's a good question and we.

If you look at the numbers, we had a little bit higher key money.

And the quarter than we would typically have what I would say is I.

So anything that I.

And I don't think anything is changing materially meeting.

Still over 90% of the deals that we are doing our dry deals or.

We're not spending we're not using the balance sheet anyway, so theres not any any material shift given what's going on and.

I don't see broader macro environment the financing markets.

Yeah.

Nothing material that shifted the reason that youre seeing.

A little bit heavier key money spend rate now is a super positive story and the sense that.

Both things that we've been working on for a long time.

And the <unk> or opportunities that have arisen because of the pandemic have sort of come together and and.

Unusual way this year. So example, monarch some of the bigger key money.

Expenditures are iconic assets for our portfolio.

<unk> largely resort oriented that we've been working on debt will be and that will be generational there'll be and the system for decades, and decades and decades, so the Waldorf Astoria, and monarch Beach and Laguna.

Literally been working on that deal 1 way or another for 20 years I think between host and here.

And that's in the system and incredible addition to the Waldorf brand resorts World, which I talked about and my prepared comments 3500 rooms on the strip, where basically the only major player on the strip with a massive meetings platform and 3500 rooms, we've been working on that for a number of years.

Not a crazy amount of key money, but by any means but.

And relative to our normal expenditures.

Significant and then.

And the <unk>.

Deals that I talked about and Mexico. The 3 deals 500 rooms, and point of IATA, and then and to loom. These are.

Credible assets.

And that were either existing and the 1 case and PV was and existing hotel that was operating with another brand and and the case of to loom was developed literally over the over 20 years to get the entitlements with another brand and because.

Covid and.

What has happened and the industry presented an opportunity for us and so.

That allowed us to enter the zone on the hotels that would have taken us a decade to sort of pull together and.

And a matter of 6 or 12 months, we're going to have these.

Our purpose built.

Of credible hotels, and the system and so I know a long answer, but I view all of those and then there are some others that I'm not that I'm not even mentioning but those are the big ones as like incredible.

Progress for us and all inclusive and resorts and and luxury and.

And those deals just don't.

Come around that after and we're getting a few more of them now.

As I said aided by Covid, so may be there.

I'd say.

Our spending overall.

Is it going to be up probably.

This year and next year relative to 2020, but 2020 was a depressed year if you look.

And Chris is our normal run rate like 17, 18, and 19 honestly I think our overall capex is sort of going to be within the range is that that we would have been.

But again.

And I don't see anything we don't see anything material, we still think over 90% of our deals are going to be are going to be dry and when we.

We have these really unique opportunities.

Even with key money, they're very nice returns for us and they are incredibly.

Think strategic and important to the system.

Great. Thanks, Chris that's Super helpful and I appreciate it.

The next question will be from Joe Greff.

At at <unk> with Jpmorgan. Please go ahead.

Good morning, Chris morning, Kevin and Jill good.

Good morning, gentlemen, Joe.

Given the significant progress we've seen and the operating environment.

Given your balance sheet and.

And where your leverage ratios.

Our heading.

This year I was hoping you can give us an update on how youre thinking about what you are looking at which might be obvious, but and how youre looking at the timing of resuming capital return.

Great Great question, I figured I'd get it and.

I figured I'd get it early so thank you I know that's on everybody's mind.

And we have obviously.

By the and talked a bunch about it.

Ultimately, that's a decision and we'll go to our board with we we have and upcoming meeting we have we've had broader dialogue, but we haven't we haven't pinned it down but I said on the last call.

That I was pretty confident that we would that we would be re instituting.

Return of capital program next.

Got it.

Still feel that way, obviously, the slope of the recoveries even steeper. So I would say the update to that would be I would feel confident that we're going to do and the first half of next year.

Exact date and time to be determined when we when we talk to our board, but I think you should read the results of second quarter, you should read that.

Year, Terry that Kevin and I gave in our prepared comments plus everything you are hopefully going to get and color to say that we're very optimistic.

No. We're not we read the papers I talked to a lot of people were not oblivious to the delta variant and things that are going on.

And the world, but we're we're confident because.

Common think we we'll power through that and trends that we see real time are are very are very strong and improving we feel really good about what's going to happen in the fall and so yes, we are.

Every quarter that goes by I think we feel better and better about where the recovery is going and so.

That should ultimately translate into are feeling better about starting to return capital because it will be.

We'll be generating real significant free cash flow and my mind next year and.

And we do not need to hoard at our belief has always been debt as I said in my prior answer.

To be able to keep.

Growing with very little use of our own balance sheet and so we're going to give it back to folks. So my expectation is and the first half of next year that that program and will resume and we will we will be having some discussion with our board and the very near future.

Thank you very much.

The next question comes from Sean.

Sean Kelly with Bank of America. Please go ahead.

Hi, good morning, everyone.

John.

Good morning, Chris.

You mentioned a couple of times now just talking about that recovery and the fall. So I was hoping we could dig in there a little bit.

I know youre, probably right at the cusp of when you have too much color you can actually share.

The corporate side, but can you talk about how that is starting to firm up be it September October you know and and what data you have and then you know last quarter, you talked a little bit about and exit trajectory for the year of possibly something and the down 30 range and I appreciate.

It's it may be a little early to give an update to that but kind of.

And thinking about that relative to maybe where we were free months ago, Yes totally fair question.

<unk> $4000 question and I think everybody is trying to figure out. So I'll give you I mean, we do have some data points and so.

And I'll give you my opinion on top of it I mean, we've obviously seen as Kevin and I, both described and the Nuggets that we gave and.

How are you going to your comments that you wouldn't find and the press release, we've seen really nice recovery and that recovery has been across the board. Obviously, most you know the greatest strength.

Strength in leisure, but significant pickup in business travel and significant pickup while.

Further to go and the group side.

And we continue to see that notwithstanding the delta.

Variant and all the things going on and like I got just last night as an example system wide U S.

Occupancy was 74% trailing 7 day, 74% and that's with the urban markets with some urban hotels, not even open and those are in the comp set and with all of our urban and so all of the urban.

Hotels, obviously, the urban environment and has been lagging a little bit so.

What that says to you like last night, if we're running 74% that's not leisure.

We have a lot of leisure oriented hotels, we have a lot of business oriented hotels and.

And so midweek occupancy.

At level are definitely reflective of business travel being.

And we've seen it.

Literally it's funny.

Sort of post Memorial day.

I mean, you just saw that.

Shift you just saw a shift where weekday occupancy went up 10 or 20 and any give a night went up 10 or 20 percentage points and that was business travel.

Being back dominated by small and medium sized businesses by the way, but even pre COVID-19 keep in mind <unk>, 80% of our business travel was small and medium sized business right. So that that's sort of currently what's going on I know your question is forward looking and I promise you I'm going to get to that I think the trajectory my my own view and I think the data supports.

<unk> says.

As you get into August what's going to happen is you're going to continue to have massive surge and leisure travel because everybody wants to get out notwithstanding again the delta.

<unk> and <unk>.

And we've not we've not seen impact impact and sort of consumer behavior from that so I think youre going to have continued.

<unk> very good strength and the leisure I do think and August as you always do you will see business transient and fall off a little bit rate just because people are going to be like they always do what they're going to be not traveling for business as much.

And and going on more vacations, and it's sort of the last 2 Rob before maybe.

A lot of people are going back to work and the kids are going and finally going back to school and all that fun stuff, but when you get to the fall.

And limited we have limited data obviously this far out so this is <unk>.

Data points that I have real time today, when you get $60.90 days out.

Business transient.

That's a lot of a lot of the bookings have and occurred. So this is where it gets into my view of what I think will happen I think you get after labor day.

I do believe you know I'm not a health expert, but I'm talking to a lot of them I do believe we will have powered through the Delta thing. If you look at the stats and hospitalization and the like there really.

And not not terrible if you look at what's happened and the U K and we're sort of 3 or 4 weeks behind them.

Patterns there right now are quite good.

Section rates down 50% on a trailing 12 day basis over there so.

I think there is there is a lot of reason to be optimistic that we sort of power.

<unk> power through that.

And when we get to the fall Here's what I think we do know kids are going back to school I mean, we will debate, whether they're wearing masks are not some places, yes, but theyre going back to school and.

Pretty confident and that and offices are opening and they may have been different times, some people, you're reading and youre going to push it a month or whatever obviously I said.

We are open we are open and operating here at all of our headquarters, but but youre going to have people back at work, which means with kids in school.

And with Babysitters and with people and the office you're going to have.

More propensity to want to travel and when we talk to customers.

And I can't give you the booking data because it's too far out, but when we talk to customers anecdotally. It supports all of that debt when you get into the fall peak.

People are going to be people are going to be traveling both pent up demand. Okay. If things they've been needing to do and then theres just demand generally to for folks.

To be able to to run their businesses and so I think as you get into the fall.

C and the natural reduction in the leisure as we always do because now kids are and school. They Werent last year Kids are in school people are back and the opposite don't have as much time and gone on vacation.

And do believe again.

And prove it but my belief is leisure will be elevated for a while because we're still living and a bit of a hybrid world, but I think business transient and we'll come back group will obviously take longer gestation period, but group will definitely be coming back the booking trends into the third, particularly the fourth quarter.

Are much better than they've been and.

And.

I think we are.

We're motoring forward in terms of last time, I believe I said debt.

I think we'd be back to sort of 70% by the end of the year.

And of 19 levels and obviously.

Feel better.

While we're not giving guidance, so I'm not going to do it.

And we're not ready to start doing that theres still enough uncertainty, where we want to wait.

We do forecast okay.

It's not camp Rudd and Mark here. We are we are looking at our numbers and I would say our view is.

Demand.

So levels, probably revpar levels are probably in the U S and globally somewhere circa 80% versus the 70, I thought and our and our current thinking demand levels, probably back to 85%. So.

And now we're getting there and.

<unk>.

I mean.

Again, much steeped I said last time recovery has been much deeper than we thought let's say it again today, just things things have been coming back more quickly.

And then we would've thought we knew they would come back obviously, you all know I have been optimistic about the recovery.

And thats, even better than I would've thought I think 1 of the most surprising things, although it shouldn't be to any of us because as I Kid our team and the laws of economics are alive, and well and the most surprising thing is how quickly rate comes back, but thats again, thats just demand rate where pricing demand, we're being really smart about it but I do believe when when this when we look back on this recovery.

The most unusual thing relative to any other period and my alma.

Most 40 years to do and this will be just the rapid return of rate.

Thank you for all the detail yes.

The next question is from Smedes Rose with Citi. Please go ahead.

Hi, Thanks.

I think I wanted to follow up on that.

And I wanted to follow up a little bit on that I think in your opening remarks, you said that your group bookings are trending greater now and 2022 than they were and 2019, which I think it's a pretty big positive increase sequentially from what you mentioned on your first quarter call.

And I was just hoping you could maybe talk a little bit more about the composition of those groups and.

What youre seeing on the rate side, and maybe just kind of a little more color around.

Folks willingness to book group at this point.

Yes, its still great question still building what I, what I said is that all of our bookings for 2020.

And at rates that are rates that are greater than.

2019 so.

Right I didn't say volume volume is still a bit off just because it takes time to build the book. So my expectation as we get closer to next year and into next year in the year for the later.

2 and this year.

Particularly when you get past this delta Delta wave and then in the year for the year will be a barn burner year, but bigger than anything we've ever seen and the year for the year is simply because people have to meet and it takes time to plan. It they want to sort of get through their budget season before that to know how much money they have.

But I'm not I'm not worried about the volume next year again, they are a bit they're not where we were at 19 there.

There's they're close but they're not there, but the rates above and.

So what ive been honestly, what I've been saying to our teams is be really careful like we there's going to be a monumental amount of demand.

Later and want to give it away we want to make sure that we're pricing even though we're not at the volumes now my expectation and very strongly as it is all going to fill in and it just takes a little talk a little bit longer given what's the reason for that.

This recession being a health issue and sort of getting through the final stages.

And we don't have in my opinion.

And is required before you really get the <unk>.

And I'm on the volume and so Thats why rates are are up is because we're being super disciplined and recognizing that there is a limited amount of meeting space is going to be a gargantuan amount of demand.

And.

We can be a bit we can be a bit patient.

I think Kevin given what's going on.

Okay. Thank you.

The next question is from Thomas Allen with Morgan Stanley. Please go ahead.

Thanks, So on net unit growth, you've obviously seen some great progression in terms.

And of your guides and.

You gave some helpful color earlier, but.

Do you think you can get back to the 6% to 7% and unit growth you were putting up pre COVID-19 and if so when.

Yes.

I do.

And I think it's probably some time between 2.

<unk>, 3 and 'twenty 4 Kevin.

Yeah. Kevin has also had a development so I want to make sure. He is before I commit and yeah I think it's sometime in 'twenty 3 'twenty 4.

Probably I would probably more probably more 24, just because you got to get through the <unk>.

And you look.

Parts last year you'd look at I mean, if you look at the progression you'll see when we're when we're done last year, we were down and starts this year will be down modestly not not and are.

Not nearly as much as last year and starts and I think that's the bottom and then I think next year, we'll we'll be ramping up and starts and I think if you just play that.

And through that's what gets us and the mid single digits for the next sort of couple of years, 2 or 3 and then and then I think you're back in business and the 6 to 7 range, yes. The average if the average and you know could.

Struction time, our gestation period, and the pipeline is 2 and a half or 3 years, you've got to be 2 and a half for 3 years past the bottom before you get back to your old run rate.

Thank you.

And the next question is from Robin Farley from UBS. Please go ahead.

Great and I wanted to ask you about the pipeline as well.

And the conversions were I think you said, 30% of signing and I'm wondering what percent of openings that was.

Q2, and maybe you know what you expect it to be for the full year and and then just on the theme of pipeline. You mentioned that you know mid single digits for the next 2 or 3 years and I think last quarter you had said.

Debt 'twenty 'twenty, 2 might be kind of in the 4 to 5 per cent range, but maybe and the lower than than this year, just given that there was some.

And our construction catch up this year, so I'm wondering Mr higher unit growth rate here in 'twenty 1.

Does that does that carry through to you know sort of continued acceleration and the 22 or in fact is it is it bringing forward some things you'd thought would open and 22 that kind of bring forward into 'twenty, 1 and so you know maybe we'd still see that.

Slightly lower rate you know closer to 4% next year, then the 5 mm for 'twenty 2 thanks, Yeah, Rob and thank all good questions I think I've got it all and try to go in and I'll try to go and order I think you know and the conversion front openings were lower I don't remember the exact percentage, but they were circa 10% of of openings for the quarter and that was just timing.

Last year, we were sort of 19% 20% of openings I think this year, it will be that or maybe even a little bit higher given sort of the number of signings, we had and in the second quarter and.

So I think that's a good way to think about it and look we are doing more conversions very happy with the convergence and the second quarter really nice.

Mixed between hard brand soft brand conversions from independence conversions from other brands regionally, so very happy with that but that said our pace of deliveries of.

New builds is going up as well so it's sort of hard you know, it's a little bit harder for that percentage to move and of course, that's all baked into into.

And I'd say outlook the idea of all other the third 1 next the idea of of 'twenty 2 being affected not as much I mean, I think 'twenty 2 is going to be about what we expect maybe a little bit of timing pull forward replaced by a little bit more conversion, so 2020 twos about the same as we thought.

And then yeah, you picked up on and we said 4 to 5 for the next several years, we were not pointing to any 1 specific year. When we said 4 to 5 and now we're saying mid single digits, which of course 4 to 5 is mid single digits. So it's about the same but I think what you're hearing is a little bit more optimism about the future of net unit growth given what's been going on lately.

Oh, great. Thank.

And it.

Sure.

The next question is from Richard Clarke from Bernstein. Please go ahead.

Alright, Thanks for taking my questions just wanted to ask your sort of opinion and your thoughts on labor shortages and the U S.

And there's been some commentary around drops and service.

Thank you very obviously and it's across the whole industry, but how much truth is that and that.

And working the other way you guys should be able to realize from sort of bigger efficiencies by working with last 1 on the hotels side level.

Yes.

And it gets a great.

Rate question Labor shortages, a real issue.

Probably the single.

Biggest issue debt.

We're dealing with it is definitely not just for Hilton, but industry, all service industries and manufacturing and a lot of your supply chain issues that you're reading about every day. All of this is sort of interconnected to not not having enough labor.

At a high level I think it will.

Levels really resolve itself over the next couple of quarters.

And in the sense that I think there are a lot of complex reasons behind it. Some of it is obviously health you know people still don't feel like particularly with the Delta variant now that.

And that they should go back to work some people.

Largest they're worried about their health as I already but we Havent had kids in school. So we don't effectively have day care there are the <unk>.

And women and the work for us or where it's been most dramatically impacted because they they have to stay home to take care of kids and then some of the government programs that were really important last year.

And the depth.

Because of this crisis.

You know have arent as important right now when there's a ton of opportunity for employment.

And that is unemployment insurance that you know other federal top up but that goes away.

And in early September So I think when you get kids back in school.

Will we get past these.

And these blades.

And the last wave with Delta and unemployment insurance goes away and the early fall I think youre going to start to see a significant easing of the issues.

On the labor side in terms of its impact on <unk>.

<unk> given that we're able to while there are service issues. All of US are having were obviously working awfully hard to deliver great service and I think we are doing a very good job given the difficult circumstances.

We are doing it with less labor and so ironically, given demand and given the ability to price and demand.

And margins are are in many cases unbelievably high because youre getting effectively rates that are consistent with what you had before and you can't get the labor. So you just have less costs that that obviously is a temporary thing youre going to have to have more labor and.

Ultimately and the hotels, having said that long term, we've done a bunch of things.

And in the crisis.

In terms of testing and learning and different ways.

And to change the operating model, particularly as it relates to housekeeping and food and beverage and and a whole host of other smaller things, where we think we can deliver a great experience for our customers and do it more efficiently and so I think when it all.

August flushed through and where on the other side of this and through the stresses and strains on the on the labor issues. We're talking about I think we have developed a plan to have higher and higher margin businesses.

Across all the major brands and so yes, the big issue. We've spent a lot of time on it but I do.

<unk>.

<unk> is able to average goes this too I think shall pass.

Thanks very much.

And the next question is from Bill Crow with Raymond James. Please go ahead.

Thanks, Good morning, Phil.

Clarification and the.

And the clarification is I think you mentioned that debt.

Revpar was down 29% and June relative to 19 numbers.

And did you say that it was going to be closer to 20% down and the fourth quarter as we pivot to the business.

Business travel.

Clarification, if the cash.

And I guess goes to.

Question your discussion about rate and the biggest surprise.

I'm wondering if we're already at a point, where we can declare victory over rate integrity, maybe for the first time and then the recovery rate.

And we have to wait until we get into the business travel and really see what.

And what lies beneath this lesion.

2.

Serge.

Yeah, and the first 1 I answered about and maybe you didn't hear because I was and.

And I apologize talking every day, but yes on the first that's what I said to clarify the free.

First question.

You know me Bill I attended.

And under.

Under promise over deliver.

Paul theory, and life, So I don't want it and I don't want to declare victory yet on rate I meant what I said I mean I've been doing this a long time and been through bunches of recessions at this point and.

What I'm seeing is a very atypical so.

And I do believe that into the fall.

Fall and next year, we're going to continue to have robust demand and improvement. So I think the rate story as I said on my earlier comment when we look back on it I think that's going to be the real.

The difference and recovery here, but I don't know about declaring and not about declaring victory George W. Bush did it on.

On an aircraft carrier it didn't work out for them.

Didn't work out so well.

And it's.

It's not it's nice to see it's nice to see but it's again, it's just a function of demand.

And then being smart and how you price demand.

Alright, thank you.

Our next question is from Patrick Scholes with true and Securities. Please go ahead.

And.

Hi, good morning, everyone.

Quick quick question here and this is sort of just.

And sort of looking for a ballpark answer.

With the labor issue out there.

And what percent.

Your hotels right now are unable to sell full inventory due to staffing shortages.

I can't I don't have a scientific answer for you.

I would say sort of.

MS Phyrric Lee I think it's a relatively small percentage.

And each of our portfolio. It's definitely there are definitely some hotels that can't because I've talked to some owners, but and I was with a bunch of owners out analysis weak and labor was probably the the number 1 topic because it's what everybody is talking about but I'm not I'm not.

And just giving you the atmosphere and so we don't I don't have hard data on it I.

That is an issue but not.

A significant issue and by the way is helping into to a degree it is.

Also helping with rate because in some markets, where they can't they're reducing cash.

They are reducing capacity and driving rate, which by the way.

Book to Bill Crow, when we're done with it and maybe we.

I think clear victory that we were actually really smart about not only rate recovery, but sort of how we manage occupancy versus rate to drive.

And to drive the best profitability so.

And the hotels, where they are having issues and many of them and I can think of a few who I just talked to are having great success and sort of moderating.

We can do and occupancy levels down and then driving it on the top line and net net they're making more money than if they had the incremental labor and they opened up the capacity you know they're just their profitability is higher so it's not it's not all a bad story long long term, obviously the labor issues we have.

And the sort.

I already gave my answer I, do think they'll sort or a bunch of things we're doing to make sure that our system has.

Unique opportunities to access labor and ultimately to deliver the kind of service we want to deliver we do need to get more labor and labor and the hotels, but.

At the moment.

From an owner point of view in many cases.

Some are limited capacity, but I think it is I think it's a relatively small percentage.

Okay, well, thank you for the color on that.

The next question will be from David Katz with Jefferies. Please go ahead.

Hi, Good morning, everyone. Thanks for taking my question.

2 questions if I may.

Within the sort of franchise fees line item.

We're sort of in a moment, where it's true.

Candidly nothing's easy to model for I assume for either of us.

But that 1 in particular was much larger than what we had and I know that there are a number of things and there you know.

Getting to franchise fees should be straightforward, but Kevin if you could give us just a little insight.

On the other pieces that are in there right there is credit card fees.

And there were some royalties and there and sort of how those flow a little modeling help would be yes.

It's hard and easy all at the same time I mean, basically you know overall fee growth was a bit lower than overall revpar growth. Thus your question and the real the short answer is yes license.

Fees are growing by the way, they're growing really strongly I think license fees were up something like 80% in the second quarter, but thats, obviously, a lot less and revpar growth at 234% and so just the math ends up being a little bit less and revpar and so when we when we're in this period of Revpar growth being sort of at these really elevated rates because of.

And the crazy comps, we're going to be a little bit lower than fee growth on a long term basis. It should be about 1 to 1.

So that trend and sort of the easiest way I can sort of lay it out and got it and we get that it's hard to model, though sorry about that.

And that's okay.

Whatever you got will take.

If I may.

Ask a similar question around sort of owned and leased it's not certainly not the biggest part within your model but.

But if you don't mind my asking.

And any color on sort of how that.

Recovers and grows out and the future would be helpful as well.

Yes.

Totally fair question.

And I mean, it's sort of telegraphed at a little bit and our prepared remarks, it again pretty straightforward I mean that portfolio is concentrated in.

In places like the U K Central Europe, and Japan in particular that are just behind and the trajectory of recovery. So all the things we talked about there's nothing structural there. It's just it's behind it obviously was.

Lossmaking this quarter, it probably will be loss, making next quarter, just because of the level of recovery and what's going to be needed in those parts of the world and we think it's sort of breakeven ish in Q4, we will see what happens again, it's dependent on recovery and the world opening up a little bit.

And then the last thing I'd say is obviously, it's going to grow more quickly.

Quickly than the core then the core business. So it is going to contribute positively to our growth going forward, because it's going to be growing off of a much lower base.

Perfect I appreciate the help thanks sure.

The next question.

And is from Vince simple with Cleveland Research. Please go ahead.

Thanks.

And my question I wanted to come back to the honors contribution which sounded really high I think you said around 60%, which is maybe a few points under 2019.

And that's all while business transient is still I think 30 points off that usually over indexes to brand direct so.

Just curious how you think this direct contribution evolved through the pandemic, usually if there is a narrative that otas and take share, but it seems like your direct business is really really impressive how do you think and evolves over the course of the next year yeah.

Over the next year is probably harder to judge.

Thanks for taking the next several years, obviously, our objective is to continue to enhance the value proposition for honors such that as I've been saying for a long time, you sort of crazy not to be a member of honors.

And get all the technology, you get a little bit of a discounted rate you get the points you can use the points to shop.

Judge over bizarre and buy a concert ticket at live nation go travel, the world and get rooms, or food and beverage or a spot treatment or whatever.

Very much.

Yeah.

And.

And opportunity to sort of create value and if you're not and honors member and you're and you're staying with us.

Sort of.

On Italy, I mean, just because.

Youre effectively giving away value and so that happens to be true. Obviously, we you know we've been trying to over over the years as I've talked about many times on these calls sort of go high and low and make sure that for our most frequent travelers it's really relevant program.

And which I think we've done but infrequent travelers as well and.

That's probably been what's most game changing for us and I and I think has helped us sort of over the last 5 years lead the industry and percentage of occupancy represented by loyalty, which is we've made it relevant to somebody and travels 2 or 3 days a year and then not.

A.

60, or 100 days a year because it's.

It's a currency effectively and there's a value proposition that works for them and so.

Being specific about it we want to continue that I mean my own view is you know we were running and the sixties.

Pre COVID-19.

My goals.

Not just higher for that pre Covid and I have no I'm not letting up I mean, COVID-19 set us back, but I think COVID-19 also provided opportunities and and as you pointed out in May we were effectively only a couple of points different than we were and 19 why why would that be when our core travelers not back well I think its 2 things 1.

And May and June our core travel has started to come back number 2.

We worked really hard and how we sort of shifted our upper funnel and lower funnel strategies for marketing to attract customers into the system that we're traveling during COVID-19 that weren't in our core customers and so we.

We were able to get a bunch of those folks to say gosh, I would like to be and honors member and sign up and then realize this as it.

Is it really good value proposition so the whole thing during COVID-19 has been.

And basically say, let's go really hard after the customer that maybe it wasn't our core wasn't and honors.

Make sure they really understand the value proposition and then keep them and the system and then when our core customer comes back obviously, we believe we've got a great value proposition and I understand and when you put 1 and 1 together you hope to get 3 and so the objective would be not to get back to where we were because that wasn't that wasn't.

<unk> objective pre COVID-19, it's to get significantly beyond that why because we believe it's a better experience for our customer like the more the better the value proposition. The happier they are the better experience with the technology the happier they are.

From an ownership and system point of view, we lower our distribution costs.

Wasn't the lowest distribution Champs and the lowest cost distribution channel we have so for all the rate reasons.

We want to continue to build very direct relationships and I you know.

And my my belief is when you wake up and 2 or 3 years.

And while Covid has obviously been a difficult time for everybody and the industry, including us.

Costs I do think it afforded us an opportunity to accelerate some of those efforts.

Thanks.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Christopher setup for any additional or closing remarks.

Thanks to everybody.

I'm today, obviously, we've covered a lot of territory and you can probably tell from my comments. We were obviously pleased with Q2 relative to where the business has been industry wide and the company and we're very bullish about while we know there are risks out there not.

And not oblivious to that.

For the time, we think those are all <unk>.

Reasonably manageable and we're very bullish about not just the second half of the year, but very bullish about.

Recovery as we go into 'twenty, 2 and beyond we will look forward appreciate the time and we'll look forward to catch and everybody up.

After we finish our third quarter take care have a great.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

[music].

Day.

And.

[music].