Q3 2023 Hilton Worldwide Holdings Inc Earnings Call
Hello, and welcome to the Hilton third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions.
I'll ask a question you May press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Jill Chapman Senior Vice President of Investor Relations and corporate development you may begin.
Thank you Andrew welcome to Hiltons third quarter 2023 earnings call before we begin we would like to remind you that our discussions. This morning will include forward looking statements actual results could differ materially from those indicated in the forward looking statements and forward looking statements made today speak only to our expectations as of <unk>.
Today.
We undertake no obligation to update or revise these statements.
For a discussion of some of the risk 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 measures on this call you can find reconciliations of non-GAAP to GAAP financial measures discussed on today's call in our earnings press release and on our website at IR Dot health and dotcom.
This morning Christmas Vetter, our President and Chief Executive Officer will provide an overview of the current operating environment and the company's outlook, Kevin Jacobs, Our Chief Financial Officer, and President of Global Development will then review our third quarter results and discuss our expectations for the year. Following their remarks, we'll be happy to take your questions with that I am pleased.
I'll turn the call over to Chris. Thank you Jill good morning, everyone and thanks for joining US today I wanted to start today by saying that our thoughts are with all of those impacted by the tragic events that are unfolding in the middle East our priority remains the safety and security of our team members and guests as well as helping in any way we.
Can to support the relief efforts for the humanitarian crisis in the region through a number of organizations, including the International Committee for the Red Cross.
Turning to results. We're pleased to report another strong quarter with system wide Revpar adjusted EBITDA and adjusted EPS all above the high end of our guidance ranges the strength of our brands power of our commercial engines and resilient business model continued to drive strong top and bottom line.
Performance this supports meaningful free cash flow generation and greater shareholder returns year to date.
We've returned more than $1 $9 billion to shareholders and we remain on track to return 2.4 $2.6 billion for the full year.
In the quarter system wide Revpar increased six 8% year over year boosted by strong international performance and continued recovery in business transient and group demand improved across all segments and regions with system wide occupancy for the quarter, reaching our highest level post pandemic and only 2%.
<unk> points off prior peak levels with September just one point shy of 2019.
Group Revpar rose, 8% year over year, outperforming leisure and business transient revpar growth of 5% each compared to 2019 system wide Revpar grew 11, 4% in the quarter with all segments accelerating sequentially versus the second quarter.
Overall performance was driven by both rate and occupancy.
Steady rate growth and rising demand drove leisure revpar up 29% versus 2019, improving roughly 300 basis points versus the second quarter business transient Revpar grew 7% with both large and small accounts improving adjusting for holiday and Cal.
Under shifts midweek Revpar increased nearly 500 basis points versus the second quarter on the group side Revpar exceeded 2019 peak levels for the first full quarter since the pandemic and we continue to see positive group booking trends in the quarter for all future periods group position.
For 'twenty 'twenty four is now up 18% year over year and lead demand in the quarter for all future arrivals increased more than 15%.
As we look to the fourth quarter, we expect continued strength in international markets, along with continued improvement in business transient and group demand to drive further acceleration in revpar compared to 2019 better than expected third quarter performance and increased expectations for the fall.
With quarter, partially driven by better group bookings.
As a result, we now expect full year revpar growth of 12% to 12.5%.
Turning to development, we saw another quarter of robust signings with a near record 35500 rooms sign increasing 80% year over year. Our pipeline now stands at the highest in our history totaling 457000 rooms up 4% versus the second quarter and <unk>.
10% year over year signed.
Signings in the quarter spanned our portfolio demonstrating the benefits of a diversified industry, leading family of brands conversions accounted for 35% of signings increasing sequentially versus the second quarter.
Overall, we remain on track to deliver the highest annual signings in our company's history, surpassing 2019 record levels by double digit percentage points. We also delivered another strong quarter of construction starts with every major region, it's exceeding our expectations.
In the U S. In particular, delivering its strongest quarter of starts since Q1, 2020 up 18% year over year roughly half of our pipeline is currently under construction and we continue to have more rooms under construction than any other hotel company accounting for more than 20% of industry.
Sure.
In the quarter, we opened 107 hotels totaling nearly 16000 rooms up 22% year over year and 12% versus the second quarter, we achieved several milestones in the quarter, including the opening of our 700th hotel in the Asia Pacific region, and we celebrated our 16th anniversary.
Three in Japan.
We also opened our 300 lifestyle hotel in our 50000 lifestyle room, including the global debut of tempo by Hilton design with well being in mind. The brand's first property is now open in the Middle of times Square in New York as part of the T. S X development. Additionally.
Additionally, canopy launched in the south of France, with the opening of the canopy by Hilton Com, making hiltons entry into the city and the latest addition to a growing portfolio of canopy properties across Europe.
Curio celebrated its debut in Savannah, Georgia.
Tapestry increased its portfolio with the opening of the bankers Alley hotel in Nashville, and motto expanded its signature flexible design and local vibe with its second hotel in New York City. During the quarter. We also celebrated the Dubuque debut of our newest cost effective conversion brand spark by.
Hilton the Grand opening of the sparked by Hilton Mystic Groton, Connecticut solidified our foray into the premium economy segment.
I just visited the property last week and was blown away I would encourage any of you that are in the area to go see it.
Opening just eight months after launch spark is the fastest announcement to market brand and hiltons history with more than 400 deals in negotiation. We think this is the start of a journey to reshape the premium economy segment, while expanding our customer and our owner base.
Announced just five months ago project H. Three also continues to see tremendous demand with 350 deals in negotiation. In fact later today, we're breaking ground on the first ever property in Kokomo, Indiana, which we expect to open in late summer 2020 for positive momentum in <unk>.
Openings has continued into the fourth quarter with several notable openings in October including the 540 room Hilton can cone Mar Caribe, an all inclusive resort.
Tomorrow, we'll announce and open a thousand room conversion property in the northeast part of the United States, We forecast conversions will account for approximately 30% of full year openings.
For the full year, we continue to expect net unit growth of approximately 5%.
We believe we have hit an inflection point and expect a meaningful uptick in openings in the fourth quarter with continued positive momentum into next year with forecast for our highest level of signings in the year the largest pipeline in our history nearing the largest under construction pipeline in our history.
With identified 2024 openings and positive momentum in conversions, we are confident in our ability to accelerate net unit growth to 5.5% to 6% next year and to return to our prior 6% to 7% growth rate.
In terms of fee contribution our algorithm is alive and well and we expect fee growth above Revpar plus net unit growth going forward.
Our under construction portfolio mix of roughly 60% focused service hotels and 40% full service remains in line with our existing supply this balanced and diversified pipeline along with rising revpar in royalty rates gives us confidence in our ability to continue delivering high.
Quality growth with increasing fees per room.
We also continue strengthening our value proposition for Hilton honors members in the quarter honors membership grew 19% year over year to more than 173 million members and remains the fastest growing hotel loyalty program members accounted for 64% of occupancy.
Up more than 200 basis points year over year.
Demonstrating our commitment to meeting the evolving preferences of our guests, we recently announced several new innovations as part of our long term commitment to digitally transform the business travel experience for millions of small and medium size enterprises, we will launch Hilton for business early next year.
The multi faceted program will feature a new booking website, along with targeted benefits designs, especially for Smbs, which account for approximately 85% of our business mix. Additionally, we will expand our events booking capabilities, enabling customers to book meetings and events space.
With or without guest room blocks directly on our website for.
For travelers, who prioritize sustainability, we recently announced an expanded agreement with Tesla to install up to 20000 Universal wall connectors at 2000 hotels, making our planned EV charging network network the largest in the industry.
We also continued to be recognized for our culture. During the quarter. We were named the top hospitality employer in Europe and in Asia by Great place to work and just yesterday, we were named the number one best workplace for women in the United States for the fifth year in a row. The strong results. We're reporting today would not be possible without our more.
More than 460000 team members, whose spread the light and warmth of hospitality each and every day.
Overall, we're very pleased with our performance in the quarter and we remain very optimistic about the tremendous opportunities that lie ahead with continued strong demand coupled with our record pipeline and accelerating net unit growth forecast, we're confident in our ability to further differentiate ourselves from the industry in the years ahead.
Now I'll turn the call over to Kevin for a few more details on the results for the quarter and our expectations for the full year.
Thanks, Chris and good morning, everyone. During the quarter system wide Revpar grew six 8% versus the prior year on a comparable and currency neutral basis.
Growth was driven by strong international performance as well as continued strength in leisure and steady recovery in business transient and group travel adjusted EBITDA was $834 million in the third quarter up 14% year over year and exceeding the high end of our guidance range outperformance was driven by better than expected fee growth largely due to bad.
Than expected Revpar performance and license fee growth management and franchise fees grew 12% year over year.
For the quarter diluted earnings per share adjusted for special items was $1 67, increasing.
Increasing 27% year over year and exceeding the high end of our guidance range.
Turning to regional performance third quarter comparable U S. Revpar grew 3% year over year with performance led by continued recovery in both business transient and group.
Leisure demand in the U S remains strong even with tougher year over year comps relative to 2019 peak levels U S. Revpar increased 10% in the third quarter, improving 200 basis points versus the second quarter.
In the Americas outside the U S third quarter Revpar increased 11% year over year performance was driven by strong group demand, particularly in urban locations.
In Europe, Revpar grew 11% year over year performance benefited from continued strength in leisure demand and recovery in business travel.
In the Middle East and Africa region, Revpar increased 19% year over year led by both rate growth and strong demand from the summer travel season.
In the Asia Pacific Region third quarter, Revpar was up 39% year over year led by the continued demand recovery in China Revpar in China was up 38% year over year in the quarter and 12% higher than 2019 the.
The rest of the Asia Pacific Region also saw significant growth with Revpar, excluding China up 40% year over year.
Moving to our guidance for the fourth quarter, we expect system wide revpar growth to be between four five and five 5% year over year, and 12% to 13% versus 2019 with continued sequential improvement versus the third quarter.
We expect adjusted EBITDA of between $739 million and $759 million and diluted EPS adjusted for special items to be between $1 51.
And $1 56.
For the full year 2023, we expect revpar growth to be between 12% and 12, 5% we forecast adjusted EBITDA of between 3.025 billion and 3.0 for a $5 billion, we forecast diluted EPS adjusted for special items of between $6 and four and six.
Nine cents.
Please note that our guidance ranges do not incorporate future share repurchases.
Moving on to capital return, we paid a cash dividend of <unk> 15 per share during the third quarter for a total of $39 million. Our board also authorized a quarterly dividend of <unk> 15 per share in the fourth quarter.
Year to date, we have returned more than $1 $9 billion to shareholders in the form of buybacks and dividends and we expect to return between two four and $2 6 billion for the full year.
Further details on our third quarter results can be found in 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 as many of you as possible. So we ask that you limit yourself to one question.
M. J can we have our first question. Please.
Yes, that's great.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys. Our first question today comes from Shaun Kelly with Bank of America. Please go ahead.
Hi, good morning, everyone and thanks for taking my question.
Good morning, Chris So.
Chris I think the big incremental here is obviously your 2024, improving net unit growth outlook I think this is.
Meaningfully better than what people were expecting out there. So you gave some color in terms of what youre seeing on obviously signing starts in details, but just help us kind of dig in here a little bit what would kind of give you the confidence.
Just kind of bumped that up from where we were a quarter ago or is there something in particular you'd like to call out for us and specifically just remind us of exactly the activity levels, you're seeing here in the U S. As we know we're fighting that sort of tougher construction and financing environment for eleanor's broadly it seems like Youre, obviously able to buck that trend. Thank you.
Yeah Yeah.
Last quarter, we gave a broad range of five to six which we felt good about but a broader range for obvious reasons. We were you know middle of the year and there was a lot of year left and that's a lot of time to see what was going to happen in signings in starts and success with conversions and like and so.
You know as you saw from what we just reported on.
And Kevin's in my comments, we continue to have great success in the third quarter and that's continued in the fourth quarter as I said in my prepared comments, we're gonna have a record year by double digit percentage on signings, while it starts aren't quite back to.
To where they are where they where they're getting they're getting close to being back to where they were we obviously you have an elevated level of conversions from what we've seen in recent years at 30%, which we think is going to continue with across a broad range of brands in and of course, including the addition of spark and so the the competence we have.
Is.
At this point in the year, we have a very granular model. This as you know we always have a model, but in the middle of the year.
By definition and we just don't have as much information now as I said in my comments quite briefly you know we have identified a lot of what we're going to deliver next year is identified.
Obviously, we have a bunch of conversions that will do in the year for the year, but we have you know we have a lot. We've had a lot of success there and so the confidence is ground up you know region by region.
Hotel by hotel with some we think reasonably conservative assumptions for what we'll be able to execute on given the momentum. We havent conversions. This is where we ended up as five five to six and so we wouldn't say it if we didn't believe it and it is it is a plan that is based on the underlying.
Momentum and things that are largely in production.
As I looked at it you know the truth I know, we get questions. All the time about whether you're going to get back to six to seven.
And we obviously and I said in my prepared comments I have every confidence we will I think it's possible next year. If a few things go our way I think we'd probably we could be at the bottom end of that of that range, but we're still in October of 2023, So we're going to take it one step at a time, we refined it.
We feel really good about five five to six.
This time, we talk we'll we'll ever find it even more and as I said a few things go our way you know honestly when I look at all of the data data in a granular way.
I think theres, probably more more upside potential.
Downside risk at this point.
And then Sean again.
Sorry, Jay Thanks, Sean just to circle back to the U S. I think look the story I mean, you've heard you've heard the story about you know things are a little bit more stressed with financing costs, but I think the story around if you are financed and you're entitled and Youre ready to go and you want and you want to build a hotel you're better youre better off getting underway than leaving that assay.
There's a nonperforming asset and I think that you think about that being fueled also by the fundamental environment where.
People are optimistic about growth capacity additions are going to be constrained, we continue to take share and so I think it's a good story in the U S as well.
The next question comes from Joe Greff with J P. Morgan. Please go ahead.
Good morning, guys. Thanks for taking my questions.
Chris just trying to understand you know longer term the accelerating net rooms growth E on.
On average how long is the typical full service of the typical limited service hotels being in the pipeline.
Is that timeline Aaron.
Understanding you know next year is accelerating rooms growth is more a function of past periods gross room signings.
As well as you know starts that you're seeing pick up.
Here, but are you seeing that the timeline room staying in our pipeline narrow at all.
Our like for like basis.
I would say every region is a little different I don't have a hard stats in my head I'll give you sort of a directional answer I mean with limited service and the pipeline generally in the pipeline a couple of years full service I would say.
The order of three or four years, but it could vary greatly depending on what region of the world DRAM, but I think directionally those are if I average it all together those are those are pretty good and I would say you know what happened during COVID-19 is that that extended out you know.
Great deal because everything stopped and slow down and then you had the supply chain issues, even after things.
Got moving again, we reopened you had the supply chain things that slowed things down that has now come back down to being closer to where we were but still a little bit more extended than where we were and I think that has a lot to do with just in a lot of parts of the world what Kevin.
Said, it's just a little harder to get things done and so it's taking a little bit longer people are getting financed but you know if they had five projects. They wanted to start there may be getting two or three of those finance and it's taking a little bit longer. So I think there is a little bit longer gestation peer.
He is now 30% of the deliveries are conversions, obviously, that's a super short gestation period.
From pipeline into into no against so that is helping you know if you take it on average I would say with an increase of.
Conversions relative to being in the low twenties right before we were in Covid I would say that the gestation period time and pipeline is about the same again I'm doing sort of quick quick and dirty math in my head, but but.
But if you just look at pure new construction, it's a little bit it's still a touch longer than than it than it had been it again, we'd sort of like not to repeat myself, we factored that all of that and meaning we know we have we have a team that is on the ground everywhere in the world working with all of our owners on.
Every project that's under construction and what we think we're going to deliver next year other than <unk>.
In the year for the year, which are largely obviously conversions at this point those are projects that are in the ground there being that are under construction and we have rational timelines for when we think that those those will deliver.
The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. Thank you for taking my question.
Chris You said earlier in the call that kind of fee growth.
You expected fee growth to outpace kind of Doug.
Revpar dynamic.
I was wondering if you could kind of break down a little bit how to think about the now plus revpar dynamic for the operating business relative to kind of the fees and whatnot. How we should think about that that the component of that relation yeah. We do get we do get a bunch of questions periodically on.
Fees per room, and they are going up and going down I mean, that's the reason we put it in there and we'll give you a lot more granularity on that on March 19th of next year, when we do a full day.
A good part of a day talking about it but we just we put it out there because we wanted to we would.
Get the question it up I wanted to publicly.
Steve.
We think about it I mean.
You know we described years ago, when we had our last analyst day sort of an algorithm that had.
Same store growth new unit growth with leverage associated with you know fee and fee.
The license fee increases and that that would ultimately give us.
Same store.
<unk> growth our fee growth that would be greater than the combination of those two and that that is the condition that exists today, that's what we see in the business today that as we model the business going forward, we believe that will continue as.
As we look at the model Y because of the things that are happening we're getting we're getting same store, we're adding units and we continue to see our license fee rates go up as we renew contracts. We are 5% of the system, that's sort of an average rolling out every year in getting mark to market and we're moving our you know in a bunch of brands, we're moving our license fee.
So when you factor for all of that that's how you get it on our in our core Revpar base and then our non Revpar base fees.
As I think we've said a bunch of times, we're having great success. There is a bunch of different pieces of that.
The two biggest pieces of it are credit card co brand business and our.
HGV C H.
<unk> business, both of which we think over time will grow at higher than algorithm on average and so when you put all that together those are our fees and that's why our fees, we believe will be growing greater than sort of revpar plus snug.
And that obviously then translates if you just do simple math when you look at fees per room, and you add revpar growth into into that equation and you and you model. It out over time, it's sort of hard if you'd make those assumptions not to see fees per room go up so people ask us that we think you know.
The math is pretty easy that's why we put it in there is just to sort of put a marker out there again, we'll give we're going to have the reason we want to have an analyst day to do a bunch of different things but.
That'll be one of them to give you give everybody a little bit more granularity, but you know in an abundance of sort of transparency.
We obviously always have our business model then we think the the math.
The arithmetic is pretty straightforward and obviously compelling.
Yeah.
The next question comes from Stephen Grambling with Morgan Stanley. Please go ahead.
Hey, Thank you.
Touch on key money, a little bit which went up a bit.
Guidance for the fourth quarter, even as conversions are also going up can you just remind us of your general approach to key money and how the industry dynamics around key money had been evolving as we think about not only in <unk>, but beyond.
Yeah, So Steve first of all I'd say, our overall approach to key money has been very consistent the entire time, we've been here, we still have less than 10% of our deals that have any key money associated with them. I think you have to recognize that in a more competitive environment for conversions that those tend to be.
Get a little bit more competitive in a little bit more expensive, but this year. What I would say is it's just we happened to have one we upped our guidance for overall cap Capex I should point out that that's not key money guidance. That's overall capex guidance, we upped our guidance we've been fortunate to win a few right.
Relatively large deals at the higher end of the business, where they get a little more expensive in the fourth quarter and we had one big deal as we've told you about the carried over it really was a last year deal, but didn't end up closing until this year, which caused last year to be lighter this year to be a little bit heavier. If you look at a three year average we're sort of.
South of $250 million of total Capex the way, we got it and I think that's the right way to think about it going forward. We think next year will normalize and you know back be back into that sort of low twos to low to mid twos range on a total capex basis.
Okay.
The next question is from David Katz with Jefferies. Please go ahead.
Yeah.
Good morning, everyone. Thanks for taking my questions David.
You covered a lot of details and in particular, the nug acceleration into next year.
If you could help us unpack a little bit is there some expectation for improvement in the landscape and I know Kevin mentioned taking share.
Of the of the opportunities that are out there.
How is that a function of.
Key money I'd love to just get a sense for how you're pitching it.
And why you're winning.
I would say built and I said this is a very granular.
Next year, it's a very granular analysis. So it's all in production or conversions. So I would say, we do think the environment not great, but not bad I mean things are getting financed actually in a really tough environment as Kevin implied we ended up taking share. So we're getting more much more than our.
Fair share of the development opportunities why I mean, I'm, obviously partial but I think if you could talk to a broad base of owners that you would say is our brands perform better our market share is the highest in the industry and if there are only going to do a you know a few deals they wanted to them and get the highest returns and so they go to the brands that are going to deliver there.
Best performance. So I mean, it's clearly you know it's still.
Challenging financing environment, although open.
So we haven't made any big assumption to get to these numbers for next year, that's something changes wildly, we think it sort of going to <unk>.
My guess is it will matriculate and get a little bit better.
Cause there's a chance at some point next year rates will come down and things. So we haven't really made that assumption as I said, because what's going to happen next year is largely in production, but we do think as has been happening this year and for a number of years that we will continue to take share and we do believe and built into this is that on conversions again I said.
It will be 30. This year I think will be about 30 next year or two that we are going to get more than our fair share of conversions.
And we have enough momentum that I have the confidence to feel good about giving you the range and the outcomes on that basis.
And my guess is as I said, if a few things go our way you know we might be able to outperform you know that we've really definitely you know hit an inflection point of view. If you really think about the inflection pointed it was sort of the second half of last year, you started to see the momentum shifts and things.
Bottom out in terms of signings and starts and I kept saying that the people I know everybody's been nervous about nugget and for good reason, but you could weaken to see like the rack moving through the snake so to so to speak starting the second half of last year and now you're starting to see it produced third quarter is up a little and you'll see the fourth quarter.
Order, we're going to have a very large delivery quarter and you know our belief just given again, what we know is in production as you've hit a real point of inflection in your <unk> you're on the way back up so that's a lot to unpack I think the core answer is there is no broad assumption.
Like the world improving from from the standpoint of development and financing in any material way from where we are here.
Yeah.
The next question comes from Smedes Rose with Citi. Please go ahead.
Okay.
Hi, Thank you.
I just wanted to go back to your comments around group business, which looks like it's pacing very well up for next year and you mentioned that you had before that 85% is coming from smaller.
Prices just wondering if you could talk a little bit about the remaining 15%, which I guess is comprised of larger.
Businesses, and maybe kind of just what youre hearing in terms of their sort of appetite to book into next year at this point.
Thanks Smedes for the question I think you may be conflating two different comments.
Group is way up 18%.
Our group business on the books for next year, the 85% I was talking about SME business.
Business business transient it does turn out by coincidence that.
85% of our of our group business is small and medium groups.
That's a total coincidence.
15% of it is sort of a large I'd say 300 room plus groups.
As we look at next year as you look at sort of implied.
I think in some of the comments I've already made or in the prepared comments, what's going to happen next year as it will start I still think group business has always been dominated by just like business travel business transient by small and medium groups, but you you will see the return of the Mega groups that started in the second.
Half of this year. It takes a long time to plan these things and think about it last year and nobody wanted to commit to much because they didnt know we were still in this open close open close they've gotta spend millions of dollars.
These events they can't get out of them Theres penalties everything else. So people waited a long time and then it takes and they've got to get there.
Gotta get a space and it's getting much much harder to get space for these you know the city wides in the big groups. So that just takes time I think it will shift next year not radically but I think you will see you know.
A decent shift.
Two an orientation to the to the large groups because they have a huge amount of pent up demand that that needs to be satiated and so that's going to start happening next year. My guess is youll see a big surge in it will shift the stats around over time, I think it's probably like a year now.
I don't have hard data point, but sort of directionally, having done this a long time I think it's like 80 20.
Something like that you know more more normally and so I think next year, you're going to get you're going to get more of that instead of $85 15, youre going to see the bigger bigger groups take.
Uh huh of leap up in the short to intermediate term to get to a more normal environment, but we're seeing.
Sort of underneath the question I assume as you know what are we seeing and strength from small medium big whatever we're seeing it.
We sat in this very room with our sales team as we do every quarter I went through it all we're saying strike then everything group group is just off the hook strong tons of demand peak groups or lead times are lengthening because the obvious right now everything there's not been a lot of group hotels that had been built in this country for SM.
20 years, and so you have all this demand you have fewer places to go so groups have to start planning further in advance.
And booking much much further out and so the.
Demand is very good we've not seen notwithstanding a lot of noise in the environment about like where is the economy going in and the like for next year. It's not we've not seen any real impact in terms of group demand at this point to the contrary. Our teams are saying you know they're doing everything they can to keep up with demand.
The next question comes from Brian <unk> with Barclays. Please go ahead.
Hey, good morning, everybody. Thanks for taking my question maybe for Kevin.
The fourth quarter Revpar guidance looks.
Strong not part of that arena of your three your third quarter Revpar growth.
Little bit diverging.
Sure Happy to brand I think yeah, obviously, we raised our you know we raised our guidance about about the amount of the third quarter B. We did increase the top line for the fourth quarter, a little bit not not huge and it is flowing through safe or there's a little bit of timing in corporate expense a little bit of FX, and then and then a small amount.
For Israel.
That's really it.
The next question comes from Robin Farley with UBS. Please go ahead.
Great. Thanks, I wanted to ask returning to the topic of unit growth.
The conversion percent next year, you said about 30% as well in 2024 can you give us a sense of sort of typically in October of the prior year, how much of those conversions would be kind of already on your books versus how much.
It would come in sort of.
For the year that you don't have as much visibility on just to kind of understand the visibility there.
A question and I wish I had a great answer every year as you know sort of wildly different I would say less than half its not nothing but you know a lot of the work gets done in the year, but I would say if I had to guess at it half maybe maybe a bit less would be you know 40 to 50.
Percent, we'd be on the books, one way or another or maybe not in it wouldn't be in the pipeline, but it would be in some form of negotiation I would say, 40% to 40% to 50% would be in some form of negotiation.
The next question comes from Patrick Schultz with <unk> Securities. Please go ahead.
Okay.
Hi, good morning, everyone.
A question.
A question about how you're thinking about upcoming corporate rate negotiations.
For 2024, thank you.
Yeah, we feel pretty good about it I mean, we're sort of in the it just getting into the thick of it it's not we're nowhere we're nowhere near done.
Keeping in mind, it's a relatively small part at this point of the business is like 6% of our business given that we have really pushed hard on the SME side of the business and that's 85% of the business. So when you when you sort of whittle it down it's about 6% of the business, but we think you know at this point.
When you add it all together the fixed and the dynamic most of our pricing is dynamic at this point, it's probably in the upper single digits.
The next question comes from Duane <unk> with Evercore ISI. Please go ahead.
Hey, Thanks, good morning.
Chris I'll ask you to Oh.
Pull out your crystal ball for a second.
Could you share some high level thoughts on which regions have the most revpar growth potential into 2024 are you thinking maybe next year as more of a domestic growth driven year or more of the same with international leading you know does the regional leadership change into 2024.
I think it will be I mean.
I think it'll be reasonably balanced between U S and rest of world, maybe a smidge smidge lower in the U S and rest of world, but not not too terribly different at least based on what we're seeing now and then for rest of world.
I think we see positive growth everywhere by the way, we don't see a region, where we will not have growth.
Uh huh.
We're in the middle of budget season. So you know with the slightly premature to judge exactly where it'll be but you know if you said to me where do we think it would be recognizing were early in the process I would see I would say low to mid single digit global Revpar growth and will obviously in the next call we'll give you a.
Refined view when we when we have finished the whole process, but again I would think that would be rest of world a little bit higher U S not too terribly different.
And and the you know the the one that would lead the pack again would be Asia Pacific you know for a bunch of reasons and most notably China, which if you recall just in terms of comps China did open up and is now doing really well, but the first part of this year was not so you will have a <unk>.
We'll have a very strong start given everything that's happening in China in the business, which you know theres a lot of noise about China and their economy, but from a travel tourism point of view in China. It is very very strong now we think that will carry into the into the beginning of the year and then you'll have some easy comps. So we think you know.
From a pure what will revpar year over year growth point of view, what will where with the regions.
B I would say China with China.
S APAC will sort of lead the charge, but they're not you know, but they are they're going to I would say given we think it'll probably be in the low to mid single digits theyre going to converge a little bit more and now the world because China is open.
As all you know youre getting out of sort of these COVID-19 comp issues and you're getting almost to sort of a normalized world where you have comps where everybody was opened from COVID-19.
Other than as I say, the first part of the year in China. The first part of 2020 for comparability issue.
The next question comes from Chad Beynon with Macquarie. Please go ahead.
Good morning, Thanks for taking my question just in terms of occupancy versus rate discussion I guess more focused on occupancy Chris can you talk about how we should think about occupancy exiting 'twenty three.
As a percentage or declined versus 19, and then more importantly is there still a day of the week that just hasnt come back you know should occupancy permanently be be a couple hundred basis points off just trying to think about this in the medium term. Thanks.
Yeah, I mean, I said it in the prepared comments that in Q3, we actually were only 200 basis points off and in September we were only 100 so.
I think we're going to exit this year getting closer and closer to prior levels of occupancy for the industry, but at least at least for Hilton I think as we get into next year, particularly as we're able to build the group base, which is if you really look at whats happening if you're getting mid week business.
Back you know leisure is obviously still strong weekends are still stronger than they were.
What what's really happened, particularly in a lot of the big cities in the U S. As you don't have the group base back while you've seen recovery you don't have that big group base to leverage the rest of the business off of and as I already commented. We think you know you're going to have a really robust group year, just given where bookings are right now.
That that is I think sort of the last leg of the stool, allowing you to get back to occupancy levels comparable to 2019. So I suspect next year, we will.
As that you know as as you go through the year and you get that group base back I think you know the rest of the segments feel.
Very good.
No everybody wants to think nobody's going to travel for business, but that is just that you know people are traveling like crazy you look around in the.
The makeup of Theres. Some industries, you know technology and financial services that haven't rebounded as much and have issues or you know bike over hiring and then reduction in workforce and all of that but again the bulk of it's driven by Smbs and they're traveling more than they were in most of the corporates and even those corporates.
The people they still do have or are traveling more so you know I don't.
I do not I do believe we will get back to prior levels of of occupancy I think that'll happen next year I think we're getting we're not quite there, but we're getting close I think next year as you think about.
The split between rate and occupancy, it's a little early but I would say, it's probably a pretty balanced.
It's pretty balanced equation as between the two next year I mean, certainly it's early look.
The next question comes from Michael Bellisario with Baird. Please go ahead.
Thanks, Good morning, everyone.
I just wanted to ask on luxury maybe just remind us where is the white space today as you see it and then maybe more importantly, what are your customers still asking for as you think about investing keen money at the higher end price point.
Yeah, I think that you know the the white space for us is luxury lifestyle.
Talked about it a bunch.
We're doing a bunch of work in this space right now.
I think next year, we will come out with we will have a product in the market next next year. So.
You know we've done a lot of work over many years, but we sort of cranked up that engine. Once we got spark launched in you know in age three out there.
That sort of next.
I think our customers listen I think our customers will love what we have there I mean as reflected in the fact that you know loyalty is amongst the largest in there's certainly the fastest growing and I think we I know, we still represent the highest level of engagement a sense of the honors occupancy being higher than.
And the industry. So I think our customers are saying to us the ecosystem that you've created both how you do loyalty. The products you have the geography that we talk about frequently the network effect that we've built.
Combined with honors and experiences related honors.
You know how they engage with honors is is really working well. So I don't think there is anything that if I'm being really blunt that our customers are screaming guy and I just sat in 12 hours of focus groups with customers because they're going through a strategic planning process for over two nights with every segment of customers people.
Loyal to us not loyal to us et cetera, et cetera. There was I mean, there's a lot to unpack there I'm not going to do it on this call, but there was nothing that our customers were saying like gosh, you know you need this you need that.
We do know is that.
You know having more on the high end creates even more of a halo effect, we believe we have.
A significant amount already in the luxury space in the resort space.
And given our scale and breadth and depth geographically, we think it's very pleasing to our honors members, but on the margin having more of it. We think is beneficial which is why we spend the time doing it that's why we wanted.
I wanted to do luxury lifestyle. The other reason really not only do we want our customers to have more opportunities you know at the high end.
But were just giving away if I'm being honest were just giving away development opportunities I'm looking at Kevin who runs development too it's like I travel all over the world. We have owners that are super loyal to us.
And many of them want to build a luxury lifestyle hotel and we don't we don't really have a product for them and so literally they're doing it with other people just because we don't have a product and that makes me crazy.
So that I think that it will obviously enhance our growth rate now luxury lifestyle, it's not like a three year spark or tempo or you know home to you know its not not you know, it's a very bespoke thing youre not gonna have thousands of these youre not even could have hundreds of these I mean look at people who have been at it for a long long time, you know you you'll be fortunate.
Dozens of them, but every every room counts and having more really high quality products in the right locations. We think continues to build our network effect and so I've said this many times to many investors I sort of love, where we are which is you know we have an ecosystem. We have a network effect that works we have.
173.
Three by the end of the year beginning of next year, we'll have 200 million honors members that are very loyal to us They love.
They love honors they loved the network that we've created they love the brand diversification geographic diversification and so there is really doing luxury lifestyles fabulous doing more luxury deals with Waldorf and Conrad and Alex are we'll keep doing that.
Those will add to growth, but there is you know the ecosystem works I think you know a point in cases.
The success that honors as having vis vis the competition. So I look at these as all like incremental incremental Halo incrementally. Obviously, we can always we can always make it better and we can always add you know want to add.
Products that add to our growth rate and we think you know we think luxury lifestyle well.
The next question comes from Bill Crow with Raymond James. Please go ahead.
Okay.
Okay.
Okay.
Mr. <unk> your line is open.
Hey, Bill are you there.
Im sorry, Chris good morning.
Jill.
Quick two parter on.
Doug.
Maybe the last question that Doug for today.
Part of that question, so well a couple of specific questions first of all the headlines surrounding.
Country Garden, China, or getting any better and I'm just wondering.
As it regards to the pipeline as opposed to the already constructed and opening new units. What do you. What do you think the risk is to that pipeline as you stand today. The second second part of the question is more specific on that on the key money and we understand the hotel youre going to.
The conversion on that tomorrow in Boston.
Reports are circulating thats a $40 million.
Key money payment I'm, just trying to figure out the economics to Hilton payments like that.
Let me maybe talk about Kevin can jump in a country garden.
It is not you know a huge component of our overall pipeline yet in China.
And so I don't I don't feel like there's any risk and certainly the guidance, we're giving you on on Doug anticipates, what we think conservatively will happen there having said you know country Garden, obviously has a lot of issues.
But this venture is a totally separate entity apart from their residential business. They remain very committed to it they have very.
Rigorous milestones that they have to meet in order to keep you know keep the exclusivity with home too and if they don't we have all sorts of options.
You know that we could you know that we could move forward on doing it ourselves et cetera et cetera. So I hope to is a very is very well received by the Chinese customer and very well received by the owner community recognizing country garden not building any of these this is a.
M L a where we're going out with them and these are franchisees that are doing it and its not there money its individual property owners developers and all of these little regions of China, and so it's not it's not a capital drain for them. They they like it it's profitable and I think they will stick with it if they don't.
And you know ultimately we have all sorts of mechanisms if they don't meet the milestones it's not like we have to wait very long I suspect they will face that they're there.
They are saying to me and to us as they remain.
<unk> committed to it so I.
I think I think it's fine I think come to the key ingredient to it is super popular super profitable on the ones that we've opened up in the development community just like they love home two in the U S. The development community in China loved it so that means that we're going to get a bunch of home two's done hopefully it's with them if it's.
What we'll do we'll do it ourselves.
Uh huh.
On.
The deal we talked about you know without naming it we're not going to name it we would've named it if we could.
So we're not going to we're not going to we're not going to comment on specific deals and individual key money.
The way to think about it broadly is on big complicated you know city center full service or luxury.
Those are the deals that end up drawing I mean, you're being most of the key money. We spent as Kevin said, you know less than 10% of our of our deals in our pipeline by number have any form of balance sheet support and disproportionately. It's those kinds of deals are more competitive.
They are more strategic in.
Certain locations, where we may have lesser density of distribution, where it's really important to us and in every single case, we are making money I mean, we are never giving key money and I'm not going to comment on individual deals we are never giving key money that.
That doesn't have us make creating value in a contract that is significantly higher than the key money contribution obviously.
We're not we're a for profit business. We just don't approach it that way. So every deal is profitable and 90 plus percent of them are infinitely profitable because we put nothing into them.
Ladies and gentlemen, this concludes our question and answer session I would now like to turn the call back to Christmas setup for any closing remarks.
Thanks, everybody for the time today.
Obviously.
Very pleased with Q3, but more importantly.
Pleased with the momentum we have going into the fourth quarter feel.
Pretty good about next year, we'll get back to you on exactly what we think as we get through our budget process, but given the macro view of what next year is going to be like in the pent up demand.
Particularly in group, but also in business travel, we feel very good about it and obviously, we talked a lot about nugget a day.
<unk> tried to give you a much more granular view of that we feel good that we've hit a point of inflection and.
We're on on the road to getting back to our 6% to 7%.
Growth rate so.
We've got a busy end of year to make all that happen and get set up for next year, we will get back to it and we'll look forward or getting back with you. After the year is over.
Yeah.
The conference has now concluded. Thank you for your participation you may now disconnect your line.
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