Q3 2024 Hilton Worldwide Holdings Inc Earnings Call
Speaker Change: [music].
Good morning, and welcome to the Hilton third quarter 2024 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Jill Chapman Senior Vice President head of development operations and Investor Relations you may begin.
Jill Chapman: Thank you Chad welcome to Hilton's third quarter 'twenty 'twenty four earnings call before we begin we'd like to remind you that our discussions. This morning will include forward looking statements.
Jill Chapman: 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 today, we undertake no obligation to update or revise these statements for a discussion of some of the factors that could cause actual results could differ please see the risk factors.
Jill Chapman: 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 in today's call in our earnings press release and on our website at IR Dot Hilton Dotcom.
Speaker Change: This morning Christmas that are our president and Chief Executive Officer will provide an overview of the current operating environment and the company's outlook.
Speaker Change: 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 and with that I'm pleased to turn the call over to Chris. Thank you Joe Good morning, everyone and thanks for joining US today, our third quarter results continued to demonstrate this.
Speaker Change: The strength of our business model.
Speaker Change: Strong net unit growth helped drive solid bottom line performance adjusted EBITDA and adjusted EPS, both exceeded the high end of our guidance despite softer than expected Revpar performance, we opened more hotel rooms than any other quarter in the history of our company and surpassed 8000 hotels in our.
Speaker Change: We also reached a milestone 200 million Hilton honors members in the quarter as our award winning program industry, leading brands and exceptional service continued to increase guest loyalty.
Speaker Change: Turning to results third quarter system wide Revpar increased one 4% year over year below our guidance range due to slower ramp in September following labor day weather impacts unfavorable calendar shifts and ongoing labor disputes in the U S business transient revpar in.
Speaker Change: <unk>, 2% with growth across both large corporates and small and medium sized businesses leisure trends continued to normalize with revpar declining modestly from post pandemic peaks group Revpar rose more than 5% year over year led by strong demand for both corporate.
And social meetings and events.
Speaker Change: For the full year group position is up 10% with group position in 'twenty, five and 26 up low double digits to mid teens.
Speaker Change: Adjusting for holiday and calendar shifts we estimate system wide revpar grew at 2.3% in the quarter, just slightly softer than the second quarter.
Speaker Change: And with all segments, increasing on an adjusted basis leisure transient revpar increased nearly 2% driven largely by solid trends across continental Europe in the fourth quarter, we expect revpar growth largely in line with third quarter, driven by strong group bookings.
Continued business transient recovery and favorable calendar shifts, partially offset by the election and ongoing labor disputes in the U S. Weekday pays for October is tracking up more than 300 basis points versus September is a weekday pace driven by solid business transient.
Speaker Change: [noise] formats and group strength company meetings and convention business continue to grow as a percentage of mix driving longer booking windows.
Speaker Change: Given year to date performance and fourth quarter expectations, we expect forecast full year revpar growth of 2% to 2.5% and.
Speaker Change: In full year adjusted EBITDA growth of approximately 10% demonstrating the continued resiliency of our business model turning to development in the quarter. We opened a record 531 hotels totaling more than 36000 rooms and achieved the highest net unit growth in our history at seven point.
8%, we marked several milestones in the quarter, including the opening of our 8000 hotels worldwide are 900 hotel in Asia Pacific and our 900 hotel in EMEA Hum to suites, which has more than doubled in supply in the last five years opened at 700 hotel.
Speaker Change: And continues to have the largest new development pipeline in the industry.
Speaker Change: We continue to expand our lifestyle portfolio opening a number of new hotels in the quarter, including the graduate Auburn and graduate Princeton. The first two openings under our newly acquired graduate brand. We also introduced <unk>.
Speaker Change: Several brands in new markets around the world, including Spark in Canada Embassy suites in the UAE canopy in Japan, and Hampton in Switzerland, demonstrating the strong value of our industry, leading brands and delivering for owners, we welcomed nearly 400 luxury properties through our exclusive agreement with small.
Speaker Change: Luxury hotels of the World. These properties spanning 70 different countries provide honors members, even more opportunities to book unique luxury experiences and sought after destinations across the globe, including S. L H and our existing luxury properties. We now have one of the largest luxury hotel.
Speaker Change: Portfolios in the industry.
Speaker Change: Conversions accounted for 60% of openings in the quarter driven by the addition of S. L age properties and continued momentum from spark we opened more than 20 spark hotels in the quarter and now have over 6000 spark rooms and supply just a year. After the brand opened its first <unk>.
Speaker Change: <unk>.
Speaker Change: Spark now has opened hotels in the U S and the U K and Canada, and we recently announced plans to open hotels in Germany, and Austria before the end of the year. The brand's pipeline is three times larger than its existing supply and we expect continued launches in international markets to further boost Sparks Street.
Speaker Change: Sectary positioning us well for future growth and the premium economy space in the quarter, we signed 28000 rooms, expanding our pipeline to more than 492000 rooms, which is up 8% year over year, excluding partnerships. Our pipeline also increased from the second quarter.
Speaker Change: We signed three luxury deals in Greece, Japan in the UAE and 35 lifestyle properties, including a record 15, curios conversions accounted for more than 30% of signings in the quarter driven by the strength of spark and the continued momentum across curio tapestry.
Speaker Change: <unk> and doubled tree.
Speaker Change: Construction starts remain strong up 21%, excluding acquisitions and partnerships, we remain on track to exceed.
Speaker Change: Prior levels of starts by year end with meaningful growth across both the U S and international markets approximately half of our pay but it is under construction and we continue to have more rooms under construction than any other hotel company accounting for more than 20% of industry share and nearly four.
Speaker Change: Four times, our existing share of supply.
Speaker Change: As a result of our strong pipeline and under construction activity. We continue to expect net unit growth of seven to seven and a half per cent for the full year and 6% to 7% for 2025, we continue to be recognized for our culture and award winning brands during the quarter, we were named the top.
Hospitality workplace in Latin America, and Asia by Great place to work, adding to the more than 560, great place to work awards and nearly 60 number one wins around the world. Since 2016. We're also proud to be named the number two workplace on the 'twenty 'twenty four people.
Speaker Change: Gesine companies that care lists and recently recognizes times' best.
Times' Best Hotel brand of 'twenty 'twenty four overall, we're very pleased with our performance in the quarter and the milestones we've achieved our powerful network of brands to Kid continue to be an engine of opportunity for our guests.
Speaker Change: Our owners and our team members and we're excited about our growth into the future now I'm going to turn the call over to Kevin for a few more details on our results for the quarter at our expectations for the full year.
Kevin Jacobs: Thanks, Chris and good morning, everyone. During the quarter system wide Revpar grew one 4% versus the prior year on a comparable and currency neutral basis.
Kevin Jacobs: Growth was largely largely driven by strong international performance and continued recovery in group adjust.
Kevin Jacobs: Adjusted EBITDA was $904 million in the third quarter up 8% year over year and exceeding the high end of our guidance range outperformance was driven by better than expected non revpar fee growth lower corporate expense and some timing items.
Kevin Jacobs: Management and franchise fees grew 8% year over year.
Kevin Jacobs: For the quarter diluted earnings per share adjusted for special items was $1.92.
Kevin Jacobs: Turning to our regional performance third quarter comparable U S. Revpar was up 1% driven by strong group performance in the Americas outside of the U S third quarter Revpar increased 4% year over year, driven by strong results in urban markets, particularly in Mexico.
Kevin Jacobs: In Europe, Revpar grew 7% year over year, driven by key summer events, including the Olympics in France, and the European Soccer Championships in Germany.
Kevin Jacobs: In the Middle East and Africa region, Revpar increased 3% year over year led by occupancy gains in Qatar in Riyadh.
Kevin Jacobs: In the Asia Pacific Region third quarter, Revpar was down 3% year over year Revpar in APAC ex China increased 4% led by strong performance in India, However, China Revpar declined 9% in the quarter with difficult year over year domestic travel comparisons disruptions due to typhoons and limited international inbound travel.
Kevin Jacobs: <unk> negatively affecting results.
Kevin Jacobs: Turning to development, we ended the quarter with approximately 492000 rooms in our pipeline up 8% year over year with approximately 60% of those rooms located outside of the U S and nearly half under construction.
Kevin Jacobs: For the full year, we expect net unit growth of seven to seven 5%.
Kevin Jacobs: Moving to guidance for the fourth quarter, we expect system wide revpar growth of 1% to 2% year over year, we expect adjusted EBITDA of between $804 million and $834 million and diluted EPS adjusted for special items to be between $1 57, and $1 67.
Kevin Jacobs: For full year 'twenty 'twenty four we expect Revpar growth of two to two 5% we forecast adjusted EBITDA of between $3 $3 75 billion and $3 $405 billion, we forecast diluted EPS adjusted for special items of between $6 93 and $7 three.
Please note that our guidance ranges do not incorporate future share repurchases.
Kevin Jacobs: Moving on to capital return, we paid a cash dividend of <unk> 15 per share during the third quarter for a total of $37 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 $2 $4 billion to shareholders in the form of buybacks and dividends and for the full year, we expect to return approximately three.
Kevin Jacobs: Yeah.
Speaker Change: 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 Chad can we have our first question. Thank you. We will now begin our question and answer session.
Speaker Change: I'll ask a question you May press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: The first question will be from Joe Greff with J P. Morgan. Please go ahead.
Joe Greff: Hi, good morning.
Speaker Change: Jill.
Joe Greff: Yes back in March at your Investor Day, which feels like a long time ago for a lot of different reasons.
Joe Greff: You gave a 2025 EBITDA target of 369 billion.
Joe Greff: When you look at that number and the drivers getting there.
Joe Greff: What's different about 2025 as you sit here today versus this past March.
Speaker Change: I guess in other words, a few in the industry are in the 1% to 2% Revpar growth range for next year.
Speaker Change: You still look at that level of EBITDA is achievable or would you need revpar to be somewhat higher than one to two per cent to get there. Yeah. That's a good question. Obviously, it's a it's a tad early to be getting into 2025 guidance. As you know we would we would do typically do that at the end of <unk>, you know where you were.
Speaker Change: Four at year end at the beginning of next year, but we you know.
Speaker Change: I will give you a high level sense of it I mean, we are in the <unk>.
Speaker Change: You know sort of early ish stages of budget season. So you know lots of work to do but I would say you know I have a reason to believe like most things that have a reasonably strong view of where I think things will end up and so you know it started with sort of like how do we feel broadly about 2025, and I would say we feel pretty.
Speaker Change: Good about it I you know I've been doing this for longer than I must admit maybe close to 40 years I've rarely seen.
Speaker Change: You know sort of a stronger consensus view on the macro particularly here in the U S. But I think I think broadly.
Speaker Change: That macro view is you know the you know sort of I think the word resiliency Ah I used to describe our business I think that where it is getting used a lot to describe the economy and I think you know there there is a very broad consensus view that the economy will continue to be you know it.
Speaker Change: <unk> has been slowing.
Speaker Change: Because that's what the fed has been trying to do here in the U S and to a degree in other parts of the world.
Speaker Change: Focus on the U S but.
Speaker Change: But you know it remains strong.
Speaker Change: Strong Brazilian and showing positive growth.
Speaker Change: And I think the consensus view is that next year will be more of that that will have positive economic growth.
Speaker Change: The odds of a recession you know at this point I think are quite low if you look again at consensus view I'm not an economist, but you know that's the view and I talked to a lot of people and I would generally agree with your view. So I think as we think about that as a backdrop you know thinking about 2025, what's gonna be the macro which can drive up.
Speaker Change: Each of our business, obviously, we feel pretty good about it I think when you think about you know how that's going to add up and I'll sort of give you. The punch line and then I'll break it down a little bit by regions and segments. I mean, I think the punch line is my best sense again early in our budget season is that next year.
Speaker Change: Gonna look a lot like this year from a same store growth point of view.
Speaker Change: Now I think we'll get there a little bit differently, but I would say at this point I think next year, we'll end up when we're sitting here a year from now and.
Speaker Change: We will be saying it felt a lot like 2024.
Speaker Change: Brett if you break that down.
Speaker Change: Regionally I think it's you know again at a high level.
Speaker Change: Where I think it ends up as the U S ends up pretty similar to what were experiencing this year I think if you look at Asia Pacific I think it'll be better in part because comps in China are going to get easier and there's a lot of stimulus occurring there. So I do think China will have a better.
Speaker Change: Here in China, I mean, APAC ex China remains quite strong as Kevin suggested in his comments and we don't see a lot that's going to disrupt that and we have some comp benefits, particularly in the third quarter in weather and typhoons in Japan, and China that yeah that will you know that will be.
Speaker Change: That will be a benefit so I think APAC will be better I think EMEA.
Speaker Change: <unk> will be a little bit less good than its been I think it's still going to be very good to be clear. My guess is it will probably still lead the pack in revpar growth in terms of our mega regions around the world. So it's not that I see a problem there, but I do think you know it'll be somewhat less grow.
Speaker Change: Then we saw this year and when you blend it all together you asked about the same E APAC, a little bit better EMEA, maybe a little bit worse I think you end up kind of it you know about where you are if you break it down by segments again, you know.
Speaker Change: And then homogenizing a lot of stuff.
Speaker Change: Together, but I think it's again, a similar story maybe.
Speaker Change: Maybe with a little bit of nuance I think I think on the group side Youre going to continue to see really good strength. I said, you know were up in the in the low to mid teens, you know in terms of our position going into next year. So we feel really good will crossover with more than half the business on the books you know.
Speaker Change: Booking windows are extending because there's just not enough supply relative to the demand. So I think youre going to see both demand growth and pricing growth in in the group segment I think in business transient.
Speaker Change: Which will be I think in second place in terms of the pecking order of growth again broadly I think youre going to continue to see business transient grind up I do think next year, we will likely surpass prior peaks of 2019 in terms of demand levels. So you will see increases in demand all the annick.
Speaker Change: Total and hard evidence that we're getting from most of our big accounts and our SMB business suggest that and you will continue to have good pricing power. There and then leisure I think again, a little bit like this year, you're going to continue to see normalization, what does that mean that means I think demand.
Speaker Change: It's sort of flat to maybe even down a little bit, but again because like in all segments of life, particularly here in the U S inflation is down but still you know stubbornly a bit high.
Speaker Change: I do I do believe that we will continue to have very solid pricing power. So when you when you blend it all out I think again it will look a lot like this year.
Speaker Change: I think it will you know depending on segment be balanced as as I, just described but if you blend the whole world together.
Speaker Change: You know it'll be it'll be a nice blend of both demand and pricing.
Speaker Change: The way all that sort of amalgam of all of what I, just said amalgamates together and.
Speaker Change: You know listen we you know we spent a lot of time on this we just did our you know as we always do every quarter, our quarterly business review with the whole world and everybody's in budget season, and has got their head down, but I think you know the overarching sort of you know.
Atmosphere X with our teams around the world is consistent with what I, just said feeling feeling pretty good I mean listen we'd rather have higher revpar growth [laughter] always, but we feel that that's pretty solid and the last thing I'd say to finish my filibuster. Thank you for the question, Joe because I'm answering a bunch.
Speaker Change: We obviously feel really good about.
Unit growth, we've given we have given some guidance there we've got a lot of momentum in that area I'm sure. We'll have more questions, but we feel very good about that and so you know the way I would think about it is we're always trying to deliver algorithm growth back to your initial question, which is I always I say here X plus y needs equals.
Speaker Change: So same store and unit growth need to need to add up and I am I am very confident that algorithm will be alive and well for next for 2025.
Speaker Change: Thank you and the next question will be from Shaun Kelley from Bank of America Merrill Lynch. Please go ahead.
Shaun Kelley: Hi, good morning, everyone.
Shaun Kelley: Chris just maybe on the development side, given you just talked a lot about kind of what's going on.
Shaun Kelley: Revpar.
Shaun Kelley: Macro side.
Shaun Kelley: Can you just walk us through you know obviously, we know the initial expectation of six to seven for next year, a little bit more about what your underlying assumption is there and sort of how it might factor in.
Shaun Kelley: Possibilities of like what could you maybe just walk us through what could be a little bit better if the development environment were to improve obviously youre starts remain really compelling and what could be a little bit worse, just what would be the kind of.
Speaker Change: What range are bounded outcomes there. Thank you and I'll get offer some comments and Kevin runs development. So I should I should say to him too I mean, I do think we feel obviously really good about six or seven we have more visibility into that then obviously the macro we have a view on macro that space as I described on consensus, but we have good visibility.
Speaker Change: We got a lot of stuff under construction, we have a lot of momentum on conversion. So you know the way I would say is just you know a couple of points of clarification, one the 6% to seven as organic that's not sort of incorporating our partnerships and yeah. You know, which is why this year's numbers coming in hotter than that at 7% to seven.
Speaker Change: And a half I would say implied in it is about a third of it would be conversion. So that's about where it will end up this year by the way if you take out the partnerships will end up at about a third if you add the partnerships and we're about 50% so, but we don't again expect to repeat that.
Speaker Change: And Thats, how we get to it again, it's a super granular analysis other than in the year for the year conversions everything has identified meaning you know it's in the pipeline, it's it's happening and so it's really delivering on that on that one.
Speaker Change: If it is going to deliver next year, it's pretty much gotta be under construction right now or in the next there may be a brand or two in a place or two around the world, including the U S where you could still started something maybe with a live smart right now or in the next 30 days and sneak it in next year, but it gets it gets awfully hard so <unk>.
Of the new build stuff, we have a good sense of that again conversions, we have a good sense of a lot of those because like spark and other they are in the pipeline. So you know and then there's a segment of those conversions that are unidentified we have a really good track record on delivering that obviously those numbers you know at a third of them.
Speaker Change: Moving up.
Speaker Change: We've done more than that historically, but they've moved up from the low twenty's to about about a third and you know, we're taking a very disproportionate share of conversion opportunities around the world.
Speaker Change: And that's because our brands are performing really really well and we don't see any risk of that so you know what could make it you like at the higher or lower end of the range I think.
You know sort of intellectually the right way to say it is you know maybe you know it has to be ultimately in the conversion space because of what I. Just said I mean, maybe there's a few more that sneak under construction at the end of this year.
Speaker Change: But you know I don't think thats going to move the needle a whole heck of a lot I think it said you know we're more than a third in the conversions I think that's possible I'm not I'm, not saying I think that'll happen, but I think that's possible, we give a range of 6% to seven for a reason you know that you know there's still a heck of a lot of work that Kevin and our.
Speaker Change: Development teams around the world have to do I hope, we make it look a little bit easy, it's not but we feel really good about that range and so again, you know object intellectually.
Do you know better or worse relative to the midpoint of that range is sort of is sort of conversions more more or less.
Speaker Change: Thank you very much.
Speaker Change: And the next question will be from Stephen Grambling from Morgan Stanley. Please go ahead.
Speaker Change: Thanks, I guess, maybe a follow up on the <unk> commentary I guess, how does the pipeline of what's in construction just from a fee per room mix compared to the existing base and have you seen any change in the development as as rates started to come down here and laying has loosened.
Speaker Change: Yeah, Thanks, Steve I'll I'll take the second part first because its because its a little bit easier I think you are starting to see things free up a little bit in terms of.
Speaker Change: The development environment as you know rates haven't come dramatically down, but they've come down a little bit and I think people can see a path to a better day on the capital front and we are actually starting to there's a lot more conversations around change of ownership, which I think supports what Chris was just saying about conversions because you've had.
Speaker Change: As is normal for this part of the cycle you had pretty widespread between bid and ask on transactions and transactions drive as you know a lot of conversions and so we're starting to I think see a little bit of a thawing in bid ask spreads which has led to more applications in the last 30 days or so on change of ownership and things like that we're starting to see a lot of.
Speaker Change: More activity there, which.
Speaker Change: Which bodes well.
Speaker Change: When you first of all the fees per room, we're really not seeing any change I mean, if you think about the complexion of what we're what we're putting under construction and what we're delivering it is still largely largely on an overall basis. The same mix. So we're not seeing dramatic changes in the mix Youre, obviously seeing revpar growth over time, you're seeing mark to market on fees is.
Speaker Change: Contracts rollover, we continue to take price in terms of license fees, a little bit and you know the vast majority of our development actually is in the brands, where we get the highest fees and so when you put all that in the model, we're really not seeing a change in fees per room and in fact, it will grow over time.
Speaker Change: Awesome. Thank you sure.
Speaker Change: The next question is from Carlo Santarelli from Deutsche Bank. Please go ahead.
Carlo Santarelli: Hey, Chris just building on your point that you think kind of 25 looks a lot like 'twenty four.
Carlo Santarelli: I would assume kind of revpar being the primary driver of that given the group pace that you guys. Currently have I believe you said low double digits to low teens for 25 and 2016.
Carlo Santarelli: Oh, sorry, 25 in 2026, how do we interpret kind of the way youre thinking about leisure and business transient as we move into 2005 based on kind of what we know today.
Speaker Change: Yeah, I, you know I would say and I tried to cover it but I'll click a little harder on it.
Speaker Change: And in group I think youre going to see you know a very.
Speaker Change: Balance youre going to see the highest growth rate I mean, I don't have the number I mean, we don't have a budget, yet, but youre going to see comparable growth I mean, you heard the numbers, we're talking about for like third quarter up five or 6% I think I think youre going to be looking at that kind of level of of growth and in the group segment. If you look at the.
Speaker Change: Whole world and I think that'll be pretty balanced as I said between between price and occupancy between rate and occupancy I think in leisure again, if you're solving for something in the twos and that's at five I think I think business transient ends up being sort of.
Speaker Change: More in that range, you know again with a balanced but if if.
Speaker Change: If group is in the mid single digits I think I think business transient is in the low single digits, but you know higher than one I mean similar to this year, we're sort of trending at two low twos something like that and then I think leisure, which again as you know I think I.
Speaker Change: You said that maybe I didn't it's still trading way over historical levels.
Speaker Change: We don't think will go backwards. So we don't think we're going backwards. This year, but we think it's sort of flat you know and so I would say my expectation and I already said this would be demand is flat, maybe even a little bit down as you continue to normalize the work environment and the like but because you have pretty good price.
Speaker Change: <unk> power and you'd still have inflationary pressures, particularly here, but in a lot of parts of the world. We feel like we'll be able to push rate a little bit and so I would say, we think leisure again, it's early right. We don't really I don't have a budget in front of me, but we've talked a lot about it I think leisure is positive but not much.
Speaker Change: <unk> positive <unk>, so I would say, it's like you know you know.
Speaker Change: Very very modestly positive.
Speaker Change: And when you put those three things together, that's really not.
Speaker Change: Is that far off of sort of where we're ending up this year I mean, I think that's why I say I think when you're finished 25 at least sitting here today. It feels an awful lot like you know 24.
I appreciate that Chris Thank you.
Speaker Change: And the next question is from David Katz from Jefferies. Please go ahead.
David Katz: Hi, good morning, everybody. Thanks for taking my question.
David Katz: A question you mentioned earlier.
You're getting it out salt and its obvious about conversions can you provide just a little bit of insight on.
David Katz: How youre doing that or is that just good old fashioned you know.
David Katz: Shoe leather and competition or whatever other euphemism or are there some specific drivers.
David Katz: Because we are obviously observing key money more carefully across the industry than usual.
Speaker Change: Yeah, I mean listen I'll, let Kevin may want to come over the top on this because he and his team are doing the shoe leather.
Speaker Change: I do think it's partly shoe leather I mean listen I think we're I'd say to our teams all the time like our philosophy and how we run the company is we're pretty scrappy, we're pretty gritty, we don't take anything for granted so we get out and hustle. So our teams our teams hustle now whether I you know I don't know whatever yet everybody else is doing but where.
We're hustling, we've built really good relationships. So a lot of this business not all of it particularly in spark because they're bringing a bunch of new folks into the system, which we're gonna be hugely beneficial over time as we saw with Hampton decades ago, but we haven't really solid relationships, where we've done a really good job with.
Speaker Change: People in and doing what they ultimately are looking for which leads to what I think is really driving it which is performance. I mean, you are signing up for these deals and not to be pedantic, but these are you know.
Speaker Change: At the short end generally very short in 10, but more likely these are 20 plus year relationships that you're entering into but no real way out and so you know these people are investing billions of dollars when you aggregate.
Speaker Change: All of this development, even all the conversions and they want to have confidence that when they are signing up theyre going to make money, but they are signing up for a long time that they've got you know they've got the right system that they are signing up for and so.
Speaker Change: The truth is our track record is really good our brands are performing really well our market share is the highest its ever been.
Speaker Change: Significantly higher than any of our competitors and so that doesn't mean, we don't have to compete.
Speaker Change: Say the team all the time for this call like why don't we win every deal why why why should we why are we only winning half the deals even though were whatever 6% of the global Margaret Kalvar, Kevin explained himself on that but but getting half the business is pretty darn good and I think it ultimately comes down to you know our abilities are.
Speaker Change: Ability over a long period of time.
Speaker Change: To be able to deliver performance for for owners, because we can be wary charming scrappy grid, a badge, but it can be all the things. We think we are or hoped to be but in the end. It's about performance, they're investing money in these assets or in this relationship with us to.
Speaker Change: Drive returns.
Speaker Change: Thank you. Thank you. The next question will be from Robin Farley from UBS. Please go ahead.
Speaker Change: Great. Thanks.
Robin Farley: I Wonder if you could talk a little bit about how your visibility on business transient and leisure transient.
Robin Farley: Paris to why it would've been in 2019 in other words, if you like.
Robin Farley: You have more visibility.
Robin Farley: Visibility today, and then if I could squeeze one in for Kevin just on the comments about what drove better EBITDA. The guide would love to hear about the nod that Percy said and then also I think there was some timing.
Robin Farley: Well thanks.
Speaker Change: Thanks, Robyn I would say the answer is we don't have a tremendous amount of incremental.
Speaker Change: Visibility Yeah, you know the place we obviously have the most visibility isn't group, which is why we give you those statistics.
Speaker Change: Now that that business is pretty darn sticky.
Speaker Change: We have found you know recently and over a long span of time people have needs, where they still have pent up need. So we feel really good about that but leisure leisure and transient.
Speaker Change: I mean leisure transient business transient our visibility is limited.
Speaker Change: Certainly limited to you know 60 or 90 days out, but then you know anecdotally, particularly with business transient just talking to all of our customers you know and which we do all the time our sales teams I do other others in senior management do we survey them. We you know we.
Speaker Change: Do have data that tells us what they're thinking and that gives us.
Speaker Change: A rationale for what I'm, saying to you I think will happen next year, but they haven't booked the business yet like unlike groups, where they booked it they haven't booked it and then and then leisure is where we have the least.
Speaker Change: Where we have the least visibility into the future now the reason I started my whole answer and my filibuster with consensus view was obviously not lost on you or anybody else, you know, particularly in leisure and business transient.
Speaker Change: You know as it relates to how we think about next year a lot of it. So goes the economy to a degree so goes those segments. So that's why it always has to start with a view a consensus view of like what the heck do we think is going to happen in the economy. It's not that the group business is immune to it it's just stick.
Speaker Change: Here, it's just it is not immune to short term swings.
Speaker Change: Over time as the other segments so.
Speaker Change: That's it's about you know it's about what I mean, if we gotten better or we do we have better listening posts with our customers than we might have had five years ago. Yeah. I think so I think we're better at understanding what's going on but the reality in terms of booking visibility is about the same.
Speaker Change: Yeah, and then on the rebate on the non Revpar driven fees. We were clearly we were pleased with the performance. If we're if revpar came in for all the reasons, we talked about under our expectations the non revpar driven fees.
Speaker Change: If you think about performance in the.
Speaker Change: In the credit card business in our purchasing business things like that was all sort of above algorithm. If you will above the overall rate of the business and then on timing. It was about half that about half the beat from the third quarter were timing items, if you get behind it.
And so that's about all I would say about that.
Speaker Change: Thank you.
Speaker Change: And our next question is from Smedes Rose from Citi. Please go ahead.
Speaker Change: Hi, Thank you.
Speaker Change: Just wanted to ask Hey, good morning, you talked a lot about just group going into next year and it has been and continues to be it looks like kind of a silver lining in this space and I was just wondering when you look at what you're seeing now for 425 group I guess, particularly in the U S is there is it driven more by incremental.
Speaker Change: Citywide conventions is it more smaller groups that I think it's been doing well for a while is there anything just kind of in particular that you could call out.
Speaker Change: Helping to drive that continued strength there.
Speaker Change: I'd say, it's a little bit of everything if you think about what's going on certainly the big city Wides are picking up.
Speaker Change: Not surprisingly they just take that and we've been saying this on every call. It just takes longer and gestation to get those the that business going because they book multiple years in advance they spend millions of dollars planning these events and they went for two or three years unwilling.
Speaker Change: Or unable to do that and so we're certainly seeing wind in our sales from that but we're also seeing really good.
Speaker Change: Social group business, I mean people still want to get out and see people. I mean, you know that that is still the thing and then I'd say corporate corporate meetings are we're seeing really terrific demand I mean that even though the workplaces sort of normalizing you know some what it is.
Speaker Change: It is not going back to what it was and the reality is a lot of people have needs in them.
They're making you know sort of making up for a time when they were more remote and they need to do meetings for innovation and culture building and the like and a lot of people have sort of changed pretty permanently us included by the way our work environment in a way, where we take less space because people are more mobile.
Speaker Change: And it requires.
Speaker Change: The them needing space outside of their own office footprint more than historically, they have and so that's a nice that's a nice little wind in our sales as well. So that's a long winded way of saying its broad based I mean, there's it's not you know it's not one thing driving it.
Speaker Change: Okay. Thank you.
Speaker Change: And our next question is from Lizzie Dove from Goldman Sachs. Please go ahead.
Lizzie Dove: Hi, there. Thanks, so much for taking the question and I Wonder if you go back to the unit greatest piece, which is obviously very strong I believe the majority of the pipeline is coming from international just about so love is bit of a refresh of just where you see the key opportunities in key markets driving international expansion and maybe a refresh on the China piece as well with the stimulus.
Lizzie Dove: Is there any way that you kind of have to adapt your portfolio as you take those brands to different market.
Speaker Change: Yeah. So I mean, I guess the end Lizzie. Thanks for the question is the easy part is yes, you do have to adapt your brands and your prototypes in your room sizes and things like that the markets around the world. They still they still maintain you know their essence and their positioning within the brand later in their swim lanes and things like that but you're obviously adapting them around the world I think that sort of if you think of.
Speaker Change: The complexity of the pipeline. It's about you know, it's a little over half call. It 55, or so percent outside the U S. The stuff that's under construction just given the dynamics of some of the things that are going on around the world limit Our limited service business in China and things like that it's about 80% of what's under construction is outside the U S.
Deliveries this year are going to be sort of more like more like the pipeline sort of think about it is for mid 40% in the U S and 55 or so percent outside the U S. I think the China business is doing great. We think both approvals starts I'm jumping around a little bit, but sorry. It was a broad question our approvals starts and opens we.
Speaker Change: I think we'll all be up in China. This year were even though there's a macro slowdown in China and you know you read a lot of headlines about real estate bubbles in the like in China, what's going on a lot in China is they're trying to find different uses for some of these these buildings into some of the real estate that's been developed in our business, particularly the limited service part of our business.
Speaker Change: Within our Master limited partnerships and in our our Hilton Garden Inn business is able to take advantage of a lot of the adaptive reuse of those businesses of those pieces of real estate, So and I think when you take a step back from it though you know I know you're relatively new to the coverage, but you've you've gone through the materials that we outlined in our Investor day is.
Speaker Change: You know kind of over the time period that we gave you for that we think you know call it.
Speaker Change: Half of that half of the of the nug three three to three and a half points will be in the Americas, a point or so will be in EMEA and two points will be in APAC and you know that will move around a little bit year to year, but generally speaking.
Speaker Change: Those will be the trends and then youll see in the western World more conversions in the developed world more new builds in Asia, we're shifting our business to APAC outside of China. So a lot of growth opportunities there a lot of growth opportunities in India, a lot of growth opportunities in the middle East. So we're really you know seeing.
Speaker Change: Seeing the benefit of a diversified set of products that we can deploy and when certain parts of the world are strong we can deploy in those parts of the world when certain parts slowdown diversifications, a beautiful thing and we were we're continuing we're continuing to grow through it.
Operator: Rude.
Speaker Change: Thank you.
Speaker Change: And the next question is from Brent <unk> from Barclays. Please go ahead.
Operator: And the next question is from Brandt Montour from Barclays. Please go ahead.
Speaker Change: Good morning, everybody. Most of my questions have been have been asked and answered I am curious on.
Brandt Montour: Good morning, everybody. Most of my questions have been asked and answered. At Curious on SLH, you know, I know it's relatively new, but that's a, you know, that's a big, a big chunk of luxury hotels in your system on the website. People can earn and burn their points there. Curious how the early traction has been. If you've done anything sort of out of the norm in terms of marketing those hotels to loyalty members. And how you're feeling about the, the start there.
Speaker Change: SL H I know, it's relatively new.
Speaker Change: But that's a that's a big big chunk of luxury hotels in your system on the website people can earn and burn their points. There I'm curious how the early traction has been if you've done anything sort of out of the norm in terms of marketing those hotels to loyalty members and how you're feeling about the start there yeah I mean.
Christopher Nassetta: Yeah, I mean, you're right. Brandt, it is super early, but in the sense of they just went in and, you know, sort of the middle end of the summer. And a lot of those properties are resorts in, in very, you know, unique locations that book. So there's only so much data we have just given the time of year. It came in, but the data that we do have is super good, meeting that, you know, our customers are engaging with it. They're looking at; they're looking at the availability of these properties. Now, many of them that summer weren't available because, you know, they had already been booked, given, given when they came in the system.
Speaker Change: Youre right Brandon It is super early but in the sense that they just went in and you know sort of the middle end of the summer and a lot of those properties are resorts.
Speaker Change: And very you know unique locations that book way ahead of time. So there's only so much data we have just given the time of year. It came in but the data that we do have.
Speaker Change: Is super good meaning that you know our customers are engaging with it they're looking at they're looking at the availability of these properties now many of them. This summer weren't available because you know they had already been booked given given when they came into the system. They are you don't where they did utilize it.
Christopher J. Nassetta: They are, you know, where they did utilize it, they utilized it in a very healthy way for redemption, which is exactly sort of the behavior set that we're looking for.
Speaker Change: Utilized it in a very.
Speaker Change: Healthy way for redemptions, which is exactly sort of the behavior set them.
Speaker Change: That that we're looking for and so I'd say you know you know obviously, a long way to go but we.
Christopher Nassetta: So I'd say, you know, you know, obviously a long way to go, but we feel very good about the ownership community, and SLA feels very good about the start of the relationship. And I think, as we get into that, you know, get a little bit of time, a quarter or two, and then certainly get into, you know, the spring and summer next year. I think you'll see some real up there. But you go in, like, if you go on our app, you know, I happened to do it, and I was in Italy and Tuscany to meet some friends where we have a few hotels.
Speaker Change: We feel very good about it the ownership community and S. L. H feels very good about the start of the relationship and I think.
Speaker Change: As we get into the you know get a little bit of time, a quarter or two and then certainly get into you know the spring and summer of next year I think you'll see some real uptick.
Speaker Change: Uptick, but you go in like if you go on our App, you know I happen to do it.
Speaker Change: I was I was in in Italy in Tuscany to meet some friends, where we have a few hotels go on the App and like you know hotels nearby me and you know we went from having like three hotels to like 40 hotels, so and many of them are really small and very unique but that's exactly.
Christopher J. Nassetta: Go in the app and like, you know, hotels nearby me and, you know, we went from having like, you know, three hotels to like 40 hotels. So, and many of them are really small and very unique, but that's exactly what, for a leisure, high and leisure customer, they're looking for. And so it really gives us, you know, significant enhancement in terms of shots on goal for people to book. And importantly, for people to be able to dream that are road warriors and have a place to realize those dreams. Very good.
Speaker Change: What for a leisure high end leisure customer, they're looking for and so it really gives US you know significant enhancement in terms of shots on goal for people to book and importantly for people to be able to dream that are road warriors and have a place to realize those dreams.
Speaker Change: Very good thank you.
Speaker Change: And the next question is from Michael Bellisario from Baird. Please go ahead.
Operator: And the next question is from Michael Bellassario from Baird. Please go ahead.
Speaker Change: Thanks, Good morning, good morning, Mike.
Michael Joseph Bellisario: Thanks.
Michael Bellassario: Good morning. Chris, you sort of alluded to it, but just wanted to dig into web par index and pipeline share a little bit more. Is it fair to assume that in a slower web par backdrop that's maybe actually better for your business, at least on a relative basis, and then any similar similarities or differences that you see today. I've heard it 2018 and 2019 when web par was last in kind of stuck in first year.
Michael Bellisario: Chris you sort of alluded to it but just wanted to dig into Revpar index and pipeline share a little bit more.
Speaker Change: Fair to assume that.
Speaker Change: Lower revpar backdrop, that's maybe actually better for your business at least on a relative basis, and then any similar similarities or differences that you see today compared to 2018 in 2019, when Revpar was last in kind of stuck in first gear. Thanks.
Speaker Change: Yeah, I mean, it's interesting.
Christopher Nassetta: Yeah. I mean, it's interesting.
Christopher Nassetta: I said earlier, so I don't want to contradict myself that, you know, we obviously always like to see web par higher. And so I will say it again. I'd always like to see it higher. But having said that, there are, and you alluded to it in the approach to the question, there are benefits of the environment we're in. And we saw those benefits going back to that time where, you know, typically we are able to deliver, you know, if we do our jobs better share in terms of performance on, you know, our existing assets. And we take a, you know, and more difficult environments, environments we're financing less available.
Speaker Change: Said earlier, so I don't want to contradict myself.
Speaker Change: We obviously always like to see Revpar higher and so I will state again, I'd always like to see it higher but having said that there are.
Speaker Change: And then you alluded to it in the in the approach to the question. There are benefits of the environment. We're in and we saw those benefits going back to that time, where you know typically we are able to deliver if we do our jobs better share in terms of performance on.
Speaker Change: Our existing assets and we take a you know in more difficult environments environments, where financing is less available. We ended up disproportionately getting more conversions and more of what is available for new construction because our brands are just more financeable and so that is certainly what we've been experiencing.
Christopher Nassetta: We end up disproportionately getting more conversions and more of what is available for new construction because our brands are just more finance.
Speaker Change: I mean, if you look at the numbers across the board on development, whether you break it apart on new construction or conversions you look at market share numbers, which continue I mean, they're very high sort of getting them. They continue to grow we've grown market share every single year and the eight almost eight going on 18 years I've been here.
Speaker Change: So the higher you go the harder it gets but we're super focused on that so.
Speaker Change:
Speaker Change: I'm not giving you a specific answer because there isn't one but this environment is not has not is not terrible for us in that way and the really nice thing is I think we demonstrated in the third quarter and will demonstrate for the full year and I think will demonstrate again next year and the year. After as you know the.
Speaker Change: The model is really resilient that you know even I mean think about it even in the environment. We're in where we're going to be in the twos on same store growth, we're going to deliver a circa 10% EBIT.
Speaker Change: EBIT growth and higher than that in EPS and free cash flow that doesn't I mean that doesn't feel so bad imagine imagine what can be done and you know.
Speaker Change: Even better environment from a same store point of view. So that's not as I said I know I'm not answering it specifically, but you know these conditions are you know we feel like whatever I guess I'd I'd fight.
Speaker Change: Finalize it by saying.
Speaker Change: We can't determine the macro or we can do always as you know outperform competition and so we feel good about in this environment our ability to do that we feel good about that and our job is in every environment to do that but we and we will but we feel you know we're not this is not a terrible.
Speaker Change: But in terms of our ability to deliver.
Speaker Change: Thank you and the next question will be from Meredith Jensen from HSBC. Please go ahead.
Meredith Jensen: Yes Hello.
Speaker Change:
Meredith Jensen: I was wondering if you could speak a little bit about the occupancy and rate sort of offset I know in the past you've spoken quite a bit about.
Meredith Jensen: Right and I'm wondering how that conversation.
Meredith Jensen: Franchising.
Meredith Jensen: Charles have done.
Meredith Jensen: Shifted over the past few months.
Speaker Change: It hasn't really shifted I mean, obviously inflation is is down broadly you use the U S. Because it's our biggest market and we're here sitting here in the U S.
Speaker Change: And inflation is not running a 8% to 10%, but you know it's still running for four plus against the target of two which I think personally will be a long time coming just because of the underlying strength.
Speaker Change: In the broader economy, and one thing we didn't talk about yet is the basic physical.
Speaker Change: Spending between chips and inflation reduction and infrastructure you put all that stuff together forget the private sector Theres, a huge amount of public sector spending going on and I think all of that sort of underpins growth in nonresidential fixed investment, which drives a lot.
Demand in our business, which I think continues to give us a you know a decent amount of.
Speaker Change: Rate integrity and so.
Speaker Change: Our you know our expectation is.
Speaker Change: You know well that isn't is moderating from the hypercharge levels that you saw generally of inflation across a lot of sectors and you know we expect the same thing in ours, we still expect.
Speaker Change: But there's a decent amount of pricing pressure and so as we think about but we have very sophisticated revenue management models that it's not Christmas setup with his hand on the button deciding the rate of every room every night.
Speaker Change: Thankfully, but we have very sophisticated systems, but those systems and all of our science data scientists here at Hilton still believe that given those conditions.
Speaker Change: In.
Speaker Change: Most segments at most times you know there there is good pricing.
Speaker Change: Integrity or the one area that I talked about where there's probably less by nature. If you think demand might be flat or going down a little bit as leisure normalizes, particularly on weekends.
Speaker Change: There may be a little bit less pressure, there, but broadly as I said when I think when we finish this year and next I think leisure rates will be up not a lot, but I think leisure rates will be up just because of the.
Speaker Change: The underlying macro conditions I don't know if that answered it but that's the short answer is not you know nothing material that we see that's different in the last few months.
Speaker Change: That's super helpful. Thanks, a lot.
Speaker Change: The next question is from Chad Beynon from Macquarie. Please go ahead.
Chad Beynon: Good morning, Thanks for taking my question just a quick one continuing on development. The guide for key money or contract acquisition cost at the beginning of the year 250 to 300 and that came down this quarter. Obviously, we only have two months left in the year. So you have a good sense of.
Chad Beynon: You know where things are from a key money standpoint, Kevin I know this is something you guys highlighted at the Investor day, but is this more of just a delay to 'twenty five or is this just more progress and your goal to reduce key money as a percentage of of nugget. Thanks, Yeah sure I mean look I think keene Bonnie in terms of percentage.
Kevin Jacobs: Of Nug, and you know the the more strategic but no no change in our approach I mean, we still use key money on less than 10% of our deals we use them. When we have to do when it gets competitive but you know 90 plus percent of the deals don't have anything associated with them. It's just a little bit of timing right. We're getting closer to the end of the year. We have we have more visibility into what we think is good.
To happen a little bit of you know a couple of projects that we have in the works that we think are more likely to happen next year and if you think about last year was a bit heavier year, because there's some strategic projects. This year it'll be a little bit lighter I think going forward. If you think about next year, probably somewhere in between last year and this year, but really no change in strategy.
Speaker Change: Thank you very much.
Kevin Jacobs: Sure.
Speaker Change: The next question is from Patrick Scholes with the Truest Securities. Please go ahead.
Patrick Scholes: Alright, good morning, everyone. Good morning.
Good morning, Kevin a question for you.
Patrick Scholes: What are your.
Patrick Scholes: ROI targets for brand specifically.
Patrick Scholes: Developing them internally versus buying.
Patrick Scholes: Our brand and then.
Patrick Scholes: Related to that.
You know on these recent I'd call them Tuck in brand acquisitions, you know are these.
Patrick Scholes: Initially accretive to earnings or if not.
Patrick Scholes: How long.
Patrick Scholes: Does it take for them to be accretive. Thank you.
Speaker Change: No I think look I, it's there's a lot there Patrick or we've talked about this a lot I think you know when you think about we havent done a lot of acquisitions. So if you think about broadly you know you alluded to sort of buy versus build obviously the ROI is extreme near infinite when we build these brands and build them over time organically into into multibillion.
Patrick Scholes: Businesses.
Patrick Scholes: It's sort of you do a buy versus build analysis, but it almost always suggests it almost always suggest build from a pure ROI perspective in the last couple of deals we've done they've been basically accretive out of the box right. I think you know we we didn't do we disclose that on graduate if you'll recall from the press release the press release that it's accretive out of the box. So on both of these things.
Patrick Scholes: They were very specific two things we wanted to tuck in and strategically we're able to take advantage of the death of a little bit of distress in the environment to buy them really well and they were accretive right away as I said.
Speaker Change: Okay. Thank you.
Operator: And ladies and gentlemen, this now concludes our question-and-answer session.
Speaker Change: And ladies and gentlemen, this now concludes our question and answer session I would like to turn the conference back over to Christmas setup for any additional or closing remarks, yeah, Chad thanks and.
Christopher Nassetta: I would like to turn the conference back over to Chris Nassetta for any additional or closing remarks. We're about quite a bit today. Feel good about the setup for 2025. We'll look forward to catching up with you after the years out and be a little bit more specific on 2025 at that point. I hope everybody has a good end of the year and great holiday season when you get to it. It's funny to hear myself say that, but it's that time of year. Anyway, thanks again for the time today.
Speaker Change: To everybody that joined thank you for the time.
Speaker Change: Obviously, a lot going on in the world, but we're really.
Chris Nassetta: Happy with how the third quarter worked out we feel good about the fourth in the full year and as we've talked about quite a bit today I feel good about the setup for 2025 and.
Chris Nassetta: We will look forward to catching up with you. After the year is out and be a little bit more specific on the 2025 at that at that point and I hope everybody has a good end of the year and great holiday season, when you get to it's funny to hear myself say that but it's that time of year anyway. Thanks again for the time today.
Operator: And thank you, sir.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect. Thank you.
Chris Nassetta: Yeah.
Chris Nassetta: Okay.
Chris Nassetta: [music].
Chris Nassetta: Okay.
Chris Nassetta: [music].
Chris Nassetta: Sure.
Chris Nassetta: [music].
Chris Nassetta: Okay.
Okay.
Chris Nassetta: Yeah.