希爾頓酒店 (HLT) 2024 Q3 法說會逐字稿

Operator^

Good morning, and welcome to the Hilton third-quarter 2024 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

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.

Thank you, Chad.

Welcome to Hilton's third-quarter 2024 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 today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of now non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.hilton.com.

This morning, Chris Nassetta, 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, Global Development, will then review our third-quarter and discuss our expectations for the year.

Following their remarks, we'll be happy to take your questions.

With that, I'm pleased to turn the call over to Chris.

Thank you, Jill. Good morning, everyone, and thanks for joining us today.

Our third quarter results continued to demonstrate the strength of our business model as 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 8,000 hotels in our system. 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.

Turning to results. Third quarter system-wide RevPAR increased 1.4% 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 US. Business transient RevPAR increased 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. For the full year, group position is up 10% with group position in '25 and '26 up low double digits to mid teens. 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 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 US. Weekday pays for October is tracking up more than 300 basis points versus September's weekday pays, driven by solid business transient performance and group's strength. Company meetings and convention business continue to grow as a percentage of mix driving longer booking windows.

Given year to date performance in fourth quarter expectations, we expect forecast last full-year RevPAR growth of 2% to 2.5% and 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 36,000 rooms and achieve the highest net unit growth in our history at 7.8%. We marked several milestones in the quarter, including the opening of our 8,000 hotel worldwide, our nine 900th hotel in Asia Pacific and our 900th hotel in EMEA.

Home2 Suites, which has more more than doubled in supply in the last five years, opened its 700th hotel and continues to have the largest new development pipeline in the industry. 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 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 in delivering for owners.

We welcomed nearly 400 luxury properties through our exclusive agreement with Small 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 SLH and our existing luxury properties, we now have one of the largest luxury hotel portfolios in the industry. Conversions accounted for 60% of openings in the quarter driven by the addition of SLH properties and continued momentum from Spark. We opened more than 20 Spark hotels in the quarter and now have over 6,000 Spark rooms in supply just a year after the brand opened its first property.

Spark now has opened hotels in the US and the UK 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 Spark's trajectory, positioning us well for future growth in the premium economy space. In the quarter, we signed 28,000 rooms expanding our pipeline to more than 492,000 rooms which is up 8% year over year. Excluding partnerships, our pipeline also increased from the second quarter. We signed three luxury deals in Greece, Japan and 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 and DoubleTree. Construction starts remain strong, up 21% excluding acquisitions and partnerships. We remain on track to exceed prior levels of starts by year end with meaningful growth across both the US and international markets.Approximately half of our pipeline 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 times our existing share of supply as a result of our strong pipeline and under construction activity, we continue to expect net unit growth of 7 to 7.5% 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 2024 People magazine companies that careless and recently recognizes time's best time, best hotel brand of 2024 overall. We're very pleased with our performance in the quarter and the milestones, we've achieved our powerful network of brands to continue to be an engine of opportunity for our guests, 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 and our expectations for the full year.

Thanks Chris and good morning, everyone during the quarter system wide revpar grew 1.4% versus the prior year on a comparable and currency neutral basis growth was largely largely driven by strong international performance and continued recovery in group 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.

Management franchise fees grew 8% year over year for the quarter, diluted earnings per share adjusted for special items was a dollar and 92¢.

Turning to our regional performance. Third quarter comparable us revpar was up 1% driven by strong group performance in the Americas outside of the US. Third quarter. Revpar increased 4% year over year driven by strong results in urban markets, particularly in Mexico 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 in the Middle East and Africa region. Revpar increased 3% year over year led by occupancy gains in Qatar and Riyadh in the Asia Pacific region. Third quarter, revpar was down 3% year over year. Revpar and Apex X 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 negatively affecting results.

Turning to development, we ended the quarter with approximately 492,000 rooms in our pipeline up 8% year over year with approximately 60% of those rooms located outside of the US and nearly half under construction for the full year. We expect net unit growth of 7 to 7.5%.

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 a dollar and 57¢ and a dollar and 67¢ for full year. 2024. We expect revpar growth of 2 to 2.5%. We forecast adjusted EBITDA of between 3.375 billion and $3.405 billion. We forecast diluted EPS adjusted for special items of between $6.93 and $7.03.

Please note that our guidance ranges do not incorporate future share repurchases.

Moving on to capital return. We paid a cash dividend of 15¢ per share during the third quarter for a total of $37 million. Our board also authorized a quarterly dividend of 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 $3 billion. 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 to ask a question. You may press star then one on your touchtone phone to withdraw your question. Please press star. Then two and the first question will be from Joe Greff with JP Morgan. Please go ahead.

Hi, good morning, Chris, Captain Jill.

You know that back in March at your Investor Day, which feels like a long time ago for a lot of different reasons. You gave the 2025 E dot Target of 3.69 billion.

When you look at that number and the drivers getting there, what's different about 2025 as you sit here today versus this past March, I guess. In other words, if you and the industry are in this 1 to 2% revpar growth range for next year, do you still look at that level of you? But that's achievable or do you need rep card to be somewhat higher than 1 to 2% to get there.

Yeah, that's a good question. Obviously, it's a, it's a tad early to be getting into, you know, 2025 guidance. As you know, we would, we would do typically do that at the end of, you know, when we report year end at the beginning of next year. But, you know, II I will give you a high level sense of it. I mean, we are in the, you know, sort of the early ish stages of budget season. So, you know, lots of work to do. But I would say, you know, I have a reasonably, like most things, I have a reasonably strong view of, of where I think things will end up. And so I, you know, I started with sort of like, how do we feel broadly about 2025? And I would say we feel pretty good about it. I, you know, I've been doing this for longer than I'm going to admit, maybe close to 40 years. I've, I've rarely seen, you know, sort of a stronger consensus view on the macro, you know, particularly here in the US. But I think, I think broadly, and that macro view is, you know, that, you know, sort of, I think the word resiliency. I used to describe our business. I think that word 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 obviously has been slowing. Because that's what the FED has been trying to do here in the US and, and to a degree in other parts of the world, but focus on the US. But, but, you know, it remains strong, resilient and showing positive growth. And I think, you know, our the consensus view is that next year will be more of that, that we'll have positive economic growth, you know, 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 the view. So I think as we think about, you know, that as a backdrop, you know, thinking about 2025 what's going to be the macro which can drive a bunch 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, 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 is going to look a lot like this year on from a same store growth point of view. Now I think we'll get there a little bit differently. But I, I would say at this point, I think next year we'll end up when we're sitting here a year from now, we'll be saying it felt a lot like 2024. If you, if you break that down regionally, I think it, you know, again, at a high level where I think it ends up is the US ends up pretty similar to, to, you know, what we're experiencing this year. I think if you look at Asia Pacific, I think it will 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 year and China, I mean, a P/E X 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, in typhoons in Japan and China that, you know, that will, you know, that will be, that will be a benefit. So I think a PAC will be better. I think EMEA will be a little bit less good than it's been. I don't, I think it's still going to be very good to be clear. My guess is it will probably still lead the pack in, 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 growth than we saw this year. And when you blend it all together us about the same, you know, APAC a little bit better. IIA may be 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, I'm, you know, I mean, I'm homogenizing a lot of stuff, you know, together, but I think it's again a similar story. Maybe with a little bit of nuance, I think, I think on the group side, you're going to continue to see really good strength. I said, you know, we're up in the, in the low to mid, you know, 10s, you know, in terms of our position going into next year. So we feel really good. We'll cross over with more than half the business on the books, you know, and booking windows are extending because there's just not enough supply relative to the demand. So I think you're going to see both demand growth and pricing growth in, in the group segment. I think in, in business transient, which will be, I think in second place, in terms of the pecking order of, of growth again, broadly, I think you're 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 anecdotal and hard evidence that we're getting from most of our big accounts and our smb business suggests 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 is sort of flat to maybe even down a little bit. But again, because like in all segments of life, particularly here in the US, inflation is down but still, you know, stubbornly a bit high. I do, I do believe that 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. I think it will, you know, depending on segment be balanced as, as I just described. But if you blend the whole world together, you know, it'll be, it'll be a nice blend of both demand and pricing. The way all that sort of amalgam, all of what I just said, amalgamates together and you know, listen, we, you know, we, 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, atmospherics 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 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. We obviously feel really good about unit growth We've given so 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 equal Z so same store and unit growth need to, you know, need to add up. And I am, I am very confident that you know, algorithm will be alive and well for next for 2025.

Thank you. And the next question will be from Sean Kelly from Bank of America, Merrill Lynch. Please go ahead.

Hi, good morning everyone. Chris just maybe to hit on the development side given you, you just talked a lot about kind of what's going on on the, you know, kind of revpar and, and, and macro side. Can you just walk us through you know, obviously we now have the initial expectation of 6 to 7 for next year. A little bit more about what your kind of underlying assumption is there and, and sort of how it might factor in, you know, possibilities of like what could you just walk us through? What could be a little bit better if the development environment were to improve? Obviously, your starts remain really compelling and, and what could be a little bit worse, just what would be the, the kind of range or bound of outcomes there? Thank you.

And I'll, I'll offer some comments and Kevin development. So I should, I should cede to him too. I mean, I do think we feel obviously really good about 6 to 7. We have more visibility into that than obviously the macro. We have a view on macro that's based as I described on consensus, but we have, we have good visibility, 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 7 is organic, that's not sort of incorporating a, you know, partnerships in the, you know, which is why this year's numbers coming in hotter than that at 7 to 7.5, I would say implied in it is about a third of it would be conversions. That's about where we'll end up this year. By the way, if you take out the partnerships, we'll end up at about a third of you, the partnerships in, we're about 50%. So, but we don't again, expect to repeat that and that's how we get to it again. It's a super granular analysis. Other than in the year for the year conversions, everything is identified, meaning, you know, it's in the pipeline, it's, it's, it's happening and so it's really, you know, delivering on that, on that one, you know, and if, and if it's 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 US where you could still start something maybe with Liar right now or in the next 30 days and sneak it in next year, but it gets, it gets awfully hard. So in terms 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're in the pipeline. So, you know, and then there's a segment of those conversions that, that are unidentified. We have a really good track record on, on delivering that. Obviously, those numbers, you know, at, at a third have been moving up. We've done more than that historically, but, you know, they've moved up from the low 20s to about about a third and, you know, we're taking a very disproportionate share of conversion opportunities around the world. And that's because our brands are performing really, really well and we don't see, you know, any, any risk of that. So, you know, what could make it, you know, 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 sneaked under construction at the end of this year. But, you know, I don't think that's going to move the needle a whole heck of a lot. I think it's that, 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 7 for a reason, you know, that, you know, there's still a heck of a lot of work that Kevin and our 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, Jack intellectually it to, to do, you know, better or worse relative to the midpoint of that range is sort of, is sort of conversions more, more or less.

Thank you very much.

And the next question will be from Stephen Grambling, from Morgan Stanley. Please go ahead.

Thanks. I guess maybe a follow up on the nug 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 have started to come down here and letting is loosened?

Yeah, thanks, Steve. I'll, I'll take the second part first because it's because it's a little bit easier. I think you are starting to see things free up a little bit in terms of 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, you know, to a better day on the capital front and we are actually starting to, there's a lot more conversations around change of ownerships which I think supports what Chris was just saying about conversions because you've had as is as is normal for this part of the cycle. You've had pretty wide spread 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 ownerships and things like that we're starting to see a lot of more activity there which, which bodes well. And then your first by 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. You're obviously seeing revpar growth over time. You're seeing mark to market on fees as contracts roll over. We continue to take the price in terms of license fees a little bit and you know, the vast majority of our development actually is in the brand 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 perimeter. In fact, it will grow over time.

Awesome. Thank you.

And the next question is from Carlo Santarelli, from Deutsche Bank. Please go ahead.

Hey Chris, I just building on, on your point that you think, you know, kind of 25 looks a lot like 24. I I would assume kind of rep are being the primary driver of that given that the group pace that you you guys currently have and I believe you said low double digits to low teams for 25 in 2016 or sorry, 25 in 2026. How do we interpret kind of the way you're, you're thinking about leisure and business transient as we move into 25 based on kind of what, what we know today.

Yeah, I, I, you know, I would say, and I tried to cover it but I'll, I'll click a little harder on it, you know, and in, in group I think you're going to see, you know, a very balance, you're 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 you're 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 you're going to be looking at that kind of level of, of growth in, in the group segment if you look at the whole world and I think that will be pretty balanced, as I said, between, between price and, and occupancy between rate and occupancy. I think in, in leisure again, if you're solving for something in, in the twos and that's at five, I think, I think this is transient, ends up being sort of it more in that range, you know, again with a balance. But if, if 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 it to low two, something like that. And then I think leisure, which again is, you know, II I think I said this maybe I didn't, you know, it's still treading way over historical levels. We don't think we'll go backwards. 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 pricing power and you 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, I don't have a budget in front of me, but we've talked a lot about it. I, I think leisure is positive but not much positive. I mean, so I would say it's like, you know, you know, very, very modestly positive. And when you put those three things together, that's really not 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 finish 25 at least sitting here today, it feels an awful lot like, you know, 24.

I appreciate that, Chris. Thank you.

And the next question is from David Katz from Jefferies, please. Go ahead.

Hi, good morning, everybody.

Thanks for taking my question.

Chris, you mentioned earlier that, you know, you're getting an outsized and it's obvious amount of conversions. Can, can you provide just a little bit of insight on, you know, how you're doing that? Is that just good old fashioned, you know, shoe leather and competition or whatever other, you know, euphemism or, you know, are there some specific drivers, you know, because we are obviously observing, you know, key money more carefully across the industry than usual, et cetera.

Yeah, I mean, listen, I, I'll Kevin may want to come over the top on this because he and his team are doing the shoe leather. I do think it's partly shoe leather. I mean, listen, I think we're, I 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, our teams, our teams hustle now. I, you know, I don't know what everybody else is doing, but we're, 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 are going to be hugely beneficial over time as we saw with Hampton decades ago. But we have really solid relationships where we've done a really good job with people and, and, and doing what they ultimately are looking for, which leads to what I think is really driving it, which is performance. I mean, you're signing up to these deals and not to be pedantic. But these are, you know, at the short end, generally very short end 10, but more, more likely these are 20 plus year relationships that you're entering into with no real way out. And so, you know, these people are investing billions of dollars when you aggregate all of this development, even all the conversions and they want to have confidence that when they're signing up, they're going to make money, but they're signing up for a long time that they've got, you know, they got the right system that they're signing up for. And so the truth is our track record is really good. Our brands are performing really well. Our market share is the highest it's ever been. It's significantly higher than any of our competitors. And so that doesn't mean we don't have to compete. I know, you know, I say to the team all the time for this. Cool. Why don't we win every deal? Why, why, why should we, why are we only winning half the deals even though we're whatever, 6% of the global market? Like Kevin explained himself on that, but, but getting half the business is, is pretty darn good and I think it ultimately comes down to, you know, our ability our ability over a long period of time to be able to deliver performance for, for owners because we can be witty, charming, scrappy gritty.

We can be all the things we think we are or hope to be. But in the end, it's about performance. They're investing money in these assets or in this relationship with us to, to drive returns.

Thank you. Thank you. The next question will be from Robin Farley, from U BS. Please go ahead.

Great, thanks. Chris. I wonder if you could talk a little bit about how your visibility on business transient and leisure transient kind of compares to, you know, what it would have been in 2019. In other words, you feel like you have more visibility or less visibility today. And then if I could squeeze one in for Kevin, just on the comments about what drove better ebitda and guide would love to hear about the non revpar fees and, and then also I think there was a timing benefit there as well. Thanks.

Thanks Rob. And I would say the answer is we don't have a tremendous amount of incremental visibility. You know, the, the place we obviously have the most visibility in group, which is why we give you those statistics. You know, that that business is pretty darn sticky. We have found, you know, recently and over long spans of time, people have needs when they still have pent up needs. So we feel really good about that. But leisure, you know, leisure and transient, I mean, leisure, transient, business transient, our visibility is limited, 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 and senior management do, you know, we survey them? We, you know, we do have data that tells us what they're thinking. And that gives us a, 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, you know, where we have the least visibility into the future. Now, the reason I started my whole answer in my filibuster with consensus view was obviously not lost on you or anybody else, you know, particularly in leisure and business transient. You know, as it relates to how we think about next year, a lot of it, you know, 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 in the economy? It's not that the group business is, is immune to it. It's just stickier. It's just, it is not as immune to, you know, short term swings over time as, as the other segments. So, that's, it's about, you know, it's about what I mean. Have we gotten better or we, you know, 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.

Yeah. And then on the, on the non rep part driven fees, we were clearly we were pleased with the performance. If, if rep part came in for all the reasons we talked about under our expectations, the non rep part driven fees. You know, if you think about performance in the, in the, 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 the, about half the beat from the third quarter were timing items if you, if you get behind it and, and and so that's about all I'd say about that.

Thank you.

And our next question is from Smedes Rose from City. Please go ahead.

Hi, thank you. I 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 the space. And I was just wondering when you look at what you're seeing now, for, for 25 groups, I guess, particularly in the US. Is there, is it driven more by incremental, like, you know, citywide conventions? Is it more smaller groups that I think have been doing well for a while? Is there anything just kind of in particular that you could call out that's, you know, helping to drive that continued strength there?

I, I'd say it's a little bit of everything if you think about what's going on. Certainly, the big city wides are, are picking up and not surprisingly, they just take that and we've been saying this on every call, it just takes longer in 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 and, or unable to do that. And so we're certainly seeing wind in our sales, you know, from that, but we're also seeing really good, social group business. I mean, people still want to get out and see people. I mean, I, you know, that that is still a thing and then I'd say corporate corporate meetings are, we're seeing really terrific demand. I mean, even though the workplace is sort of normalizing, you know, somewhat, it is, it is not going back to what it was and the reality is a lot of people have needs and that 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, a way where, you know, we take less space because people are more mobile and it requires the them, you know, 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 sale as well. So that's a long way of saying it's broad based. I mean, there's, it's not, you know, it's not one thing driving it.

Okay, thank you.

And our next question is from Lizzie Dove from Goldman Sachs. Please go ahead.

Hi there. Thanks so much for taking the question. I wanted to go back to the unit growth piece, which is obviously very strong. I believe the majority of the pipeline is coming from international just about so love a bit of a refresh of just where you see the key opportunities, the key markets driving that international expansion, maybe a refresh on the China piece as well with the stimulus and just is there any way that you kind of have to adapt your portfolio as you take those brands to different markets.

Yeah, so that, I mean, I guess the end Lizzie, thanks for the question is the easy part is, yeah, you do have to adapt your brands and your prototypes and your room sizes and things like that to markets around the world. They still, they still maintain, you know, their essence and their positioning within the brand ladder and their swim lanes and things like that. But you're obviously adapting them around the world. I think that sort of you think about the complexity of the pipeline. It's about, you know, it's a little over half, call it 55 or so percent outside the US, 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, things like that. It's about 80% of what's under construction is outside the US. You know, deliveries this year are going to be sort of more like more like the pipeline sort of think about it as you know, for mid 40s percent in the US and 55 or so percent outside the US. I think that the China business is doing great. We think both, you know, approval starts. I'm jumping around a little bit but sorry, it was a broad question. Our approval starts and opens. We think we'll all be up in China this year. We're, we're even though there's a macro slowdown in China and you know, you read a lot of headlines about real estate bubbles and 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 and some of the real estate that's been developed. And our business, you know, particularly the limited service part of our business, both in our master limited partnerships and in our, our Hilton Garden Inn business is, is able to take advantage of a lot of the adapter reuse of those businesses of, 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 and we outlined in our Investor day is, you know, kind of over the time period that we gave you for that. We think, you know, call it half of the half of the, of the nug three, you know, 3 to 3.5 points will be in the Americas a point or so will be in em and two points will be in APAC and, you know, that'll move around a little bit year to year. But generally speaking, you know, those will be the trends and then you'll 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. So we're really, you know, 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 slow down, you know, diversification is a beautiful thing. And we were, we're continued, we're continuing to grow through it.

Thank you.

And the next question is from Brandt Montour from Barclays. Please go ahead.

Good morning, everybody. Most of my questions have been, have been asked and answered. I'm curious on slh, you know, I know it's relatively new. But, but that's a, you know, that's a big, 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. Yeah.

I mean, you're right granted 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 in, in very, you know, unique locations that look 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 is, 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 in the system. They are where they did utilize it, they utilized it in a very healthy way for redemptions, which is exactly sort of the behavior set that, that we're looking for. And so I'd say, you know, you know, obviously a long way to go, but we feel very good about it, the ownership community and slh feels very good about the start of the relationship. And I think 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. But you go in like, if you go on our app, you know, I happen to do it and I was, I was in in Italy and 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, you know, three hotels to like 40 hotels. So, and many of them are really small and, and very unique. But that's exactly 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.

Very good. Thank you.

And the next question is from Michael Belisario from Baird. Please go ahead.

Thanks. Good morning, Chris. You, you sort of alluded to it but just wanted to dig into revpar index and pipeline share a little bit more. Is it fair to assume that in a slower 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, 2019 when revpar was last and kind of stuck in first gear. Thanks.

Yeah, I mean, it's interesting. I said earlier so I don't want to contradict myself that, you know, 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, and, and then you alluded to it in the, 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, to that time where, you know, typically we are able to deliver 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 where financing is less available, we end up disproportionately getting more conversions and more of what is available for new construction because our brands are just more fable. And so that is certainly what we've been experiencing. 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. So getting them that they continue to grow, we've grown market share every single year in the eight, almost eight going on 18 years. I've been here. So the higher you go, the harder it gets, but we're super focused on that. So I'm not giving you a specific answer because there isn't one but this environment is, is not, has not, is not terrible for us in, in, in that way. And the, the, the, the really nice thing is I think we demonstrated in the third quarter and we'll demonstrate for the full year and I think we'll demonstrate again next year and the year after is, you know, 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 circuit of 10% ebita growth and higher than that. And EPS and free cash flow that doesn't, I mean, that doesn't feel so bad. Imagine, imagine what could be done in, you know, 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, we, we, we feel like whatever, I, I guess I, I finalize it by saying we can't determine the macro, what we can do always is out, you know, outperform competition. And so we feel good about in this environment, our ability to do that. We feel good about that in, in our job is in every environment to do that. But we, yeah, and we will, but we feel we, you know, we're not, this is not a terrible environment in terms of our ability to deliver.

Thank you. And the next question will be from MEREDITH Jensen from HS BC. Please go ahead.

Yes, hello. 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 pushing rate and I'm wondering how that conversation with franchisees and, and hotels have gone shifted over the past few months. Thank you.

It it hasn't really shifted. I mean, obviously inflation is, is down broadly use the US because it's our biggest market and we're here sitting here in the US. And inflation is not running 88 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 in the broader economy. And one thing we didn't talk about yet is the basic fiscal spending, you know, between chips and inflation reduction and infrastructure. You put all that stuff together, forget the private sector, there's 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 of demand in our business, which I think, you know, continues to give us you know, a de a decent amount of, of rate integrity. And so, our, you know, our expectation is you know, while that isn't, is, is moderating from the hypercharge levels that you saw generally of inflation across a lot of sectors. And you know, and we expect the same thing in ours, we still expect that 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 that Christmas set up with its hand on the button deciding the rate of every room every night. Thankfully, but we, we have very sophisticated systems, but those systems and all of our science, data scientists here at Hilton still believe that given those conditions, you know, in most segments at most times you know, there, there is good pricing, 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. You, you know, there may, you know, there may, there may be a little bit less pressure there. But broadly, I, as I said, I think when we finish this year and next, I think leisure rates will be up. Not a lot, but I think le leisure rates will be up just because of the, you know, the, the underlying macro conditions. I don't know if that answered it, but the short answer is not, you know, nothing material that I that we see that's different in the last few months.

It's super helpful. Thanks a lot.

The next question is from Chad Beynon from Macquarie. Please go ahead.

Morning. Thanks for taking my question. Just a quick one. Continue on development, the guide for key mining or contract acquisition cost at the beginning of the year 250 to 300 that came down this quarter. Obviously, we only have two months left in the year. So you have a good sense of 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 25 or is this you know, just more progress in your goal to reduce key money as a percentage of, of nug. Thanks.

Yeah, sure. I mean, look, I think key bunny in terms of percentage 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 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, what we think is going to happen. A little bit of, you know, a couple projects that we have in the works that we think are more likely to happen next year. And if you think about, you know, last year was a bit heavier year because of some strategic projects this year will 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.

Thank.

You very much.

The next question is from Patrick Scholes with truest securities. Please go ahead.

Hi, good morning everyone.

Morning Kevin a question for you. What are your ro I targets for brand specifically developing them internally versus buying a brand and then related to that. You know, I mean, these recent, I call them tuck in brand acquisitions. You know, are these initially accreted to earnings or if not, you know, how, how long does it take for them to be a creative? Thank you.

No, I think, look, it's, that's a lot there, Patrick and we've talked about this a lot. I think, you know, when you think about, we haven't done a lot of acquisitions. So if you think about broadly, you know, you alluded to sort of buy versus build, obviously, the ro I is extreme, you know, near infinite when we build these brands and you know, build them over time organically into, into multi billion dollar businesses. You know, it's, it's sort of you do a buy versus build analysis, but it almost always suggests, it almost always suggests build from a pure ro I perspective in the last couple of deals we've, we've done, they've been basically a creative out of the box, right? I think, you know, we, we didn't, we disclosed that on graduate. If you'll recall from the press release, press release, that's creative out of the box. So on both of these things, they were very specific to things we wanted to tuck in strategically, we're able to take advantage of the of a little bit of distress in the environment to buy them really well and, and they were recreative right right away, as I said.

Okay, thank you.

And ladies and gentlemen, this now concludes our question and answer session. I would like to turn the conference back over to Christmas at, for any additional or closing remarks.

Yeah, Chad, thanks and to everybody that joined. Thank you for the time. Obviously a lot going on in the world, but we're really happy with how the third quarter worked out. We feel good about the fourth and, and the full year and as we've talked about quite a bit today, feel good about the setup for 2025. We'll look forward to catching up with you after the year is out and be a little bit more specific on, on 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. It's funny to hear myself say that, but it's that time of year. Anyway, thanks again for the time today.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.