Hilton Worldwide Holdings Inc.

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 a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations. You may begin.

Thank you, Chad. Welcome to Hylton'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 discussion of some of the factors that could cause actual results to differ, please see the risk factor 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.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 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, Jill. Good morning, everyone, and thanks for joining us today. Our third quarter results continue 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 rep part 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 rep part 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 U.S. Business transient REBPAR increased 2% with growth across both large corporates and small and medium-sized businesses. Leisure trends continue to normalize with REBPAR 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 REBPAR increased nearly 2% driven largely by solid trends across continental Europe. In the fourth quarter, we expect REBPAR 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 pace for October is tracking up more than 300 basis points versus September's weekday pace, driven by solid business transient performance and group strength. Company meetings and convention business continue to grow as a percentage of mix, driving longer booking windows. Given year-to-date performance and fourth quarter expectations, we expect forecast full-year red-par 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 achieved the highest net unit growth in our history. at 7.8%. We marked several milestones in the quarter, including the opening of our 8,000th hotel worldwide, our 900th hotel in Asia Pacific, and our 900th hotel in EMEA. Home 2 Suites, which has 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 welcome 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 open 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 times best times, 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 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 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 and franchise fees grew 8% year-over-year. For the quarter, diluted earnings per share adjusted for special items was $1.92. 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. 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, RESPAR increased 3% year-over-year, led by occupancy gains in Qatar and Riyadh. In the Asia-Pacific region, third quarter RESPAR was down 3% year-over-year. RESPAR and APEX-X China increased 4%, led by strong performance in India. However, China RESPAR 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 U.S. 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 REF PAR 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. For full year 2024, we expect REF PAR 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 cents per share during the third quarter for a total of $37 million. Our board also authorized a quarterly dividend of 15 cents 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, please?

Thank you. We will now begin our question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. And the first question will be from Joe Greff with J.P. Morgan. Please go ahead.

Hi. Good morning, Chris. Good morning, Joe. Back in March at your investor day, which feels like a long time ago for a lot of different reasons, you gave a 2025 EBITDA 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% report growth range for next year, do you still look at that level of EBITDA as achievable, or do you need REVPAR to be somewhat higher than 1% to 2% to get there?

Yeah, that's a good question. Obviously, it's a tad early to be getting into, you know, 2025 guidance. As you know, we would typically do that at the end of, you know, when we report year-end at the beginning of next year. But, you know, I will give you a high-level sense of it. I mean, we are in the 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 reasonably, like most things, I have a reasonably strong view of where I think things will end up. And so, you know, I'd start with sort of like, how do we feel broadly about 2025? And I would say we feel pretty good about it. You know, I've been doing this for longer than I'm going to admit, maybe close to 40 years. I've rarely seen, you know, sort of a stronger consensus view on the macro, you know, particularly here in the U.S., but I think broadly. And that macro view is, you know, sort of I think the word resiliency I use to describe our business. I think that word is getting used a lot to describe the economy. And I think, you know, 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 U.S. and to a degree in other parts of the world, but focus on the U.S. But, you know, it remains strong, resilient, and showing positive growth. And I think, you know, our 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, 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 sort of give you the punchline, and then I'll break it down a little bit by regions and segments. I mean, I think the punchline is my best sense, again, early in our budget season is that next year is going to look a lot like this year from a same-store growth point of view. Now, I think we'll get there a little bit differently, but I would say at this point, I think next year will end up, when we're sitting here a year from now, we'll be saying it felt a lot like 2024. If you break that down regionally, I think it's, you know, again, at a high level, where I think it ends up is the U.S. ends up pretty similar to, you know, what we're 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 year. And China, I mean, APAC-X China remains quite strong, as Kevin suggested in his comments. 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 will be a benefit. So I think APAC will be better. I think EMEA will be a little bit less good than it's 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 in red par growth in terms of our mega reasons 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 u.s about the same you know apac a little bit better emia 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 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 on the group side, you're going to continue to see really good strength. I said, you know, we're up in the low to mid, you know, teens, 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 the group segment. I think in business transient, which will be, I think, in second place in terms of the pecking order 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 U.S., inflation is down but still, you know, stubbornly a bit high, I do believe that we'll continue to have very solid pricing powers. So when you blend it all out, I think, again, it'll look a lot like this year. I think it will, you know, depending on segment, be balanced as I just described. But if you blend the whole world together – You know, it'll be a nice blend of both demand and pricing, the way all that sort of amalgamates, all of what I just said amalgamates together. And, you know, listen, 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 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 the way I would think about it is we're always trying to deliver algorithm growth. Back to your initial question, which is I say here, X plus Y needs to equal Z. So same store and unit growth need to add up. And I am very confident that, you know, algorithm will be alive and well 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 just talked a lot about kind of what's going on on the, you know, kind of rep part and macro side. Can you just walk us through, you know, obviously we now have the initial expectation of six to seven for next year. A little bit more about what your kind of underlying assumption is there and sort of how it might factor in, you know, possibilities of like what could maybe 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 what could be a little bit worse? Just what would be the kind of range or bound of outcomes there? Thank you.

And I'll offer some comments, and Kevin runs development, so I should cede to him, too. I mean, I do think we feel, obviously, really good about six to seven. 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 good visibility. We've got a lot of stuff under construction. We have a lot of momentum on conversions. So, you know, the way I would say is just, you know, a couple points of clarification. One, the six to seven is organic. That's not sort of incorporating, you know, partnerships in the, you know, which is why this year's numbers coming in hotter than that at seven to seven and a half. 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 will end up at about a third. If you add the partnerships in, we're about 50%. 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 it's in the pipeline. It's happening. And so it's really delivering on that one. And if it's going to deliver next year, it's pretty much got to 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 start something maybe with a LiveSmart right now or in the next 30 days and sneak it in next year. But it gets awfully hard. 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 others, they're in the pipeline. 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 at a third have been moving up. We've done more than that historically, but 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 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 sneak under construction 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 saying I think that'll happen, but I think that's possible. We give a range of six to seven 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, intellectually to do, you know, better or worse relative to the midpoint of that range is sort of conversions, 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 compare to the existing base? And have you seen any change in the development as rates have started to come down here and laying is loosened?

Yeah, thanks, Steve. I'll take the second part first 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 is, 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 normal for this part of the cycle, you've 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 ownerships and things like that. We're starting to see a lot more activity there, which bodes well. And then your first part, the fees per room, we're really not seeing any change. I mean, if you think about the complexion of what we're putting under construction and what we're delivering, it is still 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 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.

Awesome. Thank you.

Sure.

And the next question is from Carlos Santorelli from Deutsche Bank. Please go ahead.

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

Yeah, I, you know, I would say, and I tried to cover it, but I'll click a little harder on it. You know, in group, I think you're going to see, you know, a very 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 six percent. I think you're going to be looking at that kind of level of growth in the group segment if you look at the whole world. And I think that'll be pretty balanced, as I said, 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 business transient ends up being sort of more in that range. Again, with a balance, but if group is in the mid-single digits, 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, is, you know, I think I said this, maybe I didn't, you know, is 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? 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 positive. I mean, so I would say it's like, 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.

Yep.

And the next question is from David Katz from Jefferies. Please go ahead. Hi.

Good morning, everybody. Thanks for taking my question. Yeah, good morning. Chris, you mentioned earlier that, you know, you're getting an outsized and it's obvious amount of conversions. 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, 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 team's hustle. 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 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 for these deals and not to be pedantic. But these are, you know, at the short end generally, very short end, 10, but 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 they, you know, I say to the team all the time, well, for this cool, like, 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? I'll let Kevin explain himself on that. But, but getting half the businesses is pretty darn good. And I think it ultimately comes down to, you know, our ability, our ability over a long period of time, um, to be able to deliver performance for, for owners, because we can be witty, charming, scrappy, gritty, but 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 drive returns.

Thank you. The next question will be from Robin Farley from UBS. 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, do 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 than Guide. We'd love to hear about the non-REVPAR fees. And then also I think there was some timing benefit there as well. Thanks.

Thanks, Robin. I would say the answer is we don't have a tremendous amount of incremental visibility. You know, the place we obviously have the most visibility is in group, which is why we give you those statistics. You know, that business is pretty darn sticky. We have found, you know, recently and over long spans of time, people have needs. 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, which we do all the time, our sales teams, I do, others in senior management do, We survey them. We do have data that tells us what they're thinking, and that gives us a rationale for what I'm saying to you I think will happen next year. But they haven't booked the business yet. Unlike groups where they booked it, they haven't booked it. And then leisure is 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 is going to happen in the economy? It's not that the group business is immune to it, It's just stickier. It is not as immune to short-term swings over time as the other segments. So it's about, you know, it's about, I mean, have we gotten better? 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 non-REF PAR driven fees, clearly we were pleased with the performance. If REF PAR came in for all the reasons we talked about under our expectations, the non-REF PAR driven fees, if you think about performance 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 beat from the third quarter were timing items if you get behind it. And so that's about all I'd say about that.

Thank you.

And our next question is from Smedes Rose from Citi. 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 25 group, I guess particularly in the U.S., is it driven more by incremental 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 helping to drive that continued strength there?

I'd say it's a little bit of everything. If you think about what's going on, certainly the big citywides are picking up and Not surprisingly, and we've been saying this on every call, it just takes longer and gestation to get 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 sails 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, you know, that is still a thing. And then I'd say corporate meetings, we're seeing really terrific demand. I mean, even though the workplace is sort of normalizing, you know, somewhat, 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 in a way where, you know, we take less space because people are more mobile and it requires them, you know, needing space outside of their own office footprint more than historically they have. That's a nice little wind in our sail as well. That's a long-winded way of saying it's broad-based. It's not one thing driving it.

Thank you. Our next question is from Lizzy 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 I'd 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 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 maintain 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 if 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 U.S. The stuff that's under construction, just given the dynamics of some of the things that are going on around the world, our limited service business in China, things like that, it's about 80 percent of what's under construction is outside the U.S. You know, deliveries this year are going to be sort of more like the pipeline. Sort of think about it as, you know, mid-40s percent in the U.S. and 55 or so percent outside the U.S., I think the China business is doing great. We think 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. Even though there's a macro slowdown in China and 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 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 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 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 nug, 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 that'll move around a little bit year to year, but generally speaking, 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 East. 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're continuing to grow through it.

Thank you.

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

Good morning, everybody. Most of my questions have been asked and answered. I'm curious on SLH. I know it's relatively new, but that's 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 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 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 is super good, meaning that our customers are engaging with it. They're looking at the availability of these properties. Now, many of them this summer weren't available because they had already been booked given when they came in the system. Where they did utilize it, they utilized it in a very healthy way for redemptions, which is exactly sort of the behavior set that we're looking for. And so I'd say, you know, obviously a long way to go, but we feel very good about it. The ownership community in 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 in Italy and Tuscany to meet some friends where we have a few hotels. 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. And many of them are really small 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 Bellisario from Baird. Please go ahead.

Thanks. Good morning.

Good morning, Michael.

Chris, 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 similarities or differences that you see today compared to 2018 and 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 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, in 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 financeable. 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 they continue to grow. We've grown market share every single year in the almost 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 that way and the the the really nice thing as 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 circa 10 percent EBITDA growth and higher than that and EPS and free cash flow, that doesn't feel so bad. Imagine what can be done in an 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 these conditions are, we feel like whatever, I guess I'd finalize it by saying, We can't determine the macro. What we can do always is 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. And we will. But we feel 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 HSBC. 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 hotels have shifted over the past few months. Thank you.

It hasn't really shifted. I mean, obviously, inflation is down broadly. Use the U.S. because it's our biggest market, and we're here, sitting here in the U.S. And inflation is not running 8% to 10%. But, you know, it's still running 4%, 4-plus against the target of 2%, 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 and non-residential fixed investment, which drives a lot of demand in our business, which I think you know, continues to give us, you know, a decent amount of rate integrity. And so our, you know, our expectation is, you know, while 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 that there's a decent amount of pricing pressure. And so as we think about, we have very sophisticated revenue management models that it's not Chris Nassetta with his hand on the button deciding the rate of every room every night, thankfully. But we have very sophisticated systems. But those systems and all of our data scientists here at Hilton still believe that given those conditions, you know, in most segments at most times, you know, there is good pricing integrity. 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 know, there may be a little bit less pressure there. But broadly, 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 leisure rates will be up just because of the underlying macro conditions. I don't know if that answered it, but the short answer is nothing material that we see that's different in the last few months.

It's super helpful. Thanks a lot.

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

Morning. Thanks for taking my question. Just a quick one continuing on development, the guide for key money or contract acquisition costs 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 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 just more progress in your goal to reduce key money as a percentage of NUG? Thanks.

Yeah, sure. I mean, look, I think key money, in terms of percentage of NUG and the more strategic bit, no change in our approach. I mean, we still use key money on less than 10% of our deals. We use it when we have to when it gets competitive, but 90-plus percent of the deals are 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 more visibility into 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 Truist Securities. Please go ahead.

All right. Good morning, everyone. Morning. Morning. Kevin, a question for you. What are your ROI targets for brands, specifically developing them internally versus buying a brand? And then related to that, You know, on these recent, I call them tuck-in brand acquisitions, you know, are these initially accreted to earnings, or if not, you know, how long does it take for them to be accreted? Thank you.

No, I think, look, there's a lot there. Patrick, 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 ROI is extreme, you know, near infinite when we build these brands and, you know, build them over time organically into multi-billion dollar businesses. You know, it's sort of you do a buy versus build analysis, but it almost always suggests it almost always suggests build from a pure ROI perspective. And the last couple of deals we've done, they've been basically accretive out of the box, right? I think we disclosed that on Graduate, if you'll recall, from the press release that it's accretive out of the box. So on both of these things, they were very specific to things we wanted to tuck in strategically. We were able to take advantage of a little bit of distress in the environment to buy them really well, and they were accretive 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 Chris Nassetta 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 excited. Happy with how the third quarter worked out. We feel good about the fourth 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 2025 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.