The Hilton Earnings Conference Call for the second quarter of 2023 began with Jill Chapman, Senior Vice President of Investor Relations and Corporate Development, reminding participants that forward-looking statements made during the call could differ from actual results. Chris Nassetta, President and Chief Executive Officer, then provided an overview of the current operating environment and the company's outlook, followed by Kevin Jacobs, Chief Financial Officer and President of Global Development, who discussed the company's second quarter results and expectations for the year. The quarter saw record-breaking Adjusted EBITDA of $811 million.

In the second quarter of 2021, performance was driven by strong fundamentals and share gains. System-wide RevPAR increased 12.1% year-over-year due to strong demand and pricing power across all segments. Group recovery was robust with RevPAR growing 19% year-over-year. Compared to 2019, system-wide RevPAR grew 9%, with leisure RevPAR increasing 26%, business transient RevPAR increasing 6%, and group RevPAR being roughly flat. The company is confident in its ability to continue driving top and bottom line growth and is increasing its guidance for return of capital for the full year to between $2.4 billion and $2.6 billion.

In the second quarter, bookings grew 30% and the sales team saw the highest revenue bookings ever. This resulted in an expected 10-12% RevPAR growth. 36,000 rooms were signed, the highest quarterly signings in history. Signings in Europe, Asia Pacific, and the Americas were all up significantly. In China, 3,700 HCI rooms were signed, more than 3x last year. In the US, 50 true hotels were signed, the strongest pace since 2017. Spark has signed 60 hotels and has 400 in negotiation. Half of these are from new owners and 20 are scheduled to open by the end of the year.

Spark has had a strong start and recently launched an extended stay brand in the U.S. called Project H3. They have received a lot of interest from owners and developers and have a record 3,000 properties totaling 441,000 rooms in their system-wide pipeline. They have more rooms under construction than any other hotel company and are opening nearly 2,000 additional rooms in New York Times Square with the debut of their first-ever tempo by Hilton. They have also celebrated several milestones, including surpassing 150,000 rooms in Asia Pacific and the openings of the Hilton Okinawa, Miyako Island Resort in Japan and the Conrad Shenzhen. They expect openings to accelerate as the year progresses and conversions to account for around 30% of openings.

Hilton is expecting net unit growth of 5-7% in the coming years and is focusing on initiatives to drive loyalty and satisfaction. They have formed a partnership with the James Beard Foundation and are expanding partnerships with world-class chefs. Hilton Honors is the fastest-growing hotel loyalty program with 20% year-over-year growth and 64% occupancy in the quarter. Hilton has also been recognized as a top employer for millennials for the sixth consecutive year.

In the second quarter, system-wide RevPAR grew 12% year-over-year on a comparable and currency-neutral basis, driven by strong demand growth in APAC as well as leisure and business transient. Adjusted EBITDA was $811 million, exceeding the high end of guidance, and diluted earnings per share adjusted for special items was $1.63, also exceeding the high end of guidance. In the U.S., RevPAR grew 6%, led by recovery in both business transient and group segments. In the Americas outside the U.S., RevPAR increased 22%, driven by strong group demand. In Europe, RevPAR grew 26%, due to leisure demand and recovery in international inbound travel. In the Middle East and Africa region, RevPAR increased 30%. In the Asia Pacific region, RevPAR was up 79%, due to continued demand recovery in China.

In the second quarter, RevPAR in China was up 103% year-over-year and the rest of the Asia Pacific region saw a 52% increase. For the third quarter, RevPAR growth is expected to be between 4-6%, adjusted EBITDA between $790 million and $810 million, and diluted EPS adjusted for special items between $1.60 and $1.65. For the full year 2023, RevPAR growth is expected to be between 10-12%, adjusted EBITDA between $2.975 billion and $3.025 billion, and diluted EPS adjusted for special items between $5.93 and $6.06. The Board also authorized a quarterly dividend of $0.15 per share and has returned more than $1 billion to shareholders in the form of buybacks and dividends. The net unit growth target for this year is approximately 5%.

Chris Nassetta states that on the last call he estimated net rooms growth to be around 5% and that his view has not changed since then. He explains that the surge in starts in the second half of last year and the first half of this year is driving the growth, and that there is data to back up his optimism.

The company is expecting to have a record year in signings and starts, with growth in the US, Europe, and Asia Pacific. They expect 2024 to be much better than the first half of this year, and are optimistic about their NUG for next year. They may be able to exceed the middle of their range if things go their way. They will update investors in the coming quarters.

Chris Nassetta of Hilton Hotels & Resorts has reported that the business is seeing better results than expected, which has led to an increase in their outlook for the second half of the year and the full year. He also noted that the world is a big place and that there is less pressure in some parts of the world, which is a benefit of having a diversified global business. He also mentioned that they are not economists and take the consensus view of what is going on in the macro.

The consensus view for the second half of the year is that there will be a soft landing and a slowdown, but the momentum from the first half of the year is strong. The guidance has been increased based on what has already been booked for the year, and there may be potential upside if the fourth quarter continues the same trend as the second and third quarters. There are no signs of weakness in the leisure, business transient, and group segments, despite questions about the leisure business.

The leisure industry is having a strong summer, with the exception of some markets normalizing from high levels. The transient, SMBs, and group businesses are all doing well, with pent-up demand for group travel still present. The second quarter was the best booking quarter in the company's history. The Fed is expected to raise rates, but is likely near the end of the tightening cycle.

Inflation is coming down and housing is real-time decreasing, leading to the consensus view of a soft landing by late this year or sometime next year. Businesses are seeing no real cracks and China is surpassing prior numbers. This year is expected to remain in line or better than expected, and next year is expected to be good due to strength in leisure and business transient. However, guidance for next year is not yet available.

Chris Nassetta explains that the algorithm that was outlined in 2016 is still in effect and is producing more free cash flow than ever before, allowing the company to return more capital. He states that RevPAR has been higher and same-store growth is expected to normalize, which would result in increased license fee rates, overall RevPAR growth, and deals that are at or above algorithm growth rates. He also mentions that this will lead to increased free cash flow and capital returns.

Chris Nassetta explains why they have focused on the mid-market when launching brands, saying that it is the biggest opportunity and that they are trying to serve any customer for any need. He also explains that this strategy is a winning strategy because it delivers better products for customers and it is better from a return point of view.

The mid-market is where the majority of money is being made due to the growing middle classes all over the world. Hilton has made strides in the luxury space, with Waldorf Astoria being ranked the number one luxury brand for customer satisfaction in North America. They are also looking into developing a pure hard brand in the luxury lifestyle segment, which would include H3 and Spark.

Chris Nassetta explains that although the company had hoped to open 50 hotels this year, they have realized that they will only be able to open 20 due to the supply chain and other logistical issues. He also mentions that the NUG is expected to increase by 5% and that the company is focusing on the mid-market to make the most money in the coming years.

Chris Nassetta explains that Hilton is 3-4 percentage points off peak occupancy levels due to lower group business. He attributes this to the group business still building and impacting a number of cities that have otherwise recovered. He believes that continued improvement in group trends may close the gap between pre-pandemic and current occupancy levels.

Chris explains that occupancy levels in most cities have recovered, but not to the same level as prior to the pandemic, partly because of yield management strategies. He notes that ADR growth has been below inflation since April, but that they are pushing rates to maximize profits for hotel owners and increase margins.

Chris Nassetta states that the core pricing of transient products, such as leisure and business, is keeping up with inflation. He notes that the current environment is generally supportive of continued rate strength and that pricing is resetting to a new water level. Eventually, pricing will return to basic fundamentals, such as base demand and supply.

Kevin Jacobs of Hilton reports that the owners of their Spark properties are mostly new to Hilton, which is a positive thing as it diversifies their customer base and provides more demand for the product. He also notes that the industry growth in the US is anemic, running at 0.8% instead of the 30-year average of 2.5%. This could lead to a more normalized environment with healthy demand and low supply, which could sustain performance and rate integrity.

Chris Nassetta discussed how the owner base is evolving and how the capital is following the opportunities. He mentioned that the majority of deals are now with new owners rather than existing owners. He also spoke about H3, which is a hybrid apartment-hotel, and the institutional interest that it has been receiving. He mentioned that they are negotiating 300 deals with a limited number of well-heeled, institutional type players, and will eventually open the floodgates on H3 once it gets going.

Chris Nassetta and Kevin Jacobs both discuss the success of the Spark and H3 brands, which require relatively low-cost financing. They point out that the success of these brands is not simply due to the pandemic but also due to customer and owner demand. They also note that their lower-end products are more financeable in this environment, which is a benefit of diversification.

The new Amex credit card deal, which was announced on Friday, is said to be competitively sensitive and not much details are provided. However, Kevin Jacobs explains that the deal is different from the 2017 one and provides more easily financeable products, limited services, and lower-end products to be deployed in emerging markets. These changes are expected to lead to a progression back to normal.

Kevin Jacobs noted that the economics of the program are better than in 2019, and the program has been growing massively. He believes that travel co-brand cards have become successful and attractive products, and the 10-year deal with American Express will continue to grow at or ahead of algorithm over time. Additionally, Jacobs noted that the owned portfolio had a better performance in the quarter than the M&F fee portfolio, particularly in Europe and Japan.

Kevin Jacobs explains that the portfolio of the business is concentrated in U.K., Ireland, Europe, and Japan, and that there is operating leverage in the business. Chris Nassetta is then asked if the two new brands will be enough to get U.S. back up to 5% of the international recovery factor 6 to 7, and if there is anything different with these brands compared to Motto and Tempo.

Hampton is growing in the U.S. with the combination of Spark, Home2, and Tempo, which is just getting started. Tempo and Motto were launched just before the pandemic, which caused a slowdown in financing, but the environment is much better now. Spark is a conversion brand that offers owners opportunities for market share gains at a relatively low cost.

Chris Nassetta concluded the call by expressing his optimism for the future of the company. He discussed the success of Q2, as well as their plans for growth and cost discipline. He also mentioned their intention to give back to shareholders through free cash flow. Finally, he invited everyone to join them again after Q3 for an update on their progress.

This summary was generated with AI and may contain some inaccuracies.