The paragraph introduces the Hilton Fourth Quarter 2023 Earnings Conference call and provides important information for participants, such as the format of the call and the use of forward-looking statements. It also introduces the speakers, Jill Chapman and Chris Nassetta, who will provide an overview of the company's operating environment and financial results. The call will also include a question-and-answer session.

In 2022, the company experienced strong top line performance, leading to record adjusted EBITDA and the launch of new brands and partnerships. System-wide RevPAR increased 12.6% compared to 2022 and 10.7% compared to 2019. In the fourth quarter, RevPAR increased 5.7% year-over-year, driven by international and group trends. The company expects a 2-4% growth in top line for the upcoming year, with international markets outpacing the US.

The company expects positive RevPAR growth in all segments due to recovery in business and group demand. They have seen strong development momentum, with the largest quarter of openings in their history and milestones such as opening their 250th Tru Hotel and 1000th Hilton Garden Inn. They have also achieved net unit growth of 4.9% and have a strong pipeline with record signings of 130,000 rooms. Conversion activity remains strong and full service and collection brands are gaining traction with owners.

In the previous year, the company had a strong performance in construction starts and currently has the most rooms under construction compared to other hotel companies. They expect positive momentum in signing starts and conversions to lead to stronger openings, aided by the addition of two new brands. The company also announced a partnership with Small Luxury Hotels of the World, which will significantly expand their luxury distribution. They also introduced a new program, Hilton for Business, designed to cater to small and medium sized businesses.

The company's focus on creating unique experiences for SMBs has led to significant growth opportunities. They have launched a new consulting arm to elevate food and beverage offerings and have been recognized as the number one world's best workplace and for corporate sustainability performance. The company is confident in their ability to continue delivering value and expects strong performance in the year ahead.

In the fourth quarter, system wide RevPAR grew 5.7% on a comparable and currency neutral basis, driven by strong international performance and recovery in group and business transient. Adjusted EBITDA was $803 million, exceeding expectations due to better than expected fee growth. US RevPAR grew 2% with strong performance in business and group, while leisure was flat. Outside the US, RevPAR grew 7% with strong group business in urban markets. Europe saw 10% RevPAR growth, driven by large events. Middle East and Africa grew 12% with strong rate growth. Asia Pacific saw a 42% RevPAR increase, driven by demand recovery in China and Japan. Excluding China, RevPAR was up 18%. Development also saw positive trends.

Chris mentioned that for the full year, the company saw growth in net units and ended with over 462,000 rooms in their pipeline, with a majority located outside the US. They are optimistic about their development potential and demand for their branded products in both domestic and international markets. For the first quarter, they expect RevPAR growth and have provided guidance for adjusted EBITDA and diluted EPS. They also plan to return capital to shareholders through dividends and buybacks. The operator then opened up the line for questions, with a request to limit questions to one per person. The first question asked was about potential mergers and acquisitions of brands.

The CEO of a hotel company is asked about recent rumors of a potential acquisition and their overall approach to M&A. He states that while they have not made any acquisitions in the past, they have a strict filtration system in place and will only consider brands that add value to their portfolio and are accretive to the company's value. He also notes that the current market environment may present more opportunities for smaller, tuck-in acquisitions.

The speaker discusses the rigorous filtration system and their partnership with SLH. They do not have any acquisitions to report currently but continue to look at opportunities. The environment has provided more opportunities than before. The speaker also mentions the strength of business transient and group demand for 2024, and how they expect all segments to recover and potentially impact ADRs. They are seeing growth in most segments, with some still slightly below pre-pandemic levels. Overall, business transient is ahead in terms of RevPAR but slightly behind in terms of occupancy.

The speaker believes that by the end of the year, demand for hotels will return to normal levels and pricing power will remain strong due to low supply and continued economic growth. Group demand is particularly strong, with bookings reaching new highs every quarter. The speaker also notes that group business is sticky and will lead the system, resulting in strong rates. The limited supply of hotels with meeting space is contributing to high demand, with even their own company struggling to find space for conferences in the future.

Nassetta states that demand is strong due to limited supply, leading to good pricing. He also expects growth in the leisure sector, primarily in rate rather than volume, as their median income level consumer has the desire and means to travel. However, leisure will be third in line for recovery after group and business travel. The 2024 guidance of 5.5% to 6% is purely organic, with a potential 25 to 50 basis points from SLH and any additional M&A on top of that. Nassetta confirms that the deal with SLH is selective and adds that it is still in progress.

The speaker is excited about the recent acquisition of SLH, a collection of 500 unique and luxurious hotels. They believe there is little overlap with their existing portfolio and see potential for growth in their distribution capabilities. They have conducted research and believe their high-end customers will be pleased with the offering.

The company is planning to expand its luxury hotel portfolio from 100 to 600 or 700 properties around the world, which they believe will be well-received by customers. The economics of this expansion are favorable, with similar license fees as their other brands and the potential for significant revenue from generated business. This is a capital-light investment and fits into the company's strategy of building a network effect and ecosystem for customer loyalty. While the company is open to future opportunities, their current focus is on this expansion.

The speaker emphasizes the potential for SLH to attract new customers and increase loyalty, with a focus on resorts and boutique hotels. They also mention the possibility of SLH crossing over into business travel, as some of the hotels are located in urban areas. However, they note that these hotels have limited meeting space and will primarily attract leisure travelers.

The speaker discusses the potential for business transient to be a significant part of the SLH partnership, particularly in hotels located in desirable locations. The SLH portfolio currently has a strong presence in Europe, the US, and APAC, with unique and niche locations within major cities. The speaker also mentions that the majority of SLH hotels are expected to join the system, with a potential for 25-50 new hotels in the first year. The growth rate will depend on the speed of execution and the technology requirements.

During the next call, the team plans to refine their strategy with a better set of information. When asked about the year-end share count, Kevin Jacobs did not have the exact number but will follow up with Smedes. The next question from Brandt Montour is about SLH, and Chris Nassetta expresses excitement about it. Nassetta explains that the hotels have the option to opt in to the system and maintain their own branding, but with access to a larger customer base and loyalty program.

The speaker, Robin Farley, asks about the company's pipeline and the percentage of unit growth expected to come from conversions. Kevin Jacobs responds that they expect about 30% of growth to come from conversions this year, but it may increase over time, especially with their new brand Spark. The next question from Chad Beynon is about the company's 2-4% RevPAR guide and how it compares to their competitor [Star]. Chris explains that they have a slightly different process and that international RevPAR may be more positive than domestic due to FX neutrality.

Chris Nassetta, CEO of a hotel company, discusses their budgeting process which involves looking at various sources and creating a range of outcomes. They tend to follow the consensus view of a soft landing for the economy, but are prepared for different scenarios. The company has been growing market share and hopes to continue doing so internationally, with strong performance in EMEA and Asia Pacific. The next question from an investor is about the progress of a project called Spark.

Kevin Jacobs, CEO of Choice Hotels, discusses the success of their new brand Spark and the strong pipeline of nearly 150 hotels. He believes in the value proposition of Spark and is not concerned about competition from other brands. In terms of mid-scale and lower chain scales, Jacobs attributes the softer year-over-year growth to comps and believes in the demand for this segment, which serves 70 million customers.

Hilton's mid-scale transient and extended stay brands, Spark and LivSmart, are expected to continue to perform well and bring in new customers, delivering good returns for owners. The company does not focus on year-over-year RevPAR growth, but rather on generating premium market share and outperforming the competition. In terms of development and signings, Hilton has seen broad-based success, with a 45% increase in signings and a record year expected in 2024. The company's strong brand performance and industry fundamentals have contributed to this success, and owners are eager to affiliate with Hilton.

Hilton's CEO discusses the impact of lending constraints on their brands, mentioning that lenders prefer to lend to projects affiliated with their brands. He also talks about the early success of the Sparks program, which has seen consistent performance and an increase in new members. In response to a question about the recently announced partnership with Small Luxury Hotels of the World (SLH), the CEO clarifies that this is not the luxury lifestyle launch they have teased and assures that they are still working on entering that space. He also addresses potential criticism about hotels choosing the SLH route into Hilton Honors instead of joining one of their other brands, stating that they are still committed to entering the luxury lifestyle space this year.

The company expects to enter the luxury lifestyle market this year, which will be different from their existing brands and will not cannibalize their current offerings. They believe the acquisition of SLH will bring in new customers and not conflict with their growth opportunities or current owners.

The speaker explains that the gap between the 15% RevPAR growth in owned and lease and the 8% revenue decline is due to the impact of government subsidies in the fourth quarter of last year. They also discuss their expectations for inbound and outbound travel this year, with a focus on the recovery of inbound international travel and the potential impact of the Chinese market.

The speaker believes that there will be a strong focus on big urban markets for business and group events. They also expect to see a resurgence in inbound business, leading to a positive outlook for the year. However, the development pipeline for new hotels is at an all-time high, indicating a potential for future supply growth. The speaker acknowledges this but also notes that there are limitations in place that may prevent a significant increase in supply.

The speaker discusses the current state of the housing market, citing factors such as high costs and limited financing availability as reasons for the 1% output growth. They mention that while some of these factors have stabilized, the financing market is still not robust, but they expect it to improve in the coming years. They also mention that it takes time to build new homes and predict that supply will be below the 30 year average for the next few years. In response to a question about fee growth, the speaker does not directly answer but instead discusses the housing market and their expectations for future growth.

Hilton expects fee growth to exceed its algorithm, despite some headwinds from FX. The company plans to reach the bottom end of its leverage range by the end of the year. CEO Chris Nassetta is pleased with the company's performance and is optimistic about the outlook for the full year. The company will provide an update after the first quarter.

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