The operator welcomes participants to the Hilton Second Quarter 2024 Earnings Conference Call and introduces Jill Chapman, who will lead the call. Jill reminds participants of the forward-looking statements and non-GAAP financial measures that will be discussed. Chris Nassetta, President and CEO, will provide an overview of the current operating environment and the company's outlook, while Kevin Jacobs, CFO and President of Global Development, will review second quarter results and expectations for the year. The company has seen strong RevPAR growth and surpassed 8000 hotels globally in July.

The company's recent acquisitions and partnerships have increased loyalty among guests and improved their RevPAR premiums. RevPAR increased by 3.5% due to strong group performance, recovery in business transient, and easier holiday comparisons. Transient RevPAR grew by 2% with increases in both business and leisure demand. Group RevPAR rose by more than 10% and booking windows continued to lengthen. The company expects full year system-wide RevPAR to increase by 2% to 3%. They opened 165 hotels and achieved net unit growth of 6.2%, reaching milestones such as their 6000th hotel in North America and surpassing 75,000 home two suites rooms globally.

The company has opened new resort properties in Europe and added new brands to their portfolio, including Curio, DoubleTree, Graduate, and NoMad. The demand for lifestyle hotels is increasing and the company has expanded their offerings by 30% in the past year. Conversions accounted for half of the recent openings and the company has a strong pipeline for future growth. Hilton Garden Inn has seen significant growth in signings across multiple countries. Conversions also played a major role in the recent signings, thanks to acquisitions and partnerships.

In the quarter, 25% of hotel signings were due to conversions, with a significant increase in system-wide construction starts. Hilton is on track to exceed previous levels of starts, with half of their pipeline currently under construction. The addition of nearly 300 boutique luxury properties and exclusive agreements with small luxury hotels and AutoCamp will enhance the offerings for guests and provide new opportunities for Honors members. Due to a strong pipeline and recent partnerships, Hilton expects a net unit growth of 7% to 7.5% for the year. They have also been recognized for their leading brands and culture.

Hilton has been ranked as the most valuable hotel brand for the 9th consecutive year and has received numerous awards for being a top workplace. In the second quarter, their system-wide RevPAR grew by 3.5% and adjusted EBITDA increased by 13%. The growth was mainly driven by strong international performance and continued recovery. In the U.S., RevPAR was up 3% and in Europe it grew by 7%. Overall, Hilton's business model remains strong and they have exceeded their expectations for the quarter.

In the second quarter, RevPAR (revenue per available room) increased in the Middle East and Africa due to strong group and leisure performance. In the Asia Pacific region, RevPAR was up 1% with significant growth in Japan and Korea, but a decline of 5% in China due to limited international travel. The company's pipeline of rooms for development increased by 15% year-over-year, with the majority located outside the U.S. and nearly half under construction. For the third quarter, the company expects RevPAR growth of 2-3% and adjusted EBITDA of $875 million to $890 million. For the full year, RevPAR growth is expected to be 2-3% with adjusted EBITDA of $3.375 billion to $3.405 billion. The company has also returned $1.8 billion to shareholders through buybacks and dividends, with an expected total of $3 billion for the full year.

The company's second quarter results were announced in an earlier earnings release. The company is pleased with the 7-7.5% net rooms growth, which is mainly due to the addition of the Graduate brand. The organic growth is slightly lower than previous guidance, but this is due to some projects being moved to the first quarter of next year. The company is seeing high levels of signings and starts, excluding partnerships and acquisitions.

The company is pleased with their strong results and expects to continue this momentum into next year with solid organic growth. They anticipate being in the 6-7% range for organic growth, with this year being above the higher end due to some inorganic factors. They expect contract acquisition spend to moderate and be similar to this year's level, with the majority of deals being fully free of incentives.

The speaker discusses the company's performance in the past year, mentioning an increase in opportunities for luxury and resort convention assets due to COVID and a return to more normal levels this year. They also mention group pace for this year and the next few years, with a large percentage of group room nights already booked for 2025 and 2026. The group segment is back to pre-COVID levels and the speaker expresses confidence in demand and pricing, noting an extension of the booking window.

The speaker discusses the current state of the booking window in the travel industry, stating that it has returned to pre-COVID levels. They also mention that the group booking window continues to extend due to limited availability. The speaker then addresses the current state of leisure and corporate travel, noting that there is softness in leisure but solid performance in corporate. They also mention the differences in travel trends in different regions, specifically noting that China has seen a significant amount of travel while other regions are experiencing a decline.

The travel business in China is still strong, but there are economic issues affecting the country. Chinese travelers are taking advantage of visa-free corridors, but there are not enough inbound flights to compensate for the outbound travel. Efforts are being made to stimulate more travel and flights, but it will take time. The rest of Asia Pacific, particularly Korea, Japan, and India, are performing well without signs of weakening. In EMEA, the Middle East is strong while Europe is slightly weaker in terms of leisure business. Overall, the travel business is still growing at a high single digit rate.

The speaker explains that the current state of the travel industry is not necessarily bad, but it is softening due to various factors. Business and group segments are still doing well, but leisure travel is normalizing as people return to a more normal life. The lower income segments are struggling due to spending all their savings from COVID, while the higher income segments still have disposable income. Overall, the industry is expected to see growth in all segments, but leisure travel may experience slower growth.

In response to a question from Stephen Grambling of Morgan Stanley, Kevin Jacobs of the hotel company provides details on the non-RevPAR related fees, such as management and franchise fees, and other revenue lines. He explains that these fees outperformed in the first half of the year but may have some timing issues. However, over time, they should continue to grow at or above the algorithm. When asked for clarification, Jacobs states that the timing issues are not related to partnerships or deals, but rather to comparability and strength in the early part of the year. He also mentions some one-time items in the non-RevPAR related fees. The next question is from David Katz of Jefferies.

The speaker discusses the company's ability to influence the growth of non-RevPAR fees and mentions specific actions they have taken, such as changing benefits for co-branded credit cards. They also mention their close partnerships with third-party companies and their dedicated teams working to maximize these partnerships.

The speaker explains that the company is deeply involved in acquisitions and partnerships, creating new brands and modifying programs to drive better outcomes. They have a strong focus on conversions, which are expected to accelerate in the coming year and contribute to a 6-7% growth rate. The company has had success in conversions, with over 50% for the year, and expects this trend to continue.

The company believes that the strength of their brands and commercial engines contributes to their success. They are seeing a disproportionate share of conversions and expect this trend to continue. They are confident in their guidance for 6% to 7% growth next year. The first half of the year saw higher EBITDA growth due to timing, but the full year is expected to be in line with their guidance of 10% growth. The company is proud of their ability to achieve this in a challenging macro environment.

The macro environment is weakening slightly, which has caused the company to lower its RevPAR and EBITDA guidance. However, the company's strong development strategy and execution has allowed it to maintain its target of 10% EBITDA growth. The higher end of the RevPAR outlook may be influenced by the overall state of the US economy.

The company's EBITDA guidance for the year did not change despite a decrease in RevPAR, which suggests that there may be additional fees from the recently acquired SLH. These fees are expected to come from both RevPAR and non-RevPAR sources, and the company earns standard fees for SLH hotels similar to those of a typical franchise arrangement.

The speaker discusses the positive economic impact of getting paid for the business they generate at hotels, which have an average rate 5-7 times higher than their system-wide average. They also mention a potential acceleration in RevPAR in the back half of the year, with a stronger fourth quarter due to a more normalized business travel and a strong group base.

During a recent conference call, Patrick Scholes asked Kevin Jacobs about the impact of bundling hotel rates and resort fees on ADR growth and customer demand. Jacobs responded that it is still too early to see any impact, but the change is meant to provide more transparency and is not expected to affect ADR. Scholes also asked about the potential for further EBITDA margin growth, to which Jacobs replied that the company has seen significant margin expansion since 2019 and expects to continue this trend with 50 to 100 basis points of embedded margin growth each year due to the shift towards fee-based revenue and disciplined cost control.

Christopher Nassetta, CEO of Hilton, expects the company to see over 100 basis points in EBITDA margin growth this year. Analyst Patrick Scholes asks about the potential impact of conversions, which are becoming a larger component of net unit growth for Hilton and its peers. Nassetta explains that conversions are typically more prevalent during this part of the cycle, when capital for new builds is constrained and expensive. However, Hilton is also strategically focusing on conversions, particularly for its lifestyle brands, to increase its share. In 2020, Hilton completed 40% of all conversion deals in the U.S.

The company is experiencing strong growth this year and expects it to continue due to the network effect and strategic focus on brands. The Spark program has seen positive results with conversions from third-party brands and owners investing as expected. The 400 SLH properties are primarily located in EMEA, with smaller luxury hotels averaging 45-50 rooms.

The speaker discusses the success of their unique properties in high-rated and high RevPAR markets, noting that the pace of people signing up has exceeded expectations. They also mention that the profile of these properties is in line with their initial expectations. A question is then asked about China's contribution to overall fees, to which the speaker responds that it is not significantly different from their normal fee structure and that they are growing a franchise business in China. They also mention a couple of factors that may affect the IMF segment, but overall it is expected to see low double-digit growth for the year.

During a Q&A session, Richard Clarke asks about the performance of regions like Middle East and Africa and Asia, excluding China, in the second half of the year. Christopher Nassetta, the CEO of the company, says they feel good about those regions and expect them to continue delivering double-digit growth. He also mentions that there may be some softening in certain segments and regions, but overall, they are confident in the performance of these regions. Clarke also asks about the 1,000 Waldorf Astoria rooms and 300 Conrad rooms that have left the system, and Kevin Jacobs explains that they have shifted to other brands at the company's urging as part of a strategic plan for the Waldorf brand.

Waldorf Astoria is performing exceptionally well, with its new products and 24 brands providing a home for properties that may not fit under the Waldorf brand. The company's FX assumption was set before the recent weakening of the US dollar and the pipeline approvals for the second quarter, excluding Graduate, were 4,000 and strong.

Conor Cunningham from Melius Research asks about changes in the company's discussions with developers and the impact of longer-term rentals. The company is not seeing any changes in the extended stay business and developers remain positive about the future of travel. Capital is slightly less expensive but still available for good projects. The company is taking share in a more constrained credit environment.

The speaker emphasizes that strong brands and lenders will benefit from the current economic climate, and the company is happy with their performance in the second quarter. They are confident in their outlook for the full year and will provide updates in the future. The call ends with well wishes for the rest of the summer.

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