Hilton Worldwide Q3 2024 Earnings Call Transcript

Participants

Corporate Executives

• Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations
• Christopher J. Nassetta, President and Chief Executive Officer
• Kevin J. Jacobs, Chief Financial Officer and President, Global Development

Analysts

• Joe Greff, JPMorgan Chase & Co.
• Shaun Kelley, Bank of America Merrill Lynch
• Stephen Grambling, Morgan Stanley
• Carlo Santarelli, Deutsche Bank Aktiengesellschaft
• David Katz, Jefferies Financial Group Inc.
• Robin Farley, UBS Group AG
• Smedes Rose, Smith Barney Citigroup
• Lizzie Dove, The Goldman Sachs Group, Inc.
• Brandt Montour, Barclays PLC
• Michael Bellisario, Robert W. Baird
• Meredith Jensen, HSBC Holdings plc
• Chad Beynon, Macquarie
• Patrick Scholes, Truist Securities

Presentation

[Operator]

Good morning, and welcome to the Hilton Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations. You may begin.

[Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations at Hilton Worldwide]

Thank you, Chad. Welcome to Hilton's third quarter 2024 earnings call. Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K.

In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of 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.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

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 RevPAR performance. We opened more hotel rooms than any other quarter in the history of our company and surpassed 8,000 hotels in our system. We also reached a milestone 200 million Hilton Honors members in the quarter as our award-winning program, industry-leading brands, and exceptional service continued to increase guest loyalty.

Turning to results, third quarter system-wide RevPAR increased 1.4% year-over-year, below our guidance range due to slower ramp in September following Labor Day, weather impacts, unfavorable calendar shifts, and ongoing labor disputes in the US. Business transient RevPAR increased 2% with growth across both large corporates, and small and medium-sized businesses. Leisure trends continued to normalize with RevPAR declining modestly from post-pandemic peaks. Group RevPAR rose more than 5% year-over-year, led by strong demand for both corporate and social meetings and events.

For the full year, group position is up 10% with group position in '25 and '26 up low double digits to mid-teens. Adjusting for holiday and calendar shifts, we estimate system-wide RevPAR grew at 2.3% in the quarter, just slightly softer than the second quarter and with all segments increasing. On an adjusted basis, leisure transient RevPAR increased nearly 2%, driven largely by solid trends across Continental Europe. In the fourth quarter, we expect RevPAR growth largely in line with third quarter, driven by strong group bookings, continued business transient recovery and favorable calendar shifts, partially offset by the election and ongoing labor disputes in the US.

Weekday 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 RevPAR growth of 2% to 2.5% and full year adjusted EBITDA growth of approximately 10%, demonstrating the continued resiliency of our business model.

Turning to development in the quarter, we opened a record 531 hotels, totaling more than 36,000 rooms and 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. Home2 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 welcomed nearly 400 luxury properties through our exclusive agreement with small luxury hotels of the world. These properties spanning 70 different countries provide Honors members even more opportunities to book unique luxury experiences in sought-after destinations across the globe.

Including SLH and our existing luxury properties, we now have one of the largest luxury hotel portfolios in the industry. Conversions accounted for 60% of openings in the quarter, driven by the addition of SLH properties and continued momentum from Spark. We opened more than 20 Spark hotels in the quarter, and now have over 6,000 Spark rooms in supply just a year after the brand opened its first property. Spark now has opened hotels in the US and the UK and Canada. And we recently announced plans to open hotels in Germany and Austria before the end of the year. The brand's pipeline is three times larger than its existing supply and we expect continued launches in international markets to further boost Spark's trajectory, positioning us well for future growth in the premium economy space.

In the quarter, we signed 28,000 rooms, expanding our pipeline to more than 492,000 rooms, which is up 8% year-over-year. Excluding partnerships, our pipeline also increased from the second quarter. We signed three luxury deals in Greece, Japan, and the UAE, and 35 lifestyle properties, including a record 15 Curios. Conversions accounted for more than 30% of signings in the quarter, driven by the strength of Spark and the continued momentum across Curio, Tapestry, and DoubleTree.

Construction starts remained 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 1 wins around the world since 2016. We're also proud to be named the Number 2 workplace on the 2024 People magazine Companies that Care list, and recently recognized as Time's 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.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

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 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 US RevPAR was up 1%, driven by strong group performance. In the Americas outside of the US, third quarter RevPAR increased 4% year-over-year, driven by strong results in urban markets, particularly in Mexico. In Europe, RevPAR grew 7% year-over-year, driven by key summer events, including the Olympics in France and the European soccer championships in Germany. In the Middle East and Africa region, RevPAR increased 3% year-over-year, led by occupancy gains in Qatar and Riyadh. In the Asia Pacific region, third quarter RevPAR was down 3% year-over-year. RevPAR in APAC ex-China increased 4%, led by strong performance in India. However, China RevPAR declined 9% in the quarter with difficult year-over-year domestic travel comparisons, disruptions due to typhoons and limited international inbound travel negatively affecting results.

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

Moving to guidance. For the fourth quarter, we expect system-wide RevPAR growth of 1% to 2% year-over-year. We expect adjusted EBITDA of between $804 million and $834 million, and diluted EPS adjusted for special items to be between $1.57 and $1.67. For full year 2024, we expect RevPAR growth of 2% to 2.5%. We forecast adjusted EBITDA of between $3.375 billion and $3.405 billion. We forecast diluted EPS adjusted for special items of between $6.93 and $7.03. Please note that our guidance ranges do not incorporate future share repurchases.

Moving on to capital return, we paid a cash dividend of $0.15 per share during the third quarter for a total of $37 million. Our Board also authorized a quarterly dividend of $0.15 per share in the fourth quarter. Year-to-date, we have returned more than $2.4 billion to shareholders in the form of buybacks and dividends. And for the full year, we expect to return approximately $3 billion. Further details on our third quarter results can be found in the earnings release we issued earlier this morning.

This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Chad, can we have our first question, please?

Questions and Answers

[Operator]

Thank you. We will now begin our question-and-answer session. [Operator Instructions] And the first question will be from Joe Greff with JPMorgan. Please go ahead.

[Joe Greff, Analyst at JPMorgan Chase & Co.]

Good morning, Chris, Kevin, and Jill. 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% RevPAR 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?

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah, that's a good question. Obviously, it's a tad early to be getting into 2025 guidance. As you know, we would do -- typically do that at the end of -- when we report year-end at the beginning of next year. But I will give you a high level sense of it. I mean, we are in the sort of early-ish stages of budget season, so lots of work to do. But I would say, I have a reasonably -- like most things, I have a reasonably strong view of where I think things will end up. And so I'd start with sort of like how do we feel broadly about 2025. And I would say, we feel pretty good about it.

I've been doing this for longer than I might admit, maybe close to 40 years. I've rarely seen sort of a stronger consensus view on the macro, particularly here in the U.S. But I think, broadly, and that macro view is the sort of- I think the word resiliency I used to describe our business, I think that word is getting used a lot to describe the economy. And I think there is a very broad consensus view that the economy will continue to be -- 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 focused on the U.S. But it remains strong, resilient and showing positive growth.

And I think our -- the consensus view is that next year will be more of that, that we'll have positive economic growth. The odds of a recession at this point, I think, are quite low if you look again at consensus view. I'm not an economist, but that's the view. And I talk to a lot of people, and I would generally agree with the view. So I think as we think about that as a backdrop, 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 how that's going to add up, and I'll sort of give you the punch line and then I'll break it down a little bit by regions and segments. I mean, I think the punchline is, my best sense, again, early in our budget season is that next year is going to look a lot like this year on -- from a same store growth point of view. Now, I think we'll get there a little bit differently. But I would say at this point, I think next year, we'll end up -- when we're sitting here a year from now, we'll be saying it felt a lot like 2024.

If you break that down regionally, I think it's -- again, at a high level, where I think it ends up is the U.S. ends up pretty similar to what we're experiencing this year. I think if you look at Asia Pacific, I think it will be better in part because comps in China are going to get easier and there's a lot of stimulus occurring there. So I do think China will have a better year. And China -- I mean, APAC ex-China remains quite strong, as Kevin suggested in his comments. And we don't see a lot that's going to disrupt that. And we have some comp benefits, particularly in the third quarter in weather in typhoons in Japan and China that 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 RevPAR growth in terms of our mega regions around the world. So it's not that I see a problem there. But I do think it will be somewhat less growth than we saw this year. And when you blend it all together, U.S. about the same, APAC a little bit better, EMEA may be a little bit worse. I think you end up kind of at about where you are.

If you break it down by segments, again, I'm -- I mean, I'm homogenizing a lot of stuff 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. Like I said, we're up in the low- to mid-teens 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, 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 suggest 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 stubbornly a bit high. I do believe that we'll continue to have very solid pricing power. So when you blend it all out, I think, again, it will look a lot like this year. I think it will, depending on the segment, be balanced, as I just described. But if you blend the whole world together, it will be a nice blend of both demand and pricing, the way all that sort of -- all of what I just said amalgamates together.

And listen, we spend a lot of time on this. We just did our, as we always do every quarter, our quarterly business review with the whole world, and everybody is in budget season and has got their head down. But I think the overarching sort of atmospherics with our teams around the world is consistent with what I just said, feeling pretty good. I mean, listen, we'd rather have higher RevPAR growth always, but we feel that that's pretty solid.

And the last thing I'd say to finish my filibuster, thank you for the question, Joe, because I'm answering a bunch, we obviously feel really good about unit growth. We've given some -- 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 always -- 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 algorithm will be alive and well for 2025.

[Operator]

Thank you. And the next question will be from Shaun Kelley from Bank of America Merrill Lynch. Please go ahead.

[Shaun Kelley, Analyst at Bank of America Merrill Lynch]

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 the kind of RevPAR and macro side, can you just walk us through -- obviously, we now have the initial expectation of 6% to 7% for next year, a little bit more about what your kind of underlying assumption is there and sort of how it might factor in 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 outcomes there? Thank you.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

I'll offer some comments, and Kevin runs developments, so I should sede to him too. I mean, I do think we feel, obviously, really good about 6% to 7%. We have more visibility into that than obviously the macro. We have a view on macro that's based, as I described, on consensus, but we have good visibility. We've got a lot of stuff under construction. We have a lot of momentum on conversion. So the way I would say it is, just a couple of points of clarification. One, the 6% to 7% is organic. That's not sort of incorporating partnerships in the -- which is why this year's number is coming in hotter than that at 7% to 7.5%.

I would say, implied in it is about a third of it would be conversions. That's about where we'll end up this year. By the way, if you take out the partnerships, we'll end up at about a third. If you add the partnerships in, we're about 50%. So -- but we don't, again, expect to repeat that. And that's how we get to it. Again, it's a super granular analysis. Other than in-the-year, for-the-year conversions, everything is identified, meaning 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 LivSmart right now or in the next 30 days and sneak it in next year, but it gets awfully hard.

So in terms of the new build stuff, we have a good sense of that. Again, conversions, we have a good sense of a lot of those because like Spark and other, they're in the pipeline, so -- and then there is 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 a third. And 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 any risk of that.

So what could make it like at the higher or lower end of the range? I think sort of intellectually the right way to say is, maybe -- it has to be ultimately in the conversion space because of what I just said. I mean, maybe there is a few more that sneak under construction at the end of this year, but I don't think that's going to move the needle a whole heck of a lot. I think it's that we're more than a third in the conversions. I think that's possible. I'm not saying I think that will happen, but I think that's possible. We give a range of 6% to 7% for a reason. 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, intellectually, to do better or worse relative to the midpoint of that range is sort of conversions, more or less.

[Shaun Kelley, Analyst at Bank of America Merrill Lynch]

Thank you very much.

[Operator]

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

[Stephen Grambling, Analyst at Morgan Stanley]

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 lending has loosened?

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

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. Rates haven't come dramatically down, but they've come down a little bit, and I think people can see a path 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 wide spread between bid and ask on transactions. And transactions drive, as you know, a lot of conversions. And so we're starting to, I think, see a little bit of a thawing in bid-ask spreads, which has led to more applications in the last 30 days or so on change of ownerships and things like that. We're starting to see a lot of -- more activity there, which bodes well.

And then on 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 -- 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 fee -- price in terms of license fees a little bit. And the vast majority of our development actually is in the brands where we get the highest fees. And so if -- 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.

[Stephen Grambling, Analyst at Morgan Stanley]

Awesome. Thank you.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

Sure.

[Operator]

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

[Carlo Santarelli, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, Chris. Just building on your point that you think kind of '25 looks a lot like '24, I would assume kind of RevPAR 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 -- 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?

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah. I would say -- and I tried to cover it, but I'll click a little harder on it. In group, I think you're going to see a very balanced -- 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 5% or 6%. 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 will 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 2s and that's at 5%, 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 higher than 1%. I mean, similar to this year, we're sort of trending at 2%, low-2s, something like that. And then, I think leisure, which again is, I think I said this, maybe I didn't, it's still trending 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.

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'd still have inflationary pressures, particularly here, but in a lot of parts of the world, we feel like we'll be able to push rate a little bit. And so I would say, we think leisure, again, it's early, right. We don't -- I don't have a budget in front of me, but we've talked a lot about it. I think leisure is positive, but not much positive. I mean -- so I would say it's like 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 '24.

[Carlo Santarelli, Analyst at Deutsche Bank Aktiengesellschaft]

I appreciate that, Chris. Thank you.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah.

[Operator]

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

[David Katz, Analyst at Jefferies Financial Group]

Hi, good morning, everybody. Thanks for taking my question.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Good morning.

[David Katz, Analyst at Jefferies Financial Group]

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

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah. I mean, listen, I'll -- Kevin may want to come over the top on this because he and his team are doing the shoe leather. I do think it's partly shoe leather. I mean, listen, I think we're -- I say to our teams all the time, like our philosophy and how we run the company is we're pretty scrappy, we're pretty gritty, we don't take anything for granted. So we get out and hustle. So our teams hustle. I don't know what everybody else is doing, but 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, 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 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 -- they got the right system that they're signing up for.

And so the truth is our track record's 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 say to the team all the time, [Indecipherable] this is cool, like why don't we win every deal? 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 getting half the business is pretty darn good. And I think it ultimately comes down to our ability over a long period of time to be able to deliver performance for owners because we can be witty, charming, scrappy, gritty --we can be all the things we think we are or hope to be. But in the end, it's about performance. They're investing money in these assets or in this relationship with us to drive returns.

[Operator]

Thank you. And...

[David Katz, Analyst at Jefferies Financial Group]

Thank you.

[Operator]

The next question will be from Robin Farley from UBS. Please go ahead.

[Robin Farley, Analyst at UBS Group]

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 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, would love to hear about the non-RevPAR fees. And then also I think there were some -- a timing benefit there as well. Thanks.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Thanks, Robin. I would say the answer is we don't have a tremendous amount of incremental visibility. The place we obviously have the most visibility is in group, which is why we give you those statistics. That business is pretty darn sticky. We have found recently and over a long spans of time, people have needs. They still have pent-up needs. So we feel really good about that.

But leisure -- leisure and transient, I mean, leisure transient, business transient, our visibility is limited, certainly limited to 60 or 90 days out. But then, anecdotally, particularly with business transient, just talking to all of our customers, 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, particularly in leisure and business transient, as it relates to how we think about next year, a lot of it, 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's just -- it is not as immune to short-term swings over time as the other segments. So that's -- it's about, I mean, have we gotten better, or we -- 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.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

Yeah. And then on the -- Robin, on the non-RevPAR driven fees, we were -- clearly, we were pleased with the performance. If RevPAR came in for all the reasons we talked about under our expectations, the non-RevPAR 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 -- 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.

[Robin Farley, Analyst at UBS Group]

Thank you.

[Operator]

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

[Smedes Rose, Analyst at Smith Barney Citigroup]

Hi, thank you. I just wanted to ask...

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Good morning, Smedes.

[Smedes Rose, Analyst at Smith Barney Citigroup]

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 there -- 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?

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

I'd say it's a little bit of everything. If you think about what's going on, certainly, the big city-wides are picking up and not surprisingly. They just -- and we've been saying this on every call, it just takes longer in gestation to get those -- 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, that is still a thing.

And then I'd say corporate meetings are -- we're seeing really terrific demand. I mean, even though the workplace is sort of normalizing 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 -- 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 we take less space because people are more mobile, and it requires them needing space outside of their own office footprint more than historically they have. And so that's a nice little wind in our sail as well. So that's a long-winded way of saying it's broad based. I mean there's -- it's not one thing driving it.

[Smedes Rose, Analyst at Smith Barney Citigroup]

Great. Thank you.

[Operator]

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

[Lizzie Dove, Analyst at The Goldman Sachs Group]

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 would 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?

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

Yeah. So there's -- I mean, I guess, the end, Lizzie, thanks for the question, is the easy part is, yeah, you do have to adapt your brands and your prototypes and your room sizes and things like that to markets around the world. They still 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 -- it's a little over half, call it, 55% or so 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% of what's under construction is outside the U.S.

Deliveries this year are going to be sort of more like the pipeline. Sort of think about it as mid-40s percent in the U.S. and 55% or so outside the U.S. I think the China business is doing great. We think both approval starts -- I'm jumping around a little bit, but sorry, it was a broad question. Our approval starts and opens, we think will all be up in China this year. We're -- 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, 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, I know you're relatively new to the coverage, but you've gone through the materials, and we outlined in our Investor Day, is kind of over the time period that we gave you for that, we think, call it, half of the NUG, 3 points to 3.5 points will be in the Americas, 1 point or so will be in EMEA and 2 points will be in APAC. And that will 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 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. Diversification is a beautiful thing, and we're continuing to grow through it.

[Lizzie Dove, Analyst at The Goldman Sachs Group]

Thank you.

[Operator]

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

[Brandt Montour, Analyst at Barclays]

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?

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah. I mean, you're right, Brandt, it is super early. But in the sense that they just went in in sort of the middle end of the summer. And a lot of those properties are resorts in very 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. They are -- where they did utilize it, they utilized it in a very healthy way for redemptions, which is exactly sort of the behavior set that we're looking for.

And so I'd say, obviously, a long way to go, but we feel very good about it. The ownership community and SLH feels very good about the start of the relationship. And I think as we get into the -- get a little bit of time, a quarter or two, and then certainly get into 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, 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 hotels nearby me. And we went from having like three hotels to like 40 hotels. So -- 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 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.

[Brandt Montour, Analyst at Barclays]

Very good. Thank you.

[Operator]

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

[Michael Bellisario, Analyst at Robert W. Baird]

Thanks. Good morning.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Good morning, Mike.

[Michael Bellisario, Analyst at Robert W. Baird]

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 in -- kind of stuck in first gear? Thanks.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah. I mean, it's interesting. I said earlier, so I don't want to contradict myself that we obviously always like to see RevPAR higher. And so I will say it again, I'd always like to see it higher. But having said that, there are -- and then 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, typically, we are able to deliver, if we do our jobs, better share in terms of performance on our existing assets, and we take a -- 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 getting them -- 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 not -- has not -- is not terrible for us in that way.

And 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, the model is really resilient that even -- I mean, think about it, even in the environment we're in, where we're going to be in the 2s on same store growth, we're going to deliver a circa 10% EBITDA growth and higher than that in EPS and free cash flow, it doesn't -- I mean, that doesn't feel so bad. Imagine what could 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, but we -- yeah, and we will. But we feel -- we're not -- this is not a terrible environment in terms of our ability to deliver.

[Operator]

Thank you. And the next question will be from Meredith Jensen from HSBC. Please go ahead.

[Meredith Jensen, Analyst at HSBC]

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 gone -- shifted over the past few months. Thank you?

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

It hasn't really shifted. I mean, obviously, inflation is down broadly in 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 it's still running 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 between chips and inflation reduction and infrastructure, you put all that stuff together, forget the private sector, there is a huge amount of public sector spending going on.

And I think all of that sort of underpins growth in non-residential fixed investment, which drives a lot of demand in our business, which I think continues to give us a decent amount of rate integrity. And so our expectation is, while that isn't -- is moderating from the hypercharge levels that you saw generally of inflation across a lot of sectors, and we expect the same thing in ours. We still expect that there is a decent amount of pricing pressure. And so as we think about -- by the way, we have very sophisticated revenue management models that it's not the Christmas Santa 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, in most segments at most times, 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, there may be a little bit less pressure there. But broadly, as I said, Mike [Phonetic], 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.

[Meredith Jensen, Analyst at HSBC]

That's super helpful. Thanks a lot.

[Operator]

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

[Chad Beynon, Analyst at Macquarie]

Good 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 million to $300 million, 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.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

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 them when we have to when it gets competitive, but 90-plus percent of the deals don't have anything associated with them. It's just a little bit of timing, right. We're getting closer to the end of the year. We have more visibility into what we think is going to happen. A little bit of a couple of projects that we have in the works that we think are more likely to happen next year. And if you think about last year, was a bit heavier year because of some strategic projects. This year, it 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.

[Chad Beynon, Analyst at Macquarie]

Thank you very much.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

Sure.

[Operator]

The next question is from Patrick Scholes with Truist Securities. Please go ahead.

[Patrick Scholes, Analyst at Truist Securities]

Hi, good morning, everyone.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Good morning.

[Patrick Scholes, Analyst at Truist Securities]

Good 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, on these recent, I'd call them, tuck-in brand acquisitions, are these initially accretive to earnings? Or if not, how long does it take for them to be accretive? Thank you.

[Kevin J. Jacobs, Chief Financial Officer and President, Global Development at Hilton Worldwide]

No. I think, look, it's -- there's a lot there, Patrick. We've talked about this a lot. I think when you think about -- we haven't done a lot of acquisitions. So if you think about broadly, you alluded to sort of buy versus build. Obviously, the ROI is extreme -- near infinite when we build these brands and build them over time organically into multibillion-dollar businesses. It's sort of you do a buy versus build analysis, but 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 didn't -- 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're able to take advantage of a little bit of a distress in the environment to buy them really well and they were accretive right away, as I said.

[Patrick Scholes, Analyst at Truist Securities]

Okay. Thank you.

[Operator]

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.

[Christopher J. Nassetta, President and Chief Executive Officer at Hilton Worldwide]

Yeah, Chad, thanks. And to everybody that joined, thank you for the time. Obviously, a lot going on in the world, but we're really happy with how the third quarter worked out. We feel good about the fourth and the full year. And as we've talked about quite a bit today, feel good about the setup for 2025. We look forward to catching up with you after the year's 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.

[Operator]

[Operator Closing Remarks]