Good morning and welcome to the Hilton Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations. You may begin.

Thank you, Chad. Welcome to 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 second quarter results and discuss our expectations for the year. Following their remarks, we’ll be happy to take your questions. With that, I’m pleased to turn the call over to Chris.

Thank you, Jill. Good morning, everyone. And thanks for joining us today. Our third quarter results continued 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 of 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 continue to normalize with RevPAR declining modestly from post-pandemic peaks. Group RevPAR was 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 2025 and 2026 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 U.S. Weekday pace for October is tracking up more than 300 basis points versus September's weekday pace, driven by solid business transient performance and group strength. Company meetings and convention business continue to grow as a percentage of mix, driving longer booking windows. Given year-to-date performance and fourth quarter expectations, we expect forecast full year 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 UAE, Canopy in Japan, and Hampton in Switzerland, demonstrating the strong value of our industry-leading brands and 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 and sought-after destinations across the globe. Including SLH and our existing luxury properties, we now have one of the largest luxury hotel portfolios in the industry. Conversions accounted for 60% of openings in the quarter, driven by the addition of SLH properties and continued momentum from Spark. We opened more than 20 Spark hotels in the quarter and now have over 6,000 Spark rooms in supply just a year after the brand opened its first property. Spark now has 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 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 one wins around the world since 2016. We're also proudly named the number two 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 full network of brands continues to be an engine of opportunity for our guests, our owners, and our team members. We're excited about our growth into the future. Now, I'm going to turn the call over to Kevin for a few more details on our results for the quarter and our expectations for the full year.

Thanks, Chris, and good morning, everyone. During the quarter, system-wide RevPAR grew 1.4% versus the prior year on a comparable and currency-neutral basis. Growth was largely driven by strong international performance and continued recovery in group. Adjusted EBITDA was $904 million in the third quarter, up 8% year-over-year and exceeding the high end of our guidance range. Outperformance was driven by better-than-expected non-RevPAR fee growth, lower corporate expense, and some timing items. Management 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 a 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. For the full year, we expect to return approximately $3 billion. Further details on our third quarter results can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Chad, can we have our first question, please.

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

Good morning Chris, Kevin, 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, a few in 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?

Yes, that's a good question. It's a bit early to discuss 2025 guidance, as we typically provide that at the end of the year when we report year-end results at the beginning of next year. However, I can offer a general perspective. We are just starting our budget season, so there's a lot of work ahead. But I have a reasonably strong sense of where I think things are heading. Overall, we feel optimistic about 2025. In nearly 40 years of experience, I’ve rarely seen such a strong consensus on the macroeconomic outlook, particularly in the U.S. The term "resiliency" has been frequently used to describe both our business and the economy, which remains strong and is showing positive growth, despite some slowdown due to Federal Reserve actions. The prevailing view is that we will see continued economic growth next year, with low odds of a recession. As we consider the macroeconomic backdrop for 2025, we feel confident. I believe next year will resemble this year in terms of same-store growth, though the path to get there may differ. When we evaluate each region: We expect the U.S. to remain similar to this year, while Asia-Pacific should perform better, especially with easier comparisons in China and ongoing stimulus efforts. We also anticipate that the performance in Japan and China will benefit from previous weather-related disruptions. In contrast, EMEA might experience slightly less growth than this year, but it should still rank high in RevPAR growth among our regions. Looking at specific segments, I see a similar narrative with some nuances. The group segment will likely maintain strong performance, as we head into next year with a solid booking pipeline and extending booking windows driven by high demand relative to supply. Business transient will continue to see improvement, possibly surpassing 2019's demand levels, supported by positive feedback from major accounts and small to medium-sized businesses. As for leisure, we expect some normalization, with flat to slightly declining demand, but we will maintain solid pricing power despite persistent inflation. In summary, while there's a balance of demand and pricing across all segments, the outlook resembles this year overall. Our discussions during our recent quarterly business reviews align with this perspective, and while we always aim for higher RevPAR growth, the current outlook seems strong. Additionally, we are optimistic about unit growth and have provided guidance in that regard, with a lot of momentum in that area. We remain focused on delivering algorithm growth, ensuring that same-store and unit growth align, and I am confident that this algorithm will be robust for 2025.

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

Hi. Good morning, everyone. Chris, moving on to the development side, you've discussed the RevPAR and macro factors. Could you explain more about your underlying assumptions behind the initial expectation of 6% to 7% for next year? What could change if the development environment improves? Your starts are still very strong, so what might happen if conditions worsen? Can you outline the possible range of outcomes? Thank you.

I will share some thoughts, and Kevin, who oversees development, will provide additional insights. We feel very confident about achieving a 6% to 7% growth. We have clearer visibility on this than on the broader economic situation, which is based on consensus views of the macro environment. Our current status is strong, with numerous projects underway and significant momentum in conversions. To clarify, the 6% to 7% figure is organic and does not include partnerships, which is why we are projecting a higher range of 7% to 7.5% for this year. Approximately a third of our growth this year is expected to come from conversions, and if we exclude partnerships, that number remains at about a third. Including partnerships pushes it closer to 50%, but we do not anticipate repeating that next year. This growth is based on detailed analysis; all expected conversions are already in our pipeline. For next year’s growth, these projects need to be in construction now or very soon. There might be a few new developments in select markets, possibly some LiveSmart projects that can be initiated quickly, but that's challenging. We have a solid understanding of our new building projects, and we also have good visibility on many conversions because several, like Spark, are already in the works. There is a subset of conversions that are not yet identified, and our track record in delivering those is strong. Historically, we've improved our conversion rates, which have risen from the low 20s to about a third. We are capturing a significant share of conversion opportunities globally, thanks to our brands' strong performance, which shows no signs of risk. Factors that could influence whether we end up at the high or low end of our growth range are mainly related to conversions. While a few more projects might begin construction by year-end, it’s unlikely to significantly impact our growth. I believe we could exceed a third of our growth through conversions, although I’m not predicting that. We provide the 6% to 7% range because there’s still a substantial amount of work ahead for Kevin and our global development teams. We might make it seem easy, but it's quite challenging, and we feel very optimistic about this range. Thus, whether we perform better or worse relative to the midpoint of this range largely depends on conversion activity.

Thank you very much.

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

Thanks. I guess maybe a follow-up on the NUG commentary. I guess, how does the pipeline of what's in construction just from a fee-per-room mix compared 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?

Thank you, Steve. I'll address the second part first as it's more straightforward. We're beginning to observe some improvement in the development environment. While rates haven't dropped significantly, there has been a slight decline, and there's a sense of optimism regarding capital availability. We're also witnessing increased discussions about ownership changes, which supports what Chris mentioned about conversions. As is typical for this phase in the cycle, the gap between bids and asks in transactions has been quite broad. As you know, these transactions play a crucial role in driving conversions. Recently, we've seen some easing in bid-ask spreads, resulting in a rise in applications for ownership changes and similar activities over the last month. This uptick is encouraging. Regarding the fees per room, we aren't seeing significant changes. The mix of projects we're constructing and delivering remains largely consistent. Although there's noticeable RevPAR growth over time and fee adjustments as contracts expire, we continue to see slight increases in license fees. Most of our development is concentrated in the brand that offers the highest fees. When factoring all this into our model, we don't anticipate a change in fees per room, and in fact, we expect it to grow over time.

Awesome. Thank you.

Sure.

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

Hi, Chris, just building on your point that you think kind of 2025 looks a lot like 2024. 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 2025 and 2026. How do we interpret kind of the way you're thinking about leisure and business transient as we move into 2025 based on kind of what we know today?

Yes, I attempted to address this, but let me elaborate a bit more. In the group segment, I anticipate we will see a strong growth rate. While I don't have a specific number to share yet since we haven’t finalized our budget, the growth we’re witnessing is comparable to what we’re discussing for the third quarter, which is around 5% or 6%. I expect that kind of growth rate for the group segment on a global scale, and I believe it will be well-balanced between price and occupancy. In leisure, I think expectations are in the low 2% range, similar to our current trends, while business transient is expected to be in the low single digits, slightly higher than one. This year, we’re trending around the low 2% mark. Leisure is still performing significantly above historical averages, and I don’t foresee it declining this year, although it may remain flat. My expectation is that demand could be flat or slightly down as we continue to normalize the work environment. However, due to our solid pricing power and ongoing inflationary pressures, particularly in many global markets, I believe we will be able to slightly increase rates. While I currently don’t have a budget in front of me, I think the outlook for leisure is positive, though only modestly so. When combining these three aspects, the overall forecast is not significantly different from where we are ending this year. That's why I believe that as we approach the end of 2025, it appears very similar to 2024 based on our current perspective.

I appreciate that Chris. Thank you.

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

Hi. Good morning, everybody. Thanks for taking my question. 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, any 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.?

Yes, Kevin may want to elaborate on this since he and his team are putting in the effort. I believe it’s partly about hard work. We always tell our teams that our philosophy is to be resourceful and determined. We don’t take anything for granted, so we keep pushing. Our teams are dedicated. I can’t speak for others, but we are certainly working hard. We have developed solid relationships, especially in Spark, where new people are joining the system, which will be very beneficial over time, just like we experienced with Hampton years ago. We’ve established strong connections with individuals and are meeting their needs, which I think is driving our performance. These deals typically represent long-term commitments of 20 years or more, with little opportunity to exit, and these clients are investing substantial amounts in development and conversions. They need assurance that their investments will yield returns and that they are partnering with the right system. Our track record is solid, our brands are performing well, and our market share is at an all-time high, far surpassing our competitors. This doesn’t mean we Face no challenges; I often reflect on why we don’t win every deal despite being a fraction of the global market. Securing half the business is a strong achievement, and I believe our long-term performance for owners is key. We can be clever and gritty, but ultimately, it’s about delivering results for those investing in these assets and our partnership.

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

Great. Thanks. Chris, I wonder if you could talk a little bit about how your visibility on business transient and leisure transient kind of compares to 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 in one for Kevin just on the comments about what drove better EBITDA than guided. I would love to hear about the non-RevPAR fees. And then also I think there was a timing benefit there as well. Thanks.

Thanks, Robin. I would say that we don’t have a lot of additional visibility. Our greatest visibility is in the group segment, which is why we share those statistics. That part of the business is quite stable. We’ve observed over time that people have ongoing needs, including pent-up demand. So, we feel confident about that. However, for leisure and transient business, our visibility is quite limited, typically just 60 to 90 days ahead. Anecdotally, especially regarding business transient, our conversations with customers—something we do regularly—provide insights through surveys, which give us a basis for our expectations for next year. Yet, they haven’t made bookings yet, unlike groups, which have been booked. Additionally, we have the least visibility into the leisure segment. The reason I began my response focusing on the consensus view is because it’s crucial, especially for leisure and business transient, as our outlook relies significantly on the economy. That’s why we always consider what we believe will happen in the economic landscape. It's not that the group business is unaffected; it’s just more resilient to fluctuations over time compared to other segments. Have we improved our understanding of our customers compared to five years ago? Yes, definitely. However, the reality regarding booking visibility remains mostly the same.

Yes. Regarding the non-RevPAR driven fees, we are pleased with the performance. Although RevPAR did not meet our expectations for various reasons, the non-RevPAR driven fees, such as those from our credit card and purchasing businesses, performed better than expected, exceeding the overall business rate. Additionally, about half of the improvement in the third quarter was due to timing factors, and that's all I can say about that.

Thank you.

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

Hi. Thank you. I just wanted to ask,

Good morning, Smedes.

Hi. Good morning. You mentioned the group's performance as we move into next year, which seems to be a positive aspect in the sector. I'm curious about what you're currently observing for the 2025 group, especially in the U.S. Is this growth being driven more by additional citywide conventions, or is it primarily smaller groups that have been performing well for some time? Is there anything specific contributing to this ongoing strength?

I'd say it's a mix of factors. When you consider the situation, the large citywide events are gaining momentum, which is expected. We've mentioned in previous calls that it takes longer to get this business started since they often plan several years ahead and invest millions in these events. They had a couple of years where they were hesitant or unable to proceed, so now we're experiencing a boost from that area. Additionally, there is strong demand for social group events. People still enjoy getting together, and that remains important. Corporate meetings are also seeing excellent demand. Although the workplace is normalizing, it won't return to what it used to be. Many people have ongoing needs for meetings to foster innovation and culture that stem from their time spent working remotely. Many have adapted to this change permanently, ourselves included. Our work environment now uses less space because employees are more mobile, which increases the need for external meeting spaces compared to the past. Overall, it's a diverse range of factors contributing to the current situation. It's not driven by just one element.

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

Hi there. Thanks so much for taking the question. I wanted to go back to the unit growth piece, which is obviously very strong. I believe the majority of the pipeline is coming from international just about. So, a little 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 in any way that you kind of have to adapt your portfolio as you take those brands to different markets?

Thank you for the question, Lizzie. To address your point, it is essential to modify our brands, prototypes, and room sizes to cater to various global markets. However, we ensure they retain their core identity and positioning. Currently, over half of our pipeline, around 55 percent, is located outside the US, with roughly 80 percent of our construction projects happening internationally due to various global dynamics. This year's deliveries will be similar, with approximately 40 percent in the US and about 55 percent internationally. Our business in China is performing well, and we anticipate an increase in both approvals and openings there this year. Despite the macroeconomic slowdown and concerns about real estate in China, many buildings are being repurposed, which benefits our limited service sector, including our Master Limited partnerships and Hilton Garden Inn. Looking at our Investor Day projections, we estimate that about half of our new unit growth will be in the Americas, with one point in Europe, the Middle East, and Africa, and two points in the Asia-Pacific region. These figures may vary annually, but this will be the general trend. We expect to see more conversions in Western markets and more new builds in developed regions. In Asia, we are focusing on expanding our business outside of China, especially in India and the Middle East, where there are significant growth opportunities. Our diverse range of products allows us to capitalize on strong markets while remaining resilient during downturns, which supports our continued growth.

Thank you.

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

Good morning, everybody. Most of my questions have been asked and answered. I'm curious on SLH. I know it's relatively new, but that's a big chunk of luxury hotels in your system on the website. People can earn and burn their points there. Curious how the early traction has been, if you've done anything sort of out of the norm in terms of marketing those hotels to loyalty members and how you're feeling about the start there.

Yes, you're correct, Brandt, it is quite early since they just came on board around the middle to end of summer. Many of these properties are resorts located in unique spots that typically book well in advance. Therefore, we have limited data because of the timing of their entry. However, the data we do have is very positive, indicating that our customers are actively engaging with it and checking the availability of these properties. Many of them were not available this summer due to prior bookings. Where the service was used, it was utilized effectively for redemptions, which is the kind of behavior we're aiming for. While there is still a lot of progress to be made, we feel optimistic about the ownership community and SLH is pleased with the beginning of our relationship. I believe that as we move forward, particularly into the spring and summer of next year, we'll see significant growth. For example, when I was in Italy, I checked our app to find hotels nearby and saw an increase from three to 40 options. Many of these are small and unique, which is exactly what high-end leisure customers want. This greatly enhances our opportunities for bookings and allows frequent travelers to realize their travel dreams.

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

Thanks. Good morning.

Good morning, Mike.

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 year? Thanks.

It's interesting to note that while I would always prefer to see RevPAR higher, there are benefits to the current environment. Historically, we've been able to perform better with our existing assets during such times, especially when financing is more challenging. In these conditions, we tend to secure more conversions and opportunities for new construction since our brands are more easily financed. This trend is evident in the development numbers, whether we're looking at new constructions or conversions, and our market share has consistently increased year after year for nearly 18 years. While achieving higher market share becomes increasingly difficult as we grow, we remain focused on it. Although I can't provide a specific answer, this environment is not detrimental to us. The resilience of our model was highlighted in the third quarter and will continue to be demonstrated through the year and beyond. Even in a scenario where we see modest same-store growth, we're on track for approximately 10% EBITDA growth and even higher EPS and free cash flow. This isn't a negative position to be in, and one can only imagine the outcomes in a more favorable environment. While I acknowledge I'm not giving a straightforward answer, we feel confident in our ability to outperform competitors in this climate. Our goal is to excel in every circumstance, and we believe we can do that, making this environment not so bad for our performance.

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

Yes, hello. I was wondering if you could speak a little bit about the occupancy and rate sort of offset. I know in the past you've spoken quite a bit about pushing rate. And I'm wondering how that conversation with franchisees and hotels have gone, shifted over the past few months? Thank you.

It hasn't really changed. In the US, where we're focused, inflation has decreased overall but is still above 4%, compared to a target of 2%. I believe it will take a long time to reach that target due to the overall strength of the economy. We haven't discussed the significant public sector spending related to inflation reduction and infrastructure, which, along with private sector activities, supports growth in non-residential fixed investment that drives demand for our business. This maintains a level of pricing integrity. While inflation is moderating from its previously high levels, we still anticipate some pricing pressure. Our revenue management models are quite advanced, and our data scientists believe that, given current conditions across most segments, there remains good pricing integrity. There may be less pressure on leisure rates, especially on weekends, as demand normalizes, but I expect leisure rates to increase slightly by the end of this year and into next year due to the broader macroeconomic conditions. Overall, there hasn't been anything materially different observed in the last few months.

Super helpful. Thanks a lot.

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

Morning. Thanks for taking my question. Just a quick one, continuing on development, the guide for key money or contract acquisition costs at the beginning of the year, $250 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 2025? Or is this just more progress in your goal to reduce key money as a percentage of NUG? Thanks.

Yes, sure. I mean, look, I think key money terms of percentage NUG and the more strategic bid, 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 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, it was a bit of a 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.

Thank you very much.

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

Hi. Good morning, everyone.

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.

I think we've discussed this quite a bit, Patrick. When considering acquisitions, we haven't made many. If you analyze buy versus build, the return on investment is essentially limitless when we develop these brands over time into multibillion-dollar businesses. The analysis typically favors building from an ROI standpoint. The recent deals we've done have been beneficial right from the start. We mentioned in the press release about Graduate that it was immediately accretive. Both acquisitions were strategically chosen, and we took advantage of some opportunities in the market to acquire them effectively, making them accretive right away.

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.

Yes. 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, I feel good about the setup for 2025. We look forward to catching up with you after the years out and be a little bit more specific on 2025 at that point. And I hope everybody has a good end of the year and great holiday season when you get to it. It's funny to hear myself say that, but it's that time of year. Anyway, thanks again for the time today.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.