Earnings Call Transcript - HLT Q2 2025

Operator, Operator

Good morning, and welcome to the Hilton Second Quarter 2025 Earnings Conference Call. This event is being recorded. I will now hand it 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

Thank you, Michael. Welcome to Hilton's Second Quarter 2025 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 Executive Vice President and Chief Financial Officer, will then review our second quarter results and discuss 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.

Christopher J. Nassetta, President and CEO

Thank you, Jill. Good morning, everyone, and thanks for joining us today. Our second quarter results continue to reinforce the power of our business model and the benefits of strong net unit growth, which drove great bottom line performance. Adjusted EBITDA for the quarter exceeded $1 billion, meaningfully beating expectations even with modestly negative system-wide RevPAR. Adjusted EPS also exceeded our expectations. Our strong portfolio of brands, powerful commercial engines, and disciplined execution continued to drive meaningful free cash flow. Year-to-date, we've returned $1.7 billion to shareholders in the form of buybacks and dividends and remain on track to return approximately $3.3 billion for the full year. Turning to results. The quarter turned out to be a bit noisier than expected, driving system-wide RevPAR down 50 basis points year-over-year. Performance was driven by continued strength in the Middle East, Africa region, and Asia Pacific ex-China but offset by softer trends in the U.S. and China. Adjusting for holidays and calendar shifts, system-wide RevPAR would have been modestly positive. In the quarter, leisure transient RevPAR grew 1% as an elongated spring break window and easy year-over-year comparison supported leisure demand growth. Business transient RevPAR decreased 2%, driven by the elongated holiday schedule, government spending declines, weaker international inbound business, and broader economic uncertainty. While it's early in the third quarter, we have seen a pickup in nongovernment business demand. Group RevPAR was roughly flat with favorable trends in company meetings largely offset by soft convention business and social events. We did see positive momentum in lead volumes from corporates with month-over-month sequential growth throughout the quarter and '26 and '27 group position are up in the high single digits. As we look ahead to the third quarter, we expect RevPAR to be flat to modestly down again with holidays and calendar shifts continuing to weigh on reported results. On an adjusted basis, we would expect modest RevPAR growth. For the full year, we continue to expect RevPAR growth of flat to up 2%, with improving trends in the fourth quarter, driven by modest increases in demand and easier year-over-year comparisons. As we think about our business over the intermediate term, I'm very optimistic. In our largest market, a more favorable regulatory environment, certainty on tax reform, expected settling down on global trade policy, continuation of very healthy corporate profits, and significant investments across a multitude of industries, including AI, AI-related, and core infrastructure investment should accelerate economic growth and unlock meaningful increases in travel demand. This, matched with very limited industry supply growth, should drive stronger RevPAR growth over the next several years. Turning to development. During the quarter, we opened 221 hotels totaling more than 26,000 rooms, representing a 52% year-over-year increase excluding acquisitions and partnerships, and achieved net unit growth of 7.5%. Our luxury and lifestyle portfolios continued their extraordinary expansion around the world. During the quarter, we celebrated the opening of our 1,000th property in the luxury and lifestyle categories. We also announced our plans to welcome three new luxury and lifestyle hotels per week in 2025. None are more impressive and iconic than the Waldorf Astoria in New York, which reopened its doors just last week, marking the beginning of a new era for the spectacular hotel that has been a cornerstone of New York City culture since 1931. The greatest of them all is Conrad Hilton, who famously described the landmark property as recapturing the hotel's original grandeur, once again setting the benchmark for luxury hospitality globally. During the quarter, our conversion-friendly brands continued to gain traction with guests and owners, which helped fuel our growth in key international markets. LXR debuted in France with the opening of the Sax Paris, a landmark 18th-century building transformed into a refined gathering place in the heart of Paris. We welcomed our first Tapestry hotels in Northern Ireland, Turkey, and Hawaii, while Curio debuted in Vienna, Austria. We also opened our first all-inclusive Curio resort in the Dominican Republic. DoubleTree continued to be an important driver of conversion, reaching 700 hotels worldwide and entering its 60th country during the second quarter. Spark opened more than 40 hotels in the quarter, bringing its portfolio to more than 170 hotels across six countries with roughly 200 more hotels in the pipeline. Overall, conversions span ten brands and accounted for over one-third of our openings in the quarter. We remain confident in our ability to continue driving strong conversions, thanks to the power of our existing brands, which have consistently delivered an industry-leading share of conversions in the U.S. and with the upcoming launches of exciting new conversion brands. In July, we also debuted the first hotel of our game-changing new extended stay brand, LivSmart Studios, grounded in extensive research and a deep understanding of the evolving needs of long-stay travelers and hotel owners alike. LiveSmart Studio represents the latest chapter in our growth strategy and reinforces our commitment to offering a Hilton experience for every traveler and every stay occasion. In addition to strong openings, we signed 36,000 rooms in the quarter, putting us on pace to deliver high single-digit growth in signings for the full year. We also increased our development pipeline to more than 510,000 rooms, growing both year-over-year and sequentially versus the first quarter with expansion in strategic markets and across chain scales. We announced plans for Waldorf Astoria to debut in key destinations, including Helsinki, Bali, and New Delhi in the coming years, and we signed NoMad hotels in Singapore and Detroit, which marked the brand's respective debuts in the Asia Pacific and Americas region. We signed our first Canopy hotels in Tokyo and Italy, and our first Tempo in Canada. And in July, we signed our first Tapestry in Saudi Arabia. We also further expanded our focused service pipeline to meet the growing demand for affordable upscale accommodations. During the quarter, we announced that Hampton will soon debut in Thailand, Tru will enter Vietnam, and Spark will open its first hotels in Saudi Arabia and Puerto Rico. We also committed to key growth milestones in emerging economies, including expanding our portfolio in India tenfold and tripling our portfolio in Africa in the coming years. With continued growth in construction starts, tremendous international opportunities, and a strong conversion story, we feel very confident in our ability to drive net unit growth solidly within our 6% to 7% range for the full year. As you all know, we have an incredible skill set of identifying white space and developing and launching new brands. As I mentioned last quarter, the team is working hard behind the scenes on several new brands in the lifestyle space, in addition to a couple of new concepts in the alternative accommodation space, a number of which are conversion-friendly. We have done the research with our customers and have already received tremendous feedback from our owners on these new brands, a couple of which will be launched by year-end. Hilton Honors continues to perform extraordinarily well with more than 226 million members, up 16% year-over-year with membership now evenly split between U.S. and international travelers, reflecting the strength of Hilton's global reach and a further testament to our success in delivering premium products and experiences for any stay occasion anywhere in the world our guests want to travel. Everything we do is underpinned by our award-winning culture and our incredible family of Hilton team members, which continue to differentiate our brands from the competition. In July, Brand Finance named Hilton the most valuable hotel brand for the tenth consecutive year. Additionally, just last week, our Hampton, Home2 Suites, and Tru brands were named best in category by J.D. Power for their respective segments in the U.S. During the quarter, we were also named the #1 Best Workplace in Switzerland, Austria, the Netherlands, India, and Vietnam, adding to the 660 Great Place to Work awards and more than 70 #1 wins around the world since 2016. Overall, we feel good about where we are and are very optimistic about the business. We have the best brands in the industry with more coming. The biggest development pipeline in our history and the economy in our largest market is set up for better growth, all of which should continue to drive strong performance. Now I'm going to turn the call over to Kevin to talk a little bit more detail about the quarter and our expectations for the full year.

Kevin J. Jacobs, Executive Vice President and CFO

Thanks, Chris, and good morning, everyone. During the quarter, system-wide RevPAR decreased 0.50% compared to the same period last year on a comparable and currency-neutral basis, mainly due to drops in occupancy and modest rate growth. Adjusted EBITDA reached $1.008 billion in the second quarter, reflecting a 10% year-over-year increase and significantly surpassing the upper end of our guidance range. This outperformance was largely attributed to the timing of non-RevPAR items. Management franchise fees rose 8% year-over-year. For the quarter, diluted earnings per share, adjusted for special items, was $2.20. In terms of regional performance, second quarter comparable U.S. RevPAR declined 1.5%, primarily due to pressures in business transient and group segments, as government spending cuts and weaker international inbound demand affected performance. For the full year 2025, we anticipate U.S. RevPAR growth to be on the lower end of our system-wide RevPAR range. In the Americas outside the U.S., second quarter RevPAR increased 3.8% year-over-year, driven by strength in our luxury and lifestyle portfolio, particularly in resort locations. For full year 2025, we expect RevPAR growth to be in the mid-single digits. In Europe, RevPAR rose 2% year-over-year, supported by growth in Continental Europe thanks to strong group business. For full year 2025, we forecast low single-digit RevPAR growth given ongoing challenges in the U.K. and Ireland. In the Middle East and Africa region, RevPAR increased 10.3% year-over-year, fueled by record travel around key events and holidays, including Eid, Hajj, and both Catholic and Orthodox Easter. For the full year 2025, we expect RevPAR growth in the mid-single-digit range. In the Asia Pacific region, second quarter RevPAR increased 0.3% year-over-year, with RevPAR in APAC excluding China up 5.2%, driven by solid group trends in Japan and Korea. However, RevPAR in China decreased 3.4% during the quarter due to persistent weakness in corporate travel demand, especially in Tier 2 and Tier 3 cities, along with changes in government travel policies. For the full year 2025, we forecast RevPAR growth in Asia Pacific to be roughly flat, factoring in modest declines in China. Now regarding our development activities, as Chris mentioned, we expanded net units by 7.5% this quarter and have over 510,000 rooms in our pipeline, nearly half of which are under construction. Looking ahead, we expect net unit growth of 6% to 7% for the full year. Switching to our guidance, for the third quarter, we expect system-wide RevPAR growth to be flat to slightly down. We project adjusted EBITDA between $935 million and $955 million, with diluted EPS adjusted for special items between $1.98 and $2.04. For the full year, we forecast RevPAR growth of 0% to 2%, adjusted EBITDA between $3.65 billion and $3.71 billion, and diluted EPS adjusted for special items between $7.83 and $8. Please be aware that these guidance ranges do not account for any future share repurchases. Regarding capital returns, we paid a cash dividend of $0.15 per share during the second quarter, amounting to a total of $73 million in dividends for the year. Our Board has also approved a $0.15 per share dividend for the third quarter. For the full year, we anticipate returning approximately $3.3 billion to shareholders through buybacks and dividends. Additional details about our second quarter results can be found in the earnings release issued earlier today. This concludes our prepared remarks, and we would now like to open the line for any questions you may have.

Operator, Operator

The first question comes from Shaun Kelley with Bank of America.

Shaun Clisby Kelley, Analyst

Chris, you mentioned in your prepared remarks a little bit about some green shoots you're seeing. I think that's consistent with what we've heard from some of the airlines and other travel providers, but hoping you could elaborate a little bit on what you're seeing across maybe the three different segments, leisure, business, and group? And then specifically, what's it going to take organically to get a little bit better in the fourth quarter? There is some concern in the fourth quarter about tougher comps just lapping some of the pent-up demand after the election last year.

Christopher J. Nassetta, President and CEO

Good question. I covered some of this in my prepared comments, so I'll be brief. In the second quarter, we saw strong performance in leisure, slightly exceeding our expectations due to the timing of spring break and the Fourth of July. Combining those events, it makes sense that leisure showed strength while the other segments were weaker, which was a bit different from our initial outlook. We anticipated it would be relatively flat, but it ended up slightly down, aligned with our expectations though perhaps influenced more by holiday shifts. Moving into the third quarter, we anticipate a similar trend with some of the Jewish holidays affecting the segments again. We expect leisure to perform the best, while business transient and group will likely be weaker, which contrasts with what we saw leading up to the second quarter. By the fourth quarter, we expect a normalization of sorts, aided by the Jewish holiday adjustment from the third quarter. We foresee moderate leisure growth alongside comparable business transient growth, with group leading the charge, reflecting recent trends. In terms of the fourth quarter, we based our outlook on promising signs, particularly in the group sector and the corporate business transient side. After some hesitation earlier this year, we are noticing a positive shift. The comparison will be easier this year since last year was marked by significant strikes in major markets and a U.S. Presidential election, which typically dampens travel. There are many variables at play. Unlike others, we maintained our guidance, and we feel we were close to accurate; we predicted flat growth, and that's mostly where we landed. We're optimistic for Q3 and feel solid about Q4. The reasons for our optimism include improving booking patterns in the group sector and a thawing in what had been a wait-and-see approach in prior months. Looking beyond the current noise in the system, especially in the U.S., which makes up 75% of our business, it is reasonable to expect gradual economic growth over the coming years. This growth is likely to correlate with increases in nonresidential fixed investment, which is crucial for the hospitality industry. We’re seeing improvements in regulatory and tax environments, along with ongoing investments in infrastructure and technology. Over the next few years, there will be substantial activity and investment stemming from these shifts. It’s challenging to predict the exact timing for all of this, but I remain optimistic about our demand outlook. Additionally, industry supply growth is at historically low levels due to financial constraints throughout COVID and recent political and economic uncertainties. There’s a delayed impact from these factors, meaning the industry will likely experience a super cycle of very low new supply growth for several years. In summary, while it's important to focus on individual quarters, I aim to present a broader perspective on the shifts happening. Despite the noise, these shifts suggest a positive trend ahead.

Operator, Operator

And your next question comes from Stephen Grambling with Morgan Stanley.

Stephen White Grambling, Analyst

Speaking of title shifts, you did mention that you're still expecting modest declines in China for RevPAR. Maybe pivoting to the development side, in that market? What development trends are you seeing there? And if we continue to see weakness in that market or other factors may be impacting development, where do you see the biggest opportunities to backfill any pockets of weakness that could come up in that market, maybe looking around the world?

Christopher J. Nassetta, President and CEO

Yes, that's a great question. We do expect some modest declines. At the start of the year, we anticipated slight growth in same-store sales in China, which was later adjusted to flat. Given the current situation in China, driven by an austerity campaign aimed at stabilizing the real estate sector, we don't foresee a dramatic impact on our business. However, we do expect some minor downturns. Despite this, I believe it's important to emphasize that the relationship between the U.S. and China is deeply interconnected. Our Treasury Secretary mentioned recently that the aim isn’t to decouple but to establish a different kind of agreement. We have already made some progress on trade deals, which could pave the way for a more logical resolution. This will ease China's relationships with other countries. The austerity measures are in preparation for upcoming challenges, but I hope that as these situations resolve, China's same-store business will regain momentum. China has a vast population that loves to travel, and while they are currently tightening consumption in various ways, I believe this is a temporary situation. On the development front, we are witnessing strong activity. It’s important to keep in mind that China will experience fluctuations, just like the U.S. economy, which is complex and subject to its own ups and downs. However, the capacity for hotel rooms per capita in China is significantly lower compared to other large economies, indicating they are undersupplied. Many people want to travel, both domestically and internationally, and this is crucial. The limited supply of hotels in China is significant, especially considering the challenges in their real estate market that need reform. We are playing a key role in transforming ghost cities and buildings into active, productive spaces. Overall, we expect to see year-over-year increases in our development metrics, sign more deals, and initiate more projects in China than we did last year. We are optimistic about these favorable conditions and believe that same-store sales will eventually recover, as the underlying economics are supportive of growth, even in a slower economy due to the undersupply.

Operator, Operator

And your next question comes from Daniel Politzer with JPMorgan.

Daniel Brian Politzer, Analyst

I just wanted to follow up on net unit growth. It sounds like, Chris, you're kind of reinforcing that 6% to 7%, which is, I think the term used was solidly in that range. This has been an area...

Christopher J. Nassetta, President and CEO

I did very intentionally.

Duane Thomas Pfennigwerth, Analyst

Yes, it seems emphatic. So I wanted to kind of go back to that. I guess what's driving the reinforced confidence there? Has there been a pivot in the conversations that you've had in the development community? Or is this more of a reflection of some of those brands coming online or just elevated conversions? If you can kind of parse that out.

Christopher J. Nassetta, President and CEO

Yes, I believe it's a combination of several factors. We're experiencing successful conversions with many strong brands, and we plan to introduce a few more conversion brands by the year's end that we anticipate will enhance our efforts. The brands are performing exceptionally well, and we’re receiving positive feedback from our owner community. While global disruptions may hinder new construction, they actually benefit our conversion activities, which is encouraging. I'm confident that our growth will fall between 6% to 7%, and my confidence has increased due to this aspect. Our starts are projected to rise by 16% to 17% this year, and nearly all of them successfully reach completion. Despite the challenging conditions, we have seen our numbers boost. Our pipeline is the largest it has ever been, with half already under construction, and we continue to see more projects beginning. The brands are doing well, and when we analyze the situation, we feel securely within that growth range and are optimistic about our future.

Operator, Operator

And your next question comes from David Katz with Jefferies.

David Brian Katz, Analyst

Look, what I wanted to really get at is there's some building momentum on the luxury side of things. And if you could just give us some general commentary about what that implies about the economic intensity and the long-term potential volatility in RevPAR that that brings your system? I'd love just some perspective on that.

Christopher J. Nassetta, President and CEO

Not sure I fully understand the question, but I'll answer what I think it is. David, and you can...

David Brian Katz, Analyst

I can rephrase if you like.

Christopher J. Nassetta, President and CEO

We are highly focused on luxury and lifestyle. Luxury represents a smaller part of our business, while lifestyle encompasses a variety of existing and new brands. Although luxury won't be the primary source of our profitability, it plays an important role in enhancing our overall brand appeal and the Hilton Honors experience. We are seeing positive results from the SLH partnership for both SLH owners and Hilton Honors members. Our core luxury brands, especially Waldorf, are performing well, with 36 locations currently open and 33 more in development, including six openings this year. Waldorf in New York is particularly significant and has made tremendous strides. While luxury hotels contribute to customer loyalty and our broader strategy, they will not dominate our bottom-line profits but remain a vital focus. Lifestyle is a broader category ranging from upscale collection brands to micro-urban concepts like Motto and luxury lifestyle brands like NoMad. The lifestyle segment has the potential for thousands of hotels, appealing particularly to younger customers who appreciate our core offerings but seek something different for specific occasions. We plan to introduce two or three additional brands in the upscale lifestyle segment, highlighting the scalability opportunities we see. Our goal is to create a powerful network effect that allows us to serve customers across various needs globally, leading to increased market share, more loyal members, and reduced distribution costs. Overall, we are very excited about the progress we are making in both luxury and lifestyle segments.

Operator, Operator

And your next question comes from Steven Pizzella with Deutsche Bank.

Steven Donald Pizzella, Analyst

Just wanted to try and expand on conversions a little more if we can. Can you talk about what you're seeing in the current environment, both domestically and internationally? How much key money is being used in addition, what do you view as the addressable market for conversions, including some of the more bulkier 500 to 1,000-plus unit deals?

Kevin J. Jacobs, Executive Vice President and CFO

Yes, that's a great question, Steve. Let me share some of the conversion statistics. In the last quarter, 33% of our deals were conversions, which represents a 50% increase. We anticipate that this will reach 40% for the year. When considering the addressable market, particularly in regions like Europe where there are significantly more unbranded hotels than branded ones, it becomes clear that we are capturing market share. As Chris mentioned earlier, our confidence in achieving a 6% to 7% growth rate stems partly from our strategy of targeting areas where demand is strong. Even as the new construction environment slows down, our new construction pipeline remains solid, and our brands are more appealing to developers than those of our competitors. Moreover, in a competitive market, we are aware that brands that are underperforming tend to struggle, especially when demand is soft, driving customers to seek better performance and RevPAR. The addressable market for conversions is considerable, given the number of independent hotels and those with existing brands whose contracts are either expiring or underperforming. We have significant confidence in our conversion strategy, particularly with larger hotels, such as those with 700 to 800 rooms, as we are starting to see a few conversions in this category before the year's end. Overall, we believe that the strength of our brands enhances our position in conversions. Regarding key money, there hasn't been much change; the competitive landscape is slightly tougher, but we have remained disciplined. Currently, only 8% of our rooms under construction require key money, which aligns with long-term trends. Even while competitors may be increasing their key money offers to regain some lost share, we are maintaining a consistent approach. In the luxury sector, where larger hotel conversions become more competitive due to the higher number of brands pursuing them, we are confident that our utilization of resources in terms of both dollars and deal percentages will stay consistent.

Operator, Operator

And your next question comes from Robin Farley with UBS.

Robin Margaret Farley, Analyst

I'm trying to decide which of my two questions to ask, so I'll go with this one. Kevin, in your comments, you mentioned the timing of non-RevPAR fees. Could you provide some additional insight on that? I'm curious if it sounds like something was brought forward that you originally expected to occur in the second half of the year. Could you quantify that a little? Also, I assume your guidance included the expectation of receiving termination fees from a couple of resorts owned by Playa. Was this factored into your guidance? Did that happen in Q2, or would it be more relevant for Q3? Just some clarity on that fee aspect would be helpful.

Kevin J. Jacobs, Executive Vice President and CFO

Yes, that's a valid point. I'll address the second part first since it's simpler. We did incur some termination fees, which have received considerable media attention due to being part of a public transaction. These fees, which we anticipated in the third quarter, actually came in during the second quarter, and this was reflected in our guidance. We described the situation as predominantly timing because it was mostly accounted for in our forecast. There were minor fluctuations related to foreign exchange rates and a few other factors affecting revenue per available room, but primarily, it was about the timing of receiving termination fees and some other ancillary services that are not directly linked to revenue per available room, along with a slight corporate expense that we considered mainly a timing issue. This reasoning is why we maintained our guidance for the year.

Robin Margaret Farley, Analyst

Okay. Great. And I don't know if you can break out like the dollar amount that sort of shifted maybe into Q2 from Q3, and then I'll hop back in line for my other question.

Kevin J. Jacobs, Executive Vice President and CFO

No, I'm just going to keep it to what I said, Robin, which is largely timing.

Operator, Operator

And your next question comes from Brandt Montour with Barclays.

Brandt Antoine Montour, Analyst

I wanted to focus on Spark. The prepared commentary indicates that there are 170 open and 200 in the pipeline. There seems to be a concern that the initial wave of Spark represents easier opportunities, while subsequent waves may take longer to complete and contribute less to net unit growth over the same time frame. Is there any validity to this concern? If so, could you clarify which conversion brands could help mitigate this issue?

Christopher J. Nassetta, President and CEO

Yes. Regarding the second part, all our conversion brands are performing well, and we expect to add a couple more by the end of the year that will significantly contribute to growth. This does not diminish Spark’s performance. The concerns you may have heard are likely from competitors. Spark is doing exceptionally well with 170 locations open and 200 more in the pipeline. My target is to have over 400 open by the end of next year, which I believe we can achieve. The rationale behind aiming for 400 is that once we establish a system of that size, especially starting from the U.S., it tends to develop momentum on its own. Maintaining this growth depends on performance and market share. Spark currently holds the highest market share among our comparable hotels, which has grown from a small group to a more substantial number, making it our top-performing brand. Any claims to the contrary about Spark's performance are unfounded. We have a large market to explore, including new deals in India, Saudi Arabia, Puerto Rico, and a growing presence in Europe and Latin America. While Spark is thriving and will remain an important growth driver, we also have other significant contributors like DoubleTree, Tapestry, and Curio. Additionally, we are finalizing another lifestyle collection brand similar to Tapestry but focused on more unique assets, which has garnered interest from owners even without a name yet. This illustrates the enthusiasm in the ownership community. Our growth strategy is diverse and not overly reliant on Spark, although it is performing excellently and will contribute positively for many years ahead.

Operator, Operator

And your next question comes from Lizzie Dove with Goldman Sachs.

Elizabeth Dove, Analyst

I guess also last year, you did a couple of partnerships like with SLH and some inorganic things with NoMad and Graduate. I'm curious what your appetite is today and going forward into doing more of these and whether that kind of 6% to 7% unit growth that you're kind of talking about, if that's organic or if it includes any kind of other partnerships or small deals that you might do?

Christopher J. Nassetta, President and CEO

No. I think the way to view that is as organic. We are very pleased with all three of those SLH, which I now see as organic, although most of that was integrated last year. There will be some additional contributions this year. We are very excited about the progress of NoMad and Graduate, and we even have some ideas for further developments in the Graduate area, including accommodations and other strategies to monetize our core business through acquisitions. We are thrilled about how these ventures are performing and the returns they will generate. In my 18 years here, aside from those two partnerships, we have not made any acquisitions. While I would never rule anything out, it's not our primary focus. Our emphasis, as I mentioned in my comments, is on returning to brand building in our usual manner, identifying genuine white spaces that offer opportunities to enhance our network effect and growth. Our entire organization is focused in this direction, and we are not actively seeking acquisitions. So when considering the 6% to 7% growth, it means we are not planning to make acquisitions; it reflects the growth expected from our existing and new brands.

Operator, Operator

And your next question comes from Michael Bellisario with Baird.

Michael Joseph Bellisario, Analyst

I just wanted to go back to fundamentals and your positive momentum comment. But are you seeing group leads actually convert to more signed contracts? Or is there still a gap there? And then similarly on BT. Are you seeing any momentum recently in terms of a pickup in demand or bookings?

Christopher J. Nassetta, President and CEO

That's a great question, Michael. I have addressed this in various comments, and I'll reiterate that while we are in the early stages of recovery, things have definitely stabilized. If you look at what the airlines have reported, you can see that trend as well. Recent data shows we're moving from a wait-and-see approach to a thaw, although it's still early. I'm not trying to be overly optimistic, but there's no denying that positive changes are happening, and while it's difficult to pinpoint when we'll see significant shifts, the thaw is observable. Stability has been established, and we are beginning to see segments where bookings are increasing. That's why I shared the group booking data for '26 and '27, as people are gaining the confidence to plan ahead, resulting in a strong booking position for those years. This is a strong indicator of the market's psychology. However, we are still early in this reporting season and in the third quarter, where there is still a lot of noise. I believe it will take until the fourth quarter to move past the calendar and holiday shifts.

Operator, Operator

And your next question comes from Smedes Rose with Citi.

Smedes Rose, Analyst

I just wanted to ask you if you could provide any kind of updated thoughts on your presence in the all-inclusive space noted a handful of properties were transitioned out due to M&A. Is that still a big kind of focal area for your leisure guests? Are you kind of more focused on getting kind of near-term conversion opportunities there? Just kind of how do you think about, I guess, maybe backfilling some of those rooms.

Christopher J. Nassetta, President and CEO

Yes. We've been concentrating on the all-inclusive market like many others. It's a solid growth sector, though its applicability is limited to certain markets, so it's not the largest growth opportunity overall. However, it remains significant, which is why we prioritize it. The Playa situation has unfolded in a well-known manner, resulting in a reduction in the number of rooms in our portfolio. Nonetheless, we've opened other properties, and we currently have about 5,000 to 6,000 rooms operational. The pipeline and active discussions maintain a similar level. In specific markets, this segment offers a good option for redemptions for our most loyal Honors members. Therefore, we will keep advancing and expanding in this area, as we have in luxury and other sectors. We are pleased with our performance and the growth potential, as demonstrated by our recent opening in the Dominican Republic of a new Curio hotel, with more planned. While this segment is important, it remains a relatively small part of our overall business. However, in 5 to 10 years, we expect it to grow significantly, even though it won't constitute a large share of our total business.

Kevin J. Jacobs, Executive Vice President and CFO

Yes. And I think, Smedes, we'll do both new builds and conversions. I mean, Chris referenced the Curio in the Dominican, that's a new build, but we also converted a Hilton on the beach in the hotel zone in Cancun, that was a big conversion. And so we'll do both. And I think, as Chris said, that space is important to us and important to our network effect, but you're also getting some pretty good concentration out there in that space, which should yield some conversion opportunities over time.

Operator, Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back to Chris Nassetta for any additional or closing remarks.

Christopher J. Nassetta, President and CEO

Thanks, everyone. We appreciate you joining us today. As indicated in our discussion, there's been a fair amount of noise recently, particularly post-Liberation Day. However, I remain very optimistic. Despite the challenges, we provided guidance that we met or exceeded. Even with a slight decline in RevPAR, we achieved strong bottom line results, reflecting the robustness of our business model. On the development front, we're performing well and feel increasingly confident in delivering on our target of 6% to 7%. Our pipeline is strong, brand performance is solid, and we're adding more brands. I believe we are well positioned from a fundamental standpoint in our largest market, the U.S., for the next couple of years. Despite the surrounding noise, we are very positive about our current situation. We look forward to updating you after our third quarter and sharing more insights then. Thank you again, and enjoy the remainder of the summer.

Operator, Operator

Thank you for attending today's presentation. This now concludes our 2025 second quarter investor conference call. You may now disconnect.