Hilton Worldwide Holdings Inc (HLT) — Q3 2015 Earnings Call Transcript

Thank you, Sally. Welcome to the Hilton Worldwide third quarter 2015 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 are effective only as of today. We undertake no obligation to publicly 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 www.hiltonworldwide.com. This morning, Chris Nassetta, our President and Chief Executive Officer will provide an overview of our third quarter results and will describe the current operating environment as well as the Company’s outlook. Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then provide greater detail on both our results and outlook. Following their remarks, we will be available to respond to your questions. With that, I am pleased to turn the call over to Chris.

Thanks, Christian. Good morning, everyone, and thanks for joining us today. We’re pleased to report another strong quarter with top-line growth above the mid-point of our guidance and adjusted EBITDA above the high-end of our guidance. Healthy fundamentals should continue to drive solid performance for the rest of the year and in the next, which we’ll cover in a little bit more detail shortly. In the quarter, system-wide comparable RevPAR increased on a currency neutral basis. Transient growth was the primary driver of RevPAR growth in the quarter as the expected holiday shifts impacted group demand. System-wide transient growth was up 6% in the quarter, strengthening significantly in September with particular strength in leisure, which was up almost 10% in the quarter. System-wide group revenue increased nearly 4% in the quarter with strength in New York, Orlando, and Los Angeles. Group revenue was strong in July with over 8% growth, but was tempered by the effect of calendar shifts in August and September. Americas owned and operated expected group revenue is up over 500 basis points in Q4 versus Q3 actuals and strengthening in pace. On top of strong top-line performance in the quarter and great cost discipline, both corporately and in the hotels that drove strong margin growth, we continue to benefit from significant and accelerating net unit growth. Our leading brands can serve nearly every lodging need guests have anywhere in the world they want to be, drive loyalty to our system and result in our industry-leading market share premiums. Better top-line results drive better returns for our hotel owners and they, in turn, choose our brand. In the quarter, our net unit growth was nearly 13,000 rooms on openings of 91 hotels and more than 14,000 gross rooms. Our net unit growth of nearly 30,000 rooms through September is more than 12% ahead of last year, and we’re on track to meet our 2015 guidance of 40,000 to 45,000 rooms. We’re also on track to improve a record total of nearly 100,000 rooms this year, continuing to grow the largest hotel system in the world with the largest pipeline in the industry as measured by star. We continue to get a disproportionate share of new development with our portfolio brands accounting for one out of every five rooms under construction in the world. That’s four times our existing share of global rooms, and we remain number one in rooms under construction globally. Our goal is to win everywhere. Having a diverse portfolio of brands enables growth as markets have inflow. In China, for example, we expect to sign more deals this year than last, because we strategically deployed focused-service brands there over the past couple of years, and these brands are now ramping up as full-service and luxury development slowed. Our China pipeline now contains 31 Hilton Garden Inns and 13 Hamptons. The first of hundreds of focused-service hotels we expect to open in China by the end of the decade. We expect the pace of openings in China to increase as more focused-service hotels enter the pipeline with a typical time to build less than half of full-service and luxury projects. While full-service and luxury development has slowed, we still see great long-term growth potential in these segments. In fact, we expect to open nearly 20 of these hotels this year, with an additional 125 projects in the pipeline. It’s worth noting that nearly 30% of our gross openings year-to-date were through conversions, largely to our DoubleTree and Curio brands that grow our system but do not add to overall lodging supply. These conversions average less than one year in our pipeline before opening, and the average has been decreasing as a Curio can convert to our system in a matter of months. Our net unit growth is driven by what we believe is the best brand portfolio in the business. Every one of our brands has a growing pipeline, and over half of the pipeline of rooms are under construction. We have also organically launched three brands in the past few years to address incremental market segments and further our network effect. Home2, Canopy, and Curio now account for over 420 hotels and nearly 55,000 rooms either open or in development. Earlier this month at the Lodging Conference held at the Arizona Biltmore, we began introducing our new mid-scale brand to owners. The response was extraordinary. We expect to formally launch the brand early next year with a large number of signed deals and believe this could be our largest brand by the number of hotels over time as it serves the largest segment of customer demand. All of our new brands are driving incremental fee growth at essentially a 100% margin. This has been achieved with no acquisitions and essentially no capital investment on our part. We believe that the scale of our high return organic brand growth leads the industry. Now, let me take a minute to update you on our view of the cycle and our outlook for the rest of this year and next. In the U.S., which drives nearly 80% of our earnings, we expect continuing strong fundamentals driven by moderate demand growth coupled with historically low supply growth. Up until that supply-demand balance meaningfully changes, we should continue to deliver mid single-digit RevPAR growth, consistent with the cycle today. Supply growth is forecasted to be half of the 30-year average this year and only modestly growing next. There is good visibility into new capacity with years of lead time. Annual estimates on supply growth during this cycle have tended to be higher than what was actually delivered. Overall development continues to be largely driven by economically rational projects in markets that can support the room growth. We get questions about Airbnb’s potential impact on supply, so I thought I’d give you a sense of how we view it. We believe that a large portion of Airbnb’s demand is incremental. The bulk of the demand is in higher rated, high occupancy urban markets; it is longer length of stay with a predominantly leisure and value focus and stay occasions where customers are willing to accept inconsistent product with very limited services. We do not believe there is a material impact on the bulk of our markets or with our core business and leisure customers. We’ll obviously maintain a watchful eye on Airbnb as time goes on. Now back to the fundamentals. On the demand side, there is a very high correlation between lodging demand and macroeconomic indicators, such as GDP growth and non-residential fixed investment, both of which are forecasted to modestly increase next year. A steady and intact business cycle bodes well for us. Specifically for the fourth quarter, we expect 4% to 6% system-wide RevPAR growth. In the U.S. for the fourth quarter, we expect RevPAR growth to be consistent to modestly better than the past couple of quarters, driven by consistent transient demand and improving group trends. Outside the U.S., we expect fourth quarter RevPAR growth to be meaningfully lower than the last couple of quarters, largely driven by the EMEA region after a third quarter that benefited from a tremendous summer season in Europe and a favorable holiday calendar in the Middle East. Overall, system-wide trends for the fourth quarter are a bit lower than we had anticipated due to the difficult comps in EMEA and U.S. transient growth in October that has not accelerated as we anticipated against a difficult year-over-year comp. For the full year 2015, given results to date and our fourth quarter outlook, we expect system-wide RevPAR growth between 5% to 6.5%. We’re raising our full year 2015 adjusted EBITDA guidance by $10 million at the midpoint to $2.84 billion to $2.87 billion. Looking ahead to 2016, our guidance reflects our view of continued strong fundamentals and is supported by a group position that continues to track up in the mid-single digits, with a strengthening pace of transient growth consistent with current trends. As a result, we expect system-wide RevPAR to increase 4% to 6% in 2016, with 75% to 85% of that driven by rate. We believe that RevPAR growth will be led by the Asia Pacific region and the U.S., both of which should be above the mid-point. We expect RevPAR growth in Europe near the mid-point and Middle East, Africa region below the mid-point. We also think that our strong development pipeline will support unit growth acceleration in 2016, translating into global net rooms growth of 45,000 to 50,000 rooms. Lastly, we continue to work diligently on potential strategic alternatives for our timeshare and real estate businesses. We’ve made great progress assessing these complex opportunities and are hoping to be in a position to update you all when we report our year-end results. With that, I’ll turn the call over to Kevin for further details on the quarterly results and our outlook.

Thanks, Chris, and good morning everyone. During the quarter, our RevPAR growth of 5.8% was driven by a 4.2% increase in average rate and a 1.2 percentage point increase in occupancy to nearly 80%. In actual dollar terms, system-wide RevPAR per room increased 3.3%. RevPAR growth year-to-date through September is 5.9%, roughly two-thirds driven by rate. Diluted earnings per share adjusting for special items was $0.23, an increase of 28% versus the prior year period and at the high end of our guidance range. Adjusted EBITDA was $758 million for the quarter, an increase of 13% year-over-year, beating the high end of our guidance by approximately $8 million. Fee growth and timeshare outperformed expectations, with the majority of the timeshare being timing driven, which should normalize in Q4. For the quarter, enterprise-wide adjusted EBITDA margins were up 290 basis points year-over-year to 41.4%, driven by lower than expected corporate and other fee revenue. Management and franchise fees were $438 million in the quarter, up 14% over the third quarter of 2014, driven by strong franchise fees, new unit growth, and franchise sales. We expect fee growth in the fourth quarter to moderate owing to the accelerated timing of fees booked earlier in the year than we initially anticipated, and some one-time items that benefited prior year results. However, solid comparable fee growth, outsized organic net unit growth, and rising royalty rates continue to provide a healthy setup for future fee growth. We are increasing our 2015 management franchise fee growth guidance to between 12% and 14%, an increase of 1 percentage point at the midpoint. In the ownership segment, RevPAR grew 6% in the quarter, and adjusted EBITDA was $281 million, up approximately 10% versus the prior year adjusted for the sale of Hilton Sydney. Results were boosted by better performance in our international portfolio, particularly our UK hotels, and lower utility prices which supported segment margin expansion of nearly 190 basis points, again adjusting for the Hilton Sydney sale. Adjusted EBITDA was adversely affected by soft group demand related to holiday shifts. Hawaii was further affected by weaker transient business from Japan, although strong group position benefited one of our larger properties. Chicago had lower occupancy due to fewer citywide events, and renovations at the Moscone Center were somewhat of a headwind in San Francisco. Timeshare segment revenues increased 13% in the quarter as a result of continued growth in our capital-light timeshare sales and favorable resort operations. Overall timeshare sales volume was up 19% in the quarter, driven by tour flow increases of nearly 12% and VPG increases of over 6%. Adjusted EBITDA was $99 million in the quarter, growing 24% versus the prior year period. This exceeded our expectations by about $8 million, which, as I mentioned earlier, was largely driven by timing. We continue to expect strong tour flow and VPG growth and maintain our timeshare adjusted EBITDA forecast of $335 million to $350 million for full year 2015. Finally, our corporate expense and other was $60 million for the quarter, slightly better than expectations. As a result, we now expect growth in that segment to be flat to moderately down year-over-year. Moving on to our regional results, in the U.S., RevPAR grew 5.1% year-over-year at comparable system-wide hotels, up slightly from 5.0% in Q2. Performance is driven by strong results in July with transient and group revenue, both up in the high single digits. As we anticipated, growth in August and September was tempered by softer group business, largely attributable to holiday shifts and difficult year-over-year comps. International inbound revenue declined 1.7% during the quarter, owing primarily to weaker demand from Canada, Japan, and Brazil but mitigated by increases from China, Spain, and the U.K. Year-to-date revenue from international inbound travel to the U.S. is up 40 basis points versus the prior year, while overall room nights are down 2.9%. In the Americas outside the U.S., RevPAR grew 7.5%, driven largely by strength in Mexico and somewhat hindered by softness in Brazil, where performance struggled due to economic weakness and was exacerbated by tough year-over-year comps as we lapped the 2014 World Cup. We expect Brazil to remain soft but then positive momentum across other countries should continue supporting mid-single digit RevPAR growth for the full year. RevPAR growth in Europe increased 8.8% in the quarter, driven by three consecutive months of robust growth in the region and continued market share gains, with our RevPAR index in Europe up 1.2 points for the quarter. Improving fundamentals were supported by a record-breaking summer in Continental Europe which benefited from tremendous leisure transient business. U.S. travel to Continental Europe increased 14% year-to-date. Results were modestly tempered by softer group volumes, given difficult 2014 comps from events such as the Commonwealth Games and The Ryder Cup. While challenges in Eastern Europe, particularly Russia, continue to pressure regional performance, we remain confident in our ability to deliver solid results given increased inbound travel and local demand, coupled with rising market share. We maintain our mid-single digit RevPAR growth forecast for 2015. In the Middle East and Africa region, RevPAR grew a strong 9.1% due to continued recovery in Egypt, which posted its strongest quarter since 2010. Additionally, Saudi Arabia benefited from stronger group performance owing to favorable calendar shifts in Ramadan and the Hajj which will, in turn, weigh on fourth quarter results. We anticipate low single-digit RevPAR growth forecast for the year. In the Asia Pacific region, RevPAR increased a robust 10.2% versus the prior year, driven largely by a 23.9% gain in Japan, as the country continued to benefit from increased local demand and an influx for Mainland China and strong transient rates. Additionally, easy comparisons aided performance in Thailand. Strong corporate transient leisure volumes coupled with market share gains supported 7.6% RevPAR growth in Mainland China. We expect transient demand in China to remain favorable in spite of broader economic deceleration. We think increased outbound demand from the UK and U.S. combined with our market mix and market share gains position us to continue delivering solid growth. Our RevPAR growth forecast for China remains 6% to 8%, and we maintain our high single-digit growth expectations for the Asia-Pacific region. Turning to capital allocation, we reduced long-term debt by $350 million during the quarter with a subsequent payment of $100 million in October, bringing total debt reduction year to date to $850 million. We ended the quarter with a net debt to trailing 12-month adjusted EBITDA ratio of 3.4 times. We paid our first quarterly dividend in September and expect to maintain a target payout ratio of 30% to 40% of recurring cash flow. We are on track to achieve a low-grade investment credit profile by the second or third quarter of next year, at which point we would likely commence programmatic share buybacks. In terms of our outlook for the full year, as Chris mentioned, we are narrowing system-wide RevPAR growth guidance to between 5% and 6.5% on a comparable currency neutral basis. We are raising our full year adjusted EBITDA guidance range by $10 million at the mid-point to $2.84 billion to $2.87 billion. Our full year guidance continues to assume approximately $60 million related to FX impacts for the year. For the fourth quarter of 2015, we expect system-wide RevPAR to increase between 4% and 6% on a comparable currency neutral basis, adjusted EBITDA of between $706 million and $736 million, and diluted EPS adjusted for special items of $0.21 to $0.23. Further detail on our third quarter results and updated guidance can be found in the earnings release we distributed earlier this morning. This completes our prepared remarks. We’d now like to open the line for any questions you may have. In order to speak to as many of you as possible, we ask that you limit yourself to one question and one follow-up.

Chris, thank you for the detailed overview in the prepared remarks. One thing that I think is on people’s mind is sort of what you are seeing so far into the fourth quarter. You talked a little bit about softer transient growth in October than maybe you had expected. So, I was curious, I think coming into the quarter most investors expected that fourth quarter was going to be better than third quarter. If you could just elaborate a little on what you are seeing in the business right now, I think that would be helpful.

Yes, I assume somebody or many people would ask that question because it’s on everybody’s mind. We’ve obviously spent a lot of time looking at what’s going on in the results. Focusing on the U.S. for the moment, which my guess is what you are more focused on in your question, I think what we are seeing is generally consistent with what we would have expected with exception. The group side in the fourth quarter is getting better as we expected. The transient side of the business is generally tracking consistent with what we saw over the last quarters, as I said in the prepared comments. When you put those two together, that’s how you get a U.S. fourth quarter that we said will be sort of similar to modestly better than what we’ve seen in the last couple of quarters. I will say we had anticipated, forecasted, maybe hoped for a transient pace that would pick up in the fourth quarter particularly in October, which is a very big transient month. And that has not materialized the way we had thought. Now I’m not one who likes to sort of give you 50 excuses or reasons why. When we look at it and we’re sort of still trying to understand everything in a great amount of detail, it seems like it’s a few things that are going on in October. One, we had very high levels of occupancy, in the low 80s. So that is an issue. The comps over last year where you had high single-digit transient growth last year. So, you put those two things together; it makes it hard to expect a lot. And maybe we were a bit aggressive in our views of pickup in transient business in October. What’s really happening as I said is it’s stable; it hasn’t really ticked down; it hasn’t kicked up; it’s been relatively stable. The other thing that’s going on and it’s hard to perfectly scientifically quantify is we had two hurricanes. I know everybody sort of gets tired of weather, but weather has an impact. We had two hurricanes that ended up net-net on the East Coast and other parts of the country, canceling thousands of flights, so people couldn’t get places. We do think that in October in transient that there was some impact in that regard. And I would say in the corporate business which is what we expected to pick up, it has been a little bit choppier than we expected, meaning the net result is about where we’ve been so there have been weeks that have been better and worse, a little bit choppier. The primary theme that I would sort of glean from all that I would suggest, as we’ve gleaned from it all, is that what we’re really seeing in the fourth quarter is strengthening of the group the way you expected, particularly in October in transient that is clicking along pretty much like the second quarter and third quarter. Those things combine to drive a reasonably good result sort of where we’ve been or a little bit better in the U.S. The rest of the world, which is why the fourth quarter number is four to six, is really a comp exercise, particularly off of the third quarter you had massive leisure season in Europe with Europe on sale. In the Middle East, you had the HOD shift from fourth quarter last year to third quarter. When you put those two things together, RevPAR growth in the rest of the world is just fine for the year; it will be fine next year, and everything is good; it’s just a comp issue. It will be less than half of what it was in Q3. You put together a stable to modestly better U.S. story with comp issues and the rest of the world; that’s sort of how you get there. Things are developing, as I said, pretty much to where we thought, with the exception of not seeing the pickup in transient demand in October that we forecasted.

I had two questions. One, Chris, if you won’t mind sharing kind of how your view around some of the strategic initiatives you’ve previously spoken about has changed? And secondly, if I could ask, as it pertains to your outlook, how much of the change and maybe the tone around 2016 and beyond stems from what you’re seeing in your business today versus maybe what you are seeing in hearing from commentary of complementary peer industries?

Yes, happy to cover both. On the strategic initiatives, I covered it, albeit briefly, in my prepared comments and not to repeat it. We are making really good progress. They are massively complex options that we’re thinking through with lots of different moving parts. We don’t really think about it any differently than any prior commentary that I’ve made. But we’re not in a position to really get into it at any level of detail at this point until we finish the process. That’s because honestly, I think it’s just unfair to piecemeal it and can talk about one element of it without talking about all elements of it. We’re making progress, it’s ...maybe taking us honestly a little bit longer. We’re rapidly getting there and will be in a position to lay it all out for you guys, whatever it is that we think makes sense and it’s not too far out. In terms of 2016 guidance, I’m glad you asked it because you may or may not like the answer. We obviously look at our performance on a forward-looking basis in a very granular way; we go through a very detailed budget by property and aggregate that all together to determine where we think we’re going to be in the world. We are not quite complete but we’re very-very close to complete. I think we’re not going to share that budget, obviously, we never do. But I think it would be supportive of what I suggested in my commentary, which is we’re still in a very healthy part of the cycle where we have moderate demand growth matched with very limited capacity additions. We’re going to drive very healthy RevPAR growth. So the underpinning of that is that we feel good about things. We think that the transient trends we see here and now that I just described support our group position in the next year in the mid-single digits.

Just looking at the guidance you gave by region, it sounded like each region was essentially unchanged in your guidance but the overall guidance came down. Should we think about it being lower in the range? And this transient comment, is that mostly the U.S. issue or is that something that you’re seeing in those other regions as well? And then maybe just as a quick follow-up and maybe this one is for Kevin. Your full year EPS guidance was unchanged at the midpoint, but your EBITDA went up at the midpoint. I guess maybe some color about why we’re not seeing more flow-through from that because I don’t think your corporate expense is any higher.

I’ll take the first part, leaving Kevin the second. In terms of our guidance, I was trying to really give you a super high level trajectory by the region. So I don’t think your math is necessarily wrong. My last answer probably is the right answer, which is what we try to do is look at what we think we’ll have by property, by region, and then there is an overlay of a bit of conservatism. I would say it’s sort of across the board probably. Our conservatism is there are a lot of things going on in the world; the risk profile is a little bit higher than it was. Assume it’s sort of a general risk overlay of conservatism, not specific to the U.S.; obviously, the U.S. is a big part of the business. So, by the very nature of that overlay, it would be predominantly a U.S. overlay.

And then Robin, the full year EPS is just in the outlook there is an incremental penny of FX translation in there that just kept us from moving the range up.

Chris, I don't want to repeat myself about the comments made in October, but it seemed to be a sweeping statement regarding the U.S. Could you discuss which markets may not have been as negatively affected, or can you clarify whether the trends you're observing in October are specific to certain markets or to particular segments of the chain?

I’ll maybe give it to Kevin by market, but I would say we expected broadly an increase in transient. Every market is a little different, but the trends have generally been consistent.

Yes, I think that’s right. They have been pretty consistent. Obviously, Joe, every market has its own story, but the larger markets with larger hotels tend to have a bigger impact for us overall, but I think they’ve been generally pretty consistent.

First question is if in October you’re seeing record occupancy, what’s keeping your property managers from pushing rate more?

I think we are trying to push rate. I think you will probably end up seeing that most of the RevPAR growth is going to be raised. We are having some success market by market, but I think you will see the lion’s share of the growth come through rate. Because there is not that much more occupancy to get particularly during the week. So, should be all rate. I think we can always do better. I think we’ve been having reasonable success there.

And second is turning to Airbnb. I think that Airbnb is working hard at addressing some of their weaknesses related to appealing to corporate travel. How likely in your view is it that they will be able to overcome some of the more obvious issues, for example, duty of care and the lack of the amenities?

I think it's quite unlikely. When I consider Airbnb, I view it as primarily focused on urban markets that are highly rated, where their business thrives due to adequate market capacity and typically caters to longer stays. This represents a distinct segment of the market. I don’t see Airbnb as a significant threat to our core value, which centers around delivering consistent high-quality products and services. My research and extensive analysis indicate that customers value consistency, quality, service, and amenities.

Two questions, actually just continuing first with Airbnb. Chris, down the road, how do you think their platform evolves? Do you think it may strategically combine with major hotel brands, or do you see it maybe going the other way toward being more of a reservations engine like an Expedia?

It’s hard to say; you should ask those guys. I don’t think it connects to hotel brands. It’s possible. If you believe what I just said some moments ago that it’s developing into its own segment, one of the big hotel companies could say that’s a segment we want to serve. I don’t see it as a high-profitability area to go into. They are creating a very loyal customer base that wants to buy through their system. I do believe there is an opportunity for coexistence, but it is a distinct model from what we do. I think customers will still value consistently high-quality products, service, and amenities.

And then just as a follow-up, obviously there is lots of banter in the press about what’s going on with Starwood or with Hyatt or the Chinese buyer. How does the threat of a potential combination between whoever, Hyatt or Chinese buyer, maybe affect your thinking on the strategic landscape? And second to that can we rule out Hilton’s interest there?

You can rule out Hilton’s interest. We are not involved in the process at all. The reason for this is that I’m not going to speculate on what others might do; it’s not my place and I only know what I read in the rumors. We are not participating in that process because we are confident in our position. We have transformed our business to establish a strong network effect through our scale, geographic and chain scale diversity, and the strength of our individual brands. While there are always areas we need to consider, they are relatively minor and present opportunities. We are focused on optimizing our operations for our benefit.

Chris, you did a great job in the introduction talking about the fundamentals; you painted kind of a broad brush. But if we take a little finer look and we kind of get beyond national supply and demand statistics and start looking at the bigger gateway cities, it seems like there is some underperformance there. What are you seeing with your pipeline, with your owned assets which are in many of these markets;

Honestly, you're right; every major city has a different story. I would say broadly outside of New York, we don’t see a lot of it. In San Francisco, we’re going to deliver double-digit RevPAR growth this year and we think next year will be another really good year. In Chicago, it’s having a good year this year, but may be a little bit weaker next year than this year. New York is the one that stands out. I would say probably the Texas markets, particularly Dallas and Houston, because there has been a bit more supply than we’ve seen demand growth, given what's going on with oil and gas. But outside of those areas, it’s not wholesale by any means. There are just a few select places that we think about and where we’d have a bit more concern. The general story across the country is quite intact.

I appreciate that. Very quickly, Kevin, you mentioned that we are aiming for a low investment grade rating midpoint next year or early to mid next year. Can we say that this timeline has been pushed back from earlier expectations? Why?

No, I think it’s on track, Bill. We’d originally said three to four when we came out, and we’re in the fours. I was speaking last quarter about refining that range thinking with in discussions with the rating agencies and how they view the business as you get into different portions of the cycle. So, I would say plus or minus on track.

Chris, going back to your outlook for group next year, I believe, if I heard this correctly, you said that it was up in the mid-single digits for 2016; is that on rates or bookings, both?

That is in both. I think the best I remember is, it’s two-thirds rate...

And then can you just take us further to what you’re seeing in terms of the complexion of that demand? Are you seeing different industries or industry switches? Are you seeing more or less sensitivity to rates or bookings, just any kind of detail you can give on what you’re seeing?

Yes, I mean there are a few things as we’ve been looking at and that I think are interesting but not inconsistent with what you would think. The growth is coming predominantly in corporate groups, but big association groups are coming back. The average size group is getting a little bit bigger, not surprisingly as you get into the group cycle coming back in a more fulsome way. The length of the booking window has extended. We’ve run stats across all size groups last week. It’s a month to a month and a half extension in the booking cycle. I think that’s a good trend. In terms of the spend, it depends on the quarter, but broadly those trends are following what we would expect. If we look at owned and operated hotels, this year food and beverage catering growth will probably be 60% to 70%. We had hoped for it to be a little bit better, but it has to do with calendar shifts impacting the group. Those spend trends are headed in the good direction.

You mentioned earlier that your timeshare sales were a little bit better in the quarter based on timing, and I just wanted to understand a little bit of what was going into that. Also just as an aside just because it’s interesting, because a lot of your growth is coming in Asia, you announced the partnership with Plateno to build 400 Hampton Inns in China over the next few years. Did that change your ability to grow into that market? And then just one final question, is there anything you can change structurally that makes it harder to push rate higher when the inelasticity is pretty high?

Yes. Our full-year outlook remains in the high teens for overall sales for the year. The timing difference is not related to sales; it primarily concerns earnings recognition, which can vary in timing.

On the Plateno, Jin Jiang, we have had a good relationship with Plateno. Our attitude is that it makes them a stronger partner because they become bigger. They seem committed to achieving success in this relationship. The market is becoming more economically rational, and what’s more economically rational there over the long-term is really the mid-market opportunities. We anticipated that. It is just obvious that this was going to happen. The same goes for Europe when we focused on growing our Hampton brand. We are positioned well in China as well.

Could you compare the supply forecast in the U.S. against your geographic and chain scale exposure versus ...? And there was an interesting article on the Wall Street Journal; I think it was last week, about all the soft brands and highlighting potential risk to DoubleTree. What are your latest thoughts on that?

On the soft brands, we have had an unbelievable success story for a whole bunch of reasons. When we got here, we viewed DoubleTree as a unique opportunity for growth and reinvention of the product to drive great customer experience. Our competitors gave us wide berth and we’ve taken market share significantly. We believe DoubleTree will continue to be a great engine of growth inspiring conversions and new builds. There is always new competition, but we think our uniqueness in the market will remain.

I don’t have the exact numbers in front of me, but we tend to become an index. More of it is getting financed in secondary markets; it’s all limited service. The best developers with the best brands are getting financed, and it’s just going through the filters of a rational decision based on demand. It’s not wholesale.

As you look at signings in the quarter and the positive reception to your new midscale brand and the ramp in some of the newer products like Home2 and Homewood, what’s the unit growth setup heading into next year versus the same time last year heading into 2015?

I think accelerating in terms of signings and deliverables. We’re going to sign this year hopefully about 100,000 rooms. That’s the biggest number we’ve done; I think the biggest in the industry. We are going to see that be productive, and I think we think things are accelerating modestly into next year off a great year this year.

Great, thanks. And then finally, looking at occupancy in the U.S., it looks like you are up 120 bps year-to-date which puts you at 78%. Just wondering how that compared to your initial expectations. What are you seeing with domestic group and transient?

It’s generally consistent with expectations for the year. Next year, as I described, many more of the growth is going to come through rate, so more modest occupancy gains overall. International has been a bit of a drag on volume, but group is building well. That’s healthy for the business to provide more occupancy and leverage for rate growth.

Chris, as you think about your ability to take price over the next year or so, how much does the airline industry factor into the mix? Does that crimp your ability to push through a rate?

The answer would be logically yes. I don’t think the airlines are moving their rate so much that it’s really impacting us; we watch it carefully. If the balloon is still with air and the broader economy continues to go, I think it gives us pricing power. I don’t see based on the current trajectory what might squish our demand.

And one quick follow-up here. As we think about CapEx for 2016, is it a little too early to start commenting on that?

Yes, we are going to give you high-level insights but nothing unusual in CapEx from what we’ve had this year.

I just want to ask, you spoke on supply a little bit, and I was just curious if you’re seeing anything on the ground level on the development side regarding access to financing either in core U.S. markets where it seems like there is a little bit of an uptick in supply, you mentioned Chicago. Is one easier than the other, do developers feel they can get development loans?

Overall, it’s still hard. Only the best developers with the best brands are getting financed. I don’t think there is indiscriminate lending going on; it’s heavily underwritten. More of it is getting financed in secondary and tertiary markets, mostly limited service. Developers are saying the best developers are getting money. We have been saying for a while that on the development side, a lot of what was going on at the high end of the business may not have been totally economically rational. But in so doing, they’ve been reallocating capital. We anticipate the mid-market to grow in time, whereas full service and luxury will have ebbs and flows.

A quick question regarding buybacks. Can you comment on any limitations or sensitivities around potentially buying back Blackstone shares?

Yes, I think that we would probably not do that; it’s almost impossible for them to sell the company shares. But I don’t think it changes capital allocation dynamics.

A quick question about the business transient customer. We have heard on other calls there has been a lot of short-term cancellations. Are you seeing this trend as well?

Yes, we are looking at testing different options on cancellation fees to tie up our inventory for lengths of time without having people pay for it. We are looking at our cancel policies and where we have fees because it’s the right thing to do in the new order.

And looking at high occupancy, low ADR growth markets like New York, is the inability to push rate due to a mix shift issue? What are your corporate negotiated rates?

I think our corporate negotiated rates in New York are consistent with what we’re seeing everywhere else. New York is unique and has a lot of supply that hasn’t allowed us to push rates.

First question is, if in October you’re seeing record occupancy, what’s keeping your property managers from pushing rate more?

I think we are trying to push rate. A majority of the RevPAR growth comes through rate. We are having market success, but it’s harder to expect more occupancy in weak spots.

How is your negotiation for commissions with OTAs going?

We're done with all OTA negotiations and achieved our goals; we’re seeing growth on direct bookings as a result.

Thank you, guys. We have taken too much of your time this morning. I will end it by saying we appreciate everybody participating. We had discussions about lots of different things going on in the industry. We feel great about things and look forward to catching up with you after the year is done. Have a great day.