Hilton Worldwide Holdings Inc (HLT) — Q3 2019 Earnings Call Transcript

Thank you, Chad. Welcome to Hilton’s third quarter 2019 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 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 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 third quarter results and provide an update on our expectations for the year. Following their remarks, we’ll be happy to take your questions. And with that, I am 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 improve the strength of our business model as strong net unit growth drove solid bottom line performance. Adjusted EBITDA was towards the higher end of our guidance, while adjusted EPS exceeded our expectations all in spite of softer-than-expected industry RevPAR performance. Additionally, our strong portfolio of brands supported by our powerful commercial engines continued to drive strong market share gains. Year-to-date, we’ve increased our system-wide RevPAR index premium nearly 200 basis points, growing across all brands and all regions. Our performance continues to drive meaningful free cash flow generation. Year-to-date, we have returned approximately $1.2 billion to shareholders in the form of buybacks and dividends. And we’re on track to return $1.6 billion to $1.8 billion, or nearly 8% of our market cap for the full year. In the quarter, we grew system-wide RevPAR by 40 basis points, which was below our expectations due to softness in US transient and Asia. System-wide group RevPAR increased more than 3% in the quarter boosted by strength in company meetings. However, transient RevPAR was relatively flat across business and leisure, falling short of expectations due to weakening macro trends. For the fourth quarter, we expect conditions to remain consistent with these trends. As a result, we now expect full year RevPAR of around 1%. As we look to next year, uncertainties in the macro environment make it difficult to forecast. Most indicators suggest continued economic growth for all major global regions, but at a slower pace. As a result, at this point we would expect full year 2020 RevPAR growth to be around flat to 1%. That said, we expect to continue to deliver net unit growth in the 6% to 7% range, which should continue to support solid bottom line performance next year. We will give you more specific guidance on our next call. Our robust development story remains a key driver of our continued success in delivering value beyond the broader fundamentals. Year-to-date, we've opened nearly 330 hotels totaling roughly 47,000 rooms and remain on track to deliver approximately 6.5% net unit growth for the full year. This will mark our fifth consecutive year of net unit growth above 6%. At the end of the third quarter, our pipeline totaled nearly 379,000 rooms with continued growth across both US and international regions. Developer appetite for our brands remains strong and we expect to deliver another year of record signings of over 115,000 rooms and record construction starts of more than 87,000 rooms, which supports our net unit growth outlook for the next several years. In the US, both signings and starts are tracking modestly ahead of our prior expectations with starts now forecast to grow nearly 20% in the US for the full year. Turning to openings, we welcomed our 100th Tru and our 2,500th Hampton, demonstrating continued growth in both new and existing brands. Since launching less than four years ago, Tru has established itself as the premier mid-scale brand with a RevPAR index of 130, the highest brand premium in the industry. At the other end of the spectrum, Hampton is one of our oldest brands, but remains a dominant player in its segment. After 35 years, Hampton still boasts an industry-leading RevPAR index of nearly 120 and a pipeline of more than 700 hotels. Earlier this year, we announced that we are on track to open more luxury properties in 2019 than any year in our history. In the third quarter, these additions included the Waldorf Astoria Los Cabos Pedregal in Mexico, the Conrad Shenyang and the Conrad Tianjin in China, the Biltmore Mayfair, our first LXR property in Europe, and the grand reopening of the Conrad New York Midtown following an extensive renovation and conversion from the London. Overall, we think our disciplined and diversified development strategy positions us to capitalize on demand trends around the world throughout all parts of the cycle while maximizing our net fees and driving significant shareholder returns. With over half of our pipeline under construction, we feel good about our ability to continue delivering over 6% net unit growth for the next few years. Our goal to deliver a brand for every traveler for any travel need they may have, anywhere in the world is resonating with our most loyal guests. In the quarter, Hilton Honors members accounted for more than 62% of occupancy, increasing 430 basis points year-over-year. Additionally, unique Honors features like Connected Room and Digital Key, along with our new Expect Better, Expect Hilton marketing campaign starring Anna Kendrick, continue to attract new members. Honors enrollments increased 25% year-over-year in the quarter to total nearly 99 million members and we remain on track to hit our 100 million member milestone this week. Our commitment to providing exceptional guest experiences and customer service would not be possible without our nearly 420,000 team members and the strong culture we have built together. I am extremely proud that Hilton has maintained our number two ranking as a top workplace and was also named the number one Best Workplace for Women in the US. With the support and dedication of our team members, we are able to grow our global footprint and have a positive impact on the communities where we live and work. To sum it up, with another quarter of solid bottom line performance, we remain confident in our fee-based business model and diversified capital-light growth strategy. This combined with our disciplined approach to capital allocation puts us in a great position to continue driving value for our guests, our owners, and our shareholders. With that, I'm going to turn the call over to Kevin for more details on the results and our outlook for the future.

Thanks, Chris, and good morning everyone. In the quarter, system-wide RevPAR grew 0.4% versus the prior year on a currency neutral basis, as weaker transient demand in the U.S. and slower than expected Chinese leisure travel weighed on results. Despite softer macro trends, we continue to gain market share. Adjusted EBITDA of $605 million increased 9% year-over-year. Outperformance to the mid-point of guidance was primarily driven by greater cost control. In the quarter, management franchise fees increased 6% to $577 million, with strong net unit growth and license fees offsetting softer top line performance. Diluted earnings per share adjusted for special items grew 13% to $1.05, exceeding the high end of our guidance. Turning to our regional performance and outlook, third quarter comparable US RevPAR grew 0.4%, as solid market share gains and good group business were offset by soft transient trends. For full year 2019, we forecast US RevPAR growth in line with our system-wide guidance based on modestly softer macro trends. In the Americas outside the US, third quarter RevPAR declined modestly versus the prior year largely due to hurricane-related weakness across the Caribbean. For full year 2019, we expect RevPAR growth in the region to be in the low single-digits. RevPAR in Europe grew 2.4% in the quarter, driven by increased demand across London, which benefited from a good city-wide calendar and strong international inbound trends. Results were further boosted by solid convention and trade show business across Turkey and Spain. We expect full year 2019 RevPAR growth in Europe to be in the low single-digits given favorable trends across Continental Europe, modestly offset by continued Brexit uncertainty. In the Middle East and Africa region, RevPAR was slightly negative in the quarter. Similar to trends we've seen throughout the year, supply growth in the UAE continued to pressure rate growth. For full year 2019, we expect RevPAR growth in the region to be down in the low single digits. In the Asia Pacific region, RevPAR fell 2.7% in the quarter, as trade tensions intensified and protests in Hong Kong further weighed on leisure travel. As a result, RevPAR in China fell 5.6% in the quarter. For full year 2019, we expect RevPAR growth for the region to be flat to slightly down, with RevPAR in China declining in the low single-digits, reflecting a continuation of current trends. Moving to our guidance, for full year 2018, we expect RevPAR growth of around 1% and adjusted EBITDA of $2.285 billion to $2.305 billion, representing a year-over-year increase of roughly 9% at the mid-point. We forecast diluted EPS adjusted for special items of $3.81 to $3.86. For the fourth quarter, we expect system-wide RevPAR growth to be roughly flat. We expect adjusted EBITDA of $563 million to $583 million and diluted EPS adjusted for special items of $0.91 to $0.96. 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 $43 million in dividends year-to-date. Our Board also authorized a quarterly cash dividend of $0.15 per share in the fourth quarter. Year-to-date, we have returned $1.2 billion to shareholders in the form of buybacks and dividends. For 2019, we expect to return between $1.6 billion and $1.8 billion to shareholders in the form of buybacks and dividends. Further details of our third quarter results and our latest guidance ranges 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 all of you this morning so we ask that you limit yourself to one question. Chad, can we please have our first question?

Good morning, everybody.

Good morning, Harry.

Yes. Good morning. A quick question on your pipeline, which again was up sequentially, as well as year-over-year despite what looks to be relatively flat corporate travel budgets. But developers still have a strong appetite to invest even in this decelerating economy. What do you think the disconnect is, and maybe you can speak to the uniqueness of the Hilton brands? At the end of the day, do you expect it to continue?

I think that's a great question. The short answer is that we do expect this trend to continue for the time being. The situation with developers varies by region, but generally, most of the developers we work with, especially in the U.S., are business owners who are focused on growth. This group is quite diversified and largely franchise-based. These developers are actively seeking unique opportunities in specific markets and locations with the right brands, confident that despite rising construction and labor costs, they can still achieve strong returns on their investments. Evidence of this is the expectation that starts in the U.S. will grow by 20% this year. For the right projects in the right markets, with capable developers, we are seeing significant progress. Our brands are particularly well-positioned, often leading in market share or performing exceptionally in their segments. This strong performance helps us capture a larger share of development opportunities. Looking at the inputs, it's somewhat surprising how well we're doing compared to my expectations at the start of the year, as we always push our teams. We anticipate signing over 115,000 new hotel rooms, possibly exceeding that figure, marking the highest level of approvals and deal signings in our history, which is nearly a 10% increase year-over-year. While the macro environment is challenging, we are still performing admirably. Construction starts, which are crucial for delivering new properties, are expected to increase by around 5% globally, with a 20% rise in the U.S. These indicators are all quite positive. As I mentioned in my prepared remarks, we remain cautious about same-store growth due to the weakened macro conditions, which is reflected in our guidance. However, the beauty of our model, driven by our pipeline and rooms under construction, ensures that we can achieve strong bottom-line results even in a sluggish RevPAR environment. In the third quarter, we saw a 9% growth in EBITDA, and for the full year, we expect EBITDA to grow by 9% and EPS by over 13%. Although we haven’t provided guidance for next year, the trends and projects in our pipeline suggest we will continue to perform well, even in a challenging macroeconomic climate. This reflects the strength of our business model post-spin, and if we execute well, we will continue to see growth in deal signings and rooms under construction.

If I can ask just a quick follow-up that's related, are you seeing any change in the requirement by lenders for more equity?

I would say we study that pretty scientifically. I would say after what has been a tightening trend, meaning less money - a little bit tougher terms all around in the lending environment, we have seen that flatten out. So I would say quarter-over-quarter, over the last couple of quarters, I mean, it got harder over the last year or two. But at this point it is relatively stable.

Okay. Very good. Thank you very much.

And construction costs by the way this year do after growing at high-single-digit, low-double-digit rates. Our best sense in what we’re seeing is that that has been tempered as well that construction costs are going to be growing in the low to – they’re still growing, but in the low to mid-single digits versus high single-digit, low-double-digit, which is helpful to a degree.

Very good. Thank you.

Hey, guys. Good morning. Guys, as we think about kind of the unit growth and the RevPAR growth for next year, clearly the under construction pipeline is roughly where it was last year, a little bit above where it was last year at this time. So that should bode well for kind of next year's NUG number. Obviously the RevPAR guidance is a little bit more tempered. When we think about though the level of performance from some of the other fees and whatnot that go into 2020 relative to what you got this year from things like the credit card, et cetera, do we think 2020 looks like more of a year where it's NUG plus RevPAR kind of gets us to your expectations for fees? Or is there still some slack in there that would allow you to continue to outperform like you have year-to-date thus far?

Carlo, I think it’s more the former than the latter. I mean we do believe - we had a big ramp-up in growth rate as we had the new deal with AMX sort of come into play. That is now ramping down. I do believe it will grow in the next several years at somewhat above algorithm growth if you will, but not materially so. So that it really is going to create as you called it sort of incremental slack. I think the way to think about next year is simple algorithm kind of growth.

Great. Thank you. And then just one quick follow-up. Obviously, where you are right now from a leverage perspective is a little bit below where you've been. Obviously, the capital returns are implied to be up a little bit from where you'd previously guided the range to be for this year. How are you thinking about the current leverage? And as you look out to 2020 with respect to the balance sheet and capital returns?

Yeah, Carlo. It's Kevin. We consider all of that in the same way as before. You should view it as we've mentioned previously, at a high level. Our recurring free cash flow combined with any proceeds from releveraging the business will drive our capital return. We're still aiming for a leverage range of 3 to 3.5 times, targeting the midpoint. This quarter, we ended slightly below the midpoint, mainly due to the recent Odawara sale and some timing issues. If we hit the midpoint or slightly exceed our capital return guidance for the year, we will be right in the middle of the range. So, there’s nothing new to add there.

Great. Thank you, guys.

Sure.

Good morning, guys.

Good morning, Joe.

Can you break out third quarter performance between business transient and leisure transient? I know you kind of bucket them together when you’re going through Q3 highlights?

They were quite similar and remained flat overall. I don't have the exact numbers, but one was slightly up while the other was slightly down. Part of the decline in leisure transient was due to some weakness, and there was also a tougher year-over-year comparison. As for business transient, it was positive but quite weak overall. I would like to provide a more detailed explanation, but the general trend seemed to relate to broader market weaknesses. When we analyzed business transient by segment, we noticed that larger businesses were more affected. This could be because many of these companies are public and tend to react faster to market uncertainties compared to small or medium-sized businesses. Overall, both segments appear relatively stable, with one showing a slight increase and the other a slight decrease.

Great. Thank you. And as a quick follow-up to that, can you just talk about your exposure to top 25 US markets, what percentage of your fees are tied to these markets, what percentage of maybe thinking about it this way your anticipated 2020 openings are in these markets? Obviously, look at the STR data of late? That's where you've seen a big level of deceleration. And that's all for me. Thank you.

Yes, happy to do that. We have about in the U.S. about 35%, 38% of our existing supplies in the top 25 markets, a little bit less than that from a pipeline point of view. And those markets while our top 25 has been outperforming the STR data, they have been modestly underperforming the non-top 25. So we would see some impact from that. I think if you look across the industry, we do not stand out on the heavy side of that, let's just say.

Hi, good morning everyone. Thanks for taking my question. Chris, maybe just follow-up on just the broader environment. As people start to kind of think about the zero to one outlook and just the overall kind of puts and takes about 2020, can you just help us think about when you're talking to other either large corporations on the customer side or other kind of fellow CEOs, what are some of the things that might differentiate between high and low in your range? And more importantly, like just any green shoots or things you could see that might be a little bit more on the optimistic side as you’re kind of thinking about 2020? Just trying to kind of frame up how much of this is an extrapolation of current trend versus what could be different having this conversation a year from today?

It's a good question, and while I'm not sure I have a perfect answer, I'll do my best. I've talked to a lot of customers recently, and the general sentiment reflects what everyone on this call might be feeling: there are many uncertainties in the world, and markets typically dislike uncertainty. Businesses are hesitant when making decisions about hiring, investing in equipment, or making significant investments that can increase demand for hotel rooms. In this environment, I've noted that caution is prevalent. People are closely monitoring events like Brexit and the trade conflicts not only between the US and China but also involving Korea and Japan. Additionally, with the upcoming election in the US and ongoing impeachment processes, these factors are contributing to uncertainties that have many feeling uneasy. This is evident in our results, as people are engaging in fewer activities. You'll notice lower hiring numbers and investment figures, which is already showing up in the data. We're somewhat of a leading indicator of these short-term trends; while people are still active, it's not as vigorous as it could be. To address your question about what could improve the situation, we need to see some stability. The upcoming election won't resolve anything until late in the year, but if we can achieve trade agreements, resolve Brexit, and reach some outcome regarding the impeachment, any of these developments, or a combination of them, could provide a boost. It might encourage businesses to make more confident decisions about hiring and investing, leading to increased travel activity. However, we really need to see some resolution to these issues for businesses to relax their cautious stance.

Thank you very much.

Hi. Thanks. Two follow-ups, I guess first, how should we think about the opportunity and timing to start pushing some of the new brands overseas? And then second, how are existing owners' financials or leverage levels, similar or different to prior cycles?

Maybe I’ll take the second one first. I think broadly, people's leverage levels are lower. I mean as compared to going into the great recession I would say, well debt is fairly available - abundantly available. It is not as crazy available as it was then. So my sense certainly within our system is people are much more sensibly levered, as we look at the possibility of a slower growth period of time. In terms of distributing our brands around the world, that is something that's always ongoing. There's a long answer. The short one, I'll try and give you the short one which is, we are constantly looking at the market opportunities based on demand patterns around the world. We are constantly looking at whether we should be creating demand and introducing various brand concepts around the world that may not even exist in certain markets, like extended stay in China as an example. And so, you should assume yes, that part of our program is not only continuing to grow the brands that we have, adding incrementally to that brand portfolio over time, but how we distribute those strategically is front and center in our mind and something we spend a lot of time thinking about. And you will continue to see incremental brand introductions in the parts of the world. Tapestry in Europe, for example, you will see and you will likely see extended stay entering China in the next 12 months and a whole bunch of other examples around the world of us doing that. And when you look at it, people think about like NUG and the future of growth. We are really in our infancy in our international growth both in terms of just while we're big and we've been doing it a long time, if you really look at our footprint in the world, there's a gargantuan opportunity. But also in most regions of the world, even where we're fully distributed or more fully distributed and we've been there a long time, we may have seven to nine brands of our 17 brands. So not only do we have opportunity to grow those brands, but we have the opportunity to sort of double down and add over time and in a sensible way a number of incremental brands in every region of the world. So it’s a very strategic thoughtful process of how we go about planting these new flags out there to make sure that we always are doing it in a way that we can support it commercially, because we got to drive returns for owners, which is what makes them come back to want us to build more hotels for us. But yes, you should assume we will continue to propagate new brands in all regions of the world in a very systematic sort of strategic way.

Helpful. I’ll turn back to the queue. Thanks so much.

Yeah.

Great. Thanks. Two questions. One is I wanted to circle back to your comments on transient leisure because I think it's the first time that you've talked about that being soft or not being up. And I know that Q3 had that tougher comp in last year's Q3. But can you give us any insight into sort of how Q4 is looking with two-thirds of visibility on the quarter? Just trying to think about how much of it was the tough comp versus actually an underlying trend. And I know you talked a lot about a bunch of the macro uncertainties out there. I don't know if those comments were more about the business transient issue or do you think that's - are those the same issues for leisure transient? Just trying to think about whether this is a trend or a tough comp? Thanks.

I think - if I'm being honest, I think it's somewhat of a tough comp, but more of a trend. I think our expectation is that fourth quarter will be tough as well. Now the comps aren't as much an issue, but just the broader trends are weaker. If you look at the retail numbers that were coming out before September, they sort of suggested strength, but September retail numbers were quite weak and I think reflective of what we’re seeing in some of the leisure trends. Again, I think to the extent we get some of the uncertainties out of the air, I think you have plenty of opportunity for consumer confidence, which is still reasonably - not as high as it's been still reasonably high to drive some reasonable growth in leisure transient. But our expectation - our sort of running assumption right now is under current conditions, both leisure and business transient will be weaker. We think they'll be positive generally, but they will be reasonably weak.

Great. That's helpful. Thanks. And then if I could just follow up a question about licensing fees which I think Kevin had highlighted, why you were still able to make your guided range for fee growth even though RevPAR was a little bit below the range. How should we think about that going forward licensing fees? It seems like that can be one-offs or not necessarily as predictable. I guess I don't know if there's any color you can give us to how to think about licensing fees going forward.

Yeah. Sure, Robin. I'm happy to try. I think - I mean overall, I think the message is very similar to before. It actually – it's actually - we are lapping over much stronger comps last year as the program was ramping up. And so that's clearly a trend that's going to continue. License fees actually didn't - were in line with our expectations this quarter and we’re not one of the reasons why we made our fee growth this quarter. We did have some other non-RevPAR driven fees that did a little bit better, but license fees were not an outsized sort of impact on the quarter. And so - and that'll continue into the fourth quarter which is why you're seeing some of the fee growth guidance for the fourth quarter be a little bit lower because we're lapping over, I think, 14% fee growth in the fourth quarter of last year. So overall the program is doing fine by the way – you know acquisitions - I'll sort of more focus on the full year because it can be lumpy quarter-over-quarter, but we think Card acquisition is going to be up about 25% for the year, spending in the mid to high teens for the year. So the program is going just fine and you're just seeing that we're lapping over really tough comps from last year.

Yes. And I would say - the only thing I'd add to that is it actually is quite stable. I mean the only thing that's going on is you're sort of lapping these big ramp-up years of a new program. So the growth rate is coming down just because of the arithmetic, but the programs as it stabilizes is actually quite stable in terms of our expectations of contribution to growth in the next bunch of years.

Okay. Thanks very much.

Good morning. Hey Chris. You brought up the election and the political uncertainty. And I think, it's not beyond the realm of possibility that next year we could be dealing with a higher tax environment and potentially a backlash against share repurchases. So I'm just trying to think about how your capital allocation decisions may change in that sort of environment, whether you might be more open to external growth in a low-interest rate - lower share repurchase environment.

That's an interesting question, Bill. It's difficult to predict what will happen next year. However, we are confident in our capital allocation strategy, which includes buybacks that have been a long-standing practice. Despite the political discussions around this issue, I personally wouldn't bet on legislation that would limit buybacks, as it doesn't seem logical to me. I haven't seen convincing arguments for such changes. If the situation were to change, we would need to reconsider, but I really don't think it will. Our approach to returning excess cash flow to shareholders—through a modest dividend and significant buybacks over time—remains the right strategy, and we intend to maintain it. If it were to become illegal, we would obviously comply, but I doubt that will happen. Looking ahead over the next several years, I believe that our capital allocation strategy will yield the best outcomes.

Great. I will leave it there. Thank you.

Thanks. And I just wanted to follow-up on the capital return question. In the past you sort of indicated that you think you could continue to repurchase and pay dividends along - in the sort of same range of what you've done this year. Anything about today's guidance or your RevPAR outlook changed that for you at this point?

No, it doesn't. Kevin mentioned it, and I'll repeat it because it's important. He did a great job explaining it. I know this is a major focus for everyone. Essentially, we look at our capital allocation program in a simplified manner. Each year, we generate a certain amount of free cash flow, which needs to be utilized. We also have the option to leverage, staying within the ranges we've discussed. We could go beyond those ranges if necessary. I would break this down into three parts. Firstly, regarding our free cash flow, we plan to pay a modest dividend and have no intention of increasing it, using all remaining funds for buybacks. We have consistently stated that we will leverage within the levels of 3 to 3.5, typically around 3.25, because the business can manage that easily. We aim to be active in the market and returning capital, as this range is sensible. While the business can handle more leverage under certain circumstances, we would only consider exceeding 3 to 3.5 in instances of market disruption. We would recognize that disruption by observing valuation metrics below long-term averages, which could indicate an opportunity. Currently, we are committed to implementing the first two stages regarding our free cash flow and leveraging to the midpoint of our target levels. We are open to considering the third stage at an appropriate time, but we don't think that time is now.

Thank you. I just want to ask you too, if you mentioned China was down 5.6% in the quarter. Is there anyway you can break out how much of that was just kind of Hong Kong-driven with what’s going on in that market versus overall kind of weakness in leisure that you've talked about on prior calls?

Yeah, I can. Hong Kong obviously had a tough quarter. Hong Kong was down 40% for us. And that means if you did the math, Mainland China was down a little less than 3%. If you look at the full year, what we think we will deliver in Hong Kong is obviously still sort of in play. We think Greater China will be down as Kevin, I think said, sort of low single digits, so call it 3%. Mainland China we think will be flat to down a point something like that and Hong Kong down 23%, 25% something like that.

Hi, good morning. You talked a lot about transient in the third quarter. How did group bookings before the period look in the quarter? And how does the pace for next year impact your guidance?

Group pace has been fine, but not robust. It's been choppy week-by-week and month-by-month, partly due to the commission change as we transition from a 10% to a 7% commission. This creates some comparability issues with last year. Generally, the pace has been okay, though not great. Looking ahead to next year, we feel reasonably good, though not as confident as we did at this time last year. System-wide numbers show we're up in the low single digits; last year at this time, we were up in the mid single digits. Currently, we're up about 2%, whereas last year we were up around 5%. We have guidance for the year indicating a growth of 0 to 1%, with an increase of 2% in group position going into the year, which gives us a positive outlook. Last year, we had higher expectations based on the group position's impact on RevPAR, and we have a different perspective for next year. We believe the group position is improving and supports our overall RevPAR guidance for the year.

Thanks. And maybe just one more. We saw a Waldorf project in San Francisco delayed due to the owners' liquidity challenges. How much of your pipeline is in the luxury segment? And can some of those projects be at risk if the slowdown and the overall environment continues?

Yes, it's a very small amount, just over 1%. We have been aware of the situation in San Francisco, especially since they went public this week. This has been on our radar for most of the year, but it represents only a minor part of our overall pipeline. While San Francisco is important, it has faced long-standing challenges. The more critical projects in our pipeline are currently under construction, and we fully expect them to be delivered as planned.

Great. Thank you.

Hi, good morning Chris and Kevin.

Good morning.

Good morning. You've provided some insights on group expectations and the decline in business travelers. I am curious about the current trends in leisure travel and your outlook for leisure travel next year. Thank you.

I'm pleased, but I believe we've already addressed this. To summarize, leisure trends in the third quarter were flat to slightly down. This was partly due to difficult comparisons from the leisure transient numbers in 2018 and also due to a generally weaker transient business, with retail numbers declining since September. We anticipate this trend will continue into the fourth quarter, and our assumptions indicate flat to a slight increase in expectations of modest transient growth for both business and leisure travel. I was asked earlier what could change this outlook. It could be any of the global events causing market and business uncertainty; resolution of any of these issues could be beneficial. However, relying on hope is not a strategy. Therefore, we've aimed to provide a perspective based on current conditions, which have been weaker. As I mentioned earlier, we still expect to achieve 9% EBITDA growth and 13% EPS growth this year. While we won't provide specific guidance, we anticipate another strong year this year and next year, despite what we expect to be low same-store growth.

Thanks everybody for the time today. Obviously a lot going on in the environment, we'll watch the fourth quarter carefully and continue to do our part to drive bottom line results. Look forward to summarizing the year in February. And for those Nats fans out there, go Nats, we've won last night. Hopefully, good night tonight. And we'll have our first World Series in Washington in history. Anyway thanks everybody. Have a great day.