Good morning, and welcome to the Hilton 4th Quarter and Full Year 2020 Earnings Conference Call. All participants will be in listen only mode. There will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference over to Jill Slattery, Vice President, Investor Relations.
Please go ahead.
Thank you, Chad. Welcome to Hilton's 4th quarter and full year 2020 earnings call. Before we begin, we would like to remind you that our discussions this morning will include forward looking 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 ks as supplemented by our 10 Q filed on November 4, 2020.
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 Kevin Jacobs, our Chief Financial Officer and President, Global Development, will then review our Q4 and full year results. Following their remarks, We will be happy to take your questions. With that, I'm pleased to turn the call over to Chris.
Thank you, Jill, and good morning, everyone. We certainly appreciate you all joining us Extending my most heartfelt condolences to the Sorenson family and the thousands of Marriott associates around the world following the heart Breaking news of Arne's passing. To say I'm deeply saddened by that loss would be an understatement. I had, as many of you know, Had the opportunity to work with Arne in a number of capacities throughout my career, including earlier on at Host. I think it's very fair to say he was an exceptional leader, but also an incredible person and a great friend.
Our industry is better because of him and I am a better professional and a better person because of him. On behalf Everyone at Hilton's family and the entire Marriott family are in our thoughts. As we all know, this past year has presented unique challenges, including a pandemic that devastated lives, communities And businesses across the world, widespread economic declines and acts of social injustice. Due to the extraordinary levels of disruption, Our industry experienced demand declines we've never seen before in our 101 year history. Guided by our Founding purpose to make the world a better place through the light and warmth of hospitality.
We acted quickly To ensure the safety and well-being of our people, we also took steps to protect our business by rightsizing our cost structure and enhancing our liquidity position while continuing to drive net unit growth and increase our network effect. As a result of these moves, We expect to recover from the pandemic as a stronger, higher margin business that is even better positioned to deliver performance For our owners and strong free cash flow for our shareholders. While it's certainly been a very difficult year, we're proud of everything we've accomplished, But we certainly could not have done it without the support of all of our stakeholders. For that, I'd like to extend a Heartfelt thank you to all of our loyal customers, our important owner partners, our communities who supported us and enabled us to support them, Our team members who gave their hearts and souls to our business and our shareholders who stood by us, because of our amazing people, We've been able to lean on our award winning culture, which earned the number one best place to work in the United States for the 2nd consecutive year and the number 3 world's best workplace to help get us through these trying times.
Turning to results for the full year, system wide RevPAR strength of our brands and power of our customer centric strategy by achieving market share gains across every region even in a distressed business environment. For the quarter, system wide RevPAR declined 59%, relatively in line with our expectations. The positive momentum in demand that we saw through the summer and early fall was disrupted in November December by rising COVID cases, Tightening travel restrictions and further hotel suspensions, particularly in Europe. Similar to the Q3, drive to leisure Travel drove an outsized portion of demand. Business transient and group trends showed modest sequential improvement versus the prior quarter, But overall demand remains quite muted.
As we look to the year ahead, we remain optimistic That accelerating vaccine distribution will lead to easing government restrictions and unlock pent up travel demand. For the 1st Quarter overall trends so far appear to be similar to the 4th quarter with modest increases in demand in the U. S, offsetting stalled recoveries in Europe and Asia Pacific. We expect improving fundamentals heading into spring with essentially all system Wide rooms reopened by the end of the second quarter. We expect a more pronounced recovery in the back half of the year, driven by increased leisure demand and meaningful rebounds in corporate transient and group business.
Over the last year, the personal savings rate in the United States has nearly doubled, increasing by more than $1,600,000,000,000 to $2,900,000,000,000 with the potential to go even higher given additional stimulus. We expect this to drive greater leisure demand as travel restrictions ease and markets reopen to tourism. Additionally, conversations with our large Corporate customers, along with sequential upticks in business transient booking pace year to date indicate that there is pent up demand for business travel that should drive a recovery in corporate transient trends as the year progresses. On the group side, We saw a meaningful step up in new group demand in January with our back half group position showing significant sequential improvement versus the first half of the year. With roughly 70% of bookings made within a week of travel, overall visibility remains limited.
However, we continue to see signs of optimism. In fact, the vast majority of our large corporate accounts agreed to extend Despite the challenges in 2020, we opened more than 400 hotels totaling nearly 50 6,000 rooms and achieved net unit growth of 5.1%, slightly ahead of guidance. 4th Quarter openings were up nearly 30% year over year, largely driven by new development in China, where our focused service brands continue to command a We also celebrated our 1 millionth room milestone and the openings of our 3 100th hotel in China, Our 600th Doubletree Hotel and our 900th Hilton Garden Inn. We ended up the year with 397,000 rooms in our development pipeline, up 3% year over year. While market disruption weighed on new development signings, conversion signings positive momentum and conversion activity, particularly through DoubleTree and our collection brands.
During the quarter, we signed agreements to expand our Curio collection in Mexico and bring our Tapestry collection to Portugal. This marks one of several new Tapestry Hotels scheduled to open across Europe this year. We also announced plans to debut LXR in the Seychelles With Mango House Seychelles, the property will deliver a truly unique hospitality experience with spacious guest rooms and suites and 5 world class food and beverage venues. Scheduled to open in the coming months, the hotel underscores Our commitment to further expanding our resort portfolio. Building on that momentum, we kicked off 2021 with agreement to bring LXR to Bali.
Additionally, we celebrated the openings of Oceania Santa Monica, which marked LXR's U. S. Debut, as well as the Waldorf Astoria Monarch Beach Resort and the Hilton Vancouver Downtown, which was converted from a competitor brand. With these notable openings and many exciting development opportunities in front of us, we are confident in our ability to continue delivering Solid growth over the next several years. The pandemic rapidly changed guest behaviors, priorities and concerns.
We listen to our customers and move quickly to launch modifications to our Honors loyalty program, deliver industry leading standards of cleanliness and hygiene with Hilton CleanStay and provide flexible distraction free environment an expanded set of resources to help event planners address the dramatic shift towards hybrid meetings as group business rebounds. Our flexibility and innovation drove continued growth in our Honors network, ending the year with more than 112,000,000 members who accounted for 60% of system wide occupancy. Throughout 2020, we also remain focused on our corporate responsibility And our commitment to our ESG initiatives. We're proud to contribute to our communities and we're honored to be named the Global Industry Leader in the Dow Jones Sustainability Index for the 2nd year in a row. In a year marked by challenge and change, we effectively executed our crisis response strategy, carefully manage key stakeholder relationships and continue to press forward on strategic opportunities.
I'm
Due to seasonality and further tempered by rising COVID cases and associated travel restrictions. Adjusted EBITDA was $204,000,000 in 4th quarter down 65% year over year. Results reflected the continued impact of the pandemic on global travel demand, including temporary suspensions at some of our hotels during the quarter. Management and franchise fees decreased 50% less than RevPAR decreased as franchise fee declines were somewhat mitigated by better than expected Honors license fees and development fees. Overall, revenue declines were mitigated by continued cost control at both the corporate and property levels.
For the full year, our corporate G and A expenses were down nearly 30% year over year at the high end of our expectations. Our ownership portfolio posted a loss for the quarter due to the challenging demand environment, temporary closures in Europe and fixed operating costs, including fixed rent payments at some of our leased properties continued cost All measures coupled with one time items mitigated segment losses. For the quarter, diluted loss per share adjusted for special items with $0.10 Turning to our balance sheet, we continue to enhance our liquidity position and preserve our financial flexibility. Over the last few months, we opportunistically refinanced $3,400,000,000 of senior notes to extend our maturities at lower rates. In January, we also repaid $250,000,000 of the outstanding balance under our $1,750,000,000 revolving credit facility.
On a pro form a basis, taking these transactions into effect as of year end 2020, we lowered our weighted average cost of debt to 3.6% and extended our weighted average maturity to 7.2 years. We have no major debt maturities until 2024 and maintain a well staggered maturity ladder thereafter. Further details on our Q4 and full year 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 have our first question, please?
Certainly. We will now begin our question and answer session. And the first question will come from Joe Greff with JPMorgan. Please go ahead.
Good morning, guys.
Nice to
hear your
voices. Chris, I just want
to start off with a big picture question. I'm sure you'll get a lot Questions about 2021 net rooms growth and how you're thinking about pipeline growth from here. But Chris, I'd love to hear your thoughts on how You're thinking about your business 3 years out post vaccine. What's different about your business In terms of individual business transient travel, group travel, leisure travel relative to pre COVID, what's different do you think about full
So a lot to unpack there. But I think, Joe, when you go out and obviously you could debate this and I've debated it Ad nauseam with a lot of people. I think if you go out 3 years, whatever, 3 or 4 years, I think demand is going to look A lot like it did in 2017, 2018 2019, and meaning the makeup of The business has between business transient, leisure transient and group. At that point in time, I think we'll look quite similar. Now Certain of the types of if you get underneath the demand, particularly in business transient And the group side might be for different reasons than then.
I mean, there'll be a substitution effect clearly in certain types of travel being substituted
with sort of the new
the Zoom calls and with sort of the new the Zoom calls and digital opportunities, but they'll be replaced with other forms of travel. And we've seen this throughout History, I mean if you go back, it wasn't really around, but the telephone and the Internet and telepresence and You know, voicemail, there are always the arguments that this is going to truncate the need to travel and congregate. And the reality is what it It ultimately speeds things up. It ultimately It continues to connect the world and speed up globalization. And as a result, people need to
congregate, they need to travel,
they need to They need to travel. They need to build relationships. They need to build cultures. They need to innovate. And those things really Cannot be done as well without face to face opportunities, both in group setting as well as Individual business travel type needs.
And so I having It's longer than I'd like to admit, 35, 40 years. We've been debating this. I don't again, I think there'll be some But I think it will look a lot like it did. And then our business, a couple of comments since you asked. Our business is going to be a better business and a stronger business and a faster growing higher margin business.
Why? Because listen, throughout the next 3 years, we're going to continue to grow 4% or 5% unit growth. So we're going to be a bigger company. The units that we had Pre COVID, if you believe what I believe, which is you'll have similar demand levels will be producing like they were. You'll have all these new units that are then And I'll also be producing and you have a lower cost structure because we've taken a significant amount of cost out on a cash basis This sort of if you look at on a run rate in this year sort of on a cash basis in the mid teens something like that maybe a little bit better And we're going to be incredibly disciplined as we always have been.
I think we've been on a G and A basis at the low end of spending in the industry, but we got even better last year. And that's going to when you put all the same flows of fees through the system with more units And a lower cost structure is simple math. It's a higher margin business. And so I know it's sort of an odd time to be Pounding the table with optimism and so I probably shouldn't, but as we sit around this table, I'm at our Board table and we talk about it, It's been a hard year, the hardest any of us have ever endured. But as a result of it, we put ourselves in about the best position we could have.
And honestly, I think the business is going to be better for it and I think it's going to produce higher margins and more free cash flow, which we're going to be is going to allow us to return even more capital than we were pre COVID to our shareholders, which you think over the very long term is going to drive incredible returns. The last point was on limited service, full service, and I'm not I'm covering a lot
of territory. I know, but you asked these things.
And I think it's an important note because it's something I Troy, no, but you asked these things. And I think it's an important note because it's something I talked a lot about pre COVID that frankly, I don't think got enough attention, which The megatrend in our in the industry in every market in the world, there is not an exception, is the mid market, right? That's why is that? Because That's where the bulk of the population is. That's where the bulk of the population growth is, particularly in the emerging markets.
And So what can those people afford? Mid market brands. I would say, I know I'm sort of patting us on, we have the best mid market brands in the world. I mean, this is being Proven out in the growth of those brands both in the U. S, but outside the U.
S, outstripping the competition in Europe, out The competition in Asia Pacific, particularly China, and that's not by luck. We've been very purpose So over the last 10 years in making sure that we take the best brands here and we adapt those and refine those from a product and service Point of view, we pick great development partners like we've done in China to make sure that these are Adapted to those environments, what the customers want, what the development community in those environments in those regions want that It has allowed us to show really strong growth and continue to. So the megatrend, which was before COVID And I would say as a result of the economic distress that this has caused only gets sort of accentuated in a post COVID world is And I feel really, really good about the work that we've done to put ourselves in a good position. And I think it's showing up in the numbers of our unit growth, Right. Because the bulk of that unit, I mean, we have lots of great things going on in luxury.
We're making tremendous progress there. Lots of great things going on in the upper upscale and all that. But the bulk of you see, particularly in this environment, the bulk of the growth all over the world is really And I've been saying it for years, if you wake up in 20 years and you look back and say where was the bulk of the growth in demand and thus the bulk of the growth In rooms, it's going to be in the mid market. And that's why we've been focused on everything, but so intensely focused on that Because in the end, that's what's going to drive higher growth rate. That is what having the best brands in that space that we adapt To local market conditions is what's going to deliver alpha for us, the real alpha over the next 10 or 20 years.
Great. That's helpful. Appreciate it, Chris. Thank you.
The next question comes from Carlo Santarelli with Deutsche Bank, please go ahead.
Hey, guys. Good morning and thanks for taking the call. Thanks, Carlo.
And I said please go after
Carlo, we can't hear you very well. Can you speak up a little? Sorry.
I'm sorry, guys. Do you hear me a little better? Yes.
Yes, yes. Sorry.
I appreciate you taking my question.
If you could, you spent some time talking about how you're thinking about the pipeline. And my guess And the conversion looks like they were maybe about 19% of units this year, so in 2020, so How do you see conversion activity representing the growth algorithm over the next, call it, 12 to 24 months? Obviously, they will be used to augment. Where could you kind of see that conversion percentage as
I think I got all that. You are kind of cutting in and out. So I'll answer what I think I heard and if I miss Something come back and remind me. So in terms of NUG, we feel the same way we have felt over the last couple of quarters. We obviously delivered a little bit better at 5.1% because we had a huge Q4 in terms of deliveries.
But we've said over the next few years, we think we'll deliver 4% to 5%, and I still feel really good about that. I think this year, it'll probably be More the midpoint to the high end of that, similar to last year, but I think over the next few years, we feel comfortable with that. And in Part, leading to what I heard is the second part of your question, is success that we're having on the conversion side. We've always been focused on conversions and in downturns, as everybody knows, that's very fertile ground. Over the past 5 or 6 years, we've gone from having essentially one conversion brand really that was the big engine, which was DoubleTree to now having 4 between our 3 Soft Brands and DoubleTree, all of which are producing for us and I think will continue to escalate.
I mentioned in my prepared comments, our signings for conversions were up 30% last year. Our starts, which I did not Mentioned probably should have were up 40%. In our 4th quarter, our opens We're up about 44%. So what you see happening is sort of natural, like it takes a little bit of time to ramp. You're right, we were circa 20% Of overall NUG and conversions, that was up 300 basis points or 400 basis points versus the prior year.
And I think what you'll See over the next few years is that will become a larger and larger component of overall NUC. How high will it go, which maybe would be the next question, so I'll answer it. Unclear, I mean, we in the Great Recession, it went into the 40s. I don't think it will go that high because I honestly think we have so many other engines firing, particularly in China With all of our limited service growth, as compared to the Great Recession, I don't think it will go that higher. But I think it could clearly go into the upper 20s, low 30s over the next few years.
And so we have tremendous amount of focus on it, as you would guess, And the development teams are aligned around those goals. And I think you are starting to With some of the numbers that I described, the natural ramp up in that and very, very good progress there. So I think things are coming along really nicely. Did I miss anything in your question?
No, sir. You answered
it all.
Thanks very much.
All right. Thanks, Carla.
The next question is from Shaun Kelley with Bank of America. Please go ahead.
Hi, good morning everyone and thanks for all the remarks. Chris or Kevin, maybe sort of going down the same path as you just did for net units on digging in on the G and A cadence a little bit more. Obviously, I think there's some noise with stock based comp. But Chris, I think you referred to overall kind of cash And savings in a higher margin profile or structure looking out a few years. Could you just help us kind of build on that a little bit as you kind of look out A little further, what's either the right run rate to think about relative to 2019 levels for 2021 or just maybe even more strategically, How much more efficient do you think we are a few years out from now versus where we ended 2019?
Yes, Sean, I'll take that one. I think you sort of pointed out some of it, right, on the GAAP G and A side, which includes stock comp that's non cash, right? So over the course of last year, we wrote down our plans and then we put in a new plan in place in the Q4. So you saw some things And then I know Chris did say this, we think 'twenty one versus 2019 We'll be down in the mid teens on a cash basis. And so how can that trend going forward?
I think, look, overall wages and benefits have been growing In excess of core inflation, over time, that's probably not going to trend. But we've look, we're adding no new heads in the business this year. And so we think for several years, we're going to remain disciplined as we always have. And there's no reason to think that we can't Grow cash overhead at sort of slightly ahead of inflation. There's slightly more than inflation because that's probably what wages and benefits wants to grow over the And there's nothing that we see in the future that says we can't continue to get back to scaling the business without having step changes in growth and overhead.
Thank you very much.
Sure.
The next question comes from David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone. Good to hear everyone's voices.
You too, David.
Thank you. Chris, in your comments, you talked about pent up demand for corporate travel, and you made some comments around group. And I'm hoping that you might be able to go just a little bit further and talk about how broad based that might be, any Industries, etcetera. It's obviously quite intuitive that leisure would have a lot of pent up demand, but we spend a lot of time debating Those other segments and we just love a little more depth if you have it available.
Yes. I can give you I'll give you what I do have. I mean, I talked about in my Prepared comments, David, the leisure side and I think we all I think we can all kind of stipulate that people want to get out of their basements And they want to travel. And while people have been starting to do that, not that many have. And certainly, the higher end leisure Business has not really been out and about.
And so I think as you get through what is going to be a mass vaccination period of time over the next 90 days. I think when you get to late spring summer, everything I'm hearing, talking To the Biden administration, which you're now reading in the papers too, but we're having pretty direct conversations. I think maybe even sooner, I think the President said last night, I heard that by the end of July, every American will be able to be vaccinated. My own belief based if you look at the manufacturing curve and expectation of J and J getting approved, And expectation of J and J getting approved probably by the end of this month that could be much that could be Sooner than the middle of the summer. So I think once you get there, I think people have a lot of savings, even though they've been buying stuff like Crazy as we know, because a lot of the retail and car business and homes and all that have been doing well.
They want to get out. They want to get out more than ever, talk to anybody, talk to any of your friends and you get the answer. And so I think The trend line there will be quite good when you get a bit of the all clear sign, which I think will be hopefully by spring, certainly No worse than summer. On the business transient, there are data points. I mean, but a lot of it is admittedly Anecdotal in the sense of just discussions that we're having with our big customers and trends that we're seeing.
As we're having discussions with our customers as we've been renegotiating all of our corporate negotiated accounts, I mean, clearly, there is massive pent up demand. I mean, they may by the way, they're obviously Businesses that are hurting, they're going to have cutbacks for maybe their run rate numbers of 2018 2019. But the reality is, they're just the short term, they have so many things that they need to do when you talk to them about collecting their people, Jin, just team meetings, getting out with clients and customers and the like that It's just it's been over a year. By the time they're out, it'll have been 15 months and forget the fact they want to see people, They need to see people. And so you're starting to see that even though we're in the you see the infection rate coming down.
I mean, we're still not Through the crisis for sure, and you're starting to see it in the booking trends. I mean, the business Transient trends are clearly sort of week by week are marching up even in the middle of all this, Even though we don't have the all an all clear sign. So not tons of data other than what real booking data suggests, Short term, it's moving in the right direction, but lots of conversations with customers are saying that and lots of Surveying that we're doing is suggesting like it was that people are more In travel for leisure and business, as our polling goes like over 80% of them say they got to get back Out on the road, which is the highest number obviously we've seen since this mess began. So that's good. On the group side, that's going to take longer, but the trend lines are good.
If you look at like Our lead volume sort of 4th quarter versus January, January was up 35%. If you look at it, January versus December was up 50%. I give you the quarter because normally January would step up from December because of the holidays. So I want I think a better number would probably be sort of the average over the whole 4th quarter, but that's up by more than a third. A stat that I as I go through with the team that I thought was very encouraging on the group side was that our first Half position for 2021 versus 2019, so let's forget 20 because it was a washout.
I mean, the comparability is not relevant. If you look at it versus a stabilized year of 2019, 1st half position on the group side system wide is down 80%. The second half of the year versus The second half of twenty nineteen is down by 32%. So again, it's still off, but by a lot less Margin and that's a result of people saying, I got to get out, I want to get out, I got to have team meetings, I got to have small group, medium sized group, Conventions are starting to book again because they're going to go out of business if they don't get booking again with an expectation, Obviously, by the time you get to the second half of the year that it's safe and they can do it from a health point of view. And so we need this My belief is we will get there, but we need this vaccination effort between now June, July to really ramp up and it Feels like day by day that's happening.
So that's a little bit of color. Obviously, we got to play out the next Few months and have the right things fall into place. But I think there's a real opportunity for this I said this publicly, I I do think there's a great opportunity for the second half of the year to be better than any of us think, because When you know it's like everything. When you're at the top of a cycle, you always think everything's going to stay good forever and it's a new norm. And when you're looking from the bottom, The depths of doom, you're sort of trendlining off a lot of negativity.
And eventually, this thing is going to flip and people want to get out no matter Anybody says they want to travel, and when the all clear sign is sort of given, which is the light since the end of the tunnel and I think coming I think there's a huge amount of pent up demand and I think we could all like what we see in the second half of the year.
Appreciate it. And if I may, Just a very quick follow-up. On the subject of hybrid segment or bleisure, any thoughts, Strategies or marketing efforts to that end?
Yes. I mean, all of our efforts on the marketing side, I mean, to keep it short Simple as we can let other folks ask questions. All of our efforts have been focused on fishing where the fish are. And right now, where the fish are at the moment is in sort of value based Leisure and leisure business. So and it's really the leisure part of it is small Small businesses that really don't have the choice, but to travel to keep their businesses going and they are sort of Mixing it with leisure opportunities because they have more mobility in a sense.
They're not locked into Their kids aren't locked into necessarily being in schools and they're not locked into being in an office. So all of our efforts across what we're doing with Honors, what we're doing with Promotions, what we're doing with our marketing spend have been focused on that. Now that's all going to obviously shift. If all goes well and I'm right, you'll and we're obviously working on the plans to not go immediately back to where we were, but to start to migrate back to sort of a more normal approach as demand
The next question is from Stephen Grambling with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking the questions.
Good morning.
On your comments on the second half twenty twenty one trends, those are all helpful, but perhaps coming at it from another angle, how did leisure business and group segments fair in China in the Q4 before incremental lockdowns and how would you compare and contrast that market to the U. S. As you think about how it may inform the And perhaps as a related follow-up, are you seeing any signs of that substitution of trips that you're referencing in that market?
Obviously, China, as you've implied in your question, sort of backed up with what's going on, particularly in the north of China more than the south of China In the Q1. In the Q4, I would say, and I have all the data in front of me, but I would say anecdotally from lots of conversations with our Asia Pac and our China team, It was very rapidly sort of approaching normalcy, meaning we weren't fully back with there were Still a little bit heavier leisure component, but there always is in China, by the way. I mean, it's a heavier leisure market broadly, but We weren't too terribly far off of our business transient and our group trends, but it was following the same pattern I would expect here. Leisure leads, business transient is a close second and the groups just because they're by nature of group business, it's a little bit longer. Lead time is a little bit more planning, was lagging a bit.
But China, we were running like 10 points off, something like So we were getting before they backed up, we were getting to, I think, very normalized levels of demand. We were not Seeing any material as far as we could tell with the data we had, any sort of substitution effect. Reality is China was sort of going back to the normal trends that it had very rapidly before COVID. And so I think While China is different in lots of ways, I think humans are humans. And I think that's why my belief is that as we Come out of this leisure will lead, business trends will be a fast follow, group will take a little bit longer to develop because lead times, But the demand patterns will over a couple of years return and look a lot like they did pre COVID.
And one very quick follow-up. Just can you remind us what percentage of the China business is normally international inbound, Which I imagine you'd have to overcome to get to that 10 points off.
Yes. It's about 10 points, 10%.
Awesome. Thanks so much. I'll jump back in queue.
Next question will be from Bill Crow with Raymond James.
Good morning, Chris and Kevin. Good
morning, Bill.
I got a 2 parter on unit growth, if I might. The first part of it is simply, are there economic differences to Hilton between adding a conversion Double Pre or say opening a Hampton Inn that is newly built and maybe that's a year 1 versus year 3 question.
Yes. I mean the difference is I think you already answered sort of implies just timing. I mean
Conversions
just happen faster, most than not always in the year for the year, but typically between signing and Getting them in the system and paying fees happens very rapidly, usually within 6 to 12 months. And signing of new builds, depending on where in the world you are, takes anywhere from 12 to Depending on where in the world you are, it takes anywhere from 12 to 48 months. And so conversions produce faster. I'd say in terms of Ramps and underlying economics, I mean, I'm looking at Kevin Run's development. Not a material difference as I think about it.
I don't have the data in I mean, but anecdotally, we're involved. No, that's Kevin, we're involved in all these deals. I don't think there's any real difference in terms of I think it comes faster. I think the basic fee structures are quite similar.
Yes, that's right. I just think, look, DoubleTree is 10 DoubleTree is a full service hotel, so It's market specific, but the absolute level of fees tends to be a little bit higher. But generally speaking, the return profile is very similar.
Perfect. Perfect. The follow-up or the second part is, whether you think the $15 national minimum wage would impact Development Economics for select service, say your true hotels, which tend to be in smaller markets
It could. I've been talking to lots of folks About this issue, and broadly, I think many, including me, are supportive over time that The minimum wage needs to move up. But as I've said to a number of people in the administration, time and place, sort of how you do it and when you do it matters. And so I think the likely outcome is I don't know that it will end up in this first bill. I do think I think that is probably not highly likely based on what I'm hearing, possible, but not highly likely, but it will not be an issue that goes away.
And I think that The how and the when then become important. And so how being First of all, even in what's being proposed now, it's not all to $15 It's staged in over basically 5 years. And so I think That creates a ramp that allows people to adjust and create we're obviously working with our owners on creating even more efficiencies. It's not like overnight, you go across the country to $15 By the way, there are a whole bunch of markets that are already $15 and so they've been dealing with it. I would also like to think that people really spend the time figuring out that not every market is the same, that living in Poughkeepsie is not the same as living in New York City and You know that these can be indexed.
And then when do you start to sort of move it up, I think It's a big issue. My personal worry and concern is the hospitality industry has been more impacted from a jobs point of view than any industry in the country, And it's the slowest in recovery in terms of bringing jobs back. And I don't think Raising the minimum wage, no matter how you look at the analysis, is going to help. I think it will slow the rehiring People in the industry. And so I am hopeful that in the end that people will mode.
Rational thinking will prevail. And as a result, this will not be a major issue I think we should all assume that the minimum wage is going to be going up over time, in fact, because it needs But again, I think it's I am hopeful that it will be done in a staged way, built in to the timing and the geographical approach that will Make it make sense on all sides. So the short answer that's the long answer, Bill. The short answer is I don't think in The short to intermediate term, there's any meaningful impact as a result of it. Okay.
And Bill, I'll just add, I mean, that obviously covers the ground on I'll just add as a quick plug for our products, right. And so our products on a relative basis, if you start with revenue premiums And then our more modern prototypical, particularly you referenced true that even though if minimum if Wage and benefits costs go up, that does make it more expensive for developers. But on a relative basis, our products are more efficient. So it should continue to give us an opportunity
And the last point, not to hit it too hard, is that the work we're doing right now in every one of our brands, Including True and Hampton and everything else is about taking making them higher margin businesses and taking creating more labor efficiencies, Particularly in the areas of housekeeping, food and beverage and other areas. So, they're going to when we get out of the crisis, those businesses will be higher margin and require less labor than they did pre COVID. So that will also sort of factored for in my commentary. But I think that hopefully the net of it is, as it goes up, it's done over a longer period of time And it's done in a sort of thoughtful way.
Thank you for your time. Appreciate it.
Next question comes from Patrick Scholes with Truist Securities. Please go ahead.
Hi, good morning, everyone.
Good morning, Patrick.
Good morning, morning. Curious as to your interest at the moment in tuck in brand acquisitions Today versus sort of your historical normal strategy of building brands from scratch, Specifically, interest in perhaps buying international brands or international private brands? Thank you.
Yes. Thanks, Patrick. Good question And then, one we certainly we get frequently, I don't think my view has changed at all. I mean, I think I've been saying for 13 years since we bought nothing. We've doubled we've gone from a family of 9 brands The 18 brands, so we've doubled it in the time I've been here and we haven't bought one of them.
We've organically developed every single one of them. So for my entire I'm here. I've been saying never say never, right? You've heard my speech. If it passes all the right filters, we'd consider it, but nothing Has and so I think not necessarily the past is indicative of the future, but it sort of tells you our predisposition.
And so I would say never say never, but the filter is a very tight filtration system, which is we think we got the best Brand portfolio in the business. We think that is that can be proven scientifically by the fact that every one of our brands is a market share leader. Everyone that we've developed, we think is purpose built around exactly what customers want and we like that. And so anything that we would look to acquire would have to sort of meet that profile, like we don't want to go backwards because we don't have We have pretty much every category covered. If something is not covered, we could launch it.
I don't think you'll see us launch a whole lot of new brands in the short term. But why would we do that? We have all the segments generally covered, do we want to cover? We have the best brands. Why would we pick up something that wasn't Superb in the same way that we then have to be distracted trying to fix, and that we paid a lot Money for, which leads me to the next filter, which is economics.
If you do simple math, we're developing Brands for nothing, not to make it and so we have an infinite yield every time we do it, every time we do it True or a Home2 and these things become mega brands, They become multi $1,000,000,000 businesses over time. It's an infinite return because we've effectively invest just sweat equity, So something, but not much. So when we look at buying stuff, we haven't found anything that was perfect, that doesn't require a lot of elbow grease, And you're paying a lot of money for it. So we just not again, never say never, but that's sort of how we think about it. Now Your comment your question also implied like region sort of regional process.
That's where maybe I hate to say it and Where maybe we want a stronger foothold that aren't that don't show up a whole lot on the radar, but for what they are very, very good. And so, Yes, we've looked at a bunch of those over time and we'll continue to do that. The net result has been, while we've looked at a bunch of them, we haven't done any. And Again, I would say I wouldn't I would condition everybody to say we like what we got. We think we got the No offense to our competitors.
Maybe we had the best setup for the future in the industry. And the last thing we want to do is botch it By either bringing brands that, like my father used to say, you hang with the dogs, you get the fleas. We don't want to bring stuff in That messes up the portfolio and we're intensely focused on good capital allocation. I was those are my Origins and business being a good capital allocator. And so when you put it together, I think not high likelihood, but Never impossible.
Okay. Thank you. The next question will come from Robin Farley with UBS. Please go ahead.
Great. Thank you. I actually have 2 half questions since they're both follow ups. One is just on the group commentary and you talked about how much better the second half looks. I've got to think that for 22, there will be group events that haven't at that point taken place in 3 years.
I've got to think your volume for 2022 would be better than 2019. Is it just Too early to see that on your phone?
It's too early. I think when we get into the second half of this year that my own belief, I should hardly say this, but it's like I said to our team The other day, do not give away space in 2022 too cheap, like because I think there's going to be Gantuan demand and as a result more pricing power than people think just because people have accumulated all sorts of needs That are going to get released and it takes time to plan. So what you're going to see in the second half of this year is, I think, The big uptick will be in the Smurf business because those are smaller groups, they can have the planning It's not as time consuming, the lead times aren't. The big stuff, it takes Time when you're doing 1,000 person or multi 1,000 person conventions, even if you're doing it hybrid, takes a lot of planning. And so that's really almost At this point, got to start to fall into next year.
So yes, I think if all goes according to plan in the first half of this year with vaccinations and there is a reality that people feel like they can Start to congregate again, being intelligent about it, but do it in a safe way. I think you'll in the second half of this year, you'll see a bunch Demand that will dump into next year on stuff that requires planning.
Oh, Great. Super helpful. And then my other follow-up was on the unit growth comments. And I think your comments about next year were maybe better than what some Had worried about maybe 'twenty one is benefiting from some of the construction in 'twenty that had been delayed. I guess when you talked about 4% to 5% for the next few years and this year being at the higher end of that, does that sound like That maybe 22 would be at the lower end, that there's maybe going to be a little bit of an air pocket for new development that would have started In the last 12 months, is that how we should kind of think about those?
Yes. I don't think it would be that low. I think we are definitely I mean, we had 5.1 last We delivered a lot more than we thought. Just as we look at this year, there's a lot of stuff in production. We think again, we have really good momentum on conversions, which This is going to help us more this year than last.
It will help again even more so in 2022. And then there's just stuff that's moving through
that was under construction
or was put under construction that's I think next year, I mean, we still we put 75 1,000 rooms under construction last year and most of that is not going to deliver this year, it's going to deliver in the next. And as I said we're ramping on conversions. So, I do think that 2022 could be lower than 2021, but Not by the degree that you're suggesting. I still think that ultimately our goal is to be sort of in that 4% to 5%
Next question will be from Richard Clarke with Bernstein. Please go ahead.
Thanks for taking my questions. Just a couple of questions on your conversations You used to talk about some upside on the take rate as you sort of rolled contracts over. I'm just wondering, As we've gone through this pandemic, are you able to enact on that and push the sort of fee percentages up? And also, you gave them some CapEx holidays. How urgent is it that they kind of begin that renovation process?
And when would you expect that to restart?
Both good questions. So on the first, our published rates, So you would say if you average all our brands, it's about 5.6% in license fees. We're about 5% right now terms of effective rate, in terms of where people are in the cycle, we're not going to anytime soon be Increasing those rates in an absolute sense, but by definition, every time a contract turns, it goes to the new rate. And I think I'm not saying anybody likes it, but that's sort of the standard within the industry. It's certainly what we've always done and we'll continue to do that.
So You'll see that sort of grind up about 10 basis points, 15 basis points a year. And then when we get to the other side of this, We're going to sort of keep we think that they are good where they are and we'll keep our effective rates will keep grinding up as you have natural Rollover. On the CapEx side, it's really important. It's a delicate balance. The obvious one, which is you got to keep the We have the market share leaders in every one of these categories.
Part of that is obviously service, a part of its product and part of that Product is about having fresh product, consistent high quality product. We're very religious about it. We have given a lot of relief. Thankfully, we went into the crisis in a really good position because we've been unbelievably diligent and disciplined And our owner community over time has recognized that to get those premiums, they have to keep their assets up. And so we went into the crisis a year ago in a good place.
We have the ability, we think, to give them a bit of grace for a period of time and not have a significant impact with our customer base. But as we get to the other side of this, yes, we're going to have to get back to having that kind of discipline, which is not just in our interest, it's in our owners' interest if they want to continue to drive results. I suspect You know that that's going to be next year and not this year, just in the sense that while I think the second half, we're going to be in a very different world. Got to we're going to have to let folks get back on their feet. And I think given, again, the quality of on average of our Brands and the upkeep of those the brands and the individual hotels going into this, I think we can do that without It's being harmful.
Wonderful. Thanks very much.
The next question
I want to just follow-up on you talked about some of the group bookings improving sequentially and I know it's too early to talk about 'twenty two, but on your Patterns that you're seeing, is there anything just from a geographic perspective in the U. S. That's showing up so far in terms of maybe shifting away from Higher cost cities that have already been underperforming from a RevPAR perspective, can you take into lower cost?
Yes. The geography is exactly what I think you're implying in the question and what you would think. It right now is less In the primary markets and more in the secondary and tertiary, just because of what's been going on in a lot of the big cities and the greater density of Population and reality is, as I said, a lot of the uptick that we're seeing into the second half of the year is Smurf Business and the nature That business lends itself more to those geographies. I fully expect, as I said, when we sort of get a bit of the all clear and people start to think about group in a very different way, and I hope that's in the second half of the year, you'll start See those patterns normalize. But given that it is more in the Smurf segment, if by definition ends up being Disproportionately outside of the big urban centers as compared to normal demand patterns at the moment.
Okay. Thank you. And then I just A very quick follow-up. I'm sorry if I missed this, but what was the impairment charge that you took in the quarter that was an add back? I was just wondering what that was related to?
Yes, mostly in almost entirely in the ownership segment to me, this was announced in the pre announcement for
the bond As well on what we thought it was going to be, but it
was mostly goodwill related to the ownership segment that just having to do with the duration of the Crisis and the recoverability of those assets. And I'll get you all on cash.
Thank you.
Sure. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Chris Nassetta for any closing remarks.
Again, thank you guys for joining us today. 2020 will go in the record books for sure, Not the greatest year for our company in our 101 year history or the industry certainly, but as I said in my Fair comments. We are proud of what we are able to accomplish. We think the business is in a terrific position. We are certainly of the mind and hopeful as I've In many ways that as we get to spring summer and certainly in the second half of the year, we're going to be in a very different place and we'll look forward after the Q1, which will get us to the Early spring, so hopefully be able to comment on those positive trends.
Thanks again and everybody stay well.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.