Smedes Rose: I just wanted to ask you a little bit on the owned and leased portfolio. I think you mentioned $30 million of COVID-related subsidies, I think, during the quarter. And I was just wondering, should we just assume that those start to kind of dissipate as we go through 2023, or are they just all gone at this point, or how are you thinking about that?
Kevin Jacobs: Yes. I think it’s played through based on the programs that have been approved thus far in Europe. I mean, if — there’s maybe a little bit more to come through based on things we’ve for that haven’t quite come yet, through a very small amount. And who knows, if anything more will come, but we’re not expecting any. And the thing I would say is if you look at it on a normalized basis, because remember, we had subsidies in 2021 as well, if you sort of pull all that out, the growth has been quite dramatic. And we continue to think that that portfolio will grow at a higher rate than the overall business this year.
Smedes Rose: Great. Thank you. And then, Chris, I’m just wondering if you could just touch on — you mentioned the U.S. pipeline, and we all see what’s happening there. Any change in the way that Hilton is thinking about using key money in order to maintain or grow share or potentially lend to developers at this point, or…?
Chris Nassetta: No, no. As I commented on in my prepared remarks, and if you look at the whole pipeline, more than 90% of it has no key money, no financial support. We have not changed our view on that. If you look at the aggregate dollars in CapEx, and you peeled out what we’re spending in key money, actually, if you average last year and this year together because we had some things we thought would happen last year that are happening this year, it’s actually lower than what we’ve been suggesting to everybody over the last couple of quarters. So no, I don’t — we still view the opportunity to grow as very strong and without the use of our balance sheet and that ultimately is driven by what you would guess it is. Everybody investing in our portfolio of brands is doing it to get a return, and our brands are the highest performing brands in individual segments.
But overall, when you aggregate them together, and people are continuing to want to invest with us in that way. So, a long-winded way of saying, no, we don’t see anything. In fact, I think the trend line for us overall in key money, I’m looking at Kevin, he runs development, too, so make sure he agrees with this. But the trend line is down, meaning over the last couple of years, we’ve had a little bit of elevated key money in aggregate dollars because during COVID, a bunch of things we’ve been working on a long time came together or some other people’s deals blew up, and we were able to sweep in on some very strategic things at a moment in time. And those were lumpy, but we always have opportunities we’re working on. But I think those lumpy — there are going to be fewer of those lumpy things.
So, I think — honestly, I think in an aggregate dollar sense over the next few years, the trend line is down, not up.
Operator: The next question comes from David Katz from Jefferies. Please go ahead.
David Katz: Just following on some of the earlier discussions about the thoughtful conservatism baked into the guidance. Could we talk about the capital returns a bit and just how you thought about pulling that together? And is that necessarily a kind of firm number in view of how the guidance is set up? And what could push that up or down going forward?
Kevin Jacobs: Yes. David, I have to say that, yes, it’s a firm number. We wouldn’t have given it to you. I assume that goes without saying, but I can’t help myself. So yes, as of now, it’s a firm number. That’s what we think. It’s a range for a reason. There’s a lot of year left and a lot could happen. I think if — I did read your note this morning, so I think I know where you’re going with this. Right now, we’re a little bit lower than our historic range of leverage. That range does assume effectively no borrowing for the year because we think that the borrowing — and we don’t like the borrowing environment right now. It’s very choppy. Rates are higher than we used to. And so, that assumes that leverage stays roughly flat to slightly down for the year.
And that’s what — and yes, that’s what the range of guidance and EBITDA will spit out for capital return, again, recognizing that we’re a very high free cash flow business. And we don’t do — other than what we were just talking about with a little bit of key money and a little bit of capital, we don’t do much else with the money other than pay a small dividend and use it for buybacks. And so, that’s the range for now.
Chris Nassetta: Yes. The only thing I would add — all of that I agree wholeheartedly. The only thing I would add to that is that’s not — our longer-range views on the balance sheet and return of capital haven’t changed. We have been very consistent since the beginning of time. It feels like saying we want to be 3 to 3.5 times. We’re at the low end or below — a little bit below the low end of the range for the reasons Kevin just described. We think debt markets are choppy. They’ll get better. Over the intermediate and longer term, we don’t intend to run leverage at those levels. We would intend to be in the ranges, frankly, and that’s — we’ve said it on these calls, probably towards the high end of the range, in a more normalized environment or even beyond that is something that we would certainly — we’ve been asked and said many times publicly, we would consider.
We just need — we’re just looking for a little bit more stability in the debt markets. And obviously, as Kevin said, we don’t have the need. And as I commented in my answer to the earlier question on key money, which is the primary use in terms of CapEx, we don’t think we need a whole lot more. So, any borrowing, any re-leveraging or leveraging up, obviously, this affords us the opportunity to return even more capital. So, I think there will — those opportunities will exist. We gave you what we think right now, and we’ll see how the debt markets and broadly how the macro sort of shifts going forward.
David Katz: I appreciate that. And everything is well received since I misspoken my question. I know — mean what we say. Can we talk about the new brand just a bit? Am I taking away from the notion that you are fitting yourself into a space where there aren’t necessarily direct competitors, or there are and you believe you’ve come up with a better value proposition that will just compete?
Chris Nassetta: I would say we don’t think there are any real competitors. I mean, meaning that, if we do our job, we’re going to sort of come in plus or minus 20% below true, which would still probably be above, if you look on average, it will be above where most of the folks in the existing segment are. That’s why, like we like to do, we’re a branding company. We’ve made up a segment. We called it premium economy. So, our view would be it is above the traditional economy space. It will price above, both because of the strength of our system, our commercial engines, loyalty system and all those things, but importantly, because it will be a better, higher quality, more consistent product.
Operator: The next question is from Robin Farley from UBS. Please go ahead.
Robin Farley: My question and follow-up are both really sort of clarifications on earlier comment. Chris, you said in your guidance, you were assuming that pricing power would flatten or even be modestly lower later in the year. I just wanted to clarify, were you saying pricing power like the rate of increase modestly lower or actually some rate actually lower? Just to clarify.
Chris Nassetta: Not rates actually lowered. Just basically, plateauing relative to €˜19 in the second half of the year.
Robin Farley: Okay. Perfect. Thank you. And then on occupancy, you mentioned that your guidance, you’re really not even getting back to occupancy in 2019. I’m assuming that’s just sort of a matter of time and that you would expect to be there by 2024, or are you — do you have a view about
Chris Nassetta: Yes. I mean — honestly, I think it may be a bit of conservatism on our part. I do think we get — by the way, Robin, we can get back there tomorrow if we wanted. But we could jump rates because we could occupy ourselves up. But we don’t want to do that. We actually manage, as you can see with the rate growth, we are trying to manage in this cycle, particularly given the environment, inflation and everything else, really effectively to drive the best bottom line results for our owners, in this case, that to a degree, our occupancy levels are driven by pricing strategies. Okay? Some of it is still — I think there is more recovery and more pent-up demand, particularly business travel and the group segment. So, I absolutely believe there’s never been a cycle that I’m aware of that in recorded history where we will not go above prior occupancy level, so I think that we will.
It may happen this year. Honestly, if we continue to have pricing power, I kind of hope it doesn’t. And I hope it happens next year that we continue to be able to drive rate and thus higher margins and more profitability for our ownership community.
