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S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
Why is Russia reopening dormant copper mines? (Ad)
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Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
Why is Russia reopening dormant copper mines? (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
Why is Russia reopening dormant copper mines? (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving
S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
Why is Russia reopening dormant copper mines? (Ad)
Tesla Shares Are Sliding, Here’s Why
Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
Why is Russia reopening dormant copper mines? (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
Why is Russia reopening dormant copper mines? (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving
S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
Why is Russia reopening dormant copper mines? (Ad)
Tesla Shares Are Sliding, Here’s Why
Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
Why is Russia reopening dormant copper mines? (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
Why is Russia reopening dormant copper mines? (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving

Hilton Worldwide Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Jill Slattery
    Senior Vice President, Investor Relations and Corporate Development
  • Christopher J. Nassetta
    President and Chief Executive Officer
  • Kevin J. Jacobs
    Chief Financial Officer and President Global Development

Presentation

Operator

Good morning and welcome to the Hilton Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jill Slattery, Senior Vice President, Investor Relations and Corporate Development. You may begin.

Jill Slattery
Senior Vice President, Investor Relations and Corporate Development at Hilton Worldwide

Thank you, Chad. Welcome to Hilton's Fourth Quarter and Full Year 2021 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 forward-looking statements and forward-looking statements made today speak only to expectations as of today.

We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.Hilton.com.

This morning Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment. Kevin Jacobs, our Chief Financial Officer and President Global Development, will then review our fourth quarter 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.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Thank you, Jill. Good morning, everyone, and thanks for joining us today. As our results show, we made significant progress in our recovery throughout 2021. We saw a meaningful increase in demand for travel and tourism and our team members around the world were there to welcome guests with our signature hospitality as they look to reconnect and create new memories. We continued to demonstrate our resiliency by remaining laser-focused on providing reliable and friendly service to our guests and by launching several new industry-leading offerings to provide them even more choice and control.

We also continue to expand our global footprint, adding even more exciting destinations to our portfolio and achieving a record year of room openings. All of this together with our resilient business model translated into solid results. For the full year, we grew RevPAR 60% and adjusted EBITDA 93%. Both RevPAR and adjusted EBITDA were approximately 30% below 2019 peak levels. More importantly, our margins were 500 basis points above 2019 peak levels, reaching roughly 66% for the full year. While some costs will come back in as we continue to recover, we remain extremely focused on cost discipline. Given our asset-light business model and the actions we took during the pandemic, to further streamline our operations, we expect permanent margin improvement versus prior peak levels in the range of 400 basis points to 600 basis points over the next few years.

Turning to results for the quarter. RevPAR increased 104% year-over-year and adjusted EBITDA was up 151%. RevPAR was roughly 87% of 2019 levels with ADR nearly back to prior peaks. Compared to 2019, occupancy improved versus the third quarter with higher demand across all segments. Strong leisure over the holiday season drove US RevPAR to more than 98% of 2019 levels for December. Business travel also improved sequentially versus the third quarter with solid demand in October and November, before the Omicron variant weighed on recovery in December.

For the quarter, business transient room nights were approximately 80% of 2019 levels. Group RevPAR improved 11 percentage points over the third quarter to roughly 70% of 2019 levels. Performance was largely driven by strong social business while recovery in company meetings and larger groups continued to lag.

As we kicked off the new year, seasonally softer leisure demand coupled with incremental COVID impacts due to the Omicron variant tempered the positive momentum we saw through much of the fourth quarter. For January, system-wide RevPAR was approximately 75% of 2019 levels. Despite some near-term choppiness, we remain optimistic about accelerated recovery across all segments throughout 2022. We anticipate strong leisure trends to continue again this year, driven by pent-up demand and nearly $2.5 trillion of excess consumer savings. Our revenue position for President's Weekend is 7 percentage points ahead of 2019 levels and our position for weekends generally is up significantly for the year, both indicated -- indicating continued strength in leisure travel.

Similarly, we expect growth in GDP and non-residential fixed investment, coupled with more flexible travel policies across large corporate customers to fuel increasing business transient trends. As a positive indication of business transient recovery, at the beginning of January, mid-week US transient bookings for all future periods were down 13% from 2019 levels and improved to just down 4% by the end of the month. Additionally STR projects the US business transient demand will return to 92% of pre-pandemic levels in 2022.

On the group side, our position for the year has remained steady as Omicron-related disruption was largely contained to the first quarter of 2022, with most events rescheduled for later in the year. We continue to expect meaningful acceleration in group business in the back half of the year as underlying group demand remains strong. Compared to 2019, our tentative booking revenue was up more than 25%. Additionally, meeting planners are increasingly more optimistic with forward bookings trending up week-over-week since early January.

Overall, we remain very confident in the broader recovery and our ability to keep driving value on top of that. This should allow us to generate strong free cash flow growth and our expectation is to reinstate our quarterly dividend and begin buying back stock in the second quarter. Turning to development. We opened more than a hotel a day in 2021, totaling 414 properties and a record 67,000 rooms. Conversions represented roughly 20% of openings. We achieved net unit growth of 5.6% for the year, above the high end of our guidance, and added approximately 55,000 net rooms globally, exceeding all major branded competitors.

Our outperformance reflects the power of our commercial engines, the strength of our brands, and our disciplined and diversified growth strategy. Fourth-quarter openings totaled more than 16,000 rooms, driven largely by the Americas and Asia Pacific regions. In the quarter, we celebrated the opening of our 400th hotel in China and our first Home2 Suites in the country. This positive momentum continued into the New Year, with the highly anticipated opening of the Conrad Shanghai just last month, marking the brand's debut in one of the world's busiest and most exciting markets.

During the quarter, we also continued the expansion of our luxury and resort portfolios with the opening of the Conrad Tulum and the new all-inclusive Hilton Cancun. With more than 400 luxury and resort hotels around the world and hundreds more in the pipeline, we remain focused on growing in these very important categories. We were also thrilled to welcome guests to the Motto New York City Chelsea, a major milestone for this quickly growing brand and a perfect addition to Hilton's expanding lifestyle category. This hotel exemplifies what it means to be a lifestyle property and incorporates unique and modern design elements and provides guests with authentic and locally-minded experiences. We also celebrated the first lifestyle property in Chicago with the opening of the Canopy Chicago Central Loop and debuted the brand in the UK with the opening of the Canopy London City. These spectacular properties join recently opened Canopy Hotels in Paris, Madrid, and Sao Paulo.

In 2021, we grew our Canopy portfolio by more than a third, year-over-year, opening hotels across all major regions. We ended the year with 408,000 rooms in our development pipeline, up 3% year-over-year, even after a record year of openings. Our pipeline represents an industry-leading 38% of our existing supply, giving us confidence in our ability to deliver mid-single-digit net unit growth for the next couple of years and eventually return to our prior 6% to 7% growth range. For this year, we expect net unit growth to be approximately 5%.

As our guests' travel needs continue to evolve, we again introduced innovative ways to enhance the guest experience. In the quarter, we announced the launch of Digital Key share, which allows more than one guest to have access to their rooms Digital Key via the Hilton Honors app. To further reward our most loyal Hilton Honors members, we introduced automated complimentary room upgrades, notifying eligible members of upgrades, 72 hours prior to arrival. With our guests at the heart of everything we do, we've been thrilled to hear that the early feedback for both industry-leading features has been overwhelmingly positive.

In the quarter, Hilton Honors membership grew 13% year-over-year to more than 128 million members. Honors members accounted for 61% of occupancy in the quarter, just a few points below 2019 levels and engagement continued to increase across members of all tiers. We work hard to ensure that our hospitality continues to have a positive impact on the communities we serve. For that reason, we're incredibly proud to be recognized for our global leadership in sustainability. For the fifth consecutive year, we were included on both the World and North America Dow Jones Sustainability Indices, the most prestigious ranking for corporate sustainability performance.

Overall, I am extremely -- extremely pleased with the progress we've made over the last year, and I'm very confident that Hilton is better positioned than ever to lead the industry as we enter a new era of travel. With that, I'll turn the call over to Kevin to give you more details on the quarter.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Thanks, Chris, and good morning, everyone. During the quarter, systemwide RevPAR grew 104.2% versus the prior year on a comparable and currency-neutral basis. System-wide RevPAR was down 13.5% compared to 2019 as the recovery continued to accelerate across all segments and regions driven by border reopenings and strong holiday travel demand. Performance was driven by both occupancy and rate growth. Adjusted EBITDA was $512 million of the fourth quarter, up 151% year-over-year. Results reflect the continued recovery in travel demand.

Management and franchise fees grew 91%, driven by strong RevPAR improvement and license fees. Additionally, results were helped by continued cost control at both the corporate and property levels. Our ownership portfolio posted a loss for the quarter due to the challenging operating environment and fixed rent payments at some of our leased properties. Continued cost discipline mitigated segment losses. For the quarter, diluted earnings per share adjusted for special items was $0.72.

Turning to our regional performance. Fourth-quarter comparable US RevPAR grew 110% year-over-year and was down 11% versus 2019. The US benefited from strong leisure demand over the holidays with transient RevPAR 1% above 2019 levels and transient rate nearly 5% higher than 2019 for the quarter. Group business also continued to strengthen throughout the quarter with December room nights just 12% off of 2019 levels. In the Americas, outside of the US, fourth-quarter RevPAR increased 150% year-over-year and was down 17% versus 2019. Continued easing restrictions and holiday leisure demand drove improving trends throughout the quarter.

Canada continued to see steady improvement as borders remained open to vaccinated international travelers. In Europe, RevPAR grew 306% year-over-year and was down 25% versus 2019. Travel demand recovered steadily through November but stalled in December as a rise in COVID cases led to re-imposed restrictions across the region. In the Middle East and Africa region, RevPAR increased 124% year-over-year and was up 7% versus 2019. Performance benefited from strong domestic leisure demand and the continued recovery of international inbound travel as restrictions eased. In the Asia-Pacific region, fourth-quarter RevPAR fell 1% year-over-year and was down 34% versus 2019.

RevPAR in China was down 24% as compared to 2019 as travel restrictions and lockdowns remained in place. However, occupancy in the country held steady versus the third quarter as summer leisure travel was replaced with local corporate and meetings business. The rest of the Asia Pacific region benefited from relaxed COVID restrictions and the introduction of vaccinated travel lanes [Phonetic] in several key markets.

Turning to development, as Chris mentioned, for the full year, we grew net units 5.6%. Our pipeline grew sequentially and year-over-year totaling 408,000 rooms at the end of the quarter, with 61% of pipeline rooms located outside the US and roughly half under construction. Demand for Hilton branded properties remains robust and along with our high-quality pipeline, we are positioned to emerge from the pandemic stronger than ever.

Turning to the balance sheet. We ended the year with $8.9 billion of long-term debt and $1.5 billion in total cash and cash equivalents. We are proud of the financial flexibility we demonstrated through the pandemic and remain confident in our ability to continue to be an engine of opportunity and growth as we look to reinstate our capital return program.

Further details on our fourth quarter and full-year results can be found in the earnings release we issued 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?


Questions and Answers

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will be from Shaun Kelley with Bank of America. Please go ahead.

Shaun Kelley
Analyst at Bank of America

Hi. Good morning, everyone.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Hi, Shaun.

Shaun Kelley
Analyst at Bank of America

Good morning, Chris. I wanted to dig in a little bit. I thought the margin commentary you gave was interesting, Chris, I mean, in general, we don't think of -- I think, we think of hotels being more about recovery beneficiaries than what you were thinking through the pandemic and some of the opportunities you may have [Phonetic] presented on the cost side. So could you just give us a little bit more color on what some of the key buckets are that have changed in your overall operating model that are driving that improvement?

And then secondarily, just help us think through, how that might trend over the next couple of years as you kind of ramp-up towards that 500-basis point margin target that you mentioned?

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Yeah, I'm happy to do it and we put it in the comments because the truth is, it's, I would argue, very important. I don't think it's had a lot of focus and it has an intense amount of focus inside this company amongst the management team, and for that matter, with our Board of Directors because the idea was, as you would want to do in any crisis, is to take advantage of opportunity. And as we went into the crisis, we saw things that we thought -- not only needed to do to address the crisis, but we could do to make the business stronger. And so, we didn't obviously have a lot to worry about liquidity. We had a lot to worry about but our balance sheet was great. We didn't have a lot of liquidity issue.

So, we very quickly, not to pat us in the back, but it's true, you know like in March-April of 2020, we were focused on recovery; how do we get to the other side; what are the things that we can do to make this business faster-growing; better, stronger, and higher-margin. And we've been at it ever since and we'll never stop because we think there are opportunities.

I think if you did the math, it sort of comes in three categories that get you there. Number one, we're bigger, so yeah -- units that have been added at 5%-plus a year through COVID that haven't been during COVID that productive that are over the next few years are going to become productive contributors to earnings. We've had great success in our sort of license arrangements and sort of our non-RevPAR-related fee segment of the business. So think our HCV business, think our Amex, but co-brand business generally, where we -- it's a very, very high-margin business and it's -- it has performed very well. If you look at the numbers carefully, 2021, we were already over peak levels for those fees. Peak '19 -- 2019 levels, and we think there is still meaningful growth to come from that.

And then last but not least, and importantly, cost structure. We like everybody, every business that was dramatically impacted by COVID, had to think about cutting cost in hotels and in corporate and we did that. But again, not patting us in the back, but reality, we said like we don't want to just take cost out, we want to sort of reengineer the way we run the business to be able to -- where we think there might be longer-term efficiencies, realize those, and during COVID, sort of get -- build it into the DNA of the company.

And so, we were able to take out a bunch of cost that helped during COVID but that we think we will be able to keep out. And when you put all that together, as we said, we think it's 400 basis points to 600 basis points of sort of real run rate, margin improvement, we delivered pretty well against. I thought, last year, when we add RevPAR and EBITDA, that was 30% off of peak levels and delivering 500-basis point margin levels was pretty compelling as a down payment on what we're saying.

Now, it won't be a perfectly straight road, meaning there are -- last year, we probably underspent in some areas because it's been hard to hire and all that. Corporately, this year, we'll catch up a little bit with that. So -- it won't be it be a completely straight line. But as you look at like '23 and '24, I think we're in those target ranges, hopefully at the midpoint or beyond those at least as we model it. And as I said, it's not by happenstance, it's not by luck, it's been a huge focus and I think shareholders should feel comfortable that it will remain an intense focus of the enterprise because we know we can. And if we can, we should, because ultimately, and I won't finish this because I'm sure others have questions, we want to have answered -- ultimately, obviously, we're a free -- when we, in a normal time, we're a free cash flow machine, the higher the margins, the higher the free cash flow. And having 500-basis point higher margins allows us to drive a lot more free cash flow that allows us to return a lot more capital over time.

And as I said in my prepared comments, we intend to start returning capital in in the second quarter, that is the second quarter of this year that is six weeks from now.

Shaun Kelley
Analyst at Bank of America

Thank you very much.

Operator

Thank you. And the next question will come from Joe Greff with JPMorgan. Please go ahead.

Joe Greff
Analyst at JPMorgan

Good morning, everybody.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Morning, Joe.

Joe Greff
Analyst at JPMorgan

I have a two-part question on development. One, it's hard not to notice that the managed -- footprint has caught up at least relative to the growth rate into 2019. How do you see the footprint growth between managed and franchise growing in 2022. I know you talked about 5% this year, longer-term, 6% to 7%.

And then, can you also just talk about what's going on development-wise in China, currently? Thank you.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah, sure, Joe. I'll take this one. I think it's interesting, I'm not exactly sure what numbers you're looking at. I think are split between managed and franchised as the pipeline plays out. Has been pretty consistent, right? Our existing supply is 75% franchised, led by the US and the Americas, of course. But more and more, our pipeline today is 40% franchised outside in -- sorry, 40% franchised in EMEA, and nearly half franchised in APAC as our franchisee business grows in those regions. And so, over time what had been happening is growing outside the US, more of those deals had been managed and that was sort of skewing us back towards managed. And now, I'd say we're on a trajectory, overall.

We'll still add a bunch of managed rooms as we grow outside the US, but more and more we're doing franchising -- outside of the US. And so, maybe I'm missing something in your question and I'm happy to do a follow-up. But I think that's been pretty consistent and not really moving around that much. And then interestingly -- and so feel free to follow-up, but to get to China, it's interesting. Most of the development trends, and I think we've said this on prior calls, have been following the trend of the virus, so meaning, as the world's been opening up in those regions, you see a pretty direct correlation to finding activity and approval activity in those regions. So, led by the US. Europe had sort of a slow start this year, but then really came on towards the end of the year as things start to open up.

China has been kind of the exception to that rule, meaning even with lockdowns and people not moving around and you would think not being able to travel across the country, would slow the pace of activity, but that just hasn't been the case. So for us, we -- our approvals for 2021 were up 45% in '22 -- for the year, and our openings were up 30% over the year. And we think our openings will be up something similar to that over the course of 2022. So, China has really been strong, led by our Plateno, Hampton JV. We've now launched Home2 with Country Garden. We've now launched on our own an individual franchising program for Hilton Garden Inn with still a bunch of, Chris mentioned a little bit in our prepared remarks, still a bunch of really great full service and luxury signings along the way.

So China has been a little bit the exception to the rule with COVID where even in the face of lockdowns, we've had a lot of activity.

Joe Greff
Analyst at JPMorgan

Great. You answered it. Thanks, Kevin.

Operator

And the next question will come from Thomas Allen with Morgan Stanley. Please go ahead.

Thomas Allen
Analyst at Morgan Stanley

Thank you. Just a follow-up to Shaun's question, maybe a clarification. As I look at 2024 consensus for you, the street's talking about $3.1 billion EBITDA and 70% margin. And your comments on it, Chris, was [Phonetic] we're going to gain 400 basis points to 600 of margin -- basis points of margin versus 2019, which is -- has you given that [Phonetic] 65%-66% range. Do you think -- what do you think the street's modeling -- risk modeling? Thank you.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

I have no earthly idea. As you know, we haven't been giving guidance for any period of time, let alone for 2024. So, Thomas, I think the best thing to do is let my comments stand as they were. We -- we're confident that on a run-rate basis, it will sort of be in that range. We're very proud of that being able to accomplish that. Obviously, we're always looking to under-promise and over-deliver. So that will never change, but like not much to add at this point.

Thomas Allen
Analyst at Morgan Stanley

All right. Chris, just, I mean I guess that's another way. Two things I was thinking of when you said it, one, there's obviously going to be a mix shift of the lower margin own business coming back? And then secondly, when we look at your margins historically, they increased every single year. So I guess, the point I make is, I think your commentary around margins is more your confidence around resetting margins higher versus commentary that your expense base will grow significantly and you're kind of -- you're stuck at a margin level.

Is that the right way to think about it?

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

I'm not sure I understand, but I think so. Yeah, I mean we have confidence -- said another way, just to be clear, we have confidence that the structural changes we have made to the company on a like-for-like basis are going to drive higher margins. So, if you think that margins were going to continue to grow organically under the prior set up then we -- then we agree with that. And we think that there is an incremental piece to it that as a result of structural changes that we've made [Phonetic] that we'll maintain.

Thomas Allen
Analyst at Morgan Stanley

Yes, I think that -- [Speech Overlap] thank you.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Probably just to add -- I'd probably just add to that quickly on the real estate is like you're making a comment about the mix of business, but you should remember that the real estate has been shrinking over time. And even though you've had -- you've got different rates of recovery in COVID and different mix, over time that is going to continue to be a smaller part of the business as we continue to grow the managed and franchise business and continue to work our way out of the -- [Speech Overlap]

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

And not to beat a dead horse, but just something slightly more on top of the real estate. The real estate, you're right, is a lower-margin business by definition. We have baked that into what we -- what are -- my guidance and what my summary was of what our expectation is over the next few years. So, that was taken into account. It also, from an EBITDA growth point of view, will be tremendously helpful because it was so beat up, given the structure of how much of it is held that from an EBITDA growth rate point of view, over the next few years, real estate is going to be very, very helpful, and very high growth.

Thomas Allen
Analyst at Morgan Stanley

Thanks for tht clarification.

Operator

And the next question will come from Smedes Rose with Citigroup. Please go ahead.

Smedes Rose
Analyst at Citigroup

Hi, thanks. I wanted to ask a little bit more about your thoughts on China and maybe you could just give us a reminder of what the kind of contribution China made to fees in line Tulum [Phonetic]? And maybe how -- how far that fell off in '21 just because it looks like there is an opportunity for some significant rebounding -- maybe, it sounds like it's running behind kind of the rest of the world? And if you have any kind of thoughts on maybe how China addresses its policy around COVID going forward or if they keep the kind of zero tolerance in place indefinitely?

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Yeah, I think China -- I'm doing this from memory, I think China in '19 was like 5 points of EBITDA overall. And I would guess at this point, it is less than half of that. So -- so I'm looking to Jill, it's probably 2% or something like that. So, I think you're right. There is a significant -- I mean, by the way, that's true for the entire international estate when you think about it. Our Asia-Pacific business, our Europe business, they've all been slower to return. And so our EBITDA, If you looked at '20 and '21, was crazy disproportionately US-based and those numbers aren't fully back to where they were. I mean, we were like 73% US. I think in 2020, we were like 94%-95%, and last year, we were like out 83/% or something. So it's -- it's coming back and will ultimately return to a more normalized kind of environment, which means not just China but the whole world outside of the US has significant growth potential as we get to a more normalized environment.

In terms of the reasons, generally, and I'll end on China, and maybe use this as an opportunity to just talk about sort of the rhythms of what's going on, and most of which, I think is pretty well known because you guys have a lot of data. But if you look at what's going on in the world, the Middle East, which is not a huge part of our business, is sort of leading the world. I mean, you saw our numbers for the fourth quarter, Middle East is already meaningfully above 2019 levels. So they're sort of ahead in recovery, we think that that will continue.

The US, I would say is sort of next, and we can -- maybe I'll leave it to another question. Our belief is, you will see in the second quarter, a transition, and then very rapid recovery. All our -- earlier prepared comments in the second -- in the second half of the year. I think Europe will be quick to follow in the sense that it's more complicated because you have more countries. The restrictions aren't just one set of restrictions. But you can start to see it sort of sweeping through Europe -- openings sweeping through Europe. Now, Asia Pacific, I think will lag in large part because of China and the policies they've had, my own view, and that's all it is. It's not because of insider knowledge, is that as the rest of the world opens and as you get which I think we are rapidly approaching to an endemic stage of COVID, I think there'll be a lot of pressure economically, culturally, and otherwise, for China to open up much like the rest of world.

So, I think it will be -- it will lag, but I think it will be -- I think Europe, and then Asia will be a fast follow. And as I think we -- as we -- my own view, as we get to the second half of the year, I think you're in an entirely different environment across the globe. And the media -- but in the first half of the year, you're going to see things evolving at a slightly different pace. But I think when you get to the second half of the year, every -- the whole world broadly is going to be a lot more open than anything we've seen in two years.

Smedes Rose
Analyst at Citigroup

Great. Well, thank you.

Operator

The next question is from Stephen Grambling with Goldman Sachs. Please go ahead.

Stephen Grambling
Analyst at Goldman Sachs

Hi, thanks. I'd like to come at margins from maybe the perspective of your owners, which is always key to driving that overall flywheel. How are you thinking owner margins will progress versus pre-pandemic? And could you tie in how you envision the hotel experience will structurally change, whether it's longer stays, charge-in or opt-in [Phonetic] for cleaning or reducing non-consumer facing labor? And what do you see the greatest opportunity is for investing back into your owners to improve the experience amidst some of these shifting preferences? Thanks.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah, good question, Stephen. A little bit to unpack there, but I'll sort of try to go in order. I think if you take a step back to the beginning of the pandemic, I think we've done a really good job leading -- that we did a really good job in the pandemic, leading the way with starting out early on advocating for our owners, whether that was for government assistance or otherwise, being really flexible with standards as the business sort of fell apart a little bit, and through recovery sort of similar to what Chris has been talking about, of really taking the opportunity of COVID to drive improvement through our enterprise. We've been doing the same thing at the property level, right?

So, it's certain big things you mentioned by being innovative with reengineering our food and beverage and particularly breakfast offerings. Looking at housekeeping and opt-in there. And then a bunch of little things across line item by line item, sort of literally grinding through the P&Ls and standards with our owners to help them -- help the properties be more profitable through COVID and using that opportunity to make sure that that profitability and those efficiencies stand going forward.

Now, people talk about we do need service recovery, right? It has been hard to higher labor. We do need to bring some of those service standards back, obviously, everybody knows what's going on with inflation and wage inflation. But of course, the flip side of that on inflation is that helps on the revenue line, right. We reprice the rooms every night. If inflation is a headwind on the cost side, it's going to be a tailwind on the revenue side and the revenue base is obviously bigger than the expense base. And so that ought to lead to higher margins coming out the other side.

So when you put that all together, we think we can do a better job for customers, give them what they want. Take away what they don't want and what they won't pay for and use driving revenue through an inflationary environment to get our owners to be higher-margin businesses coming out the other side.

Stephen Grambling
Analyst at Goldman Sachs

Helpful. Thank you.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Sure.

Operator

The next question is from Patrick Scholes with Truist Securities. Please go ahead.

Patrick Scholes
Analyst at Truist Securities

Hi. Good morning, everyone.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Good morning.

Patrick Scholes
Analyst at Truist Securities

Morning. When I try to think about some things that have perhaps permanently changed or at least changed from 2019, I wonder what your thoughts are on the degree of key money that you're giving today for new hotels under your brand, number one.

And how have the franchise contracts changed? Are they more flexible today versus pre-COVID, less flexible? Just like to hear your thoughts on those. Thank you.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah, I think, I'll start with the second part. I mean, really there is not -- there is nothing different about our franchise agreements, now versus pre-COVID. It's a very well -- it's a business that's been around for a long time. The protocols are established, the franchise documents, you can read them, they're public. They haven't really changed over time. I think when it comes to key money, I mean you could see in our numbers this year that it's been sort of higher than it had been in the past. I think that's a function of a little bit of -- I don't think it's COVID versus pre-COVID, it's a competitive environment out there. So there is definitely competition. We're leading the way in growth and our competitors are trying to catch up to us. So that makes for competition. But the reality is is our number of deals that have key money associated with them is about 10%. That's what it was pre-COVID, that's what it is today. So that's been pretty consistent.

And we've just been fortunate over the last, particularly, year or so. We've signed some really high-profile deals, I think about the Waldorf Astoria Monarch Beach in California. I think about Resorts World in Las Vegas. The deal we did in Cancun and Tulum, those have been deals that we've been working on for a really long time. They're very strategic. They happen to be a little bit higher -- key money associated with them than we're used to. And so, we've been a little bit higher. And you know that trend maybe continues for a little while longer. We have some strategic things in the hopper at the moment, that I think might keep that number a little bit elevated over the course of 2022 and maybe even for a little while beyond that.

But what I'd say sort of in closing and hopefully that sort of covers it and Chris may want to add to that a little -- to this a little bit is, relative to our peers, I think we stack up really favorably in terms of what we've been deploying for capital to get to our level of growth, I think has been exemplary.

Operator

Thank you. And the next question will come from Rich Hightower with Evercore. Please go ahead.

Rich Hightower
Analyst at Evercore

Hi. Good morning, everybody.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Good morning.

Rich Hightower
Analyst at Evercore

So I want to go back to a portion of the prepared comments, and Chris, I think you mentioned it was STRs forecasts. I know this is not a Hilton forecast but for business transient demand, I think you get to the low 90s as a percentage of pre-COVID levels this year. So again, not your forecast, but I am wondering if you could take me through the building blocks in your mind as to perhaps how we might get to that level by the end of this year, especially in the context of hybrid workforces, work-from-home, and so forth?

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Yeah, I -- yeah, it is in our forecast, but I do buy into it. And I think, actually, it might be even better than that, personally, my own opinion. I think -- I think there is a really good chance on a run-rate basis that we will end up back at or above where we were in 2019 before the year is out. Why -- so why do I think that? One, there's a lot of pent-up demand that obviously helps and Omicron created more pent-up demand because a lot of people didn't do trips. But I can't speak for the industry, I can speak for us. We're out talking to customers all the time -- sort of large, medium, small, and what you find is like heretofore during the crisis, the largest corporate customers have been way off on travel, so they've been like 80% what they -- I would say through the third quarter and fourth quarter, they were 70% or 80% off still. But what -- what happened is that SME, small-medium enterprises were out traveling like crazy. I've given these stats before on call. Pre-COVID, 80% of our business transient was SMEs, 20% of it or 10% of the overall business was large corporate.

So it's not that we don't love them and we don't want them, but we were never ultimately that dependent on that. So what happened in COVID for us is, again, and back to what I said in my earlier comments, we were in March or April of 2020 saying like, all right, what do we do, where do we pivot, how do we retool our sales force for getting whatever business is out there? And what we found not surprisingly is the large corporates disappeared, but the SMEs were still out there, maybe not like they are now, but they were out there more than others. Why? Because they're small-me -- they had to, like, they'd die if they -- their business requires it. And so, they have to be out there.

And so we pivoted a whole bunch of our infrastructure and sort of like retooled our entire sales force to make sure that we didn't abandon the large corporates and those relationships, we kept our entire sales team -- on payroll during the whole crisis, which was unlike, I think a bunch of our competitors. But we did say -- we need to like reorient how we're focusing our time, and we've done with all -- again, I feel like I'm patting us on the back, we've done a really good job. And so, we have replaced we think probably already half of what that corporate business was that went away and I think the corporate business is going to come back. You don't have to believe, it's all going to come back, but the idea is one plus one I think can equal three, right? Meaning pivoting even harder to have a larger demand base to put in the top of the funnel of SMEs, along with corporates coming back gradually, is just going to give us an opportunity to price demand in a way that I think will be superior to what we could price it before.

Last comment I'd make is that when people think about SMEs versus the big corporates, and no offense to all the big corporates that are on this call, but the reality is you guys pay less. So the SMEs, I mean if you look at the rate structure of SMEs, it's like 15%-plus on average higher because the big corporates beat us up more, they beat everybody up and we discount more. So the reality is, not only is there more of it that's been out there and we've retooled to go after more of it, but the reality is, it's at a higher price too. And so, that's why I believe in what STR's saying, we're better is because I do think throughout this year as you release pent-up demand, given our access to SMEs that have been very robust and our -- and we have more of them, corporates are definitely starting to come back, talk to every travel manager in the country, which we do, and they're coming back.

When you put all those pieces together, I think it's pretty easy to believe as you get to the, particularly, the second half of the year, you're going to be in a very different and a very positive environment.

Rich Hightower
Analyst at Evercore

All right. Helpful. Thank you.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Yup.

Operator

The next question is from Richard Clarke with Bernstein. Please go ahead.

Richard Clarke
Analyst at Bernstein

Thanks very much for taking my questions. Just want to ask a question about the kind of construction environment. I noticed your percentage of pipeline that's under construction has dropped below 50% for the first time in quite a while. Is that just phasing and is that feed into this year's guide on unit growth? So does that mean we maybe can't expect a recovery in 2023 to return to the normal -- 6% to 7% takes a little bit longer?

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah, Richard, I think, look, is that a slight decrease, almost a rounding error in terms of our amount under construction. It really sort of rounded to half before it rounds to half now. If you look at the industry data for STR, it's down actually a lot more than that. And so we're doing a really good job of both getting and keeping things under construction. And I'd say, the way to think about the trajectory is we actually think we'll start more rooms this year than we started last year.

Now, in the US, which is our largest market, we think we have one more year where it's going to decline slightly, and 2022 is probably the bottom. And that does play into our forward-looking forecasts, and of course, that's just a function of largely input costs, right? If construction costs overall are sort of up year-over-year at the moment in the mid-teens, raw materials costs and labor cost inflation is not something that should surprise anybody on this call, that sort of a thing going on globally, especially in the US. And so, that does all play into our outlook.

And so, we've actually never said publicly when we think we'll get back to our prior 6% to 7% level, but given what's going on now, it probably takes two years or three years to get back to that level. We think, again, this year will be -- 2021 was the bottom globally for starts. This year 2022 in the US, we think we'll recover from there, and you got to start them to deliver on, right. So we have to have start to recover to be able to get back to that prior level of net unit growth. And so, you are seeing that sort of effect our outlook, both for this year and beyond.

And then, I guess the last thing I'd say on that is, even with everything that's been going on in the world, for now, a two-year pandemic with the world blowing sky high, we're still delivering 5%-plus net unit growth. We still think we'll deliver at that rate through this development lag that's going to come from the pandemic and then we'll recover from there. We think that's actually pretty good evidence of the resiliency of the business and the resiliency of our ability to grow.

Richard Clarke
Analyst at Bernstein

Very helpful. Thanks very much.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Sure.

Operator

The next question is from David Katz with Jefferies. Please go ahead.

David Katz
Analyst at Jefferies

Good morning, everyone. Thanks for taking my question. I appreciate all the detail so far. I wanted to ask about the aspect of the fees which is non-RevPAR-driven which are royalties and credit card fees, etc. So any any sort of insights or help that you can offer us as we think about modeling out the next year or two as to what those might grow and any puts and takes? Thank you.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah, David, I think we've talked about this in the past. We get that it's a little bit hard to model sort of specifically what's going on. Our non-RevPAR-driven fees cover a bunch of different things, obviously our co-brand [Phonetic] credit card and our license fees from HCV being the largest part of that, but we have other things in there like residential development fees, and the like.

And we've said this before, that's been less volatile, right, so it declined less than RevPAR declined during COVID, and now, at this point, it's growing less than RevPAR. I think for 2021, it grew about two-thirds of the rate of RevPAR. And that's probably a decent way to think about it going forward. It's hard to say, right? It depends on how those things perform and what goes on, but I think it's going to continue to be a decent growth rate and are additive to our fees.

For 2021, it was actually higher -- than our non-RevPAR fees. So I think, Chris, you might have said this earlier, so sorry if I'm repeating it. But our non-RevPAR fees were higher than they were in 2019. And our credit card program is performing quite nicely. I think just a few stats to give you some color. Our account acquisitions were up 45% last year. Our spend was up about a third, year-over-year. And so, really strong performance. But again, at a lower rate than overall RevPAR because RevPAR is growing at a really high rate in recovery. So [Speech Overlap]

David Katz
Analyst at Jefferies

That's a growth -- growth but at a lesser rate.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

At the moment.

David Katz
Analyst at Jefferies

Perfect, thank you.

Operator

The next question is from Robin Farley with UBS. Please go ahead.

Robin Farley
Analyst at UBS

Great, thank you. Originally, my question was going to be to clarify the comments -- the opening remarks about transient mid-week nights for all future periods down only 4% because that seemed like that number was sort of too strong of a recovery, but I guess really based on -- you really already commented already on the growth in the small and medium. So, I don't know if you have anything else to add -- add on that only being down 4%? I would think, just even the booking window being shorter would make that hard to be at that good of a number, so --

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

-- No, I don't. I don't. Robin, I don't have anything to add other than, yeah, it's short. You know, the very nature of advanced bookings in transient only gives you a window so far out in time, it's a relatively short window. But those are the stats. And again, I gave them to you because I think it is indicative not only of the strength that's building in that environment but the change from literally at the beginning of the year when Omicron was a very big thing to a world where Omicron is becoming a lot less of a thing, and we're getting to more endemic stages of COVID-19.

Robin Farley
Analyst at UBS

And then, just for a follow-up. If you could put a little more color around -- you mentioned reinstating the dividend in Q2 and returning to share repurchase in Q2. Can you talk about what -- will you sort of start at a dividend payout or dividend level probably lower than pre-pandemic, initially, or just sort of give us some thoughts around how you're thinking about that balance if you restart that return to shareholders? Thank you.

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Yeah. As I've said a couple of times, we're intending to do it in Q2. We have not formally declared a dividend, so we haven't made a final decision. But I think the way to think about it and our intention at this point is to reinstate the dividend at the exact same level we had it before. Same $0.15 a share, which is where we were before to go back to where we were. And then, use the bulk of our free cash flow and otherwise to maybe re-implement our share repurchase program. I know there are different views in the world about this. Our view, my view, has always been that having some modest dividend is helpful. It does open the universe of investors up a bit to us and we proved that pre-COVID and we've talked to lot to shareholders. And I think, still have that view, but that -- the way to drive the best long-term returns for all of us, that our shareholders is to have the bulk of our program, be in the form of share buybacks.

And so, that's what we thought pre-COVID. We did a whole bunch of work to see is there anything going on. Jill is nodding her head because she did a lot of it. Is there anything that's changed in the world or with our shareholder base currently that would lead us to a different conclusion and we have not -- we do not believe there is. So, that's what we'll do. We'll get started. I think the way to think -- we're -- we obviously haven't given guidance generally. But I think the way to think about it is, we'll start out at least thinking about it at a minimum, being the free cash flow that we're going to produce this year. And the way to think about that, I think directionally is, back to my margin point, while we're not back, fully recovered, by a pretty decent margin yet to 2019, certainly, if you look at the full year 2022, because we have -- where the business is performing better. We've done the structural things that I described to drive higher margins.

Our free cash flow is actually pretty much back this year, we think, to 2019 levels. So we'll start at a minimum with that and go from there.

Robin Farley
Analyst at UBS

Okay, great. Thanks very much.

Operator

The next question is from Chad Beynon with Macquarie. Please go ahead.

Chad Beynon
Analyst at Macquarie

Hi, good morning. Thanks for taking my question. I believe your conversion NUG component of total growth has been in the 20% range. Can you help update us on this in terms of where it was for 2021? And then for 2022, against your NUG guide, how should we think about converts and what that will be as a percentage being slightly offset by higher I guess ground-up growth? Thanks.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Yeah. Thanks, Chad. I -- look, I think it will be, I mean the short answer, the Chris answer is, I think it will be consistent, right. It's been about 20%. We're actually doing more conversions. We've given you some of the stats but our approvals -- our openings for the full year were up 13%, year-over-year. Our -- actually our approvals for full-year last year were up 42% in conversions. So we have a nice growth in conversions and we're doing more. But we're also doing more ground-up development, right?

And so, the denominator in that equation is growing as well. And so, will it be slightly higher going forward -- for the next couple of years? It could be dependent a little bit on how a couple of big deals break that can move that percentage a little bit here or there. But I would think about it sort of as being pretty consistent around -- 20% or the low-20s of deliveries. And I think it's actually a good new story across the board. I mean we, in the Americas, for 2021, we signed almost half of the conversion deals that were done in the Americas. And so we're doing a lot of conversions but the reason it's not sort of spiking from 20% to 30% is we're delivering a lot of new development as well.

Chad Beynon
Analyst at Macquarie

Thank you very much.

Kevin J. Jacobs
Chief Financial Officer and President Global Development at Hilton Worldwide

Sure.

Operator

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

Christopher J. Nassetta
President and Chief Executive Officer at Hilton Worldwide

Thanks very much, everybody, for joining today. Obviously, continuing on with the recovery, I think we are, as I've said a couple of times, hopefully getting through the Omicron variant and very rapidly to an endemic stage of this. We're obviously optimistic as we look to the second quarter and the second half of the year and overall beyond that.

And so, thanks for the time. We'll look forward to updating you on trends that I think will be a lot better the next time we talk. So, thanks, and have a great day.

Operator

Thank you, sir. [Operator Closing Remarks]

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