Rate drives RevPAR gains in Hilton’s Q3
 
Rate drives RevPAR gains in Hilton’s Q3
24 OCTOBER 2018 3:35 PM

Despite weather and holiday disruptions in the third quarter, Hilton grew RevPAR, and President and CEO Chris Nassetta is confident about a steady group business pace.

MCLEAN, Virginia—Despite a third quarter characterized by weather disasters and holiday shifts, Hilton posted performance and pipeline gains that underpin President and CEO Chris Nassetta’s overall optimistic outlook.

“Positive macro indicators suggest continued strength in lodging demand (for the rest of 2018 and into 2019),” he said on the company’s third-quarter earnings call with analysts Wednesday. “This plus (decelerating) supply growth in the U.S. should lead to the fundamentals staying positive.”

In the third quarter, Hilton’s systemwide comparable revenue per available room increased 2% on a currency-neutral basis from the same period in 2017.

That RevPAR growth was “driven entirely by rate gains,” Nassetta said.

Systemwide occupancy in the quarter was down 0.1% over the same quarter in 2017, and average daily rate was up 2.1%.

Nassetta said corporate transient RevPAR increased 3% in the quarter, and the company sees “continued strength in group business,” including into next year.

“Group for next year is up in the mid-to-high single digits with nearly 70% of group business on the books already,” he said, adding that the company’s corporate rate negotiation discussions are “healthy.”

While Nassetta did acknowledge that weather events and holiday shifts had an impact on all business in the quarter, particularly leisure business, he spent a considerable amount of time talking about the company’s future—in particular, its brand expansion and strong global pipeline.

New brands definitely play a role in that growth, and Nassetta cited Tuesday’s launch of the company’s new Motto by Hilton brand, a midscale micro hotel-hostel hybrid designed for city centers. He also mentioned in passing other future brand launches in the works at Hilton that he’s alluded to in the past—a luxury soft brand and a luxury lifestyle brand.

The company opened 113 hotels comprised of 16,100 rooms in the third quarter and achieved net unit growth of 14,800 rooms, which was a 24% increase from the same period in 2017.

Nassetta highlighted a few notable deals from the quarter, including the company’s strategic alliance with Playa Hotels for all-inclusive expansion in Latin America, the opening of the Waldorf Astoria Bangkok, the conversion of the former Mandarin Oriental Las Vegas to the Waldorf Astoria Las Vegas Hotel & Residences and the signing of a future Waldorf Astoria in Miami.

Hilton approved 29,200 new rooms for development during the quarter, growing Hilton's development pipeline to more than 371,000 rooms and nearly 2,420 hotels as of 30 September, representing 11% growth in a year’s time.

As part of those development goals, Nassetta said the company “will double its all-inclusive portfolio over the next couple of years.”

Conversions play another factor in Hilton’s growth plans. Conversions from non-Hilton brands represented more than 20% of the company’s new rooms opened in 2018.

Hilton’s stock closed Wednesday trading at $63.82, down 20.1% year to date. The Baird/STR Hotel Stock Index was down 13.4% for the same time period.

Regional highlights
Hilton CFO Kevin Jacobs shared some performance highlights by global region during the call.

He said weather-related disruptions and calendar shifts had an impact particularly on U.S. business, which showed a very slight occupancy dip (-0.6%) compared to the same quarter last year, but 1.7% ADR growth to $149.52 and 1% RevPAR growth to $118.34.

The Americas, excluding the U.S., saw a 1.1% occupancy gain to 76.1%, 3.9% ADR growth to $126.99 and 5% RevPAR growth to $96.58. Jacobs attributed that RevPAR growth to “strong leisure and corporate transient in Canada and the Caribbean.”

In Europe, Jacobs said “strength in Turkey, plus increased demand in Russia driven by the World Cup” led to performance gains across the board, most notably 6.9% RevPAR growth to $125.03.

In the Middle East and Africa, RevPAR grew 1.3% over last year, to $101.75, “led by increased group volume and strong ADR in resort properties in Egypt,” Jacobs said.

The Asia/Pacific region also saw 5% RevPAR growth to $100.74. Jacobs said typhoons and other weather-related disruptions did slow leisure growth, particularly in Japan, but China’s RevPAR grew 8%.

Outlook
Full-year 2018 systemwide RevPAR is expected to increase between 3% and 3.5% on a comparable and currency-neutral basis compared to 2017. Full-year 2018 adjusted earnings before interest, taxes, depreciation and amortization is expected to be between $2.075 billion and $2.095 billion.

Full-year 2019 systemwide RevPAR is expected to increase between 2% and 4% on a comparable and currency-neutral basis compared to 2018; net unit growth is expected to be approximately 6% to 7%.

Overall, Nassetta was positive about Hilton’s finish to 2018 and its plan for 2019, saying several times that he expects the company’s performance in 2019 to mirror 2018’s.

“I do realize there’s some negative sentiment out there; I read the papers, I watch the news,” he said about concern over global macroeconomic trends. “But when I look at this business … and the forward trends, what they reflect is that next year, all things being equal, we should deliver results similar to this year.”

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