Hilton touts record unit growth, more in pipeline
Hilton touts record unit growth, more in pipeline
16 FEBRUARY 2017 9:39 AM

Net unit growth continues to be a top priority for Hilton. While RevPAR guidance for 2017 remains unchanged, CEO Chris Nassetta told analysts during a Q4 earnings call the company has big plans—including some new brand ideas. 

MCLEAN, Virginia—2016 was a year of record growth in hotel openings, signings and construction starts for Hilton, and the company achieved systemwide revenue-per-available-room growth of 1.8% for the year.

On the company’s fourth quarter and full-year 2016 conference call with analysts yesterday, President and CEO Chris Nassetta said he feels better about the company’s outlook for growth, and is “pretty optimistic with how the year is playing out” so far. He also said the company’s new focus on its core business post-spinoffs will allow for even faster growth.

At press time, Hilton was trading at $60.05 per share, down 75.5% year to date. The Baird/STR Hotel Stock Index was up 21.2% for the same time period.

Unit growth highlights
The company added net unit growth of 45,000 rooms in 2016, in 354 hotels, bringing the company’s portfolio total to 4,875 hotels and 796,440 rooms, according to a news release. Hilton entered five new countries in 2016 as well.

The company approved a record 106,000 new rooms for development in the year (including 29,000 in the fourth quarter), and grew the development pipeline 16% compared to 2015, to 1,968 hotels and 310,000 rooms.

“Globally, more than one in five rooms under construction is being developed as a Hilton brand,” Nassetta said. “Our five newest brands represent nearly 800 hotels and 90,000 rooms that are either open or in the pipeline.”

Looking ahead, Nassetta said he expects net unit growth in 2017 “of 50,000 to 55,000 rooms, or approximately 6.5% system growth, supported almost entirely by third-party capital.”

RevPAR challenges, opportunities
Kevin Jacobs, Hilton EVP and CFO, said the company’s full-year revenue per available room growth of 1.8% was “near the high end of our expectations, with rate gains driving performance.”

In the fourth quarter, RevPAR grew 0.9%, “due to better-than-expected transient demand in November and December,” Jacobs said.

For 2017, the company’s systemwide RevPAR outlook is expected to increase 1% to 3% compared to 2016, which is where expectations sat at the end of the third quarter as well.

“It would be hard to say I don’t feel a bit better (now) than when I originally gave our 1% to 3% guidance,” Nassetta said. “That would be because that did have an expectation that we would see a pick-up in key macro indicators, including GDP growth and non-residential fixed investment. I think we have started to see that … non-residential fixed investment turned positive in the fourth quarter for the first time in a while.”

Since Hilton issued that guidance at the end of Q3, Nassetta said he’s seen some “green shoots” of positivity that bode well for RevPAR growth this year.

“Business transient business has picked up a bit post-election,” he said. “We feel we’ve got a decent group base on the books and leisure has maintained its relative strength.”

Still, he said there’s still uncertainty swirling around how the new U.S. administration will have an impact on business performance.

“Some of the things that have created a positive sentiment in the business community relate to the idea of tax reform, regulatory reform, the possibility for infrastructure spending. So I think the psychology in the business community is more positive than it was certainly when we talked last time,” Nassetta said during a call with investors.

Around the world
Jacobs said a few global trends continue to have an impact on hotel performance. U.S. oil and gas markets are seeing what he called “continued weakness,” Zika concerns continue to hinder the Caribbean, and Brazil is feeling the impact of economic issues. Terror attacks continue to plague Turkey, and revenue in the Middle East and Africa declined, driven by new supply in the United Arab Emirates and less demand.

On the positive side, Jacobs pointed to a strong fourth quarter in Canadian hotels, driven by solid group performance. RevPAR in Europe grew 2.2% in the quarter, driven by leisure business and increased demand from the Middle East, he said. RevPAR in the Asia-Pacific region grew 1.5% in the quarter due to strength in Chinese hotel performance.

New brands, company focus
In the fourth quarter of 2016, the company completed its spinoffs of real estate investment trust Park Hotels & Resorts and Hilton Grand Vacations, both of which will report separately from the first quarter of 2017 on.

“The new Hilton is a resilient, fee-driven business,” he said. “Our primary drivers are same-store growth and net unit growth, and we are far less sensitive to changes in RevPAR, given the lower operating leverage of a more simplified model and the resiliency of our unit growth.”

He said the new model will “free us up to double down on everything we’re doing with our brands, everything we’re doing with our (loyalty program) … and what we’re doing with innovation to (make) sure that we are ultimately driving more loyalty, more relevance with our customers, and as a consequence, more share and more growth.”

More brands?
Nassetta also hinted there’s room to grow for the company, which launched two new brands in the last year—Tru by Hilton and Tapestry Collection.

“We have four other concepts that … we described very briefly … at the Analyst Day in December, that we’re developing,” he said. “I think eventually we’ll do them all.”

One might come sooner than others—another soft brand. He said the company has “maybe one more in the soft-brand area that we could do this year, because again more conversion (is) a little bit easier. The others, I think, will take a little bit longer because they’re more complicated.”

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