Nassetta touts Hilton’s unit growth amid deceleration
 
Nassetta touts Hilton’s unit growth amid deceleration
14 FEBRUARY 2019 9:22 AM

With Hilton having its largest pipeline in its 100-year history, and more than half of it outside the U.S., President and CEO Chris Nassetta is optimistic about growth despite economic softening.

MCLEAN, Virginia—2018 was a record-setting year for Hilton, and leadership is optimistic about the future, despite what President and CEO Chris Nassetta called “modest deceleration” in the overall economy and macroeconomic indicators.

On the company’s fourth-quarter and full-year 2018 earnings call with analysts, Nassetta highlighted the company’s achievements, focusing on the company’s openings and its pipeline, which he called “the largest and most diverse” in the company’s history—Hilton celebrates 100 this year.

Development
“We opened more than one hotel per day in 2018,” he said. “In 2018, we had the best year of openings in our history. Overall, the company added 57,000 net additional rooms to its global system in 2018, including 22,500 in the fourth quarter, which represented 10% year-over-year growth.

“Net unit growth exceeded our expectations and drove the majority of our bottom line in free cash-flow growth,” he said.

Hilton ended the year with 5,634 hotels comprising 904,593 guestrooms globally.

On the pipeline front, Nassetta called 2018 “a record year for construction starts and signings,” with 108,000 room signings globally, the company’s fourth consecutive year of signings over 100,000 rooms, and 6% growth over 2017.

More than half of the company’s pipeline is located outside of the United States and includes 35 new countries for Hilton, Nassetta said. Thirty percent of the non-U.S. pipeline is in the Asia/Pacific region, and 75% of that is under construction, largely in China, he said.

Performance and outlook
Nassetta called 2018 “a great year for Hilton” overall, reflected by the company’s overall performance. Systemwide comparable revenue per available room grew 3% for the full year and 2% in the fourth quarter compared to 2017. Adjusted earnings before interest, taxes, depreciation and amortization was $544 million for the fourth quarter and $2.1 billion for the full year, exceeding the high end of guidance, according to the company’s earnings statement.

“Group business performed well throughout the year,” he said, with 4% RevPAR growth compared to 2017. Corporate transient business, which Nassetta called “healthy,” notched 2.6% RevPAR growth. Leisure transient business also came in at 2.6% growth, falling slightly shy of the company’s expectations, largely due to events, calendar shifts, weather and softer demand later in the year, he said.

Nassetta said he’s optimistic about the company’s continued growth and strong performance, despite some bigger-picture economic factors.

“We expect similar to modestly slower trends (in 2019),” he said. “Macroeconomic indicators continue to support generally favorable fundamentals and are a good backdrop for continued pricing increases, despite modest deceleration in GDP expectations.”

The company adjusted its full-year 2019 RevPAR growth expectations guidance to 1% to 3% growth, down from the 2% to 4% growth range it set at the end of Q3 2018.

At press time, Hilton stock was trading at $79.52 per share, up 12% year to date. The Baird/STR Hotel Stock Index was down 7.1% for the same time period.

Regional breakdown
Hilton’s EVP and CFO Kevin Jacobs shared performance highlights broken down by region:

  • U.S.: 1.1% RevPAR growth in Q4 and 2.2% for FY compared to 2017;
  • Americas (excluding U.S.): 6.9% RevPAR growth in Q4 and 6.1% for FY compared to 2017;
  • Europe: 7.2% RevPAR growth in Q4 and 6.9% for FY compared to 2017;
  • Middle East/Africa: 0.3% RevPAR growth in Q4 and 1.8% for FY compared to 2017; and
  • APAC: 3.4% RevPAR growth in Q4 and 6.5% for FY compared to 2017.

Jacobs noted that China in particular had 10% year-over-year RevPAR growth in 2018.

Focus on luxury
Hilton quietly launched the LXR Hotels & Resorts brand in the fourth quarter as a collection of luxury hotels. One hotel flies the LXR flag today—the Al Habtoor Palace in Dubai. The Biltmore, Mayfair in London is slated to join the LXR portfolio later this year.

While Nassetta noted on the call that Hilton “continues to focus on serving guests for every stay occasion,” developing the company’s luxury has been an important goal of his in particular since he joined the company.

“We’re very proud of what we’ve been doing in luxury,” he said, adding that the company has been growing its luxury footprint “the old-fashioned way” and carefully, in terms of selecting projects and products that best fit the brands.

The company’s luxury efforts are focused on the Conrad, Waldorf Astoria and LXR brands, Nassetta said, adding some forthcoming openings will be landmarks for Hilton’s luxury portfolio, including the Conrad Washington, D.C.; and the Admiralty Arch Waldorf Astoria in London.

“We’ve become the fastest-growing luxury brands of the major players, and we’re starting to (hit our stride) in the right cities … where we’re creating a real distribution that matters,” he said.

He also hinted at the possibility of more luxury to come from Hilton, mentioning “the possibility of other things that are in the skunkworks right now that would add to our luxury brand portfolio.”

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