Hilton Worldwide Holdings has released its second quarter 2021 results, demonstrating the impact that the COVID-19 pandemic has had on Hilton's business.
For the three months ended June 30, systemwide comparable revenue per available room increased 233.8 percent compared to the same period in 2020 due to increases in both occupancy and average daily rate. For the six months ended June 30, systemwide comparable RevPAR increased 23.2 percent compared to the same period in 2020, due to an increase in occupancy, partially offset by a decrease in ADR, and fee revenues increased 28 percent.
“While the pace of recovery varies and COVID variants remain a risk, we are seeing significant sequential improvement in every major region,” said Hilton President and CEO Christopher J. Nassetta during a call with investors. “Compared to 2019, RevPAR was down 36 percent, improving 17 percentage points versus the first quarter, with June RevPAR improving 24 percentage points versus the first quarter, and down only 29 points versus 2019.” Thirty percent of comparable hotels exceeded 2019 RevPAR levels in June, he added.
Adjusted earnings before interest, taxes, depreciation and amortization was $400 million, up 684 percent year over year. For the quarter, U.S. leisure demand exceeded previous peak levels with rates at 90 percent of earlier peaks. “Performance was driven by strong leisure demand and rate growth,” Nassetta said. “This positive momentum continued into July, with systemwide and U.S. leisure roomnights and rate exceeding 2019 levels.” Transient business “increased meaningfully” throughout the quarter, he added, with June RevPAR of the segment increasing 20 percentage points from the first quarter.
Notably, those results reflect relaxed travel restrictions and strengthening global demand, said CFO Kevin Jacobs, who also added that management franchise fees grew 220 percent for the quarter, “demonstrating the resiliency of our fee-based business model.”
“As government restrictions loosen and more people are vaccinated, we continue to see positive momentum and demand, and an increasing ability to push rate,” Nassetta said. For July, month to date, systemwide demand is 85 percent of 2019 levels with rate equal to 2019. In the U.S., July RevPAR is roughly 85 percent of 2019 levels while RevPAR in China is now above its previous peak, with increases in transit bookings, digital traffic and group sales leads.
At some point during the first six months of the year, approximately 300 hotels, primarily located in the U.S. and Europe, suspended operations for some period of time, down from approximately 1,205 hotels during the first six months of 2020. As of June 30, all but approximately 100 of Hilton's hotels were open.
New Openings, New Developments
In the second quarter of 2021, Hilton opened 119 new hotels with more than 19,800 rooms for net unit growth of 17,800 rooms and approximately 7 percent annualized net unit growth from June 30, 2020. In June, the Resorts World Las Vegas opened as Hilton's largest multibrand property, adding 3,500 rooms across three brands—Hilton Hotels & Resorts, Conrad Hotels & Resorts and LXR Hotels & Resorts. “Along with the recently opened Virgin Hotel Las Vegas Curio, we now have more than 30 properties totaling 11,000 rooms across 12 brands in the city,” Nassetta said. “Las Vegas is also the first U.S. market to house all three of our luxury brands.”
Also during the quarter, Hilton celebrated Tru by Hilton's five-year anniversary with the opening of the brand's 200th hotel. Nearly 270 Tru hotels are in development across the U.S. and Canada as well as new markets in the Caribbean and Latin America.
Hilton had a record amount of conversion signings during the quarter and, earlier this month, opened its first hotel under the Signia by Hilton brand, the Signia by Hilton Orlando Bonnet Creek, which was rebranded from a Hilton Hotels & Resorts property. “The property will undergo a multiphase transformation featuring the addition of more than 94,000 square feet of multifunctional meeting and event space,” Nassetta said. The company also broke ground on the nearly 1,000-room Signia Atlanta, which is scheduled to open in 2023.
During the quarter, the company approved 25,900 new rooms for development, bringing its development pipeline to 401,000 rooms across nearly 2,590 hotels in 115 countries and territories. The pipeline now includes 30 countries and territories where Hilton does not currently have any existing hotels. Additionally, of the rooms in the development pipeline, 247,000 rooms are located outside the U.S., and 203,000 rooms are under construction.
The company had a record number of conversion signings in the quarter, representing 40 hotels and accounting for approximately 30 percent of total signings. In terms of openings, conversions made up approximately 10 percent of the total for the quarter, which Nassetta credited to timing. Last year, he said, conversions made up between 19 and 20 percent of total openings, and he expects that number to be the same for 2021, if not a little bit higher, given the number of signings.
Looking Ahead
As rates stabilize, Nassetta expects to see improved confidence from lenders to finance new developments and other projects. “Rates are obviously hyper low—and have been low—and lenders need yield,” he said. “The more comfort they get that recovery’s afoot and that there's going to be a recovery back to where we were and then beyond that, the more they're willing to take the risk a little bit further out on the risk spectrum and underwrite it.”
For 2021, Hilton expects net unit growth in the 5 to 5.5 percent range above prior expectations, given the pace of openings. Hilton’s bookings for 2022 are at rates that are greater than 2019, Nassetta said, noting that booking rate is not the same as booking volume. “Volume is still a bit off, just because it takes time to build the book,” he said. Bookings will likely improve “when you get past this [COVID-19 Delta variant] wave,” he added. “People have to meet [but] it takes time to plan it. They want to get through their budget season before they know how much money they have, but I'm not worried.”