In the wake of two notable brand debuts, net unit growth was top of mind during Hilton’s third-quarter 2023 earnings call with investors, which included the announcement that the company will open a 1,000-room conversion property in the northeast on Thursday.
During the quarter, Hilton opened 107 new hotels totaling 15,700 rooms and achieved net unit growth of 14,300 rooms, up 22 percent year over year and 12 percent versus the second quarter, according to Hilton President and CEO Christopher Nassetta.
Hilton added 35,500 rooms to the development pipeline during the third quarter, an increase of 80 percent year over year, Nassetta said during the earnings call. “Overall, we remain on track to deliver the highest annual signings in our company's history, surpassing 2019 record levels.”
As of Sept. 30, Hilton's development pipeline totaled approximately 3,190 hotels representing 457,300 rooms throughout 119 countries and territories, including 29 countries and territories where Hilton did not have any existing hotels. “Our pipeline now stands at the highest in our history,” Nassetta said during the call, noting the total was up 4 percent from Q2 and 10 percent year over year.
Of the rooms in the development pipeline, 223,000 were under construction and 257,200 were located outside of the U.S. Nassetta noted that Q3 was the strongest quarter of domestic construction starts since Q1 2020, up 18 percent year over year. Conversions accounted for 35 percent of signings, increasing sequentially compared to the second quarter, and the under-construction portfolio mix of roughly 60 percent focused-service and 40 percent full-service remains in line with Hilton’s existing supply.
During the quarter, Hilton had two noteworthy brand debuts: The first Spark by Hilton had its soft opening in Mystic, Conn., before officially opening in the fourth quarter, and the first Tempo by Hilton opened in New York City’s Times Square in August. In October, the company announced the Waldorf Astoria Residences Pompano Beach, the brand's first standalone residential project.
Bill Crow, managing director of Raymond James Financial, suggested that the upcoming 1,000-room conversion would be in Boston and required a $40 million key money payment. Nassetta said the company could not comment on “specific deals and individual key money,” but did say that “big, complicated, city-center full-service or luxury” hotels are the deals that draw most of the key money Hilton spends. “Less than 10 percent of our deals in our pipeline by number have any form of balance-sheet support, and disproportionately, those kinds of deals are more competitive,” he said.
By the Numbers
For the quarter, the company reported net income of $379 million for the third quarter with adjusted earnings before interest, taxes, depreciation and amortization of $834 million.
Systemwide comparable revenue per available room increased 6.8 percent on a currency-neutral basis compared to the same period in 2022 and increased 11.4 percent compared to the same period in 2019.
Systemwide occupancy for the quarter reached Hilton’s highest level since the pandemic began and was two percentage points shy of prior peak levels. Occupancy in September, Nassetta noted, was one point shy of 2019’s numbers.
Looking Ahead
For the fourth quarter of the year, Hilton expects its systemwide comparable RevPAR, on a currency-neutral basis, to increase between 4.5 percent and 5.5 percent compared to the fourth quarter of 2022. Net income is projected to be between $374 million and $388 million, and adjusted EBITDA is projected to be between $739 million and $759 million.
For the full year, the company expects the systemwide comparable RevPAR to increase between 12 percent and 12.5 percent compared to 2022. Net income is projected to be between $1.37 billion and $1.39 billion and adjusted EBITDA is projected to be between $3.025 billion and $3.045 billion.
Net unit growth for the full year is expected to be approximately 5 percent, and contract acquisition costs and capital expenditures, excluding amounts reimbursed by third parties, are expected to be approximately $350 million.
“We believe we have hit an inflection point and expect a meaningful uptick in openings in the fourth quarter with continued positive momentum into next year,” Nassetta said. The company expects to see both the highest level of signings in the year and the largest pipeline in its history, he added.