The lodging industry may be bipartisan, but when it comes to tax reform, it leans right.
On Hilton's fourth-quarter earnings call, CEO Chris Nassetta called attention to the benefits that have come via the Trump administration's tax reform plan, which was passed by Congress. Though he said it's still early to judge the ultimate ramifications of it, "it looks good for the broader economy and lodging industry," he said, adding that those connected to the industry whom he has spoken to have all lauded tax reform and the positivity driven by a reformed regulatory environment.
Of what Hilton intends to do with the windfall from tax reform, Nassetta said the bulk of benefits will be "returned to shareholders."
Hilton's net income was $841 million for the fourth quarter. For the full-year 2018, net income is projected to be between $802 million and $837 million. Systemwide comparable revenue per available room increased 3.8 percent and 2.5 percent for the fourth quarter and full-year 2017, respectively. In the U.S., RevPAR was up 3.2 percent.
"I'm an optimist by nature," Nassetta said, and praised the company's 2.5-percent RevPAR deliverance in an "environment where group business was weak." Nassetta said he expects international markets to again be strong in 2018, with Europe and Asia Pacific outperforming the U.S.
Leisure transient business looks good again, Nassetta said, though cautioning that it is only February. "There's lots of year to play out," he said. A full 80 percent of Hilton's group business is on the books.
A total of 18,400 rooms were added in the quarter, 51,600 net rooms for the full year, representing 6.5-percent net unit growth. Hilton also approved 31,000 new rooms for development during the fourth quarter, growing Hilton's development pipeline to 345,000 rooms. Nassetta said that the company opened a hotel per day in 2017 and that the company finished the year with the most rooms under construction in its history—21 percent of the global lodging industry, he added.
In 2018, Hilton said it expects that 40 percent of its net-unit growth will be international. "We are expanding to new markets and introducing new brands," Nassetta said. A combined 50 percent of Hilton's total pipeline is in Asia Pacific and EMEA. Hilton also achieved several regional milestones, including the opening of its 100th Greater China hotel, the Hilton Quanzhou.
Nassetta focused on Hilton's midscale Tru brand as a vehicle for growth. Eight opened in 2017 and 500 more hotels are in development, including three in Canada, which will mark the Tru brand's international debut. Nassetta said he expected 50 Tru hotels to open this year alone.
He added that while 2016 and 2017 were the peak years for hotel signings, Hilton has been able to extend the peak in the U.S. with conversion opportunities, especially with the Tru brand.
Nearly 20 percent of all room openings for the year came under the Canopy, Curio, Tapestry Collection, Home2 Suites and Tru brands.
Nassetta called the lending environment "stable" though admittedly had tightened in 2017. "Will there be more financing available as a consequence of the economic rebound, time will tell," he said. "It hasn’t happened yet."
Loyal Following
Hilton said it added 11 million new loyalty members in 2017, bringing the current total membership of Hilton Honors to 71 million globally. Record enrollments came from Asia Pacific, Nassetta said.
Some changes are coming to the program, beginning in April 2018. One of the more striking: coming to an end will be the ability to accrue miles through the Points & Miles option. Members from April on will only be allowed to earn hotel points. However, the option to transfer Honors points to airline miles will still exist. Meanwhile, elite-status members will see their bonuses increase for each stay.
"I don’t view what we are doing in loyalty as a space race," Nassetta said. "We don’t look at what others are doing. What's driving [our program] is talking to customers and figuring out how to create a deeper connection [with them] so they'll be more loyal and buy more."
Nassetta added that 95 percent of Hilton Honors members, when they enroll in the program, begin booking direct with Hilton, bypassing intermediaries. On bookings, 10 percent of all Hilton bookings come through mobile, while one-third of all bookings are performed either web direct or mobile, Nassetta said.
In the News
One of Hilton's largest shareholders, HNA Group, which owns a 25-percent stake in the company and is also the owner of what is now Radisson Hotel Group, has been in the news of late, joining other Chinese conglomerates, who are now looking to divest a multitude of assets. But when asked during the call if this had any implications on Hilton, CFO Kevin Jacobs brushed the question aside and cited protections that don't allow Hilton to comment on shareholders.
Meanwhile, Anbang Insurance Group, owner of the Waldorf Astoria, in New York, has been equally reported to be a seller of assets. One in particular, the aforementioned Waldorf Astoria, which is currently in the midst of a renovation that will see the number of hotel rooms decrease to make way for condos, is rumored to be for sale, with Blackstone Group, the prior seller, now a speculative buyer. Nassetta, however, is not convinced stating that Anbang has been moving forward with planning and that heavy demolition within the property is almost complete. "It is rumored that they are going to sell a bunch of stuff. I don’t believe that will include the Waldorf," Nassetta said.
Other questions were less demanding. On the omnipresent topic of consolidation within the lodging industry, which, because of Hilton's high valuation comes up frequently (Is Hilton looking to buy another company, another brand?), Nassetta said the company is fine with its current strategy. "We have a good platform and are focused on organic growth because it allows us to deliver better products that resonate and bring better returns," he said. "It's working.
Nassetta admitted that the company does look at all potential M&A opportunities and might be more inclined to look harder if not for the fact that Hilton, he said, has scale, covers all the segments it wants to be in and has a broad geographic footprint. "There are no strategic gaps," he said, though, "We would never say never. That's a dumb thing for a CEO to say. But we'd only look at something strategically important that advances the ball."