Hilton announces new midscale brand, heralds further global expansion

During Hilton Worldwide's second-quarter earnings call, CEO Chris Nassetta announced that the hotel company is planning to launch another new brand early next year—reportedly a midscale hotel chain that will aim to serve "more value-oriented consumers."

The new brand is expected to have a lower price point than Hilton’s other midscale brand, Hampton Inn, Nassetta added. That brand was initially targeted for the value segment, but has since become "so successful that it’s grown up out of it,” Nassetta said. Hampton Inn now falls into the “upper midscale” category, along with competitors such as Fairfield Inn and Holiday Inn Express, according to STR.

Hilton does not currently have a dedicated midscale brand along the lines of Best Western, La Quinta Inn & Suites and Quality Inn, and the other two brands it launched since its IPO were both at higher price points: a higher-end collection brand called Curio and an “accessible lifestyle” brand called Canopy.

This new unnamed brand, could be positioned to compete with Marriott International's new value-oriented Moxy brand, which first launched in Europe, but will now be expanded to the U.S.

32 New Countries
Hilton Worldwide opened 82 hotels and achieved net unit growth of over 11,000 rooms during the second quarter of 2015. In July of this year alone, Hilton Worldwide entered two new countries with the openings of the Hilton Aruba Caribbean Resort & Casino and the Hilton Garden Inn Guatemala City, increasing Hilton Worldwide's global presence to 97 countries and territories. 

Hilton claimed that as of June 30, it has the largest rooms pipeline in the lodging industry, with more than 250,000 rooms at 1,510 hotels throughout 85 countries and territories. Of that 85, 32 do not currently have any Hilton properties. This means that 136,000 rooms, or 54 percent of the pipeline, were located outside of the United States. All of the development pipeline is in the capital light management and franchise segment, and more than half, or approximately 128,000 rooms, were under construction. At nearly 20 percent, Hilton Worldwide also has the largest share of rooms under construction globally. Including all agreements approved but not signed, Hilton Worldwide's pipeline includes nearly 265,000 rooms

For the second quarter of 2015, Hilton saw $1.14 billion in revenue. The same quarter in 2014 had $1.12 billion in revenue. Higher expenses dragged down earnings with quarterly net income of $161 million, or 16 cents per share, compared to $209 million, or 21 cents per share. Revenue per available room in the second quarter was up 5.2 percent from a year ago. 

Looking Ahead
Hilton ultimately expects full-year RevPAR growth of 5 percent to 7 percent, with ownership segment RevPAR expected to increase between 4.0 percent and 6.0 percent on a comparable and currency neutral basis as compared to 2014. Management and franchise fees are projected to increase approximately 11 percent to 13 percent. Net unit growth is expected to be approximately 40,000 rooms to 45,000 rooms.

Hilton also reported second-quarter earnings of 25 cents per share, beating Wall Street views by two cents, though its 5.2 percent growth in RevPAR was at the low end of the firm's 5 percent-7 percent guidance. As such, the company announced that it would initiate its first regular dividend of seven cents per share. The dividend will be paid on or before September 25 to common stockholders of record at the close of business on August 14. Hilton also expects cash available for debt prepayments or capital return to stockholders to be between $1.1 billion and $1.3 billion, which includes two expected dividend payments. This news drove Hilton stock up more than 4 percent in afternoon trading.