The current financing environment has caused many a hotelier concern about impacts on the industry, but Christopher J. Nassetta, president and CEO of Hilton, is encouraged by the progress on the signings and starts front.
“We signed approximately 25,000 rooms during the quarter, growing our pipeline to a record 428,000 rooms, more than half of which are currently under construction,” he said during the company’s first-quarter earnings call. “Signings in the quarter outpaced prior-year across all regions, and conversion signings in the quarter were 24 percent higher than prior year, benefiting in part from the rollout of our newly launched brand, Spark by Hilton.”
The initial interest in Spark has been tremendous, Nassetta said: “We currently have more than 300 deals in various stages of negotiation and our teams are working hard to deliver this exciting new premium economy conversion brand, with hotels opening later this year.”
The company announced the brand in January, saying its 19th brand was meant to fill a “white space” in the industry with a premium economy option.
- Highlights from the first-quarter earnings report:
- Diluted earnings per share was 77 cents for the first quarter, and diluted EPS, adjusted for special items, was $1.24
- Net income was $209 million for the first quarter
- Adjusted earnings before interest, taxes, depreciation and amortization was $641 million for the first quarter
- Systemwide comparable revenue per available room increased 30 percent, on a currency neutral basis, for the first quarter compared to the same period in 2022
- Systemwide comparable RevPAR increased 8 percent, on a currency neutral basis, for the first quarter compared to the same period in 2019
- Approved 24,900 new rooms for development during the first quarter, bringing Hilton's development pipeline to 428,100 rooms as of March 31, 2023
- Added 9,200 rooms to Hilton's system in the first quarter, resulting in 5,300 net additional rooms in Hilton's system during the period
- Repurchased 3.2 million shares of Hilton common stock during the first quarter, bringing total capital return, including dividends, to $487 million for the quarter and more than $602 million year to date through April
- Full-year 2023 systemwide RevPAR is expected to increase between 8 percent and 11 percent on a comparable and currency neutral basis compared to 2022; full year net income is projected to be between $1,331 million and $1,385 million; full-year adjusted EBITDA is projected to be between $2,875 million and $2,950 million
- Full-year 2023 capital return is projected to be between $1.8 billion and $2.2 billion
Overview
"We carried strong momentum into 2023, exceeding the high end of our guidance for systemwide RevPAR, driving strong bottom-line results and delivering meaningful free cash flow available for return to our shareholders,” Nassetta said. “As a result of our strong performance and positive outlook, we are raising our adjusted EBITDA guidance for the full year."
For the three months ended March 31, 2023, systemwide comparable RevPAR increased 30.0 percent compared to the same period in 2022, due to increases in both occupancy and ADR, and management and franchise fee revenues increased 30.1 percent compared to the same period in 2022. For comparison to pre-pandemic results, systemwide comparable RevPAR for the three months ended March 31, 2023, increased 8 percent compared to the same period in 2019, and management and franchise fee revenues increased 26.3 percent from the same period in 2019.
For the three months ended March 31, 2023, diluted EPS was 77 cents and diluted EPS, adjusted for special items, was $1.24 compared to 75 cents and 71cents, respectively, for the three months ended March 31, 2022. Net income and adjusted EBITDA were $209 million and $641 million, respectively, for the three months ended March 31, 2023, compared to $211 million and $448 million, respectively, for the three months ended March 31, 2022.
Development
In the first quarter of 2023, Hilton opened 64 new hotels totaling 9,200 rooms and achieved net unit growth of 5,300 rooms. Additionally, Hilton started construction on over 19,000 hotel rooms during the first quarter, continuing the positive momentum from the end of 2022, particularly in China. Further, Hilton continued to achieve development milestones during the first quarter, opening the 100th Tapestry Collection by Hilton, as well as its 500th hotel in China.
As of March 31, 2023, Hilton's development pipeline totaled approximately 2,930 hotels representing 428,100 rooms throughout 116 countries and territories, including 30 countries and territories where Hilton did not have any existing hotels. Additionally, of the rooms in the development pipeline, 215,700 of the rooms were under construction and 246,200 of the rooms were located outside of the U.S. In April, Hilton announced a notable addition to its development pipeline, the Waldorf Astoria Jaipur, which will mark the debut of the Waldorf Astoria Hotels & Resorts brand in India.
Balance Sheet and Liquidity
As of March 31, 2023, Hilton had $8.8 billion of long-term debt outstanding, excluding the deduction for deferred financing costs and discount, with a weighted average interest rate of 4.51 percent. Excluding all finance lease liabilities and other debt of Hilton's consolidated variable interest entities, Hilton had $8.6 billion of long-term debt outstanding with a weighted average interest rate of 4.5 percent and no scheduled maturities until May 2025. As of March 31, 2023, no debt amounts were outstanding under Hilton's $2 billion senior secured revolving credit facility, which had an available borrowing capacity of $1,940 million after considering $60 million of outstanding letters of credit. Total cash and cash equivalents were $978 million as of March 31, 2023, including $77 million of restricted cash and cash equivalents.
During the three months ended March 31, 2023, Hilton repurchased 3.2 million shares of its common stock at an average price per share of $139.88, returning $446 million of capital to shareholders. Through April 21, 2023, since the inception of Hilton's stock repurchase program in March 2017, Hilton repurchased approximately 56.4 million shares of its common stock for approximately $5.4 billion at an average price per share of $96.39. The amount remaining under Hilton's stock repurchase program is approximately $2.6 billion.
In March 2023, Hilton paid a quarterly cash dividend of 15 cents per share of common stock, bringing total dividend payments for the quarter to $41 million. In April 2023, Hilton's board of directors authorized a regular quarterly cash dividend of 15 cents per share of common stock to be paid on or before June 30, 2023, to holders of record of its common stock as of the close of business on May 19, 2023.
Outlook
Full Year 2023
- Systemwide comparable RevPAR, on a currency neutral basis, is expected to increase between 8 percent and 11 percent compared to 2022.
- Diluted EPS is projected to be between $4.95 and $5.14.
- Diluted EPS, adjusted for special items, is projected to be between $5.68 and $5.88.
- Net income is projected to be between $1,331 million and $1,385 million.
- Adjusted EBITDA is projected to be between $2,875 million and $2,950 million.
- Contract acquisition costs and capital expenditures, excluding amounts reimbursed by third parties, are expected to be approximately $300 million.
- Capital return is projected to be between $1.8 billion and $2.2 billion.
- General and administrative expenses are projected to be between $390 million and $410 million.
- Net unit growth is expected to be between 5 percent and 5.5 percent.
Second Quarter 2023
- Systemwide comparable RevPAR, on a currency neutral basis, is expected to increase between 10 percent and 12 percent compared to the second quarter of 2022.
- Diluted EPS is projected to be between $1.45 and $1.50.
- Diluted EPS, adjusted for special items, is projected to be between $1.54 and $1.59.
- Net income is projected to be between $387 million and $401 million.
- Adjusted EBITDA is projected to be between $770 million and $790 million.