Hilton reports revenue improvements in Q3

The third quarter of 2021 provided notable improvements over the same quarter in 2020 for Hilton Worldwide Holdings, with some metrics approaching 2019 levels, according to the company. For Q3, Hilton’s net income was $240 million and adjusted earnings before interest, taxes, depreciation and amortization was $519 million, up 132 percent year over year and down 14 percent compared to 2019. Systemwide comparable revenue per available room increased 98.7 percent on a currency-neutral basis for the third quarter from the same period in 2020, but decreased 18.8 percent on a currency-neutral basis for the third quarter from the same period in 2019.

Overall systemwide RevPAR peaked in July at 85 percent, with rates just shy of previous peaks. Recovery slowed later in the quarter, which the company credited to typical seasonality and a shift in the customer mix. Both August and September RevPAR achieved roughly 80 percent of 2019 levels driven by continued strength in the leisure segment and an improvement in business travel after Labor Day as offices and schools reopened.

The results, President and CEO Christopher J. Nassetta said during a conference call with investors, demonstrate continued recovery and the resiliency of the company’s business model. “Increases in vaccination rates and consumer spending coupled with improving business activity continue to drive solid travel demand throughout the summer and into the fall as global borders reopen and the travel environment recovers,” he said.

The company’s performance primarily was driven by strong leisure trends with leisure roomnights roughly in line with 2019 level and leisure rates exceeding 2019 levels, Nassetta added. Business travel continued to gain momentum, with midweek occupancy and rates improving “meaningfully” compared to the second quarter. In Q3, business transient roomnights were roughly 75 percent of previous peak levels. 

Occupancy in U.S. hotels averaged nearly 70 percent for the quarter, said Kevin Jacobs, CFO and president, global development, with the overall rate largely in line with 2019 levels. RevPAR increased 168 percent year over year in other Americas countries beyond the U.S. and was down 30 percent compared to 2019. The region benefited from easing travel restrictions and strong leisure demand over the summer period, Jacobs added. “Canada also saw a noticeable step up in demand in August after reopening their borders to vaccinated Americans.” 

COVID-19 Effects

During the three and nine months ending Sept. 30, the COVID-19 pandemic continued to negatively impact Hilton's business and hotel operating statistics, but the company reported “significant improvement” in its results as compared to the same periods in 2020, due to an upward trend in travel and tourism. 

As a result of the pandemic, certain hotels suspended operations at various times throughout 2020, but the majority of those hotels were reopened by 2021. In line with the recovery, although some hotels did suspend operations during the first three quarters of the year, reopenings significantly outpaced suspensions. As such, the operations of only approximately 335 hotels, or 5 percent, of Hilton's systemwide properties (as of Sept. 30), which were primarily located in the U.S. and Europe, were suspended for some period of time during those nine months compared to approximately 1,270 hotels during the nine months ended Sept. 30, 2020. As of the end of the quarter, all but 88, or approximately 1 percent, of Hilton's systemwide hotels were open and Hilton expects nearly all of its systemwide hotels to be open by the end of the year.

For the three and nine months ended Sept. 30, systemwide comparable RevPAR increased 98.7 percent and 47.6 percent, respectively, compared to the same periods in 2020, due to increases in both occupancy and ADR, and the three months ended Sept. 30 was down 18.8 percent compared to the three months ended Sept. 30, 2019. For the three and nine months ended Sept. 30, fee revenues increased 93 percent and 49 percent, respectively, compared to the same periods in 2020.

For the three months ended Sept. 30, adjusted EBITDA was $240 million and $519 million, respectively, compared to minus-$81 million and $224 million, respectively, for the same three months in 2020. For the nine months ended Sept. 30, net income (loss) and adjusted EBITDA were $259 million and $1.117 billion, respectively, compared to minus-$495 million and $638 million, respectively, for the nine months ended Sept. 30, 2020.

A different COVID-19 effect has been the increase in people adopting pets—and expecting to travel with those pets. Responding to the trend, Hilton’s extended-stay Homewood Suites brand will join Home2 in becoming 100 percent pet friendly in the U.S., and the company plans for all limited-service brands to be pet friendly by the first quarter of next year.

Development

The company approved 23,600 new rooms for development during the third quarter, bringing Hilton's development pipeline to 404,000 rooms as of Sept. 30. Hilton also added 14,700 rooms to its system in the quarter, contributing to 11,200 net additional rooms during the period and approximately 6.6 percent annualized net unit growth from Sept. 30, 2020. Full-year 2021 net unit growth is expected to be between 5 percent and 5.5 percent.

During the quarter, Hilton opened three new hotels under LXR Hotels & Resorts, including the brand's first property in the Asia Pacific region. The company also opened the 500th hotel under its Home2 Suites brand, 10 years after the brand was introduced. 

As of Sept. 30, Hilton's development pipeline totaled more than 2,620 hotels with 404,000 rooms throughout 114 countries and territories, including 27 countries and territories where Hilton does not currently have any existing hotels. A notable signing in the quarter was that of the Conrad Los Angeles, the brand's first property in California. The 300-room hotel is expected to open in 2022 as part of the Grand LA mixed-use development. Of the rooms in development, 249,000 were located outside the U.S. 

A full 204,000 rooms are already under construction, and more are expected to begin in the coming months. Last year was “the trough” for signings, Nassetta said, while this year will be similar for construction starts. “Starts always will lag the signings a little bit,” he said. But while Hilton will be “modestly down” in signings for the remainder of this year, Nassetta expects that to turn around next year. “Starting this year, we're signing more. Starting next year we're starting more.” A third of the net unit growth is conversions, he added.