RevPAR, development milestones underpin Hilton's Q3 results

The third quarter of 2022 marked a very important milestone in Hilton’s continued recovery, according to Christopher J. Nassetta, the company's president and CEO.

“For the first time since the pandemic began, systemwide [revenue per available room] surpassed 2019 levels. Additionally, adjusted [earnings before interest, taxes, depreciation and amortization] and adjusted [earnings per share] exceeded the high end of our guidance and 2019 levels,” he said on the company’s earnings call. “We achieved several notable development milestones in the quarter, including reaching 100,000 rooms open across Europe, and announced various strategic partnerships further enhancing the guest experience and the strength of our global system.”

The quarter was a good one for shareholders, as well.

“The quarter’s strong performance coupled with our capital light business model enabled us to continue returning meaningful capital to shareholders,” Nassetta said. “Year to date, we returned more than $1.3 billion and for the full year. We're on track to return between $1.5 and $1.9 billion to shareholders.”

Occupancy reached more than 73 percent, only four points shy of 2019 levels, which Nassetta said continued to be driven by robust leisure demand. However, he said business transient and group demand improved significantly.

“As we look ahead, we remain very optimistic about the future of travel. Despite near-term macro headwinds, we're not seeing any signs that fundamentals are weakening,” he said. “Rising demand coupled with historically low industry supply growth should continue to drive strong pricing power. Consumers are shifting back to spending on experiences, international borders are reopening and pent-up demand is being released across all segments.

He pointed to the fact that consumers still have an estimated $2.4 trillion of excess savings accumulated during the pandemic, or approximately 55 percent more in their checking and savings accounts than they did in 2019.

“Additionally, according to a recent global Hilton study, 85 percent of business travelers hope to travel as much or more next year and group position for 2023 is less than 10 percent shy of 2019 peak levels with a tentative pipeline up significantly,” Nassetta said. “While the macro environment is more challenging, we are in the midst of a strong rebound with secular tailwinds that should support continued growth.”

Overview

For the three months ended Sept. 30, 2022, systemwide comparable RevPAR increased 29.9 percent compared to the same period in 2021, due to increases in both occupancy and ADR, and fee revenues increased 33 percent. For comparison to pre-pandemic results, systemwide comparable RevPAR for the three months ended Sept. 30, 2022 was up 5 percent compared to the same period in 2019.

For the nine months ended Sept. 30, 2022, systemwide comparable RevPAR increased 49.6 percent compared to the same period in 2021, due to increases in both occupancy and ADR, and fee revenues increased 51 percent. For comparison to pre-pandemic results, systemwide comparable RevPAR for the nine months ended Sept. 30, 2022 was down 4 percent compared to the same period in 2019.

For the three months ended Sept. 30, 2022, diluted EPS was $1.26 and diluted EPS, adjusted for special items, was $1.31 compared to 86 cents and 78 cents, respectively, for the three months ended Sept. 30, 2021. Net income and adjusted EBITDA were $346 million and $732 million, respectively, for the three months ended Sept. 30, 2022, compared to $240 million and $519 million, respectively, for the three months ended Sept. 30, 2021.

For the nine months ended Sept. 30, 2022, diluted EPS was $3.32 and diluted EPS, adjusted for special items, was $3.31 compared to 94 cents and $1.36, respectively, for the nine months ended Sept. 30, 2021. Net income and adjusted EBITDA were $924 million and $1,859 million, respectively, for the nine months ended Sept. 30, 2022, compared to $259 million and $1,117 million, respectively, for the nine months ended Sept. 30, 2021.

Development

In the third quarter of 2022, Hilton opened 80 new hotels contributing 12,900 additional rooms to Hilton's system and achieved net unit growth of 12,100 rooms. During the quarter, Hilton opened the 25,000th room under the Curio Collection by Hilton brand and the 600th Hilton Hotels & Resorts property. Further, Hilton continued to expand its luxury portfolio with the opening of the Waldorf Astoria Kuwait, the brand's first property in the country.

As of Sept. 30, 2022, Hilton's development pipeline totaled more than 2,810 hotels representing nearly 416,000 rooms throughout 112 countries and territories, including 29 countries and territories where Hilton does not currently have any existing hotels. Additionally, of the rooms in the development pipeline, 204,200 of the rooms were under construction and 242,600 of the rooms were located outside the U.S.

Balance Sheet and Liquidity

As of Sept. 30, 2022, 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 4.29 percent. Further excluding 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 4.28 percent and no scheduled maturities until 2025. No debt amounts were outstanding under Hilton's $1.75 billion senior secured revolving credit facility as of Sept. 30, 2022, which had an available borrowing capacity of $1,690 million after considering $60 million of outstanding letters of credit. Total cash and cash equivalents were $1,362 million as of Sept. 30, 2022, including $80 million of restricted cash and cash equivalents.

During the third quarter of 2022, Hilton repurchased 4 million shares of its common stock at a cost of $497 million and an average price per share of $124.85. During the nine months ended Sept. 30, 2022, Hilton repurchased 8.5 million shares of its common stock at a cost of $1,107 million and an average price per share of $130.47. Year-to-date through October 2022, Hilton repurchased 9.6 million shares of its common stock for $1,242 million and the amount remaining under Hilton's stock repurchase program was $994 million.

In September 2022, Hilton paid a quarterly cash dividend of 15 cents per share of common stock, for a total of $41 million. In October 2022, 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 Dec. 30, 2022, to holders of record of its common stock as of the close of business on Nov. 10, 2022.

Outlook

Share-based metrics in Hilton's outlook include actual share repurchases to date, but do not include the effect of potential share repurchases hereafter.

Full Year 2022

  • Systemwide comparable RevPAR, on a currency neutral basis, is expected to increase between 40 percent and 43 percent compared to 2021, and to be down between 1 percent and 3 percent from 2019.
  • Diluted EPS is projected to be between $4.40 and $4.48.
  • Diluted EPS, adjusted for special items, is projected to be between $4.46 and $4.54.
  • Net income is projected to be between $1,219 million and $1,240 million.
  • Adjusted EBITDA is projected to be between $2,500 million and $2,530 million.
  • Contract acquisition costs and capital expenditures, excluding amounts indirectly reimbursed by hotel owners, are expected to be between $250 million and $275 million.
  • Capital return is projected to be between $1.5 billion and $1.9 billion.
  • General and administrative expenses are projected to be between $380 million and $400 million.
  • Net unit growth is expected to be approximately 5.0 percent.

Fourth Quarter 2022

  • Systemwide comparable RevPAR, on a currency neutral basis, is expected to increase between 19 percent and 23 percent compared to the fourth quarter of 2021, and to increase between 2 percent and 6 percent from the fourth quarter of 2019.
  • Diluted EPS is projected to be between $1.08 and $1.15.
  • Diluted EPS, adjusted for special items, is projected to be between $1.15 and $1.23.
  • Net income is projected to be between $295 million and $316 million.
  • Adjusted EBITDA is projected to be between $641 million and $671 million.