After solid 2019, Hilton braces for the future

Looking back over Hilton’s 100th anniversary year, President/CEO Christopher Nassetta said 2019 was one of the company’s strongest years yet, with several records broken and positive (if somewhat slowed) growth in several metrics.  

For the final quarter of 2019, systemwide comparable revenue per available room decreased 1 percent as a result of a decrease in average daily rate as weaker-than-expected business transient performance offset the gains made from leisure bookings. 

For the year, systemwide comparable RevPAR grew 0.8 percent, primarily driven by an increase in occupancy—largely in line with guidance, Nassetta said. Net income and adjusted earnings before interest, taxes, depreciation and amortization were $176 million and $586 million, respectively, for the quarter compared to $225 million and $544 million for the same three months in 2018. For the full year, net income was $886 million while adjusted EBITDA reached $2.3 billion, compared to $769 million and $2.1 billion, respectively, for 2018. These numbers, Nassetta noted, exceeded expectations. 

In an email to investors, Michael Bellisario, a senior research analyst at RW Baird, noted Hilton's RevPAR results reflect “more sluggish trends” in the lower chain scales domestically (overall U.S. RevPAR growth for Hilton was down 0.8 percent) and weakness in Asia Pacific (down 3.8 percent). 

Coronavirus Impact

The company’s performance in the Asia Pacific region, of course, is likely to be affected by the ongoing coronavirus outbreak and the resulting travel downturn, although that did not affect the 2019 numbers. “It goes without saying that the safety and well-being of our team members and  guests is our paramount priority,” Nassetta said, noting the company is working with local governments and global health authorities to best support both operations and communities in affected areas. The company has temporarily closed roughly 150 of its 225 hotels in China to new arrivals, Nassetta said. 

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Looking at the 2003 SARS outbreak for guidance, Hilton’s team has tried to calculate what the potential impact might be to its business. Assuming the outbreak lasts between three and six months with a further three- to six-month recovery period, Nassetta calculated a potential 100 basis point impact to comp systemwide RevPAR growth—assuming the company’s 150 closed hotels in the country (with 33,000 rooms off line) ultimately wind up being non-competitive. “We would expect a half-point impact to net unit growth, which would be largely within our guidance, and a $25 to $50 million impact to full-year adjusted EBITDA,” he said.

Related: Coronavirus casts shadow over hospitality industry 

In terms of delivery, Nasetta said, Hilton’s operating hotels in China are largely “business as usual,” and he noted the company had opened a property in the country just the day before. “This is an evolving situation,” he said, emphasizing that it is impossible to know for sure what will happen. “The responsible thing to do is look at the historical perspective and use science around the data we have.” Last year, approximately 20 percent of Hilton's new signings were in China, he added. 

RevPAR across the Asia-Pacific region fell 3.8 percent during the quarter and 0.9 percent for the full year, said EVP/CFO Kevin Jacobs, which can be attributed to softening economic trends in China, trade tensions and protests in Hong Kong. RevPAR in China fell 7.8 percent in Q4 and 3.2 percent for 2019 as a whole, and while the coronavirus might have an impact on 2020’s revenue and rate, he said, the summer Olympics in Tokyo could keep the region in balance. 

Record-Breaking Growth

2019, Nassetta said, was Hilton’s fifth consecutive year of record approvals, construction starts and openings. The company opened nearly 470 new hotels with 65,100 rooms over the year and achieved net unit growth of 58,300 rooms, a 6.6 percent increase from 2018. In that time, Hilton expanded to six new countries and territories and opened its 6,000th hotel.

In the fourth quarter alone, Hilton opened 143 new hotels with 18,500 rooms for net unit growth of nearly 17,000 rooms. Notable openings in the quarter included the Conrad Hangzhou Tonglu, China and the Zemi Beach House, LXR in Anguilla. 

The development pipeline also increased 6 percent year over year, reaching more than 2,570 hotels with more than 387,000 rooms throughout 116 countries and territories—including 35 countries and territories where Hilton does not currently have any open hotels—as of the end of the year. Of the rooms in the development pipeline, 215,000 rooms were located outside the U.S. and 193,000 rooms were under construction. 

The 33,700 new rooms Hilton approved for development in the Q4 represent a record level of signings for a quarter, as do the approvals of more than 116,000 rooms for the full year. The development pipeline increased 2.1 percent sequentially to 387,000 rooms.

On average, Nassetta said, the company is opening more than one hotel per day, and now has 6,100 properties open with 971,000 rooms across 119 countries and territories.

Looking Ahead

For the first quarter of the year, Hilton expects systemwide comparable RevPAR to be roughly flat compared to the first quarter of 2019. For all of 2020, the company expects RevPAR to be flat or to grow 1 percent compared to the whole year. The company forecasts net unit growth is of 6 or 7 percent, largely in line with recent years.