McLEAN, Virginia—So far, so good. Hilton Worldwide Holdings’ first publicly reported earnings painted a picture of strong portfolio performance and rampant growth that is likely to continue into 2014, according to executives.
“We’re certainly very excited to be back in the public markets and to be hosting our first earnings call following our (initial public offering) in December,” said President and CEO Chris Nassetta, during an earnings call Thursday with analysts. “We’re also very pleased by our performance last year, highlighted by our system-wide (revenue-per-available-room) growth of 5.2%.”
Management and franchise fees for the fourth quarter were $333 million, a 10% increase from 2012, and $1.3 billion for the full year, an 8% increase.
The numbers underscore years of work that saw Hilton turnaround from “an average performer at best” to a more optimized, aligned company with a portfolio of 10 brands that regularly outperform in their respective segments, Nassetta said.
“Our goal is simple: to serve any customer anywhere in the world for any lodging need they have,” he said.
To that end, executives are busy driving development throughout every region of the world.
“Our development strategy … is based on our goal to win everywhere,” Nassetta said.
Hilton added 34,000 rooms during 2013, including 9,600 during the fourth quarter. The company approved a further 72,000 rooms for development, growing the pipeline to 195,000 rooms. Of those, 100,000 rooms were under construction.
Expansion has come relatively inexpensive for the company, which is executing on its “capital-light” strategy, Nassetta said. Since 2007, Hilton has added more than 180,000 net rooms with investment of only $47 million.
“If we continue to maintain the strongest brands in the industry, we should not have to allocate significant capital to grow,” he said.
If anything, Hilton’s capital-light model might lead executives to divest “some or all” of the group’s 155 owned and leased hotel assets, Nassetta said.
“We are not emotionally tied to our real estate. … There are ways to accomplishing that without owning the hard assets,” he said, although he later added the company had few assets it was hoping to sell in 2014. The company is in a “sweet spot” for its branded hotels, in which industry fundamentals will drive strong value to shareholders, Nassetta said.
“We’re emotionally attached to driving shareholder value,” he said.
Building better brands
“The answer is yes …” Nassetta said when asked whether Hilton was considering adding new brands. “We want to do things and then market them. We do have a bunch of ideas.”
Chief among them is a new boutique concept.
“We are definitely working on a concept there. We have a little bit of a different view, which I’ll wait to explain in the next call or two out,” he said. “We’ve done a ton of work. We’re getting close. I would hope in the not-too-distant future you’ll hear from us on that.”
Hilton is also exploring what Nassetta described as a “brand extension” of an existing brand. “Over the next two or three or four quarters, you’ll hear a bunch of things from us.”
Executives are also working to strategically deploy existing brands in new markets, such as Embassy Suites Hotels and Hampton Hotels in China.
More of the same
“We’re optimistic that 2014 will be stronger than 2013. … Generally the macro trends seem to be similar or better than what we saw in 2013,” Nassetta said.
System-wide RevPAR is expected to increase between 5% and 7% during 2014. Management and franchise fees are expected to increase approximately 10% to 12%.
The United States hotel market is getting moderately better, with projected increases in group demand in particular, Nassetta said.
“We had very healthy pace in the first quarter through third quarter overall. Fourth quarter not as much,” Nassetta said. “The good news is in term of what we see thus far this year, we see that stabilize and start to pick up. (Group) pace is positive.”
The Asia/Pacific region should see continued growth as well, despite a moderating growth in China’s gross domestic product, he said. The group’s footprint in Europe is projected to notch RevPAR gains on the back of the region’s slow-but-steady economic recovery.
Performance in the Middle East/Africa, however, will be spottier, Nassetta said. While Africa, the Arabian Peninsula and Saudi Arabia are high points, some markets such as Egypt continue to prove volatile.
Hilton’s full-year outlook also calls for net unit growth of approximately 35,000 rooms to 40,000 rooms.