Hilton Worldwide reported solid earnings during the fourth
quarter, despite a softening in corporate transient demand. "Overall
performance came in largely as expected," CFO Kevin Jacobs said during
Hilton's earnings presentation, "although lower growth in corporate
transient demand, particularly in focused-service hotels, drove modestly lower-than-anticipated
top-line growth."
Hilton first reported corporate transient demand growth dropping
off after the third quarter. In October, CEO Christopher Nassetta called it
"choppy" and cited difficult year-over-year comps and a couple severe
storms as possible factors. The trend persisted in the fourth quarter, as weakness
in energy markets like Houston and New Orleans impacted Hilton's revenue per
available room by 50 basis points.
Marriott International also saw weaker-than-expected
business transient demand during the fourth quarter. "We believe it was
the modest growth in GDP in the fourth quarter that constrained our transient
business, particularly premium-rated business," CEO Arne Sorenson told investors.
Looking ahead, Nassetta said, "We expect corporate
transient volume to remain highly correlated with GDP and nonresidential fixed
investments, both forecast to grow this year modestly lower than last year."
He said corporate negotiated rates and group business both rose
by mid-single digits this year, "providing a good setup for continued
growth."
Results & Development
During the fourth quarter, Hilton's average daily rate increased
3.4 percent year over year to $137.76. Occupancy increased 0.3 percentage
points to 71 percent. Revenue grew 4 percent year over year to $334 million.
Full-year ADR rose 3.6 percent year over year to $141.19,
while occupancy increased 1.3 percentage points to 75.4 percent. Revenue hit $1.3
billion, up 11.7 percent from last year.
Hilton's development pipeline as of Dec. 31, 2015, including
rooms approved for development but not yet signed, was 275,000 rooms. "More
than half of our pipeline is already under construction and represents nearly
one in five of all rooms under construction globally, more than any other hotel
company," Nassetta said.
Adding to its development plan, Hilton unveiled the midscale
Tru by Hilton brand in January. Tru's price point will be about 25 percent
cheaper than Hilton's Hampton brand. Nassetta said 160 deals are already in
process for the brand and a quarter of the development commitments Hilton received
in January was for a Tru franchise.
Real Estate &
Timeshare Spinoff
Hilton also announced it would spin off a significant chunk
of its real estate business into a publicly traded real estate investment trust
and would spin off its timeshare business, Hilton Grand Vacations, into a
separate publicly traded company.
"By simplifying our business, each segment should
benefit from a dedicated management team with the capital and REIT sources
available to take advantage of both organic and inorganic growth opportunities,"
Nassetta said. "We believe it will also allow investors to allocate
capital towards businesses more aligned with their objectives."
The REIT, Nassetta said, will be composed of 70 of Hilton's
upper-upscale and luxury properties in urban and convention markets, resort
destinations, select international markets and airport locations. The timeshare
business, which will have an exclusive license agreement with Hilton Worldwide,
will constitute 50 club resorts in the United States and Europe. More details
will be made available during the second quarter after Hilton files with the U.S.
Securities & Exchange Commission.
Book Direct Campaign
In February, Hilton launched a global campaign encouraging
Hilton loyalty members to book direct in order to take advantage of discounted
rates, free Wi-Fi, online room selection and "straight to room"
capabilities. Marriott unveiled a similar campaign in August but drew the ire
of travel agents and corporate partners because it did not permit them to book
the discounted rates on behalf of clients. Hilton allows such partners to
access perks for their clients who are Hilton loyalty program members.
"We celebrate this proactive move Hilton
has made, showing support for the value and viability of the travel agency
community," Lee Smolinski, CEO of Palm Coast Travel and an American Society
of Travel Agents premium member, said in a statement. "Being a partner
with Hilton rather than simply a supplier is important to the substance of what
we bring to our shared end customer."