Hilton mulls lifestyle, likes ownership plays
12 FEBRUARY 2014 8:50 AM
Hilton is content with its real estate ownership and remains committed to introducing a lifestyle brand to its portfolio, said CEO Chris Nassetta during an interview at ALIS.
Editor’s note: This is the second in a three-part Q-and-A with Hilton Worldwide Holdings CEO Chris Nassetta. In part one he reflects on the company’s IPO. In the third installment Nassetta discusses how Hilton is using technology to accommodate today’s traveler.
LOS ANGELES—With Hilton Worldwide Holdings’ high-profile initial public offering in the rearview mirror, the company is focusing its efforts on growing its portfolio.
During an interview at last month’s Americas Lodging Investment Summit, President and CEO Chris Nassetta said the company’s growth strategy includes eventually adding a so-called “lifestyle” brand and maintaining its roster of real estate holdings.
“We are interested most certainly in doing something in the lifestyle space,” he said. “Exactly what we’re going to do and when we’re going to do it, not to be coy, but we’re not really ready to talk about.
“We’ve done a lot of work,” he added. “We’re going to continue to think that through, and when we’re ready to do something, we’ll most definitely let you know.”
While there is no official definition of lifestyle hotels, the general perception is they are trendy, innovative, boutique-style hotels providing customization and unique experiences for their guests. Five years ago Hilton launched a brand called Denizen but it never got off the ground because Starwood Hotels & Resorts Worldwide filed a lawsuit alleging corporate espionage surrounding the brand.
A settlement reached in December 2010 included provisions that prohibited Hilton from acquiring or developing any lifestyle or branded-boutique hotel product that would occupy the same market space as its former Denizen Hotels brand. More than a year after that provision expired, Hilton is taking its time entering the lifestyle space.
“It’s a space we think about differently maybe than some of the competition,” Nassetta said. “But it’s certainly a space that is interesting and that we will at some point pursue.”
Happy with real estate ownership
Meanwhile, Nassetta said Hilton also is in no hurry to shed corporate-owned assets. With the 100th anniversary of the company’s founding five years away, Nassetta said he is comfortable having a large stake invested in real estate assets.
“Right now we’ve got about 37% of (Hilton’s earnings before interest, taxes, depreciation and amortization) in our owned segment,” Nassetta said. “Based on where I think we are in the cycle, we think this is a really sweet spot for real estate ownership.”
Hilton has 4,080 hotels, resorts and timeshare properties comprising 671,926 rooms in 90 countries and territories. Its brands include Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn & Suites, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations.
According to its S-1 SEC filing from September 2013 in preparation for its recent IPO, Hilton revealed it owns or leases interests in 157 hotels, including The Waldorf Astoria New York, the Hilton Hawaiian Village in Honolulu and the London Hilton on Park Lane.
Hilton’s objective is to maximize the real estate value it has on existing assets rather than adding more property to its portfolio.
“We’re not activating the real estate segment in terms of adding new units, but we’re … incredibly, actively engaged in maximizing what we have,” Nassetta said. “There (are) significant opportunities from an operational point of view (and) meaningful upside as group business continues to come back as a lot of these hotels are big group hotels that are going to benefit from the resurgence of group business.
“We’re very excited about the opportunities in the real estate portfolio over the next several years,” he added. “I’m very comfortable having it as part of the company.”
Nassetta said the real estate ownership builds upon the foundation laid by founder Conrad Hilton when he bought The Mobley, a hotel in Cisco, Texas, in 1919.
Growing the portfolio and customer base
Nassetta said the company intends to continue its traditions of innovation and growth into new markets.
“The company was doing good work, but they had become in a period of time leading up to the Blackstone acquisition more complacent,” Nassetta said. “What we’ve done in the six years and more importantly what we’ve set it up to do is really reclaim that spot as the industry leader. That means really performing at the highest level—top line, bottom line, new unit growth—and continuing to innovate in ways that better serve our guests. In the end we’re in the business of serving customers’ needs.”
Better serving customers’ needs leads to a bigger and more loyal customer base and ultimately to accelerated unit growth, he said.
Some of that unit growth will come from Home2 Suites, a mid-tier extended-stay brand launched in 2009 that has captured the development community’s interest.
“(Home2 Suites has) been (even) better than we thought,” Nassetta said. “We had big expectations; we don’t do these things with small plans.”
There are 22 Home2 Suites properties open and nearly 100 in the pipeline, the CEO said.
“In the next few years you’re going to have 150, hopefully 200 of these hotels up and operating,” he said.
Focusing on the global footprint
The company also is concentrating on growing its global footprint. When Hilton Hotels Corporation acquired Hilton International in 2006, it reunited the North American and global companies for the first time in 40 years—and set the stage for an aggressive growth pattern. The S-1 filing noted that 60% of the 176,000 rooms Hilton has in the development pipeline and 80% of the 92,000 rooms under construction are located outside the United States.
Nassetta said he is happy with that growth, which he said occurs because of what Hilton delivers to a developer’s bottom line.
“It’s a little different everywhere in the world you go, but I think the ultimate goal is profitability,” Nassetta said. “In the end (developers) are all … after one thing, which is they’ve invested a huge amount of money—in some of these projects its hundreds of millions, at the lower end in the limited service it may be tens of millions—and they want to get return on that money.”
Nassetta said the opening of more than 1,200 hotels over the past six years has required no balance-sheet assistance from Hilton.
“The majority of our business with the development community is repeat business; it’s with people we’ve already done business that have had a good experience,” he said. “In the end it’s all about driving good returns for owners over the long term for us to continue to be successful.”