Nassetta: Options open for spinoff
29 JULY 2015 2:29 PM
Fresh off a solid second quarter, Hilton’s leadership detailed plans for its upcoming midscale brand and addressed the possibilities of business unit spinoffs.
MCLEAN, Virginia— During Hilton Worldwide Holdings’ second-quarter earnings call with analysts Wednesday, President and CEO Chris Nassetta addressed some chatter surrounding the possibility the company might spin off some business units, such as its owned properties into a real estate investment trust.
On the possibility of a REIT spinoff, Nassetta said the company always keeps its options open.
“We look at how to create the best long-term value for everybody,” he said. “We look at relative valuations, tax efficiencies, opportunities to activate in different ways various businesses against incremental costs—all those things are factors.”
On the topic of timeshare, Nassetta wouldn’t comment on a possible spinoff of Hilton Grand Vacations, but said that “we continue to explore all options and still plan to give a full update before the year is out.”
He emphasized the business unit’s strong performance.
“We have really transformed this business over the last three to four years,” he said. “The majority—over 80%—of our inventory here is capital-light, and this business is cranking. It’s hitting on all cylinders.”
In fact, Hilton executives are confident the end of this cycle is not anywhere close to ending that they raised the company’s full-year outlook.
The company increased its full-year adjusted earnings before interest, taxes, depreciation and amortization outlook to between $2.8 billion and $2.9 billion, an increase of $20 million at the midpoint, adjusting for the sale of the Hilton Sydney.
“We’re in a very nice part of the cycle,” Nassetta said. “We’re confident in delivering, and we think the good times continue. We’re not at (levels) where we typically run into supply problems—we’re a long way from that average. If the U.S. economy maintains moderate growth rates … I think we have several years of running room.”
For 2015, the company also expects system-wide revenue per available room to increase between 5% and 7% compared to 2014. For the six-month period ending 30 June, system-wide occupancy was 75.2%, a 1.7% increase over 2014; average daily rate was $140.54, up 3.4% year over year; and revenue per available room was $105.70, up 5.8% over the same period last year.
As of press time, Hilton’s stock price year to date was up 5.9%. By comparison, the Baird/STR Hotel Stock Index was down 3.6% year to date.
Nassetta also provided color on the company’s yet-unnamed midscale brand, which was first announced in April.
The new brand will launch in early 2016, he said. The ADR price point will be below that of the upper-midscale Hampton brand, and the company’s goal is to achieve “a system size larger than Hampton with next to no capital investment,” Nassetta said.
“There’s no good midscale product out there now,” Nassetta said in response to a question about how Hilton has the confidence to launch a midscale product when the segment is seeing some supply pickup.
“We’re re-creating the segment in a way nobody’s ever done,” he said. “These will be all new-build, very appealing to the customer and engineered to be built and operate in a simplistic way to drive returns.
“There are just bad choices out there now,” he continued. “The demand is there, but nobody’s building (in this segment) because they don’t get returns. This can be a mega-brand that generates mega EBITDA. We’ll have smaller hotels, but thousands of them, just like we’ve done with Hampton.”
Among its current stable of brands, Nassetta pointed out some second-quarter highlights.
The company opened 82 hotels during the quarter, bringing its system-wide hotel room count up to 724,943. Additionally, the company has a pipeline of nearly 265,000 rooms and is close to the milestone of having 1 million rooms open or under development.
The company’s Curio–A Collection by Hilton soft brand recently hit its one-year anniversary and has 50 properties open or in various stages of development, Nassetta said. Additionally, more than 20 Canopy by Hilton properties are in the pipeline or have signed letters of intent, with the first slated to open early next year in Reykjavik, Iceland.