Q4 2023 Earnings Summary
- Hilton's development pipeline reached an all-time high, with signings up 45% year-over-year, indicating strong future growth prospects.
- Hilton expects organic net unit growth in 2024 at the high end of 5.5% to 6%, with potential upside from the Small Luxury Hotels of the World (SLH) partnership adding 25 to 50 basis points.
- Hilton is capturing an outsized share of new development, with one in five rooms under construction globally affiliated with Hilton brands, more than any other hotel company.
- Challenging borrowing environment with high interest rates: Hilton's management acknowledged that the borrowing environment has been a little bit challenged, and they haven't liked where rates have been, indicating potential difficulties in financing growth.
- Potential increase in hotel supply leading to competition: There is concern that the development pipeline continues to build and at some point, supply growth will take off, which could increase competition and impact Hilton's market share.
- Revenue decline due to loss of government subsidies: Despite experiencing 15% RevPAR growth in the owned and leased segment, Hilton faced an 8% revenue decline, attributed to the impact of government subsidies last year that are no longer present. This suggests that revenue growth may not be as strong without such subsidies.
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SLH Strategic Partnership
Q: Details on the SLH deal and its impact?
A: Hilton announced a strategic partnership with Small Luxury Hotels (SLH), adding over 500 unique, small luxury hotels to their portfolio. This move expands Hilton's offerings in niche markets without overlapping existing brands. The deal is capital-light, with license fees similar to direct brands, and Hilton will earn fees on the business it generates. This partnership enhances the network effect and provides customers with more options while being accretive to shareholders. -
2024 Unit Growth and SLH Inclusion
Q: Does 2024 guidance include SLH and M&A?
A: No, the 5.5% to 6% net unit growth guidance is purely organic. SLH is expected to add 25 to 50 basis points on top of that, depending on how quickly hotels integrate into Hilton's system. Any future acquisitions would also be incremental to this guidance. -
Segment Outlook for 2024
Q: Outlook for business, group, and leisure segments?
A: Business transient demand is recovering and expected to normalize by year-end, assuming a soft landing in the economy. Group demand is "off the hook," with bookings reaching new highs and strong pricing power due to limited supply. Leisure travel will grow more in rate than volume, with continued strong consumer demand despite potential economic headwinds. -
Supply Growth and Pipeline Concerns
Q: Is supply growth expected to increase soon?
A: Supply growth remains constrained at around 1% due to high construction costs and limited financing availability. While project starts are up, significant new supply additions are unlikely for a couple of years, benefiting Hilton due to low supply and strong demand. -
Acquisition Strategy and M&A Outlook
Q: Is Hilton considering more brand acquisitions?
A: Hilton maintains a rigorous filtration system for M&A, seeking opportunities that are additive to their brand portfolio and accretive to company value. While the current environment presents more opportunities due to market stress, there are no specific acquisitions to announce at this time. -
Inbound vs. Outbound Travel Recovery
Q: Expectations for inbound vs. outbound travel?
A: Hilton anticipates a much stronger inbound international travel year, which will benefit urban markets. Outbound travel will remain robust but may not dominate as it did previously. Recovery in inbound travel, excluding China, is expected to continue throughout the year. -
Progress on Spark Brand
Q: How is the Spark brand progressing?
A: Spark is performing well, with nearly 150 hotels in the pipeline and another 250 deals in progress. There are 8 to 10 hotels already open, showing strong market share premiums and loyalty contributions. The brand is expected to continue growing, bringing new customers into the Hilton system. -
Fee Growth Expectations
Q: Outlook for fee growth in 2024?
A: Fee growth is expected to be above algorithm, as usual, despite some headwinds from foreign exchange. The growth will be driven by strong performance across all segments and continued expansion of Hilton's brand portfolio. -
Plans to Return to Target Leverage
Q: Plans to get back to 3–3.5x leverage?
A: Hilton expects to approach the bottom end of the 3 to 3.5 times leverage range by year-end, based on current guidance. The company views this range as appropriate and is committed to returning to it, with capital returns increasing as leverage decreases. -
Luxury Lifestyle Brand Launch
Q: Is SLH the new luxury lifestyle brand?
A: No, the partnership with SLH is separate. Hilton plans to enter the luxury lifestyle space later this year with a brand new offering. This initiative is part of Hilton's ongoing strategy to expand into new segments without conflicting with existing brands or the SLH partnership.