MCLEAN, Va. – Hilton Worldwide Holdings Inc. ("Hilton," or the "Company") (NYSE: HLT) today reported its third quarter 2016 results. Highlights include:
- EPS for the third quarter was $0.19 and EPS, adjusted for special items, was $0.23; net income for the third quarter was $192 million
- Adjusted EBITDA for the third quarter was $765 million and Adjusted EBITDA margin was 41.6 percent
- System-wide comparable RevPAR increased 1.3 percent for the third quarter on a currency neutral basis from the same period in 2015
- Management and franchise fees for the third quarter increased 7 percent from the same period in 2015 to $470 million
- Approved 27,000 new rooms for development during the third quarter, bringing year-to-date approvals to 77,000 rooms
- Grew development pipeline 15 percent from 2015 to 1,898 hotels, consisting of 300,000 rooms
- Net unit growth was 13,100 rooms in the third quarter, representing a 7 percent growth in managed and franchised rooms from 2015
- Opportunistically entered the capital markets to enhance Hilton's balance sheet by issuing $1 billion aggregate principal amount of 4.25% senior notes due 2024 and amending and extending $3,225 million of the Term Loans; repaid $991 million of long-term debt
- On track to complete the spin-off transactions of Park Hotels & Resorts and Hilton Grand Vacations around year end
- Hilton plans to host an investor day on December 8, 2016 at the Conrad New York
Overview
For the three months ended September 30, 2016, EPS was $0.19 compared to $0.28 for the three months ended September 30, 2015, and EPS, adjusted for special items, was $0.23 for both the three months ended September 30, 2016 and 2015. Net income was $192 million for the three months ended September 30, 2016 compared to $283 million for the three months ended September 30, 2015, and Adjusted EBITDA was $765 million for the three months ended September 30, 2016 compared to $758 million for the three months ended September 30, 2015.
For the nine months ended September 30, 2016, EPS was $0.74 compared to $0.60 for the nine months ended September 30, 2015, and EPS, adjusted for special items, was $0.66 for the nine months ended September 30, 2016 compared to $0.60 for the nine months ended September 30, 2015. Net income was $746 million for the nine months ended September 30, 2016 compared to $600 million for the nine months ended September 30, 2015, and Adjusted EBITDA was $2,224 million for the nine months ended September 30, 2016 compared to $2,134 million for the nine months ended September 30, 2015.
Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, "Even with a macroeconomic environment that continues to underperform expectations, we delivered Adjusted EBITDA and EPS, adjusted for special items, within our guidance ranges and continued to increase our global share of development activity this quarter. We approved deals for 27,000 new rooms in 22 different countries on 5 continents and opened over 14,300 rooms this quarter. Our accelerating, capital-light growth is driven by all of our clearly defined brands, with each of our brand segments at record pipelines. Our brands currently represent 22 percent of all rooms under construction globally, or nearly 5 times their current share of room supply."
Segment Highlights
Management and Franchise
Management and franchise fees were $470 million in the third quarter of 2016, an increase of 7 percent compared to the same period in 2015. RevPAR at comparable managed and franchised hotels in the third quarter of 2016 increased 1.5 percent on a currency neutral basis (a 0.9 percent increase in actual dollars) compared to the same period in 2015. The addition of new units, the increase in RevPAR at comparable managed and franchised hotels and rising effective franchise fee rates have yielded continued fee growth during the third quarter of 2016.
Ownership
Revenues from the ownership segment were $1,040 million in the third quarter of 2016 and ownership segment Adjusted EBITDA was $264 million. RevPAR at comparable hotels in the ownership segment was flat on a currency neutral basis (a 1.3 percent decrease in actual dollars) in the third quarter of 2016 compared to the same period in 2015. The lack of growth in ownership segment RevPAR in the third quarter of 2016 was primarily attributable to weaker performance in New York and Chicago, which was partially offset by relative strength at properties in Hawaii.
Timeshare
Timeshare segment revenues for the third quarter of 2016 were $358 million and timeshare Adjusted EBITDA was $85 million. Overall timeshare sales volume increased 15 percent in the third quarter of 2016, compared to the same period in 2015, as a result of increased tour flow and net volume per guest of 5 percent and 9 percent, respectively. Commissions from the sale of third-party developed timeshare intervals increased $11 million during the third quarter of 2016 from the same period in 2015, while sales revenue on owned inventory increased $6 million. Revenue from resort operations increased 12 percent during the third quarter of 2016 from the same period in 2015. These increases were offset by an increase in timeshare expenses due to higher selling and marketing expenses.
During the three months ended September 30, 2016, 63 percent of timeshare intervals sold were developed by third parties. Hilton's overall supply of timeshare intervals as of September 30, 2016 was approximately 127,000 intervals, or nearly six years of sales at current pace, of which 103,000, or 81 percent, were third-party developed.
Development
Hilton opened 106 hotels consisting of 14,300 rooms, of which over 20 percent were conversions from non-Hilton brands, and achieved net unit growth of 13,100 rooms during the third quarter of 2016. In July 2016, the first Canopy by Hilton opened in Reykjavik, Iceland. Additionally, Tru by Hilton had continued success in its initial year of development, with approvals for 51 hotels in the third quarter for a total of 144 hotels in the pipeline as of September 30, 2016.
As of September 30, 2016, Hilton's rooms pipeline totaled approximately 300,000 rooms at 1,898 hotels throughout 91 countries and territories, including 31 countries and territories where Hilton does not currently have any open hotels. Over 148,000 rooms, or approximately half of the pipeline, were located outside of the United States. Additionally, approximately 149,000 rooms were under construction. Including all agreements approved but not signed, Hilton's pipeline totaled nearly 310,000 rooms, which will be almost entirely funded by third-party owner investment.
Balance Sheet and Liquidity
During the third quarter of 2016, Hilton entered into the following financing transactions (the "Financing Transactions"):
- issued $1 billion aggregate principal amount of 4.25% senior notes due 2024 and used the net proceeds and available cash to repay $991 million of long-term debt;
- amended $3,225 million of its outstanding senior secured term loan facility (the "Term Loans") to remove the LIBOR floor, provide for a reduced interest rate spread and extend the maturity date by three years to 2023; and
- amended and extended its revolving non-recourse timeshare financing receivables credit facility to increase the maximum borrowings from $300 million to $450 million.
Additionally, during October 2016, Hilton made prepayments of $1,967 million on its existing commercial mortgage-backed securities ("CMBS") loan and issued two new CMBS loans, including a $725 million loan that matures in 2023 and is secured by two of its U.S. owned real estate assets and a $1,275 million loan that matures in 2026 and is secured by one of its U.S. owned real estate assets.
As of September 30, 2016, Hilton had $10.0 billion of long-term debt outstanding with a weighted average interest rate of 4.3 percent.
Total cash and cash equivalents were $1,131 million as of September 30, 2016, including $272 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of September 30, 2016.
In September 2016, Hilton paid a quarterly cash dividend of $0.07 per share on shares of its common stock, for a total of $69 million, bringing total cash dividends paid in 2016 to $207 million. In October 2016, Hilton's board of directors authorized a regular quarterly cash dividend of $0.07 per share of common stock to be paid on or before December 2, 2016 to holders of record of its common stock as of the close of business on November 10, 2016.
In October 2016, Hilton announced that HNA Group agreed to acquire an approximate 25 percent equity interest in Hilton from affiliates of The Blackstone Group L.P., establishing a long-term strategic investment in Hilton and Hilton’s planned spin-offs of Park Hotels & Resorts Inc. ("Park") and Hilton Grand Vacations Inc. ("HGV"). The transaction is valued at approximately $6.5 billion, or $26.25 per share, and is expected to close in the first quarter of 2017, subject to regulatory approval.
Outlook
Hilton has disclosed financial and other details of the planned spin-offs of Park and HGV in filings with the Securities and Exchange Commission ("SEC"). The transactions are subject to execution of intercompany agreements, arrangement of adequate financing facilities, the effectiveness of the registration statements, final approval by Hilton's board of directors and other customary conditions. The spin-off transactions will not require a stockholder vote. The spin-offs are expected to be completed around year end, but there can be no assurance regarding the ultimate timing of the spin-offs or that either or both of the spin-offs will ultimately occur. The Full Year 2016, Fourth Quarter 2016 and Full Year 2017 outlooks do not include the effects of the spin-offs, including potential transaction costs.
Full Year 2016
- System-wide RevPAR is expected to increase between 1.5 percent and 2.0 percent on a comparable and currency neutral basis compared to 2015.
- Net income is projected to be between $948 million and $981 million.
- Adjusted EBITDA is projected to be between $2,960 million and $2,990 million.
- Management and franchise fees are projected to increase between 5 percent and 7 percent.
- Timeshare segment Adjusted EBITDA is projected to be between $370 million and $390 million.
- Corporate expense and other is projected to be between $240 million and $250 million.
- Diluted EPS, before special items, is projected to be between $0.94 and $0.97.
- Diluted EPS, adjusted for special items, is projected to be between $0.86 and $0.89.
- Capital expenditures, excluding timeshare inventory, are expected to be between $400 million and $450 million.
- Net unit growth is expected to be approximately 45,000 rooms to 50,000 rooms.
Fourth Quarter 2016
- System-wide RevPAR is expected to be flat to up 1.0 percent on a comparable and currency neutral basis compared to the fourth quarter of 2015.
- Net income is projected to be between $202 million and $235 million.
- Adjusted EBITDA is projected to be between $736 million and $766 million.
- Management and franchise fees are projected to increase between 2 percent and 4 percent.
- Diluted EPS, before special items, is projected to be between $0.20 and $0.23.
- Diluted EPS, adjusted for special items, is projected to be between $0.20 and $0.23.
Full Year 2017
For 2017, system-wide RevPAR is expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis compared to 2016. Given Hilton's strong development pipeline, unit growth should continue to accelerate in 2017 as its global system of rooms is expected to expand by between 50,000 rooms and 55,000 rooms on a net basis.
Outlook for Post-Spin Companies
Upon the completion of the proposed spin-off transactions, Hilton will be separated into three independent, publicly traded companies: Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. Full year 2016 outlook on a pro forma(1) basis for these companies is as follows:
- Hilton's pro forma Adjusted EBITDA is expected to be between $1,745 million and $1,775 million.
- Park's pro forma Adjusted EBITDA is expected to be between $750 million and $780 million.
- HGV's pro forma Adjusted EBITDA is expected to be between $370 million and $390 million.
____________ (1) Pro forma information gives effect to the spin-off transactions as if they occurred on January 1, 2016. Refer to the respective Form 10 Registration Statements of Park and HGV and the press release on these filings for additional information.
Investor Day
Hilton plans to host an investor day on Thursday, December 8, 2016 at the Conrad New York. More details will be available closer to the date at http://ir.hiltonworldwide.com.
To view full financial release and corresponding tables please click the PDF icon or visit: http://news.hiltonworldwide.com/assets/HWW/docs/2016/2016Q3EarningsRelease.PDF
