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Hilton Reports Fourth Quarter and Full Year Results; Achieves Record Pipeline and Net Unit Growth for the Year

February 17, 2017 Financial No Comments Email Email

Hilton Worldwide Holdings Inc. (“Hilton,” or the “Company”) (NYSE: HLT) today reported its fourth quarter and full year 2016 results. The Company completed the spin-off of Park Hotels & Resorts Inc. (“Park”) and Hilton Grand Vacations Inc. (“HGV”) (the “spin-offs”) in January 2017. All results herein present the performance of Hilton without giving effect to the spin-offs, unless otherwise specified. Additionally, all share and share-related information presented herein have been retroactively adjusted to reflect the 1-for-3 reverse stock split of Hilton’s outstanding common stock that occurred in January 2017 (the “Reverse Stock Split”), unless noted otherwise. Highlights include:

  • Diluted loss per share was $1.17 for the fourth quarter, largely driven by $513 million of non-cash corporate restructuring charges incurred prior to the spin-offs, and diluted EPS was $1.05 for the full year
  • Diluted EPS, adjusted for special items, was $0.70 for the fourth quarter and $2.68 for the full year; diluted EPS, adjusted for special items, before giving effect to the Reverse Stock Split was $0.23 for the fourth quarter and $0.89 for the full year
  • Net loss for the fourth quarter was $382 million, and net income for the full year was $364 million
  • Adjusted EBITDA was $751 million for the fourth quarter and $2,975 million for the full year; pro forma Adjusted EBITDA was $1,763 million for the full year
  • Achieved high end of guidance on system-wide comparable RevPAR with increases of 0.9 percent and 1.8 percent for the fourth quarter and full year 2016, respectively, on a currency neutral basis from the same periods in 2015
  • Approved 29,000 new rooms for development during the fourth quarter, bringing total approvals to a record 106,000 rooms for the full year
  • Grew development pipeline 16 percent from 2015 to 1,968 hotels, consisting of 310,000 rooms, 50 percent of which are under construction
  • Net unit growth was 45,000 rooms in 2016, representing a 6.6 percent growth in managed and franchised rooms
  • Added 354 hotels to its system in 2016, opening nearly one hotel per day in the year
  • Launched its newest brand, Tapestry Collection by Hilton, in January 2017
  • Full year 2017 RevPAR projected to increase between 1.0 percent and 3.0 percent, net income from continuing operations projected to be between $555 million and $592 million and Adjusted EBITDA projected to be between $1,835 million and $1,885 million

(Graphic: Business Wire)

Overview

For the three months ended December 31, 2016, diluted loss per share was $1.17 compared to diluted earnings per share (“EPS”) of $2.47 for the three months ended December 31, 2015, and diluted EPS, adjusted for special items, was $0.70 for the three months ended December 31, 2016 compared to $0.65 for the three months ended December 31, 2015. Net loss was $382 million for the three months ended December 31, 2016 compared to net income of $816 million for the three months ended December 31, 2015, and Adjusted EBITDA was $751 million for the three months ended December 31, 2016 compared to $745 million for the three months ended December 31, 2015.

During the three months ended December 31, 2016, the Company incurred an aggregate tax charge of $513 million related to a corporate restructuring executed before the spin-offs, resulting in a net loss for the period. The event had no effect on cash taxes for the quarter. See “Non-GAAP Financial Measures Reconciliations—Net Income and Diluted EPS, Adjusted for Special Items” for additional information.

For the year ended December 31, 2016, diluted EPS was $1.05 compared to $4.26 for the year ended December 31, 2015, and diluted EPS, adjusted for special items, was $2.68 for the year ended December 31, 2016 compared to $2.44 for the year ended December 31, 2015. Net income was $364 million for the year ended December 31, 2016 compared to $1,416 million for the year ended December 31, 2015, and Adjusted EBITDA was $2,975 million for the year ended December 31, 2016 compared to $2,879 million for the year ended December 31, 2015.

Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, “For the quarter and full year, performance met our expectations. We also continued to increase our development activity this quarter and surpassed development records this year, approving 106,000 new rooms and opening nearly one hotel per day, contributing to net unit growth of over 45,000 rooms. With completion of the spin-offs, Hilton is a fee-based, capital-efficient and resilient business, with meaningful cash flow that we intend to be very disciplined in returning to stockholders.”

On January 3, 2017, Hilton completed the spin-offs of Park and HGV. As a result of the spin-offs, Hilton stockholders of record of its common stock as of close of business on December 15, 2016 received one share of Park common stock for every five shares of Hilton common stock and one share of HGV common stock for every ten shares of Hilton common stock. Transaction costs related to the spin-offs are in line with expectations.

Segment Highlights

Management and Franchise

Management and franchise fees were $436 million in the fourth quarter of 2016. RevPAR at comparable managed and franchised hotels in the fourth quarter of 2016 increased 1.0 percent on a currency neutral basis (flat in actual dollars) compared to the same period in 2015. The addition of new units also contributed to the fee growth during the fourth quarter of 2016, and, as new units stabilize in Hilton’s system, fees are expected to increase.

For the full year 2016, management and franchise fees were $1,786 million. RevPAR at comparable managed and franchised hotels for the full year 2016 increased 2.0 percent on a currency neutral basis (1.2 percent 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 2016.

Ownership

Revenues from the ownership segment were $1,029 million in the fourth quarter of 2016 and ownership segment Adjusted EBITDA was $259 million. RevPAR at comparable hotels in the ownership segment was flat on a currency neutral basis (a 2.7 percent decrease in actual dollars) in the fourth quarter of 2016 compared to the same period in 2015. Ownership segment RevPAR in the fourth quarter of 2016 was pressured by decreased group revenues at certain properties due to renovations and challenging year over year comparisons.

During the full year 2016, revenues from the ownership segment were $4,157 million and ownership segment Adjusted EBITDA was $1,029 million. RevPAR at comparable hotels in the ownership segment increased 0.8 percent on a currency neutral basis (a 0.7 percent decrease in actual dollars) for the full year of 2016 compared to the same period in 2015.

A portfolio of 67 of Hilton’s owned and leased hotels and resorts was included in the spin-off of Park and, as part of its on-going relationship with Park, Hilton has entered into long-term management or franchise agreements for each of these properties.

Timeshare

Timeshare segment revenues for the fourth quarter of 2016 were $370 million and timeshare Adjusted EBITDA was $103 million. Overall sales volume increased 14 percent in the fourth quarter of 2016, compared to the same period in 2015, as a result of increased tour flow and net volume per guest. Revenue from resort operations increased 20 percent during the fourth quarter of 2016 from the same period in 2015.

Timeshare segment revenues were $1,390 million for the full year 2016 and timeshare Adjusted EBITDA was $381 million. The improvement in timeshare segment revenues was a result of a rise in sales volume resulting from increases in both commissions recognized from the sale of third-party developed intervals and revenue from the sales of owned timeshare intervals, as well as growth in resort operations. These increases were partially offset by increased timeshare expenses resulting from higher selling and marketing expenses.

During the three months and year ended December 31, 2016, 54 percent and 60 percent of timeshare intervals sold were developed by third parties, respectively. Hilton’s overall supply of timeshare intervals as of December 31, 2016 was approximately 163,000 intervals, of which 117,000, or 72 percent, were third-party developed.

Hilton’s timeshare business was included in the spin-off of HGV and, as part of its on-going relationship with HGV, Hilton and HGV have entered into a 100-year license agreement for use of the timeshare brand.

Development

Hilton opened 105 hotels consisting of 15,700 rooms, of which over 22 percent were conversions from non-Hilton brands, and achieved net unit growth of 15,100 rooms during the fourth quarter of 2016. During the full year 2016, Hilton opened 354 hotels consisting of 51,500 rooms, of which over 22 percent were conversions form non-Hilton brands, and achieved net unit growth of over 45,000 rooms.

As of December 31, 2016, Hilton’s rooms pipeline totaled approximately 310,000 rooms at 1,968 hotels throughout 96 countries and territories, including 32 countries and territories where Hilton does not currently have any open hotels. Over 159,000 rooms, or more than half of the pipeline, were located outside of the United States. Additionally, over 157,000 of the rooms in Hilton’s pipeline were under construction.

Tru by Hilton had continued success in its initial year of development, with approvals for 35 hotels in the fourth quarter for a total of 179 hotels in the pipeline as of December 31, 2016. As of January 31, 2017, Tru had nearly 400 hotels in the pipeline or in various stages of approval. In January 2017, Hilton launched its 14th brand, Tapestry Collection by Hilton, offering travelers a refreshing choice for independent hotels in the growing upscale segment. As of January 31, 2017, Tapestry Collection by Hilton had over 40 deals in process. The first Tapestry is expected to open by the third quarter of 2017.

Balance Sheet and Liquidity

During the fourth quarter of 2016, in preparation for the spin-offs, Hilton entered into the following financing transactions, of which the debt incurred by Park and HGV is the sole obligation of those entities following the spin-offs:

  • repaid $250 million on the senior secured term loan facility entered into in 2013;
  • amended the $1 billion senior secured revolving credit facility entered into in 2013 to extend the maturity date by three years to 2021;
  • issued $300 million aggregate principal amount of 6.125% senior notes due 2024 for HGV;
  • entered into a senior secured credit facility consisting of a $200 million senior secured revolving credit facility and a $200 million senior secured term loan facility for HGV;
  • entered into a senior unsecured credit facility consisting of a $1 billion senior unsecured revolving credit facility and a $750 million senior unsecured term loan facility for Park;
  • issued two new commercial mortgage-backed securities (“CMBS”) loans for Park totaling $2 billion; and
  • borrowed $300 million on the revolving non-recourse timeshare financing receivables credit facility entered into in 2013 for HGV.

Also during the fourth quarter of 2016, Hilton repaid the outstanding balance of $3,418 million on the CMBS loan entered into in 2013 and a $450 million mortgage loan, using net proceeds from 2016 borrowings and available cash.

As of December 31, 2016, Hilton had $10.2 billion of long-term debt outstanding, with a weighted average interest rate of 4.2 percent, of which $3.0 billion was transferred to Park and $0.5 billion was transferred to HGV in connection with the spin-offs.

Total cash and cash equivalents was $1,684 million as of December 31, 2016, including $266 million of restricted cash and cash equivalents, of which $350 million was transferred to Park and $151 million was transferred to HGV in connection with the spin-offs. No borrowings were outstanding under any of the revolving credit facilities as of December 31, 2016.

In December 2016, Hilton paid a quarterly cash dividend of $0.07 per share on its then outstanding shares of common stock, for a total of $70 million, bringing total cash dividends paid in 2016 to $277 million.

The HNA Tourism Group Co., Ltd. is expected to complete its acquisition of a 25 percent equity interest in each of Hilton, Park and HGV, subject to customary closing conditions, from affiliates of The Blackstone Group L.P. for approximately $6.5 billion during the first quarter of 2017.

Outlook

The Full Year 2017 and First Quarter 2017 outlooks include the effects of the spin-offs of Park and HGV. The outlooks of Park and HGV will be presented as part of their respective earnings releases. Beginning in the first quarter of 2017, commensurate with the completion of the spin-offs, the historical financial results of Park and HGV will be reflected as discontinued operations in Hilton’s consolidated financial statements.

Full Year 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.
  • Diluted EPS from continuing operations, before special items, is projected to be between $1.65 and $1.75.
  • Diluted EPS, adjusted for special items, is projected to be between $1.65 and $1.75.
  • Net income from continuing operations is projected to be between $555 million and $592 million.
  • Adjusted EBITDA is projected to be between $1,835 million and $1,885 million.
  • Management and franchise fee revenue is projected to increase between 6 percent and 8 percent.
  • Capital expenditures, excluding amounts reimbursed by hotel owners, are projected to be between $150 million and $200 million.
  • Cash available for capital return and debt prepayments is projected to be between $900 million and $1 billion.
  • General and administrative expense is projected to be flat compared to pro forma 2016.
  • Net unit growth is expected to be approximately 50,000 rooms to 55,000 rooms.

First Quarter 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 the first quarter of 2016.
  • Diluted EPS from continuing operations, before special items, is projected to be between $0.24 and $0.29.
  • Diluted EPS, adjusted for special items, is projected to be between $0.24 and $0.29.
  • Net income from continuing operations is projected to be between $82 million and $100 million.
  • Adjusted EBITDA is projected to be between $380 million and $400 million.
  • Management and franchise fee revenue is projected to increase between 2 percent and 4 percent.

Conference Call

Hilton will host a conference call to discuss fourth quarter and full year 2016 results on February 15, 2017 at 10:00 a.m. Eastern Time. Participants may listen to the live webcast by logging onto the Hilton Investor Relations website at http://ir.hilton.com/events-and-presentations. A replay and transcript of the webcast will be available within 24 hours after the live event at http://ir.hilton.com/financial-reporting/quarterly-results/2016.

Alternatively, participants may listen to the live call by dialing 1-888-317-6003 in the United States or 1-412-317-6061 internationally. Please use the conference ID 7354038. Participants are encouraged to dial into the call or link to the webcast at least fifteen minutes prior to the scheduled start time. A telephone replay will be available for seven days following the call. To access the telephone replay, dial 1-877-344-7529 in the United States or 1-412-317-0088 internationally using the conference ID 10099116.

Park and HGV will individually host conference calls to discuss their respective results and outlook.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to the expectations regarding the performance of Hilton’s business, financial results, liquidity and capital resources and other non-historical statements, including the statements in the “Outlook” section of this press release. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond Hilton’s control, competition for hotel guests and management and franchise agreements, risks related to doing business with third-party hotel owners, performance of Hilton’s information technology systems, growth of reservation channels outside of Hilton’s system, risks of doing business outside of the United States and Hilton’s indebtedness. Additional factors that could cause Hilton’s results to differ materially from those described in the forward-looking statements can be found under the section entitled “Part I—Item 1A. Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”), as such factors may be updated from time to time in Hilton’s periodic filings with the SEC, including in Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which is expected to be filed on or about the date of the press release, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in Hilton’s filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Non-GAAP Financial Measures

The Company refers to certain non-GAAP financial measures in this press release, including net income and EPS, adjusted for special items, Adjusted EBITDA, Adjusted EBITDA margin, net debt and net debt to Adjusted EBITDA ratio. Please see the schedules to this press release including the “Definitions” section for additional information and reconciliations of such non-GAAP financial measures.

Pro Forma Financial Information

This press release includes an unaudited pro forma condensed consolidated statement of operations, pro forma management and franchise fees and other revenues and pro forma Adjusted EBITDA, net debt and net debt to Adjusted EBITDA ratio for Hilton adjusted to reflect the spin-offs. The unaudited pro forma financial information has been prepared to reflect the spin-offs as if they had occurred on January 1, 2016. See “Definitions—Pro Forma Adjustments” for additional details. The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what Hilton’s results of operations would actually have been had the spin-offs occurred on the date indicated or what Hilton’s results of operations will be after giving effect to the completion of the spin-offs.

In addition to the pro forma financial information herein, refer to Hilton’s Current Report on Form 8-K filed with the SEC on January 4, 2017 for certain prior periods.

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