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Hilton Reports Second Quarter Results and Progress on Planned Spin Transactions

August 1, 2016 Financial No Comments Print Print Email Email

Hilton Worldwide Holdings Inc. (“Hilton,” “Hilton Worldwide” or the “Company”) (NYSE: HLT) today reported its second quarter 2016 results. Highlights include:

  • EPS, adjusted for special items, was $0.25 for the second quarter; without adjustments, EPS was $0.24
  • Net income for the second quarter was $244 million, an increase of $77 million from the same period in 2015
  • Adjusted EBITDA for the second quarter was $806 million, an increase of 4 percent from the same period in 2015, and Adjusted EBITDA margin increased 100 basis points
  • System-wide comparable RevPAR increased 2.9 percent for the second quarter on a currency neutral basis from the same period in 2015
  • Management and franchise fees for the second quarter increased 9 percent from the same period in 2015 to $471 million
  • Net unit growth was 10,400 rooms in the second quarter contributing to a 7 percent growth in managed and franchised rooms from 2015
  • Approved 24,000 new rooms for development during the second quarter, growing Hilton’s development pipeline to 1,822 hotels, consisting of 288,000 rooms
  • Filed registration statements for planned spin-offs of Park Hotels & Resorts and Hilton Grand Vacations and announced management teams for both companies; remains on track to complete spin transactions by year end

newHW Q2Results-FINAL (002)

Hilton Reports Second Quarter Results (Graphic: Business Wire)

Overview

For the three months ended June 30, 2016, EPS was $0.24 compared to $0.16 for the three months ended June 30, 2015, and EPS, adjusted for special items, was $0.25 for both the three months ended June 30, 2016 and 2015. Net income was $244 million for the three months ended June 30, 2016 compared to $167 million for the three months ended June 30, 2015, and Adjusted EBITDA increased 4 percent to $806 million for the three months ended June 30, 2016, compared to $777 million for the three months ended June 30, 2015.

For the six months ended June 30, 2016, EPS was $0.55 compared to $0.31 for the six months ended June 30, 2015, and EPS, adjusted for special items, was $0.43 for the six months ended June 30, 2016 compared to $0.37 for the six months ended June 30, 2015. Special items in the first six months of 2016 were primarily related to a $153 million net change in unrecognized tax benefits. Net income was $554 million for the six months ended June 30, 2016 compared to $317 million for the six months ended June 30, 2015, and Adjusted EBITDA increased 6 percent to $1,459 million for the six months ended June 30, 2016, compared to $1,376 million for the six months ended June 30, 2015.

Christopher J. Nassetta, President & Chief Executive Officer of Hilton Worldwide, said, “We had solid results this quarter, with EPS and Adjusted EBITDA in line with our expectations, and our share of global development activity increasing. Our newest brand, Tru by Hilton, has nearly doubled its pipeline during the quarter to 93 hotels. Additionally, we opened over 12,200 new rooms in the quarter, and are thrilled about the opening of the first Canopy by Hilton in Reykjavik, Iceland earlier this month.”

Segment Highlights

Management and Franchise

Management and franchise fees were $471 million in the second quarter of 2016, an increase of 9 percent compared to the same period in 2015. RevPAR at comparable managed and franchised hotels in the second quarter of 2016 increased 3.2 percent on a currency neutral basis (a 2.5 percent increase in actual dollars) compared to the same period in 2015. The increase in RevPAR at comparable managed and franchised hotels, addition of new units and rising effective franchise fee rates have yielded continued fee growth during the second quarter of 2016.

Ownership

Revenues from the ownership segment were $1,114 million in the second quarter of 2016, and ownership segment Adjusted EBITDA was $299 million. RevPAR at comparable hotels in the ownership segment increased 0.7 percent on a currency neutral basis (a 0.2 percent increase in actual dollars) in the second quarter of 2016 compared to the same period in 2015. Modest growth in ownership segment RevPAR in the second quarter of 2016 was primarily attributable to weaker performance in New York and Chicago. For the first half of the year, ownership segment Adjusted EBITDA margin(1) increased 10 basis points.

____________

(1)

Calculated as ownership segment Adjusted EBITDA divided by ownership segment revenues.

Timeshare

Timeshare segment revenues for the second quarter of 2016 were $336 million and timeshare Adjusted EBITDA was $98 million, an increase of 14 percent compared to the same period in 2015. Revenue from resort operations increased $9 million during the second quarter of 2016 from the same period in 2015. Overall timeshare sales volume increased 13 percent in the second quarter of 2016, compared to the same period in 2015, as a result of increased tour flow and net volume per guest of 6 percent each. Commissions recognized from the sale of third-party developed timeshare intervals increased $30 million during the second quarter of 2016 from the same period in 2015, while sales revenue on owned inventory decreased $24 million during the second quarter of 2016 from the same period in 2015.

During the three months ended June 30, 2016, 61 percent of intervals sold were developed by third parties. Hilton Worldwide’s overall supply of timeshare intervals as of June 30, 2016 was approximately 132,000 intervals, or nearly six years of sales at current pace, of which 107,000, or 81 percent, are third-party developed.

Development

Hilton Worldwide opened 76 hotels consisting of over 12,200 rooms, of which over 20 percent were conversions from non-Hilton brands, and achieved net unit growth of nearly 10,400 rooms during the second quarter of 2016. Additionally, Hilton Worldwide grew its global footprint to 104 countries and territories with the openings of the Hilton Tallinn Park in Estonia and the Conrad Manila in the Philippines.

As of June 30, 2016, Hilton Worldwide had the largest rooms pipeline in the lodging industry(2), with approximately 288,000 rooms at 1,822 hotels throughout 91 countries and territories, including 32 countries and territories where Hilton Worldwide does not currently have any open hotels. Over 144,000 rooms, or more than half of the pipeline, were located outside of the United States. Additionally, approximately 143,000 rooms, or approximately half of the pipeline, were under construction. At nearly 21 percent, Hilton Worldwide also has the largest share of rooms under construction globally(2). Including all agreements approved but not signed, Hilton Worldwide’s pipeline totaled over 300,000 rooms, which will be almost entirely funded by third-party owner investment.

____________

(2)

Source: STR Global New Development Pipeline (June 2016).

Balance Sheet and Liquidity

Total cash and cash equivalents were $1,081 million as of June 30, 2016, including $271 million of restricted cash and cash equivalents. As of June 30, 2016, Hilton had $10.0 billion of long-term debt outstanding with a weighted average interest rate of 4.3 percent. No borrowings were outstanding under the $1.0 billion revolving credit facility as of June 30, 2016.

In June 2016, Hilton Worldwide 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 $138 million. Hilton’s board of directors has authorized a regular quarterly cash dividend of $0.07 per share of common stock to be paid on or before September 16, 2016 to holders of record of its common stock as of the close of business on August 19, 2016.

Outlook

Hilton Worldwide disclosed financial and other details of the planned spin-offs of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. 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 by 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 and Third Quarter 2016 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 2.0 percent and 4.0 percent on a comparable and currency neutral basis, with ownership segment RevPAR expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis, as compared to 2015.
  • Net income is projected to be between $1,015 million and $1,051 million.
  • Adjusted EBITDA is projected to be between $2,980 million and $3,040 million.
  • Management and franchise fees are projected to increase approximately 6 percent to 8 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 $1.00 and $1.04.
  • Diluted EPS, adjusted for special items, is projected to be between $0.87 and $0.91.
  • 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.

Third Quarter 2016

  • System-wide RevPAR is expected to increase between 2.0 percent and 4.0 percent on a comparable and currency neutral basis compared to the third quarter of 2015.
  • Net income is projected to be between $223 million and $235 million.
  • Adjusted EBITDA is projected to be between $760 million and $780 million.
  • Management and franchise fees are projected to increase approximately 7 percent to 9 percent.
  • Diluted EPS, before special items, is projected to be between $0.21 and $0.23.
  • Diluted EPS, adjusted for special items, is projected to be between $0.21 and $0.23.

Outlook for Post-spin Companies

Upon the completion of the proposed spin-off transactions, Hilton Worldwide 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(3) basis for these companies is as follows:

  • Hilton’s pro forma Adjusted EBITDA is expected to be between $1,750 million and $1,800 million.
  • Park Hotels & Resorts Inc.’s pro forma Adjusted EBITDA is expected to be between $770 million and $800 million.
  • Hilton Grand Vacations Inc.’s pro forma Adjusted EBITDA is expected to be between $370 million and $390 million.
____________

(3)

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 Hotels & Resorts Inc. and Hilton Grand Vacations Inc. and the press release on these filings for additional information.

Conference Call

Hilton Worldwide will host a conference call to discuss second quarter 2016 results on July 27, 2016 at 10:00 a.m. Eastern Time. Participants may listen to the live webcast by logging onto the Hilton Worldwide Investor Relations website athttp://ir.hiltonworldwide.com/events-and-presentations. A replay and transcript of the webcast will be available within 24 hours after the live event at http://ir.hiltonworldwide.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 1471720. 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 10088325.

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, the planned spin-offs 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, management and franchise agreements and timeshare sales, risks related to doing business with third-party hotel owners, Hilton’s significant investments in owned and leased real estate, 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, risks related to Hilton’s proposed spin-offs 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 SEC, as such factors may be updated from time to time in Hilton’s periodic filings with the SEC, 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 and 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.

In addition, this press release includes projected pro forma Adjusted EBITDA for the year ending December 31, 2016 for each of Hilton, Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. A reconciliation of projected pro forma Adjusted EBITDA to a measure calculated in accordance with GAAP is not available without unreasonable effort due to the unavailability of certain information needed to calculate certain reconciling items, including interest expense and income tax expense. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

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