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Hilton Reports Second Quarter Results, Raises Full Year Outlook

July 28, 2017 Financial No Comments Email Email

Hilton Worldwide Holdings Inc. (“Hilton” or the “Company”) (NYSE: HLT) today reported its second quarter 2017 results. All results herein present the performance of Hilton giving effect to the spin-offs of Park Hotels & Resorts Inc. (“Park”) and Hilton Grand Vacations Inc. (“HGV”) on January 3, 2017 (the “spin-offs”), with the historical financial results of Park and HGV reflected as discontinued operations. Additionally, all historical share and share-related information presented herein have been retrospectively adjusted to reflect the 1-for-3 reverse stock split of Hilton’s outstanding common stock that occurred on January 3, 2017 (the “Reverse Stock Split”). Highlights include:

  • Diluted EPS from continuing operations for the second quarter was $0.51 and diluted EPS, adjusted for special items, was $0.52, an increase of 30 percent from the second quarter of 2016 on a pro forma basis
  • Net income for the second quarter was $167 million
  • Adjusted EBITDA for the second quarter was $519 million, an increase of 10 percent from pro forma Adjusted EBITDA for the second quarter of 2016
  • Adjusted EBITDA margin was 57.0 percent, an increase of 340 basis points from pro forma Adjusted EBITDA margin for the second quarter of 2016
  • System-wide comparable RevPAR increased 1.8 percent on a currency neutral basis for the second quarter compared to the prior year
  • Added 13,400 net rooms in the second quarter, representing approximately 30 percent growth from the same period in 2016
  • Approved 27,400 new rooms for development during the second quarter, growing Hilton’s development pipeline to a record 332,000 rooms, representing 15 percent growth from June 30, 2016
  • Repurchased 4.5 million shares of Hilton common stock for an aggregate cost of $282 million during the second quarter, and 6.8 million shares at an aggregate cost of $425 million since share repurchases began in March 2017
  • Raised Adjusted EBITDA guidance for full year 2017 to between $1,880 million and $1,920 million, an increase of $20 million at the midpoint
  • Raised cash available for capital return guidance for full year 2017 to between $1.0 billion and $1.1 billion, an increase of $100 million at the midpoint

Overview

Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, “We had another successful quarter, exceeding the high end of our guidance for Adjusted EBITDA and diluted EPS, adjusted for special items, and as a result, we are increasing our full year outlook, including our expectations for capital return. Fundamentals remain largely stable around the world, and we maintain our expectations for full year RevPAR growth of 1.0 percent to 3.0 percent. Development activity continues to be strong with nearly 1 in 4 rooms under construction globally set to become part of our portfolio. Additionally, we expect to increase our luxury distribution by approximately 15 percent this year, including openings in the quarter, such as the Waldorf Astoria Beverly Hills, Conrad Osaka, Conrad Guangzhou and Conrad San Luis Potosi.”

For the three months ended June 30, 2017, system-wide comparable RevPAR grew 1.8 percent primarily from increased ADR, benefiting from strength at our international hotels. Management fee and franchise fee revenues increased as a result of increases in RevPAR of 1.7 percent at comparable managed and franchised hotels, as well as from the addition of new managed and franchised properties to Hilton’s portfolio.

For the six months ended June 30, 2017, system-wide comparable RevPAR grew 2.4 percent from both increased occupancy and ADR. Management fee and franchise fee revenues increased as a result of increases in RevPAR of 2.3 percent at comparable managed and franchised hotels, as well as from the addition of new managed and franchised properties to Hilton’s portfolio.

2017 vs. 2016 Pro Forma Results

For the three months ended June 30, 2017, diluted earnings per share (“EPS”) from continuing operations was $0.51 compared to $0.40 on a pro forma basis for the three months ended June 30, 2016, and diluted EPS, adjusted for special items, was $0.52 for the three months ended June 30, 2017 compared to $0.40 on a pro forma basis for the three months ended June 30, 2016. Income from continuing operations, net of taxes was $167 million for the three months ended June 30, 2017 compared to $137 million on a pro forma basis for the three months ended June 30, 2016. Adjusted EBITDA increased 10 percent to $519 million for the three months ended June 30, 2017 compared to $472 million on a pro forma basis for the three months ended June 30, 2016. Management and franchise fees increased 11 percent compared to the pro forma three months ended June 30, 2016.

For the six months ended June 30, 2017, diluted EPS from continuing operations was $0.73 compared to $1.08 on a pro forma basis for the six months ended June 30, 2016, and diluted EPS, adjusted for special items, was $0.90 for the six months ended June 30, 2017 compared to $0.65 on a pro forma basis for the six months ended June 30, 2016. Income from continuing operations, net of taxes was $242 million for the six months ended June 30, 2017 compared to $360 million on a pro forma basis for the six months ended June 30, 2016. Adjusted EBITDA increased 12 percent to $943 million for the six months ended June 30, 2017 compared to $839 million on a pro forma basis for the six months ended June 30, 2016. Management and franchise fees increased 9 percent compared to the pro forma six months ended June 30, 2016.

2017 vs. 2016 Actual Results

For the three months ended June 30, 2017, diluted EPS from continuing operations was $0.51 compared to $0.29 for the three months ended June 30, 2016, and diluted EPS, adjusted for special items, was $0.52 for the three months ended June 30, 2017 compared to $0.29 for the three months ended June 30, 2016. Income from continuing operations, net of taxes was $167 million for the three months ended June 30, 2017 compared to $100 million for the three months ended June 30, 2016. Adjusted EBITDA was $519 million for the three months ended June 30, 2017 compared to $412 million for the three months ended June 30, 2016.

For the six months ended June 30, 2017, diluted EPS from continuing operations was $0.73 compared to $0.87 for the six months ended June 30, 2016, and diluted EPS, adjusted for special items, was $0.90 for the six months ended June 30, 2017 compared to $0.44 for the six months ended June 30, 2016. Income from continuing operations, net of taxes was $242 million for the six months ended June 30, 2017 compared to $291 million for the six months ended June 30, 2016. Adjusted EBITDA was $943 million for the six months ended June 30, 2017 compared to $727 million for the six months ended June 30, 2016.

Development

In the second quarter of 2017, Hilton opened 107 hotels consisting of 15,600 rooms, achieving net unit growth of 13,400 rooms, which is nearly 30 percent higher than in the second quarter of 2016.

As of June 30, 2017, Hilton’s development pipeline totaled approximately 332,000 rooms at 2,153 hotels throughout 104 countries and territories, including 36 countries and territories where Hilton does not currently have any open hotels. Of the rooms in the pipeline, 169,000 rooms, or more than half of the pipeline, were located outside the U.S., and over 169,000 rooms were under construction.

Hilton opened the first Tapestry Collection by Hilton in Syracuse, New York in May 2017, just four months after the brand’s launch, and as of July 2017, 78 Tapestry hotels were in the pipeline or in various stages of approval. In the second quarter of 2017, Tru by Hilton, which launched in 2016, opened its first three hotels and, as of July 2017, had 420 hotels in the pipeline or in various stages of approval.

Balance Sheet and Liquidity

As of June 30, 2017, Hilton had $6.7 billion of long-term debt outstanding, excluding deferred financing costs and discount, with a weighted average interest rate of 4.1 percent.

Total cash and cash equivalents were $909 million as of June 30, 2017, including $125 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of June 30, 2017.

During the second quarter of 2017, Hilton repurchased 4.5 million shares of common stock at a cost of approximately $282 million at an average price per share of $63.31. Since repurchases began in March 2017 through July 2017, Hilton repurchased 6.8 million shares for approximately $425 million.

In June 2017, Hilton paid a quarterly cash dividend of $0.15 per share on shares of its common stock, for a total of $49 million. In July 2017, Hilton’s board of directors authorized a regular quarterly cash dividend of $0.15 per share of common stock to be paid on or before September 29, 2017 to holders of record of its common stock as of the close of business on August 18, 2017.

Outlook

Share-based metrics in Hilton’s outlook do not include the effect of potential share repurchases.

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, before special items, is projected to be between $1.61 and $1.68.
  • Diluted EPS, adjusted for special items, is projected to be between $1.78 and $1.85.
  • Net income is projected to be between $534 million and $559 million.
  • Adjusted EBITDA is projected to be between $1,880 million and $1,920 million.
  • Management and franchise fee revenue is projected to increase between 8 percent and 10 percent compared to 2016 on a pro forma basis.
  • Capital expenditures, excluding amounts reimbursed by hotel owners, are expected to be between $150 million and $200 million.
  • Cash available for capital return is projected to be between $1.0 billion and $1.1 billion.
  • General and administrative expenses are projected to be between $430 million and $440 million, including approximately $30 million of transaction-related costs.
  • Net unit growth is expected to be approximately 50,000 rooms to 55,000 rooms.

Third Quarter 2017

  • System-wide RevPAR is expected to increase between 0.0 percent and 2.0 percent on a comparable and currency neutral basis compared to the third quarter of 2016.
  • Diluted EPS, before special items, is projected to be between $0.47 and $0.51.
  • Diluted EPS, adjusted for special items, is projected to be between $0.47 and $0.51.
  • Net income is projected to be between $156 million and $169 million.
  • Adjusted EBITDA is projected to be between $490 million and $510 million.
  • Management and franchise fee revenue is projected to increase between 7 percent and 9 percent compared to the third quarter of 2016 on a pro forma basis.

Conference Call

Hilton will host a conference call to discuss second quarter 2017 results on July 26, 2017 at 10:00 a.m. Eastern Time. Participants may listen to the live webcast by logging on to 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/2017.

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 9427187. 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 10110003.

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. In some cases, 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, 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 of America (“U.S.”), 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, 2016, filed with the Securities and Exchange Commission (“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 press 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 financial measures that are not recognized under U.S. generally accepted accounting principles (“GAAP”) in this press release, including: net income, adjusted for special items; diluted EPS, adjusted for special items; Adjusted EBITDA; Adjusted EBITDA margin; net debt; net debt to Adjusted EBITDA ratio; and trailing twelve month financial information. 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 pro forma financial information for Hilton adjusted to reflect the spin-offs, including: unaudited pro forma condensed consolidated statements of operations; pro forma net income and diluted EPS, adjusted for special items; pro forma Adjusted EBITDA; pro forma Adjusted EBITDA margin; and pro forma net debt to Adjusted EBITDA ratio. 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 additional information.

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