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Hilton Reports Fourth Quarter and Full Year Results; Exceeds Net Income, Adjusted EBITDA and Net Unit Growth Expectations

February 15, 2019 Financial No Comments Email Email


Hilton Worldwide Holdings Inc. (“Hilton” or the “Company”) (NYSE: HLT) today reported its fourth quarter and full year 2018 results. All results herein, including prior year periods, reflect the adoption of new accounting standards, including Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606)(“ASU 2014-09”). Highlights include:

  • Diluted EPS was $0.75 for the fourth quarter and $2.50 for the full year, and diluted EPS, adjusted for special items, was $0.79 for the fourth quarter and $2.79 for the full year
  • Net income was $225 million for the fourth quarter and $769 million for the full year
  • Adjusted EBITDA was $544 million for the fourth quarter and $2,101 million for the full year, exceeding the high end of guidance
  • System-wide comparable RevPAR increased 2.0 percent and 3.0 percent, respectively, for the fourth quarter and full year on a currency neutral basis from the same periods in 2017
  • Approved 24,900 new rooms for development during the fourth quarter, growing Hilton’s development pipeline to more than 364,000 rooms as of December 31, 2018, representing 6 percent growth from December 31, 2017
  • Opened 22,500 rooms in the fourth quarter, contributing to 57,000 net additional rooms for the full year, which represented approximately 7 percent net unit growth
  • Launched luxury collection brand, LXR Hotels & Resorts
  • Repurchased 23.5 million shares of Hilton common stock during 2018, bringing total capital return, including dividends, to approximately $1.9 billion for the full year
  • Full year 2019 system-wide RevPAR is expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis compared to 2018; full year net income is projected to be between $895 million and $931 million; full year Adjusted EBITDA is projected to be between $2,240 million and $2,290 million
  • Capital return is projected to be between $1.3 billion and $1.8 billion

Overview

Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, “We are pleased with our fourth quarter and full year results, exceeding the high end of our guidance for Adjusted EBITDA and diluted EPS, adjusted for special items, driven in part by better than expected net unit growth, up roughly 7 percent versus the prior year. In particular, we continued to expand our luxury portfolio with several exciting openings and the launch of our luxury collection brand, LXR Hotels & Resorts. We expect continued strength in room growth, combined with RevPAR growth, to provide a good setup for the year ahead.”

For the three months and year ended December 31, 2018, system-wide comparable RevPAR grew 2.0 percent and 3.0 percent, respectively, primarily driven by increased ADR. Strength at Hilton’s international hotels benefited results, particularly in Europe. Management and franchise fee revenues increased 14 percent and 12 percent during the three months and year ended December 31, 2018, respectively, as a result of RevPAR growth of 1.8 percent and 2.9 percent, respectively, at comparable managed and franchised hotels, increased licensing fees and the addition of new properties to Hilton’s portfolio.

For the three months ended December 31, 2018, diluted EPS was $0.75 and diluted EPS, adjusted for special items, was $0.79 compared to $2.27 and $0.53, respectively, for the three months ended December 31, 2017. Net income and Adjusted EBITDA were $225 million and $544 million, respectively, for the three months ended December 31, 2018, compared to $730 million and $484 million, respectively, for the three months ended December 31, 2017.

For the year ended December 31, 2018, diluted EPS was $2.50 and diluted EPS, adjusted for special items, was $2.79 compared to $3.32 and $1.98, respectively, for the year ended December 31, 2017. Net income and Adjusted EBITDA were $769 million and $2,101 million, respectively, for the year ended December 31, 2018, compared to $1,089 million and $1,909 million, respectively, for the year ended December 31, 2017.

Development

In the fourth quarter of 2018, Hilton opened 142 new hotels totaling 22,500 rooms and achieved net unit growth of nearly 19,000 rooms. During the full year 2018, Hilton opened over 450 new hotels totaling more than 66,000 rooms and achieved net unit growth of nearly 57,000 rooms, which was a 10 percent increase from the same period in 2017. Conversions from non-Hilton brands represented nearly 25 percent of the new rooms opened during the year. Hilton expanded to eight new countries and territories in 2018 and ended the year with more than 900,000 rooms open and operating.

As of December 31, 2018, Hilton’s development pipeline totaled more than 2,400 hotels consisting of over 364,000 rooms throughout 103 countries and territories, including 35 countries and territories where Hilton does not currently have any open hotels. Additionally, 195,000 rooms in the development pipeline were located outside the U.S., and 184,000 rooms, or more than half, were under construction.

Hilton recently launched LXR Hotels & Resorts, a luxury brand connecting legendary properties into a network of hotels offering singular service and remarkable experiences. The first property, the Habtoor Palace Dubai, was converted from a non-Hilton brand and opened in the second half of 2018. In January 2019, Hilton announced the conversion of The Biltmore, Mayfair, which is expected to open in the first half of 2019. The luxury hotel, situated in a prime location in the heart of Mayfair, London on Grosvenor Square, marks LXR’s European debut. Hilton also continued to expand Waldorf Astoria Hotels & Resorts, its iconic luxury hotel brand, with the conversion of the Waldorf Astoria Atlanta Buckhead in the fourth quarter.

Balance Sheet and Liquidity

As of December 31, 2018, Hilton had $7.4 billion of long-term debt outstanding, excluding deferred financing costs and discount, with a weighted average interest rate of 4.48 percent. Excluding capital lease obligations and other debt of Hilton’s consolidated variable interest entities, Hilton had $7.1 billion of long-term debt outstanding, excluding deferred financing costs and discount, with a weighted average interest rate of 4.42 percent. During the fourth quarter of 2018, Hilton made a voluntary repayment of $300 million outstanding under its senior secured term loan facility.

Total cash and cash equivalents were $484 million as of December 31, 2018, including $81 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of December 31, 2018.

During the fourth quarter of 2018, Hilton repurchased 2.2 million shares of its common stock at a cost of approximately $160 million and an average price per share of $71.83. To date, Hilton has repurchased approximately 39.2 million shares of its common stock for approximately $2.8 billion at an average price per share of $70.51; the amount remaining under Hilton’s previously announced stock repurchase program is approximately $408 million.

In December 2018, Hilton paid a quarterly cash dividend of $0.15 per share on shares of its common stock, for a total of $44 million, bringing year to date dividends to $181 million. In February 2019, 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 March 29, 2019 to holders of record of its common stock as of the close of business on March 1, 2019.

Adoption of ASUs

The Company adopted ASU 2014-09 and ASU No. 2017-07 (“ASU 2017-07”), Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on January 1, 2018 on a full retrospective basis in the consolidated financial statements. Refer to Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which is expected to be filed on or about the date of this press release, for the effect of these adoptions on the Company’s audited consolidated financial statements for the year ended December 31, 2017.

Outlook

On January 1, 2019, the Company adopted ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes existing guidance on accounting for leases in Leases (Topic 840) and generally requires all leases, including operating leases, to be recognized in the balance sheet of lessees as right-of-use assets and lease liabilities. As permitted, the Company has applied this ASU at the adoption date; therefore, the presentation of financial information for all periods prior to January 1, 2019 will remain unchanged and in accordance with Leases (Topic 840). The provisions of ASU 2016-02 will not affect the Company’s cash flow or cash available for capital return, and will not have a material impact on the consolidated statement of operations. Refer to Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which is expected to be filed on or about the date of this press release, for additional information on the impact of this ASU.

Beginning with the first quarter of 2019, the Company will modify its non-GAAP financial measures of net income, adjusted for special items, and diluted EPS, adjusted for special items, to exclude from net income: (i) FF&E replacement reserves and (ii) the amortization of intangible assets that were recorded at their fair value in October 2007 when the Company became a wholly owned subsidiary of an affiliate of The Blackstone Group L.P. (“Blackstone”). All prior period measures will reflect this modified definition when comparing to periods beginning with the first quarter of 2019. The Company believes these modifications will assist investors in performing meaningful comparisons of past, present and future operating results and better highlight the results of the Company’s ongoing operations. See “Non-GAAP Financial Measures Reconciliations—Net Income and Diluted EPS, Adjusted for Special Items, Reflecting Application of Modified Definition” for the effect of this change on the year ended December 31, 2018 and the quarterly periods therein.

Hilton’s outlook for the first quarter and full year of 2019 includes the effect of these adjustments. Share-based metrics in Hilton’s outlook include actual share repurchases to date, but do not include the effect of potential share repurchases hereafter.

Full Year 2019

  • System-wide RevPAR is expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis compared to 2018.
  • Diluted EPS, before special items, is projected to be between $3.00 and $3.12.
  • Diluted EPS, adjusted for special items, is projected to be between $3.66 and $3.78.
  • Net income is projected to be between $895 million and $931 million.
  • Adjusted EBITDA is projected to be between $2,240 million and $2,290 million.
  • Management and franchise fee revenue is projected to increase between 7 percent and 9 percent compared to 2018.
  • Contract acquisition costs and capital expenditures, excluding amounts indirectly reimbursed by hotel owners, are expected to be between $175 million and $200 million.
  • Capital return is projected to be between $1.3 billion and $1.8 billion.
  • General and administrative expenses are projected to be between $430 million and $450 million.
  • Net unit growth is expected to be approximately 6.5 percent.

First Quarter 2019

  • 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 2018.
  • Diluted EPS, before special items, is projected to be between $0.56 and $0.61.
  • Diluted EPS, adjusted for special items, is projected to be between $0.73 and $0.78.
  • Net income is projected to be between $169 million and $183 million.
  • Adjusted EBITDA is projected to be between $470 million and $490 million.
  • Management and franchise fee revenue is projected to increase between 7 percent and 9 percent compared to the first quarter of 2018.

Conference Call

Hilton will host a conference call to discuss fourth quarter and full year 2018 results on February 13, 2019 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/2018.

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 1065924. 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 10127752.

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, these forward-looking statements can be identified 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 contracts, 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 Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, 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, including in Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which is expected to be filed on or about the date of this 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 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; and net debt to Adjusted EBITDA ratio. See the schedules to this press release, including the “Definitions” section, for additional information and reconciliations of such non-GAAP financial measures.



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