Company Results

Hilton Worldwide Reports Strong Second Quarter 2014 Results, Exceeding EPS and RevPAR Expectations; Raises Full Year Outlook

EPS and EPS, adjusted for special items, for the second quarter both increased 24 percent from the same period in 2013 to $0.21

Hilton Worldwide

Hilton Worldwide Holdings Inc reported its second quarter 2014 results and raised its full year 2014 outlook. Highlights include:

  • EPS and EPS, adjusted for special items, for the second quarter both increased 24 percent from the same period in 2013 to $0.21
  • Net income attributable to Hilton stockholders for the second quarter was $209 million, an increase of 35 percent from the same period in 2013
  • Adjusted EBITDA for the second quarter increased more than 10 percent from the same period in 2013 to $651 million and Adjusted EBITDA margin increased 110 basis points
  • Management and franchise fees for the second quarter increased 14 percent from the same period in 2013 to $371 million
  • System-wide comparable RevPAR increased 6.7 percent for the second quarter on a currency neutral basis from the same period in 2013
  • U.S. comparable RevPAR increased 7.3 percent for the second quarter from the same period in 2013
  • Opened more than 8,000 rooms in the second quarter for a total of over 17,000 rooms for the first half of 2014
  • Approved 21,000 new rooms for development during the second quarter, growing its industry-leading development pipeline to 1,230 hotels, consisting of approximately 210,000 rooms, as of June 30, 2014
  • Reduced long-term debt by $250 million during the second quarter and another $150 million in July 2014, for a total of $600 million through July 2014; raised full year guidance for voluntary debt prepayments to between $800 million and $1.0 billion
  • Increased outlook for full year 2014 Adjusted EBITDA to between $2,425 million and $2,475 million

Overview

For the three months ended June 30, 2014, earnings per share ("EPS") was $0.21 compared to $0.17 for the three months ended June 30, 2013. Adjusted EBITDA increased over 10 percent to $651 million for the three months ended June 30, 2014, compared to $590 million for the three months ended June 30, 2013 and net income attributable to Hilton stockholders was $209 million for the three months ended June 30, 2014 compared to $155 million for the three months ended June 30, 2013.

For the six months ended June 30, 2014, EPS was $0.34 compared to $0.20 for the six months ended June 30, 2013. Adjusted EBITDA increased 15 percent to $1,195 million for the six months ended June 30, 2014, compared to $1,037 million for the six months ended June 30, 2013 and net income attributable to Hilton stockholders was $332 million for the six months ended June 30, 2014 compared to $189 million for the six months ended June 30, 2013.

Christopher J. Nassetta, President & Chief Executive Officer of Hilton Worldwide, said, "We had another great quarter led by a 6.7 percent increase in system-wide RevPAR, and as a result, we are increasing our Adjusted EBITDA and EPS outlook for the year.

"This quarter, we further expanded and diversified our brand portfolio with the launch of our newest brand, Curio - A Collection by Hilton," Nassetta added. "We continue to increase the global presence of our industry-leading brands, with over 8,000 new rooms opening during the second quarter. We also remain #1 in rooms under construction in every major region of the world, with an 18 percent share of all rooms under construction globally, totaling 542 hotels and 106,000 rooms.

"I am particularly proud that Hilton Worldwide continues to innovate to better serve our guests. For the first time in the industry, our guests can check-in, using their Hilton HHonors account on a mobile device, tablet or computer, and choose their exact room from digital floor plans before arriving at their hotel. This capability will be available at U.S.-based Hilton Worldwide properties across six of our brands by the end of the summer, and by the end of 2014, guests at more than 4,000 properties in 80-plus countries can experience this new technology. Moving forward, we will give guests even more choice and control with the ability to use their smart phones as a room key and are pleased to announce that by the end of 2015, all U.S. hotels across four brands will have this capability, with the entire global portfolio of brands following soon after."

Segment Highlights

Management and Franchise

Management and franchise fees were $371 million in the second quarter of 2014, an increase of 14 percent compared to the same period in 2013. Excluding $3 million of affiliate management fees that are not comparable year over year as a result of a modification to certain affiliate management agreements, management and franchise fees increased 13 percent. RevPAR at comparable managed and franchised hotels in the second quarter increased 7.0 percent on a currency neutral basis (a 6.8 percent increase in actual dollars) compared to the same period in 2013.

Ownership

Revenues from the ownership segment were $1,126 million in the second quarter of 2014, an increase of 4 percent from the same period in 2013. Ownership segment Adjusted EBITDA for the second quarter of 2014 was $291 million. Ownership segment Adjusted EBITDA increased 8 percent(1) from the same period in 2013 and Adjusted EBITDA margin increased approximately 100 basis points(1). RevPAR at comparable hotels in the ownership segment increased 4.8 percent on a currency neutral basis (a 5.9 percent increase in actual dollars) in the second quarter of 2014 compared to the same period in 2013, led by an increase in ADR of 4.6 percent at comparable ownership segment hotels in the United States. Outside of the United States, RevPAR at comparable ownership segment hotels increased by 2.4 percent on a currency neutral basis (a 5.0 percent increase in actual dollars).

____________

(1)

 

Excluding $3 million of affiliate management fees in the second quarter of 2014 that are not comparable year over year as a result of a modification to certain affiliate management agreements. Ownership segment Adjusted EBITDA margin is calculated as ownership segment Adjusted EBITDA divided by ownership segment revenues.

 

Timeshare

Timeshare segment Adjusted EBITDA for the second quarter of 2014 was $69 million, a 15 percent increase compared to the same period in 2013. Timeshare revenues increased 6 percent to $276 million in the second quarter of 2014 compared to the same period in 2013, led by an $8 million increase in revenue from resort operations compared to the second quarter of 2013, as well as a $4 million increase in timeshare sales revenue, including a $3 million increase in revenue from sales of timeshare units developed by third parties. During the second quarter of 2014, 57 percent of intervals sold were developed by third parties. Our supply of third-party developed timeshare intervals was approximately 88,000, or 82 percent of our total supply, as of June 30, 2014.

Development

Hilton Worldwide opened 56 hotels with over 8,000 rooms in the second quarter of 2014 and achieved net unit growth of over 7,000 rooms. On May 16, 2014, Hilton Worldwide entered a new country with the opening of the Hilton Garden Inn Astana, Kazakhstan, increasing Hilton Worldwide's global presence to 93 countries and territories.

On June 2, 2014, Hilton Worldwide launched a new brand: Curio - A Collection by Hilton. Created for travelers who seek local discovery and experiences, Curio will consist of a carefully selected collection of hotels that will retain their unique identity but are expected to deliver the many benefits of Hilton Worldwide's system, including the Hilton HHonors guest loyalty program. As of June 30, 2014, nine Curio properties comprising more than 4,100 rooms, including the SLS Las Vegas Hotel & Casino, were either in the pipeline or had signed letters of intent to be included in the collection.

As of June 30, 2014, Hilton Worldwide had the largest rooms pipeline in the lodging industry, according to Smith Travel Research, Inc. ("STR"), with approximately 210,000 rooms at 1,230 hotels throughout 75 countries and territories, of which 56 percent, or over 117,000 rooms, were located outside of the United States. Over half of the development pipeline, or over 106,000 rooms, were under construction. According to STR, Hilton Worldwide has the largest supply of rooms under construction in every major region of the world, as illustrated in the table below:

 

Hilton Worldwide Rooms

Under Construction

Market % of Total   Industry Rank
Americas 20.4% #1
Europe 19.7% #1

Middle East & Africa

21.6% #1
Asia Pacific 15.0% #1
Global 17.9% #1

____________

Source: STR Global New Development Pipeline (June 2014).

 

Balance Sheet and Liquidity

During the second quarter of 2014, Hilton made $250 million of voluntary prepayments on its senior secured term loan facility. In July 2014, an additional $150 million voluntary prepayment was made, bringing the total voluntary prepayments to $600 million through July 2014.

In June 2014, Hilton completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $304 million of 1.77 percent notes and approximately $46 million of 2.07 percent notes, which have a stated maturity date in November 2026. The proceeds from the asset-backed notes were used to reduce the outstanding balance on the non-recourse timeshare financing receivables credit facility (the "Timeshare Facility").

As of June 30, 2014, Hilton had $11.3 billion of outstanding indebtedness with a weighted average interest rate of 4.0 percent, excluding $997 million of non-recourse debt.

On June 27, 2014, the Company completed a successful secondary offering of 103,500,000 shares of Hilton Worldwide common stock by certain selling stockholders affiliated with The Blackstone Group L.P. at a price to the public of $22.50, resulting in gross proceeds of over $2.3 billion. Hilton Worldwide did not offer any shares of common stock or receive any proceeds from the sale of shares in this offering. In addition, none of Hilton Worldwide's officers or directors sold any shares of common stock beneficially owned by them in this offering. This offering nearly doubled the available public float of Hilton Worldwide common stock.

Total cash and cash equivalents were $829 million as of June 30, 2014, including $284 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of June 30, 2014.

Outlook

Full Year 2014

  • System-wide RevPAR is expected to increase between 5.5 percent and 7.0 percent on a comparable and currency neutral basis, with ownership segment RevPAR expected to increase between 4.5 percent and 6.5 percent on a comparable and currency neutral basis as compared to 2013.
  • Adjusted EBITDA is projected to be between $2,425 million and $2,475 million.
  • Management and franchise fees are projected to increase approximately 11 percent to 13 percent.
  • Timeshare segment Adjusted EBITDA is projected to be between $315 million and $330 million.
  • Corporate expense and other is projected to increase between 3 percent and 5 percent, including incremental public company costs.
  • Diluted EPS, adjusted for special items, is projected to be between $0.67 and $0.70.
  • Capital expenditures, excluding timeshare inventory, are expected to be approximately $350 million.
  • Net unit growth is expected to be approximately 35,000 rooms to 40,000 rooms.

Third Quarter 2014

  • System-wide RevPAR is expected to increase between 5.5 percent and 7.0 percent on a comparable and currency neutral basis compared to the third quarter of 2013.
  • Adjusted EBITDA is expected to be between $610 million and $630 million.
  • Management and franchise fees are expected to increase approximately 10 percent to 12 percent.
  • Diluted EPS, adjusted for special items, is projected to be between $0.15 and $0.17.

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 margins and Net Debt. Please see the schedules to the press release for additional information and reconciliations of such non-GAAP financial measures.

About Hilton Worldwide

Hilton Worldwide is a leading global hospitality company, spanning the lodging sector from luxury and full-service hotels and resorts to extended-stay suites and focused-service hotels. For nearly 100 years, Hilton Worldwide has been dedicated to continuing its tradition of providing exceptional guest experiences. The Company’s portfolio of 11 world-class global brands is comprised of 4,202 managed, franchised, owned and leased hotels and timeshare properties, with 693,980 rooms in 93 countries and territories, including Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton Hotels, Homewood Suites by Hilton, Home2 Suites by Hilton, Hilton Grand Vacations and the newest brand, Curio - A Collection by Hilton. The Company also manages an award-winning customer loyalty program, Hilton HHonors®.

   
HILTON WORLDWIDE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
2014   2013 2014   2013
Revenues
Owned and leased hotels $ 1,117 $ 1,070 $ 2,062 $ 1,984
Management and franchise fees and other 354 299 666 561
Timeshare 276   261   555   507  
1,747 1,630 3,283 3,052
Other revenues from managed and franchised properties 920   750   1,747   1,591  
Total revenues 2,667 2,380 5,030 4,643
 
Expenses
Owned and leased hotels 833 804 1,604 1,547
Timeshare 188 181 365 351
Depreciation and amortization 158 149 311 309
General, administrative and other 133   92   230   189  
1,312 1,226 2,510 2,396
Other expenses from managed and franchised properties 920   750   1,747   1,591  
Total expenses 2,232 1,976 4,257 3,987
 
Operating income 435 404 773 656
 
Interest income 5 1 6 3
Interest expense (158 ) (131 ) (311 ) (274 )
Equity in earnings from unconsolidated affiliates 8 7 12 8
Gain (loss) on foreign currency transactions 32 (39 ) 46 (82 )
Other gain (loss), net 11   (1 ) 14   6  
 
Income before income taxes 333 241 540 317
 
Income tax expense (121 ) (84 ) (204 ) (122 )
 
Net income 212 157 336 195
Net income attributable to noncontrolling interests (3 ) (2 ) (4 ) (6 )
Net income attributable to Hilton stockholders $ 209   $ 155   $ 332   $ 189  
 
Weighted average shares outstanding
Basic and diluted 985   921   985   921  
 
Earnings per share
Basic and diluted $ 0.21   $ 0.17   $ 0.34   $ 0.20  
____________
(1)   Includes management, royalty and intellectual property fees of $29 million and $26 million for the three months ended June 30, 2014 and 2013, respectively, and $56 million and $47 million for the six months ended June 30, 2014 and 2013, respectively. These fees are charged to consolidated owned and leased properties and were eliminated in the condensed consolidated financial statements. Also includes a licensing fee of $11 million and $13 million for the three months ended June 30, 2014 and 2013, respectively, and $22 million and $25 million for the six months ended June 30, 2014 and 2013, respectively, which is charged to the timeshare segment by the management and franchise segment and was eliminated in the condensed consolidated financial statements. While the net effect is zero, the measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the management and franchise segment and a cost to ownership Adjusted EBITDA and timeshare Adjusted EBITDA.
(2) Includes charges to timeshare operations for rental fees and fees for other amenities, which were eliminated in the condensed consolidated financial statements. These charges totaled $8 million and $7 million for the three months ended June 30, 2014 and 2013, respectively, and $14 million and $12 million for the six months ended June 30, 2014 and 2013, respectively. While the net effect is zero, the measures of segment revenues and Adjusted EBITDA include these fees as a benefit to the ownership segment and a cost to timeshare Adjusted EBITDA.
(3) Includes charges to consolidated owned and leased properties for services provided by a wholly owned laundry business of $2 million and $3 million for the three months ended June 30, 2014 and 2013, respectively, and $4 million and $5 million for the six months ended June 30, 2014 and 2013, respectively. Also includes other intercompany charges of $1 million for the three months ended June 30, 2014 and 2013 and $2 million for the six months ended June 30, 2014 and 2013.
(4) Includes unconsolidated affiliate Adjusted EBITDA.
(5) See "Non-GAAP Financial Measures Reconciliations – Adjusted EBITDA and Adjusted EBITDA Margin" for a reconciliation of net income attributable to Hilton stockholders to Adjusted EBITDA.
 
HILTON WORLDWIDE HOLDINGS INC.
COMPARABLE AND CURRENCY NEUTRAL SYSTEM-WIDE HOTEL OPERATING STATISTICS
BY REGION
(unaudited)
 
Three Months Ended June 30,
Occupancy   ADR   RevPAR
2014   vs. 2013 2014   vs. 2013 2014   vs. 2013
Americas 79.5 % 2.2 %

pts.

$ 138.61 4.4 % $ 110.20 7.4 %
Europe 78.7 2.2 179.87 1.5 141.59 4.4
Middle East & Africa 62.3 (3.7 ) 155.17 2.3 96.67 (3.4 )
Asia Pacific 66.1 1.7 159.19 2.1 105.17 4.8
System-wide 78.4 2.0 143.19 4.0 112.20 6.7
 
 
Six Months Ended June 30,
Occupancy ADR RevPAR
2014 vs. 2013 2014 vs. 2013 2014 vs. 2013
Americas 75.2 % 2.1 % pts. $ 136.91 4.1 % $ 102.92 7.1 %
Europe 72.1 2.3 171.59 1.9 123.74 5.2
Middle East & Africa 61.7 (2.8 ) 162.58 2.4 100.38 (2.0 )
Asia Pacific 66.6 2.1 161.81 3.3 107.69 6.7
System-wide 74.2 2.0 141.31 3.8 104.79 6.6
 
Six Months Ended June 30,
Occupancy   ADR   RevPAR
2014   vs. 2013 2014   vs. 2013 2014   vs. 2013
Ownership(1) 76.5

%

1.2 % pts. $ 194.85 3.3 % $ 149.00 4.9 %
U.S. 80.6 1.2 198.35 4.1 159.80 5.7
International (non-U.S.) 71.2 1.1 189.83 2.0 135.25 3.7
 
Management and franchise 73.9 2.1 135.30 3.9 100.00 6.9
U.S. 75.0 2.2 131.83 4.0 98.90 7.1
International (non-U.S.) 68.7 1.6 152.79 3.6 105.04 6.1
 
System-wide 74.2 2.0 141.31 3.8 104.79 6.6
U.S. 75.4 2.1 136.72 4.0 103.09 7.0
International (non-U.S.) 69.3 1.5 160.85 3.1 111.43 5.4
____________
(1)   Includes management, royalty and intellectual property fees earned from consolidated owned and leased properties of $29 million and $26 million for the three months ended June 30, 2014 and 2013, respectively, and $56 million and $47 million for the six months ended June 30, 2014 and 2013, respectively.
(2) Includes timeshare homeowners' association, early termination, product improvement plan and other fees.
(3) Includes a licensing fee earned from the timeshare segment of $11 million and $13 million for the three months ended June 30, 2014 and 2013, respectively, and $22 million and $25 million for the six months ended June 30, 2014 and 2013, respectively.
(4) Includes charges to consolidated owned and leased properties for services provided by a wholly owned laundry business of $2 million and $3 million for the three months ended June 30, 2014 and 2013, respectively, and $4 million and $5 million for the six months ended June 30, 2014 and 2013, respectively.
 
HILTON WORLDWIDE HOLDINGS INC.
HOTEL AND TIMESHARE PROPERTY SUMMARY
As of June 30, 2014
       
Owned / Leased(1) Managed Franchised Total
Hotels   Rooms Hotels   Rooms Hotels   Rooms Hotels   Rooms
Waldorf Astoria Hotels & Resorts
U.S. 2 1,601 12 5,798 14 7,399
Americas (excluding U.S.) 1 248 1 984 2 1,232
Europe 2 463 4 898 6 1,361
Middle East & Africa 3 703 3 703
Asia Pacific 2 431 2 431
Conrad Hotels & Resorts
U.S. 4 1,335 4 1,335
Americas (excluding U.S.) 1 294 1 294
Europe 1 191 2 705 3 896
Middle East & Africa 1 587 2 641 3 1,228
Asia Pacific 11 3,422 1 636 12 4,058
Hilton Hotels & Resorts
U.S. 23 21,107 41 24,659 176 52,932 240 98,698
Americas (excluding U.S.) 3 1,836 22 7,599 18 5,489 43 14,924
Europe 73 18,922 58 16,993 20 5,237 151 41,152
Middle East & Africa 6 2,276 44 13,992 1 410 51 16,678
Asia Pacific 8 3,952 52 19,819 8 2,980 68 26,751
DoubleTree by Hilton
U.S. 12 4,456 27 8,057 244 59,754 283 72,267
Americas (excluding U.S.) 3 637 12 2,301 15 2,938
Europe 12 3,676 38 6,308 50 9,984
Middle East & Africa 7 1,464 3 429 10 1,893
Asia Pacific 27 8,250 2 965 29 9,215
Embassy Suites Hotels
U.S. 15 3,747 38 10,115 157 36,185 210 50,047
Americas (excluding U.S.) 3 653 5 1,270 8 1,923
Hilton Garden Inn
U.S. 2 290 5 635 525 71,651 532 72,576
Americas (excluding U.S.) 5 685 24 3,683 29 4,368
Europe 19 3,474 12 1,751 31 5,225
Middle East & Africa 1 180 1 180
Asia Pacific 5 748 5 748
Hampton Hotels
U.S. 1 130 50 6,238 1,822 175,811 1,873 182,179
Americas (excluding U.S.) 6 729 55 6,821 61 7,550
Europe 6 974 23 3,530 29 4,504
Asia Pacific 1 72 1 72
Homewood Suites by Hilton
U.S. 37 4,267 293 32,473 330 36,740
Americas (excluding U.S.) 2 224 14 1,602 16 1,826
Home2 Suites by Hilton
U.S. 33 3,534 33 3,534
Americas (excluding U.S.) 1 97 1 97
Other 3   1,272   5   944       8   2,216
Lodging 152 60,830 517 149,290 3,489 477,102 4,158 687,222
Hilton Grand Vacations     44   6,758       44   6,758
Total 152   60,830   561   156,048   3,489   477,102   4,202   693,980
 

____________

(1)

  Fluctuation in terms of percentage change is not meaningful.

(2)

Timeshare capital expenditures for inventory additions were $8 million and $25 million for the three months ended June 30, 2014 and 2013, respectively, and $44 million and $40 million for the six months ended June 30, 2014 and 2013, respectively, and timeshare costs of sales were $34 million and $33 million for the three months ended June 30, 2014 and 2013, respectively, and $70 million and $61 million for the six months ended June 30, 2014 and 2013, respectively.

 
 
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
NET INCOME AND EPS, ADJUSTED FOR SPECIAL ITEMS
(unaudited, in millions, except per share data)
 
Three Months Ended June 30,
2014   2013
Net income attributable to Hilton stockholders, as reported $ 209 $ 155
 
Share-based compensation expense(1) 6
Net gains on asset dispositions(2) (11 )
Secondary offering expenses(3) 6  
Total special items before tax 1
Income tax benefit (expense) on special items (1 )
Net income, adjusted for special items $ 209   $ 155
 
Basic and diluted EPS, as reported $ 0.21 $ 0.17
Total per share special items before tax
Per share income tax benefit (expense) on special items  
Basic and diluted EPS, adjusted for special items $ 0.21   $ 0.17
 
 
 
Six Months Ended June 30,
2014   2013
Net income attributable to Hilton stockholders, as reported $ 332 $ 189
 
Share-based compensation expense(1) 19
Net gains on asset dispositions(2) (11 )
Secondary offering expenses(3) 6  
Total special items before tax 14
Income tax benefit (expense) on special items (1 )
Net income, adjusted for special items $ 345   $ 189
 
Basic and diluted EPS, as reported $ 0.34 $ 0.20
Total per share special items before tax 0.01
Per share income tax benefit (expense) on special items  
Basic and diluted EPS, adjusted for special items $ 0.35   $ 0.20
 
____________

(1)

  Expense was recognized in general, administrative and other expenses during the three and six months ended June 30, 2014 related to the share-based compensation prior to and in connection with the initial public offering. Amount excludes share-based compensation expense related to awards issued under the 2013 Omnibus Incentive Plan.

(2)

Net gains were recognized in other gain (loss), net during the three and six months ended June 30, 2014 related to the disposition of property and equipment and investments in affiliates.

(3)

Expense was recognized in general, administrative and other expenses during the three and six months ended June 30, 2014 related to costs incurred in connection with the secondary equity offering by certain selling stockholders.
 
<
   
Three Months Ended June 30, Six Months Ended June 30,
2014   2013 2014   2013
Total revenues, as reported $ 2,667



Logos, product and company names mentioned are the property of their respective owners.