Disciplined management focused on opportunities and execution. High ROI projects on the way. Secondary coming in mid-June?
PREPARED REMARKS
Overview
- Q1 Results 6.6% RevPAR based on +3.6% ADR and +1.9% Occupancy
- First time in many quarters, system-wide group revenue growth in Q1 outpaced transient revenue growth.
- Consistent with view at the midpoint of the cycle, group business continues to build.
- System-wide group revenue growth in the quarter of 7.4% YoY
- Banqueting revenue >12% in U.S.-owned and managed hotels
- Big Eight hotels, group F&B spend for occupied room was up ~30% and 13% in our U.S.-owned and managed hotels.
- F&B trends drive an overall increase revenue of almost 10% over the same time period in our U.S.-owned and managed hotels
- Transient >6% across system
- Weather offset by Easter shift
- U.S. owned and operated hotels operating margins +157 basis points YoY
- Owned and operated hotels outside the U.S. operating margins +191 basis points on a currency neutral basis.
- EBITDA $544m, margins +400bps
- Hilton NY:
- 6th Avenue repositioning begin by year end, complete by 2Q15
- Interval sales to begin 2H14, units complete in 2Q15
- Retail to add $8m EBITDA, NPV of Timeshare + Retail = $165m
- Q1 approved 107 hotels = 15,000 rooms
- Waldorf Astoria Beverly Hills, first new build on West Coast on Wilshire & Santa Monica will be 170-room luxury hotel
- Increased fee paying rooms by 8,000 rooms in Q1
- Launch two new brands in 2H14
Remainder 2014
- Group very strong with increase in volume and rate
- Group 8 up HSD YoY
- Corp Mtgs up 12% in US O&M YoY
- "very optimistic" for 2014
- AsiaPac: Japan significant China 6-7%, Thailand weak
- Europe: UK, Turkey lead; sluggish France Europe up MSD
- Middle East / Africa: Egypt weak, Saudi weak, Africa strong:
- Resulting in revised RevPAR, EBITDA, and EPS
Financial Performance
- Total M&F Fees: top line, units driven. Franchise fees better. Franchise rate 4.6% and increasing
- Ownership: 172 bps EBITDA margin growth and 5.1% RevPAR
- Timeshare: transient rental, lower corp support costs, favorable in sale prices
- Corp Exp & Other: 1x $18m conversation into stock based comp program, new program flow thru G&A and included in EBITDA
- US: Rack rate business +11%, corp trans +6% YoY
- AsiaPac: RevPAR - Japan +25% in Qtr, China +7% in Qtr
- Balance Sheet: reduce leverage, use substantial FCF to reduce debt and achieve investment grade rating. paid $200m in Q1 and $100m today and interest rate now L+250 bps
- Cash $287m. no borrowings on revolver
- Timeshare EBITDA guidance increased.
- Expect to prepay debt of $700m-900m in 2014
Q&A
- Confidence in 2H14 and into 2015 - optimistic because of transient strength in Q1 and continuing into Q2. Group strength now growing faster than transient. Big 8 in 2H up nearly 20% on Group. Starting to see increases in ancillary spend, stronger F&B.
- New Brands & CapEx - will not build any of new units on their balance sheet will use franchise model.
- First brand: 4+ star aggregate urban, iconic and resort brands. conversion friendly.
- Second brand: Lifestyle, launch in fall, working deals, upper upscale, 'accessible lifestyle' not luxury, new builds, conversion friendly.
- Both brand focused on new units outside of HLT network, some new builds, mostly conversions. Neither will impact 2014 net unit growth but will positive impact 2015
- NY impacts/any pause for 2H14 - no reason to change outlook. Slowness due to supply, YoY superstorm Sandy, and weather. Softer in Q1 but strengthen at muted pace due to supply.
- Guided Q1 and 2H14 look conservative - flowed thru Q1 beat and feel conservative on guidance.
- Timeshare - 60% of sales in asset light vs 50% in 2013. Trajectory 80% of current 5 year inventory is capital light.
- Timeshare valued appropriately or consider spinning off - HLT committed to Timeshare. HLT likes business. Seeing increasing appetite for Timeshare product by consumers.
- G&A - some Q1 timing issues were positive, will run-rate during remainder of year. Expect G&A focus to remain at forefront will keep under control +3% to +5% for 2014 and 2015.
- BIg 8 RevPAR - 5.1% and revenue growth slightly higher. Surprised - no, but actually better than forecasts, growth depends on groups and group cycling.
- View on 2015 - very good sight lines, momentum building on pace.
- NY Hilton retail repositioning - HLT doing work with consultants, no partners.
- Waldorf - deep into process to maximize value and how to execute against the asset in current form & structure. Considering how to significantly "enhance entire retail platform" given full-block exposure to Park Avenue.
- Royalty Rates vs. 2013 - on track, raising rates 100 bps. Had non-comp affiliates in Q1 2014
- EBITDA Margin - expect 150 to 200 bps expansion in 2014