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Takeaway: The beat and raise thesis is very much intact. Look for a REIT story to emerge next year.

This management team feels good and sounds confident - and our Q4 forecast is above consensus.


PREPARED REMARKS

Chris Nassetta, CEO

  • Pleased with growth and results, above high end
  • Macro set up feels great
  • Transient: rev +8% in Q3
  • Group >9% systemwide, volume driven - positive on group business system wide up mid to high single digits for next four quarters
  • Group rebounding and positively impacting mix
  • Canopy by Hilton - game changer, appeals to wider audience, not limited to luxury segment. Lifestyle, light, organic feel while reflecting neighborhood location.  11 signed deals in key urban markets, another 15 in discussions.  Third party capital will drive unit development.
  • Curio - discussion on >90 properties.  Plans to open 5 hotels, 3,200 rooms by year end. Currently three assets open.
  • China - will leverage new partnership, licensing agreement for Hampton brand.  400 hotels target. Will allow for acceleration of brand development and penetration across China.
  • Waldorf Astoria - on track to close as announced.  WIll likekind exchange proceeds and well along this process.

Outlook

HSD = high single digits

MSD = mid single digits

  • U.S.: positive outlook and muted supply growth = Q4 HSD RevPAR
  • America ex US:  Q4 HSD RevPAR
  • Europe Western & Southern strong, Eastern weighted down by Q4 MSD RevPAR
  • MEA: Recovering - Egypt strong easy comps, Saudi Q4 MSD RevPAR
  • Asia/Pac: consistent, Japan strong but tempered, China steady, India stronger, Thailand a drag  Q4 MSD RevPAR
  • 2015: Feel great about fundamentals

Kevin Jacobs, CFO

  • M&F Fees: new unit and top line driven
  • IMFs: increased participation rate and IMFs outside, 75% non-US
  • $5 million base to incentive fee reclassification
  • IMF outlook now 13% to 15%
  • Timeshare: new and first project in Maui, will begin sales in 2016, YoY increase of inventory 58%
  • Washington DC uptick in leisure and co meetings
  • Prepayment Guidance:  Full Year expect to pay $900M- $1B by year end

Q&A

Q: Waldorf Astoria 1031 like-kind exchange - types of properties?

  • All domestic U.S. assets, institutional grade, best urban/resort, singles/portfolios, UUP and Luxury, mixture of HLT brands and also not branded.  More details 60-90 days

Q: Waldorf like-kind disciplined on valuation?

  • Unique given history, cash buyer, have period of time to identify 2x potential properties (fill funnel) then evaluate quality, pricing, terms.  Sold Waldorf at 32x, buy closer to current multiple

Q: Waldorf - disruption from renovations with new owner?

  • Entered process of sharing prior renovations with Angbang, reviewing all construction alternatives, then will layout plans for next renovations

Q: Development pipeline outside the U.S. - China challenges?

  • Healthy growth in all regions of the world, working with JV partners, over 70 of 150 hotels in pipeline under construction.  Complexion of China is changing

Q: Net rooms growth - split segments & geographic?

  • 55/45% Intl/U.S.
  • 55/45% Mgmt/Franchise

Q: IMF growth in 2015?

  • Doing well YTD in 2014, not giving 2015 guidance but trending higher

Q: Limited service vs. full-service growth?

  • More balanced 2014 growth - both transient and group remain strong, group business continues to pick up momentum which will drive upscale and upper upscale growth

Q: Development trends?

  • Mix U.S. with existing developers = 75% existing owners
  • Development community feeling better, economic growth in the U.S. and European developers getting more optimistic; Americas ex. US optimistic; Asia/Pac good optimism. World is more upbeat

Q: Incentive Fees - more paying in U.S.?

  • More int'l fees - 75% international and components of growth 65% of growth was int'l, participation moving up by 10%.  About 65% from same store (int'l) and 35% from new units (almost all int'l)
  • Bulk are int'l and linear equation - not sit behind owners pref's, as markets recover and grow, fees will increase
  • Adding more int'l units with such contracts

Q: Occupancy vs. ADR growth?

  • Pleased with occupancy gains, would have expected more ADR growth in 2014, but while driving rate, getting smarter about revenue management and means still have lots more runway in this cycle.  Much better at driving occupancy on Friday and Saturday evenings.  Looking toward 2015, will definitely see much more rate than occupancy.  2014 likely 55/45 occupancy rate 

Q: Discussions with rating agencies, how balance investment grade with capital return strategy?

  • Still believe 3x to 4x is proper leverage "over" the cycle.  Won't over cook beyond 3x

Q: Willing sellers of big box hotels - continue to own Big 8?

  • Likely hold on to the Big 8, need to maximize value, still value.  Waldorf was unique given value realization of terms
  • Best value equation today is to keep assets together/Big 8 together

Q: Timeshare six years of inventory - any concern?

  • More inventory than competitors but feel good about opportunity, capital light, sustainable, correct amount of inventory is four to six years.

Q: United Nations inquiry into Waldorf Sale?

  • HLT went to U.S. Government, held discussions, confident will close in time disclosed.

Q: Canopy - initial properties conversions or new builds?

  • Mix of both - as well as adaptive reuse
  • of the first 11 - majority are new build, nothing specific

Q: Exchange - seeding brands and included growth?

  • Yes, seed any of UUP or Luxury brands to increase distribution of brands
  • Not included in NUG - net unit growth

Q: Blackstone assets - able to be sold without brand?

  • Some of BX's assets are in Hilton like-kind exchange funnel

Q: RevPAR 2015:  US vs Intl?

  • US: Higher End
  • ROW: mid range
  • blended to 5% to 7%