Hedgeye - HLT 4Q 2014 CONFERENCE CALL NOTES

CONF CALL OPENING REMARKS

HLT as STR leader: global rooms under construction, pipeline size and system rooms
HLT: REVPAR index premium of 15%
HLT: Rooms under construction make up 19% of global share
Americas: signed on average one deal/day
400 Hamptons in the pipeline. Will have hundreds of Hamptons in China
Doubletree: doubled in size since 2007. REVPAR index increased over 700bps since 2007
2 new brands in 2014: Curio (5 hotels opened with 23 hotels in pipeline); Canopy (15 hotels in pipeline; expect to open 1st Canopy within the year)
Waldorf sale 1030 exchange: screened for high-quality properties in urban/resort markets
2015

>75% of Adjusted EBITDA comes from US. Some disruption from weather....sees mid-to-high single digit REVPAR growth in US (strength in San Francisco, Florida, Boston, Washington, offset by ongoing challenges in NY)
Mid-single digit REVPAR growth in Europe; strong group business in Southern region. Russia pressuring Eastern Europe. France underperforming.
Mid-to-high single digit REVPAR growth in Middle East
China: 6-8% REVPAR growth. Overall Asia: high single digit REVPAR growth in 2015

Calendar shifts somewhat tempered growth in November
Some markets saw group revenue increase 15-25%
Hawaii Q4 REVPAR: 10%
Strong transient business in DC
Transient strength in Brazil and Argentina offset softness in Puerto Rico
Europe: strong group business in UK and Rome
China: weakness in Mainland group business
Paid down $300m in term loans. Leverage ratio currently at: 4.2x
Leverage target: 3-4x
Will start returning capital to shareholders via dividend when they reach leverage goals
Over 80% of adjusted EBITDA in US $
Expect $35-45m FX impact on 2015 EBITDA guidance
Remaining Waldorf money (~$100m): will purchase 1 or more US assets in next 6 months

Q & A

2015 Europe: continue to see strength in Western Europe/ some Southern Europe tempered by weakness in France and Eastern Europe
FX impact: no impact on inbound business to US
Will consider other options on returning capital to shareholders (i.e. stock buyback) but dividend likely first
Lodging cycle: Demand is growing with historical low level of supply. US getting better, will drive strong transient results. Group is coming back.
REIT spin-off: constantly looking at real estate to maximize value. Don't see 'meaningful arbitrage opportunity' at this moment.
Timeshare: 80% is capital light. Have active loyal customers. Like their timeshare business.
Most of development in US is in limited service and franchising
China 2015 REVPAR: in Q4 2014, REVPAR was 3% due to hotel specific issues. For 2014, it was 6%. Expect similar growth in 2015. Starting to see F&B ease up a little bit (govt austerity). Seeing ancillary spend recover a little bit. Signed more deals in 2014 than 2013 (much more limited service).
2015 incentive fees (ex 1x items): high teens growth rate
US incentive contribution rate: High 50s (moved from low 50s). Expect in 2015 to move to low 60s
2014: Lower-end outperformed upper-end by 100bps due to transient growth

New York EBITDA exposure: going from 8% to a little less than 5% after Waldorf sale
Waldorf transaction/exchange: REVPAR growth rates will be high single digits higher, EBITDA will be double digits higher
Finished at historic high in occupancy in 2014. Do not think it will be another high in occupancy in 2015.
6-7% HLT supply growth is even split between full service and limited service
Probably no more arbitrage opportunities in the portfolio similar to Waldorf, unfortunately
Would never say never on buying a brand but economics suggest organic growth the better option.
60% of Fx hit is to the fee business
Corporate negotiations are becoming more of seller's market. Free WiFi not really related to that