HLT 1Q 2015 CONFERENCE CALL NOTES

Takeaway: Another Q beat and raised FY guidance despite FX headwinds. Solid demand from both group and transient. Dividend policy could happen in 2H.

CONF CALL

  • Occupancy growth was strong
  • Strong demand from small groups and company meetings
  • Transient demand: strong corporate and rack-rate business
  • Group: expect strength will continue into seasonally strong Q2.  Continue to track up in mid-single-digits in 2015.
  • F&B grew in mid-single-digits in 1Q.  Japanese F&B outlets drove majority of gains.
  • Announced sale of Hilton Sydney - AUD$442 (15x EBITDA multiple).  Will use proceeds to pay down debt.
  • Hilton has > 20% room share globally
  • Fundamentals of cycle remain strong.  
  • Outlook: US - maintain mid-to-high single digit REVPAR forecast
  • NY: strong demand tempered by supply
  • Mid-single-digit REVPAR growth, Mexico offset by Brazil and Argentina.
  • Europe:  positive Germany, geopolitical concerns weighing on France and Eastern Europe
  • Egypt: mid-single digit growth
  • Asia-Pacific:  high-single digit REVPAR growth; Japan robust, Beijing/Shanghai positive; soft in HK and Singapore
  • China 2015 REVPAR outlook: +6-8% REVPAR growth
  • $15m beat in 1Q due to normal calendar timing 
  • Incentive growth:  high teens forecast
  • Timeshare EBITDA decline:  accelerated sales that were booked in 2014 was offset by timing of sales efficiency.  78% of intervals sold by 3rd parties.  Supply:  5 yrs of intervals at current pace. 80% capital light.
  • Corporate/other segment: in-line with their expectations
  • US REVPAR grew 6.5% (gateway cities (Chicago/San Francisco strong)
  • Bad weather: overall impacted US REVPAR by 1%; 50bps in January, 300bps in February
  • Europe REVPAR:  +5.5% 
  • London - lower than expected group business and soft demand
  • 3.9x - net debt/EBITDA
  • Paid down additional $100m in debt post Q - YTD, paid down $325m

Q & A

  • M&A possibilities:  will not comment and will look at opportunities 
  • HOT's M&A rumor:  not surprising
  • They're seeing REVPAR acceleration
  • Hard not to feel very good at this time. Nothing to suggest there is a problem.
  • Talking about launching a new midscale entry-level franchise brand (where Hampton brand used to be)
  • FX impact outlook:  slightly worse but not by much
  • Curio/Canopy:  competitive world but faring well. Highest avg market share: 15-25% above previous market share
  • Large conversions: Doubletree and Curio
  • Corporate travel:  HLT believes there is no cutback; instead, they are increasing volumes and paying higher rates
  • NY down in REVPAR (5% of HLT's US exposure); outlook for 2015: feels good about April.
  • Outbound visitation: Europe was declining from Germany/France. Spain was up. China meaningfully up. 
  • European visitation into US lower due to stronger $
  • Early summer bookings show strength in Europe visitation
  • Ex FX guidance:  $25-35m FX-adjusted raise in EBITDA (at midpoint)
  • Franchise rates:  should move up over time (+10bps in 1Q, have gone from 4% to 4.7% over past couple of years)
  • Cypress hotel will become a Curio
  • Believe transient/group will both be in the 6-7% growth range
  • Mid-scale segment:  more supply there. 
  • Timeshare: consumer demand up.  VPG up 20% in 1Q 2015 (opened a high-priced product in Hawaii). For 2015, expect VPG up 10% and high-single digit growth in tour.
  • F&B:  sees stabilization trends
  • Internal vs external brand build:  De minimus investment (millions of $, not tens of millions of $), infinite return (Curio: single million $)
  • Why no recent Blackstone secondaries? Up to Blackstone. HLT believes pattern established last year will continue in 2015.
  • Thinking about dividend policy program in 2H 2015 but also want to be investment-grade at same time.
  • Flattish mgmt fees because of FX headwinds
  • Not in peak of the cycle because of occupancy gains
  • China Tier 1 cities: Shanghai/Beijing will have good year.  Rate/occupancy pretty balanced for 2015.