Analysts weigh in on what they heard at Hilton’s show and
came away predicting upside on unit growth and performance expected to match
expectations.
GLOBAL REPORT – With a strong emphasis on pipeline updates versus
performance forecasts and fundamentals, Hilton held its Investor Day on Tuesday
with analysts from R.W. Baird and Truist Securities weighing in with notes
about what they learned.
The bigger focus of Hilton's presentation was on pipelines at both the midscale/economy
and luxury lifestyle segments, according to Truist’s C. Patrick Scholes, with
Hilton hinting again about a forthcoming launch of a lifestyle/luxury brand.
Previous rumors connected Hilton to the NoMad brand and whether they grow again
via acquisition (see Graduate Hotels) should become clear in the next few
weeks.
Scholes added that Hilton also emphasized the importance of
its long-dominant select-service brands such as Hilton Garden Inn and Hampton
as core to its pipeline, and Scholes said Hilton noted that these brands continue
to lead their global pipelines of respective competitive sets.
Signings in 2024 are expected to be up significantly (from 2023's record level), and new brands are a big driver of the post-pandemic net unit growth recovery.
Michael Bellisario
While luxury is more of an opportunity for Hilton since it has a
relatively small footprint, next year’s reopening of the Waldorf Astoria in New
York City should help drive brand awareness. Scholes said Hilton is also working
on a luxury deal in London and said Hilton also highlighted its alliance with Small
Luxury Hotels of the World improving its luxury footprint.
Scholes also wrote about how Hilton pointed to a “continued
push to non-traditional hotel experiences and partnerships,” noting safaris and
yachts/cruising as possibilities. “Partnerships is also a driver of furthering
the guest experience (not dissimilar to Marriott on gaming); a McLaren race car
was at the host venue’s porte cochere to highlight one of the Hilton
partnerships,” Scholes said. “Hilton also pointed to the power of Paris Hilton
as the original influencer and the use of social media videos in both short and
long-form to attract unaffiliated younger generations to become Hilton
loyalists.”
On the midscale/economy side of the equation, Hilton said
800 Spark-branded properties will open in the next five years with ultimately
thousands worldwide. It also expects 1,000 hotels for the newly launched
LivSmart Studios brand in the next 10 years.
R.W. Baird’s Michael Bellisario wrote that Hilton sees a
clear path back to 6% to 7% organic net unit growth. “Signings in 2024 are
expected to be up significantly (from 2023's record level), and new brands are
a big driver of the post-pandemic net unit growth recovery,” he said. “Luxury
remains a key focus area and growth opportunity, and Small Luxury Hotels will
help Hilton triple its luxury footprint in the next few years.”
What Hilton presented on technology efforts was simply impressive and among the most important part of the Investor Day to help explain why owners are likely to affiliate with Hilton despite its expensive platform. The result: owner profits from the smaller brands/independents will be further tested for reasonableness to stay outside the big brands.
C. Patrick Scholes
Bellisario also highlighted Hilton's forecasted higher
non-RevPAR/license fee growth, citing its Grand Vacations’ recent
acquisitions and incremental opportunities with American Express, particularly
internationally.
Overall, Bellisario said Hilton’s three-year model points to
Adjusted EPS of $9.45 (+1.5% vs. consensus; buybacks are included) and Adjusted
EBITDA of nearly $4.1 billion (+5% vs. consensus). “The key assumptions of 2%
to 4% RevPAR and 6% to 7% net unit growth matched investors' expectations,” he
said. “The earnings upside driver versus our model was non-RevPAR/license fee
growth of 12% to 14%.”
Bigger picture, Scholes said Truist came away from Investor
Day viewing economies of scale continuing to move incrementally in Hilton’s and
peers' favor and away from smaller brands and independents that may have a
harder time competing without a compelling guest experience and the latest in
technological operating efficiency.
“What Hilton presented on technology efforts was simply
impressive and among the most important part of the Investor Day to help
explain why owners are likely to affiliate with Hilton despite its expensive
platform,” Scholes said. “The result:
owner profits from the smaller brands/independents will be further tested for
reasonableness to stay outside the big brands.”
Scholes added that what could keep developers away from Hilton and
its peers remains control. “Hilton spoke to continuing to push the franchise
fees higher, raise brand standards (as a small example, plusher towels were
noted but where Hilton can acquire at scale with sharp discounts), and probably
push under-invested hotels off the system more easily than peers. That said,
with the higher owner costs/more competition from Hilton brand launches/etc.
comes higher loyalty contribution, RevPAR positioning, and property valuation.”