Hilton
CEO Chris Nassetta sounds off on his optimism for 2025, why his company has
more construction starts than any other brand, and why Hilton is also getting
disproportionate financing.
MCLEAN, Virginia — Chris
Nassetta is wickedly optimistic about why Hilton is “defying gravity” in a
challenging hotel environment.
For its fourth quarter and
full-year 2024 earnings, Hilton reported 6.5% year-over-year revenue growth,
systemwide RevPAR growth, a record pipeline and net unit growth of 7.3% as part
of its fourth quarter and full-year 2024 earnings.
While there isn’t as much money [for financing available]… we are getting a very disproportionate share. We’re just more financeable with the money available for new construction. Because our brands perform the best in the industry, we get a large disproportionate amount of conversion opportunities.
Chris Nassetta
“How are we defying gravity in
what’s been a difficult environment for new construction and development
generally?” asked Nassetta, president and CEO of Hilton. He said the answer
comes down to how the company’s brands perform.
“While there isn’t as much money
[for financing available]… we are getting a very disproportionate share,” he
said. “We’re just more financeable with the money available for new
construction. Because our brands perform the best in the industry, we get a
large disproportionate amount of conversion opportunities.”
On the earnings call, Nassetta
said he felt “incrementally” better than he did in the third quarter and now
expects systemwide top-line growth of 2% to 3% for 2025. That includes steady
growth in the Americas, modest deceleration in EMEA due to tough comparisons
following a robust 2024, and broad growth across all of Asia Pacific because of
improvements in China and across the region. Nassetta also expects positive
RevPAR growth across all segments driven by group outperforming and continued
strength in the MICE business. He even expects modest RevPAR growth in leisure
transient driven by further momentum in large corporate businesses coupled with
steady demand across small- and medium-sized businesses.
The optimism extends to
construction starts, of which the company had record numbers in 2024 and
finished up 10% year-over-year. Hilton finished 2024 with nearly a quarter million
rooms under construction, more than any other hotel company. It also represented
more than 20% of the industry share of rooms under construction with nearly
half of its current pipeline under construction. That translates to a
projection of strong net unit growth with Hilton projecting NUG of 6% to 7% in
2025.)
Almost to a person, people feel like you’re going to see an opportunity for a pickup more broadly in economic growth and an opportunity in our business as a result, for a bit of an uptick.
Chris Nassetta
Nassetta said his optimism comes
from talking to his owners and the broader business community. He said
uncertainty around the election was creating a lot of “noise” in the market,
and the fact that it was quickly resolved has created this sense of optimism
because of the potential of lighter regulations and tax cuts.
“There is a broad belief, and I
would say, fairly consistent, amongst the folks that I talk to across a broad
range of industries, that people think the opportunity for economic growth in
the short to intermediate term will be better,” he said. “That doesn’t mean
people don’t think there’s noise… But, almost to a person, people feel like
you’re going to see an opportunity for a pickup more broadly in economic growth
and an opportunity in our business as a result, for a bit of an uptick.”
That’s not to say there isn’t
still a sense of caution, Nassetta said. “The reason we’re not going
crazy in our guidance… in building big upside is because a lot is happening.
It’s early and I think we need to see how these things play out,” he said.
M&A environment
When asked about comparing his
optimism to the broader skepticism over the development environment that many
heard at the Americas Lodging Investment Summit by Northstar (ALIS) last week
in Los Angeles, Nassetta said that was also based on things he heard at the
conference.
“I break it down into how people
felt about M&A activity versus how they’re feeling about new development
activity,” he said. “My read of it… was generally on the first, M&A,
was much more positive. People are very much [thinking] that there’s more
capital available. Rates have moved up a bit. But there’s a belief that over
the next 12 to 24 months, broadly, that rates will come down. I think people feel
like the bid-ask [spread] is getting closer because performance has ticked up a
bit.”
Nasseta said he wasn’t alone, as
there was broad optimism on the CEO panel he was on that opened the first day
of ALIS. “The answer for most of the
folks on the panel was a lot more optimism in M&A,” he said, noting there’s
more friction on the development side.
But Nassetta said that based on
conversations with Hilton owners, there’s more development optimism in the air. “I do believe people are seeing
more availability of capital. It’s not a gusher, but they’re seeing more,” he
said. “I want to be careful to say it wasn’t raging optimism, but a bit of a
shift, at least amongst our owner community.”
The Hilton Shanghai City Center is one of the hotels to open for the company in 2024.
Hilton’s Q4,
year-end results
Other notes from Hilton’s Q4 and
full-year 2024 earnings:
- Systemwide comparable RevPAR increased 3.5%
YOY in Q4 with full-year RevPAR increasing 2.7% from 2023. In the fourth
quarter, the company opened 171 hotels and 22,600 rooms into its system,
with 98,400 rooms added for the full year. Hilton also has 3,578 hotels
and 498,600 rooms in its pipeline through the end of 2024, representing a
growth of 8% from a year ago.
- Hilton exceeded its high end of guidance with
several of its numbers: diluted EPS was $2.06 for Q4 and $6.14 for 2024;
net income was $505 million for Q4 and $1.54 billion for 2024; while
adjusted EBITDA was $858 million for Q4 and $3.43 billion for 2024.
- The company also repurchased 3.1 million
shares of common stock during Q4, bringing total capital return, including
dividends, to $781 million for the quarter and $3 billion for 2024.
- Through the end of 2024, Hilton had $11.2
billion of debt outstanding, excluding the deduction for deferred
financing costs and discounts, with a weighted average interest rate of
4.77%
- Hilton’s 2025 guidance increases a systemwide
RevPAR increase of 2-3%, while full-year net income is projected to be
between $1.83-1.86 billion. Full-year adjusted EBITDA is projected to be
between $3.7-3.74 billion. Hilton is projecting net unit growth (NUG) for
2025 to be between 6-7%.
What the analysts
said
Analyst Michael Bellisario of
R.W. Baird said Hilton beat fourth-quarter earnings based on lower G&A
costs and higher owned and leased profits.
“We view Hilton’s 4Q24 earnings
and 2025 outlook as plus/minus in line with expectations. Fourth quarter
results topped Baird/Street forecasts on better RevPAR growth, but total fees
were just shy of our estimate (and further below consensus) due to the timing/amount
of termination fees YOY,” he said. “Overall, we see no surprises with Hilton’s
earnings or outlook, and the company’s business momentum and overall growth
trajectory remain intact, in our opinion.”
Analyst C. Patrick Scholes of
Truist Securities said Hilton’s earnings were a beat mainly based on global
RevPAR gains and owned/leased RevPAR margins with no major surprises.
“2025
guidance slightly better than consensus expectations,” he said. “We view the
guidance as indicative that the [Hilton] algorithmic growth is intact for
2025.”