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Hilton Exceeds Fourth Quarter and Full Year Expectations; Provides 2018 Outlook

System-wide comparable RevPAR increased 3.8 percent and 2.5 percent for the fourth quarter and full year 2017

Hilton Worldwide Holdings Inc. (NYSE: HLT) today reported its fourth quarter and full year 2017 results. All results herein present the performance of Hilton giving effect to the spin-offs of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. on January 3, 2017, with the historical financial results of Park and HGV reflected as discontinued operations. Pro forma comparisons are presented as if the spin-offs occurred on January 1, 2016. Additionally, all share and share-related information presented herein for periods prior to January 3, 2017 have been retrospectively adjusted to reflect the 1-for-3 reverse stock split of Hilton’s outstanding common stock that occurred on January 3, 2017 (the “Reverse Stock Split”). Highlights include:

Overview

Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, “Our performance for the fourth quarter and full year exceeded the high end of our guidance for Adjusted EBITDA and diluted EPS, adjusted for special items. Given the strength of our brand portfolio, we continue to build momentum in both unit and pipeline growth and now have the largest number of rooms under construction in the industry. We feel great about our set up for 2018 and our ability to continue delivering record-setting results.”

For the three months and year ended December 31, 2017, system-wide comparable RevPAR grew 3.8 percent and 2.5 percent, respectively, driven by increases in both ADR and occupancy. In particular, strength at Hilton’s international hotels benefited results. Management and franchise fee revenues increased in both periods as a result of increases in RevPAR of 3.7 percent and 2.4 percent, respectively, at comparable managed and franchised hotels, as well as from the addition of new properties to Hilton’s portfolio.

During the three months ended December 31, 2017, the Company recognized an aggregate provisional tax benefit of $665 million related to the Tax Cuts and Jobs Act enacted in December 2017. The legislation had no effect on cash taxes for the quarter. See “Non-GAAP Financial Measures Reconciliations—Net Income and Diluted EPS, Adjusted for Special Items” for additional information.

2017 vs. 2016 Pro Forma Results

For the three months ended December 31, 2017, diluted earnings per share (“EPS”) from continuing operations was $2.61 compared to a loss per share of $1.09 on a pro forma basis for the three months ended December 31, 2016. Diluted EPS, adjusted for special items, was $0.54 for the three months ended December 31, 2017 compared to $0.51 on a pro forma basis for the three months ended December 31, 2016. Income from continuing operations, net of taxes was $841 million for the three months ended December 31, 2017 compared to a loss of $355 million on a pro forma basis for the three months ended December 31, 2016. Adjusted EBITDA increased 10 percent to $498 million for the three months ended December 31, 2017 compared to $454 million on a pro forma basis for the three months ended December 31, 2016. Management and franchise fees for the three months ended December 31, 2017 increased 13 percent compared to the pro forma three months ended December 31, 2016.

For the year ended December 31, 2017, diluted EPS from continuing operations was $3.85 compared to $0.36 on a pro forma basis for the year ended December 31, 2016. Diluted EPS, adjusted for special items, was $2.00 for the year ended December 31, 2017 compared to $1.57 on a pro forma basis for the year ended December 31, 2016. Income from continuing operations, net of taxes was $1,264 million for the year ended December 31, 2017 compared to $127 million on a pro forma basis for the year ended December 31, 2016. Adjusted EBITDA increased 11 percent to $1,965 million for the year ended December 31, 2017 compared to $1,763 million on a pro forma basis for the year ended December 31, 2016. Management and franchise fees for the year ended December 31, 2017 increased 10 percent compared to the pro forma year ended December 31, 2016.

2017 vs. 2016 Actual Results

For the three months ended December 31, 2017, diluted EPS from continuing operations was $2.61 compared to a loss per share of $1.20 for the three months ended December 31, 2016. Diluted EPS, adjusted for special items, was $0.54 for the three months ended December 31, 2017 compared to $0.41 for the three months ended December 31, 2016. Income from continuing operations, net of taxes was $841 million for the three months ended December 31, 2017 compared to a loss of $388 million for the three months ended December 31, 2016. Adjusted EBITDA was $498 million for the three months ended December 31, 2017 compared to $401 million for the three months ended December 31, 2016.

For the year ended December 31, 2017, diluted EPS from continuing operations was $3.85 compared to a loss per share of $0.05 for the year ended December 31, 2016. Diluted EPS, adjusted for special items, was $2.00 for the year ended December 31, 2017 compared to $1.16 for the year ended December 31, 2016. Income from continuing operations, net of taxes was $1,264 million for the year ended December 31, 2017 compared to a loss of $8 million for the year ended December 31, 2016. Adjusted EBITDA was $1,965 million for the year ended December 31, 2017 compared to $1,543 million for the year ended December 31, 2016.

Development

In the fourth quarter of 2017, Hilton opened 123 hotels consisting of 19,100 rooms, achieving net unit growth of 18,400 rooms. During the full year 2017, Hilton opened 399 hotels consisting of 59,100 rooms, achieving net unit growth of 51,600 rooms.

As of December 31, 2017, Hilton’s development pipeline totaled 2,257 hotels consisting of approximately 345,000 rooms throughout 107 countries and territories, including 39 countries and territories where Hilton does not currently have any open hotels. Over 182,000 rooms in the pipeline, or more than half, are located outside the U.S. Additionally, over 174,000 rooms in the pipeline, or more than half, are under construction, representing the largest number of rooms under construction in the industry.

Hilton continues to grow its newest brands with nearly 20 percent of room openings for the year under the Canopy by Hilton, Curio – A Collection by Hilton, Tapestry Collection by Hilton, Home2 Suites by Hilton and Tru by Hilton brands.

Additionally, Hilton achieved several regional milestones including the opening of the 100th Greater China hotel with the Hilton Quanzhou, the 200th Asia Pacific hotel with the Waldorf Astoria Chengdu, the 100th Latin America hotel with the Hilton Rio de Janeiro Copacabana and 100,000 rooms trading in the Europe, Middle East and Africa region.

Balance Sheet and Liquidity

As of December 31, 2017, Hilton had $6.7 billion of long-term debt outstanding, excluding deferred financing costs and discount, with a weighted average interest rate of 4.2 percent.

Total cash and cash equivalents were $670 million as of December 31, 2017, including $100 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of December 31, 2017.

During the fourth quarter of 2017, Hilton repurchased 3.5 million shares of its common stock at a cost of approximately $266 million and an average price per share of $74.67. From the inception of Hilton’s share repurchase plan in March 2017 through December 31, 2017, Hilton repurchased 13.5 million shares for approximately $891 million at an average price per share of $65.76. In 2018, through February, Hilton repurchased 1.3 million shares of common stock for approximately $110 million at an average price per share of $84.01, bringing buybacks since the program’s inception in 2017 to over $1 billion. In November 2017, Hilton’s board of directors authorized an additional $1 billion for this program.

In December 2017, Hilton paid a quarterly cash dividend of $0.15 per share on shares of its common stock, for a total of $48 million. Hilton paid a total of $195 million of dividends during 2017. In February 2018, Hilton’s board of directors authorized a regular quarterly cash dividend of $0.15 per share of common stock to be paid on or before March 29, 2018 to holders of record of its common stock as of the close of business on March 2, 2018.

Outlook

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective approach. The adoption will initially be reflected in the Company’s Quarterly Report on Form 10-Q and earnings press release as of and for the three months ending March 31, 2018, with adjustments to prior comparable periods. The provisions of this ASU will not affect the Company’s cash flow or cash available for capital return. The significant changes to the Company’s revenue recognition as a result of the provisions of ASU 2014-09 include the following:

The changes in revenue recognition for contract acquisition costs will not affect the Company’s net income and the changes for incentive management fees will not affect the Company’s net income for any full year period. Upon adoption, the provisions of this ASU will affect certain key metrics reported in the Company’s earnings release as follows, applying a statutory tax rate on the adjustments, which does not reflect the provisional effect of tax reform:

Hilton’s outlook for the first quarter and full year 2018 includes the effect of ASU 2014-09 discussed above. Share-based metrics in Hilton’s outlook do not include the effect of potential share repurchases.

Full Year 2018

First Quarter 2018

About Hilton

Hilton (NYSE: HLT) is a leading global hospitality company, with a portfolio of 14 world-class brands comprising more than 5,200 properties with more than 856,000 rooms in 105 countries and territories. Hilton is dedicated to fulfilling its mission to be the world’s most hospitable company by delivering exceptional experiences – every hotel, every guest, every time. The Company’s portfolio includes Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Curio Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton, Embassy Suites by Hilton, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations. 

HILTON WORLDWIDE HOLDINGS INC.

EARNINGS RELEASE SCHEDULES

TABLE OF CONTENTS

 
Consolidated Statements of Operations and Pro Forma Consolidated Statements of Operations
Comparable and Currency Neutral System-Wide Hotel Operating Statistics
Management and Franchise Fees, Reflecting Application of ASU 2014-09
Property Summary
Capital Expenditures
Non-GAAP Financial Measures Reconciliations
Definitions
 
 

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share data)

 
 
      Three Months Ended December 31,
      2017     2016
      (as reported)     (as reported)    

(pro forma

adjustments(1))

      (pro forma)
Revenues                                          
Franchise fees     $ 343       $ 276       $ 20   (a)     $ 296  
Base and other management fees       81         63         18   (a)       81  
Incentive management fees       62         39         15   (a)       54  
Owned and leased hotels       385         363                   363  
Other revenues       27         29                   29  
        898         770         53           823  
Other revenues from managed and franchised properties       1,381         1,069         273   (b)       1,342  
Total revenues       2,279         1,839         326           2,165  
                                           
Expenses                                          
Owned and leased hotels       339         314                   314  
Depreciation and amortization       88         91                   91  
General and administrative       108         116                   116  
Other expenses       15         12                   12  
        550         533                   533  
Other expenses from managed and franchised properties       1,381         1,069         273   (b)       1,342  
Total expenses       1,931         1,602         273           1,875  
                                           
Gain on sales of assets, net               7                   7  
                                           
Operating income       348         244         53           297  
                                           
Interest expense       (104 )       (108 )                 (108 )
Gain on foreign currency transactions               20                   20  
Other non-operating income, net       12         9                   9  
                                           
Income from continuing operations before income taxes       256         165         53           218  
                                           
Income tax benefit (expense)       585         (553 )       (20 ) (c)       (573 )
                                           
Income (loss) from continuing operations, net of taxes       841         (388 )       33           (355 )
Income from discontinued operations, net of taxes               6                   6  
Net income (loss)       841         (382 )       33           (349 )
Net income attributable to noncontrolling interests       (1 )       (5 )                 (5 )
Net income (loss) attributable to Hilton stockholders     $ 840       $ (387 )     $ 33         $ (354 )
                                           
Weighted average shares outstanding(2)                                          
Basic       319         329             (d)       329  
Diluted       322         329             (d)       329  
                                           
Earnings (loss) per share                                          
Basic:                                          
Net income (loss) from continuing operations per share     $ 2.63       $ (1.20 )                 $ (1.09 )
Net income from discontinued operations per share               0.02                        
Net income (loss) per share     $ 2.63       $ (1.18 )                      
                                           
Diluted:                                          
Net income (loss) from continuing operations per share     $ 2.61       $ (1.20 )                 $ (1.09 )
Net income from discontinued operations per share               0.02                        
Net income (loss) per share     $ 2.61       $ (1.18 )                      
                                           
Cash dividends declared per share(2)     $ 0.15       $ 0.21                   $ 0.21  
                                           
___________

(1)

  Pro forma adjustments include the effect of the spin-offs of Park and HGV, excluding amounts reported as discontinued operations. See “Definitions—Pro Forma Adjustments” for additional details.

(2)

  Weighted average shares outstanding used in the computation of basic and diluted earnings (loss) per share and cash dividends declared per share for the three months ended December 31, 2016 was adjusted to reflect the Reverse Stock Split.
     
 

HILTON WORLDWIDE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share data)

 
 
      Year Ended December 31,
      2017     2016
      (as reported)     (as reported)    

(pro forma

adjustments(1))

      (pro forma)
Revenues                                          
Franchise fees     $ 1,382       $ 1,154       $ 80   (a)     $ 1,234  
Base and other management fees       336         242         79   (a)       321  
Incentive management fees       222         142         59   (a)       201  
Owned and leased hotels       1,450         1,452                   1,452  
Other revenues       105         82                   82  
        3,495         3,072         218           3,290  
Other revenues from managed and franchised properties       5,645         4,310         1,138   (b)       5,448  
Total revenues       9,140         7,382         1,356           8,738  
                                           
Expenses                                          
Owned and leased hotels       1,286         1,295                   1,295  
Depreciation and amortization       347         364                   364  
General and administrative       434         403                   403  
Other expenses       56         66                   66  
        2,123         2,128                   2,128  
Other expenses from managed and franchised properties       5,645         4,310         1,138   (b)       5,448  
Total expenses       7,768         6,438         1,138           7,576  
                                           
Gain on sales of assets, net               8                   8  
                                           
Operating income       1,372         952         218           1,170  
                                           
Interest expense       (408 )       (394 )                 (394 )
Gain (loss) on foreign currency transactions       3         (16 )                 (16 )
Loss on debt extinguishment       (60 )                          
Other non-operating income, net       23         14                   14  
                                           
Income from continuing operations before income taxes       930         556         218           774  
                                           
Income tax benefit (expense)       334         (564 )       (83 ) (c)       (647 )
                                           
Income (loss) from continuing operations, net of taxes       1,264         (8 )       135           127  
Income from discontinued operations, net of taxes               372                   372  
Net income       1,264         364         135           499  
Net income attributable to noncontrolling interests       (5 )       (16 )                 (16 )
Net income attributable to Hilton stockholders     $ 1,259       $ 348       $ 135         $ 483  
                                           
Weighted average shares outstanding(2)                                          
Basic       324         329             (d)       329  
Diluted       327         329             (d)       329  
                                           
Earnings (loss) per share                                          
Basic:                                          
Net income (loss) from continuing operations per share     $ 3.88       $ (0.05 )                 $ 0.36  
Net income from discontinued operations per share               1.11                        
Net income per share     $ 3.88       $ 1.06                        
                                           
Diluted:                                          
Net income (loss) from continuing operations per share     $ 3.85       $ (0.05 )                 $ 0.36  
Net income from discontinued operations per share               1.11                        
Net income per share     $ 3.85       $ 1.06                        
                                           
Cash dividends declared per share(2)     $ 0.60       $ 0.84                   $ 0.84  
                                           
___________

(1)

  Pro forma adjustments include the effect of the spin-offs of Park and HGV, excluding amounts reported as discontinued operations. See “Definitions—Pro Forma Adjustments” for additional details.

(2)

  Weighted average shares outstanding used in the computation of basic and diluted earnings (loss) per share and cash dividends declared per share for the year ended December 31, 2016 was adjusted to reflect the Reverse Stock Split.
     
 

HILTON WORLDWIDE HOLDINGS INC.

COMPARABLE AND CURRENCY NEUTRAL SYSTEM-WIDE HOTEL OPERATING STATISTICS

BY REGION

(unaudited)

 
 
      Three Months Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
U.S.     72.5 %    

1.5

%

pts.     $ 144.37     1.1 %     $ 104.70     3.2 %
Americas (excluding U.S.)     68.7       2.1           124.41     3.0         85.48     6.2  
Europe     74.3       1.6           144.29     1.6         107.22     3.9  
Middle East & Africa     70.7       7.8           145.43     (5.6 )       102.81     6.1  
Asia Pacific     74.2       3.5           146.80     2.6         108.97     7.6  
System-wide     72.6       1.8           143.65     1.2         104.25     3.8  
       
       
      Year Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
U.S.     76.3 %    

0.4

%

pts.

    $ 146.78     1.0 %     $ 111.93     1.5 %
Americas (excluding U.S.)     71.5       2.1           124.47     2.1         89.04     5.3  
Europe     75.3       3.2           141.20     2.1         106.37     6.6  
Middle East & Africa     67.1       5.5           145.16     (5.0 )       97.42     3.6  
Asia Pacific     72.9       4.9           140.36     0.1         102.39     7.3  
System-wide     75.5       1.2           144.78     0.9         109.27     2.5  
                                       
 

HILTON WORLDWIDE HOLDINGS INC.

COMPARABLE AND CURRENCY NEUTRAL SYSTEM-WIDE HOTEL OPERATING STATISTICS

BY BRAND

(unaudited)

 
 
      Three Months Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
Waldorf Astoria Hotels & Resorts     69.6 %     2.4 % pts.     $ 331.75     2.7 %     $ 230.91     6.3 %
Conrad Hotels & Resorts     73.4       3.6           262.37     2.1         192.58     7.5  
Hilton Hotels & Resorts     74.1       2.3           168.40     0.8         124.79     4.1  
Curio – A Collection by Hilton     70.0       4.4           191.42     2.2         133.94     8.9  
DoubleTree by Hilton     71.3       1.6           134.91     1.3         96.13     3.6  
Embassy Suites by Hilton     75.8       1.5           156.05     1.1         118.34     3.1  
Hilton Garden Inn     72.1       1.8           130.61     0.8         94.16     3.3  
Hampton by Hilton     70.4       1.3           118.76     1.1         83.55     2.9  
Homewood Suites by Hilton     76.8       2.3           133.38     1.6         102.46     4.7  
Home2 Suites by Hilton     74.2       2.8           114.66     0.8         85.09     4.7  
System-wide     72.6       1.8           143.65     1.2         104.25     3.8  
                                       
                                       
      Year Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
Waldorf Astoria Hotels & Resorts     69.5 %     0.3 %

pts.

    $ 329.40     3.4 %     $ 228.89     3.8 %
Conrad Hotels & Resorts     72.5       3.2           246.13     0.1         178.50     4.8  
Hilton Hotels & Resorts     75.6       1.9           167.48     0.6         126.63     3.1  
Curio – A Collection by Hilton     71.7       5.2           192.25     (0.2 )       137.82     7.6  
DoubleTree by Hilton     74.2       1.3           135.47     0.8         100.55     2.6  
Embassy Suites by Hilton     79.1       0.7           161.39     0.9         127.64     1.8  
Hilton Garden Inn     75.5       0.8           132.87     0.6         100.33     1.7  
Hampton by Hilton     74.3       0.6           122.02     1.0         90.65     1.8  
Homewood Suites by Hilton     80.2       1.6           136.32     0.9         109.30     2.9  
Home2 Suites by Hilton     78.7       2.9           116.91     1.1         92.03     5.0  
System-wide     75.5       1.2           144.78     0.9         109.27     2.5  
                                                   
 

HILTON WORLDWIDE HOLDINGS INC.

COMPARABLE AND CURRENCY NEUTRAL SYSTEM-WIDE HOTEL OPERATING STATISTICS

BY SEGMENT

(unaudited)

 
 
      Three Months Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
Management and franchise     72.4       1.9 % pts     142.35     1.1     103.12     3.7
Ownership(1)     76.5       0.3         181.11     3.5     138.61     4.0
System-wide     72.6       1.8         143.65     1.2     104.25     3.8
       
       
      Year Ended December 31,
      Occupancy     ADR     RevPAR
      2017     vs. 2016     2017     vs. 2016     2017     vs. 2016
Management and franchise     75.4 %     1.2 % pts     143.75     0.8     108.40     2.4
Ownership(1)     77.4       1.6         175.39     3.1     135.75     5.4
System-wide     75.5       1.2         144.78     0.9     109.27     2.5
                                           
____________

(1)

  Includes owned and leased hotels, as well as hotels owned or leased by entities in which Hilton has a noncontrolling interest.
     
 

HILTON WORLDWIDE HOLDINGS INC.

MANAGEMENT AND FRANCHISE FEES, REFLECTING APPLICATION OF ASU 2014-09

(unaudited, dollars in millions)

 
 
      Three Months Ended    

Year Ended

December 31,

2017

     

March 31,

2017

   

June 30,

2017

   

September 30,

2017

   

December 31,

2017

   
Franchise fees, as reported     $ 294       $ 372       $ 373       $ 343       $ 1,382  
Deferral of application, initiation and other fees(1)       (11 )       (16 )       (14 )       (15 )       (56 )
Amortization of contract acquisition costs(2)       (1 )       (1 )       (1 )       (2 )       (5 )
Franchise fees, reflecting application of ASU 2014-09       282         355         358         326         1,321  
                                               
Base and other management fees, as reported       83         85         87         81         336  
Amortization of contract acquisition costs(2)       (2 )       (4 )               (3 )       (9 )
Base and other management fees, reflecting application of ASU 2014-09       81         81         87         78         327  
                                               
Incentive management fees, as reported       52         56         52         62         222  
Constrained revenue(3)       (3 )       1         1         1          
Incentive management fees, reflecting application of ASU 2014-09       49         57         53         63         222  
Management and franchise fees, reflecting application of ASU 2014-09     $ 412       $ 493       $ 498       $ 467       $ 1,870  
                                                   
____________

(1)

  Represents application, initiation and other fees that will be recognized over the term of the franchise contract, rather than upon execution of the contract.

(2)

  Represents the recognition of certain contract acquisition costs related to management and franchise contracts over the term of the contracts as a reduction to revenue, instead of as amortization expense.

(3)

  Represents the recognition of incentive management fees that do not exceed the forecasted fees for the full incentive period, to the extent that it is probable that a significant reversal will not occur as a result of future hotel profits or cash flows. Amounts were previously recognized as they would be due if the management contract was terminated at the end of the reporting period. There are no changes to total annual incentive management fees revenue as a result of ASU 2014-09.
     
 

HILTON WORLDWIDE HOLDINGS INC.

PROPERTY SUMMARY

As of December 31, 2017

 
 
      Owned / Leased(1)     Managed     Franchised     Total
      Properties     Rooms     Properties     Rooms     Properties     Rooms     Properties     Rooms
Waldorf Astoria Hotels & Resorts                                                
U.S.     1     215     12     5,451             13     5,666
Americas (excluding U.S.)             1     142     1     984     2     1,126
Europe     2     463     4     898             6     1,361
Middle East & Africa             3     703             3     703
Asia Pacific             3     723             3     723
Conrad Hotels & Resorts                                                
U.S.             4     1,287     1     319     5     1,606
Americas (excluding U.S.)             2     402     1     294     3     696
Europe             4     1,155             4     1,155
Middle East & Africa     1     614     3     1,076             4     1,690
Asia Pacific     1     164     15     4,630     2     768     18     5,562
Canopy by Hilton                                                
U.S.                     1     175     1     175
Europe                     1     112     1     112
Hilton Hotels & Resorts                                                
U.S.             65     48,048     179     54,319     244     102,367
Americas (excluding U.S.)     1     405     25     9,235     17     5,469     43     15,109
Europe     55     14,935     54     16,359     33     9,430     142     40,724
Middle East & Africa     5     1,998     44     13,427     2     605     51     16,030
Asia Pacific     7     3,412     84     30,955     7     2,826     98     37,193
Curio – A Collection by Hilton                                                
U.S.             4     1,981     26     5,694     30     7,675
Americas (excluding U.S.)                     7     1,271     7     1,271
Europe             2     189     6     764     8     953
Middle East & Africa             1     201             1     201
Asia Pacific             2     448             2     448
DoubleTree by Hilton                                                
U.S.             37     12,241     301     71,450     338     83,691
Americas (excluding U.S.)             4     809     21     4,351     25     5,160
Europe             11     2,915     81     13,984     92     16,899
Middle East & Africa             10     2,350     4     488     14     2,838
Asia Pacific             49     14,220     2     965     51     15,185
Tapestry Collection by Hilton                                                
U.S.                     4     467     4     467
Embassy Suites by Hilton                                                
U.S.             44     11,568     193     43,659     237     55,227
Americas (excluding U.S.)             3     667     5     1,322     8     1,989
Hilton Garden Inn                                                
U.S.             4     430     634     87,739     638     88,169
Americas (excluding U.S.)             8     1,084     36     5,594     44     6,678
Europe             21     3,870     38     6,230     59     10,100
Middle East & Africa             7     1,574             7     1,574
Asia Pacific             23     4,917             23     4,917
Hampton by Hilton                                                
U.S.             47     5,806     2,097     204,936     2,144     210,742
Americas (excluding U.S.)             13     1,677     89     10,651     102     12,328
Europe             15     2,439     52     8,016     67     10,455
Asia Pacific                     25     3,809     25     3,809
Tru by Hilton                                                
U.S.                     9     911     9     911
Homewood Suites by Hilton                                                
U.S.             21     2,241     410     46,786     431     49,027
Americas (excluding U.S.)             3     358     17     1,920     20     2,278
Home2 Suites by Hilton                                                
U.S.                     201     20,698     201     20,698
Americas (excluding U.S.)                     3     317     3     317
Other             4     1,759     1     250     5     2,009
Hotels     73     22,206     656     208,235     4,507     617,573     5,236     848,014
Hilton Grand Vacations                     48     8,101     48     8,101
Total     73     22,206     656     208,235     4,555     625,674     5,284     856,115
                                                 
____________

(1)

  Includes hotels owned or leased by entities in which Hilton owns a noncontrolling interest.
     
         

HILTON WORLDWIDE HOLDINGS INC.

CAPITAL EXPENDITURES

(unaudited, dollars in millions)

         
    Three Months Ended    
    December 31,   Increase / (Decrease)
    2017   2016   $   %
Capital expenditures for property and equipment(1)   $ 22     $ 20     2     10.0  
Capitalized software costs(2)   30     23     7     30.4  
Contract acquisition costs   24     20     4     20.0  
Total capital expenditures   $ 76     $ 63     13     20.6  
         
    Year Ended    
    December 31,   Increase / (Decrease)
    2017   2016   $   %
Capital expenditures for property and equipment(1)   $ 58     $ 62     (4 )   (6.5 )
Capitalized software costs(2)   75     73     2     2.7  
Contract acquisition costs   75     55     20     36.4  
Total capital expenditures   $ 208     $ 190     18     9.5  
____________
(1)   Includes expenditures for hotels, corporate and other property and equipment.
(2)   Includes $25 million and $16 million of expenditures that are reimbursed by hotel owners for the three months ended December 31, 2017 and 2016, respectively, and $53 million and $43 million for the years ended December 31, 2017 and 2016, respectively.
     
         
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
NET INCOME AND DILUTED EPS, ADJUSTED FOR SPECIAL ITEMS AND
PRO FORMA NET INCOME AND DILUTED EPS, ADJUSTED FOR SPECIAL ITEMS
(unaudited, in millions, except per share data)
         
    Three Months Ended   Year Ended
    December 31,   December 31,
    2017   2016   2017   2016
Income (loss) from continuing operations attributable to Hilton stockholders, net of taxes, as reported   $ 840     $ (393 )   $ 1,259     $ (18 )
Diluted EPS from continuing operations, as reported   $ 2.61     $ (1.20 )   $ 3.85     $ (0.05 )
Special items:                
Loss on debt extinguishment   $     $     $ 60     $  
Transaction costs(1)   1         18      
Financing transactions(2)       14     5     18  
Asset dispositions(3)       (3 )   12     15  
Tax-related adjustments(4)   (665 )   513     (665 )   360  
Other adjustments(5)   (3 )   13     (3 )   28  
Total special items before tax   (667 )   537     (573 )   421  
Income tax benefit (expense) on special items   1     (8 )   (33 )   (22 )
Total special items after tax   $ (666 )   $ 529     $ (606 )   $ 399  
                 
Net income, adjusted for special items   $ 174     $ 136     $ 653     $ 381  
Diluted EPS, adjusted for special items   $ 0.54     $ 0.41     $ 2.00     $ 1.16  
                 
Net income, adjusted for special items, including pro forma adjustments(6)       $ 169         $ 516  
Diluted EPS, adjusted for special items, including pro forma adjustments(6)       $ 0.51         $ 1.57  
____________
(1)   Includes expenses related to the spin-offs that were recognized in general and administrative expenses. Transaction costs for the three months and year ended December 31, 2016 are included in discontinued operations and, therefore, are excluded from the presentation above.
(2)   Includes expenses incurred in connection with the refinancing of the senior secured term loan facility that were recognized in other non-operating income, net.
(3)   Includes severance costs that were recognized in general and administrative expenses from the February 2015 sale of the Waldorf Astoria New York and, for the three months and year ended December 31, 2016, includes a gain from the sale of an asset recognized in gain on sales of assets, net.
(4)   The three months and year ended December 31, 2017 include an aggregate provisional tax benefit of $665 million recognized in the fourth quarter of 2017 in relation to the Tax Cuts and Jobs Act enacted in December 2017, which did not have an effect on cash paid for taxes during the year. The three months and year ended December 31, 2016 include an aggregate tax charge of $513 million incurred in the fourth quarter of 2016 related to a corporate restructuring executed before the spin-offs, which did not have an effect on cash paid for taxes during the year. The amount during the year ended December 31, 2016 also relates to the release of reserves of unrecognized tax benefits that Hilton has either settled or determined that Hilton was more likely than not to receive the full benefit for. These amounts were recognized in income tax benefit (expense).
(5)   The three months and year ended December 31, 2017 include a gain recorded as a result of the modification of a lease agreement recognized in other non-operating income, net, and impairment losses. The year ended December 31, 2016 includes impairment losses, and the three months and year ended December 31, 2016 include estimated settlement costs for a contractual dispute and secondary offering expenses recognized in general and administrative expenses.
(6)   Reflects the effect of the spin-offs as if they had occurred on January 1, 2016. See “Definitions—Pro Forma Adjustments” for additional details.
     
     
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
ADJUSTED EBITDA AND PRO FORMA ADJUSTED EBITDA
(unaudited, dollars in millions)
     
    Three Months Ended December 31,
    2017   2016
    (as reported)   (as reported)   (pro forma)
Income (loss) from continuing operations, net of taxes   $ 841     $ (388 )   $ (355 )
Interest expense   104     108     108  
Income tax expense (benefit)   (585 )   553     573  
Depreciation and amortization   88     91     91  
EBITDA   448     364     417  
Gain on sales of assets, net       (7 )   (7 )
Gain on foreign currency transactions       (20 )   (20 )
FF&E replacement reserve   18     14     14  
Share-based compensation expense   30     19     19  
Other adjustment items(1)   2     31     31  
Adjusted EBITDA   $ 498     $ 401     $ 454  
             
Deferral of application, initiation and other fees(2)   (15 )        
Constrained revenue(3)   1          
Adjusted EBITDA, reflecting application of ASU 2014-09   $ 484          
     
    Year Ended December 31,
    2017   2016
    (as reported)   (as reported)   (pro forma)
Income (loss) from continuing operations, net of taxes   $ 1,264     $ (8 )   $ 127  
Interest expense   408     394     394  
Income tax expense (benefit)   (334 )   564     647  
Depreciation and amortization   347     364     364  
EBITDA   1,685     1,314     1,532  
Gain on sales of assets, net       (8 )   (8 )
Loss (gain) on foreign currency transactions   (3 )   16     16  
Loss on debt extinguishment   60          
FF&E replacement reserve   55     55     55  
Share-based compensation expense   121     81     83  
Other adjustment items(1)   47     85     85  
Adjusted EBITDA   $ 1,965     $ 1,543     $ 1,763  
             
Deferral of application, initiation and other fees(2)   (56 )   (59 )   (59 )
Adjusted EBITDA, reflecting application of ASU 2014-09   $ 1,909     $ 1,484     $ 1,704  
____________
(1)   Includes adjustments for severance, impairment loss and other items. The three months and year ended December 31, 2017 also includes transaction costs. Transaction costs for the three months and year ended December 31, 2016 are included in discontinued operations and, therefore, are excluded from the presentation above.
(2)   Represents application, initiation and other fees that will be recognized over the term of the franchise contract, rather than upon execution of the contract.
(3)   Represents the recognition of incentive management fees that do not exceed the forecasted fees for the full incentive period, to the extent that it is probable that a significant reversal will not occur as a result of future hotel profits or cash flows. Amounts were previously recognized as they would be due if the management contract was terminated at the end of the reporting period. There are no changes to total annual incentive management fees revenue as a result of ASU 2014-09.
     
     
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
ADJUSTED EBITDA MARGIN AND PRO FORMA ADJUSTED EBITDA MARGIN
(unaudited, dollars in millions)
     
    Three Months Ended December 31,
    2017   2016
    (as reported)   (as reported)   (pro forma)
Total revenues, as reported   $ 2,279     $ 1,839     $ 2,165  
Less: other revenues from managed and franchised properties   (1,381 )   (1,069 )   (1,342 )
Total revenues, excluding other revenues from managed and franchised properties   $ 898     $ 770     $ 823  
             
Adjusted EBITDA   $ 498     $ 401     $ 454  
             
Adjusted EBITDA margin   55.5 %   52.1 %   55.2 %
     
    Year Ended December 31,
    2017   2016
    (as reported)   (as reported)   (pro forma)
Total revenues, as reported   $ 9,140     $ 7,382     $ 8,738  
Less: other revenues from managed and franchised properties   (5,645 )   (4,310 )   (5,448 )
Total revenues, excluding other revenues from managed and franchised properties   $ 3,495     $ 3,072     $ 3,290  
             
Adjusted EBITDA   $ 1,965     $ 1,543     $ 1,763  
             
Adjusted EBITDA margin   56.2 %   50.2 %   53.6 %
     
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
NET DEBT, NET DEBT TO ADJUSTED EBITDA RATIO AND
PRO FORMA NET DEBT TO ADJUSTED EBITDA RATIO
(unaudited, in millions)
     
    December 31,
    2017   2016
Long-term debt, including current maturities   $ 6,602     $ 6,616  
Add: unamortized deferred financing costs and discount   81     90  
Long-term debt, including current maturities and excluding unamortized deferred financing costs and discount   6,683     6,706  
Add: Hilton’s share of unconsolidated affiliate debt, excluding unamortized deferred financing costs   13     12  
Less: cash and cash equivalents   (570 )   (1,062 )
Less: restricted cash and cash equivalents   (100 )   (121 )
Net debt   $ 6,026     $ 5,535  
         
Adjusted EBITDA   $ 1,965     $ 1,543  
         
Net debt to Adjusted EBITDA ratio   3.1     3.6  
         
Pro forma Adjusted EBITDA       $ 1,763  
         
Pro forma net debt to Adjusted EBITDA ratio       3.1  
     
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
OUTLOOK: NET INCOME AND DILUTED EPS, ADJUSTED FOR SPECIAL ITEMS
FORECASTED 2018
(unaudited, in millions, except per share data)
     
    Three Months Ending
    March 31, 2018
    Low Case   High Case
Net income attributable to Hilton stockholders, before special items   $ 137     $ 151
Diluted EPS, before special items   $ 0.43     $ 0.47
         
Net income, adjusted for special items   $ 137     $ 151
Diluted EPS, adjusted for special items(1)   $ 0.43     $ 0.47
     
    Year Ending
    December 31, 2018
    Low Case   High Case
Net income attributable to Hilton stockholders, before special items   $ 798     $ 833
Diluted EPS, before special items   $ 2.49     $ 2.60
         
Net income, adjusted for special items   $ 798     $ 833
Diluted EPS, adjusted for special items(1)   $ 2.49     $ 2.60
____________
(1)   Does not include the effect of potential share repurchases.
     
     
HILTON WORLDWIDE HOLDINGS INC.
NON-GAAP FINANCIAL MEASURES RECONCILIATIONS
OUTLOOK: ADJUSTED EBITDA
FORECASTED 2018
(unaudited, in millions)
     
   

Three Months Ending

   

March 31, 2018

    Low Case   High Case
Net income   $ 138     $ 152
Interest expense   85     85
Income tax expense   56     62
Depreciation and amortization   82     82
EBITDA   361     381
FF&E replacement reserve   12     12
Share-based compensation expense   26     26
Other adjustment items(1)   11     11
Adjusted EBITDA   $ 410     $ 430
         
Effect of adoption of ASU 2014-09   16     16
Adjusted EBITDA, excluding the application of ASU 2014-09   $ 426     $ 446
     
    Year Ending
    December 31, 2018
    Low Case   High Case
Net income   $ 802     $ 837
Interest expense   346     346
Income tax expense   327     342
Depreciation and amortization   336     336
EBITDA   1,811     1,861
FF&E replacement reserve   49     49
Share-based compensation expense   120     120
Other adjustment items(1)   50     50
Adjusted EBITDA   $ 2,030     $ 2,080
         
Effect of adoption of ASU 2014-09   60     60
Adjusted EBITDA, excluding the application of ASU 2014-09   $ 2,090     $ 2,140
____________
(1)   Includes adjustments for severance and other items.
     

HILTON WORLDWIDE HOLDINGS INC.
DEFINITIONS

Pro Forma Adjustments

The unaudited pro forma condensed consolidated statements of operations are based on Hilton’s unaudited condensed consolidated statement of operations for the three months ended December 31, 2016 and Hilton’s audited consolidated statement of operations for the year ended December 31, 2016, which have been adjusted to reflect the spin-offs of Park and HGV as if they had occurred on January 1, 2016. The unaudited pro forma adjustments are based on estimates, accounting judgments and currently available information and assumptions that Hilton management believes are reasonable. The pro forma adjustments include the following:

     
(a)   The management and franchise fee revenue related to the management and franchise contracts with Park, effective at completion of the spin-offs, as well as the franchise fee revenue related to the license agreement with HGV, effective at completion of the spin-offs.
     
(b)   The revenues and expenses for payroll and related costs, certain other operating costs, marketing expenses and other expenses associated with Hilton’s brands and shared services that will be directly reimbursed to Hilton by Park under the terms of the management and franchise contracts with Park, effective at completion of the spin-offs.
     
(c)   The income tax effect of the pro forma adjustments by applying an estimated statutory tax rate of 38 percent.
     
(d)   Pro forma basic and diluted weighted average shares outstanding were based on the historical weighted average number of common shares outstanding, and the calculation of pro forma diluted weighted average shares outstanding reflects the effect of the spin-offs.
     

Refer to pro forma financial information included in the Current Report on Form 8-K filed with the SEC on January 4, 2017 for additional details on the pro forma adjustments.

The adjustments in the unaudited pro forma condensed consolidated statements of operations do not include general and administrative expenses that do not meet the requirements to be presented in discontinued operations as they are not specifically related to Park or HGV. Accordingly, the pro forma general and administrative expenses are not necessarily indicative of future general and administrative expenses of Hilton. The unaudited pro forma condensed consolidated statements of operations also do not reflect any cost savings that Hilton believes could have been achieved had the spin-offs been completed on the date indicated.

Net Income and EPS, Adjusted for Special Items

Net income and EPS, adjusted for special items, are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. In addition, the Company’s definition of net income and EPS, adjusted for special items, may not be comparable to similarly titled measures of other companies.

Net income and EPS, adjusted for special items, are included to assist investors in performing meaningful comparisons of past, present and future operating results and as a means of highlighting the results of the Company’s ongoing operations.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

Earnings before interest expense, taxes and depreciation and amortization (“EBITDA”), presented herein, reflects income (loss) from continuing operations, net of taxes, excluding interest expense, a provision for income taxes and depreciation and amortization.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment (“FF&E”) replacement reserves required under certain lease agreements; (v) reorganization costs; (vi) share-based compensation expense; (vii) non-cash impairment losses; (viii) severance, relocation and other expenses; and (ix) other items.

Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenues, excluding other revenues from managed and franchised properties.

The Company believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors about the Company and its financial condition and results of operations for the following reasons: (i) these measures are among the measures used by the Company’s management team to evaluate its operating performance and make day-to-day operating decisions; and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in the industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within the Company’s industry. For instance, interest expense and the provision for income taxes are dependent on company specifics, including, among other things, the Company’s capital structure and operating jurisdictions, respectively, and, therefore could vary significantly across companies. Depreciation and amortization are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used. For Adjusted EBITDA, the Company also excludes items such as (i) share-based compensation expense, as this could vary widely among companies due to the different plans in place and the usage of them; (ii) FF&E replacement reserve to be consistent with the treatment of FF&E for its owned and leased hotels where it is capitalized and depreciated over the life of the FF&E and (iii) other items that are not core to the Company’s operations and are not reflective of the Company’s performance.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not recognized terms under GAAP and should not be considered as alternatives, in isolation or as a substitute, to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP. The Company’s definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies and may have limitations as analytical tools.

Net Debt

Net debt, presented herein, is a non-GAAP financial measure that the Company uses to evaluate its financial leverage. Net debt is calculated as (i) long-term debt, including current maturities and excluding unamortized deferred financing costs and discount; and (b) the Company’s share of unconsolidated affiliate debt, excluding unamortized deferred financing costs; reduced by (a) cash and cash equivalents; and (ii) restricted cash and cash equivalents. Net debt should not be considered as a substitute to debt presented in accordance with GAAP. Net debt may not be comparable to a similarly titled measure of other companies.

The Company believes net debt provides useful information about its indebtedness to investors as it is frequently used by securities analysts, investors and other interested parties to compare the indebtedness of companies.

Net Debt to Adjusted EBITDA Ratio

Net debt to Adjusted EBITDA ratio, presented herein, is a non-GAAP financial measure and is included as it is frequently used by securities analysts, investors and other interested parties to compare the financial condition of companies. Net debt to Adjusted EBITDA ratio should not be considered as an alternative to measures of financial condition derived in accordance with GAAP, and it may not be comparable to a similarly titled measure of other companies.

Comparable Hotels

The Company defines comparable hotels as those that: (i) were active and operating in the Company’s system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported, excluding the hotels distributed in the spin-offs; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results are not available.

Of the 5,236 hotels in the Company’s system as of December 31, 2017, 3,909 hotels were classified as comparable hotels. The 1,327 non-comparable hotels included 284 hotels, or approximately five percent of the total hotels in the system, that were removed from the comparable group during the year.

Occupancy

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period. Occupancy measures the utilization of the hotels’ available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help management determine achievable average daily rate levels as demand for hotel rooms increases or decreases.

Average Daily Rate (“ADR”)

ADR represents hotel room revenue divided by total number of room nights sold for a given period. ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and management uses ADR to assess pricing levels that the Company is able to generate by type of customer, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Revenue per Available Room (“RevPAR”)

RevPAR is calculated by dividing hotel room revenue by total number of room nights available to guests for a given period. Management considers RevPAR to be a meaningful indicator of the Company’s performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR, ADR and occupancy throughout this press release are presented on a comparable basis and references to RevPAR and ADR are presented on a currency neutral basis (all periods presented use the actual exchange rates for the three months and year ended December 31, 2017, as applicable), unless otherwise noted.

Posted by on February 14, 2018.

Categories: Financial

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