Brand launches have been the name of the game for Hilton in recent years, and the company is gaining traction now for its latest — Spark by Hilton and the yet-unnamed Project H3 — as well as for brands that had development stalled by the pandemic.
In the company’s second-quarter 2023 earnings call with analysts, President and CEO Chris Nassetta said Project H3, the company’s apartment-style, extended-stay conversion brand, which launched in May, has more than 300 deals in negotiation.
Interest is also high for Spark by Hilton, the premium economy conversion brand the company launched in January. The first Spark by Hilton is slated to open in September, and Nassetta anticipates 20 hotels open by the end of the year. All in all, more than 400 Spark by Hilton hotels are in negotiation, Nassetta said, and the company signed 60 deals in the second quarter.
This activity helped the company grow signings in the Americas region 25% year over year.
Nassetta said that while the new brands definitely contributed — and will contribute even more moving forward — stalwart brands such as Home2 Suites and Hampton by Hilton continue to power the Hilton growth engine. In particular, the company opened nearly 50,000 Hampton by Hilton rooms in China in the quarter, and opened the 600th Home2 Suites hotel in the quarter.
The second quarter represented “the largest number of quarterly signings in our history,” Nassetta said. “Conversions accounted for nearly a third of signings in the U.S., and signings in international locations doubled since last year.”
He highlighted two of Hilton’s newer brands that by and large had their development halted by the pandemic — Tempo by Hilton, launched in January 2020, and Motto by Hilton, launched in late 2018 — for picking up steam with upcoming notable openings. This fall, a triple-brand Motto by Hilton, Home2 Suites and Homewood Suites will open in Times Square, while the first Tempo by Hilton is set to debut in the 46-story, new-build TSX Broadway tower in Times Square.
The company’s pipeline has “a record 3,000 properties and 441,000 rooms,” Nassetta said. Roughly half of Hilton's pipeline is currently under construction.
This year, Nassetta said he anticipates net unit growth of 5%, with that volume accelerating to between 5% and 6% next year and between 6% and 7% from that point.
Second-Quarter Performance and Outlook
Nassetta raised Hilton’s revenue per available room outlook for 2023; the company expects 10% to 12% RevPAR growth for the year. Those expectations rose on the back of a second quarter that notched 12% RevPAR growth versus the same period in 2022, driven by strong demand growth in Asia, particularly in China, according to Kevin Jacobs, Hilton's chief financial officer and president of global development.
Hilton's business-transient RevPAR grew 11% year over year; leisure RevPAR was up 7% and group RevPAR grew 19% over the same period.
Adjusted earnings before interest, taxes, depreciation and amortization in the quarter was $811 million,* exceeding the high end of the company’s prior guidance, according to Hilton's earnings release.
Systemwide occupancy in the quarter was 75%, up 4.2 percentage points over the same period in 2022, and June represented the company’s “highest post-pandemic occupancy,” Nassetta said.
Regions outside the United States represented much of the Hilton portfolio’s performance gains in the second quarter. China’s RevPAR, notably, rose 103% compared to the second quarter of 2022, which was 3% higher than the same quarter in 2019. Rate growth in the Middle East and Africa spurred that region’s 30% RevPAR growth over last year, and Europe saw a 26% RevPAR gain, due to “continued strength in leisure and international inbound travel from the U.S.,” Jacobs said.
In general, Nassetta said he continues to be optimistic about general economic conditions, particularly given what he called the company’s “really good success” in conversions.
“Construction starts were way up in the second half of last year; they’ve been way up in the first half of this year and same with signings,” he said. “We expect to have a record year in signings relative to our prior peak. All of those things translate into our optimism about the second half of this year being much stronger than the first, and 2024 being much better.”
Nassetta said he looks forward in the near future to bringing conversation back to basic operating fundamentals, which will be supported by sustained low supply levels.
“Everything is getting reasonably close to a more normalized environment,” he said.
At press time, Hilton's stock was trading at $149.87, up 18.5% year to date. The New York Stock Exchange Composite Index was up 8.2% for the same period.
(Corrected on Aug. 1 to change an incorrect value for Hilton's second-quarter earnings before interest, taxes, depreciation and amortization.)
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.