Net unit growth has remained a top priority for Hilton despite pandemic pressures on development and performance, and in the fourth quarter of 2020 the company reached the 1-million-rooms mark.
For the full year, Hilton added 47,400 net additional rooms, representing 5.1% net unit growth in 2020, slightly ahead of its forecast. Nearly half of those — 20,900 rooms — were added in the fourth quarter, “largely driven by new development in China, where our focused-service brands continue to drive a disproportionate share of growth,” said President and CEO Chris Nassetta on the company’s fourth-quarter 2020 earnings call with analysts Wednesday morning.
As of Dec. 31, 2020, Hilton’s development pipeline totaled nearly 2,570 hotels and nearly 400,000 rooms in 116 countries and territories, including 31 new to the company. Of those pipeline rooms, 233,000 are located outside of the U.S. and 204,000 are under construction.
Nassetta said hotel conversion activity continues to play a larger role for the company, which is typical for an economic downturn.
Conversion signings grew more than 30% in 2020 versus 2019, and those represented about 20% of Hilton’s net unit growth for the year.
“Over the next few years, [conversions] will become a larger and larger component of overall net unit growth,” Nassetta said.
He noted that during the Great Recession, conversions made up about 40% of the company's net unit growth, and while he doesn't expect the percentage to be that high this time "because we have so many other engines firing," it could be in the 20% to 30% range.
Hilton’s conversion brands are DoubleTree by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton and LXR Hotels & Resorts.
“Conversion signings increased more than 30% versus [2019] and we anticipate continued positive momentum in conversions, particularly through the DoubleTree brand and our collection brands,” he said.
Collectively, room count in those four brands grew 5.2% in 2020 compared to 2019.
Hilton closed out 2020 with 6,422 hotels worldwide, totaling 1,010,257 guest rooms, according to the company’s earnings release.
Segmentation
While business transient and group business demand “remains quite muted,” Nassetta said both segments “showed modest sequential improvement" over the prior quarter.
Looking ahead, he said business transient shows some early signs of recovery.
“There is massive pent-up demand,” he said. “We’re still not through the crisis for sure, but you’re starting to see business transient trends, week by week, are marching up even in the middle of all this.”
Nassetta acknowledged group business takes longer to return — typically because it’s driven by larger groups that require longer lead time and planning — “but trendlines are good,” he said.
“If you look at our lead volume, January was up 35% versus the fourth quarter of 2020,” he said. “Another stat I thought was very encouraging on the group side is that our first half position for 2021 versus the first half of 2019 is down 80% but the second half is down 32% compared to 2019. It’s still off, but by a lot [smaller] margin.”
Nassetta said group business taking place in the second half of 2021 likely will come from smaller social, military, educational, religious and fraternal groups — a segment known as SMERF. Currently, that business is booked more in secondary and tertiary locations.
He added group business trends likely will normalize in 2022, though there is no data on that yet.
“I said to my team, do not give away space in 2022 too cheap,” he said. “There’s going to be gargantuan demand.”
Performance Metrics
Occupancy in the fourth quarter was 40.1% systemwide, down 31.7% from the same quarter in 2019. Average daily rate was $101.39, down 26.9%; and revenue per available room was $40.68, down 59.2% from the same quarter in 2019.
For the full year, occupancy dropped 34.4% to 40.3% in 2020. Average daily rate was $114.03, down 19.6%, and RevPAR was $46 for the year, down 56.7% compared to 2019.
In 2020, the company’s hotels in the Asia Pacific region notched the highest regional occupancy at 43.9%, while its U.S. hotels maintained the highest RevPAR at $49.53 for the year.
Fee revenues decreased 50% in the fourth quarter and 51% for the full year, compared to the same periods in 2019.
Hilton Chief Financial Officer and President of Global Development Kevin Jacobs reminded analysts that “results reflected the continuing impact of the pandemic on global travel demand.”
Nassetta underscored the impact of rising COVID-19 cases around the world in November and December, with related tighter restrictions on hotels particularly in Europe. Despite continued low demand through the end of 2020, he cited “market share gains across every region, even in a distressed business environment.”
Outlook
Hilton did not release official guidance numbers for 2021, but Nassetta took an optimistic tone for the near term, citing continuing vaccination rollouts, growing personal savings in the U.S. that will lead to leisure demand, and the growing need for companies to conduct business in person.
“In a year marked by challenge and change, we executed our crisis response strategy and continue to press forward on strategic opportunities,” he said. “I’m confident there are brighter days ahead and … we are better positioned than ever before.”
He detailed steps the company is taking to get there, which include continuing to add 4% to 5% net unit growth annually while maintaining discipline.
“We’ll be a bigger company,” he said. “You’ll have new units producing and a lower cost structure. When you put all the same flows of fees through the system with more units, it’s a higher-margin business … allowing us to return even more capital than before to our shareholders.”
At press time, Hilton’s stock was trading at $111.43, up 3.7% year to date. The New York Stock Exchange Composite Index was up 7.14% for the same time period.
Editor’s note: Chris Nassetta serves on CoStar Group’s board of directors.