Year 1st Qtr; All Brands Report Significant RevPAR Increases
Hotel Operating Statistics
|BEVERLY HILLS, Calif. - April 30, 2007 - Hilton Hotels Corporation
(NYSE:HLT - News) today reported financial results for the first quarter
ended March 31, 2007. First quarter highlights compared to the first quarter
of 2006 are as follows:
* Total company Adjusted EBITDA of $371 million,
Hilton reported first quarter 2007 net income of $95 million compared with $104 million in the 2006 quarter. Diluted net income per share was $.23 in the 2007 first quarter, versus $.26 in the 2006 period. Excluding non-recurring items in both periods and assuming the Hilton International (HI) acquisition occurred January 1, 2006 (as discussed below,) diluted EPS totaled $.20 per share in the 2007 quarter, a 33 percent increase from $.15 per share in the 2006 period.
Non-recurring items combined to benefit the 2007 quarter by $.03 per share as follows:
* $30 million pre-tax gain on asset dispositions
The 2006 first quarter benefited from non-recurring items totaling $.06 per share. Additionally, had the HI acquisition been completed on January 1, 2006 (actual acquisition date was February 23, 2006), first quarter 2006 results would have been reduced by approximately $.05 per share due to the seasonally weak business environment in the first two months of the year.
Net income from the Scandic hotel system, the sale of which was announced on March 2, 2007 and completed on April 26, 2007, is reflected as discontinued operations.
The company reported first quarter 2007 total operating income of $228 million (a 1 percent increase from the 2006 period), on total revenue of $1.864 billion (a 29 percent increase from $1.441 billion in the 2006 quarter). Total company earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) were $371 million, an increase of 13 percent from $328 million in the 2006 quarter.
System-wide RevPAR; Management/Franchise Fees
All of the company's brands reported significant system-wide revenue-per-available-room (RevPAR) increases, with particularly strong gains in average daily rate (ADR). On a system-wide basis (including owned, leased, managed and franchised properties) and pro forma as if the acquisition of HI had occurred January 1, 2006, first quarter RevPAR increased 8.9 percent compared to the 2006 period. The company's brands showed first quarter RevPAR gains as follows: Conrad, 13.2 percent; Hilton, 10.3 percent; Doubletree, 8.8 percent; Homewood Suites by Hilton, 8.0 percent; Hilton Garden Inn, 7.9 percent; Hampton Inn, 7.8 percent; and Embassy Suites, 6.3 percent.
Management and franchise fees increased 16 percent in the first quarter to $176 million, benefiting from RevPAR gains, the addition of new units and the acquisition of HI. 2006 fees include HI from February 23, 2006 and a one-time $15 million management contract termination fee related to a sold joint venture property. Adjusting for a full quarter of HI and this one-time termination fee, fee income increased 17 percent in the first quarter.
Owned Hotel Results
Continued strong demand trends, primarily among leisure and business travelers, resulted in high single digit or double digit ADR increases at many of the company's gateway hotels around the world. Business transient, group and leisure all showed significant ADR gains.
Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $571 million in the first quarter 2007, a 13 percent increase from $507 million in the 2006 quarter. Total owned hotel expenses were up 13 percent in the quarter to $429 million. Owned results exclude hotels that have been classified as discontinued operations in connection with the Scandic sale.
Comparable North America (N.A.) owned revenue and expenses increased 6.1 percent and 6.3 percent, respectively. Expenses were impacted by higher insurance costs.
RevPAR from comparable N.A. owned hotels increased 6.0 percent. Comparable owned N.A. hotel occupancy decreased 0.5 points to 74.4 percent, while ADR increased 6.8 percent to $198.19. Particularly strong RevPAR growth was reported at the company's owned hotels in New York, Chicago and Washington. Comparable N.A. owned hotel margins in the first quarter decreased 10 basis points to 24.4 percent. The aforementioned higher insurance costs impacted margin growth by approximately 70 basis points.
Renovation activity at the Hilton New York negatively impacted comparable results in the quarter. Renovations are expected to continue at the Hilton New York, the Waldorf=Astoria and the Hilton Hawaiian Village in 2007. Additionally, the Hilton San Francisco and Hilton Waikoloa Village were challenged by soft group markets.
On a pro forma basis, as if the acquisition of HI had occurred January 1, 2006, comparable international owned revenue and expenses increased 10.7 percent and 9.4 percent, respectively. Pro forma RevPAR from international comparable owned hotels increased 11.8 percent (97 percent rate driven). Occupancy increased 0.3 points to 67.8 percent, while ADR increased 11.3 percent to $157.45. Strong results were reported in Luxembourg, Amsterdam, Sydney and across the U.K. Adjusting for the impact of foreign exchange, RevPAR from international comparable owned hotels increased 4.8 percent. Pro forma comparable international owned margins improved 90 basis points to 22.2 percent.
On a worldwide basis, pro forma comparable owned RevPAR increased 7.3 percent, with margins flat at 23.8 percent. Excluding the impact of foreign exchange, worldwide pro forma comparable owned RevPAR increased 5.7 percent.
Revenue from leased hotels was $455 million in the first quarter 2007 compared to $189 million in the 2006 quarter, while leased expenses (including rents) were $413 million in the current quarter versus $169 million last year. The EBITDAR-to-rent coverage ratio was 1.4 times in the quarter. Leased results exclude hotels that have been classified as discontinued operations in connection with the Scandic sale.
Pro forma comparable leased revenue increased 13.4 percent, leased expenses increased 10.2 percent, and margins increased 260 basis points to 9.3 percent. RevPAR from leased properties increased 16.4 percent (on a U.S. dollar basis). Adjusting for the impact of foreign exchange, RevPAR from comparable leased hotels increased 9.2 percent, reflective of business strength in the U.K. (primarily London) and Germany.
Hilton Grand Vacations
Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported a 35 percent decline in profitability in the first quarter, due to percentage-of-completion accounting associated with new projects. Revenue and expenses associated with projects in development are deferred to correspond with the pace of construction. Unit sales declined 8 percent, however average unit sales prices increased 42 percent over last year, with the increase driven by new projects in Hawaii.
HGVC had first quarter revenue of $146 million, a 20 percent decrease from $183 million in the 2006 quarter. Expenses were $114 million in the first quarter, compared with $134 million in the 2006 period.
Brand Development/Unit Growth
In the first quarter, the company added 44 properties and 6,865 rooms to its system as follows: Hampton Inn, 22 hotels and 1,940 rooms; Hilton, 9 hotels and 2,798 rooms; Hilton Garden Inn, 6 hotels and 774 rooms; Doubletree, 2 hotels and 548 rooms; Homewood Suites by Hilton, 4 hotels and 427 rooms; Embassy Suites, 1 hotel and 308 rooms, and Hilton Grand Vacations, 70 units.
Fourteen hotels and 2,872 rooms were removed from the system during the quarter.
During the first quarter, the company added new domestic Hilton hotels in Providence, Ft. Lauderdale, Branson, and Oklahoma City. The company added new international Hilton hotels in Sicily, Italy; Hefei, China; Warsaw, Poland; and the U.A.E. The company added new Doubletree hotels in Chicago, Illinois and Augusta, Georgia. The company opened its 1,400th Hampton Inn, representing its 140,000th room, in Chicago. Also during the quarter, the company entered into management agreements for a Conrad in Abu Dhabi, Hiltons in Costa Rica and Jordan, and a Doubletree in Costa Rica. Early in the second quarter 2007, the company announced the ground breaking of the 498-room Waldorf=Astoria at Bonnet Creek and the 1,000-room Hilton Bonnet Creek, part of a resort development adjacent to the Walt Disney World® Resort in Florida. The company expects to break ground on the 1,400-room Hilton Orlando at the Orange County Convention Center in the second quarter of 2007. All three hotels will be managed by the company upon completion which is scheduled for late 2009.
During the first quarter, Hilton Garden Inn was named the "Best Mid-Price Hotel Value" by Entrepreneur (TM) magazine for the second consecutive year.
At March 31, 2007, the Hilton worldwide system consisted of 2,838 hotels and 483,090 rooms. The system count excludes 129 properties (22,701 rooms) that left the system in April 2007 in connection with the sale of the Scandic brand. The company's current development pipeline is its biggest yet, and the largest for any U.S.-based hotel company, with more than 800 hotels and 111,000 rooms at March 31, 2007. Approximately 90 percent of the hotels in the current development pipeline are in the Americas (U.S., Canada, Mexico and South America), though international development is expected to comprise an increasingly larger percentage of the company's unit growth within the next two years.
As announced last week, the company completed the sale of the Scandic chain for EUR 833 million or approximately $1.1 billion. The company also announced last week that it entered into an agreement to sell up to 10 hotels in Continental Europe to Morgan Stanley Real Estate for EUR 566 million or approximately $770 million. Additionally, the company is in advanced stages of documentation with preferred buyers of the Hilton Caledonian in Scotland, the Hilton Washington in the District of Columbia and a number of the other domestic assets that were announced as being put on the market for sale late last year. The company expects to close on the majority of these asset sales by mid-summer. Net proceeds from sales will be used to pay down debt.
At March 31, 2007, Hilton had total debt of $7.06 billion (net of approximately $500 million of debt and capital lease obligations resulting from the consolidation of certain joint venture entities and a managed hotel, which are non-recourse to Hilton). Of the $7.06 billion, approximately 54 percent is floating rate debt. Total cash and equivalents (including restricted cash of approximately $325 million) were approximately $476 million at March 31, 2007. The increase in debt from December 31, 2006 was due to borrowings under the company's revolving credit facilities, primarily due to the seasonality of the first quarter and the timing of capital expenditures, including timeshare development. Hilton's debt currently has an average life of approximately 5.9 years, at an average cost of approximately 6.6 percent.
The company's average basic and diluted share counts for the first quarter were 389 million and 424 million, respectively.
Hilton's effective tax rate for continuing operations in the first quarter 2007 was approximately 35 percent.
Total capital expenditures in the first quarter were approximately $167 million, including approximately $77 million expended for timeshare development.
The company provided the following updated estimates for full-year 2007.
As previously announced, the sale of Scandic (including the use of net
proceeds to reduce debt) is expected to reduce the company's 2007 recurring
EPS by $.10 per share. This impact has been reflected in the estimates
provided below. The outlook, however, excludes any non-recurring gains
or losses related to the disposition of Scandic, the impact of future asset
sales, share repurchases or other potential significant transactions.
Total capital spending in 2007 is expected to be approximately $1.0 billion as follows: approximately $290 million for routine improvements and technology, approximately $380 million for timeshare projects, and approximately $330 million for hotel renovation, special projects and hotel investments. To the extent the company completes additional asset sales, capital expenditures would be expected to decrease.
The company expects to add approximately 255 hotels and 35,000 rooms to its system in 2007.
Stephen F. Bollenbach, Hilton co-chairman and chief executive officer, said: "Last year's acquisition of Hilton International is proving - as we expected - to be a tremendous benefit to our company, our customers and our shareholders as international results have been excellent since we completed the acquisition.
"We continue to have great success in opening full-service Hilton hotels in markets around the world and are making significant progress in signing up new deals globally across our Family of Brands, as evidenced by our recently announced ventures in China and India, and developments in Russia and other parts of the world. To further accelerate our shift to a fee-based company, we are bolstering our international development resources to facilitate our ability to secure new contracts.
"An important component of our strategy is the asset disposition program, which we began in 2005. We are seeing continued terrific results on that front as well, the latest example being the recently announced sale of our 10 assets in Continental Europe. We executed this transaction at a great price and expect to retain management agreements on a majority of the hotels."
Mr. Bollenbach concluded: "We are excited about the strength of our
business, the enthusiasm of our team members and the opportunities to continue
our worldwide growth. Our future could not be brighter as we strengthen
our position as the premier global lodging industry company."
Note: This press release contains "forward-looking statements" within the meaning of federal securities law, including statements concerning business strategies and their intended results, and similar statements concerning anticipated future events and expectations that are not historical facts. The forward-looking statements in this press release are subject to numerous risks and uncertainties, including the effects of economic conditions; supply and demand changes for hotel rooms; competitive conditions in the lodging industry, relationships with clients and property owners; the impact of government regulations; changes in foreign currency exchange rates; and the availability of capital to finance growth, which could cause actual results to differ materially from those expressed in or implied by the statements herein.
|Also See:||Hilton Hotels Posts a 97% Increase in 2006 4th Qtr Profit Compared with Prior Year; RevPAR from Hilton Owned Hotels in North America Up 10.2%, Led by Chicago, New York, San Francisco and Phoenix - Hotel Operating Statistics / January 2007|