EPS of $.23 flat with prior year quarter in a challenging RevPAR environment
Cost containment programs, timeshare, lower interest costs, benefit EPS
All brands increase market share
BEVERLY HILLS, Calif. -- Hilton Hotels Corporation
[NYSE: HLT]
today reported results for the second quarter and six months ended June 30, 2001.
The company reported net income for the second quarter of $86 million, compared with $88 million for the same quarter a year ago. Diluted net income per share of $.23 was equal to the $.23 reported for the 2000 second quarter.
Despite a significant drop in U.S. lodging demand, the company's aggressive cost containment programs, coupled with continued strong results at Hilton Grand Vacations, the company's vacation ownership business, and a decline in average debt levels and interest rates, enabled the company to post net income per share that was equal to last year. Quarterly results benefited also from higher-than-expected revenues from cross-selling among the brands, contributing to substantial gains in brand market share.
These factors helped offset the impact of comparatively soft results at some of Hilton's largest hotels in such markets as New York, San Francisco, Boston and Chicago, which after a record 2000, experienced lower demand in the group and independent business traveler segments. Demand among leisure travelers, however, remained solid during the quarter. In addition, owned hotel results were affected by the ongoing guestroom renovation project at the Hilton New Orleans. The May opening of the 453-room Kalia Tower at the Hilton Hawaiian Village Beach Resort & Spa had a positive impact on second quarter EBITDA (earnings before interest, taxes, depreciation, amortization, pre-opening expense and non-cash items).
Comparable RevPAR at the company's U.S. owned-or-operated hotels decreased 5.8 percent during the quarter, with occupancy declining 4.3 points to 73.3 percent and average daily rate (ADR) nearly flat at $136.65. Within the Hilton full-service brand, comparable owned-or-operated RevPAR decreased 7.3 percent for the quarter, with occupancy down 4.3 points to 75.4 percent and ADR off 2.1 percent to $162.69.
The company reported an 8 percent decline in revenue over the comparable 2000 quarter to $844 million. Total company EBITDA declined 4 percent to $345 million. The impact of 2000 and 2001 property sales (primarily the sale of leases back to RFS Hotel Investors and the sale of several Homewood Suites by Hilton properties) contributed to the decline in revenue and EBITDA in the quarter. Excluding the impact of asset sales, revenue and EBITDA declined 1 percent and 2.5 percent, respectively. Total company EBITDA margin for the quarter was strong at 40.9 percent, up 1.5 points from the 2000 quarter.
Across all brands, EBITDA from the company's owned hotels totaled $223 million, with comparable EBITDA down 11 percent. RevPAR from comparable owned properties declined 8 percent for the quarter. Owned property comparable EBITDA margins were strong at 36.9 percent. The successful implementation of cost containment initiatives at the company's owned hotels helped mitigate the impact of the RevPAR decline on EBITDA.
System-wide RevPAR changes for the quarter at each of the Hilton brands were as follows: Hampton Inn up 3.2 percent; Hilton Garden Inn up 0.8 percent; Homewood Suites by Hilton down 0.6 percent; Doubletree down 2.9 percent; Hilton down 5.2 percent, and Embassy Suites down 5.0 percent.
Management and franchise fees (across all brands) increased 5 percent to $98 million in the second quarter.
Brand Development/Market Share
Each of Hilton's brands continued to increase market share in the second quarter both in terms of unit growth, through the addition of new franchised and managed hotels, and at the property level, via outperformance of the Hilton brands in RevPAR versus their respective competitive sets.
In terms of unit growth, Hilton continues to expand its share of industry supply, with particular strength in the Hilton Garden Inn and Hampton Inn brands.
At the property level, where a RevPAR index of 100 representing a brand's "fair share" of the market, most of the Hilton brands command significant RevPAR premiums over their respective competitive sets, and all brands have shown substantial growth in RevPAR index. The brands in the Hilton portfolio (year-to-date through May) had RevPAR market share as follows: Embassy Suites, 119.5 (+3.5 pts); Hampton Inn, 114.8 (+6.7 pts); Homewood Suites by Hilton, 112.3 (+4.3 pts); Hilton, 106.0 (+0.9 pts); Hilton Garden Inn, 103.0 (+7.6 pts). The Doubletree brand, at 97.4, continued its turnaround with a 4.3-point increase in market share.
The company noted that the market share increases are significant in that it has been approximately one year since the Hilton HHonors guest loyalty program was introduced to the former Promus brands. At the end of the second quarter, HHonors accounted for a combined 27 percent of the occupancy at the Doubletree, Hampton Inn, Embassy Suites and Homewood Suites by Hilton brands. Company-wide (including the Hilton brand), HHonors accounts for approximately 30 percent of total occupancy.
In addition to the positive impact of Hilton HHonors, the strong performance of the Hilton family of brands continues to be attributable to the inherent strength of the brand names, cross-selling among the brands (currently running more than 60 percent ahead of last year's pace), the company's worldwide sales organization and other sales and marketing initiatives.
Reflecting owner preference for the Hilton brands, the company remains on track to achieve its stated goal of adding 190 to 200 hotels (with 25,000 to 27,000 rooms), to its system in 2001 -- all of them either franchised or managed. During the quarter, the company added 61 hotels and 9,015 rooms to its system as follows: Hampton Inn, 23 hotels and 2,213 rooms; Hilton Garden Inn, 12 hotels and 1,506 rooms; Homewood Suites by Hilton, 7 hotels and 762 rooms; Red Lion, 4 hotels and 484 rooms; Hilton, 1 hotel and 857 rooms; Embassy Suites, 1 hotel and 150 rooms; and other brands, 13 hotels and 3,043 rooms. Hotel and room additions in the quarter include the affiliation of 14 Camino Real hotel and resorts effective April 1, 2001. Eight properties and 1,653 rooms were removed from the system during the second quarter. Year-to-date through June, the company's franchisees and owners have opened a total of 95 hotels (with 13,721 rooms) spanning Hilton's family of brands.
At June 30, 2001, the Hilton system consisted of 1,965 properties and 325,489 rooms.
The company's current development pipeline has approximately 400 hotels either approved, in design or under construction, the majority either Hampton Inns or Hilton Garden Inns. As evidence of the turnaround of Doubletree, there are currently eight new Doubletree hotels either approved, in design or under construction.
In June, Hilton was selected to operate and manage a new 800-room convention hotel in Austin, Tex. The hotel, scheduled to open in early 2004, was the second such management contract awarded to Hilton in Texas in the last three months. In March, the company was named to manage a new 1,200-room convention hotel in Houston.
Hilton Grand Vacations
Hilton Grand Vacations, the company's vacation ownership business, reported strong results for the second quarter as a result of the January 2001 opening of its newest property at the Hilton Hawaiian Village Beach Resort & Spa in Honolulu, along with continued excellent sales at properties in Las Vegas and Orlando, Fla. Unit sales at Hilton Grand Vacations increased 47 percent over the 2000 quarter. Reflecting the increasing importance of vacation ownership to Hilton's overall business, Hilton Grand Vacations continues to develop properties in key resort destinations. In May, the company broke ground on two new properties, one each in Las Vegas and Orlando. The company continues to explore opportunities for additional timeshare development in both resort and urban locations.
Cross-selling
Cross-selling among all of the brands in the Hilton portfolio continues to exceed the company's expectations. Through June 2001, year-to-date cross-selling among all the Hilton family of brands through Hilton Reservations Worldwide has generated approximately $113 million in system-wide booked revenue, more than 60 percent ahead of last year's pace.
Additional cross-selling benefits are anticipated as a result of the June 2001 introduction of a new technology created by Hilton that enables electronic distribution and seamless cross-selling opportunities among all Hilton brands in the three leading Global Distribution Systems -- Sabre, Apollo/Galileo and Worldspan. Also during the quarter, the company introduced cross-selling via the HiltonWorldwide.com Web site.
Corporate Finance
At June 30, 2001, Hilton had total debt of $4.967 billion (net of $625 million of debt allocated to Park Place Entertainment). Approximately 38 percent of the company's debt is floating rate debt -- down from approximately 46 percent at the end of the first quarter 2001 -- and brings the company closer to its stated goal of 35 percent floating rate debt. Cash and equivalents totaled approximately $68 million at June 30, 2001. The company's average basic and diluted shares outstanding were 369 million and 394 million, respectively, at the end of the second quarter 2001.
Consolidated interest expense declined 12 percent in the second quarter due to reduced debt balances and declining interest rates.
The company's effective tax rate declined to approximately 41 percent in 2001, compared with 42 percent in the second quarter a year ago.
In keeping with its goal of improving its balance sheet and maintaining financial flexibility, the company during the quarter issued $400 million seven-year Senior Unsecured Notes carrying a coupon of 7.625 percent. Proceeds from the sale were used to repay indebtedness under the company's revolving credit facility expiring October 2003.
During the quarter, the company also sold two Homewood Suites by Hilton properties for $22 million, using the proceeds for general corporate purposes, including debt reduction. Hilton continues to pursue additional opportunities to sell non-strategic assets at attractive prices.
Six-month Results
For the six-month period ended June 30, 2001, Hilton reported net income of $141 million, compared with $146 million in the same period a year ago. Diluted net income per share was $.38 versus $.39 in the 2000 period. The first quarter 2000 included a net gain of $29 million, or $.04 per share, related to asset dispositions, specifically the sale of certain securities. On a recurring basis, Hilton's net income per share for the six-month period 2001 increased 9 percent to $.38 from $.35 in the 2000 period.
2001 Outlook
Based on what is expected to continue to be a challenging operating environment for the remainder of the year, Hilton said it anticipates system-wide RevPAR to be flat or up 1 percent for full year 2001, with RevPAR at its owned hotels declining 3-4 percent for the year. Year-to-date group bookings were ahead of 2000, and advance bookings for the remainder of the year remain on pace with last year. Cancellations, however, were up significantly for the first six months, and it is anticipated that economic uncertainty could result in comparatively high cancellations for the rest of the year.
The company now anticipates marginal growth in EBITDA for the full year, excluding the potential impact of additional property transactions. It is expected that asset sales in 2000 and 2001, property renovations in New Orleans and San Francisco and a decline in U.S. lodging demand (compared against record 2000 results) will adversely impact revenue and EBITDA comparisons. Revenue and EBITDA are expected to benefit from the openings of the renovated Seattle Airport Hilton, and the new Kalia Tower and timeshare developments at the Hilton Hawaiian Village Beach Resort & Spa.
Hilton's cost containment programs have been implemented at all of its owned or operated properties, with the goal of matching last year's EBITDA margins.
Growth in earnings-per-share is expected as a result of increases in the company's fee-based business and its vacation ownership operations, along with lower interest costs. Successfully maintaining EBITDA margins is expected to help mitigate the impact of RevPAR declines. The company indicated it was comfortable with current analyst estimates for both the third and fourth quarters of 2001, equating to expected earnings per share for full year 2001 in the low 70-cent range. Net cash flow, after all maintenance and growth capital expenditures, is estimated to be in the $300 million range for the year. The company reiterated its goal of reducing its ratio of debt to EBITDA to approximately 3.75 times at year-end 2001, compared with a year-end 2000 figure of 4.0 times.
"We are very pleased to have delivered strong earnings for our shareholders in this challenging environment," said Stephen F. Bollenbach, president and chief executive officer of Hilton Hotels Corporation. "When revenue growth at the owned hotels is harder to come by, it is especially important to generate earnings from other sources, which in our second quarter were our timeshare operations, growth in fee income, successfully containing costs at both the property and corporate levels and lower interest costs."
"Occupancy levels and room rates at many of our large owned hotels are solid, though comparisons are difficult after last year's record results and operating challenges continue in the wake of a general slowdown in business travel," continued Bollenbach. "We benefited in the second quarter by effectively managing our costs at the property level, and by continuing to do so, expect to maintain the strong EBITDA margins we reported last year.
"Our fee business continues to grow as owners throughout North America open new hotels spanning the entire Hilton family of brands. The fact that all of these brands are increasing market share in relation to their respective segment competitors -- in a tough RevPAR growth environment -- further strengthens their positions as the brands of choice for hotel owners."
Bollenbach concluded: "The environment remains challenging in many ways, but the second quarter demonstrated our ability to drive earnings growth in other areas and manage our costs. Continuing to do so will be the key to our success for the rest of this year, and we look forward to building on the successes of this past quarter."
Note: This news 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 news 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; 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.
HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)
Three Months Ended
June 30
2000 2001 % Change
Revenue
Owned hotels $ 644 $ 599 (7) %
Leased hotels 105 47 (55)
Management and franchise fees 93 98 5
Other fees and income 74 100 35
916 844 (8)
Expenses
Owned hotels 396 376 (5)
Leased hotels 94 40 (57)
Depreciation and amortization 96 98 2
Other operating expenses 62 76 23
Corporate expense, net 18 16 (11)
666 606 (9)
Operating income 250 238 (5)
Interest and dividend income 22 16 (27)
Interest expense (113) (99) (12)
Net interest from unconsolidated
affiliates (4) (4)
Net (loss) gain on asset
dispositions - (2)
Income before taxes
and minority interest 155 149 (4)
Provision for taxes (65) (61) (6)
Minority interest, net (2) (2)
Net income $ 88 $ 86 (2) %
Net income per share:
Basic $ .24 $ .23 (4) %
Diluted $ .23 $ .23 - %
Average shares - diluted 391 394 1 %
Reconciliation of Operating
Income to EBITDA(a)
Operating income $ 250 $ 238 (5) %
Pre-opening expense 1 1
Operating interest and dividend
income 9 3 (67)
Depreciation and amortization(b) 101 103 2
EBITDA $ 361 $ 345 (4) %
Six Months Ended
June 30
2000 2001 % Change
Revenue
Owned hotels $ 1,198 $ 1,162 (3) %
Leased hotels 197 90 (54)
Management and franchise fees 175 191 9
Other fees and income 139 234 68
1,709 1,677 (2)
Expenses
Owned hotels 767 767
Leased hotels 180 80 (56)
Depreciation and amortization 188 194 3
Other operating expenses 117 178 52
Corporate expense, net 34 32 (6)
1,286 1,251 (3)
Operating income 423 426 1
Interest and dividend income 41 34 (17)
Interest expense (225) (203) (10)
Net interest from unconsolidated
affiliates (7) (9) 29
Net (loss) gain on asset
dispositions 29 (1)
Income before taxes
and minority interest 261 247 (5)
Provision for taxes (110) (101) (8)
Minority interest, net (5) (5)
Net income $ 146 $ 141 (3) %
Net income per share:
Basic $ .40 $ .38 (5) %
Diluted $ .39 $ .38 (3) %
Average shares - diluted 391 394 1 %
Reconciliation of Operating
Income to EBITDA(a)
Operating income $ 423 $ 426 1 %
Pre-opening expense 2 2
Operating interest and dividend
income 17 8 (53)
Depreciation and amortization(b) 199 205 3
EBITDA $ 641 $ 641 - %
(a) EBITDA is earnings before interest, taxes, depreciation,
amortization, pre-opening expense and non-cash items. EBITDA can
be computed by adding depreciation, amortization, pre-opening
expense, interest and dividend income from investments related to
operating activities and non-cash items to operating income.
(b) Includes proportionate share of unconsolidated affiliates.
HILTON HOTELS CORPORATION
U.S. Owned-or-Operated Statistics(a)
Three Months Ended
June 30
2000 2001 %/pt Change
Hilton
Occupancy 79.7 % 75.4 % (4.3)pts
Average Rate $166.21 $162.69 (2.1) %
RevPAR $132.41 $122.70 (7.3) %
Doubletree
Occupancy 75.6 % 73.1 % (2.5)pts
Average Rate $112.32 $112.07 (0.2) %
RevPAR $84.91 $81.94 (3.5) %
Embassy Suites
Occupancy 79.1 % 72.4 % (6.7)pts
Average Rate $131.89 $135.68 2.9 %
RevPAR $104.31 $98.18 (5.9) %
Other
Occupancy 72.4 % 68.2 % (4.2)pts
Average Rate $100.03 $103.29 3.3 %
RevPAR $72.44 $70.45 (2.7) %
Total U.S. Owned-or-Operated
Occupancy 77.6 % 73.3 % (4.3)pts
Average Rate $137.07 $136.65 (0.3) %
RevPAR $106.36 $100.21 (5.8) %
Six Months Ended
June 30
2000 2001 %/pt Change
Hilton
Occupancy 76.5 % 74.4 % (2.1)pts
Average Rate $165.10 $165.36 0.2 %
RevPAR $126.36 $122.99 (2.7) %
Doubletree
Occupancy 71.5 % 71.1 % (0.4)pts
Average Rate $111.87 $113.66 1.6 %
RevPAR $79.98 $80.77 1.0 %
Embassy Suites
Occupancy 76.4 % 72.4 % (4.0)pts
Average Rate $132.64 $138.93 4.7 %
RevPAR $101.34 $100.57 (0.8) %
Other
Occupancy 66.8 % 65.0 % (1.8)pts
Average Rate $97.09 $102.23 5.3 %
RevPAR $64.89 $66.48 2.5 %
Total U.S. Owned-or-Operated
Occupancy 74.0 % 72.0 % (2.0)pts
Average Rate $136.64 $138.96 1.7 %
RevPAR $101.15 $100.05 (1.1) %
(a) Statistics are for comparable U.S. hotels, and include only those
hotels in the system as of June 30, 2001 and owned or operated by
Hilton since January 1, 2000.
HILTON HOTELS CORPORATION
System-wide Brand Statistics(a)
Three Months Ended
June 30
2000 2001 %/pt Change
Hilton
Occupancy 76.7 % 73.1 % (3.6)pts
Average Rate $136.22 $135.33 (0.7)%
RevPAR $104.54 $98.98 (5.3)%
Hilton Garden Inn
Occupancy 70.7 % 69.7 % (1.0)pts
Average Rate $101.00 $103.34 2.3 %
RevPAR $71.45 $72.01 0.8 %
Doubletree
Occupancy 74.3 % 72.1 % (2.2)pts
Average Rate $107.59 $107.72 0.1 %
RevPAR $79.92 $77.63 (2.9)%
Embassy Suites
Occupancy 78.5 % 72.6 % (5.9)pts
Average Rate $126.01 $129.31 2.6 %
RevPAR $98.90 $93.93 (5.0)%
Homewood Suites by Hilton
Occupancy 77.9 % 75.2 % (2.7)pts
Average Rate $98.57 $101.57 3.0 %
RevPAR $76.82 $76.35 (0.6)%
Hampton
Occupancy 73.0 % 72.6 % (0.4)pts
Average Rate $74.77 $77.62 3.8 %
RevPAR $54.62 $56.37 3.2 %
Other
Occupancy 69.8 % 65.3 % (4.5)pts
Average Rate $116.75 $118.02 1.1 %
RevPAR $81.51 $77.02 (5.5)%
Six Months Ended
June 30
2000 2001 %/pt Change
Hilton
Occupancy 73.5 % 71.6 % (1.9)pts
Average Rate $135.83 $137.58 1.3 %
RevPAR $99.79 $98.46 (1.3) %
Hilton Garden Inn
Occupancy 65.3 % 67.5 % 2.2 pts
Average Rate $99.97 $104.25 4.3 %
RevPAR $65.26 $70.38 7.8 %
Doubletree
Occupancy 70.4 % 70.4 % - pts
Average Rate $107.20 $109.11 1.8 %
RevPAR $75.45 $76.85 1.9 %
Embassy Suites
Occupancy 75.3 % 72.1 % (3.2)pts
Average Rate $125.96 $131.31 4.2 %
RevPAR $94.85 $94.63 (0.2) %
Homewood Suites by Hilton
Occupancy 74.1 % 73.7 % (0.4)pts
Average Rate $97.99 $101.96 4.1 %
RevPAR $72.65 $75.16 3.5 %
Hampton
Occupancy 67.1 % 68.8 % 1.7 pts
Average Rate $74.04 $76.93 3.9 %
RevPAR $49.66 $52.93 6.6 %
Other
Occupancy 64.5 % 60.9 % (3.6)pts
Average Rate $112.48 $118.58 5.4 %
RevPAR $72.58 $72.21 (0.5) %
(a) Statistics are for comparable U.S. hotels, and include only those
hotels in the system as of June 30, 2001 and owned, operated or
franchised by Hilton since January 1, 2000.
HILTON HOTELS CORPORATION
Supplementary Statistical Information
June
2000 2001
Number of Number of
Properties Rooms Properties Rooms
Hilton
Owned 37 26,350 40 28,227
Leased 1 499 1 499
Joint Venture 3 1,897 3 1,896
Managed 15 10,844 15 10,424
Franchised 171 44,932 171 45,291
227 84,522 230 86,337
Hilton Garden Inn
Owned 2 359 1 162
Joint Venture 2 280 2 280
Franchised 75 10,566 104 14,458
79 11,205 107 14,900
Doubletree
Owned 13 4,303 10 3,290
Leased 8 2,552 7 2,333
Joint Venture 31 8,476 30 8,277
Managed 61 17,027 59 16,357
Franchised 45 10,730 49 11,408
158 43,088 155 41,665
Embassy Suites
Owned 6 1,299 6 1,299
Joint Venture 22 6,063 22 6,063
Managed 58 14,590 57 14,375
Franchised 69 15,879 75 17,078
155 37,831 160 38,815
Homewood Suites by Hilton
Owned 13 1,677 7 905
Managed 17 1,895 29 3,473
Franchised 61 6,404 67 7,130
91 9,976 103 11,508
Hampton
Owned 1 133 1 133
Leased 18 2,250 -
Managed 12 1,598 27 3,570
Franchised 995 102,622 1,081 110,915
1,026 106,603 1,109 114,618
Timeshare 27 3,010 25 2,863
Other
Owned 13 1,975 12 1,655
Leased 46 7,298 13 1,943
Joint Venture 3 1,433 4 1,604
Managed 22 4,822 19 4,387
Franchised 7 1,028 28 5,310
91 16,556 76 14,899
Total
Owned 85 36,096 77 35,671
Leased 73 12,599 21 4,775
Joint Venture 61 18,149 61 18,120
Managed 185 50,776 206 52,586
Timeshare 27 3,010 25 2,863
Franchised 1,423 192,161 1,575 211,590
TOTAL PROPERTIES 1,854 312,791 1,965 325,605
Change to
June 2000 December 2000
Number of Number of
Properties Rooms Properties Rooms
Hilton
Owned 3 1,877 - 747
Leased - - -
Joint Venture - (1) - (1)
Managed - (420) 1 217
Franchised - 359 1 131
3 1,815 2 1,094
Hilton Garden Inn
Owned (1) (197) -
Joint Venture - - -
Franchised 29 3,892 18 2,325
28 3,695 18 2,325
Doubletree
Owned (3) (1,013) -
Leased (1) (219) (1) (222)
Joint Venture (1) (199) (1) (198)
Managed (2) (670) (3) (938)
Franchised 4 678 1 475
(3) (1,423) (4) (883)
Embassy Suites
Owned - - -
Joint Venture - - -
Managed (1) (215) -
Franchised 6 1,199 2 305
5 984 2 305
Homewood Suites by Hilton
Owned (6) (772) - 10
Managed 12 1,578 5 653
Franchised 6 726 4 371
12 1,532 9 1,034
Hampton
Owned - - -
Leased (18) (2,250) (18) (2,250)
Managed 15 1,972 15 1,967
Franchised 86 8,293 39 3,670
83 8,015 36 3,387
Timeshare (2) (147) - 48
Other
Owned (1) (320) (1) (320)
Leased (33) (5,355) (33) (5,355)
Joint Venture 1 171 1 171
Managed (3) (435) (3) (435)
Franchised 21 4,282 18 3,596
(15) (1,657) (18) (2,343)
Total
Owned (8) (425) (1) 437
Leased (52) (7,824) (52) (7,827)
Joint Venture - (29) - (28)
Managed 21 1,810 15 1,464
Timeshare (2) (147) - 48
Franchised 152 19,429 83 10,873
TOTAL PROPERTIES 111 12,814 45 4,967
