Hilton Reports Strong First Quarter 2006 Results
BEVERLY HILLS, Calif.| Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the first quarter ended March 31, 2006. First quarter highlights, which include approximately five weeks of combined company results following the acquisition of the lodging assets of Hilton Group plc ("HI") on February 23, are as follows:
- Reported diluted EPS of $.26 vs. $.16 in 2005, an increase of 63%.
- Recurring diluted EPS of $.20 vs. $.15 in 2005, an increase of 33%.
- Total company Adjusted EBITDA of $328 million up 30%.
- Comparable owned RevPAR (excluding sold hotels, the acquired HI owned hotels and New Orleans) increased 9.0%, driven by strong rate increases and high demand in most major markets.
- Fees up 49% to $152 million on strong RevPAR and unit growth, the HI acquisition and a one-time termination fee.
- Timeshare profitability up 20%, driven by increase in average unit sales price.
Hilton reported first quarter 2006 net income of $104 million, compared with $64 million in the 2005 quarter. Diluted net income per share was $.26 in the 2006 first quarter, versus $.16 in the 2005 period, an increase of 63%. Non-recurring items combined to benefit the quarter by $.06 per share as follows:
- $15 million pre tax benefit due to a contract termination fee;
- $17 million pre tax benefit from foreign currency gains;
- $4 million pre tax benefit due primarily to the combined impact of asset dispositions ($25 million book loss), a settlement recovery in Hawaii ($25 million benefit) and other items ($4 million benefit);
- $9 million benefit to the tax provision due primarily to the closure of IRS audits for the years 2002 and 2003, and the required tax treatment on foreign currency gains; and
- $12 million pre tax charge for costs related to the HI acquisition.
The 2005 first quarter benefited from non-recurring items totaling $.01 per share.
The company reported first quarter 2006 total operating income of $235 million (a 44% increase from the 2005 period,) on total revenue of $1.519 billion (a 41% increase from $1.076 billion in the 2005 quarter.) Total company earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $328 million, an increase of 30% from $252 million in the 2005 quarter.
Owned Hotel Results
Continued strong demand trends, primarily among business travelers, resulted in high single-digit or double-digit average daily rate (ADR) increases at many of the company's gateway hotels in the U.S. Business transient, group and leisure all showed significant ADR gains. These rate increases drove significant RevPAR gains at many of the company's U.S. owned properties.
Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $508 million in the first quarter 2006, a 3% increase from $495 million in the 2005 quarter. Total revenue from comparable owned hotels (excluding the impact of property sales dating back to January 1, 2005; the results of the acquired HI owned hotels since February 23, 2006; and two owned properties in New Orleans which were impacted by Hurricane Katrina) was up 7.4%.
RevPAR from comparable U.S. owned hotels increased 9.0%. Comparable owned U.S. hotel occupancy increased 1.5 points to 73.9%, while ADR increased 6.8% to $184.31. Approximately 77% of the quarterly RevPAR increase at comparable owned U.S. hotels was attributable to ADR gains. Particularly strong RevPAR growth was reported at the company's owned hotels in Chicago, Honolulu, Atlanta and Phoenix. The San Francisco/San Jose market showed significant improvement, with double-digit RevPAR gains at the company's owned hotels in those cities.
RevPAR growth at the company's owned hotels in New York City (the Waldorf=Astoria and the Hilton New York) and at the Hilton Hawaiian Village was significantly impacted by renovation disruptions, though all three properties showed double-digit ADR gains. Additionally, the Hilton Washington saw a RevPAR decline due to difficult comparisons and an overall soft group market.
Total owned hotel expenses were up 1% in the quarter to $380 million. Expenses at the comparable owned U.S. hotels increased 7%, due primarily to increases in energy and marketing costs, and an increase in occupied rooms. Cost-per-occupied-room increased 5.2%.
Comparable owned U.S. hotel margins in the first quarter increased 50 basis points to 24.0%. The aforementioned renovation disruptions and higher energy and marketing costs impacted margins by approximately 140 basis points.
On a pro forma basis, as if the acquisition of HI had occurred January 1, 2005, comparable worldwide owned revenues and expenses increased 6.5% and 5.0%, respectively. RevPAR from worldwide comparable owned hotels increased 8.0%, with North America improving 9.7% and International improving 3.5% (U.S. dollar basis.) Particular strength was reported in the U.K. and Canada. Adjusting for the impact of foreign exchange, RevPAR from international comparable owned hotels increased 10.9%.
Pro forma worldwide owned margins improved 110 basis points to 23.9%, with North America (U.S. and Canada) improving 60 basis points to 23.1%, and International improving 270 basis points to 26.0%.
Leased Hotels
Revenue from leased hotels was $266 million in the first quarter 2006, compared to $28 million in the 2005 quarter, while leased expenses (including rents) were $230 million in the current quarter, versus $26 million last year. In the 2006 period, leased revenues and expenses include approximately five weeks of operations from the 200 leased hotels acquired in the HI transaction.
On a pro forma basis, as if the acquisition of HI had occurred January 1, 2005, leased revenues increased 1.6% and leased expenses declined 1.0%, and margins increased 240 basis points to 9.9%. RevPAR from leased properties increased 3.6% (on a U.S. dollar basis). Adjusting for the impact of foreign exchange, RevPAR from comparable leased hotels increased 12.6%, reflective of business strength in the U.K., Continental Europe and the Nordic region.
Systemwide RevPAR; Management/Franchise Fees
Most of the company's brands reported significant systemwide RevPAR increases, with particularly strong gains in ADR. On a systemwide basis (including owned, leased, managed and franchised properties) and pro forma as if the acquisition of Hilton International had occurred January 1, 2005, the company's brands showed first quarter RevPAR gains (on a U.S. dollar basis) as follows: Hilton Garden Inn, 12.6%; Doubletree, 11.7%; Embassy Suites, 11.6%; Hampton Inn, 11.5%; Conrad, 10.4%; Homewood Suites by Hilton, 9.6%. The Hilton brand, at 8.8% RevPAR growth, and Scandic, at 0.8% RevPAR growth, were both impacted by exchange rate fluctuations. Adjusting for the impact of foreign exchange, RevPAR at the Hilton and Scandic brands increased 11.2% and 12.7%, respectively.
Management and franchise fees increased 49% in the first quarter to $152 million, benefiting from RevPAR gains and the addition of new units, and the acquisition of HI. Fees for the quarter also include a one-time $15 million management contract termination fee related to the Hilton Times Square. This property was sold in the quarter and converted to a long-term franchise.
Brand Development/Unit Growth
In addition to the 398 properties and 102,779 rooms from the HI acquisition, the company in the first quarter added 49 properties and 10,496 rooms to its system as follows: Hampton Inn, 20 hotels and 1,621 rooms; Hilton, 7 hotels and 3,428 rooms; Hilton Garden Inn, 7 hotels and 956 rooms; Doubletree, 6 hotels and 1,423 rooms; Homewood Suites by Hilton, 5 hotels and 509 rooms; Conrad, 1 hotel and 241 rooms; and other (Waldorf=Astoria Collection), 3 hotels and 2,318 rooms.
Thirteen hotels and 1,177 rooms were removed from the system during the quarter.
During the first quarter, the company added new Hilton hotels in the Seychelles, Bangkok, Florence, Sanya (China) and San Francisco, while Conrad opened its newest hotel in Indianapolis, and Doubletree opened a new resort in Tampa. Also during the quarter, the company entered into management agreements or began construction on new Hilton brand hotels in Orlando, Baltimore, San Diego and Kiev. Additionally, the company in April entered into a management agreement for a new Conrad hotel in Shanghai.
At March 31, 2006, the Hilton worldwide system consisted of 2,822 hotels and 486,767 rooms. The company's current development pipeline is its biggest yet, and the largest in the industry, with approximately 700 hotels and 100,000 rooms at March 31, 2006. Approximately 90% of the hotels in the current development pipeline are in The Americas (U.S., Canada, Mexico, South America), though international development is expected to comprise an increasingly larger percentage of the company's unit growth within the next two years.
Hilton Grand Vacations
Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported a 20% increase in profitability in the first quarter, due primarily to an 8% increase in average unit sales price. Unit sales were flat with the 2005 quarter. The company reported that sales volume remained strong at HGVC's properties in Las Vegas, Orlando and Hawaii. HGVC has begun development of new timeshare projects in Hawaii (both in Honolulu and on the Big Island) and Orlando. HGVC had first quarter revenue of $183 million, a 25% increase from $146 million in the 2005 quarter. Expenses were $134 million in the first quarter, compared with $105 million in the 2005 period.
Corporate Finance
On February 23, 2006, the company completed its acquisition of HI for approximately GBP 3.3 billion, equivalent to approximately $5.78 billion on the transaction date (including assumed debt of approximately $115 million, and excluding additional debt and capital lease obligations reflected under U.S. GAAP.) In connection with this transaction, the company entered into new senior credit facilities in an aggregate principal U.S. dollar equivalent of approximately $5.75 billion with a syndicate of financial institutions. The company borrowed an aggregate principal U.S. dollar equivalent amount of approximately $4.81 billion under these facilities to partially fund the HI acquisition. The balance of the transaction was funded from available cash.
At March 31, 2006, Hilton had total debt of $8.3 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 is non-recourse to Hilton.) Of the $8.3 billion, approximately 61% is floating rate debt. Total cash and equivalents (including restricted cash) were approximately $386 million at March 31, 2006. The company noted that debt reduction is a priority, and will be accomplished through a combination of operating cash flow and proceeds from asset dispositions.
The company's average basic and diluted share counts for the first quarter were 383 million and 418 million, respectively.
Hilton's debt currently has an average life of 6.9 years, at an average cost of approximately 6.3%.
Hilton's effective tax rate in the first quarter 2006 was 32.9%. Excluding the aforementioned $9 million one-time tax benefit to the tax provision, the effective tax rate in the first quarter was 38.6%.
Total capital expenditures in the first quarter were approximately $150 million, including approximately $50 million expended for timeshare development.
2006 Outlook
The company provided the following estimates for full-year 2006:
Total revenue: $8.040-$8.110 billion Total Adjusted EBITDA: $1.720-$1.765 billion Total operating income: $1.260-$1.305 billion Pro forma comparable Nor. Amer. owned RevPAR growth: 8-10% Pro forma comparable Nor. Amer. owned margin growth: 50-100 basis points Pro forma comparable worldwide owned RevPAR growth: 7-9% Pro forma comparable worldwide owned margin growth: 70-120 basis points Pro forma comparable leased RevPAR growth: 3-4% Pro forma comparable leased margin growth: 60-90 basis points Management and franchise fee growth: 42-45% range Timeshare profitability growth: 20% range Diluted earnings per share: $1.12-$1.19 Recurring diluted EPS: $1.06-$1.13
Total capital spending in 2006 is expected to be approximately $760 million as follows: approximately $265 million for routine improvements, $195 million for timeshare projects, and $300 million for hotel renovation and special projects.
The company's 2006 guidance includes the impact of the required accounting change related to the expensing of unvested stock options (equal to approximately $12 million.) The guidance excludes the impact of future asset sales.
The company expects to add approximately 215 hotels and 35,000 rooms to its system in 2006.
"Solid operating results both in the U.S. and internationally, combined with the closing of the Hilton International transaction and our new position as the global industry leader, made for a very successful and exciting first quarter," said Stephen F. Bollenbach, co-chairman and chief executive officer of Hilton Hotels Corporation.
"The integration of our domestic and international operating, financial and development teams is proceeding smoothly and seamlessly, with major projects -- such as the worldwide introduction of our OnQ technology system and planting the seeds for international growth of our Family of Brands -- already underway."
Mr. Bollenbach continued: "Business fundamentals continue to be very strong, with high demand among both business and leisure travelers for our hotels in gateway cities. High occupancy levels are enabling us to achieve a more desirable mix of business. Renovations at a few of our bigger hotels took rooms out of service and impacted our margins in the quarter; we are working quickly to bring new and improved rooms to our customers at these properties. Rate increases continue to drive RevPAR growth in our most important U.S. markets. International RevPAR growth is still slightly more occupancy driven, but room rates in key international markets like London are steadily becoming a higher percentage of RevPAR gains.
"We continue to open more hotels in the U.S. than any other company, and we are finding that the appeal of our brands is extending to different corners of the world. We have had discussions with potential owners in a variety of countries regarding development of our mid-scale brands, and we look forward to making announcements as agreements are signed."
Mr. Bollenbach concluded: "We see no let-up in our most important markets, and these strong business trends -- coupled with our growing timeshare business and the new worldwide development opportunities at our fingertips -- point to exciting things ahead for the remainder of 2006 and beyond."
HILTON HOTELS CORPORATION
Financial Highlights (Unaudited)
(in millions, except per share amounts)
Three Months
Ended
March 31
---------------
2005 2006 % Change
------ ------ ---------
Revenue
Owned hotels $ 495 $ 508 3%
Leased hotels 28 266 -
Management and franchise fees 102 152 49
Timeshare and other income 154 211 37
------ ------
779 1,137 46
Other revenue from managed and franchised
properties 297 382 29
------ ------
1,076 1,519 41
Expenses
Owned hotels 376 380 1
Leased hotels 26 230 -
Depreciation and amortization 80 86 8
Impairment loss and related costs 2 - -
Other operating expenses 122 178 46
Corporate expense 24 44 83
------ ------
630 918 46
Other expenses from managed and franchised
properties 293 376 28
------ ------
923 1,294 40
Operating income from unconsolidated
affiliates 10 10 -
------ ------
Operating income 163 235 44
Interest and dividend income 4 11 -
Interest expense (64) (96) 50
Net interest from unconsolidated affiliates
and non-controlled interests (6) (9) 50
Net gain on foreign currency transactions - 17 -
Net gain on asset dispositions and other 11 4 (64)
Loss from non-operating affiliates (5) (4) -
------ ------
Income before taxes and minority and non-
controlled interests 103 158 53
Provision for income taxes (36) (52) 44
Minority and non-controlled interests, net (3) (2) (33)
------ ------
Net income $ 64 $ 104 63%
====== ======
Net income per share
--------------------------------------------
Basic $ .17 $ .27 59%
====== ======
Diluted $ .16 $ .26 63%
====== ======
Average shares - basic 387 383 (1)%
====== ======
Average shares - diluted 421 418 (1)%
====== ======
HILTON HOTELS CORPORATION
Pro Forma Comparable Owned Statistics(1)
Three Months Ended March 31
Worldwide
64 Hotels
-------------------
2005 2006 Change
------- ------- ------
Hilton
---------------------------------------
Occupancy 69.1% 71.6% 2.5 pts
Average Rate $165.92 $172.85 4.2%
RevPAR $114.59 $123.82 8.1%
All Other
---------------------------------------
Occupancy 69.5% 72.3% 2.8 pts
Average Rate $117.66 $121.91 3.6%
RevPAR $ 81.73 $ 88.17 7.9%
Total
---------------------------------------
Occupancy 69.1% 71.7% 2.6 pts
Average Rate $161.24 $167.88 4.1%
RevPAR $111.41 $120.37 8.0%
North America
(US & Canada)
31 Hotels
-------------------
2005 2006 Change
------- ------- ------
Hilton
---------------------------------------
Occupancy 71.0% 73.0% 2.0 pts
Average Rate $172.44 $184.36 6.9%
RevPAR $122.36 $134.52 9.9%
All Other
---------------------------------------
Occupancy 73.2% 75.0% 1.8 pts
Average Rate $122.53 $127.99 4.5%
RevPAR $ 89.67 $ 96.01 7.1%
Total
---------------------------------------
Occupancy 71.2% 73.2% 2.0 pts
Average Rate $166.72 $177.91 6.7%
RevPAR $118.71 $130.22 9.7%
International
33 Hotels
-------------------
2005 2006 Change
------- ------- ------
Hilton
---------------------------------------
Occupancy 65.1% 68.8% 3.7 pts
Average Rate $151.06 $147.39 (2.4)%
RevPAR $ 98.35 $101.48 3.2%
All Other
---------------------------------------
Occupancy 55.0% 61.9% 6.9 pts
Average Rate $ 92.52 $ 93.33 0.9%
RevPAR $ 50.90 $ 57.75 13.5%
Total
---------------------------------------
Occupancy 64.5% 68.4% 3.9 pts
Average Rate $147.90 $144.29 (2.4)%
RevPAR $ 95.34 $ 98.71 3.5%
(1) Statistics are presented pro forma as if the acquisition of Hilton
International had occurred January 1, 2005. Includes hotels owned
as of March 31, 2006, which were owned by HHC or HI since January
1, 2005. Excludes the Company's owned hotels in New Orleans.
HILTON HOTELS CORPORATION
Pro Forma Comparable Leased Statistics(1)
Three Months Ended March 31
Worldwide
200 Hotels
-------------------
2005 2006 Change
------- ------- ------
Hilton
---------------------------------------
Occupancy 65.7% 69.6% 3.9 pts
Average Rate $144.67 $142.25 (1.7)%
RevPAR $ 95.05 $ 98.94 4.1%
Scandic
---------------------------------------
Occupancy 55.0% 59.1% 4.1 pts
Average Rate $114.45 $107.23 (6.3)%
RevPAR $ 62.94 $ 63.38 0.7%
All Other
---------------------------------------
Occupancy 66.0% 70.6% 4.6 pts
Average Rate $121.60 $133.75 10.0%
RevPAR $ 80.20 $ 94.41 17.7%
Total
---------------------------------------
Occupancy 60.9% 64.9% 4.0 pts
Average Rate $131.15 $127.50 (2.8)%
RevPAR $ 79.90 $ 82.79 3.6%
(1) Statistics are presented pro forma as if the acquisition of Hilton
International had occurred January 1, 2005. Includes hotels leased
as of March 31, 2006, which were leased by HHC or HI since January
1, 2005.
HILTON HOTELS CORPORATION
Pro Forma Comparable Systemwide Statistics(1)
Regional Summary
Three Months Ended
March 31,
2005 2006 Change
------- ------- --------
North America (US & Canada)
------------------------------------------------
Occupancy 67.5% 70.1% 2.6 pts
Average Rate $108.51 $117.00 7.8%
RevPAR $ 73.27 $ 81.97 11.9%
United Kingdom & Ireland
-------------------------------------
Occupancy 66.9% 72.0% 5.1 pts
Average Rate $167.97 $160.71 (4.3)%
RevPAR $112.43 $115.72 2.9%
Continental Europe
-------------------------------------
Occupancy 58.0% 60.0% 2.0 pts
Average Rate $153.10 $148.94 (2.7)%
RevPAR $ 88.82 $ 89.31 0.6%
Africa
-------------------------------------
Occupancy 65.7% 67.3% 1.6 pts
Average Rate $127.02 $133.45 5.1%
RevPAR $ 83.49 $ 89.82 7.6%
Middle East
-------------------------------------
Occupancy 75.9% 73.9% (2.0) pts
Average Rate $102.15 $104.78 2.6%
RevPAR $ 77.55 $ 77.48 (0.1)%
Asia Pacific
-------------------------------------
Occupancy 73.8% 76.0% 2.2 pts
Average Rate $126.24 $133.12 5.4%
RevPAR $ 93.18 $101.19 8.6%
Latin America & Caribbean
-------------------------------------
Occupancy 68.6% 71.9% 3.3 pts
Average Rate $118.75 $134.34 13.1%
RevPAR $ 81.41 $ 96.64 18.7%
Nordic
-------------------------------------
Occupancy 55.2% 59.5% 4.3 pts
Average Rate $117.48 $110.13 (6.3)%
RevPAR $ 64.80 $ 65.49 1.1%
Total
-------------------------------------
Occupancy 66.8% 69.4% 2.6 pts
Average Rate $113.18 $119.96 6.0%
RevPAR $ 75.65 $ 83.25 10.0%
(1) Statistics are presented pro forma as if the acquisition of Hilton
International had occurred January 1, 2005. Includes hotels in the
system as of March 31, 2006, which were in the system of HHC or HI
since January 1, 2005. Excludes the Company's owned hotels in New
Orleans. Excludes data for HI franchise hotels.
HILTON HOTELS CORPORATION
Pro Forma Comparable Systemwide Statistics(1)
Brand Summary
Three Months Ended
March 31,
2005 2006 Change
------- ------- ------
Hilton
---------------------------------------
Occupancy 67.4% 70.0% 2.6 pts
Average Rate $136.99 $143.69 4.9%
RevPAR $ 92.38 $100.53 8.8%
Hilton Garden Inn
---------------------------------------
Occupancy 65.7% 69.1% 3.4 pts
Average Rate $102.35 $109.50 7.0%
RevPAR $ 67.21 $ 75.69 12.6%
Doubletree
---------------------------------------
Occupancy 66.9% 69.1% 2.2 pts
Average Rate $109.31 $118.17 8.1%
RevPAR $ 73.15 $ 81.71 11.7%
Embassy Suites
---------------------------------------
Occupancy 70.4% 73.1% 2.7 pts
Average Rate $127.20 $136.73 7.5%
RevPAR $ 89.52 $ 99.91 11.6%
Homewood Suites by Hilton
---------------------------------------
Occupancy 72.3% 74.2% 1.9 pts
Average Rate $100.72 $107.55 6.8%
RevPAR $ 72.84 $ 79.82 9.6%
Hampton
---------------------------------------
Occupancy 66.7% 68.8% 2.1 pts
Average Rate $ 85.29 $ 92.12 8.0%
RevPAR $ 56.85 $ 63.41 11.5%
Scandic
---------------------------------------
Occupancy 54.9% 59.1% 4.2 pts
Average Rate $114.02 $106.82 (6.3)%
RevPAR $ 62.60 $ 63.09 0.8%
Conrad
---------------------------------------
Occupancy 66.7% 67.7% 1.0 pts
Average Rate $145.21 $157.92 8.8%
RevPAR $ 96.90 $106.99 10.4%
Other
---------------------------------------
Occupancy 63.4% 72.9% 9.5 pts
Average Rate $114.95 $121.30 5.5%
RevPAR $ 72.87 $ 88.42 21.3%
Total
---------------------------------------
Occupancy 66.8% 69.4% 2.6 pts
Average Rate $113.18 $119.96 6.0%
RevPAR $ 75.65 $ 83.25 10.0%
(1) Statistics are presented pro forma as if the acquisition of Hilton
International had occurred January 1, 2005. Includes hotels in the
system as of March 31, 2006, which were in the system of HHC or HI
since January 1, 2005. Excludes the Company's owned hotels in New
Orleans. Excludes data for HI franchise hotels.
HILTON HOTELS CORPORATION
Supplementary Statistical Information(1)
March
-----------------------------------------
2005 2006
Number of Number of
Properties Rooms Properties Rooms
----------- -------- ----------- --------
Hilton
----------------------------
Owned 95 42,783 55 31,009
Leased 78 22,908 79 23,437
Joint Venture 15 6,698 14 6,156
Managed 114 42,783 143 52,756
Franchised 181 50,233 197 56,170
----------- -------- ----------- --------
483 165,405 488 169,528
Hilton Garden Inn
----------------------------
Owned 1 162 1 162
Joint Venture 1 128 1 128
Managed 7 895 7 886
Franchised 217 29,633 257 35,275
----------- -------- ----------- --------
226 30,818 266 36,451
Doubletree
----------------------------
Owned 4 1,702 3 1,349
Leased 6 2,144 5 1,746
Joint Venture 16 4,982 14 4,306
Managed 38 10,069 28 7,742
Franchised 88 21,370 115 28,146
----------- -------- ----------- --------
152 40,267 165 43,289
Embassy Suites
----------------------------
Owned 4 881 3 663
Joint Venture 27 7,279 25 6,586
Managed 54 14,134 56 14,788
Franchised 91 20,575 97 22,145
----------- -------- ----------- --------
176 42,869 181 44,182
Homewood Suites by Hilton
-----------------------------
Owned 3 398 1 140
Managed 38 4,483 41 4,706
Franchised 109 11,918 127 13,795
----------- -------- ----------- --------
150 16,799 169 18,641
Hampton
----------------------------
Owned 1 133 1 133
Managed 35 4,569 35 4,607
Franchised 1,259 126,191 1,313 130,241
----------- -------- ----------- --------
1,295 130,893 1,349 134,981
Scandic
----------------------------
Owned 1 325 1 325
Leased 123 21,774 120 21,280
Managed 3 429 3 429
Franchised 5 575 6 962
----------- -------- ----------- --------
132 23,103 130 22,996
Conrad
----------------------------
Joint Venture 3 1,395 3 1,399
Managed 10 3,059 13 3,901
----------- -------- ----------- --------
13 4,454 16 5,300
Other
----------------------------
Owned 3 930 2 630
Leased 2 666 2 666
Managed 8 1,971 8 3,399
Franchised 5 2,215 6 2,432
----------- -------- ----------- --------
18 5,782 18 7,127
Timeshare 38 4,100 40 4,272
----------------------------
Total
----------------------------
Owned 112 47,314 67 34,411
Leased 209 47,492 206 47,129
Joint Venture 62 20,482 57 18,575
Managed 307 82,392 334 93,214
Franchised 1,955 262,710 2,118 289,166
Timeshare 38 4,100 40 4,272
----------- -------- ----------- --------
TOTAL PROPERTIES 2,683 464,490 2,822 486,767
=========== ==================== ========
Change to
----------------------------------------
March 2005 December 2005
Number of Number of
Properties Rooms Properties Rooms
----------- -------- ----------- -------
Hilton
-----------------------------
Owned (40) (11,774) (2) (1,360)
Leased 1 529 - (23)
Joint Venture (1) (542) (2) (688)
Managed 29 9,973 6 5,047
Franchised 16 5,937 4 1,386
----------- -------- ----------- -------
5 4,123 6 4,362
Hilton Garden Inn
-----------------------------
Owned - - - -
Joint Venture - - - -
Managed - (9) - -
Franchised 40 5,642 7 928
----------- -------- ----------- -------
40 5,633 7 928
Doubletree
-----------------------------
Owned (1) (353) - -
Leased (1) (398) - -
Joint Venture (2) (676) - -
Managed (10) (2,327) (2) (318)
Franchised 27 6,776 7 1,439
----------- -------- ----------- -------
13 3,022 5 1,121
Embassy Suites
-----------------------------
Owned (1) (218) - -
Joint Venture (2) (693) - -
Managed 2 654 - (44)
Franchised 6 1,570 (1) (203)
----------- -------- ----------- -------
5 1,313 (1) (247)
Homewood Suites by Hilton
------------------------------
Owned (2) (258) - -
Managed 3 223 - -
Franchised 18 1,877 5 508
----------- -------- ----------- -------
19 1,842 5 508
Hampton
-----------------------------
Owned - - - -
Managed - 38 1 154
Franchised 54 4,050 12 706
----------- -------- ----------- -------
54 4,088 13 860
Scandic
-----------------------------
Owned - - - -
Leased (3) (494) (1) (125)
Managed - - - -
Franchised 1 387 1 247
----------- -------- ----------- -------
(2) (107) - 122
Conrad
-----------------------------
Joint Venture - 4 - 4
Managed 3 842 1 241
----------- -------- ----------- -------
3 846 1 245
Other
-----------------------------
Owned (1) (300) - -
Leased - - - -
Managed - 1,428 2 2,088
Franchised 1 217 - (2)
----------- -------- ----------- -------
- 1,345 2 2,086
Timeshare 2 172 - -
-----------------------------
Total
-----------------------------
Owned (45) (12,903) (2) (1,360)
Leased (3) (363) (1) (148)
Joint Venture (5) (1,907) (2) (684)
Managed 27 10,822 8 7,168
Franchised 163 26,456 35 5,009
Timeshare 2 172 - -
----------- -------- ----------- -------
TOTAL PROPERTIES 139 22,277 38 9,985
=========== ======== =========== =======
(1) Statistics are presented pro forma as if the acquisition of Hilton
International had occurred January 1, 2005.
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Reconciliation of Adjusted EBITDA to EBITDA and Net Income
Historical Data
($ in millions)
Three Months
Ended
March 31
---------------
2005 2006 % Change
----- ----- ---------
Adjusted EBITDA $ 252 $ 328 30%
Proportionate share of depreciation and
amortization of unconsolidated
affiliates (7) (8) 14
Impairment loss and related costs (2) - -
Operating interest and dividend income (3) (2) (33)
Operating income of non-controlled
interests 3 3 -
Net gain on foreign currency
transactions - 17 -
Net gain on asset dispositions and other 11 4 (64)
Loss from non-operating affiliates (5) (4) (20)
Minority and non-controlled interests,
net (3) (2) (33)
----- -----
EBITDA 246 336 37
Depreciation and amortization (80) (86) 8
Interest expense, net (66) (94) 42
Provision for income taxes (36) (52) 44
----- -----
Net income $ 64 $ 104 63%
===== =====
Reconciliation of Adjusted EBITDA to EBITDA and Net Income
Future Performance - Full Year 2006 Outlook(1)
($ in millions, except per share amounts)
Estimated Estimated
Full Year 2006 Full Year 2006
Low End High End
Adjusted EBITDA $ 1,720 $ 1,765
Proportionate share of depreciation
and amortization of unconsolidated
affiliates (30) (30)
Operating interest and dividend
income (7) (7)
Operating income of non-controlled
interests 11 11
Net gain on foreign currency
transactions 17 17
Net gain on asset dispositions and
other 4 4
Loss from non-operating affiliates (17) (17)
Minority and non-controlled
interests, net (11) (11)
--------------- --------------
EBITDA 1,687 1,732
Depreciation and amortization (434) (434)
Interest expense, net (513) (512)
Provision for income taxes (282) (299)
--------------- --------------
Net income $ 458 $ 487
=============== ==============
Diluted EPS $ 1.12 $ 1.19
=============== ==============
Recurring Diluted EPS $ 1.06 $ 1.13
=============== ==============
(1) Includes the impact of Hilton International from the acquisition
date of February 23, 2006.
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Pro Forma Revenue and Expenses - 1st Quarter
($ in millions)
Owned Hotels
---------------------------------------------------------------------
% or
basis
1st Quarter point
2005 2006 Change
------ ----- ------
Revenue
--------
Reported $ 495 $ 508
Less sold hotels and New Orleans (142) (48)
Less HI reported - (81)
----- -----
Comparable Owned - United States 353 379 7%
Plus HI North America, net(1) 20 24 20%
----- -----
Pro Forma Comparable Owned - North America 373 403 8%
Plus HI International, net(1) 150 154 3%
----- -----
Pro Forma Comparable Owned - Worldwide $ 523 $ 557 7%
===== =====
Expenses
--------
Reported $ 376 $ 380
Less sold hotels and New Orleans (106) (32)
Less HI reported - (60)
----- -----
Comparable Owned - United States 270 288 7%
Plus HI North America, net(1) 19 22 16%
----- -----
Pro Forma Comparable Owned - North America 289 310 7%
Plus HI International, net(1) 115 114 (1%)
----- -----
Pro Forma Comparable Owned - Worldwide $ 404 $ 424 5%
===== =====
Margins
--------
Comparable Owned - United States 23.5% 24.0% 50 bps
Pro Forma Comparable Owned - North America 22.5% 23.1% 60 bps
Pro Forma Comparable Owned - International 23.3% 26.0% 270 bps
Pro Forma Comparable Owned - Worldwide 22.8% 23.9% 110 bps
Leased Hotels
---------------------------------------------------------------------
% or
basis
1st Quarter point
2005 2006 Change
------ ----- ------
Revenue
--------
Reported $ 28 $ 266
Less non-comparable (4) -
Less HI reported - (239)
Plus HI, net(1) 535 541 1%
----- -----
Pro Forma Comparable Leased - Worldwide $ 559 $ 568 2%
===== =====
Expenses
--------
Reported $ 26 $ 230
Less non-comparable (4) -
Less HI reported - (207)
Plus HI, net(1) 495 489 (1%)
----- -----
Pro Forma Comparable Leased - Worldwide $ 517 $ 512 (1%)
===== =====
Margins
--------
Pro Forma Comparable Leased - Worldwide 7.5% 9.9% 240 bps
Management and Franchise Fees
---------------------------------------------------------------------
1st Quarter %
2005 2006 Change
------ ----- ------
Reported $ 102 $ 152
Less HI reported - (11)
Plus HI 19 24 26%
----- -----
Pro Forma - Worldwide $ 121 $ 165 36%
===== =====
(1) Pro forma for the entities acquired with Hilton International as
if they had been acquired on January 1, 2005. Excludes non-
comparable hotels.
HILTON HOTELS CORPORATION
Supplemental Financial Information (Unaudited)
Pro Forma Revenue and Expenses - 2005 Quarterly
($ in millions)
Owned Hotels
---------------------------------------------------------------------
2005
------------------------------------------
1st 2nd 3rd 4th Year
Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------
Revenue
------------------------
Reported $ 495 $ 575 $ 489 $ 490 $2,049
Less sold hotels and
New Orleans (142) (164) (95) (64) (465)
Plus HI North America,
net(1) 20 26 26 27 99
------- ------- ------- ------- ------
Pro Forma Comparable
Owned - North America 373 437 420 453 1,683
Plus HI International,
net(1) 150 163 146 164 623
------- ------- ------- ------- ------
Pro Forma Comparable
Owned - Worldwide $ 523 $ 600 $ 566 $ 617 $2,306
======= ======= ======= ======= ======
Expenses
------------------------
Reported $ 376 $ 391 $ 350 $ 342 $1,459
Less sold hotels and
New Orleans (106) (109) (69) (53) (337)
Plus HI North America,
net(1) 19 20 20 21 80
------- ------- ------- ------- ------
Pro Forma Comparable
Owned - North America 289 302 301 310 1,202
Plus HI International,
net(1) 115 116 109 117 457
------- ------- ------- ------- ------
Pro Forma Comparable
Owned - Worldwide $ 404 $ 418 $ 410 $ 427 $1,659
======= ======= ======= ======= ======
Margins
------------------------
Pro Forma Comparable
Owned - North America 22.5% 30.9% 28.3% 31.6% 28.6%
Pro Forma Comparable
Owned - International 23.3% 28.8% 25.3% 28.7% 26.6%
Pro Forma Comparable
Owned - Worldwide 22.8% 30.3% 27.6% 30.8% 28.1%
Leased Hotels
---------------------------------------------------------------------
2005
------------------------------------------
1st 2nd 3rd 4th Year
Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------
Revenue
------------------------
Reported $ 28 $ 31 $ 28 $ 24 $ 111
Less non-comparable (4) (5) - - (9)
Plus HI, net(1) 535 620 571 602 2,328
------- ------- ------- ------- ------
Pro Forma Comparable
Leased - Worldwide $ 559 $ 646 $ 599 $ 626 $2,430
======= ======= ======= ======= ======
Expenses
------------------------
Reported $ 26 $ 27 $ 24 $ 22 $ 99
Less non-comparable (4) (5) - - (9)
Plus HI, net(1) 495 525 489 507 2,016
------- ------- ------- ------- ------
Pro Forma Comparable
Leased - Worldwide $ 517 $ 547 $ 513 $ 529 $2,106
======= ======= ======= ======= ======
Margins
------------------------
Pro Forma Comparable
Leased - Worldwide 7.5% 15.3% 14.4% 15.5% 13.3%
Management and Franchise Fees
---------------------------------------------------------------------
2005
------------------------------------------
1st 2nd 3rd 4th Year
Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------
Revenue
------------------------
Reported $ 102 $ 117 $ 119 $ 114 $ 452
Plus HI 19 26 24 32 101
------- ------- ------- ------- ------
Pro Forma - Worldwide $ 121 $ 143 $ 143 $ 146 $ 553
======= ======= ======= ======= ======
(1) Pro forma for the entities acquired with Hilton International as
if they had been acquired on January 1, 2005. Excludes non-
comparable hotels.
NON-GAAP FINANCIAL MEASURES
----------------------------------------------------------------------
Regulation G, "Conditions for Use of Non-GAAP Financial Measures,"
prescribes the conditions for use of non-GAAP financial information in
public disclosures. We believe that our presentation of EBITDA and
Adjusted EBITDA, which are non-GAAP financial measures, are important
supplemental measures of operating performance to investors. The
following discussion defines these terms and why we believe they are
useful measures of our performance.
EBITDA and Adjusted EBITDA
----------------------------------------------------------------------
Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a commonly used measure of performance in our industry
which we believe, when considered with measures calculated in
accordance with United States Generally Accepted Accounting Principles
(GAAP), gives investors a more complete understanding of operating
results before the impact of investing and financing transactions and
income taxes and facilitates comparisons between us and our
competitors. Management has historically adjusted EBITDA when
evaluating operating performance because we believe that the inclusion
or exclusion of certain recurring and non- recurring items described
below is necessary to provide the most accurate measure of our core
operating results and as a means to evaluate period-to-period results.
We have chosen to provide this information to investors to enable them
to perform more meaningful comparisons of past, present and future
operating results and as a means to evaluate the results of core
on-going operations. We do not reflect such items when calculating
EBITDA, however, we adjust for these items and refer to this measure
as Adjusted EBITDA. We have historically reported this measure to our
investors and believe that the continued inclusion of Adjusted EBITDA
provides consistency in our financial reporting. We use Adjusted
EBITDA in this press release because we believe it is useful to
investors in allowing greater transparency related to a significant
measure used by management in its financial and operational
decision-making. Adjusted EBITDA is among the more significant factors
in management's internal evaluation of total company and individual
property performance and in the evaluation of incentive compensation
related to property management. Management also uses Adjusted EBITDA
as a measure in determining the value of acquisitions and
dispositions. Adjusted EBITDA is also widely used by management in the
annual budget process. Externally, we believe these measures continue
to be used by investors in their assessment of our operating
performance and the valuation of our company. Adjusted EBITDA reflects
EBITDA adjusted for the following items:
Gains and Losses on Asset Dispositions and Non-Recurring Items
---------------------------------------------------------------------
We exclude from Adjusted EBITDA the effect of gains and losses on
asset dispositions and non-recurring items, such as asset write-downs
and impairment losses. We believe the inclusion of these items is not
consistent with reflecting the on-going performance of our assets.
Management believes it is useful to exclude gains and losses on asset
dispositions as these amounts are not reflective of our operating
performance or the performance of our assets and the amount of such
items can vary dramatically from period to period. The timing and
selection of an asset for disposition is subject to a number of
variables that are generally unrelated to our on-going operations.
Proportionate Share of Depreciation and Amortization of
Unconsolidated Affiliates
---------------------------------------------------------------------
Our consolidated results include the equity earnings from our
unconsolidated affiliates after the deduction of our proportionate
share of depreciation and amortization expense from unconsolidated
affiliates. We exclude our proportionate share of depreciation and
amortization expense from unconsolidated affiliates from Adjusted
EBITDA to provide a more accurate measure of our proportionate share
of core operating results before investing activities and to provide
consistency with the performance measure we use for our consolidated
properties.
Operating Interest and Dividend Income
---------------------------------------------------------------------
Interest and dividend income from investments related to operating
activities is included in our calculation of Adjusted EBITDA. We
consider this income, primarily interest on notes receivable issued
to properties we manage or franchise and dividend income from
investments related to the development of our core businesses, to be
a part of our core operating results.
Non-Controlled Interest
---------------------------------------------------------------------
We exclude from Adjusted EBITDA the operating income, net interest
expense, tax provision and non-controlled interest reported on our
income statement to the extent we have no ownership interest. These
exclusions are shown in their respective lines on the Reconciliation
of Adjusted EBITDA to EBITDA and Net Income.
Minority Interest, Net
---------------------------------------------------------------------
We exclude the minority interest in the income or loss of our
consolidated joint ventures because these amounts effectively include
our minority partners' proportionate share of depreciation,
amortization, interest and taxes, which are excluded from EBITDA.
Limitations on the Use of Non-GAAP Measures
----------------------------------------------------------------------
The use of EBITDA and Adjusted EBITDA has certain limitations. Our
presentation of EBITDA and Adjusted EBITDA may be different from the
presentation used by other companies and therefore comparability may
be limited. Depreciation expense for various long-term assets,
interest expense, income taxes and other items have been and will be
incurred and are not reflected in the presentation of EBITDA or
Adjusted EBITDA. Each of these items should also be considered in the
overall evaluation of our results. Additionally, EBITDA and Adjusted
EBITDA do not consider capital expenditures and other investing
activities and should not be considered as a measure of our liquidity.
We compensate for these limitations by providing the relevant
disclosure of our depreciation, interest and income tax expense,
capital expenditures and other items both in our reconciliations to
the GAAP financial measures and in our consolidated financial
statements, all of which should be considered when evaluating our
performance.
EBITDA and Adjusted EBITDA are used in addition to and in
conjunction with results presented in accordance with GAAP. EBITDA and
Adjusted EBITDA should not be considered as an alternative to net
income, operating income, or any other operating performance measure
prescribed by GAAP, nor should these measures be relied upon to the
exclusion of GAAP financial measures. EBITDA and Adjusted EBITDA
reflect additional ways of viewing our operations that we believe,
when viewed with our GAAP results and the reconciliations to the
corresponding GAAP financial measures, provide a more complete
understanding of factors and trends affecting our business than could
be obtained absent this disclosure. Management strongly encourages
investors to review our financial information in its entirety and not
to rely on a single financial measure.
