Hilton said that it would look to conversions to supplement a drop-off in financing for new hotels, as it reported net unit growth of 4.7% for the third quarter.
The company said that it was seeing more business from lower-rated leisure and corporate travel from smaller companies as it was focused on helping owners “build a bridge to the other side of this”.
Hilton said that the group had seen signings up 32% on focused serviced brands, with additional momentum on conversions.
Chris Nassetta, president & CEO, told analysts: “Our numbers have been moving up on net unit growth, because things have got back under constructions more rapidly than we had assumed and we are seeing more conversions than we had been anticipating. Last year we were in the high teens in terms of conversions, this year we will see an uptick to the low to mid 20s and that number will keep creeping up. In the Great Recession we were at 40%, I don’t think we’ll get that high this time, although we have more brands.
“It’s very early, but we think about net unit growth over the next few years at the 4% to 5%. We’re going to be better than that this year. Even though we’ll have a drop off because of the financing market right now, we’ll supplement it with conversions.”
The same period last year produced net unit growth of 7%.
The company reported a 59.9% drop in revpar for the quarter, with adjusted Ebitda of $224m, against $605m in the same period last year. Europe saw the largest drop in revpar, down 75.3%, with Asia Pacific the least, down 46.4%.
The Hilton Hotels & Resorts brand reported the highest revpar drop - 73.6% - while Tru by Hilton saw the least, at 37.7%. Homewood Suites by Hilton was the strongest occupancy performer, at 62.2% and Curio Collection by Hilton the worst, with 27.1%. Home2 Suites by Hilton dropped the least rate, losing 16.4%, against Waldorf Astoria Hotels & Resorts with 34.1%.
The group’s owned hotels saw a 78.5% drop in revpar, while managed and franchise fell by 59.4%. The company forecast that fourth-quarter revpar declines would be in line with the third, with Nassetta said that the Europe and Middle East were “going backwards - modestly”, said Nassetta, Asia Pacific was going forward and that’s how they got to the forecast.
The CEO said: “When do I see the next step change? The spring. We’ll get the election behind us and that will take some of the air out of the balloon. We’ll see more treatments for the virus and that will lead to a change in attitude and a change in performance.
“We thought leisure would be strongly in the Fall and that’s exactly what’s happened. We’ve seen continued strength. We’ve seen business travel picking up, even if it’s not the business travel we’re used to seeing.”
For the third quarter, management fee and franchise and licensing fee revenues dropped by 53%, with incentive fees down from $54m to $7m.
The company approved 17,400 new rooms for development during the third quarter, 20% of which were conversions, bringing the pipeline to 408,000 rooms, up 8% on the year. Hilton opened 17,100 rooms in the third quarter, representing 4.7% net unit growth on the year with full year net unit growth expected to be between 4.5% and 5.0%.
Hilton's development pipeline totalled approximately 2,640 hotels consisting of more than 408,000 rooms throughout 120 countries and territories, including 33 countries and territories where the group did not have any hotels. Of the rooms in the development pipeline, 237,000 rooms were located outside the US, and 217,000 rooms were under construction.
As of 2 November, 97% of the portfolio was open.
Hilton had $10.3bn of long-term debt outstanding with no maturities until 2024. Total cash was at $3.47bn.
Insight: Nassetta told analysts that he was drawing on his father’s advice, which was to “fish where the fish are" and, at the moment, this was lower-rated leisure and smaller business, as well as “front-line folks responding to the crisis”. Nassetta said he was “learning some new skills”.
And the big, global operators will have to learn them quickly, because, as Wyndham showed last week, it is already out there with the waders and throwing around nets and dynamite. The trouble for Hilton, however, is that these fish are pretty small - previously the company may not have thrown them back, but it didn’t try and tempt them in with the fresh maggots.
The company is hoping to return to its more familiar fishing grounds in the Spring, The good news his that lower rates has meant that its loyalty programme hasn’t taken too much of a hit and swollen it too much.
But could the pandemic see a more permanent skew in the company’s portfolio to the lower-ADR select service brands, which are driving signings? Nassetta said of the flags: “This is the stuff that can get done” at the moment in terms of development. The virus could have a more permanent impact than expected.