With the pandemic restricting new developments and more competition in the conversion space, global hotel brands are having to fight harder than ever to grow.
One of the levers they have at their disposal is key money — the up-front payment made by an operator or franchisor to an owner in order to secure a hotel management or franchise agreement.
Speaking on an earnings call after the release of Hilton Worldwide’s fourth-quarter results, the company’s chief financial officer Kevin Jacobs admitted that the amount had increased in 2021.
“[Y]ou could see in our numbers this year that it's been sort of higher than it had been in the past,” he said.
Jacobs doesn’t put this down to Covid-19, rather the general increase in competition: “We're leading the way in growth and our competitors are trying to catch up to us,” he added.
Of course in the overall deals pipeline, key money only factors into a small number, around 10% for Hilton, but Jacobs indicated that it was a sweetener for the bigger deals.
“Over the last particularly a year or so, we've signed some really high-profile deals. I think about the Waldorf Astoria Monarch Beach in California. I think about Resorts World in Las Vegas, the deal we did in Cancun and Tulum, those have been deals that we've been working on for a really long time. They're very strategic. They happen to be a little bit higher key money associated with them than we're used to, and so we've been a little bit higher,” Jacobs said.
The trend for putting in more key money is likely to spill over into 2022 and maybe next year as well with Jacobs revealing that Hilton had some: “strategic things in the hopper at the moment that I think might keep that number a little bit elevated”.
Hilton’s Q4 in Numbers
Hilton Worldwide turned in an impressive fourth-quarter performance, topping analyst estimates for quarterly profit and revenue.
• System-wide revenue per available room (RevPAR) for the final three months of the year reached $84.14 up 104.2% on 2020. Over the whole year it was up 60.4% to $73.65.
• Hilton swung to a quarterly pre-tax profit of $237 million from a loss of $349 million in the prior year on revenues of $1.8 billion, a rise of 106%.