Hilton Reports Strong Second Quarter 2007 Results
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Hilton Reports Strong Second Quarter 2007 Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2007-08-01
Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the second quarter and six months ended June 30, 2007. Second quarter highlights compared to the second quarter of 2006 are as follows:
* Fees up 16% to $201 million on strong RevPAR and unit growth.
* Comparable system-wide RevPAR increased 8.9%, driven by strong rate increases and high demand in most major markets. North America comparable owned RevPAR increased 9.8%.
Hilton reported second quarter 2007 net income of $165 million compared with $144 million in the 2006 quarter. Diluted net income per share was $.40 in the 2007 second quarter, versus $.35 in the 2006 quarter. Excluding non-recurring items in both periods, diluted EPS totaled $.38 per share in the 2007 quarter, a 19 percent increase from $.32 per share in the 2006 quarter.
Non-recurring items combined to benefit the 2007 quarter by $.02 per share as follows:
* $47 million pre-tax gain related to the Scandic sale (included in discontinued operations, net of tax);
* $24 million pre-tax other loss; primarily related to currency contracts used to protect the U.S. dollar value of the Scandic sale proceeds;
* $6 million pre-tax loss on foreign currency transactions;
* $4 million pre-tax loss related to impairment of a joint venture investment.
The 2006 second quarter benefited from non-recurring items totaling $.03 per share.
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 second quarter 2007 total operating income of $345 million (a 1 percent decrease from the 2006 quarter), on total revenue of $2.085 billion (a 4 percent increase from $2.005 billion in the 2006 quarter). Total company earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) were $468 million, a decrease of 4 percent from $489 million in the 2006 quarter. Revenue, operating income and Adjusted EBITDA growth in the quarter were impacted by asset sales completed within the last twelve months.
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) second quarter comparable RevPAR increased 8.9 percent compared to the 2006 period. The company's brands showed second quarter RevPAR gains as follows: Conrad, 15.7 percent; Hilton, 10.4 percent; Doubletree, 8.6 percent; Hilton Garden Inn, 8.0 percent; Hampton Inn, 7.6 percent; Homewood Suites by Hilton, 7.4 percent; and Embassy Suites, 6.3 percent.
Management and franchise fees increased 16 percent in the second quarter to $201 million, benefiting from RevPAR gains and the addition of new units.
Owned Hotel Results
Continued strong demand trends 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 segments all showed solid ADR gains.
Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $636 million in the second quarter 2007, a 6 percent decrease from $678 million in the 2006 quarter. Total owned hotel expenses declined 8 percent in the quarter to $435 million. The decreases reflect the sale of owned assets over the last year.
Comparable North America (N.A.) owned revenue and expenses increased 8.5 percent and 4.3 percent, respectively.
RevPAR from comparable N.A. owned hotels increased 9.8 percent. Comparable owned N.A. hotel occupancy increased 2.0 points to 82.0 percent, while ADR increased 7.1 percent to $211.29. Particularly strong RevPAR growth was reported at the company's owned hotels in New York and San Francisco, while the Hawaii market was soft during the quarter. Comparable N.A. owned hotel margins in the second quarter increased 270 basis points to 32.9 percent.
Comparatively lower renovation disruption activity at the Hilton New York, the Waldorf=Astoria, and the Hilton Hawaiian Village in the 2007 second quarter benefited comparable N.A. owned hotel RevPAR and margin growth.
Comparable international owned revenue and expenses increased 9.3 percent and 7.7 percent, respectively. RevPAR from international comparable owned hotels increased 9.4 percent. Occupancy decreased 1.3 points to 73.0 percent, while ADR increased 11.3 percent to $162.35. Particularly strong results were reported in Barcelona, Zurich, Sydney and Sao Paulo. Adjusting for the impact of foreign exchange, RevPAR from international comparable owned hotels increased 3.2 percent. Comparable international owned margins improved 110 basis points to 26.8 percent.
On a worldwide basis, comparable owned RevPAR increased 9.7 percent, with margins improving 230 basis points to 31.3 percent. Excluding the impact of foreign exchange, worldwide comparable owned RevPAR increased 8.2 percent.
Leased Hotels
Revenue from leased hotels was $530 million in the second quarter 2007 compared to $476 million in the 2006 quarter, while leased expenses (including rents) were $459 million in the current quarter versus $415 million last year. The EBITDAR-to-rent coverage ratio was 1.6 times in the quarter. Leased results exclude hotels that have been classified as discontinued operations in connection with the Scandic sale.
Comparable leased revenue increased 12.0 percent, leased expenses increased 10.7 percent and margins increased 100 basis points to 13.6 percent. RevPAR from comparable leased properties increased 14.6 percent. Adjusting for the impact of foreign exchange, RevPAR from comparable leased hotels increased 9.3 percent, reflective of business strength in the U.K. (primarily London) and continental Europe.
Hilton Grand Vacations
Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported a 21 percent decline in profitability in the second 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 9 percent, however average unit sales prices increased 35 percent over last year, with the increase driven by new projects in Hawaii.
HGVC had second quarter revenue of $159 million, an 8 percent decrease from $173 million in the 2006 quarter. Expenses were $121 million in the second quarter, compared with $125 million in the 2006 period.
Brand Development/Unit Growth
In the second quarter, the company added 71 properties and 9,436 rooms to its system as follows: Hampton Inn, 32 hotels and 2,919 rooms; Hilton Garden Inn, 18 hotels and 2,359 rooms; Hilton, 8 hotels and 1,918 rooms; Doubletree, 7 hotels and 1,591 rooms; Homewood Suites by Hilton, 5 hotels and 493 rooms; Embassy Suites, 1 hotel and 156 rooms.
13 hotels and 2,088 rooms were removed from the system during the quarter.
During the second quarter, the company added new Hilton hotels in Dallas; New Orleans; Limerick, Ireland; Venice, Italy and Valencia, Spain. The company added new Doubletree hotels in Milwaukee, Columbus, Boston, and Richmond. Additionally, during the quarter, the company signed over 15 management agreements, including the Conrad Buenos Aires, Argentina scheduled to open in 2010, the Hilton Forbidden City, Beijing, China scheduled to open in 2008, and the Hilton Mina Al Arab, U.A.E., scheduled to open in 2010.
During the second quarter, the company announced four new agreements as follows:
* A strategic alliance with the Caribbean Property Development Group to develop approximately 15 franchised hotels in Central America and the Caribbean under the Hilton Garden Inn, Hampton by Hilton and Homewood Suites by Hilton brands over the next five years.
* A strategic development alliance with London and Regional Properties to develop approximately 25 franchised or managed hotels in Russia under the Conrad, Hilton, Doubletree by Hilton, Hilton Garden Inn and Hampton by Hilton brands over the next five years.
* A strategic development alliance with Shiva Hotels Limited to develop approximately 15 franchised or managed hotels in the U.K. and Ireland under the Hilton, Doubletree by Hilton, Hilton Garden Inn and Hampton by Hilton brands over the next five years.
* A letter of understanding for a development alliance with Somerston Hotels U.K. Limited to develop approximately 25 franchised hotels in the U.K. under the Hampton by Hilton brand over the next five years.
At June 30, 2007, the Hilton worldwide system consisted of 2,896 properties and 490,438 rooms.
In July, the company received three highest-ranking awards in the J.D. Power and Associates 2007 North American Hotel Guest Satisfaction Index Study, outperforming all other hospitality companies within their respective segments. Hilton Garden Inn received the highest ranking (for the sixth consecutive year) in the mid-scale full service segment. Embassy Suites received the highest ranking (for the sixth time) in the upscale segment. Homewood Suites by Hilton received the highest ranking (for the fifth time) in the extended-stay segment.
Matthew J. Hart, Hilton President & COO, said: "Our operations continue to be very strong across the board. Our brand management and development businesses are experiencing strong RevPAR gains and unit growth both domestically and internationally. We are seeing significant RevPAR increases and improvement in margins across owned hotels, and our timeshare business continues to perform in-line with our expectations. Our development pipeline is larger than it has ever been and our four new strategic agreements add further momentum to our growth."
Asset Dispositions
During the second quarter, the company completed the sale of the Scandic chain for EUR 833 million or approximately $1.1 billion as of the transaction date. Additionally, during the second quarter the company sold the Hilton Washington for approximately $290 million.
The company also announced that it entered into an agreement to sell up to 10 hotels in Continental Europe for EUR 566 million or approximately $770 million. Early in the third quarter, the company announced that it has completed the sale of eight of the ten hotels and expects to complete the sale of the remaining two by the end of the third quarter 2007. The company will retain management agreements on nine of the ten hotels.
Corporate Finance
At June 30, 2007, Hilton had total debt of approximately $5.68 billion (net of approximately $499 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), a reduction of nearly $1.4 billion during the quarter. Of the $5.68 billion, approximately 42 percent is floating rate debt. Total cash and equivalents (including restricted cash of approximately $376 million) were approximately $546 million at June 30, 2007.
The company's average basic and diluted share counts for the second quarter were 390 million and 424 million, respectively.
Hilton's effective tax rate for continuing operations in the second quarter 2007 was approximately 35 percent.
Total capital expenditures in the second quarter were approximately $194 million, including approximately $76 million expended for timeshare development.
Six-month Results
For the six-month period ended June 30, 2007, Hilton reported net income of $260 million, compared to $248 million in the 2006 period. Excluding non-recurring items in both periods, and assuming the Hilton International acquisition had occurred on January 1, 2006, diluted EPS totaled $.58 versus $.47 in the 2006 period. Non-recurring items benefited the 2007 six-month period by $.05 per share. The 2006 six-month period benefited from non-recurring items of $.09 per share. Additionally, had the HI acquisition been completed on January 1, 2006 (actual acquisition date was February 23, 2006), 2006 six-month 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. Operating income for the six months was $573 million (consistent with the 2006 period) on revenue of $3.949 billion (compared with $3.446 billion in the 2006 period). For the 2007 six-month period, when compared to the same period last year, total company Adjusted EBITDA increased 3 percent to $839 million.
2007 Outlook
The company's prior guidance regarding the outlook for 2007 has been withdrawn and no new guidance is being issued due to the pending transaction.
Update on Blackstone Transaction
It is anticipated that the proposed acquisition of the company by BH Hotels LLC, an entity controlled by investment funds affiliated with the Blackstone Group L.P., will close during the fourth quarter 2007; completion is subject to the approval of Hilton's shareholders, as well as other customary closing conditions. Further details regarding the transaction can be found in the preliminary proxy statement that was filed with the Securities and Exchange Commission last week. It is available via the SEC filings link in the investor relations section of www.hiltonworldwide.com.
Stephen F. Bollenbach, Hilton co-chairman and chief executive officer, said: "The proposed sale of our company is proceeding on track with an anticipated closing in the fourth quarter of this year. As we stated when we announced the deal, this transaction brings tremendous value to our shareholders and we look forward to bringing it to completion in the next several months."
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