Coronavirus effects color Hilton’s 2020 outlook

MCLEAN, Virginia—Hilton CEO and President Chris Nassetta called 2019 “one of our strongest yet” on the company’s earnings call with analysts to report fourth-quarter and full-year 2019 results.

But potential impacts of the coronavirus (COVID-19) colored the conversation with concerns executives said are tough to address fully this early in the year and the outbreak.

Nassetta said that not accounting for the impact of the coronavirus, the company expects “flat to 1%” revenue-per-available-room growth in 2020. Factoring in the potential impact, he said the company estimates “a potential 100-basis-point impact to (comparable) systemwide RevPAR growth” and “roughly a -0.5% impact in net unit growth … and a $25 (million) to $50-million impact to full-year adjusted (earnings before interest, taxes, depreciation and amortization).”

“At this point, roughly 150 of our hotels in China, totaling approximately 33,000 rooms, are closed,” Nassetta said.

He added that the company included in its estimations the impacts of closures in China, of outbound Chinese business and other factors, including possible recovery time.

He called the half-point estimation of impact on net unit growth “reasonable” and “largely within the bounds” of the company’s global net unit growth forecast of 6% to 7% in 2020.

“We’ve already delivered 1,500-plus rooms in China this year,” he said. “There are parts of China that are still business as usual in terms of deliveries.”

Today China represents 2.7% of Hilton’s overall EBITDA and 0.7% of systemwide revenue, Nassetta said.

Q4 and full-year performance highlights
Nassetta pointed to adjusted EBITDA and diluted EPS exceeding the high end of the company’s previous guidance as highlights. Adjusted EBITDA was $586 million for the fourth quarter and $2.3 billion for the full year, according to the company’s earnings release.

Systemwide comparable RevPAR decreased 1% for the fourth quarter and increased 0.8% for the full year, compared to 2019 results. A 0.5% occupancy increase for the year drove 2019 RevPAR, with average-daily-rate growth of 0.1% compared to 2018.

Europe led Hilton’s performance in the quarter and for the year, posting 1.4% RevPAR growth in the quarter and 3% growth for the full year, “largely driven by solid group and leisure transient gains across continental Europe and good international inbound to London,” Hilton CFO Kevin Jacobs said on the earnings call.

RevPAR in the Asia/Pacific region fell 3.8% in the quarter and 0.9% for the year. Q4 drops in that region were “due to the continued slowdown in leisure travel and ongoing protests in Hong Kong,” Jacobs said, while those factors plus “softening economic trends in China” contributed to the full-year results.

Focus on net unit growth
On the development side, Nassetta said the company remains a frontrunner. 2019 marked the company’s fifth consecutive year of record approvals, starts and openings, he said. Net unit growth was 6.6% for 2019, which included 470 hotels and 65,000 rooms.

“We remain confident in our ability to deliver at least 6% net unit growth for the next several years,” Nassetta said, adding later that the potential impact of coronavirus (COVID-19) was factored into that number for now.

Jacobs added that in the fourth quarter, management and franchise fees increased 5% year over year to $558 million.

Nassetta also mentioned the company’s January launch of its latest brand, Tempo by Hilton, which sits in the upscale lifestyle category.

He put it in perspective when talking about the company’s current brand-launch strategies: “We’re going to take a little bit of a break and get the (brands) we’ve got out there working and working really well,” he said.

Next on the brand-launch front likely will be the “luxury lifestyle” offering Nassetta has mentioned in the past, but he didn’t put a specific timeline on it.

And in response to a question whether Hilton would likely launch a brand in the ADR space below Tru by Hilton, Nassetta said, “No, I do not see us doing that.”

The company forecasts 2020 RevPAR performance between flat growth and 1% growth and an adjusted EBITDA of $2.42 billion to $2.47 billion.

On Tuesday afternoon, Hilton’s stock was trading at $112.94 per share, up 1.8% year to date. The Baird/STR Hotel Stock Index was down 4.1% for the same time period.