Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the third quarter and nine months ended September 30, 2003.
The company reported third quarter 2003 net income of $34 million, versus $48 million in the 2002 quarter. Diluted net income per share was $.09 in the third quarter 2003, compared with $.13 in the 2002 quarter. The 2002 third quarter included two items with a combined benefit of $.02 per diluted share: 1) a $15.6 million reduction in the provision for income taxes ($.04 per diluted share), and 2) a pre-tax impairment charge of $10 million ($.02 per diluted share).
Hilton reported 2003 third quarter total company operating income of $126 million (compared with $127 million in the 2002 period), on total revenue of $964 million (compared with $934 million in the corresponding 2002 period). Total company earnings before interest, taxes, depreciation, amortization and non-recurring items (“Adjusted EBITDA,” see attachment) were $218 million in the 2003 third quarter, compared with $224 million in the 2002 quarter.
Continued pressure on room rates and higher costs that adversely impacted margins at the company`s owned hotels were factors affecting the quarterly results. Helping partially offset these items were increases in management and franchise fees, along with strong results from the company`s timeshare business.
Owned Hotel Results
The company`s owned hotels maintained solid occupancy levels during the third quarter as a result of strong leisure travel during the summer months. Hilton`s owned properties in New York, Hawaii, San Diego, Chicago, Santa Barbara, Minneapolis and Anchorage reported occupancy levels of 75 percent-plus during the quarter as leisure travelers filled hotel rooms. Offsetting the solid occupancies were soft room rates, owing to relative weakness in group and business transient demand. San Francisco, while improving, remains a sluggish market.
Across all brands, revenue from the company`s owned hotels (majority owned and controlled hotels) totaled $487 million in the third quarter, a 3 percent decline from the 2002 period. The company`s comparable owned hotels reported a 2 percent revenue decline during the quarter. Contributing to the revenue decline was a 1.9 percent decline in revenue per available room (RevPAR) from comparable owned hotels during the quarter. Occupancy at these hotels was flat at 73.6 percent, while average daily rate (ADR) declined 1.8 percent to $139.03. Revenue was also adversely impacted by reduced business from food and beverage and other hotel items (such as telephone and retail).
Total owned hotel expenses increased 2 percent to $372 million. Expenses at the company`s comparable owned hotels increased 3 percent in the quarter.
Owned hotel profitability continued to be impacted by the aforementioned RevPAR, food and beverage and other declines, as well as increases in insurance and healthcare costs and property taxes.
System-wide RevPAR; Management/Franchise Fees
Third quarter system-wide RevPAR performance at each of the company`s brands (including franchise properties) was consistent with the strength of summer leisure travel, as the company`s midscale brands generally fared better than the full-service hotels. Third quarter RevPAR increased 3.0 percent at Hilton Garden Inn; 1.0 percent at Homewood Suites by Hilton; and 1.0 percent at Hampton Inn. Embassy Suites RevPAR declined a modest 0.2 percent, with the Hilton and Doubletree brands down 1.1 percent and 2.5 percent, respectively.
Management and franchise fees for the quarter totaled $87 million, compared with $83 million a year ago, as a result of RevPAR increases at franchised hotels and the addition of new franchised units.
Brand Development/Unit Growth
Year-to-date August 2003 (the latest period for which data is available), all but one of the company`s brands were significantly above their fair share of RevPAR versus their segment competitors. With 100 representing a brand`s fair share of the market, the Hilton brands, according to Smith Travel Research, posted RevPAR index numbers as follows for the first eight months of 2003: Embassy Suites, 126.2; Homewood Suites by Hilton, 119.9; Hampton Inn, 117.7; Hilton Garden Inn, 114.2; Hilton, 108.9; Doubletree, 99.8.
In the third quarter, the company added 43 hotels and 5,350 rooms to its system as follows: Hampton Inn, 23 hotels and 1,944 rooms; Hilton Garden Inn, 8 hotels and 1,118 rooms; Doubletree, 5 hotels and 1,119 rooms; Homewood Suites by Hilton, 5 hotels and 482 rooms; Embassy Suites, 1 hotel and 512 rooms; Hilton, 1 hotel and 175 rooms. Five hotels and 1,260 rooms were removed from the system during the quarter. As of September 30, 2003, the Hilton system consisted of 2,157 properties and 345,141 rooms.
Highlighting brand development activity during the quarter were: the opening of the first Doubletree hotel in Canada, a 433-room property at Toronto Airport; the first Hampton Inn in Manhattan (144 rooms) with a total of five Hampton Inns expected to open in New York City by 2005; and the opening of the 512-suite Embassy Suites - Niagara Falls in Ontario, Canada. Additionally, Conrad Hotels announced that two Conrad properties will open in Asia in 2004: in Phuket, Thailand (currently operating as the Panwaburi Resort & Spa) and in Bali, along with the Conrad Miami in Florida, scheduled for opening in January 2004. New Hilton-managed convention hotels are on track to open in Houston, Texas (December 2003); Austin, Texas (February 2004); and Omaha, Nebraska (April 2004).
The Hilton Family of Brands continues to be recognized for quality, value and service by the traveling public. In August, three of the company`s brands earned first place awards from J.D. Power & Associates for customer satisfaction: Embassy Suites in the upscale hotel category (the fifth consecutive win for that brand); Hilton Garden Inn in the mid-priced category (its second win in as many years of eligibility); and Homewood Suites by Hilton in the extended-stay category.
The continued strong performance of Hilton`s brands has enabled the company to significantly enhance its development pipeline versus its industry competitors. In October, Lodging Econometrics noted that for the first time Hilton had, by a wide margin, more rooms in the active U.S. development pipeline than any other company.
For full details see www.hilton.com