Hilton's CFO talks success since IPO 10 years ago

A decade after its IPO, Hilton (HLT) has expanded its hospitality footprint with room count up 80%, adding nearly half a million rooms. The stock has risen 300% since its debut.

CFO Kevin Jacobs credits Hilton's culture in powering growth that continues post-pandemic, from pent-up leisure demand to over 1 hotel opening per day. Looking ahead, development plans target over 460,000 additional rooms to drive Hilton's global development. Jacobs notes the shift towards experiences over material goods is fueling further travel recovery into 2023. With properties spanning 18 brands offering varied price points, Hilton aims to capture rising lodging activity.

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Video Transcript

KEVIN JACOBS: Yeah. Hey, Brad. Thanks for having me. It's great to be with you. And yeah, we're celebrating today 10 years since our IPO. It's amazing. It seems like you don't know where the time has gone, but you mentioned it. We've doubled our brand portfolio in that time, nearly doubled the size of the company. We continue to grow rapidly. So the next phase of growth is we're opening more than a hotel a day. We have a development pipeline of nearly 460,000 rooms, more rooms under construction than any other hotel company.

And you know, it's really a lot of it's been fueled by-- our success has been fueled by our culture since we were acquired by Blackstone and taken private in 2007. And everything we've done since then has been driven by our team members around the world and our culture. And we were just recently named the number one great place to work in the world by Great Place to Work and Fortune. So we're really proud of that.

And as you mentioned, we're really proud of our returns. So since our IPO 10 years ago, our total shareholder return has been about 330%, which is far outpaced the Dow Jones, the S&P 500, and our peer set.

- Yeah, absolutely. I mean, when you talk about that room base that's under construction right now and the capacity that's set to come online of about 460,000 rooms, half of that currently under construction as of the last earnings call and you discussed on that call. When you think about the costs that you were anticipating going into starting a lot of these projects, that's kind of moved given the credit conditions and a lot of what, for constructions--

- Move given the credit conditions and a lot of--

- A lot of this going forward here. So ultimately, where do you see some of those costs also comparing over a long-term basis?

KEVIN JACOBS: Yeah, look, construction costs, raw materials costs have actually moderated a little bit. I mean, they were going up in 2021, 2022 20% to 30% a year. And those cost increases have moderated. But of course, as you've alluded to, the cost of capital is higher. And so what that's actually causing is a little bit of a constrained environment for development, which helps fundamentals because if capacity additions are lower, then fundamentals are good.

And then for us, with our brands being as strong as they are, we're continuing to take share. So we're getting under construction more than our fair share of projects, and that's because our brands are financeable and our owners think that they're more likely to have success with our brands. So actually, year to date through the third quarter, our construction starts are up over 20% globally, 18% in the US.

So a lot of our hotel owners are saying, look, I know my construction loan is going to cost me more, but fundamentals are good, I like the Hilton brands. I'd rather get under construction now and open up into a good fundamental environment in the future, which is really fueling our construction costs to-- our construction starts, excuse me, to continue to go up despite an environment that is a little bit more expensive.

- Kevin, let's talk a little bit more about that environment just briefly here. I mean, revenge travel. Do you believe that's behind us? And if so, is 2024 a year of normalization?

KEVIN JACOBS: I think in some ways things have normalized. I think it depends on how you characterize it. There's still a lot of pent up demand for travel from COVID. Obviously during COVID, people focused on acquiring goods because they couldn't move around as much and now people are focusing more on experiences. And so the recovery has been led by leisure, which continues to be-- leisure demand continues to be robust. We expect a really strong holiday season coming up and we expect leisure travel to continue into next year.

And I don't know that you would characterize it as revenge travel, but business travel, which, of course, everybody wrote off during the pandemic and said it was never going to come back, is now back to just about where it was from a volume perspective and above where it was in 2019 from a revenue perspective. And then meetings and events are coming on strong. So our group business, our group position for next year is up almost 20%.

And so if you think about people being a little bit more flexible in their work environment, maybe not in the office as much, people need to meet more. So I don't know that I'd call it revenge, but I think I'd still refer to it as a lot of pent up demand for travel through COVID. So our outlook for the environment for next year, even though most people are calling for the economy to slow a little bit, we feel really good about the demand and the overall fundamentals set up for our business next year.