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HILTON Worldwide was a famously good deal for Blackstone, which parlayed its roughly US$26 billion purchase into one of the most successful leveraged-buyouts of all time.
The transaction also worked out pretty well for Hilton’s chief executive officer, Christopher Nassetta, who became a billionaire when his company’s shares peaked this year in July and has hovered just below that level since, according to the Bloomberg Billionaires Index, which is valuing his wealth for the first time.
For Nassetta, 61, those gains are partly the result of his staying power: He invested alongside Blackstone when it took the company private in 2007, led the company to its initial public offering in 2013, and sold shares on the open market for the first time earlier this year, using the proceeds to exercise Hilton stock options.
The gains are also a testament to his success in transforming Hilton from a company that owned hotels to one that profits by licensing its brands and technology. The move has sheltered the company from the distress roiling commercial-property firms while helping it weather the cycles in global travel.
“There is an unstoppable force that exists with humans,” Nassetta said in a 2021 interview with Carlyle Group co-founder David Rubenstein, amid concerns that Covid would permanently reduce demand for business travel. “They want to network, they want to grow their business, to build relationships. And so I have no real worries.”
Nassetta declined to comment through a Hilton representative.
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Blackstone president Jonathan Gray, who has remained chairman of Hilton’s board, praised Nassetta’s long-term perspective and equanimity, qualities that have helped him lead the company through the Covid pandemic and other tough times.
“When I’m trying to take the temperature of what’s happening in the world, he’s one of the first people I’ll call,” Gray said.
Room network
Hilton’s shares climbed nearly 90 per cent since the beginning of 2020, just before Covid decimated travel demand. That outpaced a 59 per cent rise for Hyatt Hotels and a 47 per cent increase for Marriott International. Park Hotels & Resorts, a real estate investment trust that spun out of Hilton in 2017, has seen shares fall by nearly 45 per cent over the same period.
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The key to Hilton’s growth has been an asset-light business model that generates most of its revenue from hotels owned by other companies, who also bear the upfront cost of developing new properties. That has supercharged the growth of Hilton’s system, with the company adding rooms at an average pace of about 246 a day in the second quarter. Recently, the company acquired the Graduate Hotels and NoMad Hotels brands in moves that give its real estate partners more options to choose from.
“Other people use their money to grow Hilton’s brand on its behalf,” said Michael Bellisario, an analyst at Baird. “It’s even more impressive because these guys have been growing units in a construction-constrained environment.”
The hotel company now has more than 1.2 million rooms, over twice as many as when Nassetta took over, and more than 195 million loyalty members. The larger footprint has helped Hilton strengthen its relationship with American Express, further insulating the hotel company from fluctuations in demand.
Tapping into that model will be crucial as slowing demand growth poses new challenges to Nassetta’s company. Rival Marriott cut its outlook for the rest of 2024, drawing new attention to slowing growth in hotel demand. And while Hilton kept the high-end of its adjusted earnings per share outlook for 2024 intact, the company lowered its net income forecast. US occupancy rates were about 63 per cent last year, compared to 66 per cent in 2019. And industry analysts expect occupancy to stick below pre-pandemic levels through 2028.
Hilton, which traces its roots as a hotel company to 1919, was a lodging pioneer that introduced guests to in-room conveniences such as televisions and air-conditioning, and was among the first US hotel chains to expand internationally. The bar at one of the company’s initial properties outside the continental US – the Caribe Hilton in San Juan, Puerto Rico – is credited with inventing the pina colada.
But the asset-light model responsible for its recent success was a competitor’s innovation. Marriott split itself in two in 1993, creating one company to manage hotels and another to own the properties. Nassetta led the property firm, Host Hotels & Resorts, as CEO from 2000 to 2007.
By that time, Hilton was flailing, marked by sluggish growth and corporate bloat. Blackstone bought the company in 2007 and installed him as CEO, just as the global economy was on the verge of collapse. In an oft-told story, Blackstone renegotiated with lenders, restructuring debt on favourable terms. Nassetta, meanwhile, sold off real estate, streamlined operations and focused on brands like Hampton Inn and Waldorf Astoria for growth.
Blackstone took Hilton public in 2013 and exited its stake five years later, netting a US$14 billion profit for the alternative asset manager. Hilton’s growth since that time has caused Blackstone’s Gray to jest that he sold too soon.
“Our biggest mistake, frankly, was selling our shares,” Gray quipped at a recent conference. “We should have stuck with it.” BLOOMBERG
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