Business Management Corporate Profiles
May 16, 2007
By: Eugene Gilligan, Senior Editor
How many hotel companies, regardless of size or stature, can open the equivalent of one new hotel every other day—for more than six years—and still consider the growth incomplete? Enter Hilton Hotels Corp., which has launched about 1,000 hotels since 2001. And yet the hotel giant’s growth had been limited to the United States, a small playing field in today’s global marketplace.
All that changed on Feb. 23, 2006, when Hilton Hotels Corp. acquired Hilton International—which it had spun off back in 1964—from Hilton Group Plc for just over $5.7 billion. During that 43-year stretch, Hilton Hotels owned the rights to use the brand name in the United States, and Hilton International possessed those rights for the rest of the world. According to Matt Hart, Hilton Hotels president & COO, the reunion of the two pieces presented his company with a “blank canvas” to expand its family of U.S. brands into Europe, Asia and the Middle East, regions where he sees a need for midscale branded hotels.
Hilton Hotels announced in March 2007 that it anticipates adding 1,000 new hotels in North America during the next five years and another 1,000 outside the continent within the next decade. About 10 percent of the almost 800 hotels currently in the development pipeline are outside North America.
“It has been fantastic,” Hart said of the acquisition of Hilton International, noting that the international arm’s profits have been 20 percent better than the company had projected to justify the acquisition. The deal has also produced intangible benefits. “Our people are excited that we are reunited,” he said. “We now have better tools to compete, and there’s a great opportunity to export our select-service midprice brands. Last year was a great year for us, and the future looks even better.”
Ratio in Reverse
The world’s inventory of hotel rooms differs from the United States’ supply in one key aspect, said Thomas Keltner, Hilton Hotels CEO of the Americas: In the United States, the ratio of branded to unbranded hotels is about 70 to 30, the reverse for those outside the country. “In India and China, we see the real potential to establish new-build hotels in the middle-market price range,” he said. “There are a good amount of luxury hotels and hotels where you spend $5 a night for a room, but there’s not a lot in between.”
Illustrating the need for more hotel product in Asia, Keltner noted that Orlando alone has more hotel rooms than all of India. Hilton Hotels foresees major international expansion opportunities for its Hilton Garden Inn, Hampton Inn and Doubletree brands in particular. Prior to June 2006, these brands had existed only in North America. The midscale Hampton Inn and Hilton Garden Inn brands represent the largest development opportunities because their footprints are economical and less complicated; the larger, full-service Doubletree is conducive to redevelopment.
And though Hilton Hotels, with its large U.S. presence, will be content for its expansion within the country to occur through small deals, the international growth of its midscale brands will take a different tack. “For (these) three brands, we want to build a mass presence in order to gain recognition (overseas),” Keltner said.
The company took two major steps in that direction in late 2006. In November, Hilton Hotels formed a joint venture with DLF Ltd. to develop and own 75 hotels and serviced apartments—encompassing Hiltons, Hilton Garden Inns, Homewood Suites by Hilton and Hilton Residences—in India within the next seven years. This initial stage of the partnership—in which Hilton will invest $143 million, before consideration of debt—will place 20 hotels in cities like Chandigarh, Chennai and Kolkata, many of them flying Hilton Garden Inn flags.
The company’s focus then shifted to China, as Hilton, along with RREEF—the real estate and infrastructure management arm of the Deutsche Bank Group—and private equity firm H&Q Asia Pacific announced an alliance to introduce more than 20 Hilton Garden Inns totaling approximately 5,000 rooms there. Hilton will advise on site selection, development, training, operations, support, brand management and marketing. Locations under consideration include Beijing, Shanghai and Tianjin.
Hilton Hotels spent most of 2006 readying for its global expansion—tripling its international development team and opening new offices in Moscow; Madrid; Vienna, Austria; and Frankfurt, Germany, with a focus on recruiting team members who have local market knowledge and are fluent in the local languages—said Ian Carter, CEO of international operations for Hilton Hotels. The company plans to develop its Doubletree, Hampton Inn and Hilton Garden Inn brands in the United Kingdom, Germany, Italy, Spain, Russia. Two Hilton Garden Inns are already open in Italy, along with one in Germany. The company also anticipates growth opportunities for these three brands in the United Arab Emirates and Australia, Carter said.
But these versions of the brands may look different from their American cousins. Hilton is developing a new international prototype for both Hampton Inn and Hilton Garden Inn. To capitalize on the strong recognition of the Hilton name, Hampton Inn will be known overseas as Hampton by Hilton and Doubletree as Doubletree by Hilton.
The differences may be most pronounced in the food-and-beverage hotel offerings. Hilton Hotels is still exploring restaurant options, but one possibility is for each Hilton Garden Inn in India and China to host a large freestanding restaurant that is visible to the public, as many of the host cities may not have many restaurant offerings, Keltner said. Or India-based Hilton Garden Inns could instead sport two restaurants per hotel, one offering Western fare and the other serving Indian food. Hilton Garden Inns in one of India’s tier-two cities could include banquet facilities, which are scarce in some cities.
Hilton Hotels’ brand managers have been traveling extensively in Asia and Europe, meeting with Carter’s international team and with external architects to adapt the brands for local markets. Regardless of any tweaks, “one thing is sure, though: You will know that you are staying in a Hilton Garden Inn or a Hampton,” Keltner said.
Balancing this need to maintain brand standards while accounting for the differences that each market presents is a key for successful expansion into new international markets, added Russell Kett, managing director for hospitality consulting firm HVS International’s London office. Indeed, according to Kett, one large hotel chain that he would not name ignored such differences when it expanded into the United Kingdom in the early 1970s, mandating that each hotel have an outdoor swimming pool, despite weather that frequently makes such an amenity unusable. The company also did not put coffeemakers in each room, which he called de rigueur for middle-market hotels there.
Hilton will not make the same mistakes, Kett said. “It is important that (Hilton Hotels) work with locally based developers that know the local market and can adapt the hotel to meet the needs of the area,” he noted. “They can’t settle for second best, and I don’t think they will. They’re a public company, and they are going to do things properly.”
Under One Roof
There is some irony that Hilton Hotels is just now embarking on a global expansion campaign. Founder Conrad Hilton became a pioneer in making foreign travel more comfortable for Americans when he expanded Hilton Hotels overseas, opening the first Hilton outside the continental United States—the Caribe Hilton San Juan in Puerto Rico—on Dec. 7, 1949, and its first European property—the Castellana Hilton in Madrid—on July 14, 1953. But the company spun off its international business to its shareholders in 1964. Hart credits Hilton Hotels co-chairman & CEO Stephen Bollenbach as “the mastermind” who made reuniting the two companies a major initiative after he took the reins in 1996. Hart revealed that deals to reunite Hilton Hotels and Hilton International had been close to fruition twice before but never came to pass.
A bit of luck played a part this time around. Hilton Group owned Ladbrokes Group Plc, a huge gambling business, and the board of directors wanted to spin off the lodging business but stay on the FTSE 100. That goal was realized in 2003, made possible by the growth of Ladbrokes’ online gambling business.
Before the split with Hilton Group, Hilton International had never really dabbled in midprice brands, Hart said. That leaves plenty of room for Hilton to launch brands in that tier. Carter also foresees development opportunities for Hilton’s upscale hotels, naming Asian resort locales and the Middle East as particular areas of interest. In March 2007, Hilton agreed to manage the luxury hotel Conrad Abu Dhabi, the company’s fourth property in the United Arab Emirates capital. And the company signed an agreement to manage the Conrad Koh Samui Resort and Spa, scheduled to open in Thailand in 2009.
The company also anticipates international expansion opportunities for the five-property Waldorf-Astoria Collection to capitalize on what Keltner called lodging’s “oldest brand of one.” It added its first international hotel to the collection when the Qasr Al Sharq in Jeddah, Saudi Arabia, opened in 2006.
Hilton also envisions opportunities for Embassy Suites Hotels and Homewood Suites, both all-suite products, in Mexico and Canada. A new Embassy Suites also recently opened in Mexico City. And he called Homewood Suites a recent “superperformer,” with strong recent growth. One Homewood Suites opened last month in Torreon, Mexico, and about 100 more are in the pipeline.
Soul of the Matter
Hilton Hotels’ enormous size and ambitious international expansion plans notwithstanding, the company can best be characterized as “a corporate entity that has the soul of an entrepreneur,” said John Belden, president & CEO of Davidson Hotel Co., which owns 15 hotels under the Doubletree, Embassy Suites, Hilton and Hilton Garden Inn brands, as well as properties under non-Hilton brands. Steve Mendell, executive vice president of acquisitions and development for HEI Hospitality L.L.C., an owner of Hiltons and Embassy Suites, among others, sounded a similar chord. “It is a very unbureaucratic company,” he said. “Decisionmaking is very streamlined, and I can get access to top management when I need it.”
Hilton’s overseas expansion will help a greater number of potential guests around the world become familiar with the Hilton brands, benefiting owners of U.S. Hilton hotels when international travelers visit the United States.
Mit Shah, CEO of Noble Investment Group, another owner, said his company’s international expansion will not be hasty, as it wants to know a market fully before establishing a presence there, but he sees Hilton’s increased international footprint providing a long-term benefit for his company to expand overseas. “Down the road, the fact that they have a greater international presence could provide opportunities for us,” he said.
Additional growth opportunities may materialize for the company, Hart said, noting that the company has increased development of its Hilton Grand Vacations Club timeshare properties and that the firm is always monitoring new possibilities. He noted that all-inclusive resorts may draw more attention from large hospitality companies.
But for now, Hilton Hotels has enough to keep itself busy. “We’re going to focus on what we’ve got, Hart said. “We don’t have a lot of time for extra stuff. We want to take advantage of the opportunities ahead of us.”
Hilton’s Handles
Brand Segment Number of Hotels/Rooms as of December 2006
Hilton Full-Service & Resorts 498/26,347
Hilton Garden Inn Midscale 302/41,669
Doubletree Full-Service 173/45,119
Embassy Suites Upscale All-Suite 185/445,172
Homewood Suites by Hilton All-Suite 197/21,141
Hampton Inn Midscale 1,392/138,487
Conrad Hotels & Resorts Luxury 15/5,152
The Waldorf-Astoria Collection Luxury 5/3,780*
*as of May 2007; Source: Hilton Hotels Corp.
Battleships Stay in Port
Like many publicly traded hotel companies, Hilton Hotels Corp. has increasingly derived a greater share of revenues from managing and franchising hotels than it has from owning them. The company owns about 60 of the 2,800 hotels it manages, although Matt Hart, Hilton Hotels president & COO, said the company is likely to sell most of those 60 properties within the next 24 months, though it will likely hold on to signature hotels like the Hilton New York and The Waldorf-Astoria, or what he termed the company’s “battleships.”
Owning does present some advantages, as managing a property without owning it can be complicated. In particular, after the sale of a large hotel, especially for a blockbuster price, the new owner will likely want to play a prominent decisionmaking role. “(In those cases), you lose some measure of control over a property,” Hart said. And selling—especially unloading multiple properties in a large, gateway city—requires at least a second thought, he said, explaining that such a presence “would be tough to reassemble.”
Moreover, owning some properties means that Hilton is better able to monitor talent and promote deserving employees. “It means we can promote the (food and beverage) manager at The Waldorf to manager of the New York Hilton,” Hart said. “It gives people the opportunity to build careers.”
By: Eugene Gilligan, Senior Editor
How many hotel companies, regardless of size or stature, can open the equivalent of one new hotel every other day—for more than six years—and still consider the growth incomplete? Enter Hilton Hotels Corp., which has launched about 1,000 hotels since 2001. And yet the hotel giant’s growth had been limited to the United States, a small playing field in today’s global marketplace.
All that changed on Feb. 23, 2006, when Hilton Hotels Corp. acquired Hilton International—which it had spun off back in 1964—from Hilton Group Plc for just over $5.7 billion. During that 43-year stretch, Hilton Hotels owned the rights to use the brand name in the United States, and Hilton International possessed those rights for the rest of the world. According to Matt Hart, Hilton Hotels president & COO, the reunion of the two pieces presented his company with a “blank canvas” to expand its family of U.S. brands into Europe, Asia and the Middle East, regions where he sees a need for midscale branded hotels.
Hilton Hotels announced in March 2007 that it anticipates adding 1,000 new hotels in North America during the next five years and another 1,000 outside the continent within the next decade. About 10 percent of the almost 800 hotels currently in the development pipeline are outside North America.
“It has been fantastic,” Hart said of the acquisition of Hilton International, noting that the international arm’s profits have been 20 percent better than the company had projected to justify the acquisition. The deal has also produced intangible benefits. “Our people are excited that we are reunited,” he said. “We now have better tools to compete, and there’s a great opportunity to export our select-service midprice brands. Last year was a great year for us, and the future looks even better.”
Ratio in Reverse
The world’s inventory of hotel rooms differs from the United States’ supply in one key aspect, said Thomas Keltner, Hilton Hotels CEO of the Americas: In the United States, the ratio of branded to unbranded hotels is about 70 to 30, the reverse for those outside the country. “In India and China, we see the real potential to establish new-build hotels in the middle-market price range,” he said. “There are a good amount of luxury hotels and hotels where you spend $5 a night for a room, but there’s not a lot in between.”
Illustrating the need for more hotel product in Asia, Keltner noted that Orlando alone has more hotel rooms than all of India. Hilton Hotels foresees major international expansion opportunities for its Hilton Garden Inn, Hampton Inn and Doubletree brands in particular. Prior to June 2006, these brands had existed only in North America. The midscale Hampton Inn and Hilton Garden Inn brands represent the largest development opportunities because their footprints are economical and less complicated; the larger, full-service Doubletree is conducive to redevelopment.
And though Hilton Hotels, with its large U.S. presence, will be content for its expansion within the country to occur through small deals, the international growth of its midscale brands will take a different tack. “For (these) three brands, we want to build a mass presence in order to gain recognition (overseas),” Keltner said.
The company took two major steps in that direction in late 2006. In November, Hilton Hotels formed a joint venture with DLF Ltd. to develop and own 75 hotels and serviced apartments—encompassing Hiltons, Hilton Garden Inns, Homewood Suites by Hilton and Hilton Residences—in India within the next seven years. This initial stage of the partnership—in which Hilton will invest $143 million, before consideration of debt—will place 20 hotels in cities like Chandigarh, Chennai and Kolkata, many of them flying Hilton Garden Inn flags.
The company’s focus then shifted to China, as Hilton, along with RREEF—the real estate and infrastructure management arm of the Deutsche Bank Group—and private equity firm H&Q Asia Pacific announced an alliance to introduce more than 20 Hilton Garden Inns totaling approximately 5,000 rooms there. Hilton will advise on site selection, development, training, operations, support, brand management and marketing. Locations under consideration include Beijing, Shanghai and Tianjin.
Hilton Hotels spent most of 2006 readying for its global expansion—tripling its international development team and opening new offices in Moscow; Madrid; Vienna, Austria; and Frankfurt, Germany, with a focus on recruiting team members who have local market knowledge and are fluent in the local languages—said Ian Carter, CEO of international operations for Hilton Hotels. The company plans to develop its Doubletree, Hampton Inn and Hilton Garden Inn brands in the United Kingdom, Germany, Italy, Spain, Russia. Two Hilton Garden Inns are already open in Italy, along with one in Germany. The company also anticipates growth opportunities for these three brands in the United Arab Emirates and Australia, Carter said.
But these versions of the brands may look different from their American cousins. Hilton is developing a new international prototype for both Hampton Inn and Hilton Garden Inn. To capitalize on the strong recognition of the Hilton name, Hampton Inn will be known overseas as Hampton by Hilton and Doubletree as Doubletree by Hilton.
The differences may be most pronounced in the food-and-beverage hotel offerings. Hilton Hotels is still exploring restaurant options, but one possibility is for each Hilton Garden Inn in India and China to host a large freestanding restaurant that is visible to the public, as many of the host cities may not have many restaurant offerings, Keltner said. Or India-based Hilton Garden Inns could instead sport two restaurants per hotel, one offering Western fare and the other serving Indian food. Hilton Garden Inns in one of India’s tier-two cities could include banquet facilities, which are scarce in some cities.
Hilton Hotels’ brand managers have been traveling extensively in Asia and Europe, meeting with Carter’s international team and with external architects to adapt the brands for local markets. Regardless of any tweaks, “one thing is sure, though: You will know that you are staying in a Hilton Garden Inn or a Hampton,” Keltner said.
Balancing this need to maintain brand standards while accounting for the differences that each market presents is a key for successful expansion into new international markets, added Russell Kett, managing director for hospitality consulting firm HVS International’s London office. Indeed, according to Kett, one large hotel chain that he would not name ignored such differences when it expanded into the United Kingdom in the early 1970s, mandating that each hotel have an outdoor swimming pool, despite weather that frequently makes such an amenity unusable. The company also did not put coffeemakers in each room, which he called de rigueur for middle-market hotels there.
Hilton will not make the same mistakes, Kett said. “It is important that (Hilton Hotels) work with locally based developers that know the local market and can adapt the hotel to meet the needs of the area,” he noted. “They can’t settle for second best, and I don’t think they will. They’re a public company, and they are going to do things properly.”
Under One Roof
There is some irony that Hilton Hotels is just now embarking on a global expansion campaign. Founder Conrad Hilton became a pioneer in making foreign travel more comfortable for Americans when he expanded Hilton Hotels overseas, opening the first Hilton outside the continental United States—the Caribe Hilton San Juan in Puerto Rico—on Dec. 7, 1949, and its first European property—the Castellana Hilton in Madrid—on July 14, 1953. But the company spun off its international business to its shareholders in 1964. Hart credits Hilton Hotels co-chairman & CEO Stephen Bollenbach as “the mastermind” who made reuniting the two companies a major initiative after he took the reins in 1996. Hart revealed that deals to reunite Hilton Hotels and Hilton International had been close to fruition twice before but never came to pass.
A bit of luck played a part this time around. Hilton Group owned Ladbrokes Group Plc, a huge gambling business, and the board of directors wanted to spin off the lodging business but stay on the FTSE 100. That goal was realized in 2003, made possible by the growth of Ladbrokes’ online gambling business.
Before the split with Hilton Group, Hilton International had never really dabbled in midprice brands, Hart said. That leaves plenty of room for Hilton to launch brands in that tier. Carter also foresees development opportunities for Hilton’s upscale hotels, naming Asian resort locales and the Middle East as particular areas of interest. In March 2007, Hilton agreed to manage the luxury hotel Conrad Abu Dhabi, the company’s fourth property in the United Arab Emirates capital. And the company signed an agreement to manage the Conrad Koh Samui Resort and Spa, scheduled to open in Thailand in 2009.
The company also anticipates international expansion opportunities for the five-property Waldorf-Astoria Collection to capitalize on what Keltner called lodging’s “oldest brand of one.” It added its first international hotel to the collection when the Qasr Al Sharq in Jeddah, Saudi Arabia, opened in 2006.
Hilton also envisions opportunities for Embassy Suites Hotels and Homewood Suites, both all-suite products, in Mexico and Canada. A new Embassy Suites also recently opened in Mexico City. And he called Homewood Suites a recent “superperformer,” with strong recent growth. One Homewood Suites opened last month in Torreon, Mexico, and about 100 more are in the pipeline.
Soul of the Matter
Hilton Hotels’ enormous size and ambitious international expansion plans notwithstanding, the company can best be characterized as “a corporate entity that has the soul of an entrepreneur,” said John Belden, president & CEO of Davidson Hotel Co., which owns 15 hotels under the Doubletree, Embassy Suites, Hilton and Hilton Garden Inn brands, as well as properties under non-Hilton brands. Steve Mendell, executive vice president of acquisitions and development for HEI Hospitality L.L.C., an owner of Hiltons and Embassy Suites, among others, sounded a similar chord. “It is a very unbureaucratic company,” he said. “Decisionmaking is very streamlined, and I can get access to top management when I need it.”
Hilton’s overseas expansion will help a greater number of potential guests around the world become familiar with the Hilton brands, benefiting owners of U.S. Hilton hotels when international travelers visit the United States.
Mit Shah, CEO of Noble Investment Group, another owner, said his company’s international expansion will not be hasty, as it wants to know a market fully before establishing a presence there, but he sees Hilton’s increased international footprint providing a long-term benefit for his company to expand overseas. “Down the road, the fact that they have a greater international presence could provide opportunities for us,” he said.
Additional growth opportunities may materialize for the company, Hart said, noting that the company has increased development of its Hilton Grand Vacations Club timeshare properties and that the firm is always monitoring new possibilities. He noted that all-inclusive resorts may draw more attention from large hospitality companies.
But for now, Hilton Hotels has enough to keep itself busy. “We’re going to focus on what we’ve got, Hart said. “We don’t have a lot of time for extra stuff. We want to take advantage of the opportunities ahead of us.”
Hilton’s Handles
Brand Segment Number of Hotels/Rooms as of December 2006
Hilton Full-Service & Resorts 498/26,347
Hilton Garden Inn Midscale 302/41,669
Doubletree Full-Service 173/45,119
Embassy Suites Upscale All-Suite 185/445,172
Homewood Suites by Hilton All-Suite 197/21,141
Hampton Inn Midscale 1,392/138,487
Conrad Hotels & Resorts Luxury 15/5,152
The Waldorf-Astoria Collection Luxury 5/3,780*
*as of May 2007; Source: Hilton Hotels Corp.
Battleships Stay in Port
Like many publicly traded hotel companies, Hilton Hotels Corp. has increasingly derived a greater share of revenues from managing and franchising hotels than it has from owning them. The company owns about 60 of the 2,800 hotels it manages, although Matt Hart, Hilton Hotels president & COO, said the company is likely to sell most of those 60 properties within the next 24 months, though it will likely hold on to signature hotels like the Hilton New York and The Waldorf-Astoria, or what he termed the company’s “battleships.”
Owning does present some advantages, as managing a property without owning it can be complicated. In particular, after the sale of a large hotel, especially for a blockbuster price, the new owner will likely want to play a prominent decisionmaking role. “(In those cases), you lose some measure of control over a property,” Hart said. And selling—especially unloading multiple properties in a large, gateway city—requires at least a second thought, he said, explaining that such a presence “would be tough to reassemble.”
Moreover, owning some properties means that Hilton is better able to monitor talent and promote deserving employees. “It means we can promote the (food and beverage) manager at The Waldorf to manager of the New York Hilton,” Hart said. “It gives people the opportunity to build careers.”
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