Skift Take
Hilton signaled that hotel sector circumstances have shifted in a way that makes it more likely it would pivot from its 16-year strategy of creating brands and instead consider buying them.
Hilton executives said Wednesday that acquisitions are possible – a shift from the past 16 years when it has focused on creating new brands rather than buying up existing ones.
The comments came as rumors have surfaced that Hilton is in talks to acquire NoMad Hotels, a tiny brand of luxury lifestyle hotels, and Graduate Hotels, a collection of about 30 college-themed properties near universities.
Hilton, owner of 22 brands, such as DoubleTree and Waldorf Astoria, has invented brands like Tru and Spark to compete in key categories.
“The environment we’re in is a little bit different,” said Christopher Nassetta, Hilton president and CEO. “There is, for a lot of reasons, interest rates and otherwise, more stress in the system than normal, that probably presents more opportunity to do things like this. Things that are quite modest in my view and that are what I view as sort of tuck-in acquisitions.”
“The summary is we have no different attitude [toward mergers and acquisitions],” Nassetta said. “We continue to look at everything. But the stress in the environment maybe provides a little bit more opportunity than we’ve seen in quite a long time.”
Hilton Wants to Add a Luxury Lifestyle Hotel Brand
What kind of hotel group might most appeal to Hilton executives right now?
“We intend this year to enter [the luxury lifestyle] space one way or another, and we’re hard at work,” Nassetta said. “You should expect sometime this year — hopefully, sooner than later — to see us enter that space.”
“Luxury lifestyle” hotels ideally have a restaurant and bar that is acclaimed by locals, not just guests, without turning the property into a party hotel. The decor leans toward impractical but Instagrammable furniture and artworks that encourage guests to advocate for the properties on social media. Marriott has Edition and W brands in this space. Hyatt has Andaz.
Nassetta’s comments will fuel interest in a rumor, first reported by Bloomberg in November, that Hilton was considering acquiring NoMad Hotels from Sydell Group. (Sydell Group hasn’t since responded to Skift’s requests for comment. Hilton said it doesn’t comment on rumors.)
NoMad runs lifestyle luxury hotels in Las Vegas and London. However, the brand has been financially troubled, especially because of the pandemic. Sydell Group had to close two of its NoMad hotels in New York and Los Angeles.
Hilton executives need to weigh the trade-offs of an acquisition. Acquiring a brand like NoMad would speed up the pace at which it could enter a market. It is harder to develop a brand in the luxury lifestyle category that resonates with guests who want a distinctive, compelling set of services while also owners, who want a concept that’s straightforward and cost-effective to replicate and run.
Questions at hand include:
- Have NoMad Hotels’s founders, Ron Burkle and Andrew Zobler, cracked the code of luxury lifestyle hotels through trial and error since the first hotel opened in 2012?
- Is NoMad Hotels selling at enough of a discount to make it cheaper and faster for Hilton to buy it than to try to invent a competing product?
- Has Sydell mismanaged the NoMad rollout, partly because of the pandemic, to such an extent that its properties are more trouble than their worth?
- Hilton said in July it had begun “development work” internally on creating a luxury lifestyle brand. How has that progressed?
- Hilton’s lack of practice, having not acquired or absorbed an external brand in 16 years, also suggests it might face a learning curve if it eventually does buy one.
A Rumor About Graduate Hotels
Graduate Hotels is another brand being whispered about. Bloomberg reported Monday that Hilton was “in talks” about possibly acquiring the brand, which has more than 30 properties.
Three analysts Skift spoke to took the speculation with a grain of salt. They said Graduate Hotels doesn’t fit a category that Hilton executives have said publicly they feel is a priority.
Another obstacle: Graduate Hotels is owned by Adventurous Journeys (AJ) Capital Partners. This vertically integrated global real estate developer, owner, and operator has a stake in most of the Graduate Hotel properties. Hilton, whose business is a primarily asset-light model, would be unlikely to take on those assets.
It’s unclear why AJ Capital Partners would find having to pay management and other fees to Hilton for distributing and operating its rooms more attractive than its current business model. The nightly rates it’s charging in several markets appear high and competitive, and the pace of new property openings has remained strong. So, based on those metrics, it’s not obviously a distressed asset sale.
Yet perhaps AJ Capital Partners was trying to drum up interest in a deal. Expect the speculation frenzy to continue.
Hilton Is on a Hotel Development Hot Streak
In the fourth quarter, Hilton added 24,000 rooms to its system, which was a company record. That meant that for 2023, it had net unit growth of 4.9%, ahead of most of its similarly sized peers.
Net unit growth is a critical metric for investors. Large hotel groups rely on net room growth to bolster their revenue and margins. The benefits of each additional property to their management, franchise, or similar networks usually outweigh the marginal cost, and the margin growth tends to lead to a corresponding growth in bottom-line earnings.
Hilton’s hotel pipeline has also hit a record level for the company. It okayed 33,800 rooms for hotel development in the quarter, and it had 462,400 rooms in development as of December 31. About 30% of those are presently under construction or conversion.
Robust Quarter for Hilton
In the fourth quarter, Hilton generated a net income of $150 million from $1.145 billion in revenue (after subtracting revenue it must pass to its managed and franchised properties).
Hilton produced an adjusted EBITDA of $803 million for the fourth quarter and $3.1 billion for the full year.
Hilton added at least 7 million members to its loyalty program in the fourth quarter, bringing it to “more than 180 million.”
Accommodations Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.