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TableofContents
I. InvestmentThesisII. CompanyOverviewIII. InvestmentCatalystsIV. ValuaHonV. Conclusion
4
HiltonWorldwideHoldingsInc.(NYSE:HLT)AsofSeptember11,2015
RecommendaHon:Buy CurrentPrice:$25.59 PriceTarget:$33.41
Hiltonisanindustryleaderwithoneofthemostpowerfulbrandsinthelodgingindustry.Itsshi<tofocusonthefranchisemodelallowsthecompanytobelesscapitalintensiveandmaintainmorepredictablecashflows.Con?nuedRevPARgrowthwillallowHiltontomaintainconsistentgrowthandpaydownitsdebtbalance.
n Launchofitstwolifestyleanditsnewmid-scalebrandswillexpanditsalreadydiverseporUolio
n ShiVtocapitallightbusinessmodelsdrivesorganicgrowthwithminimumcapitalinvestment
n StrongcashflowanddisciplinecapitalallocaHonwillreturnsgreatervaluetoshareholders
n ManagementindicatespotenHalsharerepurchaseprogramandREITspin-offnextyear
CATALYSTS
RISKS
n CurrentDebt/EBITDAfiguresaresubstanHallyhigherthanthatofitspeers
n IncreaseduncertaintyinChina’sduetoitsslowinggrowthandunstablecurrency
n Sharedeconomybusinesses,suchasAirbnb,couldpotenHallytakeawaymarketshare
6
HiltonWorldwideHistoricalTimeline
Sources:Bloomberg,CompanyWebsite
HISTORICALOVERVIEW
1925
2007
2009
2009
ConradHiltonopensthehigh-riseDallasHilton,thefirsthoteltocarrytheHiltonname
TheBlackstoneGroupcompletes$26BnleveragedbuyoutofHiltonHotelsCorporaHoninthefallof2007attheheightoftherealestatebubble
ChristopherNassecatakesoverasPresidentandCEO,movingfromhisposiHonasChairmanandCEOofHostHotels&Resorts
ValueofBlackstone’sequityinHiltonhadfallenby70%orroughly$3.9Bn
2013 HiltonWorldwidereturnstotheNewYorkStockExchange,totradeundertheHckerHLT,inDecemberwithitsIPOpricingat$20pershare
7
HiltonWorldwideOverview
Source:CompanyFilings
COMPANYOVERVIEW INDUSTRYOVERVIEW
n OneofthelargesthotelcompaniesintheworldwithadiverseporUolioofworld-classbrandsconsisHngof4,400properHesand732,000roominnearly100countries
n Threebusinesssegments:n Management&Franchisen Ownershipn Timeshare
n ChristopherNasseta–President&CEOn JoinedHiltonin2007n 1995–2007:HostHotels&Resortsn 1991–1995:BaileyCapitalCorporaHon,Co-Founder
n HiltonHHonorLoyaltyProgramn 46MMmembersworldwiden 5MMappdownloadsn ApphashighestaveragecustomerraHngoutofpeers
n Businessandleisuretravelarethemajordriversofdemandinthehotel/motel/resortspace
n LargecompanieshavetheadvantageofeconomiesofscaleintheiroperaHonsaswellasstrongnamerecogniHon
n Roomsrevenueperavailableroom(RevPAR)growthisexpectedtoberemainverystrongin2016withesHmatesreaching7.3%
-20%
-15%
-10%
-5%
0%
5%
10%
RevPARGrowth(%)
15
20
25
30
35
Sep-15May-15Dec-14Aug-14Apr-14Dec-13
8
RecentPullbackProvidesaBuyingOpportunity
Source:Yahoo!Finance
PRICEPERFORMANCEFOLLOWINGIPO CAUSESOFPULLBACK
n Pullbackof[16.5%]fromhighof$31.10onApril9th
n April13th,2015:EvercoredowngradesHiltonfromaBuyraHngtoaHoldraHng
n Worriesofinterestratehikeshavecausedageneralsell-offinstocks,parHcularlyinlodgingstocks
n ConcernsforHiltonareexacerbatedbythesubstanHaldebtloadcurrentlyontheirbalancesheetasacarryoverfromtheBlackstoneLBO
7580859095100105110
Sep-15Aug-15Jul-15Jun-15May-15Apr-15
HLT MAR HOT H
10
GrowingDiversifiedPorUolioofHotels
Source:CompanyFilings,InvestorPresentaHonNote:(1)LTM6/30/2015
n 250,000roompipelineisthelargestinHilton’shistoryandtheindustrywith54%locatedinternaHonallyn Hilton’sroomunderconstrucHonmakeup20%of
roomsunderconstrucHonintheindustryn Entering32newcountries
n Launchofanewmid-scalebrandinmid-2016n 40%ofUSoverallroomdemandn Fragmentedmid-scalesegmentprovidesmeaningful
growthopportunityn Goalisasystemsizeofthousandsofhotels
78%
4%
9%2%7% US
AmericasNon-USEurope
MiddleEast&AfricaAsiaPacifics
29%
32%
35%
1%3% UpperMidscaleUpscale
UpperUpscaleOther
Luxury
LARGESTPIPELINEINTHEINDUSTRY
ADJUSTEDEBITDABYGEOGRAPHY CURRENTROOMSBYCHAINSCALE
n Launchoftwolifestylebrands–CanopyandCurio
n InvestmentinChina’srapidlyexpandingmiddleclass
n SecondlargestpipelineinChina
n 219Projects–64,672roomsindevelopment
n 53%-limitedservicehotelstargeHngmiddleclass
n HiltonexpectssigningsformidscaleproperHestoacceleratenextyear
11
ShiVtoanIncreasinglyCapitalLightBusinessModel
Source:CompanyFilingsNote:(1)LTM6/30/2015
n Third-partyownersanddeveloperprovidethecapitalfordevelopmentwhileHiltonactsasthesalesandmarkeHngagentandthepropertymanager
n Allroomsscheduledtobeopenincompany’spipelineexpandstheM&Fcapitallightmodel
n RecentlysoldtheWaldorfAstoriaNYandHiltonSydney
MANAGEMENT&FRANCHISEDRIVEVALUEWITHMINIMUMINVESTMENT
PIPELINETOEXPANDCAPITALLIGHTMODEL
34.9%
53.6%
11.5%
AdjustedEBITDAbySegment
Ownership
Mgmt.&Franchise
Timeshare
116 114 137 145315 329 360 368
749 828971 1078
$1,180 $1,271$1,468
$1,591
$0
$500
$1,000
$1,500
$2,000
2012 2013 2014 LTM6/30/2015
IncenHve BaseMgmt. Franchise
n M&FunitsareessenHally100%margin
n ExpandsHilton’sglobalfootprintwithlicletonocapitalinvestment
n IniHaltermsofmanagement&franchisecontractsfornewdevelopmentare20years,with5-10yearextensions,providingstablesourceofcashflow
n 70%ofM&Frevenuegeneratedbystablefranchisefees
n Hiltonalsosettoraisefeesforselectbrands
12
CommitmenttoReturningValuetoShareholders
Source:CompanyFilings,PWCResearchNote:(1)LTM6/30/2015
n Aggressivelyreducinglong-termdebtthroughvoluntaryincrementaldebtprepayment
n Debtloweredby$750MMthroughJuly,2015
n $1.1–1.3Bnfordebtrepaymentandshareholdersn Management’sgoalistoachieveinvestmentgrade
byyearendn ExpectsNetDebt/Adj.EBITDAof3.4ximplying
$200-400MMdebtreducHonfor2H2015
n IniHatedquarterlydividendof$0.07inQ2of2015n IntenttogrowdividendoverHmetargeHnga
payoutraHoof30%-40%ofrecurringcashflow
n AnHcipatesiniHaHonofsharerepurchasingprogramformid-year2016
10.5x8.9x
7.7x
5.2x4.1x 3.7x
0x
4x
8x
12x
2010 2011 2012 2013 2014 LTM6/30/2015
NetDebt/Adj.EBITDA
DISCIPLINEDCAPITALALLOCATION POTENTIALREITSPIN-OFF
n CompanyexpectedtoannounceatyearendthepotenHalspin-offofitsHmesharebusinessandthe100-plushotelsthatitowns,leases,orpartlyownsintoaRealEstateInvestmentTrust(REIT)structure
n REITbenefits:n Significantcorporatetaxsavingsn Tax-efficientstructurecanallowREITtotradeata
highermulHple,whichcanacractnewinvestorsn TwoenHHesthatcanfocusontheircorebusinesses
n However,thereareconsiderablerequirementsthatanenHtyhastomeettoqualifyasaREIT
Shareholders
PropCo–RealEstate
OpCo–operaHngbusiness
TotalDeleverage:6.8x
13
ThreatFromthe“SharingEconomy”RISEOFALTERNATIVEACCOMODATION
INDUSTRYRESPONSE HILTON-SPECIFICRESPONSE
n HotelchainshaveyettotakesubstanHalacHontocounter“threat”fromtheupstartlodgingservice
n Servefundamentallydifferentmarketsandoperateindissimilarspacesànorealeffectonpricingpower
n Hotels:Businesscustomerforbusinesspurposes
n AlternaHves:Casualleisuretraveler(80%oflisHngsarelocatedoutsideacity'scentraldistrict)
n LobbyingpushforlawsrequiringAirbnbproperHestoadheretothesamesafetystandardsandtaxlawsthathotelsdoàAmericanHotel&LodgingAssociaHon
29
22
14
25
0 10 20 30
Hilton
Marrioc
Starwood
AirBnB
94
79
100
190
0 50 100 150 200
Hilton
Marrioc
Starwood
AirBnB
715,062
714,765
354,200
1,000,000
0 200,000400,000600,000800,0001,000,0001,200,000
Hilton
Marrioc
Starwood
AirBnB
Value($B) #Rooms #Countries
n ModernizaHoniniHaHvestointegratemorecustomizaHonandefficiencyintothehotelexperience
n “SweetDreamsBed,”newsocialseaHngareas
n “MadeMarket”grab-and-go,eaHngestablishmentsthatcelebratelocalcultureandcuisine
n HiltonHHonorsMembers
n “CareCulture”recogniHonofpersonalpreferences
n “HHonorsApp”:Digitalkey/straight-to-roomabiliHes
n eCheck-InàAddmoreguest-facingtechnology
15
ComparableUniverse
Source:Bloomberg
SELECTEDCOMPARABLEMETRICS
Company MarketCap($MM)
1-YrRevenueGrowth(%) P/ETTM(x) EV/TTM
EBITDA(x)EBITDAMargin
(%) NetMargin(%)
StarwoodHotels&ResortsWorldwide,Inc.(NYSE:HOT) 12,557 (2.2%) 22.6x 12.5x 19.5% 9.8%
HyajHotelsCorpora?on(NYSE:H) 7,402 5.5% 70.9x 12.1x 15.5% 6.3%
MarriojInterna?onal,Inc.(NASDAQ:MAR) 19,412 7.9% 25.1x 16.2x 9.5% 5.9%
HiltonWorldwideHoldings,Inc.(NYSE:HLT) 25,269 7.9% 39.4x 14.2x 22.4% 5.9%
CompanyNumberofHotelRooms
AverageOccupancy(%) ADR($) RevPAR($) DividendYield
(%)NetDebt/EBITDA(x)
StarwoodHotels&ResortsWorldwide,Inc.(NYSE:HOT) 354,200 70.1% 175.64 123.08 2.08% 1.4x
HyajHotelsCorpora?on(NYSE:H) 151,105 76.2% 220.00 168.00 N/A 1.0x
MarriojInterna?onal,Inc.(NASDAQ:MAR) 714,765 73.7% 178.96 131.83 1.40% 2.6x
HiltonWorldwideHoldings,Inc.(NYSE:HLT) 715,062 74.6% 141.52 105.63 1.10% 4.2x
16
PriceTargetandSensiHvityAnalysisAsofSeptember11,2015
Source:Yahoo!Finance
BULL/BASE/BEARPRICETARGETS SENSITIVITYTABLES
15
25
35
45
Dec-15Jul-15Mar-15Oct-14May-14Dec-13
$41.24
$33.41
$22.68
BASECASE ValuePerShareTerminalEBITDAMultiple10.0x 11.0x 12.0x
Discount 6.9% $30.99 $34.26 $37.54Rate 7.4% $30.20 $33.41 $36.61(WACC) 7.9% $29.43 $32.57 $35.71
BULLCASE ValuePerShareTerminalEBITDAMultiple10.0x 11.0x 12.0x
Discount 6.9% $38.36 $42.25 $46.15Rate 7.4% $37.43 $41.24 $45.05(WACC) 7.9% $36.51 $40.25 $43.99
BEARCASE ValuePerShareTerminalEBITDAMultiple10.0x 11.0x 12.0x
Discount 6.9% $20.89 $23.32 $25.75Rate 7.4% $20.30 $22.68 $25.06(WACC) 7.9% $19.73 $22.06 $24.39
18
ClosingThoughts
n AVersignificantresearchintoHiltonWorldwideHoldingsInc.(NYSE:HLT),webelievethatHiltonisundervalueddespitestrongunderlyingfundamentalsandaseriesofinternalini?a?vespoisedtopromotefuturegrowthandanulHmatereducHonindebt
n HiltonisvicHmofarecentsell-offinlodgingstocksduetolargelyunsupportedspeculaHonregardinginterestratehikes
n WhilethecompanymaycurrentlyhaveasubstanHaldebt-load,managementhasiniHatedanaggressive,voluntaryplanofincrementaldebtpaymentsinordertocleanupthebalancesheet
n ManagementisalsosupporHveofreturningcashtoshareholdersthroughanewquarterlydividendandfuturesharerepurchasingprogramformid-year2016
n Thecompanyislookingtoexpanduponitsalreadyindustry-leadingdiversifica?on,includingthroughthelaunchofanewmid-scalebrandinmid-2016thatwilltargetasubstanHalporHonofthemodernhospitalitymarket
n AconsideredREITand/or?mesharespin-offprogramwillenableHiltontofurtherreturnvaluetoshareholders
n AnewpipelinetodevelopaM&FcapitallightmodelwillallowHiltontocon?nuetoexpandanddeliverthequalityhospitalityexperiencethatcustomershavecometoexpectwhileenablingthecompanytoavoiddevelopmentalcosts
n Allroomsscheduledtobeopenincompany’spipelineexpandtheM&Fcapitallightmodel
n AlthoughtherewillbeconHnuedpressurefromtheriseof“SharedEconomy”hospitalityplaUorms,thecorrelaHonbetweenalternaHveaccommodaHonandthetradiHonalhotelmarketislargelyoverblowninthepresent?me
n Thehotelindustryasawholeexperiencedarecordyearwiththecon?nuedup?ckininboundtravelfromallmarketsàThetwomarketscatertodifferentsortsofcustomerslookingforadifferenttypeoftravelexperience
n Hiltonhaspromisedtoexploreallpossiblestructuralop?onsinordertofurtherpromoteitsgrowingbusiness
n Increasedfocusonrevampingthelodgingexperiencetoprovidetravelerswithamorecustomizableandtechnologicallyefficientprocess
POST-DILIGENCEOPINION