Adjusted EBITDA by segment and geography
Although the Ownership segment generates the highest percentage of Hilton’s (HLT) total revenue, the Management and Franchise segment generates the highest adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA). For the segment, EBITDA is equal to revenue.
Hilton doesn’t bear any operating expenses that are directly related to these properties. All of Hilton’s expenses are reimbursed by the owner. In the last 12 months (or LTM) ending June 30, 2014, ~52% of Hilton’s total adjusted EBITDA was generated from the Management and Franchise segment, 36% from the Ownership segment, and 12% from the Timeshare segment.
Looking at the geographic breakdown of EBITDA for the same period, 78% of the adjusted EBITDA comes from the U.S. region, 9% from Europe, 7% from Asia Pacific, 4% from the Americas—excluding the U.S., and 2% from the Middle East and Africa.
Adjusted EBITDA growth
Hilton’s adjusted EBITDA has grown at a compound annual growth rate (or CAGR) of 13%. It grew from $1,564 million in fiscal year 2010 to $2,368 million during the LTM ending June 30, 2014. Adjusted EBITDA excludes gains, losses, and expenses related to asset sale, foreign currency transactions, debt restructuring, non-cash impairment losses, reorganization costs, and share-based and other compensation expenses.
Adjusted EBITDA margin
Hilton’s adjusted margin improved from 19.4% in fiscal year 2010 to 22.7% in fiscal year 2013. It’s the highest among its peers including Starwood’s (or HOT) 20.6%, Marriott’s (MAR) 10.4%, Wyndham’s (WYN) 22.6%, and Hyatt’s (H) 16.3%. Most of these shares are part of the Consumer Discretionary Select Sector SPDR Fund (XLY).
Under the Management and Franchise segment, the EBITDA margin is 100%. EBITDA is equal to revenue for this segment. Margin from the Timeshare segment—26.8%—is higher than the margin of the ownership business—22.7%.
In the next part of the series, we’ll discuss how Hilton achieves growth in the Management and Franchise segment and Timeshare segment with minimum capital.