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How Hilton’s Key Metrics Look ahead of 1Q17 Earnings

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Revenues per available room grows

A hotel’s operational efficiency is measured by its RevPAR (revenues per available room), which is calculated by dividing a hotel’s total guest room revenue by its room count. The two main factors that drive a hotel’s RevPAR are its occupancy rates and average daily rates (or ADR).

The good news for Hilton (HLT) is that its RevPAR is increasing. For 2016, Hilton’s RevPAR rose 2.0% in constant dollar terms and 1.2% in actual dollar terms to $107.65. All of this growth resulted from the 1.9% growth in ADR during the year, which increased to $140.62. Occupancy, on the other hand, remained flat at 75%.

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Strong pipeline

For the past ten years, Hilton has shown the highest room growth among major hotel chains including Marriott (MAR), Hyatt (H), Intercontinental Hotel Group (IHG), and Wyndham (WYN). Hilton’s rooms have risen 62% to 804,000 rooms without any acquisitions.

Hilton now has another 310,000 rooms in its development pipeline. This pipeline includes the 157,000 rooms under construction currently. Hilton’s current market share of the global room supply is 4.8%. Hilton expects this strong pipeline to create $8.9 billion in value.

2017 outlook

For both 1Q17 and the full year 2017, Hilton expects systemwide RevPAR to rise 1%–3% on a constant currency basis. This expected increase in RevPAR and the strong development pipeline bode well for Hilton’s future revenue growth, which we’ll discuss in our next article.

Hilton is a part of the First Trust US IPO ETF (FPX), an ETF that invests in the technology, automobile, hotel, and financial sectors. It invests ~1.8% of its holdings in Hilton stock.

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