Q4 2016 Real-Time Call Brief

Highlights

When adjusting for calendar shifts and other one-time items, system-wide RevPAR growth was essentially 1.5% to 2% throughout the year, led by group and leisure in the 2% to 3% range and business transient at around 1%.

Group position for the full year is up slightly versus 2016, with approximately 75% of the business on the books.

Additionally both group ADR and corporate negotiated rates are up 2% to 3% versus 2016.

With construction financing slightly more expensive and marginally harder to get in 2016 only top projects with strong brands got done, keeping industry supply growth below the thirty year average at just shy of 1.6%.

We maintained our position as the fastest growing global hospitality company on an organic basis, increasing our system size by 6.6%, with 52,000 gross rooms opened.

We opened roughly one property per day in 2016 and started construction on nearly 77,000 rooms.

We signed a record 106,000 rooms, bringing our pipeline to 310,000 rooms with over half of that pipeline under construction.

Globally more than one in five hotel rooms under construction are being developed as a Hilton brand which is 4.5 times our existing share of global rooms.

New brands now represent nearly 800 hotels and 90,000 rooms that are either opened or in our pipeline.

Home2 recently opened its 135th property with another 350 in the pipeline.

Tru by Hilton just celebrated its first birthday with nearly 400 hotels representing 37,000 rooms in various stages of development.

According to Star two represents over a quarter of the U.S. industries mid scale pipeline and accounted for 65% of the total growth in the U.S. mid scale pipeline in 2016.

We're on track to open our first Tru hotel in the second quarter and expect to have nearly 1,000 rooms opened by the end of the year.

In 2016 we expanded our system footprint across five new countries for a total of 104 countries and territories.

For the full year 2017, we expect net unit growth of 50,000 to 55,000 rooms were approximately 6.5% system growth supported almost entirely by third party capital.

We also forecast another year of robust signings totaling over 100,000 rooms.

Hilton HHonors added 9 million members last year, bringing total membership to over 60 million members.

For the full year, HHonors membership 56% of system occupancy representing a year-over-year increase of nearly 400 basis points.

Our digital channels including website and mobile bookings continue to outpace other channels and share growth up more than 200 basis points year-over-year.

In the quarter, web-direct as a share of all bookings was nearly 30%.

For the full year system-wide RevPAR grew 1.8% near the high end of our expectations with rate gains driving performance.

Adjusted EBITDA of $2.975 billion was in line with the midpoint of our guidance range, supported by roughly a 100 basis points of margin expansion.

Diluted EPS adjusted for special items was $2.68.

Before adjusting for the reverse stock split, diluted EPS was $0.89.

In the fourth quarter system-wide RevPAR grew 0.9% versus prior year, which was at the high end of our guidance.

Good cost control at the corporate level, somewhat tempered by softer than expected ownership margins drove adjusted EBITDA of $751 million, achieving the midpoint of guidance.

In the quarter, we took a $513 million non-cash tax charge, related to a corporate restructuring that was executed before the spin-off.

Diluted EPS adjusted for special items was $0.70 in the fourth quarter, or $0.23, excluding the impact of the reverse split.

Calendar shifts challenging year-over-year comparisons and softer city-wides in key market were on demand, while rates increased in the low single-digit range.

In the quarter, management franchise fees grew 2% year-over-year to $436 million.

Excluding the unfavorable FX and other significant one-time items, fee growth in the quarter would have been approximately 360 basis points higher.

For the full year, management and franchise fees increased nearly 6%.

Turing to our regional performance and outlook, in the U.S. comparable RevPAR increased 80 basis points in the quarter.

Excluding the drag from oil and gas markets, we estimate U.S. RevPAR would've increased an incremental 60 basis points.

For the full year, RevPAR increased 1.8%, largely driven by good group and leisure transient business.

For full year '17, we forecast U.S. RevPAR growth towards the midpoint of our 1% to 3% system-wide range.

In the Americas outside the US, fourth quarter RevPAR grew 2.5% versus the prior year, due to strength in Canada where RevPAR increased more than 5% driven by solid group performance.

For the full year, RevPAR increased 4.2%.

RevPAR in Europe grew 2.2% in the quarter surpassing expectations due to solid leisure transient performance across the UK and Ireland during the holiday period.

Terror attacks and geopolitical instability continue to plague Turkey, where performance declined 16% versus the prior year.

For full year '16, RevPAR for the European region increased 1.1%.

For full year '17, we expect RevPAR growth to be at the mid-to-high end of our range.

RevPAR in the Middle East and Africa declined 5.7% in the quarter, driven by new supply in the UAE, coupled with lower demand levels.

In 2016, RevPAR in the region decreased 1.5%.

For RevPAR growth forecast is flat to slightly positive.

In the Asia-Pacific region, RevPAR increased 1.5% in the quarter, largely due to strength in China RevPAR growth in China increased approximately 5% during the quarter, driven by the China National Holiday Campaign and the China Winter Campaign which helps compensate for short falls from the recent implementation of nationwide service charges.

For the full year, RevPAR growth in the Asia-Pacific region increased 3.5%.

For full year '17, we expect RevPAR growth in the mid single-digits with RevPAR in China up in the 3% to 4% range.

During the quarter, we paid a quarterly cash dividend of $0.07 per share before adjusting for the reverse stock split, bringing our full year cash dividends to $277 million.

For the first quarter of 2017, we expect system-wide RevPAR growth to be 1% to 3%.

We expect adjusted EBITDA of $380 million to $400 million and diluted EPS adjusted for special items of $0.24 to $0.29.

We are maintaining our full year 2017 RevPAR guidance of 1% to 3% and expect adjusted EBITDA of $1.835 billion to $1.885 billion, including an FX headwind of approximately $30 million.

Taking in new account cash on hand and anticipated working capital needs, we expect to have between $900 million and $1 billion in cash available for capital return this year, through dividends, share buybacks and potential debt pre payments.

We expect diluted EPS adjusted for special items of $1.65 to $1.75.