Michael Prager
I think that what was missing from this article is that this is an absolutely great deal for Hilton. They sold the real estate of the WA but kept a 100-year management agreement on the hotel — so they don't lose it from the brand (they can't given that they have a whole fleet named after it). The economics however are compelling:
- They sold 1,415 keys for $1.95bn or $1,378m per key
- They acquired 2,983 keys (in five hotels) for $1,760 bn or $590,000 per key
- They have removed themselves from a major, major capital expenditure programme at the Waldorf in NYC and have no significant capital to spend on the new acquisitions
Now Orlando - and even San Francisco - does not have the real estate value that New York has but even so this is the brand getting out of property ownership, going asset light, as the City and Wall Street call it, reducing the income from the NYC hotel but at the same time massively reducing their exposure to capex and growing the brand by 1,500 rooms. All they need to do now is make the new acquisitions perform; they paid a hefty price at 13* earnings for the new properties but they're still left with a few bob, about $100m, to make another acquisition. They didn't talk about the earnings multiple that $1.95 bn represents on the WA NYC as the capex required to fix it — a lot - would have distorted that I suspect
Admittedly there are about ten million other pertinent details but the headline economics are what drove this deal, more than consumer trends you can be sure.