Hilton Worldwide Rides Industry Strength to Global Expansion

Hilton Worldwide (HLT) is rapidly expanding its business globally, taking advantage of the strength in the lodging industry, the power of franchisees and possibly Marriott's (MAR) focus on its recent merger.

Hilton is working on expanding its presence in 91 countries, including Canada, the United Arab Emirates, Russia and China, with no risk to its capital, says Christopher Agnew, managing partner and senior analyst at MKM Partners.

"(Hilton) manage(s) and franchise(s) hotels, third parties build and own them," Agnew said. "This strategy helps them expand globally without risking their own capital."

Last month, Hilton said in a Twitter (TWTR) post that it signed franchise agreements for 29 new hotels to be built in Russia, in addition to the 21 Hilton hotels there now.

"Russia has been one of our main focus markets for several years," Hilton Global Head of Focused Service Brands Phil Cordell said in a recent statement.

However, the Russian expansion comes in wake of the country's 2015 deep recession when GDP fell by 4%, hurt by lower oil prices, international sanctions and structural limitations. The Central Bank of Russia expects 2016 GDP to decline by 0.5% to 1.0%., according to the CIA's World Factbook website.

Agnew said Hilton, and other lodging companies, sign 20 to 30-year managing and franchising contracts. So what may look like a declining area today, could turn around over time.

"Marriott also built Marriott Marquis in a 'failing' New York City right in the heart of Times Square which was a no-go zone," Agnew said. "They were criticized at the time but look very smart now." The New York Marriott Marquis opened in 1985.

The entire lodging industry is at a peak growth period and Hilton could be benefiting from the fact that other hotel companies, such as Marriott, are preoccupied with integrating newly acquired properties, said David Katz, managing director and senior research analyst at Telsey Advisory Group.

Marriott closed on its $13 billion acquisition of Starwood Hotels & Resorts Worldwide on Sept. 23 and has been working to merge the two companies' brands.

"I would suppose that MAR being tied up in a merger has played a small role in benefiting HLT," Katz said.

The entire lodging industry is being boosted by the rise of the upper and middle classes in emerging markets, according to Raymond James analyst Bill Crow.

"The increasing middle and upper classes at many faster growth (and) emerging markets is driving increased global travel," he said.

Shares of Hilton were up 0.46% to $25.19 in early afternoon trading.

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