While Hilton deserves a premium due to its leading position and management, the market has prices it in.

1. 1
Levent Yilmaz, 3 January, 2017
Hilton Fully valued
12 Month Share Price target: $26.74; Current Share Price: $27.2
Hilton is a leading global hospitality company, spanning the lodging sector from luxury and full-service
hotels and resorts to extended-stay suites and focused service hotels. The company’s portfolio includes
thirteen world-class global brands, 789,000 rooms1
, 4,820 Hotels2
in 104 Countries and Territories.
Hilton is a high quality lodging company with leading brands and healthy growth rates.
Hilton has a resilient fee driven model and it is diversified across geographies and chain scales.
1
Figures include timeshare properties.
2
Figures include timeshare properties.

2. 2
Levent Yilmaz, 3 January, 2017
Its balance sheet and cash flow profile is improving.
But a slowing international RevPAR3
growth environment could hurt Hilton’s earnings growth.
3
RevPAR (Revenue Per Available Room) is the total guest room revenue divided by the total number of available rooms.
RevPAR differs from ADR because RevPAR is affected by the amount of unoccupied available rooms, while ADR shows only the
average rate of rooms actually sold. Occupancy x ADR = RevPAR –– A RevPAR (Yield) Index measures a hotel’s fair market share
of their segment’s (competitive set, market, submarket, etc.) revenue per available room. If a hotel is capturing its fair market
share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing
more than its fair market share, a hotel’s index will be greater than 100. RevPAR Index is calculated: (Hotel RevPAR / Segment
RevPAR) x 100 = RevPAR Index; Fair share can be thought of as the subject hotel’s “piece of the pie” in the market. For example,
if the subject hotel’s RevPAR is $50 and the RevPAR of its competitive set is $50, the subject hotel’s index would total 100. If the
subject hotel’s RevPAR totaled $60, its index would be 120, which indicates that the subject hotel has captured more than its
fair share. Occupancy (Occ) is the percentage of available rooms that were sold during a specified period of time. Occupancy =
Rooms Sold / Rooms Available; (Average Daily Rate) ADR = Room Revenue / Rooms Sold

3. 3
Levent Yilmaz, 3 January, 2017
Economic slowdown and security threats are impacting its business in Europe. Increased supply growth
in the upscale and upper midscale chain scales could impact fee growth.
The US business is picking up in anticipation of tax cuts, reduction of regulatory burden and
infrastructure spending. Multiples in the sector have therefore expanded. But one needs to wait for
actual implementation of policies.
If we assume multiples for Park Hotels, Hilton Grand Vacations and Hilton "RemainCo" at the top of their
respective peer groups, Hilton could reach a value per share of $26.74.
Hilton Sum-of-the-Parts Valuation
($ in millions, except per share data)
2018E Multiple (x) Value
Ownership EBITDA $1,033 10.5 $10,847
Management and Franchise Fees EBITDA $2,073 11 $22,803
Timeshare EBITDA $415 7.5 $3,113
Corporate and Other -$261 10.4 -$2,714
Total EBITDA $3,260 10.4 $34,048
Less: 2018E Net Debt -$7,549
Equity Value $26,499
Shares outstanding (mm) 991
Equity Value Per Share 26.74
While Hilton’s share price has outperformed S&P 500 in the 2H 2016, the S&P 500 is not cheap
currently and a likely price correction is likely to hurt Hilton’s share price as well.
-20.0%
-10.0%
0.0%
10.0%
0
20
40
60
80
100
Average revenue per available room (RevPAR) of the US
hotel industry in USD
Average revenue per available room (RevPAR) of the US hotel industry in USD
Change revenue per available room in the US lodging industry, PWC

4. 4
Levent Yilmaz, 3 January, 2017
©1999-2017 StockCharts.com All Rights Reserved
The forward 12-month P/E ratio for the S&P 500 is 17.0. This P/E ratio is based on today’s price (2254)
and forward 12-month EPS estimate ($132.79), according to Factset. 10-year average S&P 500 forward
12-month P/E ratio is 14.4. The forward 12-month P/E ratio for the S&P 500 Consumer Discretionary is
18.4 and the 10-year average 16.5, respectively. Hilton is trading at a multiple of 23.9x.
While it deserves a premium vs the peer group due to its financials and leading position, it is already
priced in.
On top of the current 300,000 rooms in the pipeline, Hilton can boost revenue growth in the future
through new brands e.g. a three-four star collection brand and the gradual increase in franchise fee
rates. The expected rise in cash returns to shareholders ($1bn to $1.5bn p.a. from around $278mn in
2016E) is an additional positive.
EV/EBITDA P/ERatio PEG Ratio 5 Yr EPS Price/book Price/Cash flow Efficiency Gross margin Net profit interest Total debt to
23-Dec-16 2017E next year next year Growth % MRQ TTM ROI (TTM) (TTM) margin (TTM) coverage (TTM) capital (MRQ)
Hilton Worldwide Holdings 12.3 27.45 2.01 23.63 4.16 12.07 6.69 62.08 13.47 3.31 0.6157
Marriott International 12.7 21.06 1.81 23.88 5.62 37.87 6.58 14.84 4.82 9.64 0.6017
Wyndham Worldwide 12.06 1.37 17.54 10.5 9.92 7.56 50.94 10.55 7.92 0.8724
Hyatt Hotels Corporation 36.6 -6 21.82 1.89 13.65 2.98 21.7 4.49 37.63 0.2723
InterContinental Hotels 12.3 7.45
Choice Hotels International (CHH)14.2 4.76
China Lodging Group 25.68 3.47 31.41
Extended Stay America Inc STAY9.5 35.81

5. 5
Levent Yilmaz, 3 January, 2017
Executing on the China growth strategy is important. China is the largest outbound market in the world
and it is growing strongly. Hilton thinks it is on a good path, particularly with its Plateno relationship as
well as some others and its new relationship that they're building with HNA.

6. 6
Levent Yilmaz, 3 January, 2017
India offers also a lot of potential given low hotel penetration and healthy growth rates. Hilton is well
positioned to profit from its strong brand, technology and management. But Trump’s protection/trade
war policies, if implemented, could impact growth ambitions in China.
Hilton introduced a three year outlook for the company in December. If we assume RevPar growth of 1%
to 3% and annual unit growth of 6%, Hilton estimates it can generate annual EBITDA growth of 5% to 8%
and annual EPS growth of 14% to 23% from 2017-2019.
Hilton could return $3.0bn to $4.5bn to shareholders over the three years, with dividends representing
15%-20% of payouts and repurchases representing 80%-85%.
SAME STORE NET UNIT FEE RATE
GROWTH IN RevPAR Net Unit Growth Effective Franchise
(CAGR) (+1 to 3%) (+6%) Rate
Adj. EBITDA Sensitivity 1 Pt. = around $20.25MM 10K rooms = 5 bps = around $8-10MM
around 20MM
steady-state
Corporate & Other around 3% CAGR
Adj. EBITDA 5 to 8% CAGR
Free cash flow 12 to 15% CAGR
Reduction of shares 4 to 8% CAGR
Three year model summary

7. 7
Levent Yilmaz, 3 January, 2017
Franchise fee rate step-up could add $125mn annual EBITDA. Hilton’s current realized franchise rate is
4.8% and is gradually moving up to the published 5.5%. As Hilton’s system grows, franchise rates could
continue to move higher.
The new Hilton is a market-leading, resilient, fee-based business. Lower volatility with 90% of adj.
EBITDA from fees, 90% revenue driven. 70% of total fees franchise driven. Capital efficient growth. 6.5%
managed and franchised net unit growth (2016E).
Operating upside in a simplified model: 1% of system-wide RevPAR growth likely to lead to $20mm -
$25mm annual Adj. EBITDA.
Meaningful, growing and resilient pipeline – 300k room pipeline – round $640mm annual adj. EBITDA.

8. 8
Levent Yilmaz, 3 January, 2017
Increasing franchise fees as contracts roll over at higher published rates: 4.8% in-place vs. 5.5%
published rate -> $125mm annual adj. EBITDA.
Meaningful capital return potential: $3.0 billion to $4.5 billion of potential capital return 2017E-19E, 13%
to 21% shares outstanding repurchased.

9. 9
Levent Yilmaz, 3 January, 2017
Hilton has the 13 best brands in the business, because they've got the highest average market share in
the business with a 14% RevPAR premium. Every one of their brands is a leader in its segment.
The value drivers to generate free cash flow are:
1. Same store growth. One point in system wide RevPAR growth is $20mn to $25mn in EBITDA growth.
2. New unit growth. The 300,000 room pipeline is worth $640mn, and every 10,000 room means $20
million more EBITDA growth.
3. Opportunity to increase franchise fees moving from the current 4.8 to a published rate of 5.5. This
would mean $125mn. Every five basis points is another $8mn to $10mn.
90% of Hilton’s EBITDA is going to be fee driven, and of that, 90% is going to be driven by top line base
management and incentive fees. Incentive fees are 10% of its fee segment and 85% of that 10% is from
international style management agreements. All of its management agreements outside of the US work
in this way and its agreements with Park are going to work in this way too.
Same store RevPAR growth, combined with new unit growth combined with growth in their effective fee
rates and some of the other fees that they charge out of the enterprise is the top line algorithm.
Combined with re-levering to its target leverage should yield significant amounts of capital to return to
shareholders.

10. 10
Levent Yilmaz, 3 January, 2017
Hilton has $1.25bn in liquidity available between its undrawn revolver and its unrestricted cash position
which they think is more than sufficient to run the business. It intends to maintain its dividend and
targets a payout ratio of 20% to 25% of recurring free cash flow.
Hilton expects to maintain net leverage in the range of 3 to 3.5 times net debt to adjusted EBITDA. Any
cash flow it generates in excess of that, Hilton intends to return to shareholders, likely though a
combination of programmatic and opportunistic stock buybacks.
Hilton is assuming net unit growth of 6% p.a. with about 160,000 net room additions over the course of
the three-year modeling period. Its cash taxes for 2017 is modelled at 25% of adjusted EBITDA. They are
keeping the weighted average cost of debt at 4.2%. Investment spending is modeled at $185mn p.a. for
this year and at $175mn to $185mn p.a. afterwards.

11. 11
Levent Yilmaz, 3 January, 2017
The free cash flow is modelled by the company at $2.6bn to $2.8bn p.a. and 3x to 3.5x leverage. That
would produce incremental issuance of net debt of between $400mn and $1.7bn over the three-year
period. That would mean a total of $3 billion to $4.5 billion of cash available to return to shareholders. If
you break that down between dividends, assuming its 20% to 25% of free cash flow target, 15% to 20%
of the return of capital would come in the form of dividends and 80% to 85% of the return of capital will
come in the form of programmatic and opportunistic stock buybacks.

12. 12
Levent Yilmaz, 3 January, 2017
Spin-Off
Hilton is spinning off the bulk of its owned real estate business (Park Hotels and Resorts) and its
timeshare business (Hilton Grand Vacations) to it shareholders. The record date for the spins is
December 15, 2016 and the distribution date for the spins is January 3, 2017. Hilton anticipates Park will
trade with the ticker “PK” while Hilton Grand Vacations will trade with the ticker “HGV.” Current Hilton
shareholders will receive 1 share of PK for every 5 shares of HLT and 1 share of HGV for every 10 shares
of HLT. Following the spin-offs, HLT will complete a 1-for-3 reverse stock split.

13. 13
Levent Yilmaz, 3 January, 2017
Park Hotels and Resorts (the REIT spin-off)
Park sees its current portfolio as well defended with a high discount to replacement value. Based on
EBITDA contribution, Park’s largest assets are in Hawaii, San Francisco, Orlando, New York, Chicago and
New Orleans. Many of these markets face limited supply growth. Park thinks that it faces competitive
supply growth of 2.2%, which is 50bps below its peer average. On top of that, many of these Hotels are
large Hotels in great locations Park estimates its discount to replacement cost in the range of 46% to
57%.

14. 14
Levent Yilmaz, 3 January, 2017
It is targeting large deals in luxury⁄upper upscale. Park is focusing on acquisitions over $250mn.
Park believes its Hotels are well capitalized. The portfolio spent an average of 9.4% of revenues on
capital expenditures over the past five years. It expects to spend 6% of revenues on capex going
forward.

15. 15
Levent Yilmaz, 3 January, 2017
Park has a target of 65% revenue flow through on gradual revenue throughout its portfolio. It is
targeting a payout ratio of 65% to 70% of FFO⁄Share, which compares to an average of 55% for the
REITS.
Hilton Grand Vacation (the timeshare spin-off)
Market share gains are driven new customers and timely additions of inventory. HGV has increased its
market share of vacation ownership interest sales from 5% to 12% since 2007. It has generated an 8%
sales growth during this time period while the industry have not yet recovered all of the sales lost during
the recession.

16. 16
Levent Yilmaz, 3 January, 2017
Its growth is due to a focus on adding new owners to its customer base and also adding well-time
attractive inventory.
HGV has focused its efforts on scale in key locations in the USA and Japan. HGV thinks this focus allows
them to efficiently allocate sales and take advantage of tourists to these markets. HGV has increased its
fee for service business to 58%. This compares with its nearest competitor at 8%. The fee for service
model allows it to secure inventory without using its balance sheet. Going forward, HGV aims to keep its
fee for service mix in the low 50% range.