Pershing Square: “Hilton (HLT) has Done an Excellent Job Navigating Industry Volatility”

Pershing Square Holdings, Ltd., an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. For the first half of 2021 and year-to-date through August 17, 2021, the Company’s NAV per share, including dividends, increased by 7.3% and 5.8%, respectively, and the Company’s share price increased by 4.7% and 2.0%, respectively, compared with the S&P 500 which returned 15.2% and 19.5% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Pershing Square Holdings, the fund mentioned Hilton Worldwide Holdings Inc. (NYSE: HLT) and discussed its stance on the firm. Hilton Worldwide Holdings Inc. is a McLean, Virginia-based hospitality company with a $37.7 billion market capitalization. HLT delivered a 21.89% return since the beginning of the year, while its 12-month returns are up by 58.94%. The stock closed at $136.55 per share on September 28, 2021.

Here is what Pershing Square Holdings has to say about Hilton Worldwide Holdings Inc. in its Q2 2021 investor letter:

“While the hotel industry has been extremely negatively impacted by the COVID-19 pandemic, Hilton has done an excellent job navigating industry volatility, a testament to the company’s high-quality, asset light, high-margin business model and superb management team. From the moment the pandemic began, Hilton’s management team took decisive actions to ensure the company not only managed through what it knew would be a challenging period, but also positioned the company to generate improved margins, cash fl ows and investment returns once the business recovers to pre-COVID-19 demand levels.

Industry RevPAR (the industry metric for same-store sales at a given hotel) bottomed in April 2020 and has shown sequential improvement every quarter as travel and mobility have recovered along with COVID-19 vaccine rollouts and a resumption in travel. In recent months, there is increasing evidence that a robust recovery scenario is underway, led by domestic leisure travel occasions which is currently trending above 2019 demand levels. For the fi rst three weeks of July, the most recent data the company provided, RevPAR has already recovered to 85% of 2019 levels – a signifi cant improvement over prior months driven by increased hotel occupancy and a rapid recovery in rate.

While management anticipates a moderation in leisure demand as we exit the summer, it expects the moderation in leisure travel to be off set by a more pronounced recovery in business transient travel occasions as offi ces reopen this fall. Although there remains near-term uncertainty in domestic travel given the increase in COVID-19 case numbers following the arrival of the Delta variant in the U.S., we believe that the medium-term outlook continues to point to a robust recovery scenario. Throughout the pandemic, Hilton took actions to reduce corporate expenses by about 20% compared to 2019 levels.
Simultaneously, the company provided resources and support to the Hilton owner community which further solidifi ed Hilton as the preferred franchise partner, thereby expanding Hilton’s pipeline of units around the world.

In the most recent quarter Hilton affi rmed its near-to-medium term outlook of mid-single-digit net unit growth, and a resumption of its historical 6-7% net unit growth beginning in 2023-2024, higher growth than competitors, and further evidence of Hilton’s unique business model.

We believe that Hilton will continue to grow its market share over time given independent hotels’ increased interest in seeking an affi liation with global brands, particularly in the wake of the pandemic. While the recovery may continue to be uneven, Hilton has made tremendous progress which will help it become an even more profi table and stronger business going forward.”


Based on our calculations, Hilton Worldwide Holdings Inc. (NYSE: HLT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HLT was in 45 hedge fund portfolios at the end of the first half of 2021, compared to 47 funds in the previous quarter. Hilton Worldwide Holdings Inc. (NYSE: HLT) delivered a 12.17% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.