Earlier today, Hilton announced the latest addition to its award-winning family of brands. This new apartment-style extended-stay brand, with a working title of Project H3, will offer its signature hospitality with accommodations designed for long-stay guests who typically book 20 or more nights.
Stories from Hilton caught up with Kevin Jacobs, CFO and president, global development, Hilton, to learn more about why the latest edition to Hilton’s portfolio is an exciting proposition for hotel owners and developers and how it will help drive the company’s network effect to deliver industry-leading performance.
How did Hilton decide to develop this new extended-stay brand?
Hilton is constantly evaluating the market in partnership with our hotel owners and guests to identify unmet demands in the industry. With this new brand, we are tapping into the rapidly expanding $300 billion workforce travel market, which is led by the long-stay guest who never stopped traveling, even throughout the pandemic. Hilton has not had a tailored option for these guests, and in partnership with our hotel ownership community, we spent months researching the needs of extended-stay travelers to build a brand that meets their needs, as well as those of our developer and owner community.
What about a midscale extended-stay brand is attractive to hotel owners and developers?
Throughout the entire process, input and real-time feedback from hotel owners and developers, along with that of long-stay guests, helped determine which elements are the most important for these properties.
The Project H3 prototype dedicates the majority of its footprint to apartment-style guest rooms, reducing overhead costs for property owners. Additionally, our best-in-class commercial engine provides owners with operating tools and resources for revenue management, sales support, and staffing to help drive efficiencies, while automated customer offerings like digital check-in and Hilton’s Digital Key enhance guest experiences and create efficiencies for team members.
I recently had the chance to sit down with one of our long-time hotel owners, Mit Shah, founder and CEO, Noble Investment Group, to discuss in more detail the opportunity presented by this new extended-stay brand. Mit shared that he’s excited about the thoughtful development of this brand, providing hotel owners with an efficient and consistent product while aligning with Hilton’s ethos and backed by our commercial engine.
The launch of this new extended-stay brand comes on the heels of several exciting development milestones for Hilton – notably surpassing 7,000 hotels globally in 2022 and the launch of Spark by Hilton earlier this year. How do you expect this new brand to contribute to Hilton’s overall growth?
Hilton has seen strong growth over the past few years, organically increasing our customer base and broadening our chain scale diversity. We now have more than 2,900 hotels in our global pipeline and more rooms under construction around the world than any other hotel company. Project H3 and Spark by Hilton represent incremental growth opportunities for our portfolio beyond the strong pipeline already in place.
We built Project H3 with extensive input from hotel owners and developers, so we’re not surprised by the strong interest. We already have more than 100 active development conversations for this new brand across the U.S., with many hotel owners expressing interest in multiple locations. We expect that Project H3 will start contributing to our net unit growth (NUG) in 2024.
Speaking of new brands – this is the second brand launched this year. Why does Hilton choose to build new brands versus seeking acquisition opportunities?
Hilton is always evaluating the needs of our guests and owners to ensure we are offering the very best brands and the services that travelers expect. We are focused on introducing new, high-quality brands at the appropriate time with the right positioning, allowing us – and our hotel ownership and developer partners – to serve travelers and capture new demand. In the case of Project H3 and Spark by Hilton, we are building brands that extend our portfolio into new areas where there is demand for the reliability and consistency that Hilton can offer. We strive to be the top choice for this community as they grow their profiles, and our in-house developed brands allow us to deliver industry-leading premiums.
Our teams are incredible at building brands – we have successfully and strategically more than doubled our brand portfolio in the last 15 years, creating a range of brands across segments and price points. When it comes to acquisitions, we review opportunities through both a financial and strategic lens, but we just haven’t seen anything that makes sense for us.
Given current macroeconomic uncertainty, why is now the right time to launch new brands?
While capital is more expensive right now and the lending environment is changing, we have built this new brand for the long-term, and we expect supply to ultimately grow to more than 1,000 hotels. That’s the same for our hotel owners and developers who are investing in brands like Project H3 for the long-term. While the short-term environment is uncertain, our brands and business are ready to withstand changing macroenvironments, just as we have time and time again.
Project H3 offers great potential for high margins and with its long-stay operating efficiencies, such as fewer check-ins and check-outs, and no restaurant or hot breakfast to manage given the quality in-room cooking facilities that will be available to guests. In working closely with our developers, we are confident this product presents an attractive offering, especially at this moment in the hotel development cycle.