There is no question owning real estate is key to turning around a brand. Owning over $15 billion in real estate also helped Hilton successfully turn its brand around by investing in renovations in New York, San Francisco, Chicago, Honolulu and other markets at the same time. Hilton was a brick and mortar real estate company that acquired Promus in 1999 and diversified its cash flows through franchising. Hilton developed and owned the first Hilton Garden Inn and scaled the brand by franchising thereafter.
A lot has changed since those formative years. Over the past decade Hilton has sold off most of its real estate, in a combination of one-off asset sales and then a REIT. Today under 10% of Hilton’s EBITDA comes from owned and leased properties.
It has now become an orthodoxy or widely held belief, at least in North America and the U.K., that the “asset-light” branded hotel management company is the superior business model. To be fair, there are a number of complex tax and legal considerations that encourage North American based brands to sell off their real estate as well as efficient markets for REITS and PE funds to own these assets. Therefore, U.S. equity markets generally reward brands for generating returns on invested capital (ROIC), at least over long periods of time and punish those with aging assets, deferred maintenance capital and leases on their balance sheet.