Apr 29, 2015
Executives
Christian Charnaux - Vice President, Investor Relations Chris Nassetta - President and CEO Kevin Jacobs - Executive Vice President and CFO
Analysts
Bill Crow - Raymond James & Associates Shaun Kelley - Bank of America Carlo Santarelli - Deutsche Bank Steven Kent - Goldman Sachs Harry Curtis - Nomura Vince Ciepiel - Cleveland Research Felicia Hendrix - Barclays David Loeb - Baird Joseph Greff - JP Morgan Smedes Rose - Citigroup Joel Simkins - Credit Suisse Thomas Allen - Morgan Stanley Rich Hightower - Evercore ISI Robin Farley - UBS Jeff Donnelly - Wells Fargo Wes Golladay - RBC Capital Markets
Operator
Good morning, ladies and gentlemen. My name is Sally, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Hilton Worldwide First Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Christian Charnaux, Vice President of Investor Relations.
Please go ahead, Mr. Charnaux.
Christian Charnaux
Thank you, Sally. Welcome to the Hilton Worldwide first quarter 2015 earnings call.
Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today are effective only as of today.
We undertake no obligation to publicly update or revise these statements. For discussion of some of the factors that could cause actual results to differ, please refer to our SEC filings.
In addition, we will refer to certain non-GAAP measures on this call. You can find reconciliations of non-GAAP to GAAP measures discussed in today’s call in our press release and SEC filings which have been provided on our website at www.hiltonworldwide.com.
This morning Chris Nassetta, our President and Chief Executive Officer will provide an overview of our first results and will describe the current operating environment, as well as the company's outlook for the remainder of 2015. Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then provide greater detail on our results and outlook.
Following their remarks we will be available to respond to your questions. With that, I'm pleased to turn the call over to Chris.
Chris Nassetta
Thank you, Christian. Good morning, everyone, and thanks for joining us today.
We are pleased to report a great start to the year with strong first quarter results driven by topline RevPAR growth near the high-end of our guidance and strong fee growth and ownership segment performance, all of that resulted in adjusted EBIT -- EBITDA exceeding our guidance. We continue to feel great about the fundamentals in our set up going forward in rate and have raised our guidance for the full year.
We grew system-wide comp RevPAR of 6.6% on a currency neutral basis in the quarter, exceeding comparable RevPAR growth in Q1 2014 by 1.2 percentage points. With the added impact of weather in the quarter of about 0.5 point worse than last year, underlying RevPAR performance this quarter was clearly stronger year-over-year.
Rate growth accounted for little more than half of system-wide RevPAR growth, while occupancy continues to show strength up 210 basis points to 71% in the first quarter. Positive demand trends in both the group and transient segments along with revenue management strategy targeting shoulder periods should continue to drive ongoing occupancy growth.
System-wide group revenue -- group room revenue rose 6.8% in the first quarter, supported by strong demand especially from small rooms and company meetings, performance was modestly ahead of system-wide transient growth of 6.3%, which benefited from strong U.S. corporate negotiated and rack rated business, increasing by 9% and nearly 10%, respectively.
In Group, we are seeing strong growth at the top end of the demand funnel with perspective Group business up significantly in the quarter year-over-year. We expect Group business strength will continue, particularly in the seasonally stronger second quarter, which is also showing solid growth.
Group position continued to track up in the mid-single digits for the full year. F&B revenue at system-wide owned and managed hotels grew in the mid-single digits in the quarter, great banquet and catering business, especially in the Americas and Europe coupled with robust outlet performance, particularly in Japan drove the majority of the gains.
As discussed last quarter, we are extremely pleased with the successful execution of the Waldorf Astoria New York sale and 1031 exchange. To complete the exchange, we plan to deploy the last portion of the Waldorf sale proceeds to acquire what is currently the Cypress Hotel in Cupertino, California for $112 million.
We expect to close on the transaction sometime in the second quarter. To recap, we sold the Waldorf at a multiple of 32 times adjusted EBITDA, retained 100-year management contract, obtained a commitment from the buyer to renovate the property and use the net proceeds to acquire high-quality assets and some of the fastest-growing and highest barrier to entry domestic market at an aggregate multiple of just over 13 times adjusted EBITDA, more than doubling the adjusted EBITDA contribution to the company.
Also in the real estate area this morning, we announced the sale of the Hilton Sydney, capitalizing on favorable market conditions to sell asset at attractive pricing in a tax efficient manner. The 442 million Aussie dollar sale price represents approximately 15 times adjusted EBITDA multiple and its subject to a 50-year management agreement.
Upon closing, we expect to use the proceeds of the sale, net of transaction costs to further deleverage the company through an incremental debt prepayment. On the development front we continue to see tremendous momentum.
During the first quarter we opened 53 hotels with more than 8,000 rooms. We approved more than 23,000 rooms globally, totaling our highest number of deals in the quarter this cycle.
Our 240,000 room pipeline is the largest in the business, according to Smith Travel and including all approved deals our pipeline stands at nearly 255,000 rooms. According to Smith Travel, we also maintain the largest share of rooms under construction globally, with nearly 20% -- with nearly a 20% share, representing more than 126,000 rooms.
We are thrilled with the continued success of our newest brands, Curio a collection by Hilton has been a homerun for us with nearly 40 properties and 11,000 rooms open or in various stages of development. We continue expanding into new urban and resort markets, and we are very excited by the brands international debut with several deals across Europe, including Istanbul, Hamburg, and the historic Astor Hotel in Paris.
We also signed agreements to add two Curio properties in Jamaica, which are slated to join the collection later this year and will mark the brands debut in the Caribbean. We also continue to see tremendous interest from owners in Canopy, our accessible lifestyle brand.
Canopy has a total of 15 hotels either in the pipeline or with signed letters of intent. Curio and Canopy are off to a great start and we continue to have great success in growing all of the brands in our portfolio.
Recently our Hampton and flagship Hilton brands each passed the 200,000 room milestone with another combined 100,000 rooms in the pipeline. DoubleTree by Hilton recently reached the 100,000 room milestone with another 40,000 rooms in the pipeline.
Additionally, just last week, we announced the first Hilton Garden Inn will open in Hawaii early next year, bringing the powerhouse brand to all 50 states and increasing its distribution to nearly 100,000 rooms globally. Now let me update you on our outlook around the world for the remainder of the year.
Overall, the fundamentals of the cycle remained strong. In the U.S.
where we generate nearly 80% of our adjusted EBITDA, we maintain our mid to high single-digit RevPAR growth forecast for the full year 2015, continuing demand growth driven by an improving economy, combined with historically low supply growth should continue to delivering solid fundamentals. New York is the notable exception where strong demand is being tempered by supply growth many times greater than the U.S.
average. For the Americas region outside the U.S., we anticipate mid single-digit RevPAr for the full year with positive momentum in Mexico, somewhat muted by weaker trends in Argentina and Brazil.
We maintained our mid single-digit RevPAR growth expectation for Europe, expecting mixed performance across the region, positive trends should continue throughout Germany, while Southern Europe should benefit from accelerating leisure demand. This will be tempered by anticipated economic and geopolitical challenges weighing on result in France and Eastern Europe, respectively.
For the Middle East, Africa region, we forecast mid single-digit RevPAR growth for the year, while improvements in Egypt appears sustainable, softening demand from Russia continues to be an overhang on fundamentals in the Arabian Peninsula. In Asia-Pacific, we continue to expect high single-digit RevPAR supported by robust demand in Japan, recovery in Thailand and positive momentum in Shanghai and Beijing.
The strength of these trends should more than offset modest weakness in Hong Kong and softening business transient demand in Singapore. We continue to forecast 6% to 8% RevPAR growth in China for the year, given our significant market share gains and market mix.
In closing we are very pleased with our performance in the first quarter and remained optimistic regarding fundamentals for the balance of the year and the foreseeable future. I believe that with our company’s unique attributes we are in excellent position to continue outperforming in a very favorable environment.
With that, I'm happy to turn the call over to Kevin, who will give you greater detail on our results and the outlook for the year rest of the year.
Kevin Jacobs
Thanks, Chris, and good morning, everyone. During the quarter, our RevPAR growth of 6.6% was driven by 3.5% increase in average rate and a 2.1 percentage point increase in occupancy.
In actual dollars system-wide RevPAR increased 4.6%. Diluted earnings per share totaled $0.15, an increase of 25% versus the prior year period.
After adjusting for special items EPS was $0.12, which was at the high end of our guidance. We exceeded our guidance for adjusted EBITDA by approximately $25 million, driven by topline and fee growth, as well as ownership segment performance.
We attribute roughly $15 million of the beat to favorable timing that will normalize over the balance of the year. Management and franchise fees were $391 million in the quarter, up 18% over the first quarter of 2014, driven by strong topline growth, new unit growth and a rising effective franchise rate, which increased 10 basis points to 4.7% versus the year ago period.
Additionally, incentive fees rose 16% on a currency neutral basis in the quarter. For the full year, we expect incentive fee growth in the high-teens adjusting for currency and some one-time items.
The ownership segment outperformed our expectations in the quarter, with particular strength in Chicago, San Francisco and Orlando driving great topline growth. Adjusted EBITDA for the quarter was $190 million, up approximately 9% versus the prior year, given better than expected group performance coupled with operating margin expansion of 130 basis points as lower cost boosted flow through.
Our timeshare adjusted EBITDA was $74 million in the quarter, a 10% decline versus the prior year period. Results met our expectations, given the accelerated timing of sales booked in the fourth quarter of 2014, partially offset by higher fee for service sales and improved sales efficiency.
We continue to expect timeshare adjusted EBITDA of $335 million to $350 million for the full-year. We continue to make progress on transitioning our timeshare business to a capital light business with 78% of intervals sold during the quarter developed by third parties.
We remain extremely pleased with the success of our fee for service deals, particularly the Grand Islander, which brought its four-month sales total to over $160 million, making it our best launch by a significant margin. Our current supply of timeshare includes approximately 128,000 intervals, or over five years of inventory at the current sales pace, over 80% of which is capital light.
We continue to expand our overall supply through capital light yields and are in discussions regarding several new capital efficient projects, which we expect to announce in the coming months. Finally, our corporate and other segment was $56 million for the quarter, which was in line with our expectations.
Moving on to regional results, strong performance across the globe contributed to our success this quarter. U.S.
RevPAR grew 6.5% versus the prior year period, driven by strong group businesses in our owned hotels and gateway cities, particularly Chicago and San Francisco. Overall performance was somewhat tempered, however, by severe weather which we estimate negatively affected RevPAR growth by 50 basis points in January and 300 basis points in February.
Overall for the quarter, weather negatively affected U.S. RevPAR growth by about a point.
In the Americas outside the U.S., RevPAR grew 6.7% for the quarter as strong results in Mexico more than offset challenges in Buenos Aires and São Paulo. In Europe, RevPAR increased 5.5% despite the first quarter being seasonally slow for the region.
Performance benefited from strong citywide business across Germany in group business in markets like Prague, Copenhagen and throughout Ireland. These positive trends offset weakness in France.
London had a difficult start to the year as well with lower in group -- lower-than-expected group business and soft transient demand. The Middle East and Africa region posted RevPAR gains of 5.4% for the quarter, driven primarily by double-digit growth in group business.
Gains were predominantly owing to great convention calendars in Dubai, Doha, and Mecca. Additionally, the region continues to get a boost from improvements in Egypt which are offsetting softness in the Arabian Peninsula as that area struggles with a reduction in Russian demand.
Finally, in our Asia Pacific region, RevPAR improved 10% year-over-year, driven by double-digit occupancy increases in Japan and Thailand and a RevPAR gain of 12% in China. We attribute outperformance in China to our exposure to faster growing markets, newer hotels ramping up and strong market share gains.
Turning to our balance sheet, as of March 31st, we had total cash and cash equivalents of $816 million, of which $216 million is restricted. During the quarter, we reduced long-term debt by $225 million, including $150 million voluntary prepayment on our term loan and $75 million in debt reduction from the Waldorf sale and 1031 exchange.
We ended the quarter at 3.9 times net debt to adjusted EBITDA and we prepaid an additional $100 million on our term loan this month, bringing total debt reduction year-to-date to $325 million. After completing the Hilton Sydney sale, we expect to prepay approximately $325 million of our term loan with the net proceeds and for the full year cash available for debt prepayments or capital return to stockholders should range from $1.1 billion to $1.3 billion.
Given our progress year-to-date, we remain well on our way to achieving our target leverage goals during the second half of the year. At that point, we intend to begin returning capital to stockholders, starting with the introduction of a dividend.
We intend to outline more specifics during our second quarter earnings call. Turning to guidance, as Chris mentioned, we had a strong start to the year, feel great about the fundamentals and as a result, have increased our full-year outlook.
Our systemwide RevPAR guidance is between 5% and 7% on a comparable currency neutral basis. We maintain ownership segment 2015 RevPAR growth guidance of 4% to 6% on a currency neutral basis.
We forecasted adjusted EBITDA to range from $2.81 billion to $2.87 billion for 2015, an increase of $10 million at the midpoint. The announced Hilton Sydney sale would reduce this range by $10 million to $14 million on closing.
As a reminder, our initial 2015 guidance had already assumed EBITDA contribution from the full deployment of proceeds from the Waldorf sale and 1031 exchange. We expect diluted EPS, adjusted for special items to be between $0.79 and $0.83 for the full year.
We expect management and franchise fee growth of 11% to 13% and are maintaining our net unit growth forecast of 40,000 to 45,000 rooms, representing 6% to 7% room growth in our management and franchise segment for the year. We expect the corporate and other segment to be roughly flat for 2015.
CapEx spending excluding timeshare inventory is forecast to remain approximately $350 million to $400 million, including about $265 million to $285 million in hotel CapEx, which represents roughly 6% of ownership revenue. For the second quarter of 2015, we expect systemwide RevPAR to increase between 5% and 7% on a currency neutral basis, driving management and franchise fee growth of 11% to 13%.
We expect second quarter adjusted EBITDA of between $740 million and $760 million and diluted EPS adjusted for special items of $0.21 to $0.23. Further detail on our first quarter results and updated guidance can be found in the earnings release we distributed earlier this morning.
This completes our prepared remarks. We would now like to open the line for any questions you may have.
In order to speak to as many of you as possible, we ask that you limit yourself to one question and one follow-up. Sally, could we have our first question please?
Operator
[Operator Instructions] Your first question comes from the line of Bill Crow with Raymond James & Associates. Your line is open.
Bill Crow
Good morning, guys. Nice start to 2015.
Chris Nassetta
Thank you, Bill.
Kevin Jacobs
Thanks.
Bill Crow
Chris, as of 6:59 this morning, I wanted to ask your opinion of something that occurred on the Pebblebrook call when Jon Bortz last week suggested that RevPAR growth could accelerate in the U.S. next year relative to 2015 levels.
But now as of 7 o’clock and with one of your peer's announcements, I've got to ask you about M&A and your thoughts about sector M&A, Hilton's potential appetite for participating in M&A, just kind of a broad, open-ended question here. Let me hear your thoughts on that?
Chris Nassetta
Yeah. Based on what I read in the press this morning, I figured somebody would ask me.
Bill, thank you for being the one to do it and being first. For obvious reasons, I’m not going to come on anything specifically that we might or might not be doing.
But in terms of broader thoughts on industry consolidation and our participation and I’m happy to talk about it. And I think you will find it is very consistent with everything I’ve said a thousand times over the last couple of years.
In terms of broader industry consolidation, I think when you get to this stage of the cycle, you typically see more of it generally. And so I've every expectation that over the next 12, 24 months, you’re going to see more of it.
And it will follow a typical pattern exactly who does what is impossible to know. We all have views.
I have views of who could do, could do -- be part of consolidating on and on what side but time will tell. But I do think, you'll see an uptick and what exactly our competitor that made that announcement this morning does is really hard to know.
I thought it was interesting, honestly, not particularly surprising when I read it. In terms of how we might participate in it, I think again consistent with what I’ve said, the way I look at the world is we’re in a really good place.
You could see our first quarter results are really good in every regard. In my opinion, topline margins, bottom line, new unit growth, our expectations for the year are quite strong.
We had a great year last year. We think we have everything we need to lead the industry in our regards, topline, bottomline and unit growth.
And I think we’re doing a pretty good job of proving that in terms of the results that we’re delivering since we’ve been public. And our objective obviously is to continue to do it and I think we will.
I think we have amazing opportunities with the brands that we have in our portfolio today and the opportunities we have to add to that portfolio brands to drive industry-leading organic net unit growth, which in my opinion is the best way to drive the highest value for all of our shareholders going forward. Having said that and consistent with everything I've ever said as a CEO, it would be silly to say we would never participate in M&A activity because you never know what opportunities might present themselves that could make a tremendous amount of sense.
And so I think we always want to remain open-minded. We think we have everything we need to deliver -- to continue to deliver industry-leading results.
But if there are opportunities over time that presented themselves that made it through the following two filters, we would have to be thoughtful about it and those two filters are the obvious ones. One, that whatever it is, is a thoughtful strategic fit in terms of, the meshing of whatever it might be with what we have and that the economic drivers are such that you could see significant value accretion as a result of whatever it might be.
And so if there are things that present themselves that they get to those big filters then obviously we’re going to be thoughtful about it. There is a lot of complexity to any of those things that might happen over time but we would be thoughtful.
But our primary job was I think were proving out is to grind it out and really drive industry-leading results with what we have. And I think we have a -- we have an amazing set up between the scale of what we have, the breadth and diversity of our geography, the breadth and diversity of our brands in terms of chain scale that give us a really unique advantage to be able to continue to grow at an accelerating pace.
Bill Crow
That's very helpful, Chris. Would you care to opine on the prospect or potential of a reversal in the second derivate of RevPAR growth in the U.S.
industrywide because of better group bookings and better performance at a couple of big markets that are laggards this year. Is that something…?
Chris Nassetta
I said it in my prepared comments and we are being thoughtful about making sure we give time for other questions. I think we feel good about what’s going on in RevPAR growth.
I think the best way to look at RevPAR growth is quarter-to-quarter or one year versus the next, verses last quarter because every quarter as you know in our business cycles through different group patterns and other things. When I look at it, I made the comment in my prepared comments for a reason because I’m trying to make the point that what we're seeing is acceleration.
On a comp basis, our first quarter this year picked up over our first quarter of last year, not insignificantly, particularly when factoring for somewhat worse weather patterns in ’15 and ’14. So, all I’m going to say is from a cycle point of view, I think the fundamentals are as good as I've ever seen them.
I know that everybody wants to debate it and I think that's fair because that is a really important point to understand. But from where I sit, having being doing this for 30 years in lots and lots of cycle, it's hard not to feel exceptionally good about what's going on in the sense that transient business is good and continues to stay good, if not get a little bit better.
Group is rebounding exactly the way that we would think with the ancillary spend coming along with it, the patterns looking forward, feel very good. And supply is still at historically low levels and everything that you see going into the next two or three years suggests it’s going to be significantly below 30-year averages.
So, I'm going to just say, we feel really good about where we are in the cycle. We feel really good about RevPAR growth and where it is and where it is going.
Bill Crow
Thanks, Chris.
Operator
Your next question comes from the line of Shaun Kelley with Bank of America. Your line is open.
Shaun Kelley
Hey. Good morning everyone.
Chris Nassetta
Good morning, Shaun.
Shaun Kelley
Maybe just to stick with what is undoubtedly going to be the theme of the day. On M&A, Chris, could you just give us maybe a little bit more detail on kind of the opportunities in your own portfolio?
Obviously, you're doing a ton on organic growth and particularly internationally as it relates to, I think, different brand profiles. So the question is, is there any area and particularly when we look at Hilton, I think we always kind of come back to the luxury component of the chain scale.
Is there any area that you think you really could benefit from materially in terms of distribution power when you think about M&A? And how would you answer that or think about that?
Chris Nassetta
Yeah. I would answer it probably the same way I already answered it when Bill asked it.
But let me add a little bit, kidding aside. Let me add a little bit more color.
As I look at our opportunity for organic growth, I think it is a combination of layering our existing brands intelligently around the world. This is one of the benefits of having the chain scale diversity that we do, is that if we are really intelligent and I have said this many times that we can lean in and lean out around the world as market conditions change around the world and allow ourselves to grow following the demand patterns in the various regions of the world.
So what we are doing in China, I think is a wonderful example. What we are doing in Europe is wonderful example of that.
What we are doing in U.S. is a wonderful example of that, where you think about it.
All of those are somewhat different stories. We have the chain scale diversity.
We've been thoughtful about how we adapt our products and the service delivery for the particular regions and it’s allowed us to grow even when some of our competitors are not or they are growing at a much slower pace. And I think our objective and strategy is to continue to do that.
So anticipating what might happen in China as we've done with the limited service business, same thing in Europe and we will continue to do that. So it is always from an organic growth point of view, in terms of numbers of rooms and hotels, the most significant opportunity is taking what we already have and deploying it really strategically and intelligently around the world.
And we think that is a massive opportunity for growth. In addition, there are opportunities to -- we added two brands last year, which I talked about in my comments.
We have some other opportunities and I have talked about those probably. I think, particularly an entry-level brand that would replace what space Hampton with all of its amazing success has exited as it’s moved up.
And I think we could stand to have a slightly lower price point brand in the mid-scale segment and price point, that would allow us to capture customers earlier in their lifecycle and garner their loyalty to allow them to grow up and grow up with us in our system and shop in and around our system with our other brands. So, we are very hard at work, whether it’s this year or early next, sometime I’d say in the next 12 months.
For sure, you are going to see us do something in that category. And we think that could be a mass scale brand globally.
I mean, it will start likely in the U.S. But given the scale of the Hampton brand as an example, we have 2,000 hotels, over 2,000 hotels open.
This could be amongst the largest brands by hotel count that we have. And I think we will be a very powerful driver of bringing new customers in and continuing to build loyalty.
On luxury, specifically, I think we have made amazing progress from where we were six or seven years ago with Waldorf and Conrad. We have tremendous momentum going from a system that at that time was 20 hotels.
So what’s opening the pipeline today is 80-ish hotels with some of the best hotels that are opening in the fastest-growing luxury brands in the world. I think we have great momentum in that space.
And I think organically, we can accomplish our objectives in luxury space in addition to every other segment, I think that is represented in the industry. So, I feel like as I said sort of answering those questions, we have what we need to be successful.
I do not -- I will be very clear. I do not think we have a strategic gap that we cannot deal with ourselves, okay.
I don't feel like -- there's nothing we can’t accomplish organically. So there are others out there that we compete with, that might not be in that same position.
But I think we have everything it takes to be successful. So, I will stop.
That doesn’t mean that we are perfect. Okay.
That doesn't mean that there aren’t things that we could do in luxury or frankly in any of our segments that can make us stronger and better. And I go back to what I said before.
Whether it's luxury, whether it upscale, mid-scale, upper upscale scale, whatever we would do, whatever brand or whatever portfolio brands that might be out there and play, we are going to at it through the lens as I described. Does it fit strategically and make us better than where we are?
Does it allow us to ultimately accelerate our growth over time? And ultimately as a result of that and other factors, could we create significant value?
Because we all know, whatever it is big or small, there are always risks in doing things that are inorganic versus organic. So those are the filters that we would look through and I know everybody is looking for more [indiscernible], I’d say, we are in a nice position where we don't have to do anything.
I think we can be very, very successful and create a huge amount of value doing this, doing what we do organically. But we always are going to be thoughtful about broader opportunities.
Shaun Kelley
Thanks for beating the dead horse for me. I appreciate it.
Chris Nassetta
You are welcome. I suspect that may not be the last time I beat the horse, so I will get my whip out.
Operator
Your next question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is open.
Carlo Santarelli
Hey guys. Thanks for taking my question.
Chris, you've always been pretty forthright with your view of the cycle and maybe the cadence of the cycle, more specifically as it pertains to an elongated, stable mid single-digit RevPAR growth. When you think about in the context of your peers and thinking about it along the lines of clearly differing views of the cycle sometimes lead to a little bit more activity in the space.
As you speak to some of your peers to the extent that you do, are you starting to hear more differentiated opinions as to where we are or how this cycle will proceed from here?
Chris Nassetta
That’s an interesting question. I mean, you could probably answer it better than I could in the sense that while I talk to my peers, my guess is you are talking more directly about this topic than I am to my peers.
But Carlo, interesting and good question. I’d say so no.
I do not -- I can't think of a conversation, I mean, they always decrease but I'd say that there is not really anybody that I'm talking to that’s in the industry that is viewing the cycle a whole heck of a lot differently than what I described. I know that I’ve kidded people about this.
Everybody wants to do it, particularly when it’s baseball season and what inning are you in and people might have different views within an inning that I've sort of gotten out of the business of talking about what inning we are in because I don't think it matters. I think what matters is what's in front of us, not what's behind us.
And I in my prior response gave my views of that, which is I think what's in front of us is for as long as I think you could sort of try and be intelligent about it, which is the next two or three years, I think you’ve got an amazing set up. There are certainly things that could disrupt it.
There are things that happened in the world that could cause reductions and demand and the like. But I’m saying all things being equal in the environment we are in from a macro point of view matched with what's going on the supply side.
It is really hard for me and I think others that certainly I'm talking to, to have a view that’s different than that. I mean, they are just -- it is hard as I look.
There is nothing in our business. There's no pattern.
There is no metric. There's nothing that suggest there's a problem.
That's very rare. I've heard those words come out of my mouth.
I think I've been a real straight shooter for the time I’ve been in the industry. But it is good and until something really major changes, which I don't see on the horizons for what I can see, it’s going to stay good.
Carlo Santarelli
That’s very helpful. And if I could just ask one quick follow-up.
I believe on the last call you guys had referenced management franchise RevPAR growth 5% to 7%, less 100 basis points for FX. Has that assumption changed at all?
I assume based on the guidance, there is a little bit more built in for FX, but could you clarify from the RevPAR perspective?
Chris Nassetta
I will have Kevin to do that.
Kevin Jacobs
Yes. Carl, I think we still give the same range.
I mean, I think if you do the math, it's a little bit worse because the outlook is getting a little bit worse, but I would still probably give the same range plus or minus for the differential.
Carlo Santarelli
Kevin, just to clarify, the outlook you're referring to the FX outlook, correct?
Kevin Jacobs
Yes.
Carlo Santarelli
Okay. Thanks, guys.
Thank you very much.
Kevin Jacobs
Thanks.
Operator
Your next question comes from the line of Steven Kent with Goldman Sachs. Your line is open.
Steven Kent
Hi, good morning.
Chris Nassetta
Good morning, Steve.
Steven Kent
Good morning. Can you talk about the competition for newly launched brands, Curio, Canopy, following similar brand launches from Hyatt, Starwood Marriott, etcetera.
Are you finding that you need key money debt financing or more attractive terms to get people to sign with Curio? And then as a follow-on, and I am not sure if these two are linked.
We noted that conversions were 40% of room additions in first quarter of 2015. How does that compare to history?
What are franchisees typically converting from? And are they converting to some of these softer brands, Curio in particular?
Chris Nassetta
All right. There is a lot in that.
So I'd say in short form, obviously there are competitive brands being launched. You guys are aware of them, reading about them.
And thus, the question, I gave some of the stats in my prepared comments. It’s a competitive world, but I'd say we are faring very well.
If you look at what's going on with Curio, five open, 11 in the pipeline, 23 under letter of intent, we have over 11,000 rooms already sort of teed up and ready to go. And I'm not saying that we don't have some competition occasionally, but we don't have I would say really stiff competition on the specific deals that we’re working on.
We are not seeing any sort of pattern of having to buy the business in the form of key money or other things. And I think, Steve, I mean, it’ self-serving to say, but it happens to be in my humble opinion true.
We have a unique competitive advantage. We have the Hyatt’s average market share in our -- of any of the players with our system producing an average market share of over 115%.
If you look at Curio, you look at any new brand launch, what owners are trying to do is make a decision to put their money with whoever they think is going to drive the best economic result with the highest average market share and with the great scale and diversification geographically and chain skills that creates this loyalty effect which I talked a lot about, which is what’s helping drive that market share. I think owners are looking at that saying I want to be part of that because it’s going to help me drive more revenue and profitability into my hotel.
So I think you can play with key money, you can invest. But when you have that advantage which we are not just planning to maintain but enhance in terms of growing market share, it gives you a unique competitive advantage in my opinion.
Thus, I think the success that we are seeing in Curio and Canopy and I can assure you with the new brand that I mentioned that we are working on launching, we have tons and tons of interest from our existing particularly because that will be almost entirely a franchise brand from your existing franchise ownership community. For the very same reasons these are the same people that have built tons and tons of Hampton Inns that has an average market share of a 124%, 125% and they know we have the skills to replicate that in a system to drive the results.
So I think there is something different about us in my humble opinion, which is the system is unbelievably powerful which allows us to get these brands up and running faster and deliver better commercial results for owners get better economic turns for us and do it with little or no capital. Okay.
That’s our story. That’s our strategy.
It’s as simple as that. In terms of conversions, we have great conversion activity in the first quarter, probably little higher than the full year.
If you look at the last, I would say three years on average, it’s been about a third of our growth bounces up and down a little bit. It’s a little bit higher than that in the first quarter.
I think for the full year it’s probably about a third. That’s what we see and it will, if you look at where it’s coming from, I mean the brands, it’s largely DoubleTree and Curio.
That’s where we will see the conversion activity. Curio obviously was part of that strategy.
DoubleTree, many years ago, six years ago as we rein -- sort of reenvision DoubleTree and transform that it was all about being a great conversion brand and we’ve had amazing success, far more conversions and far more rooms converted than any other of our competitors. And it’s coming from a host of places.
If we look at DoubleTree, it’s coming from some of our competitor brands, a little bit of independent. If you look at Curio, a little bit of competitor brands but largely coming from independent hotels.
Steven Kent
Okay. Thank you.
Operator
Your next question comes from the line of Harry Curtis with Nomura. Your line is open.
Harry Curtis
Good morning, guys. I think the horse has just a little bit more life in it.
Chris Nassetta
Oh, my god, really, okay.
Harry Curtis
No, it’s still…
Chris Nassetta
Let me get -- I will get the whip out.
Harry Curtis
It’s still switching. Two quick questions.
First of all, do you think it's reasonable to believe that you've looked at most potential combinations, not just in the last six months, but over the last four years? And then the second question, and this is one that might be more politically different -- difficult to answer, but is it necessarily the case that Blackstone can do something separate from Hilton if they wish?
Chris Nassetta
On the first one, I am not going to comment and what we’ve looked at and what we haven’t looked at. I mean I think the broader thing Harry ,you can assume that we are living, breathing, sensing human beings that sort of are aware what’s going on in the market.
And as a result, if nothing else, our intellectual curiosity takes us all over the place. So yes, we have been doing this long time.
We are always noodling everything as we would hope we would. It doesn’t mean we do everything obviously.
We are very thoughtful on that. But we are always sort of noodling about everything.
In terms of BX, I think you need to ask BX. BX is a separate entity.
They happen to own at the moment the majority of the company. But what they do with their independent separate funds that are is really their business.
Harry Curtis
Okay. Let me then, in my second question, move on to fundamental one.
As you speak with your corporate customers, what are they indicating about their hotel needs over the next 12 months, given the relatively flat corporate profits in the first quarter? Is there any indication that they are likely to cut their travel budgets over the next 12 months?
Chris Nassetta
Really good question and interesting. And I think the answer is both sort of broadly talking are sales teams but also more specifically because I am constantly talking to some of our larger customers in various settings.
I don’t know, not only do I not get a sense of them cutting back, I get a sense of them increasing volumes and being more willing to pay higher rates and knowing in a sense that they have to pay higher rates given what’s going on both in the broader economy as well as in the industry.
Harry Curtis
That’s perfect. Thanks, Chris.
Operator
Your next question comes from the line of Vince Ciepiel with Cleveland Research. Your line is open.
Vince Ciepiel
Great. Thanks for taking my question.
Chris Nassetta
You bet.
Vince Ciepiel
Wanted to focus a little bit on the stronger U.S. dollar and the potential impact on international stays, have you guys seen anything year-to-date?
And are you seeing anything kind of impact bookings for this summer?
Chris Nassetta
Yes. Another great question.
It’s interesting when we look at all the data, intellectually given the strength of the dollar you have to believe that it’s impacting business at least somewhat. As we in the beginning of the year talked to our GMs in the big markets, they were not really indicating any material shift other than maybe in New York where you have a little bit heavier component where I think they were filling it a little bit.
So anecdotally, I would say people didn’t think there is much. When you get the hard data at the end of the quarter which we now have, actually ironically international business was up in the quarter by a little less -- by better half a point.
So not meaningfully but it was up. So what’s really been going on, New York down, but across the U.S.
recognizing for background that it’s only 5% of our business across the U.S. to begin with, but that the world is a big place, I don’t have to tell you and there places where it’s more impacted than other places.
So what we saw in the first quarter and I expect to continue is that business out of Europe, a little out of Canada, but mostly out of Europe was declining particularly at a Germany and France. Ironically don’t know exactly why to be honest, Spain was up.
But what was up in a meaningful way was China, because a number of us that worked really hard in the industry to work with the U.S. government and the Chinese government to make it easier and more efficient to get visas and that is having a dramatic positive impact on what has been the largest outbound customer base, which is now China in the world.
So those are sort of offsetting. I think as we get into the summer months, I think you get another dynamic which is I do believe with the strengthening dollar, you will continue to see some impact of European business coming in U.S., meaning it will be weaker.
I think China business is going to continue to be strong. I think U.S.
business in the US for the drive-through market given cheap gas prices is going to be better. And I think Europe is a bit on sale not an insignificant 9% or 10% of our business, I do believe and we are starting to see the early patterns of summer bookings.
They are reflective of the fact that a lot of people are going to go to the Europe that might not have otherwise gone and that’s going to give us a boost there. The net result of all that is we are not -- we did not change our view on RevPAR growth and the simple reason is we don’t we think that with all the puts and takes they sort of flush out.
Vince Ciepiel
Great. Thanks.
And then currency has moved against you guys a bit since the 4Q call. I think last time you noted on the $40 million full year headwind, of which about $25 million hits the fee business.
Any updated thoughts there? And then I guess when you think about the EBITDA raise despite the FX, is it fair to say you're feeling a bit better about core fee growth out of that change?
Kevin Jacobs
Yes. Vince, it’s Kevin.
That’s exactly the way to think about it so far. If our fee was $25 million and we set about $15 million of it, it was timing so we had $10 million beat in the first quarter and we raised $10 million for the year.
We’ve got about $15 million to $20 million of incremental FX for the year, so it’s really a $25 to $30 million FX adjusted raise at the mid-point.
Vince Ciepiel
Great. Thanks for the explanation.
Operator
And your next question comes from the line of Felicia Hendrix with Barclays. Your line is open.
Felicia Hendrix
Hi. Thanks for taking the question.
Chris Nassetta
Thanks.
Felicia Hendrix
Kevin, I thought you -- maybe thought you were going to get off the hook on this call, but you're not. So, look, this is, obviously, the closest you guys are discussing a dividend.
You said you're going to give us more color on the second quarter, just wondering that that even...
Kevin Jacobs
I did.
Felicia Hendrix
Yes. You did.
Its going to be a second quarter announcement, are you going to discuss it further than? And then just wanted to know in light of that if you could discuss, your commitments in investment grade rating and timing on that?
Kevin Jacobs
Yeah. Sure.
Thanks, Felicia. Yeah.
We did say, we’ll give you, we’ll -- I think what we’ll do is outline a plan on the second quarter call. We’ve got to spend a little bit of time talking to our Board about what we want our strategy to be and looking at our forecast and obviously, ultimately, they’re the ones that will decide, but we will intend to be able the outline the plan on the second quarter call.
The Sydney transaction incrementally helps get us a little bit closer and we've been saying, I think, for awhile now that we thought we'd be in the zone in the back half of year. We have not wavered on our commitment to investment grade.
We think that the range that we've outlined would get us consistent with our peers. Our peers’ investment grade companies we will be balanced about it and work with the agency, so we've not wavered on that commitment.
Felicia Hendrix
Great. And then just also follow-up for you, Kevin.
You mentioned in your prepared remarks increase in your effective franchise rate in the quarter.
Kevin Jacobs
Yeah.
Felicia Hendrix
I was just wondering how much those rates can move up over the next few years and how much that could add in fees?
Kevin Jacobs
Yeah. I think, they ought to move up consistently with the way they have been.
So it's been kind of around to 10 basis points for the quarter. It’s gone from four-flat to four-seven over the course of the last five years or so.
And we would think that we could consistently, not only continue to get closer to our published rate, which is 5, 4.55 but if we do our jobs right and continue to grow -- strengthen the brands, we ought to be able to increase our published rates overtime. And so I think you'll continue to see it grow at the same -- at a similar pace.
Felicia Hendrix
Great. Thank you.
Kevin Jacobs
Yeah. Sure.
Operator
Your next question comes from the line of David Loeb with Baird. Your line is open.
David Loeb
Don’t worry, Chris. I'm not going there.
Chris Nassetta
Thank you. I’ve nothing more I can say on it, but I can try in other way to say.
Go ahead. Sorry, David.
David Loeb
It’s okay. I just at the risk of asking what have you done for me lately question.
You've made a lot of progress on asset monetization this year, clearly. But can you talk a little bit about what you're looking at in the future for additional monetization opportunities?
Chris Nassetta
Yeah. I -- we've been, I think, pretty consistent.
I know very consistent on the point, which we had an opportunity in the Waldorf. We said that we may have others.
Obviously, Sydney is one of those others. They maybe other asset sales I would say, that would be quite modest that we could pursue nothing around that corner.
The bulk of the remaining real estate, certainly from of value point of view, David, really because of the tax attributes if and when we wanted to do something would really need to be done more on a structured transaction then kind of an asset monetization of the type we've been doing.
David Loeb
Okay. And then just to follow that, on the Cypress, what's the brand planning for that?
What's your expectation -- what brand that hotel will become?
Chris Nassetta
Yeah. Ultimately it will become a Curio.
Okay, we think is the appropriate branding.
David Loeb
Thank you.
Chris Nassetta
Yeah.
Operator
Your next question comes from the line of Joseph Greff with JP Morgan. Your line is open.
Joseph Greff
Good morning all.
Chris Nassetta
Good morning, Joe.
Joseph Greff
Can you share with us your outlook for the New York City market for the balance of the year and if you think it's still a negative RevPAR growth market?
Chris Nassetta
You know, I don't. For the first quarter was obviously negative for us.
The market was down in the 6s. Now that’s probably exacerbated by a lot of work going on at our largest hotel.
We had a big renovation of rooms plus the retail space going on at the New York Hilton. So its comp, but -- its driving part of it, but it was down in the first quarter, as I think most sort of the industry stats are.
For the full year, Joe, we think it's actually going to flip around. We don't think it's going to be leading the charge in terms of growth in U.S.
But we’re in the low to mid-single digits, 3% to 5% growth is what we would forecast for the New York market overall. Early reads on April sort of feel pretty good, feels like after the first quarter with weather, with Super Bowl overlap with renovation disruption that we had all of those things sort of hurt the first quarter.
When we’re get into April we look at the booking pace for May and June, supports what I'm saying. So, I think, we push really hard and dug really deep into these forecast and we’re pretty confident we’re going to show positive growth for the market.
Joseph Greff
Great. Thank you.
And then, in your earlier remarks, Chris, you had mentioned in the first quarter the Group growth outpaced the transient growth. Do you see that perform more in balance -- the balance of the year, how do you see that transpire?
Chris Nassetta
Yeah. I think they're balancing around the similar plate.
They're both -- they thing about the last couple quarters, I don't have the numbers all on my head, but I think, this year we think they’re going to both be in the 6 to 7 range and one might be a little higher or lower, depending on the quarter, because as we all know Group sort of cycle differently in the quarters depending on the big groups in the big hotels. But we feel like it’s going to -- they’re both going to be in that range, which is why I sort to say, I’ve never felt -- I've never seen it feel better when you got sort of all the cylinders hitting at same time.
Joseph Greff
That's all for me. Thank you.
Chris Nassetta
Yeah.
Operator
Your next question comes from the line of Smedes Rose from Citigroup. Your line is open.
Smedes Rose
Hi. Thanks.
I wanted to ask you just about the mid-scale segment. Just a couple of questions, we continue to see pricing and those lower price points looks to be better gains year-over-year.
And do you still kind of think that we'll see more convergence there? I think you had talked about that on the fourth quarter call, given the group trends that you're seeing.
And also, I know supply remains pretty low, but we are seeing kind of -- it seems like a pretty rapid pickup in the number of upper mid-scale hotels in the pipeline. And when you talk to developers, do you see like kind of a market difference in the ability to access financing or lower equity needs or kind of how -- what are you sort of seeing in that area?
Chris Nassetta
No. I think -- maybe I’ll take the last first.
I think the reason you're seeing the more of the development getting done there is that the economic model works there. I mean, so I think that the end market is sort of efficient.
People are able to drive better results, higher margins and as a result can raise the capital to do it. So I don’t think it’s a problematic data but I think it's -- I mean, you stated the fact.
You're seeing the highest RevPAR growth in that segment and supply is higher in that segment, not crazy high but of the segment it’s higher. I think its cause and effect.
I mean, it’s just the economic model is driving that. We don't see that there is a mounting problem performance continues to be very good, even as supply is coming because it’s just healthier.
There's more demand and the money is following that demand. In terms of convergence I do -- we saw a little bit of the convergence I talked about in the first quarter.
If we look at the focused service versus everything else and we still think for the full year, both those broad categories are going to perform well. And we do think that they're going to continue to converge.
Smedes Rose
Thanks. Just on the Cypress Hotel that you're acquiring, does Hilton have to pay a termination fee to get out of that Kimpton contract, or is that something that the seller would pay?
Chris Nassetta
Yeah. We -- as part of the deal we do, but it’s a very modest term fee.
Smedes Rose
Okay. Thank you.
Operator
Your next question comes from the line of Joel Simkins with Credit Suisse. Your line is open.
Joel Simkins
Yeah. Hey, good morning, guys.
I just wanted to touch on the timeshare real quickly. Obviously, your results continue to look very strong there.
One of your big competitors, I would say, was a bit mixed yesterday. So kind of what's the secret to success there right now?
Are you seeing anything different from the consumer in terms of willingness to buy more product to be a bit more aggressive with financing? And then just to follow up with that, I mean, how you can continue to think about timeshare, sort of, core to your business and the current platform?
Kevin Jacobs
Yeah. Joel, its Kevin.
I’ll take the first part and then maybe Chris will jump in on the second part. I think the consumer demand for the product remains strong.
I think, we've seen -- well, our results have been -- in fact, our VPG for the quarter was up over 20%, now that’s been partially driven by. We opened a really strong high-priced product at the Grand Islander in Hawaii, so that’s driving VPG.
But for the full year, we still think it's going to be strong at 10 plus percent growth in VPG with high single-digit growth in tourist. So we continue to see high demand for the product but a lot of it's driven by great projects in strong markets and our ability to sell it well.
Chris Nassetta
On the second part of the question, it goes without saying, we’re very happy with the result in timeshare that Kevin just described. We’re very happy with the transformation in the progress we’re making towards making it a very high percentage of capital light business.
Our customers love it. The results are good.
We’re changing the return profile of the business to be much like the hotel business. So it's good on all fronts but I will say, very simplistically as you would hope, we’re always looking at ways to maximize the long-term value of the company.
As part of that we’re looking at all the options on all segments of the business, including timeshare and trying to be thoughtful about not withstanding how successful it is. Is there another format that we should be considering structurally that might create even greater value for the shareholder base.
So we made some good progress and thinking about that both from a technical and structural point of view, not any conclusion by a long stretch. So if and when we get to a point where we have some judgments on that, we’ll obviously get back with you and let you know.
But we wanted to be very open-minded and we will always remain focused on maximizing value. And if there is different approach then, we are -- we would pursue it.
Joel Simkins
That’s very helpful. Thank you.
Operator
Your next question comes from the line of Thomas Allen with Morgan Stanley. Your line is now open.
Thomas Allen
Hi, good morning. So, two quick questions on China.
First, last quarter you mentioned that F&B business looked like it was picking up a little bit. Now that you have the hard data for the first quarter, do you still feel confident in that?
And the second question, can -- is there any way to quantify or think through how the association you did with Plateno Group for Hampton could kind of help your greater portfolio just as we see a kind of increase in outbound travel outside of China? Thanks.
Chris Nassetta
Yeah. The first one simple answer is, yes.
We continue to see benefits of rebounding food and beverage. It’s not skyrocketing, okay.
But from a pattern, we’re seeing significant declines quarter-over-quarter. Yes, we’ve start to see stabilization and recovery and we think it’s the beginning, hopefully of a good trend.
On Plateno, as we outline when we announced the deal that is one of the primary drivers for why we entered into the relationship with those guys, was that, but we saw is that the development opportunities in China were changing. They’re going to up and down and be different over different periods of time.
But ultimately, the economics are going to drive not unlike what I described, is going on with upscale here in U.S. and China with rising labor costs, rising cost of construction.
The thing, the type of product that is going to make -- I think more sense broadly throughout China and in on a mass basis is going to be at that price point. And we looked at lots of ways to do it, in ourselves and with various partners.
We picked Plateno because after a long process and a lot of work, we felt like given their success with 7 Days and their scale and their ability to drive the commercial side of the business, they were clearly far and away the best partner. And it was obviously driven by us making money and adding rooms.
And I think it is going -- I know it's going to do that. But it was also sort of part of the underlying thesis that I keep describing, which is this loyalty affect.
It works. We know it works.
It works where we end up with scale and price point diversity and geographic diversity. We need those same things in China.
The only way to get those things broadly in China and from a geographic point of view is that at this price point and we think they're the best partner to do that. We win in China and we create that loyalty effect.
The 100 million going to 200 million travelers that are leaving China, we think are going to. We do our job, right, to be more loyal to us everywhere else in the world when they travel.
So that is a very significant part of the underpinning for the strategy with Plateno.
Thomas Allen
Okay. Thank you.
Chris Nassetta
Yes.
Operator
Your next question comes from the line of Rich Hightower with Evercore ISI. Your line is open.
Rich Hightower
Hi. Good morning, everyone.
Chris Nassetta
Good morning.
Rich Hightower
So just one quick twist on the dead horse we've all been talking about. Sorry to ask another question on this.
But as I think about the organic versus non-organic growth argument that you sort of laid out previously, given your existing platform and infrastructure at Hilton, what is the cost to build a ground-up brand internally versus going externally? And then maybe you can help answer that by telling us what you have spent to date on Curio and Canopy and what you sort of pencil the returns at for those initiatives?
Chris Nassetta
I can do it pretty easily. De minimis investment, infinite returns.
How’s that for a quick answer?
Rich Hightower
That’s pretty quick.
Chris Nassetta
We invest there -- I mean it’s mostly, honestly our time. I mean, I'm being a little cute in the sense that I'm not allocating the time to the people that are here.
But it's mostly our -- given the size of our system and infrastructure that we have on a global basis and relationships we have with owners, et cetera. It is really for the size of our operation relatively de minimis okay.
It's not -- it’s in the millions of dollars, not tens of million, which I view as pretty much immaterial for us. And the returns -- when I say infinite, maybe they are not quite infinite are exceptionally high because we invest very little and we build great platforms.
So in Curio, it might be in the single of millions of dollars and we have 11,000 rooms open there in the pipeline. So the math is unbelievably compelling, which is why when we look at other individual brand opportunities, I’m not going to pick on any, but there have been a bunch that have being done recently over the last two or three or four years.
We have looked at those. And in those cases said, we’re better off doing it organically.
We’re going to drive better returns for our shareholders because it’s not just a growth that they can give. It is incremental growth that they could give us over what we could do on our own because we could do it on our own without making any investment.
And when we’ve looked at the returns on that basis, our returns and we’re very disciplined about looking at -- when we invest capital, any kind of capital getting an adequate return, we really get returns on the basis, at least historically over the last few years. We’ve not seen returns that justified taking action.
That doesn't mean that there are not opportunities in front of us where that equation changes. But it gives you a sense that there is a really unique advantage when you get to be as big and when you have market -- the average market share that is this strong and 44 million honors members and you’re everywhere in 100 countries around the world and all these price points with 10,000 developer relationships you got a lot of values.
There is a lot of value in that and our job is always to say, all right, what are our competitive strengths and how do we optimize our competitive strengths to create value for all of us to shareholders.
Rich Hightower
All right. Great.
Thanks, Chris.
Chris Nassetta
Yeah.
Rich Hightower
And then one quick follow-up, I'm just wondering to the extent that you guys are familiar with Blackstone's thinking, why do you think we haven't seen any recent secondaries?
Chris Nassetta
That you would have to ask them. We know that they've started a process and they've done a couple of transactions.
We know the business they are in is one that ultimately requires the recycling of capital. I do think that that is the pattern and that is the trajectory they’re on.
Exactly when they decided to do it, I can honestly tell you it’s not my decision. And so I can’t give you color other than to say, I do think that the pattern that they established last year will continue at some point.
Rich Hightower
Okay. That's all for me.
Thanks, Chris.
Chris Nassetta
Yeah.
Operator
Your next question comes from the line of Robin Farley with UBS. Your line is open.
Robin Farley
Great. Thanks.
Two questions. One is you’ve talked about getting to investment grade and potentially instituting a dividend sometime in the second half of the year.
So, I guess I just wanted to get a sense of how much of a priority is that commitment to investment grade and returning capital versus, you talked about potentially at the right price, you might do something. You could do something if it worked strategically and all of those classifications that you added.
Is being investment grade and paying a dividend something that would also be a filtering issue if you were going to do something?
Chris Nassetta
Let me address. I think I got the question.
To be clear, Kevin stated it. We do want to become investment grade and we do think that range in debt to EBITDA that we’ve outlined consistently of three to four times, probably in the middle-ish or little bit lower that is probably where it takes to get there.
We are very comfortable with the balance sheet with or without the investment grade status. And I want to be clear because we are not trying to be cute.
We are -- we are prepared to institute a return of capital program starting with a dividend in the second half of the year subject to your Board making final decisions on that in advance of an investment grade status. So we are not -- we are not saying that has to precede the beginning of a return of capital program.
If it does, great. I suspect honestly it will not, and that my view is we’ll be on a path to getting there and we can get there.
And at the same time given the trajectory of the deleveraging, we can return capital as well.
Robin Farley
And similarly though it’s too, if you did a potential transaction, you talked about all the reasons why you might or wouldn't have to. Is paying a dividend something that would be a priority for, that that's something you would want to be able to do, even if you did a transaction?
Chris Nassetta
Well, I think that would get -- it's all hypothetical, I mean I think we are in the business of creating value so that would -- any transaction, it would sort of be -- it would be one of many, many factors I think that would be involved it, certainly don't view it as a driver. But we are committed to returning capital.
So I do believe that it would be a consideration meaning anything that would stop us from returning capital would not be a positive because we are interested, I think the shareholder base is interested in our returning capital and we are as well.
Robin Farley
Okay. Great.
And then actually just an easy question on your guidance in Q1. Your management fee growth rate didn't move for the full year, even though Q1 was up 18%.
Is that because of FX?
Chris Nassetta
Yes. So it’s pretty much all FX.
Robin Farley
Okay. Great.
Thank you.
Operator
And your next question comes from the line of Jeff Donnelly with Wells Fargo. Your line is open.
Jeff Donnelly
Good morning, guys.
Chris Nassetta
Good morning.
Jeff Donnelly
Just wanted to come back to the cycle question. Just I am curious rather than asking where we’re at, I’m curious, Chris, what are the metrics you look at to conclude whether we’re at the peak of the cycle or not, or is the edge only determinable once you’ve crossed over it?
Chris Nassetta
It’s hard to say. I mean one of that -- one of the things that gives me comfort that we are not at the peak are particularly close.
If you look at any kind of historical perspective is what’s going out with occupancy gains, I mean really in my personal experience when I go back and think about when you are getting to peaks of cycles, it’s when you really are seasoning rate growth to a point where it -- in many cases over a 100% of your RevPAR growth and we are just nowhere near that right. We are still getting very -- we are going to have lower occupancy gains this year I think system wise than last year.
Last year we’re 2.5 points in occupancy. This year we’ll be less, but we are still going to be close to 2 points of occupancy.
It’s not the only metric, but I think it's a very healthy metric that your demand base is growing. At the same time, you are gaining pricing power.
It’s certainly to me one of the great indicators that there’s a -- that you are in a very healthy part of the cycle.
Jeff Donnelly
And maybe just my angle on the Starwood question, maybe it's a two-parter, but are the goals of diluting down Blackstone's ownership and improving Hilton's balance sheet strategic enough to warrant consideration other than as a means to an end. And I guess maybe a follow-up is what concern do you have that their review leads to an existing competitor becoming a more formidable threat to you guys?
Chris Nassetta
I don’t think Blackstone or balance sheet, if you don’t do big M&A whatever it is, that’s all the issues, I mean -- it’s got to be strategically and economically driven, or you’ll screw up something, you will screw up a good company taking any other perspective than that. Second question was -- second part was...
Jeff Donnelly
Just whether or not you thought it might be an opportunity for a competitor that makes them more venerable?
Chris Nassetta
Yes, I mean, no, I mean, I can’t. I don't lose.
I don’t wake up in the middle of night losing sleep over that and simply because what I’ve described probably more than you guys want to hear today, I think we’ve got a -- I don’t want to say we are perfect and we have lots of things that I wake up every day and all night long worrying about that I want us to do better and we are working on and we will do better. But I like our setup, I like what we have, I like the momentum, I like the makeup of the company, I think it gives us lots of advantages.
And so I can see why others might want to do something to sort of feel -- look and feel more like that and that ultimately they might be a more worthy competitor. But I think what we got is really, really good.
And if we execute which I will promise we will and we are disciplined about how we manage the business. We got tremendous potential.
So I can't -- I certainly don’t do deals and I don't think you’d ever want us to be doing deals defensively. I think we are great place.
We do our job. We are going to stay in a great place.
If we can incrementally add to that with whatever is out there, we should be thoughtful and consider those options and we should not do it in a defensive way ever.
Jeff Donnelly
Great. Thank you.
Chris Nassetta
Yes.
Operator
Your next question comes from the line of Wes Golladay with RBC Capital Markets. Your line is open.
Wes Golladay
Good morning, everyone. A quick question on China.
What is your expectation for ADR growth this year, and what is leading it? Would it be the Tier 1 and Tier 2 cities outpacing the lower tier cities or vice versa?
Chris Nassetta
I think that Tier 1 cities, Shanghai and Beijing are going to have pretty good years particularly Beijing because it’s had some tougher years so it’s coming back. I think the blended growth is still pretty balanced between rate and occupancy for the full year.
Wes Golladay
Okay. Thanks a lot.
Chris Nassetta
You bet.
Operator
Thank you, ladies and gentlemen. I’ll now turn the call back over to Mr.
Chris Nassetta.
Chris Nassetta
Well, thank you, everybody. That was a good robust call.
We are happy to have the time to catch up. Obviously very pleased with not just the first quarter but momentum that we have I think going into what’s going to be another fantastic year for the industry and importantly, a fantastic year for Hilton Worldwide.
We appreciate the time, look forward to getting back together with you after Q2 where we can update you on our progress, update you with more specific plans on return of capital. Hope everybody has a great day and talk soon.
Operator
This concludes Hilton Worldwide’s first quarter 2015 earnings call. You may now disconnect.