Hilton to Franchise Tapestry Hotels, Fifth New Brand Since 2009

(Bloomberg) -- Hilton Worldwide Holdings Inc. introduced its fifth new hotel brand since 2009 in the latest bid by the world’s second-largest lodging operator to increase earnings by franchising properties.

The Tapestry Collection by Hilton will be upscale hotels, in the same general segment as the company’s DoubleTree locations. Tapestry properties might include a bar with food service and a gym, but not necessarily restaurants or meeting space. Seven hotels in cities including Chicago, Indianapolis and Nashville, Tennessee, have signed letters of intent to convert to Tapestry sites, and 35 other deals are in progress, Hilton said in a statement Monday. The first site will open by the third quarter, with a goal of 50 Tapestry hotels by 2020.

Hilton, which spun off its real estate and its timeshare business into new publicly traded companies in December, has sought to expand through franchise and management contracts, rather than acquisitions. The company last year introduced Tru, a line of low-cost, franchised hotels with hip decor.

“It’s easier to grow franchises than to grow managed hotels,” said Thomas Allen, an analyst at Morgan Stanley. “You’re basically just putting your brand on the building.”

Having more brands allows Hilton to expand in desirable locations where it already has a presence, Allen said. The company said it might manage some of the Tapestry hotels in addition to earning franchise fees.

Tapestry is the second so-called soft brand that Hilton has developed, following Curio, a Collection by Hilton, in 2014. Under soft brands, individual hotels have their own name and image apart from the corporate manager or franchiser. Soft brands typically involve converting an existing hotel, such as boutique properties that want to maintain their own identity but rely on a global reservations system, frequent-guest program and sometimes management expertise. Examples include the Boulders Resort & Spa, part of the Curio brand, and the Cosmopolitan of Las Vegas, managed by Marriott International Inc.’s Autograph Collection.

‘Best Year’

Hilton, set to be 25 percent owned by China’s HNA Group later this quarter, had its “best year ever” last year and there are signs that business travel, which accounts for about 75 percent of total guests, is improving, Chief Executive Officer Christopher Nassetta said in a Bloomberg Television interview Wednesday from the World Economic Forum in Davos, Switzerland. He said that Hilton sees potential for an urban micro-hotel brand and is “incubating” five brands for introduction after 2017.

“It’s about organic growth,” Mark Nogal, global head of Hilton’s Tapestry and Curio brands, said in a phone interview.

Hilton now has 14 brands, including one for timeshare properties. Hilton was surpassed as the biggest hotel company in September after Marriott acquired Starwood Hotels & Resorts Worldwide Inc. for $14 billion, expanding its brand roster to almost 30.

--With assistance from Erik Schatzker

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Christine Maurus