Item 1. Business
Item 1. Business
Overview
Hilton is one of the largest hospitality companies in the world, with 6,478 properties comprising 1,019,287 rooms in 119 countries and territories as of December 31, 2020. Founded in 1919, Hilton has been an innovator in the industry for more than 100 years, driven by the vision of our founder Conrad Hilton, "to fill the earth with the light and warmth of hospitality." Our premier brand portfolio includes: our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Tempo by Hilton and Motto by Hilton; our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton; our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. As of December 31, 2020, we had more than 112 million members in our award-winning guest loyalty program, Hilton Honors.
We operate our business through: (i) a management and franchise segment and (ii) an ownership segment, each of which is managed separately because of its distinct economic characteristics. The management and franchise segment includes all of the hotels we manage for third-party owners, as well as all franchised hotels that license our brands and where we provide other prescribed services to third-party owners, but the day-to-day services of the hotels are operated or managed by someone other than us. The management and franchise segment generates its revenue from: (i) management and franchise fees charged to
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third-party hotel owners; (ii) licensing fees from HGV's 56 resorts, consisting of 9,030 rooms, and strategic partnerships, including co-branded credit card arrangements, for the right to use certain Hilton marks and intellectual property ("IP"); and (iii) fees for managing our owned and leased hotels. As of December 31, 2020, this segment included 715 managed hotels and 5,646 franchised hotels consisting of 990,857 total rooms. As of December 31, 2020, the ownership segment included 61 hotels totaling 19,400 rooms, comprising 53 hotels that we wholly owned or leased, one hotel owned by a consolidated non-wholly owned entity, two hotels leased by consolidated variable interest entities ("VIEs") and five hotels owned or leased by unconsolidated affiliates. For more information regarding our segments, see "Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Results" and Note 18: "Business Segments" in "Part II—Item 8. Financial Statements and Supplementary Data."
In addition to our current hotel portfolio, we are focused on the growth of our business by expanding our share in the global hospitality industry through our development pipeline, and despite the adverse effects of the COVID-19 pandemic, we continued to open new hotels and expand our development pipeline in 2020. During the year ended December 31, 2020, we opened over 410 hotels consisting of nearly 56,000 rooms, contributing to over 47,000 net additional rooms in our system, reflecting a net unit growth of 5.1 percent from December 31, 2019. Additionally, during the year ended December 31, 2020, nearly 530 hotels, consisting of more than 83,000 new rooms, were approved and added to our development pipeline. As of December 31, 2020, we had nearly 2,570 hotels in our development pipeline that we expect to add to our system in the future, representing over 397,000 rooms under construction or approved for development throughout 116 countries and territories, including 31 countries and territories where we do not currently have any open hotels. Nearly all of the rooms in the development pipeline are within our management and franchise segment. Additionally, of the rooms in the development pipeline, 233,000 rooms were located outside the U.S., and 204,000 rooms were under construction. We do not consider any individual development project to be material to us.
In 2020, the COVID-19 pandemic significantly impacted the global economy and strained the hospitality industry due to travel restrictions and stay-at-home directives in place at various times during the period, resulting in cancellations and significantly reduced travel around the world. The reduction in travel resulted in the complete and partial suspensions of hotel operations in many of the areas where our hotels are located at some point in time during 2020, having a material adverse impact on our results for the year ended December 31, 2020. As of February 10, 2021, 97 percent of our global hotel properties were open, while approximately 220 hotels had temporarily suspended operations. In response to this global crisis, we took actions to prioritize the safety and security of our guests, employees and owners and support our communities. During the summer, we launched Hilton CleanStay and Hilton EventReady, which deliver a new standard of cleanliness and customer service to our properties worldwide, including for meetings and events. We also found alternative uses for certain of our hotel properties, including partnering with American Express to donate up to one million hotel room nights for frontline medical professionals, and provided financial assistance to organizations helping those affected by COVID-19, through our Hilton Effect Foundation. Additionally, we took certain proactive measures to secure our liquidity position to help our business withstand this uncertain time.
Despite the challenges associated with the COVID-19 pandemic, we maintain our belief that our experience in the hospitality industry, which spans more than a century of customer service and entrepreneurship, and continues to evolve for the tastes, preferences and demands of our hotel guests; our strong, well-defined brands that operate throughout the hospitality industry chain scales; our diverse, inclusive workforce, built to focus on providing exceptional customer experiences; and our commercial service offerings will continue to drive customer loyalty, including participation in our Hilton Honors guest loyalty program. We believe that satisfied customers will continue to provide strong overall hotel performance for us and our hotel owners and encourage further development of additional hotels under our brands with both existing and new hotel owners, which further supports our growth and future financial performance. We believe that our existing portfolio and development pipeline, which will require minimal capital investment from us, positions us to further improve our business, allocate capital effectively and meet our customers' demands and preferences in the future.
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Our Brand Portfolio
The goal of each of our brands is to deliver exceptional customer experiences and superior operating performance.
December 31, 2020
Brand (1)
Chain Scale Countries/ Territories Properties Rooms Percentage of Total Rooms Selected Competitors (1)
Luxury 15 33 10,018 1.0% Four Seasons, Mandarin Oriental, Peninsula, Ritz Carlton,
Rosewood Hotels & Resorts, St. Regis
Luxury 4 4 693 0.1% Leading Hotels of the World,
Legend Preferred Hotels & Resorts,
Small Luxury Hotels of The World,
The Luxury Collection
Luxury 21 39 13,057 1.3% Fairmont, Intercontinental,
JW Marriott, Park Hyatt, Sofitel
Upper Upscale 6 27 4,489 0.4% 25hours Hotels, Hyatt Centric,
Joie de Vivre, Kimpton,
Le Meridien, Renaissance
Upper Upscale — — — —% Grand Hyatt, JW Marriott
Upper Upscale 93 580 214,788 21.1% Hyatt, Hyatt Regency, Marriott,
Sheraton, Westin
Upper Upscale 27 96 17,518 1.7% Autograph Collection, Design Hotels,
Destination Hotels,
The Unbound Collection
Upscale 48 616 141,364 13.9% Courtyard by Marriott, Crowne Plaza, Delta, Holiday Inn, Radisson, Sheraton, Wyndham
Upscale 4 46 5,757 0.6% Joie de Vivre, Tribute Portfolio
Upper Upscale 5 258 59,795 5.9% Hyatt Regency, Marriott, Sheraton, Westin
Upscale — — — —% AC Hotels, Aloft, Cambria, Hotel Indigo
Upper Midscale 1 1 245 0.0% CitizenM, Freehand, Generator,
Hoxton, Moxy, tommie, Yotel
Upscale 50 899 131,574 12.9% Aloft, Courtyard by Marriott, Four Points,
Holiday Inn, Hyatt Place
Upper Midscale 31 2,661 282,646 27.7% Comfort Suites, Courtyard by Marriott,
Fairfield Inn, Holiday Inn Express, Springhill Suites
Midscale 2 178 17,403 1.7% Avid, Best Western, Comfort Inn & Suites,
La Quinta, Quality Inn, Sleep Inn, Wingate by Wyndham
Upscale 4 511 58,228 5.7% Element, Hyatt House, Residence Inn, Staybridge Suites
Upper Midscale 2 463 48,757 4.8% Candlewood Suites, Comfort Suites, TownePlace Suites
Timeshare (2)
6 56 9,030 0.9% Bluegreen Vacations, Diamond Resorts, Disney Vacation Club, Holiday Inn Club Vacations, Marriott Vacations, Wyndham Destinations
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(1) The table above excludes 10 unbranded properties with 3,925 rooms, representing approximately 0.3 percent of total rooms, and also excludes lesser-known regional competitors.
(2) HGV has the exclusive right to use our Hilton Grand Vacations brand, subject to the terms of a license agreement with us.
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Waldorf Astoria Hotels & Resorts : What began as an iconic hotel in New York City is today an extensive portfolio of luxury hotels and resorts in landmark destinations around the world. Each Waldorf Astoria property provides a unique sense of place with a relentless commitment to personal service and culinary expertise, enabling guests to create truly unforgettable moments. Properties feature elegant spa and wellness facilities; best in class bars and restaurants; golf courses at select resort properties; 24-hour room service; fitness centers; impressive meeting and events capabilities; wedding and banquet facilities; and special event and concierge services.
LXR Hotels & Resorts: Found in some of the world's most alluring destinations, LXR Hotels & Resorts connect legendary properties into an exclusive network of hotels that are set apart by an unrivaled commitment to personalized service and elegant, yet locally immersive experiences for their guests.
Conrad Hotels & Resorts : Conrad is a global luxury brand offering guests service and style on their own terms—all while connecting with the local and global culture. Conrad has created a seamless connection between contemporary design, leading innovation and curated art to inspire the entrepreneurial spirit of the globally connected traveler. Properties feature convenient and relaxing wellness facilities; innovative bars and restaurants; comprehensive room service; multi-purpose meeting/business facilities; and special event and concierge services.
Canopy by Hilton: Canopy by Hilton is an energizing lifestyle hotel in neighborhood settings. Our guests are explorers who seek uncomplicated comfort, thoughtful details, an energizing atmosphere and a uniquely local experience. Each property is designed as a natural extension of its neighborhood, with local design, food and drink and culture delivering an authentic neighborhood experience with a boutique hotel feel.
Signia by Hilton: Signia by Hilton is our premier meetings-and-events brand positioned at the top of the upper upscale category. It provides guests with best-in-class experiences in top urban and resort destinations around the world. Signia by Hilton has been developed to attract highly sought-after larger convention group and transient business customers who are looking for a hotel focused on modern design, technology and premium culinary and wellness offerings that are associated with a prestigious global brand.
Hilton Hotels & Resorts : For more than 100 years, Hilton Hotels & Resorts, Hilton’s flagship brand and one of the most globally recognized hotel brands, has set the benchmark for hospitality around the world, providing new product innovations and services to meet guests' evolving needs. With hotels on six continents, Hilton Hotels & Resorts properties are located in the world’s most sought-after destinations for guests who know that where they stay matters. The brand primarily serves business and leisure upper upscale travelers and meeting groups. Hilton Hotels & Resorts are full service properties that offer advanced meeting and event spaces and services; trend-forward restaurants, lobby bars and grab-and-go options; mindful fitness/wellness facilities; and other services.
Curio Collection by Hilton : Curio Collection by Hilton is a global portfolio of one-of-a-kind hotels and resorts. These properties offer travelers authentic, curated experiences through distinctly local offerings and elevated amenities, while providing the many benefits of Hilton.
DoubleTree by Hilton : DoubleTree by Hilton is a fast-growing, global portfolio of upscale hotels. For more than 50 years, DoubleTree is the unpretentious brand that indulges you with a double dose of comfortable — through spaces and human moments that just make you feel good, including welcoming guests with its signature, warm DoubleTree cookie. Thanks to the dedication of its employees, DoubleTree by Hilton invites business and leisure travelers in key economic centers and tourist spots to experience the brand’s comfortable and contemporary accommodations and amenities, including unique food and beverage experiences, state-of-the-art fitness offerings and meetings and event spaces.
Tapestry Collection by Hilton : Tapestry Collection by Hilton is a portfolio of original hotels that offers guests unique style and vibrant personality and encourages guests to explore the local destination. Every property is united by the reliability that comes with the Hilton name.
Embassy Suites by Hilton : Embassy Suites by Hilton is the upper upscale all-suites hotel brand that delivers inclusive value. All guests are welcomed with spacious two-room suites with separate areas to work and play, plus free made-to-order breakfast daily and complimentary drinks and snacks every night.
Tempo by Hilton: Tempo by Hilton is a new, approachable lifestyle hotel brand dedicated to exceeding the expectations of an emerging, and discerning, class of traveler: the modern achiever. Pioneering a new hospitality category, Tempo by Hilton offers accommodations thoughtfully designed to help guests relax and recharge; inspiring public spaces, including an open
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lobby concept with dedicated spaces to relax, work and dine; and elevated, yet approachable, culinary options, including the brand’s signature coffee & tea fuel bar, a casual breakfast café and an inviting evening bar experience with small plates and cocktails. Additional amenities include state-of-the-art fitness facilities and programs and flexible meeting and working spaces. As of December 31, 2020, Tempo by Hilton had eight hotels in the pipeline.
Motto by Hilton : Motto by Hilton is a micro-hotel with an urban vibe in prime global locations. Motto caters to travelers looking for value and one-of-a-kind experiences by bringing together the best elements of a lifestyle hotel—efficient guest rooms, activated social spaces, centrally located destinations and locally inspired design and food & beverage. At its core, Motto delivers a flexible and innovative hospitality experience through elements like first-of-its-kind linking rooms for group travel and vibrant communal spaces for work and social use by guests and locals alike. As of December 31, 2020, Motto by Hilton had one open hotel and 14 hotels in the pipeline.
Hilton Garden Inn : Hilton Garden Inn is an award-winning brand where guests find an open, inviting atmosphere with warm, glowing service and simple, thoughtful touches that allow them to relax and recharge. As a recognized leader in food and beverage services, Hilton Garden Inn caters to guests' dining needs by serving cooked-to-order breakfast and offering handcrafted cocktails, shareable small plates and full meals at its on-site restaurants and bars. Flexible meeting space, free Wi-Fi, wireless printing and fitness centers are offered to help guests stay polished and productive.
Hampton by Hilton : Hampton by Hilton is our largest brand, with both Hampton Inn and Hampton Inn & Suites hotels located on four continents. Recognized as the leading upper midscale brand in the lodging industry, Hampton has been ranked the #1 lodging brand to franchise by Entrepreneur for 12 consecutive years. Hampton by Hilton hotels around the world provide guests high-quality and thoughtfully designed accommodations, friendly and authentic service and value-added amenities—like complimentary hot breakfast with healthy options and free Wi-Fi—all backed by the 100% Hampton Guarantee.
Tru by Hilton: Tru by Hilton is a game-changing hotel brand where guests don't have to compromise between a consistent, fun and affordable hotel stay. Spirited, simplified and grounded in value, Tru by Hilton is designed for cross-generational appeal, with a large, reimagined public space where guests can work, play, lounge and eat. Efficiently designed modern guestrooms feature a rolling desk, oversized windows for natural light and bright, spacious bathrooms. Guests can enjoy complimentary amenities, including a build-your-own "Top It" hot breakfast with both healthy and indulgent items and more than 35 toppings, a multifunctional fitness center and fast Wi-Fi. Premium snacks, light meal options and single-serve wine and beer are available for purchase at the 24/7 Eat. & Sip. market. Tru by Hilton only launched in 2016 and, in addition to the properties that are already opened as December 31, 2020, had 277 hotels in the pipeline.
Homewood Suites by Hilton : Homewood Suites by Hilton is the upscale extended-stay hotel brand that delivers the comforts of home. Every room is a spacious suite featuring a fully equipped kitchen—suitable for stays of any length. A free, full hot breakfast is served daily, along with complimentary drinks and bites in the evenings.
Home2 Suites by Hilton : Home2 Suites by Hilton is a dynamic and savvy brand designed to make guests feel at home regardless of their length of stay, while enabling them to have a positive impact on the world. Our forward-thinking design strikes the perfect balance of being modern and playful, while at the same time remaining functional and comfortable. Our flexible spaces empower guests to maintain their lifestyle with just the right benefits of home and stylish nods to their spirit of adventure. We are committed to empowering our guests by supporting sustainable communities. By packaging amenities and services that enable wellness and environmental health, we create value where it matters for our guests, our communities and our planet.
Hilton Grand Vacations : Hilton Grand Vacations is a timeshare brand that provides members with the ownership of a deeded real estate interest, as well as club membership points that provide a lifetime of vacation advantages. Hilton Grand Vacations provides the comfort and convenience of residential-style resort accommodations in select, renowned vacation destinations. Each of the Hilton Grand Vacations properties provides a distinctive setting, while signature elements remain consistent, such as high-quality guest service, spacious units and extensive on-property amenities.
Our Guest Loyalty Program
Hilton Honors is our award-winning guest loyalty program that supports our portfolio of brands at our managed, franchised, owned and leased hotel and resort properties. The program generates significant repeat business by rewarding guests with points for each stay at our properties, which are then redeemable for free nights and other goods and services. Members can also use points earned to transact with nearly 70 partners, including airlines, rail and car rental companies, credit card providers, Amazon.com, Lyft and others. The program provides targeted marketing, promotions and customized guest
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experiences to more than 112 million members. Affiliation with our loyalty programs encourages members to allocate more of their travel spending to our hotels. The percentage of travel spending we capture from loyalty members increases as they move up the tiers of our program. The program is funded by contributions from eligible revenues generated by Hilton Honors members and collected by us from hotels and resorts in our system. These funds are applied to reimburse hotels and partners for Hilton Honors points redemptions by loyalty members and to pay for administrative expenses and marketing initiatives that support the program.
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Our Business
As of December 31, 2020, our system included the following properties and rooms, by type, brand and region:
Owned / Leased (1)
Managed Franchised Total
Properties Rooms Properties Rooms Properties Rooms Properties Rooms
Waldorf Astoria Hotels & Resorts
U.S. — — 12 4,866 2 1,047 14 5,913
Americas (excluding U.S.) — — 2 261 — — 2 261
Europe 2 463 4 898 — — 6 1,361
Middle East and Africa — — 5 1,224 — — 5 1,224
Asia Pacific — — 6 1,259 — — 6 1,259
LXR Hotels & Resorts
Americas (excluding U.S.) — — — — 1 76 1 76
Europe — — 2 383 — — 2 383
Middle East and Africa — — — — 1 234 1 234
Conrad Hotels & Resorts
U.S. — — 6 2,211 1 223 7 2,434
Americas (excluding U.S.) — — 1 324 — — 1 324
Europe — — 4 1,155 — — 4 1,155
Middle East and Africa 1 614 3 1,569 — — 4 2,183
Asia Pacific 1 164 21 6,138 1 659 23 6,961
Canopy by Hilton
U.S. — — — — 20 3,363 20 3,363
Americas (excluding U.S.) — — 1 174 — — 1 174
Europe — — — — 2 263 2 263
Middle East and Africa — — 1 200 — — 1 200
Asia Pacific — — 3 489 — — 3 489
Hilton Hotels & Resorts
U.S. — — 62 46,081 177 54,300 239 100,381
Americas (excluding U.S.) 1 405 25 9,323 23 7,371 49 17,099
Europe 46 12,757 46 15,495 39 10,694 131 38,946
Middle East and Africa 5 1,998 40 13,082 2 1,415 47 16,495
Asia Pacific 5 2,999 103 36,691 6 2,177 114 41,867
Curio Collection by Hilton
U.S. — — 6 2,485 47 9,329 53 11,814
Americas (excluding U.S.) — — 2 99 10 1,177 12 1,276
Europe — — 5 520 15 1,846 20 2,366
Middle East and Africa — — 4 685 1 356 5 1,041
Asia Pacific — — 4 773 2 248 6 1,021
DoubleTree by Hilton
U.S. — — 32 10,877 339 77,814 371 88,691
Americas (excluding U.S.) — — 3 587 36 7,047 39 7,634
Europe — — 14 3,524 101 17,458 115 20,982
Middle East and Africa — — 14 3,854 5 567 19 4,421
Asia Pacific — — 68 18,303 4 1,333 72 19,636
Tapestry Collection by Hilton
U.S. — — — — 43 5,392 43 5,392
Americas (excluding U.S.) — — — — 2 190 2 190
Asia Pacific — — — — 1 175 1 175
Embassy Suites by Hilton
U.S. — — 41 10,923 209 46,869 250 57,792
Americas (excluding U.S.) — — 3 667 5 1,336 8 2,003
Motto by Hilton
U.S. — — — — 1 245 1 245
Hilton Garden Inn
U.S. — — 4 425 706 97,462 710 97,887
Americas (excluding U.S.) — — 12 1,723 46 7,042 58 8,765
Europe — — 20 3,763 55 9,124 75 12,887
Middle East and Africa — — 16 3,475 2 271 18 3,746
Asia Pacific — — 38 8,289 — — 38 8,289
Hampton by Hilton
U.S. — — 27 3,396 2,255 222,231 2,282 225,627
Americas (excluding U.S.) — — 14 1,786 105 12,694 119 14,480
Europe — — 17 2,808 80 12,387 97 15,195
Middle East and Africa — — 3 723 — — 3 723
Asia Pacific — — — — 160 26,621 160 26,621
Tru by Hilton
U.S. — — — — 177 17,313 177 17,313
Americas (excluding U.S.) — — — — 1 90 1 90
Homewood Suites by Hilton
U.S. — — 10 1,148 476 54,217 486 55,365
Americas (excluding U.S.) — — 3 406 22 2,457 25 2,863
Home2 Suites by Hilton
U.S. — — 3 313 453 47,691 456 48,004
Americas (excluding U.S.) — — — — 7 753 7 753
Other — — 5 2,530 5 1,395 10 3,925
Hotels 61 19,400 715 225,905 5,646 764,952 6,422 1,010,257
Hilton Grand Vacations — — — — 56 9,030 56 9,030
Total 61 19,400 715 225,905 5,702 773,982 6,478 1,019,287
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(1) Includes hotels owned or leased by entities in which we own a noncontrolling financial interest.
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Management and Franchise
We manage hotels and license our brands through our management and franchise segment. This segment generates its revenue primarily from fees charged to hotel owners under management and franchise contracts, as well as from fees associated with license agreements. We grow our management and franchise business by attracting owners to become a part of our system and participate in our commercial services to support their properties. These contracts require little or no capital investment to initiate on our part and provide significant return on investment for us as fees are earned.
Hotel Management
Our core management services consist of operating hotels under management contracts for the benefit of third parties who either own or lease the hotels and the associated personal property. Terms of our management contracts vary, but our fees generally consist of a base management fee, which is typically based on a percentage of the hotel’s monthly gross revenue, and, when applicable, an incentive management fee, which is typically based on a percentage of the hotel's operating profits and may be subject to a stated return threshold to the owner, normally over a one-calendar year period. In general, the owner pays all operating and other expenses and reimburses our out-of-pocket expenses. In turn, our managerial discretion typically is subject to approval by the owner in certain major areas, including the approval of annual operating and capital expenditure budgets and the appointment of certain key personnel. Additionally, the owners generally pay a monthly program fee based on the underlying hotel's sales or usage, as reimbursement for the costs related to our: (i) advertising and marketing programs; (ii) internet, technology and reservation systems; and (iii) quality assurance programs. Owners are also responsible for various other fees and charges, including payments for participation in our Hilton Honors guest loyalty program, training, consultation and procurement of certain goods and services. As of December 31, 2020, we managed 715 hotels with 225,905 rooms, excluding hotels included in our ownership segment.
The initial terms of our management contracts are typically 20 to 30 years. In certain cases, we are both the franchisor and manager of the hotel, when we enter into a franchise contract in addition to a management contract, and we classify the hotel as managed in our portfolio. Extension options for our management contracts are negotiated and vary, but typically are more prevalent in full service hotels. Generally, these contracts contain one or two extension options that are for either five or 10 years and can be exercised at our or the hotel owner's option or by mutual agreement.
Some of our management contracts provide early termination rights to hotel owners upon certain events, including the failure to meet certain financial or performance criteria. Performance test measures typically are based upon the hotel’s performance individually and/or in comparison to specified competitive hotels. We often have a cure right by paying an amount equal to the performance shortfall over a specified period, although in some cases our cure rights are limited.
Franchising
We license our brand names, trademarks and service marks and operating systems to hotel owners under franchise contracts. We do not own, manage or operate franchised properties and do not employ the individuals working at these locations. We conduct periodic inspections to ensure that brand standards that we establish are maintained. For newly franchised hotels, including both new construction and conversions of existing hotels outside of our system, we approve the location, as well as the plans for the facilities to ensure the hotels meet our brand standards. For existing franchised hotels, we provide franchisees with property improvement plans that must be completed to keep the hotels in compliance with our brand standards, so that they can remain in our hotel system. We also earn license fees from a license agreement with HGV and co-branded credit card arrangements for the use of certain Hilton marks and IP.
Each franchisee pays us an application, initiation or other fee in conjunction with the inception of a franchise contract. Franchisees also pay a royalty fee, generally based on a percentage of the hotel’s monthly gross room revenue and, in some cases, a percentage of gross food and beverage revenues and other revenues, as applicable. Additionally, the franchisees generally pay a monthly program fee based on the underlying hotel's sales or usage, which covers the costs of: (i) advertising and marketing programs; (ii) internet, technology and reservation systems; and (iii) quality assurance programs. Franchisees are also responsible for various other fees and charges, including payments for participation in our Hilton Honors guest loyalty program, training, consultation and procurement of certain goods and services. As of December 31, 2020, we franchised 5,702 hotels and resorts, including timeshare properties, with 773,982 rooms.
Our franchise contracts typically have initial terms of approximately 20 years for new hotels and approximately 10 to 20 years for hotels converting from hotels outside of our system. At the expiration of the initial term, we may have a contractual right or obligation to relicense the hotel to the franchisee for an additional term generally ranging from 10 to 15 years. We have
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the right to terminate a franchise contract upon specified events of default, including nonpayment of fees or noncompliance with brand standards. If a franchise contract is terminated by us because of a franchisee’s default, the franchisee is contractually required to pay us liquidated damages. We have no legal responsibility for the employees or the liabilities associated with operating franchised properties.
Ownership
As a hotel owner and lessee, we focus on maximizing cost efficiency and profitability of the portfolio by, among other things, maximizing hotel revenues, implementing new labor management practices and systems and reducing fixed costs. Through our disciplined approach to hotel and asset management, we develop and execute on strategic plans for each of our hotels to enhance their competitive position and, at many of our hotels, we invest in renovating guest rooms and public spaces and adding or enhancing meeting and retail space to improve profitability. As of December 31, 2020, our ownership segment consisted of 61 hotels with 19,400 rooms that we owned or leased or that are owned or leased by entities in which we own a noncontrolling financial interest.
Environmental, Social and Governance ("ESG")
The components of our ESG platform include corporate responsibility, human capital management and ethics and regulatory compliance.
Corporate Responsibility ("CR")
As one of the world’s largest hotel companies, we recognize Hilton has a responsibility to protect our communities and our planet so the destinations we serve can remain vibrant and resilient for generations of travelers to come. Despite the challenges presented by the COVID-19 pandemic, we remain committed to our efforts to drive responsible travel and tourism globally. We believe that as the world recovers from this crisis, the need for corporate responsibility leadership is greater than ever.
Hilton drives positive social and environmental change across our operations, our supply chain and our communities through our CR strategy, Travel with Purpose. In 2018, we established our 2030 Goals to double our investment in social impact and cut our environmental impact in half by 2030. Our 2030 Goals, which align with the global Sustainable Development Goals ("SDGs") adopted by the United Nations in 2015, are guided by our evaluation of the social and environmental issues that are critical to our business and our long-term success. We engage with stakeholders on an ongoing basis to continuously refine and enhance our strategy, and, in 2020, we initiated a full materiality assessment to review our ESG priorities to ensure alignment with the priorities of our internal and external stakeholders. The results of this assessment will inform our strategy for 2021 and beyond as we work towards our 2030 Goals and continue to contribute to achievement of the SDGs.
Hilton recognizes the material impact that our environmental and social efforts have on our business. Among these, we consider environmental sustainability and climate change to be a critical business risk, and we are committed to reducing our carbon emissions in line with climate science. We were the first hospitality brand to set science-based carbon reduction targets, which were verified by the Science Based Targets initiative, a partnership of several worldwide environmental organizations, in May 2018. We also evaluate our climate change risks and have begun to align our external ESG reporting in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD"). We use LightStay, our proprietary and award-winning CR performance management platform, to measure our environmental and social impact, including, but not limited to, carbon emissions, energy, water, waste, volunteer hours, in-kind donations and local partnerships. Use of LightStay is a global brand standard required across Hilton’s entire system of hotels and corporate offices.
Launched in 2019, the Hilton Effect Foundation (the "Foundation") is our primary global philanthropic arm, supporting efforts that help us meet our 2030 Goals. The Foundation is a nonprofit established in the U.S. and is registered as a 501(c)(3) charitable organization. See "Social Impact" below for discussion of the Foundation's activities in 2020.
We recognize that achieving meaningful progress on our 2030 Goals and the SDGs requires deep collaboration across a wide range of partners and stakeholders. In 2020, we supported the re-launch of the Sustainable Hospitality Alliance, harnessing the collective action of the hotel industry to drive positive impact at scale. We also joined the Travel Foundation's Coalition for the Future of Tourism, and we joined more than 200 businesses and investors in calling on the European Union's ("E.U.") leaders to raise E.U. 2030 greenhouse gas emissions targets and endorse the ambition set out in the European Green Deal.
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In 2020, Hilton was named the global industry leader on the Dow Jones Sustainability Indices ("DJSI") for the second consecutive year, demonstrating industry leadership across economic, social and environmental pillars. This marks the fourth consecutive year Hilton has been recognized for sustainability leadership through inclusion on the DJSI. Also, in 2020, Hilton was recognized by Newsweek as one of the Top 50 U.S. Businesses that "Stood Out During the Pandemic" for our efforts to support our communities’ recovery from the crisis.
Environmental Impact
We are committed to cutting our environmental footprint in half by 2030, through energy and carbon management, water stewardship, waste reduction and responsible sourcing. In 2020, we experienced a significant decrease in utility consumption across our global portfolio, primarily as a result of reduced occupancy and the complete and partial suspensions of hotel operations during the year. Hotel building systems cannot simply be turned off without risking damage to the asset, but we trained our hotel teams to adopt operational best practices, such as partial building shut downs, variable plant load operation and implementation of enhanced building controls, to further improve efficiencies and minimize utility costs during times of reduced occupancy and financial strain. We also maintained our portfolio-wide certification to ISO 9001 (Quality Management), ISO 14001 (Environmental Management) and ISO 50001 (Energy Management) standards, one of the largest ISO certified portfolios of buildings in the world.
In 2020, in alignment with our science-based targets, we took several steps to increase our sourcing of renewable energy at our hotels around the world. The majority of our managed hotels in the U.K., as well as our Watford and Glasgow corporate offices, began procuring 100 percent renewable electricity during the year ended December 31, 2020, and we also added a renewable energy option for our managed hotels in the U.S. Further, we continued our focus on our food waste reduction and food donation initiatives, with all of our managed hotels in the U.S. and Canada required to have food donation programs in place during 2020. We also operate the industry’s largest soap recycling program, with over 5,300 of our hotels working globally with soap recycling partners to donate new soap bars to those in need. We continued to work with our environmental partner, World Wildlife Fund, to evolve our environmental strategy and implement our programs globally.
We have achieved the following reductions in environmental impact since 2008:
Percent Reduction Achieved Since 2008 (1)
Reduction in water consumption per square meter (2)
47 %
Reduction in landfilled waste per square meter (2)
73
Reduction in carbon dioxide emissions per square meter (2)
56
Energy consumption per square meter (2)
47
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(1) Reflects data as of December 31, 2020 that has been certified by an independent third party. Improvement in these measures during the year ended December 31, 2020 is primarily attributable to the reduction in system-wide occupancy as a result of the COVID-19 pandemic, which included the complete or partial suspensions of hotel operations at approximately 380 of our managed, owned and leased hotels at some point during the period. The decrease in occupancy resulted in reduced consumption of energy, water and waste at hotels around the world.
(2) Reflects performance across Hilton's managed, owned and leased hotels, which totaled approximately 24.9 million square meters as of December 31, 2020.
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The following table reflects the key sustainability metrics for our managed, owned and leased properties, as well as recommendations of the Sustainability Accounting Standards Board ("SASB") within their Hotel & Lodging and Restaurant Standards:
Year Ended December 31,
Metric 2020 (1)
2019 2018
Energy Management
Total energy consumed, in gigajoules per square meter (2)
0.72 1.03 1.06
Percent total energy from grid electricity 56.3 % 53.8 % 54.0 %
Carbon Emissions
Total emissions (Scope 1 and 2), in metric tons CO 2 e per square meter (2)(3)
0.069 0.101 0.104
Water Management
Amount withdrawn, in cubic meters per square meter (2)
1.55 2.35 2.42
Amount consumed, in cubic meters per square meter (2)
0.388 0.586 0.605
Percent in regions with high or extremely high baseline water stress (4)
37 % 32 % 33 %
Waste Management (5)
Amount generated, in metric tons per square meter (2)
0.0039 0.0080 0.0084
Percent diverted from landfills 33.9 % 34.8 % 33.4 %
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(1) Reflects data as of December 31, 2020 that has been certified by an independent third party. Improvement in these measures during the year ended December 31, 2020 is primarily attributable to the reduction in system-wide occupancy as a result of the COVID-19 pandemic, which included the complete or partial suspensions of hotel operations at approximately 380 of our managed, owned and leased hotels at some point during the period. The decrease in occupancy resulted in reduced consumption of energy, water and waste at hotels around the world.
(2) Absolute consumption presented in the following table decreased during the year ended December 31, 2020 due to the impacts on occupancy as described above. Absolute consumption during the year ended December 31, 2020 included an estimated 9.0 percent increase in the total floor area of Hilton's managed, owned and leased properties, from 22.9 million square meters as of December 31, 2018 to 24.9 million square meters as of December 31, 2020.
Year Ended December 31,
2020 (1)
2019 2018
Total energy consumed, in million gigajoules 17.8 24.6 24.2
Direct emissions (Scope 1), in million metric tons CO 2 e
0.33 0.48 0.53
Indirect emissions (Scope 2), in million metric tons CO 2 e (3)
1.39 1.93 1.85
Water withdrawn, in million cubic meters (m 3 )
38.7 56.1 55.4
Water consumed, in million cubic meters (m 3 )
9.7 14.0 13.8
Waste generated, in million metric tons 0.097 0.192 0.192
(3) Scope 2 market-based emissions as defined by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition).
(4) As defined by the World Resources Institute ("WRI").
(5) Approximately 41 percent of total waste is estimated to be food waste, based on a sample of approximately 50 food waste reduction pilots worldwide. Hilton continues to refine its food waste reporting in alignment with the WRI's Food Loss and Waste Protocol.
Social Impact
With a presence in 119 countries and territories, we use our global scale as an engine of opportunity, focusing on positively impacting human rights, creating opportunities and building more inclusive communities as we work towards our goal to double our social impact investment by 2030. In addition to the direct impacts of our programs, we also use the Hilton Effect Foundation to drive investments in local community organizations, to strengthen our communities and protect the environment.
In addition to collaboration across our industry and within the business community, we are focused on achieving change by leveraging the scale of our value chain. In 2020, we supported 2,700 women-, minority-, veteran-, disabled- and LGBTQ+-owned businesses through our purchasing operations in the U.S. We are committed to doubling our sourcing from small, local and diverse-owned businesses globally, with a particular focus on helping these businesses recover from the economic impacts of the pandemic.
Globally, 2020 was a year dominated by disasters. Most notably, the COVID-19 pandemic immediately elevated the need to address urgent humanitarian crises across the globe, including in the communities where our hotels operate and our employees live. At the pandemic’s onset, Hilton and its hotel ownership community partnered with American Express to donate up to one million free room nights and World Central Kitchen to provide healthy, freshly prepared meals to frontline medical professionals staying in those rooms. Additionally, the Hilton Effect Foundation awarded six grants to organizations directly
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responding to community needs that resulted from the COVID-19 pandemic, including World Central Kitchen. As the pandemic spread globally, the Foundation tailored its annual Hilton Effect grants to specifically support charities driving inclusive recovery and community resiliency, especially for locations and populations that have been most severely impacted by the pandemic. Including its annual Hilton Effect grants, the Foundation has awarded more than $1 million to 29 community-based organizations directly involved in the COVID-19 pandemic recovery efforts to date.
The year ended December 31, 2020 was also plagued by a significant number of other natural and man-made disasters, including the Australian bushfires, California wildfires, one of the most active Atlantic hurricane seasons on record, Typhoon Ulysses and the Beirut Port Explosion. Hilton and the Foundation took a hands-on approach to supporting our hotel teams and surrounding communities through these disasters, including providing meals, hygiene kits and other support to those impacted by these events. Hilton recognizes the importance of supporting our employees directly impacted by disaster, which is why we fund a third-party operated Team Member Assistance Fund ("TMAF") to which employees, and employees of franchised hotels who are not employed by Hilton, can apply for financial aid when impacted by disaster and extreme hardship. The TMAF provided more than $500,000 in financial aid to individuals in 2020, approximately 95 percent of which was for individuals directly impacted by the COVID-19 pandemic.
Hilton also remains committed to combating human trafficking, and we require all hotel-based employees to complete an annual training on identifying signs of trafficking. We partner with expert organizations, including Vital Voices, It’s a Penalty and ECPAT, to help prevent and mitigate such risks, including at an industry level through the Sustainable Hospitality Alliance, World Travel and Tourism Council, American Hotel & Lodging Association and United Kingdom ("U.K.") Stop Slavery Hotel Industry Network.
Hilton continues to recognize the importance of training and developing the skills of young people for potential careers in the hospitality industry, particularly now, as they face one of the most challenging employment markets in recent years. During 2020, we continued our partnership with the International Youth Foundation, helping drive the creation of their Passport to Success Concierge model to strengthen the soft skills of even more youth around the globe. We also continued support for organizations such as Jobs for America’s Graduates and the Urban Alliance Foundation to provide youth with career opportunities throughout the pandemic. As members of the Tent Partnership for Refugees, we have impacted over 11,500 refugees since 2015 through volunteering, in-kind donations, purchasing, training and employment. We furthered this partnership in 2020 by pledging to directly mentor at least 50 LGBTQ refugees over the next three years.
In spite of this year's challenges, our employees around the world remained dedicated to creating a positive impact in their communities. This year, our employees continued to volunteer in their communities, including virtually, and in November 2020, we held our annual Hilton Effect Week of volunteering. During 2020, employees from 82 countries and territories volunteered over 180,000 hours in their local communities.
Human Capital Management
As of December 31, 2020, we employed approximately 141,000 people at our managed, owned and leased properties and at our corporate locations.
We strive to be the most hospitable company in the world, and we believe that an effective human capital management strategy is an essential component of that effort. Our strategy focuses on attracting, developing and retaining the best talent in the industry, and our executive committee reviews talent strategy and succession plans on a quarterly basis to assess current and future talent needs.
During 2020, in an effort to reduce current and future costs in response to the negative impact of the COVID-19 pandemic on our business, we made difficult decisions that impacted our employees, which included the following:
• temporarily furloughing nearly 60 percent of corporate employees;
• temporarily enacting salary reductions of 10 percent to 20 percent for corporate employees and 50 percent for executive committee members;
• eliminating our Chief Executive Officer's salary from April 2020 through year end; and
• implementing organizational changes, which included leadership realignment and a global corporate headcount reduction of approximately 30 percent.
We believe the reorganization better positions us to operate through the COVID-19 pandemic and focus on executing our strategy over the multi-year recovery.
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Development and Training
Our focus on career development recognizes that each of our employees has unique talents, dreams and goals. Rather than a one-size-fits-all approach, we create custom-curated experiences so that employees can learn, develop, lead and thrive at Hilton by following a training and career path best suited to their goals and aspirations. Hilton University, our global learning system, gives employees access to a robust library of learning resources to help them succeed. We partner with best-in-class educational institutions and content providers across the globe to deliver high-quality, relevant content to our employees, including a wide array of business, technical skill and leadership development opportunities. We have invested in modernizing our approach to learning, positioning us to continue to deliver content virtually throughout the pandemic and across our growing global footprint. Our Hilton University platform provides flexible, accessible learning to help our employees learn and grow. Additionally, many of our hotels have learning hubs in the Heart of House, a program we launched in 2016 to invest in enhancements to our unseen operations in our hotels, so that employees have access to ongoing development throughout their day and throughout their career. Our employees typically complete an average of 40 hours of training per year.
Diversity and Inclusion
At Hilton, we are diverse by nature and inclusive by choice. We focus on a "for all" culture where diverse ideas and backgrounds are welcomed and celebrated. It is a way of working that has never been more important than it is today. We prioritize conversations and programs that drive inclusion across our organization and look for ways to enhance our approach and meet the unique set of needs across our employee base.
We are committed to an inclusive workforce that fully represents many different cultures, backgrounds and viewpoints. Our President and Chief Executive Officer chairs the Hilton Executive Inclusion Council, which comprises the Company's most senior leaders and provides oversight of our diversity and inclusion programs and initiatives. Additionally, each of our eight Team Member Resource Groups ("TMRG") is sponsored by an executive committee leader. These groups provide members with opportunities for career development and the chance to share their unique perspectives and viewpoints with leadership and other colleagues. We also leverage our TMRGs to provide insights for our business. With over 50 chapters across the world, our TMRGs utilize virtual programming so that even during the pandemic, we are continuing to stay connected and drive important conversations about inclusion and equity across the enterprise.
We require all employees to complete training as part of our Inclusive and Respectful Workplace curriculum, which is based on the underlying principles of our Code of Conduct. This annual requirement includes training on unconscious bias, diversity and inclusion, human trafficking and anti-harassment. Our Code of Conduct states that we do not tolerate any form of discrimination or harassment on the basis of any characteristic protected by applicable law.
Hilton has a long legacy of supporting the military dating back to our founder, Conrad Hilton, a proud World War I veteran. In 2013, we launched Operation: Opportunity, our commitment to hire 10,000 people from the military and their family members by 2018. We met that commitment two years early and continue to take a proactive approach to identifying, hiring and supporting military veterans and family members seeking employment.
Thrive@Hilton
In 2017, we introduced a new value proposition, Thrive@Hilton, to enable all employees to grow and flourish in both their professional and personal lives. To make that happen, we offer an entire ecosystem of programs throughout their career with Hilton to ensure they have the tools they need to excel in their positions. Their total well-being – mind, body and spirit – is central to our growth and continued success. At Hilton, we know that when we take care of our employees they thrive and, in turn, create meaningful experiences for our guests and each other.
In addition to base pay, pay increases and a variety of bonuses for eligible employees, we offer a range of innovative benefits and programs that ensure our employees thrive in every aspect of their lives. Such benefits and programs include Go Hilton Travel programs, which make discounted rooms available to hotel and corporate employees, as well as their friends and family, paid time off, parental leave, adoption assistance, subsidized health insurance and education assistance.
We also provide an array of benefits promoting emotional and mental well-being, including our Employee Assistance Program that offer free services, such as:
• confidential counseling;
• legal advice;
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• child and eldercare resources;
• assistance managing credit card debt and income tax issues;
• resources for loans; and
• apartment hunting and relocation services.
Additionally, we provide mental health digital toolkits that offer advice on a range of topics such as dealing with social isolation and removing the stigma around mental health.
Compensation and Benefits
Hilton offers competitive pay and benefits to its employees, including a variety of compensation programs and comprehensive benefit programs. Hilton has hired consulting firms to independently evaluate the effectiveness of executive compensation and benefit programs and utilized their feedback to further our commitment to deliver competitive levels of compensation and benefits.
As of December 31, 2020, approximately 35 percent of our employees worldwide and approximately 45 percent of our employees in the U.S. were covered by various collective bargaining agreements generally addressing pay rates, working hours, other terms and conditions of employment, certain employee benefits and orderly settlement of labor disputes.
Awards and Recognition
We have consistently been recognized for our Hilton culture and, for 2020, our awards included: Great Place to Work Institute ("GPTW") #3 World’s Best Workplace, GPTW & Fortune #1 Best Place to Work in the U.S. (for the second consecutive year), GPTW & Fortune #1 Best Place to Work for Women in the U.S., #2 in the DiversityInc Top 50 Companies for Diversity and the Department of Defense Freedom Award, which is the highest U.S. government honor to employers for support of the National Guard and Reserve employees. Additionally, we received a 100 percent rating in the Corporate Equality Index from the Human Rights Campaign for our commitment to corporate policies, practices and benefits pertinent to lesbian, gay, bisexual, transgender and queer employees for the seventh consecutive year.
Ethics and Regulatory Compliance
Our ethics and compliance program is a core underpinning of our entire organization. Our Code of Conduct establishes a set of global business principles, with our compliance organization, training, risk management and monitoring activities tailored to address unique risks by geography, business line, function and level. Our Code of Conduct is supported by a robust set of compliance policies addressing risk areas such as corruption, trade sanctions, insider trading, confidential information, antitrust and escalation of concerns. Our legal and compliance training program provides the ability to convey a consistent set of compliance standards across the organization in formats designed to target different knowledge levels, learning styles and functional needs. Our annual training calendar includes mandatory training and supplemental training that is supported by company-wide awareness campaigns highlighting Hilton-specific risks and scenarios. We also use passive communication channels, including electronic bulletin board screens in the employee break room areas of our hotels and internal newsletters, including a publication that highlights real Hilton Compliance Hotline matters and their resolutions. Our legal compliance team administers a third-party risk management program so that we understand the qualifications, reputation and associations of third parties with whom we transact, particularly third parties who interface with government officials and third parties who act in Hilton’s name, such as owners of our hotels. The third-party risk management program includes due diligence, education materials for third parties, ongoing monitoring of relationships and appropriate contract audit and termination rights.
Competition
We encounter active and robust competition as a hotel and resort manager, franchisor, owner and lessee. Competition in the hospitality industry is based on several criteria, generally including: the attractiveness of the facility; location; level of service; quality of accommodations; amenities; food and beverage options and outlets; public and meeting spaces and other guest services; consistency of service; room rate; brand reputation; and the ability to earn and redeem loyalty program points through a global system. Our properties and brands compete with other hotels, resorts, motels, inns and other accommodation rental services in their respective geographic markets or customer segments, including facilities owned by local interests, individuals, national and international chains, institutions, investment and pension funds and real estate investment trusts ("REITs"). We believe that our position as a multi-branded manager, franchisor and owner of hotels with an associated system-wide guest loyalty and commercial platform helps us continue to maintain our position as one of the largest and most geographically diverse hospitality companies in the world.
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Our principal competitors include other branded and independent hotel operating companies, national and international hotel brands and ownership companies. While local and independent brand competitors vary, on a global scale, our primary competitors are Accor S.A., Choice Hotels International, Hongkong and Shanghai Hotels, Hyatt Hotels Corporation, Intercontinental Hotel Group, Marriott International, Radisson Hotel Group and Wyndham Hotels & Resorts.
Seasonality
The hospitality industry is seasonal in nature. The periods during which our properties experience higher or lower levels of demand vary from property to property, depending principally upon their location, type of property and competitive mix within the specific location. Based on historical results, we generally expect our revenues to be lower in the first quarter of each year than in each of the three subsequent quarters. However, the timing and effects of the COVID-19 pandemic resulted in the first quarter of 2020 being the strongest quarter in the year, as the remainder of the year was more significantly impacted by the reduced occupancy due to travel restrictions, safety concerns and the complete and partial suspensions of hotel operations.
Cyclicality
The hospitality industry is cyclical, and demand generally follows, on a lagged basis, key macroeconomic indicators. There is a history of increases and decreases in the development and supply of and demand for hotel rooms, occupancy levels and room rates realized by hotel owners through economic cycles. The combination of changes in economic conditions and in the supply of hotel rooms can result in significant volatility in results for owners and managers of hotel properties. The costs of running a hotel, including personnel costs, rent, property taxes, insurance and utilities, tend to be more fixed than variable. As a result of such fixed costs, in a negative economic environment, the rate of decline in earnings can be higher than the rate of decline in revenues. We and our hotel owners experienced a downturn in the current industry cycle driven by the COVID-19 pandemic. We expect to enter into a recovery phase in our industry cycle as vaccines and treatments for COVID-19 become more widely available.
Intellectual Property
In the highly competitive hospitality industry in which we operate, trademarks, service marks, trade names, logos and patents are very important to the success of our business. We have a significant number of trademarks, service marks, trade names, logos, patents and pending registrations and expend significant resources each year on surveillance, registration and protection of our trademarks, service marks, trade names, logos and patents, which we believe have become synonymous in the hospitality industry with a reputation for excellence in service and authentic hospitality.
Government Regulation
Our business is subject to various foreign and U.S. federal and state laws and regulations, including laws and regulations that govern the offer and sale of franchises, many of which impose substantive requirements on franchise contracts and require that certain materials be registered before franchises can be offered or sold in a particular jurisdiction.
In addition, a number of states regulate the activities of hospitality properties and restaurants, including safety and health standards, as well as the sale of liquor at such properties, by requiring licensing, registration, disclosure statements and compliance with specific standards of conduct. Operators of hospitality properties also are subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Our franchisees are responsible for their own compliance with laws, including with respect to their employees, minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of our properties and could otherwise adversely affect our operations.
We also manage hotels with casino gaming operations as part of or adjacent to the hotels. However, with the exception of casinos at certain properties in Puerto Rico and Egypt, third parties manage and operate the casinos. We hold and maintain the casino gaming license and manage the casinos located in Puerto Rico and Egypt and employ third-party compliance consultants and service providers. As a result, our business operations at these facilities are subject to the licensing and regulatory control of the local regulatory agency responsible for gaming licenses and operations in those jurisdictions.
Because we use a variety of direct marketing techniques, including telemarketing, email and social media marketing and postal mailings, we are subject to various laws and regulations in the U.S. and internationally that govern marketing and advertising practices. Any further restrictions in laws and court or agency interpretations of such laws, such as the Telephone Consumer Protection Act of 1991, the Telemarketing Sales Rule, CAN-SPAM Act of 2003, and various U.S. state laws, new
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laws or international data protection laws, such as the E.U.'s General Data Protection Regulation ("GDPR"), that govern these activities could adversely affect current or planned marketing activities and cause us to change our marketing strategy.
As an international manager, franchisor, owner and lessee of properties in 119 countries and territories, we also are subject to the local laws and regulations in each country in which we operate, including employment laws and practices; privacy laws; tax laws, which may provide for tax rates that exceed those of the U.S. and which may provide that our foreign earnings are subject to withholding requirements or other restrictions; unexpected changes in regulatory requirements or monetary policy; and other potentially adverse tax consequences.
In addition, our business operations in countries outside the U.S. are subject to a number of laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act ("FCPA"), as well as trade sanctions administered by the Office of Foreign Assets Control ("OFAC"). The FCPA is intended to prohibit bribery of foreign officials and requires us to keep books and records that accurately and fairly reflect our transactions. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals. Some of our operations may also be subject to additional laws and regulations of non-U.S. jurisdictions, including the U.K.'s Bribery Act 2010, which contains significant prohibitions on bribery and other corrupt business activities, and other local anti-corruption laws in the countries and territories in which we conduct operations. The E.U.'s GDPR, effective in 2018, has stringent requirements regarding the handling of personal data such as credit card numbers and other personally identifiable information that we collect for a variety of important business purposes, including managing our workforce, providing requested products and services and maintaining guest preferences to enhance customer service and for marketing and promotion purposes.
Environmental Regulations and Requirements
We are subject to certain requirements and potential liabilities under various foreign and U.S. federal, state and local environmental, health and safety laws and regulations and incur costs in complying with such requirements. These laws and regulations govern actions including air emissions; the use, storage and disposal of hazardous and toxic substances; and wastewater disposal. In addition to investigation and remediation liabilities that could arise under such laws, we may also face personal injury, property damage, fines or other claims by third parties concerning environmental compliance or contamination. We use and store hazardous and toxic substances, such as cleaning materials, pool chemicals, heating oil and fuel for back-up generators at some of our facilities, and we generate certain wastes in connection with our operations. Some of our properties include older buildings, and some may have, or may historically have had, laundry and dry-cleaning facilities and underground storage tanks for heating oil and back-up generators. We have from time to time been responsible for investigating and remediating contamination at some of our facilities, such as contamination that has been discovered when we have removed underground storage tanks, and we could be held responsible for any contamination resulting from the disposal of waste that we generate, including at locations where such waste has been sent for disposal. In some cases, we may be entitled to indemnification from the party that caused the contamination pursuant to our management or franchise contracts, but there can be no assurance that we would be able to recover all or any costs we incur in addressing such problems. From time to time, we may also be required to manage, abate, remove or contain mold, lead, asbestos-containing materials, radon gas or other hazardous conditions found in or on our properties. We have implemented an ongoing operations and maintenance plan at each of our owned and managed properties that seeks to identify and remediate these conditions as appropriate. Although we have incurred, and expect that we will continue to incur, costs relating to the investigation, identification and remediation of hazardous materials known or discovered to exist at our properties, those costs have not had, and are not expected to have, a material adverse effect on our consolidated financial position, results of operations or cash flows.
Insurance
U.S. hotels that we manage are permitted to participate in certain of our insurance programs by mutual agreement with our hotel owners. If not participating in our programs, hotel owners must purchase insurance programs consistent with our requirements. Generally, U.S. franchised hotels are not permitted to participate in our insurance programs, but rather must purchase insurance programs consistent with our requirements. Foreign managed and franchised hotels are required to participate in certain of our insurance programs. In addition, our management and franchise contracts typically include provisions requiring the owner of any hotel to indemnify us against losses arising from the design, development and operation of such hotel.
Most of our insurance policies are written with self-insured retentions or deductibles that are common in the insurance market for similar risks, and we believe such risks are prudent for us to assume. Our third-party insurance policies provide coverage for claim amounts that exceed our self-insurance retentions or deductible obligations. We maintain insurance coverage for general liability, property, business interruption, terrorism and other risks with respect to our business for all of our owned
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and leased hotels, and we maintain workers' compensation coverage for all of our employees. We also are self-insured for health coverage for some of our U.S. employees, including our corporate operations and managed properties. In general, our insurance provides coverage related to any claims or losses arising out of the design, development and operation of our hotels.
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's website at www.sec.gov. Our SEC filings are also available on our website at newsroom.hilton.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.
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