Starwood Hotels is exploring strategic alternatives, but that does not mean Hilton is going to bite, CEO Chris Nassetta said.

Don’t expect Hilton Worldwide Holdings to acquire competitor Starwood Hotels & Resorts Worldwide.

That was the message reiterated time and time again by Hilton President and CEO Chris Nassetta on Wednesday during an earnings call with analysts.

Less than four hours earlier, Starwood announced it was exploring a full range of strategic and financial alternatives to increase shareholder value.

“We’re in a really good place,” Nassetta said when first asked of Hilton’s interest inStarwood. “You can see our first-quarter results are really good in every regard. … We had a great year last year. We think we have everything we need to lead the industry in all regards, top line, bottom line and unit growth. We’re doing a pretty good job of proving that in delivering the results we have since going public. … I think we have amazing opportunities with the brands we have in our opportunity today.”

Shares of Hilton (NYSE: HLT) were up almost 2% in the day’s trading as of press time and were up 14.6% year to date. The Baird/STR Hotel Stock Index, by comparison, was up 2.9% year to date.

Hilton reported a 22% increase in net income to $150 million and a 6.6% increase in system-wide revenue per available room to $98.40. Management and franchise fees for the quarter were up 18% to $391 million.

The company also opened more than 8,000 rooms and signed more than 23,000 new rooms in the pipeline.

“I think the fundamentals are as good as I’ve ever seen them,” Nassetta said in his prepared remarks.

M&A activity common at this point in the cycle

Strong fundamentals often drive increased merger-and-acquisition activity in each cycle, Nassetta said.

“When you get to this stage in the cycle, you typically see more (M&A activity) generally. I have 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. … Time will tell.”

While Hilton is unlikely to pull the trigger on Starwood, that does not mean the company will sit on the sidelines entirely.

“It would be silly to say we would never participate in M&A activity because you never know what opportunities might present themselves that might make a tremendous amount of sense,” Nassetta said. “We always want to remain open-minded.”

Any opportunity must meet two criteria, however.

First, the acquisition must fit strategically with Hilton’s existing offerings, Nassetta said. Starwood has three brands each in the luxury and upscale segments and four in the upper-upscale segment, including the recently announced Tribute Portfolio soft brand. Hilton counts two brands in the luxury segment, three in upper-upscale, four in upscale and two in upper-midscale segment.

“I do not think we have a strategic gap that we cannot deal with ourselves,” Nassetta added with regard to brand offerings. He pointed to the recently launched Curio—A Collection by Hilton and Canopy by Hilton as two examples of that in-house, do-it-yourself approach. Combined, the two brands have more than 50 properties and 13,000 rooms open or in various stages of development.

The second criteria before Hilton engages in M&A activity, Nassetta explained, is that each potential acquisition must provide economic drivers that show “significant” value accretion.

And there again, he said building brands in house typically generates far greater return on investment than does acquiring them. He said he knows as much from evaluating past acquisition opportunities that have come and gone.

“We have looked at those and said we’re better off doing it organically. We’re going to drive better return for our shareholders,” Nassetta said. “We have not seen returns that justify taking action.”

A defensive deal?

One analyst asked whether Nassetta was worried a merger between two of Hilton’s competitors might create a more formidable foe in the battle for bookings.

“I don’t wake up in the middle of the night losing sleep over that,” he answered. “I don’t think we’re perfect. … but I like our setup. I like what we have. I like the momentum. I like the makeup of the company. …

“I can see why others might want to do something that would make them look and feel like that, and ultimately they might become a more worthy competitor, (but) I certainly don’t do deals defensively.”