Hilton Reports First Quarter 2002 Results

Hilton Hotels Corporation (NYSE:HLT) today reported financial results for the first quarter ended March 31, 2002. The company also announced that it has entered into an agreement to purchase its partner`s interest in the famous Hilton Waikoloa Village on Hawaii`s Big Island, a property the company currently manages and in which it has an approximately 13 percent ownership interest.

First quarter results were highlighted by the company`s ongoing successful cost containment programs, which resulted in strong margins in a challenging environment; robust sales at the company`s Hilton Grand Vacations timeshare business; market share increases for all brands in the Hilton family, and a decline in interest expense. The quarter was adversely impacted by a still comparatively sluggish U.S. economy, reduced demand from independent business travelers and a decline in international visitation.

The company reported first quarter net income of $34 million, versus $55 million in the 2001 quarter. Diluted net income per share was $.09, compared with $.15 in the first quarter 2001. Pro forma diluted EPS in the first quarter 2001 (including $.03 per share from the new accounting rules pertaining to non-amortization of goodwill and certain intangible assets) was $.18. The 2001 quarter also benefited from the recognition of previously deferred timeshare sales in Hawaii ($.02 per share).

Comparable revenue per available room (RevPAR) at the company`s U.S. owned-or-operated hotels decreased 13.7 percent in the quarter on an occupancy decline of 4.6 points to 66.0 percent and a 7.6 percent decline in average daily rate (ADR) to $130.67. Within the Hilton full-service brand, comparable owned-or-operated RevPAR declined 13.2 percent, with occupancy down 4.8 points to 68.1 percent, and ADR declining 7.1 percent to $155.25.

The company reported first quarter revenue of $921 million, down 14 percent from the 2001 period. Total company earnings before interest, taxes, depreciation, amortization and non-cash items (EBITDA) were $231 million, a 22 percent decline from the 2001 quarter. Along with the lingering affects of the September 11 attacks, the impact of 2001 property transactions (primarily CNL and the sale of the Red Lion chain) contributed to the decline in revenue and EBITDA. Excluding the impact of asset sales and the first quarter 2001 recognition of previously deferred timeshare sales in Hawaii, revenue and EBITDA declined 9 percent and 18 percent, respectively, in the first quarter 2002. Total company EBITDA margin for the quarter was


- 33.5 percent (EBITDA as a percentage of revenue before “other revenue from managed and franchised properties.”)

Across all brands, EBITDA from the company`s owned hotels totaled $136 million in the first quarter, with comparable EBITDA down 20 percent from the same period a year ago. RevPAR from comparable owned properties declined 15.3 percent for the quarter; occupancy at these hotels declined 5.0 points to 66.2 percent, and ADR was off 8.9 percent to $149.49. EBITDA margins at these hotels declined 2.7 points from the 2001 first quarter, but as a result of aggressive cost containment initiatives, owned hotel EBITDA margins were a solid 27.6 percent. This represented a 2-point improvement over the fourth quarter 2001.

The owned hotel RevPAR decline was in line with the company`s expectations, but more importantly represented a significant improvement from the decline experienced in the 2001 fourth quarter, signifying strengthening demand especially among leisure travelers and groups. At comparable owned hotels, occupancy levels in particular were strong—66.2 percent in the first quarter versus 61.2 percent in the fourth quarter 2001—with ADR roughly flat, despite the first quarter being a historically weaker period and the first quarter 2002 impact of the Easter holiday. Markets maintaining strong occupancy levels or showing particular improvement include New York City, New Orleans, Washington, D.C. and Honolulu. Key markets that continue to exhibit softness are San Francisco and Chicago, though the outlook for Chicago is expected to improve.

As has been the case in the last two reporting periods, occupancy and rates in “drive-to” markets—those less dependent on air travel, and where the company`s Hampton Inn, Hilton Garden Inn and Homewood Suites by Hilton hotels are primarily located—were impacted to a significantly lesser degree than hotels in major urban centers.

System-wide RevPAR in the first quarter declined from the 2001 period at each of the Hilton brands (including franchised properties) by the following percentages: Hampton Inn, 2.7 percent; Homewood Suites by Hilton, 7.3 percent; Hilton Garden Inn, 8.4 percent; Embassy Suites, 11.0 percent; Hilton, 12.8 percent, and Doubletree, 14.6 percent.

Management and franchise fees for the quarter totaled $81 million, a 13 percent decline from the 2001 period, due primarily to a decline in both base and incentive fees resulting from lower RevPAR.

Picking up from where they left off in 2001, each of the company`s brands increased market share during the first two months of 2002, with most of the brands commanding significant RevPAR premiums over their respective competitive sets. With 100 representing a brand`s RevPAR “fair share” of the market, the Hilton brands (according to data from Smith Travel Research) performed as follows year-to-date February 2002: Embassy Suites, 122.6 (+3.8 pts.); Hampton Inn, 120.4 (+6.7 pts.); Homewood Suites by Hilton, 120.4 (+8.5 pts.); Hilton Garden Inn, 113.1 (+4.0 pts.); Hilton, 110.2 (+3.8 pts.), Doubletree,

- 97.2 (+0.5 pts). The company`s successful cross-selling initiatives and the strength of the Hilton HHonors guest loyalty program helped contribute to this superior brand performance. In the first quarter, cross-selling through Hilton Reservations Worldwide generated approximately $74 million in system-wide booked revenue, a 19 percent increase over the 2001 period. HHonors members comprise a combined 36 percent of the occupancy at the Doubletree, Hampton Inn, Embassy Suites and Homewood Suites by Hilton brands, and is approximately the same at the Hilton brand.
During the quarter, Hilton added 31 hotels and 4,015 rooms to its system as follows: Hampton Inn, 17 hotels and 1,581 rooms; Hilton Garden Inn, 6 hotels, 997 rooms; Doubletree, 3 hotels, 583 rooms; Homewood Suites by Hilton, 3 hotels, 420 rooms; Hilton, 1 hotel, 375 rooms; Conrad, 1 hotel, 59 rooms. Two hotels and 287 rooms were removed from the system during the quarter.

At March 31, 2002, the Hilton system totaled 2,015 properties and 331,215 rooms. The company`s current development pipeline has approximately 360 hotels either approved, in design or under construction, some 75 percent of which are either Hampton Inns or Hilton Garden Inns. As evidence of the turnaround of the Doubletree hotels, there are currently eight Doubletree hotels either in design, under construction, or being converted from other brands, with another three in the approval stage. During the quarter, the development of five new Hampton Inn hotels in New York City was announced by franchisees, and Hilton and Hilton International announced the management of a new luxury Conrad Hotel in Mount Juliet, Ireland. Additionally, the company announced today (April 23) that is has signed an agreement to manage a new 450-room convention hotel in downtown Omaha, Nebraska. The Hilton Omaha, adjacent to the new Omaha Convention Center, is scheduled to open in early 2004. This agreement represents the third such contract signed by Hilton in recent months, following announcements of new-build convention hotels Hilton will manage in Houston and Austin, Texas.