希爾頓酒店 (HLT) 2001 Q1 法說會逐字稿

1 HILTON HOTELS INC. CONFERENCE CALL

Ladies and gentlemen thank you for standing by. Welcome to the Hilton Hotel's first quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in the question and answer session. At that time, if you have a question you will need to press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded, Wednesday, April 25th 2001. I would now like to turn the conference call over to Marc A. Grossman, Senior VP of Corporate Affairs. Please go ahead sir.

Thank-you, good morning everybody. Thanks for joining up this morning to talk about our first quarter earnings. By now, everyone, I am sure has had an opportunity to go through the press release that we issued this morning. Let me introduce the participants and management team members that are here to answer you questions, Stephen Bollenbach, our President and CEO, Matthew J. Hart, CFO, 2 Dieter H. Huckestein, President of our Owned and Managed Hotels, Thomas L. Keltner, President of our Franchise and Brand Development Group, Madeleine A. Kleiner, General Counsel, Robert M. La Forgia, Controller, Mariel C. Albrecht, our Treasurer, and joining us from Memphis Tim Harvey, our Chief Information Officer. Just a little bit of housekeeping, the press release that we issued this morning and this conference call contains forward-looking statements within the meaning of Federal Securities Law including statements concerning business strategies and their intended results, and similar statements concerning anticipated future events and expectations that are not historical facts. The forward-looking statements in the press release and conference call are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements herein. The conference call this morning is also being webcast, and the way to access that is over our hilton.com website, now you should log on to www.hitlton.com, click on company information and then proceed to the investor relations section. Steve and Matt, they are going to make a few brief comments in a few minutes, and as we 3 typically do we want to leave bulk of the time on the call for your questions,

but before I turn it over to Steve and Matt for their comments, let me just take a couple of seconds and reiterate the 2001 guidance that we outlined in this morning's press release. Looking at RevPAR, we can expect that the system-wide RevPAR should increase by 2% to 3% for the full year, with positive RevPAR growth at our owned hotels. Based on what've seen so far this year and our forecast for the remainder of the year, we would anticipate that our focus service brands like Hampton Inn, Homewood Suites by Hilton and Hilton Garden Inn, as well as our other full service brand such as Embassy Suite and Doubletree, will see the highest RevPAR growth. We expect to grow EBITDA for the full year in the low single-digit percent range over 2000, and show earnings per share grow in the low double-digit percent range which is in line with current street consensus, and as we stated previously, after all capex, we expect it will generate net cash flow this year in the $300 million range. Finally, and we know the question will come up, with regard to the second quarter of 2001, we are comfortable with estimates in the 4 low 20 cent range. So with that as an introduction, let me turn it over to Steve.

Good morning. I will start by saying that we are very pleased to report the very solid earnings for the first quarter. On a recurring basis, it's 25% EPS growth over last year's quarter. Main parts of our company had shown very stronger results. Having said that, I'll add that there is no question that we are currently in a challenging environment, especially when compared to record setting year 2000. When you look at our first quarter results and consider the outlook for the rest of this year, the takeaway is that the benefits of our Promus acquisition are very, very clear. The strength of our fee income stream, the excellent performance of our brands, our ability to increase market share and the continued achievement of our synergy targets have served us well in the first quarter, and we will do so for the remainder of 2001. In any operating environment, but particularly one with the kinds of economic uncertainties we are currently facing, the winners in this business are going to be those with distribution, well known brands, a wide range of products to serve 5 all customers, and the best sales and marketing programs. That's the company that we created when we brought Promus, combining the excellent attributes of each company and we are definitely seeing the results this year. Our strategy for growth continues to be the right one for our shareholders. We are confident in our strategy and confident in our ability to execute against it. So, the strategy, first is maximizing the returns on the assets we own, clearly this is an area where we face our biggest test in 2001, without minimizing the problems in the current economic landscape, I think some context is important; 2000 was [_______________]to the lodging business, as we've said in our last earnings call that performance was not expected to carry over to

2001, but I would note that most of our large hotels in major markets are continuing to run at occupancies in the mid-to-high 70s and with very solid room rates. People are still traveling for both business and leisure, and the core business is good. There is softness in selected markets, for instance New York and San Francisco where group business is being affected by weakness in the technology sector and in the financial services industries. This impacted our 6 RevPAR growth and EBITDA in the first quarter, and the reality is that it is hard to know to what extent these trends will continue for the rest of the year. Our advanced bookings were solid on pace with last year, and our year-to-date reservations through the Hilton Reservations Worldwide are up 13% over last year. These are great indicators, but the current economic uncertainty, and in this more difficult environment, it is our view that a more conservative look at the near future is warranted. With lower RevPAR growth, the focus this year turns mover towards margins at the owned hotels. We have had a history of operating at the highest margins in the industry, and our total company EBITDA margin was very strong in the first quarter. We intend to continue that for the full year, but it will require us to be aggressive in containing cost and mitigating such factors as the significant increase in energy costs. We have instituted a number of cost savings initiatives, and the goal this year is to maintain the kind of strong EBITDA margins we showed last year. For example, we have a very strict limitation on new hires, both at the property level and the corporate level. Our 7 system of clustering hotels in geographic areas is helping us operate a bit more efficiently.

And, on the subject of energy, we will save money through direct purchase agreements that we've negotiated along with a 10% reduction in energy consumption, and as you know, we have added an energy charge at many of our owned hotels and managed hotels. But you should also know that this charge is being accounted for as an offset against energy expenses, not as the additional revenue. So, in a nutshell, the performance of our big hotels, by and large is solid, but not nearly as good as last year, and we face some challenges at some of these hotels. Now, there is no question we're disappointed with our comparable owned EBITDA margins for the first quarter. We have programs in place to meet the challenges and maintain the kinds of high margins that we are accustomed to delivering. The story for our second growth strategy, growing our brand development and franchise business is excellent. This is the part of business where the benefits of our Promus acquisition are most prominent. Our Hilton Garden Inn, Hampton, Homewood Suites, Doubletree, and Embassy Suites brands, each showed RevPAR growth of 5% or better. Our 2 leading franchise brands Hilton Garden Inn and 8 Hampton, both showed double-digit RevPAR gains. Our brands are taking market share and all are increasing their fare share of RevPAR in the categories and markets where they compete. We can point to the power of our Hilton HHonors Loyalty Program and our successful cross-selling initiatives as reasons for the ongoing strong RevPAR performance of these brands. HHonors now accounts for about 27% of the combined occupancy at Hampton, Doubletree, Homewood, and Embassy, and the number is growing. Cross selling, among all our brands, generated above $55 million in incremental system-wide booked revenue in the first quarter. The turn around of Doubletree is particularly gratifying.

This brand has really benefited from the introduction of Hilton HHonors, cross selling, and our worldwide sales force. It has been gaining market share, has consistently increased its RevPAR and RevPAR fair share in it's markets, and the continuing improvement in this brand is a great success story from our Promus acquisition. Strong RevPAR gains is one part of fee income story, the other part, of course, is adding units to the system, and here too we're showing great results. Our HHonors opened 35 hotels in the 9 first quarter, and we are right on our projections to add 25,000 to 27,000 rooms this year. This will be mostly Hilton Garden Inn's, Hampton Inn's, and Homewood Suites. We'll have several milestone openings this year. Tomorrow, we open the 100th Homewood Suite by Hilton Hotels in Washington DC, and next month the 100th Hilton Garden Inn will open in Orlando, Florida, and later this year, we'll reach 2000 hotels system wide, about seven times what we had at this point just two years ago. Again, the benefits of shell space, product diversity, and highly regarded brands. We believe we have the brands of choice and this is being proven by the fact that our share of new supply in the mid-scale - upscale segments is continuing to increase. We're running neck-and-neck with our good competitors in share of new construction. Our two companies are the only ones showing any appreciable gains in market shares. Our timeshare business continues to be another good source of earnings and EBITDA. The very strong sales we experienced at all of our timeshare properties, but especially at our news property at the Hilton Hawaiian Village made a significant contribution to our first quarter earnings.

We expect that continued excellent 10 timeshare sales would be a good source of earnings for the rest of this year. Because of this, it's a business that we're investing in and growing in strategic markets. Next month, we'll break ground on our two new timeshare properties in Las Vegas and in Orlando. The brand performance and development part of our business along with our timeshare business are helping us offset some of the more challenging factors that we're seeing in our owned hotels. Finally, the synergies from the Promus acquisition are continuing to be realized, and we are creating value there for our shareholders. We are right on target to deliver the $100 million of synergies that we have forecasted for this year. The HHonors program has exceeded our expectations. We are beating our projections on cross-selling revenue. Our global sales efforts are increasing business to the former Promus brands, and we are continuing to realize the cost savings and operating efficiencies of putting these two companies together. So, the synergy story continues to be a very successful one. So, I'll just end by saying that our core business is solid. We are well positioned to withstand a downturn. Some of our owned hotels are being 11 challenged this year in an uncertain economy, but we have programs in place to meet these challenges and to maintain our high margins as well as to strengthen our fee business and timeshare operations. We remain focused on our goals of generating good earnings, growth and pre-cash flow growth. We did it in the first quarter and we are confident that we'll be able to do it for the rest of the year. So with that, let me turn it over to Matt for a few comments.

Thanks Steve. Maybe you know this, but one of the important initiatives we've been working on with regard to our financial strategy is improving our credit ratios. Once we closed the Promus acquisition, our debt-to-EBITDA ratio was 4.6 times, and our goal was to reduce that to 4.25 times by year-end 2000, we actually did better than planned and ended 2000 with debt-to-EBITDA ratio of 4.0 times. With a strong cash flow profile of our company, we expect to reduce debt-to-EBITDA to 3.75 times by the end of this year. We do continue to work on the sale of some our non-strategic assets similar to the transactions we completed within the last year on the Homewood Suites in Red Lion, but just like those previous 12 transaction, for us, the price have to be right. We continue to reduce our percentage of floating rate debt, in February issued 300 million of [10-year notes] on an attractive rate. Currently, our percentage of floating rate debt stands at 46% down from 53% at year-end 2000, and 65% when we closed the Promus deal. Our goal is to get to about a 65 - 35 ratio of fixed debt to floating rate, and to do that, we'll continue to access the bond markets on an opportunistic basis. And having said that, and as we expected heading into this year, we have benefited from our floating rate debt in light of interest rate declines. We borrow both in the commercial paper market and from our banks at rates below 6% currently. In the first quarter, for example, lower interest rates from the lower rates and reduced debt levels contributed about a penny to our earnings. So, we're going to continue to work on improving our credit standing. We have very good relationships with all three rating agencies, and we still value very highly our investment grade credit ratings. Now, Mark, do you want to wrap up and start the Q&A.

I think we can go right to the Q&A. So, operator we're ready to 13 go.

Thank-you. Ladies and gentlemen, if you wish to register a question for today's question and answer session, you will need press the 1 followed by the 4 on your telephone. You'll hear a 3-tone prompt acknowledging your request. If your question has been answered and you wish to withdraw your polling request, you can do so by pressing the 1 followed by the 3. If you are on a speakerphone, please pick up your handset before entering you request. One moment please for the first question. Brian Egger from CS First Boston, please go ahead with your question.

Good morning. Just had two questions. The first is maybe you could fill in us a little bit regarding the first quarter in terms of how the various months paced and how business deals, particularly in the group side going into April? And secondly, just maybe you can confirm this for us, it looks like those RFS leased hotels left your system, sort of and a lump in the first quarter rather than throughout the year. I was just wondering if that was unexpected or whether or not something changed there? Or that was what you had expected to 14 happen?

I think Brian on the second question, that is exactly what we expected to have happen.

Was that so?

We closed at January 3rd, and I think we've been giving guidance when you look at the full year 2001, we expect that leased hotel revenue would probably be cut in half for the full-year. Dieter, you want to add.

Into the year we went with a very strong, definite group base, but then we experienced cancellations, deferrals, and reduction of attendance, particularly in February and March. But going through that for the year, we have reviewed every definite bookings and we are still slightly ahead in our total group booking. So, that's where we are at this point.

Thank-you.

Harry Curtis from Robertson Stevens. Please go ahead with your question.

Good morning, do you guys 15 have any history of demand trends when you see consumer confidence slowing down with regard to timeshare sales?

You know, I was with one of our, the guy that runs our timeshare unit at the Flamingo in Las Vegas, and it's just not an issue because when people come in they're looking at it not as, gee, is this something we can do this, they're really looking at it as a long term, you know, this is a vacation for the rest of their lives, kind of a thing, and the fact is when you're talking maybe, 13,000, 14,000 dollars for a week in a place like Las Vegas or Orlando for the rest of your life, it seems to be a pretty good deal. So, no, there is no correlation Harry, in fact, timeshare sales have been very, very brisk even with this economic uncertainly. So, there is no correlation.

Thank-you.

Keith A. Mills from UBS Warburg. Please go ahead with your question.

Good morning. A couple of questions for you. The first is, could you 16 comment with, if within the management franchise fees, the 93 million for the first quarter, how much of that was due to one-time terminations or changes in ownerships at the hotels that you referenced in the release?

There is about an increase of approximately 2 to 3 million and these relate to change of ownership and contract termination, quarter-over-quarter.

Okay, so a more recurring number would have been around 90 million then?

Yeah. That's a normal part of the business though.

Okay. The tax rate decline during the quarter is 41%, reasonable going forward?

Yes it is.

Okay, and then just finally, given the emphasis that Steve you mentioned as related to margins in the issues and the challenges you are having there, I was wondering if you could give us some color as to what happened year-over-year during the first 17 quarter for owned property margins, and then separately leased property margins. How did they change year-over-year in terms of on a basis point?

I think we articulated in the release, sort of, the factors that impacted margins overall. We talked about the energy cost increases, the fact that there were 90 days in the quarter this year versus 91 days last year, impact of New Orleans' renovation, most of the impact of decline in group business, and how that impacted our food and beverage profits. So in total, I would say that the aggregate of those items roughly meant about $18 million in EBITDA and that's really what drove our margins down.

Could you quantify the change in margins growth for us? I know you released that information in your Q, but it would be helpful if we had it beforehand.

The change in the owned EBITDA margins?

Yeah, the owned EBITDA as well as the leased property margins. 18

Well, I thought we mentioned in the release what our margin was. We mentioned in the release our margins were down to about 30.6%, which is down about 2.5 points.

Okay.

Lease margins were actually up a little bit, but at least it is not a significant part of our business anymore with the RFS transaction there is just a marginal increase in the lease margins.

Okay, thank-you.

J. Cogan from Banc of America Securities, please go ahead with your question.

Yeah hi, I just got a couple of questions for you. You mentioned trying to get the debt EBITDA number down to 3.75 times. What are your thoughts on share repurchase for this year?

We said it the past [________________] we'd stick with this until we get to that level, we are not going to buy any shares back. Once we get to that level we are 19 going to reassess where we are.

I guess, maybe another way of asking the question is based on the EBITDA growth that you talked about on a total basis being up slightly this year, and EPS being up where you anticipated it being this year, I am coming up with a debt-to-EBITDA number that's a little bit lower than that and so I am wondering if you are including, maybe you can review for us, maybe your capex in trying to get a sense as to have you factored your potential repurchases into that number.

I think that what we had said is we expect to get it to 3.75 by the end of this year, if we get there a little sooner then that's for us.

Yeah, and the capex for this year is kind of what we stated pretty repeatedly a total of 450 million, 200 million of that is just normal maintenance capex, remaining 250 is combination of technology, timeshare, master plans, projects like the Kalia Tower in Hawaii and things of that nature.

Okay, Starwood announced yesterday that they are deferring roughly $200 20 million of their discretionary capex, so do you guys have any plans to do that, it doesn't sound like it?

No, we don't know.

Thanks a lot.

Bill Crow from Raymond James Associates, please go ahead with your question.

Good morning. I have got a couple of questions. You noted at the press release that the EBITDA was down about 5% versus last year, is it down through April? And, at what point are you going anticipate that turning positive?.

Well I don't want to give any monthly number, that's going to be a bad practice to start giving monthly EBITDA numbers. I think we would have to kind of suffice it to say that as you look for the full year, we expect EBITDA to be up in the low single digits.

You anticipate though for the second quarter it will be down again?

No, I don't think we 21 want to give that kind of projection at this stage, Bill.

Okay, everybody talks about New York and San Francisco could you maybe talk about a few other markets Chicago, Dallas, and Atlanta and what you are seeing there?

Let me go back to New York, what Bob La Forgia was talking about in the EBITDA. Last year we had just a terrific convention bookings both in San Francisco and New York, we had two [________________] growth and with the huge food and beverage business, so that's one of the reasons why it impacted us as well in the first quarter. The market itself, and I think in Chicago, we had a reasonably good first quarter, and I think the forecast looks okay, but we do anticipate a reduction in attendance on the citywide conventions and that's going to impact us somewhat. Obviously, business travel is down, but what we have been able to do and that's thanks to the scale and scope we have now in our business negotiated corporate rates, we have increased the number of corporate accounts. We believe, we will be able to capture some of the business we are losing on the normal 22 IBT business. As well in our group business, I think this is the strength of Hilton and our worldwide sales people, we will be able to, by having some more inventory, book some more business in. We also believe that the leisure market for the year particularly in the summer ought to be pretty strong for all of our brands.

Thanks, and a final question. Marriott had announced a significant structural change to its frequent guest program. Do you have any plans to respond?

Yeah, I do, the Hilton HHonors Program has been successful obviously when you capture within a year 27% of the occupants of the Hilton HHonors and for Hilton as a matter of fact is over 33%, and we have now closer to over 11 million members. We believe, the uniqueness in our program is that by offering points and miles, we are the only one doing that. We have done extensive research and that is really a premium benefit to our customers, and we also focus on our diamond members there are no blackouts dates and for our gold members, obviously we accommodate them quite aggressively to day. So having said that, I think, we believe we have the best program and 23 the most cost effective program in the industry, and we don't contemplate any changes at this point.

Also, Marriott, when they increased the amount of points you have to use, into a blackout date, now they, sort of, raised the price and by 50% on points cost you more.

Thanks guys.

Mike Reitbrock from Salomon Smith Barney, please go ahead with your question.

Hi guys, two questions. The first is for Dieter. Dieter, can you give us a sense of where you feel like you are in the process of realizing the benefits of some of these cost programs that you have discussed, I don't know if it makes sense to try to express on a percentage basis, but where exactly are you in that process in your mind?

I think we initiated it probably by the end of March, very aggressive and extensive cost containment program touching every discipline of our operation. It's 24 working, we are seeing the results already, and it will be very beneficial for us again to focus on our margins to attain our EBITDA margins of last year.

But from a timing perceptive not very far I guess.

We might expand on that just a little bit to talk about process, so we can give you sense of what we are doing, so that it doesn't sound like it's just an idea we are throwing up in the air here and that you might talk about the kind of the corporate process for capturing our cost savings.

Really on two fronts Mike, one is that headquarters area, as we've said in our press release that we have frozen hires, we scour for the best airline fares, we're cutting back on all our express mail, all that kind of things that I think all of us in the last 2 or 3 years have just kind of rolled along.

Also, Matt. Excuse me for interrupting by the process I mean what we have done is that we took the same team that was so very successful in the merger of the Promus 25 company into our company and captured this $100 million in synergies. We took this same team, and we challenged them to look across the corporation and say, okay now get in and let's look at all the areas some of the things that Matt was talking about, where we can realize some savings, because we are concerned about the state of the economy, and so it's the process I think is about the best way we can describe to you now is that we have got the same proven successful team that was able to do the difficult task of integrating a big company like Promus into our company. So you've got the same team doing that at the corporate area. Dieter does that at the hotel level through..

But we do it a little differently because for the last 3 or 4 years we have had a system in our place, we call it continuous improvement processes which is really a combination of the six sigma, which Robert is talking about that we have been doing that for some time that was [G to M] because whatever you do you have to make sure that you maintain your quality and the focus on your customer. So this has been in place and with our Balanced Scorecard as well quite visible and 26 transparent for every team member at the hotel level. We have been able to look at, particularly in the productivity section to take advantage of technologies or will be able to reduce ceratin functions and FTE's in our hotels, purchasing and consolidation in our clustering area and on and on. The energy, of course, that is a big one, and last year we saved about 5% in consumption. This year, objective and it looks real, we will be able to cut back 10% in actual energy consumption, and in addition, we have purchase utility, we have utility agreements in place so, I think that as we move on the increases will mitigate in energy expenses.

And Dieter using his technique as a Balanced Scorecard which is a measuring system that is throughout all of the owned and operated hotels and gives you the ability to direct the people that are on a frontline, spending the money to direct their attention to areas of possible cost savings. So it serves those processes I think that to me at least better explain the notion of cost control than simply saying we are going to control cost. What I am trying to say is that we have got a proven ability to really dig into these things, 27 and management systems in place that let you become effective.

So would you say that you are early in that process or you are well into it or how would you characterize it?

We are well into it.

Okay. And just a quick question for Tom, if he is there. Tom, could you talk a little bit about the franchisee financing environment both in terms of the general environment and as well as your confidence in getting your units open?

Well, clearly the change by the Fed in the interest rates are going to help a little bit. I think, we have not seen franchises at the Garden Inn, the Homewood, the Hampton level having difficulty obtaining financing. As you noted in the release, we opened 34 hotels in the first quarter. Let me give you a flavor of what that means. Our pipeline has been 400 and some hotels, every time we approve a project, we assign a project manager to that. Every project has time lines for plan submissions, plan approvals, construction starts, etc., and we monitor every single one of those, 28 every month. So I can tell you that the 34 hotels we opened was about the number that we had forecasted to open when we did the forecast at the end of December. And, we are also sort of on target for the starts of this year. So, I am encouraged obviously we have got big summer ahead of us, but all the indications are that we are still on target to open 190 to 200 hotels, like we had indicated the last time we spoke.

Also just to give you a little flavor for it, Tom and I attended a conference of Hampton Inn owners last week, and it is really exciting to be with the developers that are developing at that part of the market because, now I probably talked with over a dozen investor owners and operators, and I tell you every single person had 3 or 4 deals that they were working on. So, I think in our franchise business, what we are seeing is that the franchise community recognize that this slowing economy is an opportunity for them because they are looking down the road, and they know that they want to open these properties in a recovering economy. So, that was very impressive to me that they weren't moping around. Everybody was working on some deals. 29

Books on main street are pretty bullish right now.

Yeah.

Okay, thanks guys.

Mike Happell from Morgan Stanley, please go ahead with your question.

Could you just comment a little bit on the size of your timeshare business or maybe even just comment on your longer term growth rate targets for the timeshare business? And then as a second question could you update us on what is happening with the Red Lion portfolio and your longer term thinking for Red Lion?

I will take the first question. When you think about timeshare business in terms of our total company EBITDA for the year, you are probably looking at about 5% roughly of our total EBITDA over the course of the year is our timeshare business.

And thoughts on your targeted growth rate in the timeshare business? 30

Probably, it will stay roughly in that ballpark kind of mid-single digits because, of course, the rest of the company grows as well. So, I don't know.

Then, we just announced that we are starting two big projects.

Starting two big projects?

Yeah.

One in Las Vegas and one in Orlando that are larger projects that, 2003 start to bump ...

Could bump that up.

Yeah, could bump it up.

And then the Red Lion?

Yeah, Red Lion, if you remember last year where we sold one of the hotels that really didn't fit in the geographic area. We are looking at another opportunity there. As far as the business is concerned, they keep turning it out. It is a very, very attractive hotel conversion vehicle. That generically described three-star full-service 31 hotel business, and we have added some new development people there because we really couldn't keep up with the volume, so we are very optimistic that we are going to continue to be able to grow that system.

Okay, thank-you.

Mark Mutkoski from Deutsche Banc, please go ahead with your question.

Good afternoon. It seems like Hilton and Marriott started it all really, substantially lower this second quarter guidance but really didn't make many changes to the second half. Maybe brought it down a little bit and that makes the year look a bit back and loaded, and I guess my two questions on that front are, one, are you assuming that business levels will rebound in the second half from the topline perspective? And, two, do you think you could make the numbers in the second half under the same status quo demand situation you had in the first quarter and going into the second quarter, that is kind of, I guess that would pretty much be my two questions? 32

Yeah, I think that is a good way to describe it Mark, and I think the answer to your question is that we aren't assuming a big pickup and what we are saying is that if business continues just okay, we are going to make that up on the cost saving side.

Okay, so you were not looking for any rebounds in business levels?

Not really, although Dieter is always optimistic and you're reporting that you are starting to see just a few signs of pickup in New York, I think San Francisco, it's going to be tough, Boston actually is pretty good for us.

Yeah, I know, even for New York, certainly the master plan at the New York Hilton paid off, the hotel actually has a tremendous amount of large convention booked for the year and they are definite. I think the advantage that we also have is by being able to switch or change our business mix slightly, as we see the decline in business travel, we were able to fill that in with scoop business and other leisure business growth. The last couple of years we have deliberately reduced our segment in 33 the leisure market for higher rates. That is changing, so we are driving occupancy and maybe give up a little bit on the rate, but by and large it will have a positive impact on RevPAR.

But we are not, Mark, we are not hoping that the things just magically fill in, our message across the company is things are really going to be tough and so cut cost, don't do anything that effects the guests, but all of the programs that have kind of creeped into our business in the last 3 or 4 years, we are looking at it really, really carefully.

Thanks a lot.

Dave Anders from Merrill Lynch, please go ahead with your question.

Hi guys, can we just get a little more clarification, I know, you say you've got two [________________] from the deferred sales gains at your timeshare division, is that roughly equivalent, can you see 13 million in EBITDA and roughly let us call 30 or 40 million in revenue associated with that, just back up the income statement that [_______________] 34

Yes.

Thank-you.

Thanks Dave.

Joesph R. Greff from ABM AMRO, please go ahead with your question.

Hey guys, to what extent are you seeing [________________] portfolio at least in Europe HHonors guests, a trade down from higher price point hotels to lower price point hotels?

We haven't seen that trend yet. The only one I could say, the Waldorf-Astoria, but there we have the highest number of diamond members staying in our tower, that hasn't declined much. So, we haven't seen any trend yet now of it.

Joe, I did say, I'd give you a different slant on that, what trend we had seen is that the programs we put in place a year ago, cross selling, the HHonors in the Promus brands, we are taking market share competitors across each of our brands. RevPAR yields and every single brand is up anywhere from 35 1-4-5 points in the first quarter and that is, sort of, evidence of this company that we put together and the programs that we have now got that covers all of those brands and in the release if you look at the RevPAR gains at Garden Inn, Hampton, in double digits that is from getting new business in, not from business trading down from other parts of our company.

When tom says RevPAR up those points, what is he talking about is market share. The actual RevPAR in these parts of our business as we described in the press release are really terrific.

Yeah, what it really is about is, going back to what Steve said in his comments on the benefits of the Promus acquisition to the extent people are looking forward mid-scale hotels to stay in. Remember, two years ago, that was business that we couldn't get. Now of course a significant part of our business is, people stay in Hampton Inn's, and Hilton Garden Inn's and Homewood's and some of these other brands.

Thank-you. 36

Ladies and gentlemen, if you do have an additional question, please press the 1 followed by the 4 on your telephone at this time. Once again, if there are any additional questions, please press the 1 followed by the 4 on your telephone. Karla Taylor from Kenwood Group, please go ahead with your question.

Hi, you reported weakness or softening in the San Francisco market, could you talk a little bit about your average daily room rates in that particular market, and the occupancy rates there, and what affect, if any, you think that would have on your 2% to 3% RevPAR.

Karla, we don't break out occupancy and the room rates by hotel or by market. It suffices to say it is no secret San Francisco obviously is a very important market for us, but we don't break out occupancy rate by hotel or by market.

Thank-you.

J. Cogan from Banc of America Securities, please go ahead with your followup. 37

Yes I have a point of clarification, I just wanted to ask you guys, there was a question earlier about top EBITDA growth in the second quarter, can we maybe just talk to maybe what the comp RevPAR relative to top EBITDA growth or declines should be like going forward, so sequentially, should we expect things to start to show some improvement with these cost initiatives that you've integrated beginning in March. Should it be kind of rough for the same in the second quarter and then improve. How should we be thinking about that as you report the next couple of quarters?

I think, you'd see improvement in the comp EBITDA growth relative to the comp RevPAR growth by virtue of the fact that we are putting these cost containment programs in place.

The answer is probably talking by itself.

I am sorry, I couldn't hear, the two of you were talking at the same time.

The answer is probably sequential. It will probably get better 38 as time goes on.

Okay, fair enough. Thank-you.

Ladies and gentlemen, if there are any additional questions, please press the 1 followed by the 4 at this time. I am showing no further questions; please continue with your presentation.

There are no more questions, we appreciate everyone joining us and we will be talking to you soon. Thanks again, bye.

Ladies and gentlemen that does conclude our conference call for today. You may all disconnect and thank-you.