希爾頓酒店 (HLT) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Hilton first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question and answer session.

Should anyone require distance on today's call, please press star followed by zero. I would like to introduce your moderator today, Mr. Marc

Grossman, Senior Vice President of Corporate Affairs. Please go ahead, sir.

Thank you.

Good morning, everybody. Good afternoon. For those of you on the East Coast. Before we get started, just a couple of housekeeping things. First of all, to let you know that the press release we put out this morning and this conference call, forward looking statement, 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 release this morning and in this call are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein.

I'll also tell you that remind you that this call will be on a play-back and you'll be able to access the replay until this coming Friday, April 26th.

8 P.M. Eastern Time.

And that phone number is 1-800-625-5288. And the code you have to punch in is 170-6539.

This call is also being webcast, and you can access that by going to our website, www.HiltonWorld.com or www.HiltonWorldWide.Com, punching in the Investor Relations site, and then going to the conference call.

And get the website -- or the webcast of this call.

So with that, do some introductions. I'm here in Beverly Hills with several members of our management team. But we also have some others that had to travel this week on various pieces of business, so we do have people calling in from various points, including Stephen Bollenbach, our CEO, who had to travel this week.

He is actually in Paris for a conference.

But he is joining us on the call. And Stephen will have a couple of quick comments at the top of the call, and then he will be on the call for Q & A as well.

So after Stephen is done with his comments, Matthew Hart, our CFO, will go through the quarter.

And then as is our custom, we will save the bulk of the time for your questions and our answers.

So with that, Stephen, I know you're on the line, had a couple things to say, so I'll turn it over to you.

Okay.

Thank you, Marc. I am calling calling in so I'm not going to spend a lot of time. I just want to say that the quarter we're happy with it, it's shaping up as we had thought after 9/11, and we're happy that the recovery is occurring.

And so I'm going to listen in,

and be available for questions and, Matthew, take it from here.

Thank you, Stephen.

We were very pleased with the quarter, especially our ability to continue managing our costs in a challenging operating environment.

But I'm going to take a few minutes to discuss each of our businesses, and we'll talk about the weak [LOA] transaction and also address our credit position.

Starting with our own hotels, the story here was cost containment. Revenue came in as expected, down approximately 15%. But margins were higher than expected at 27.6%.

But I want to caution, though, our investors as you saw in this morning's press release, we are expecting higher insurance costs to kick in during the second quarter.

Cost containment balanced with serving the customer continues to be the top priority for our managers, and we're confident they'll keep doing the same excellent job they've been doing over the last several quarters.

It's no surprise that both occupancy and rate at our hotels were down over the first quarter of 2001.

But what we find encouraging though is we saw very strong improvement over the fourth quarter.

And that is in spite of the first quarter being traditionally weaker than the fourth and the fact that the Easter holiday fell in the first quarter of this year. At about 66% for our own hotels, we're approaching occupancy levels where we can begin commanding pricing power. We believe that level is about 70% plus, and we expect we'll get there during this current quarter. Our occupancy levels are strong in New York.

Over 80% the rates are down as operators work hard to fill rooms. New Orleans has been a terrific market for us, and we're seeing steady improvement in other important cities such as Washington, D.C. And Honolulu.

We're looking for improvement in Chicago later this year. San Francisco remains a challenge, due to demand pressure, and the impact of new supplies that have come into the market recently.

Generally speaking, however, we're not seeing new full service supply and markets that are important to us.

It's tough to assemble land, get entitlements, and financing just isn't there for new-build hotel properties. That's good news for us since we're on two-thirds of our [INAUDIBLE] comes from hotels we own, and the long development cycle for full service gives us confidence this picture will continue to improve for us.

The catalyst we're looking for, not just for us but for the industry as a whole, is the return of the independent business traveler.

We're seeing steady improvement in groups and association business, so it's more price-sensitive.

International business is still soft, but we are seeing some improvement. For example, we're seeing a pickup in business from Japan, but again it's more rate-sensitive than in previous years.

But again, what will mark the turnaround in the industry is a rebound in the bread and butter [ITP].

Don't know if that's the third quarter or the fourth quarter, early 2003, no one knows for sure. What I think is encouraging, though, is the industry is doing fairly well, even without the pricing power from this very important business segment.

Our brand development business is doing very well, both in terms of rev-par market share and share of new construction.

And of course we believe one is a function of the other. Starting with the rev-par market share, just a measurement that a lot of companies like to cite, what I can tell you is the numbers we provide in our press release come directly from Smith Travel Research, and those numbers show that every one of our brands continue to take market share versus their competitors.

That was true for the full year of 2001 and for the data we have so far this year, the first two months of 2002.

These improvements are a result of the highest esteem we enjoy with customers, and the added boost of Hilton Honors and our cross-telling successes.

This strong brand performance leads to unit growth, as owner and developers gravitate towards the brands that provide the best bang for their buck.

And we control these types of brands.

We added 31 hotels and over 4,000 rooms in the first quarter, and we feel good about our unit growth targets for the year. We do expect to see a number of conversion opportunities, as some of the less well-positioned players look to change flags.

Our pipeline is strong. 360 active hotel deals we're working on, so we can see growth a few years out.

We continue to be successful in securing management contracts at convention hotels that are being built by various cities. We signed yesterday an agreement to manage a new convention hotel in Omaha, Nebraska, that will open early 2004.

You might remember several months ago, we were selected to manage new convention hotel properties in Houston and Austin.

We're not prepared at this time to project our openings for 2003. But we do believe that we will continue to increase our market share of new openings and conversions, particularly as our competitors struggle with their exposure to third party owners and developers.

Turning to time share, we had another excellent quarter. Our accounts receivable portfolio has remained strong, hasn't shown any [INAUDIBLE] credit quality. Time share unit sales were about the same as in the first quarter last year, but our average unit sales price was up, helping our time share to grow by about 37%. That of course excludes the deferred time share in Hawaii from the first quarter of last year.

Because this business is so successful we're continuing to invest selectively in it.

And you'll remember after 9/11, we postponed the two new projects in Las Vegas and Orlando and we've now decided to start them back up.

These are great projects and great locations. And they're in markets where we already are having a history in time share. In New York, we started work on an urban time share opportunity, taking 112 rooms out of the New York Hilton and make them 78 top-notch time share units. In the future this business line could provide some attractive new opportunities for us, given our extensive ownership of properties and appealing urban locations.

So in summary, the business is improving at our own hotels. Occupancy levels are increasing and getting to the point where we can begin commanding pricing power. We're watching our costs. Our franchising business is strong.

Our brands are taking market share, and we're adding new units. We're doing very well in our time share business. And we have some exciting new projects to offer our customers.

So I want to talk briefly about the Waikoloa deal. Hawaii is a very important market for our customers and Hilton Honors members. For the last eight years, we've managed to have a 13% interest in Hilton Waikoloa on the big island.

It's a spectacular hotel and setting. And the hotel, when combined with the Hilton Hawaiian Village in Waikiki, gives us a one-two punch in the islands.

We're taking advantage of an opportunity to buy the 87% of the Waikoloa property.

Who knows what it would cost to build today. Attractive multiple in somewhat depressed market of 7.6 times, estimated 2002.

This is an important hotel to our system, to our customers, and our shareholders, important that we keep this one-of-a-kind hotel in our family. We also thought it was important that we demonstrate to our debt holders in rating agencies that we're committed to improving our credit position.

So we really didn't want to issue stock at these prices. Structured the deal half cash, half stock to keep all of our ratios intact. Our credit position remains strong. We've got over $700 million availability under our credit lines.

Mariel and I just had good meetings with the rating agencies and the takeaway is they're pleased with the rebound in the business and the work we're doing to improve our credit position.

I should also point out that $300 million of the Park Place

bonds come due this June, and we fully expect to pay them off. So with that overview, we'll go back to Marc.

Thank you, Matthew.

Before we go to the Q & A part of the program, let me take a minute and reiterate the second quarter and full year 2002 guidance we provided in our press release this morning.

First, though, let me note to you that we have implemented a recent FASB staff, resulting in changes in the first quarter change release.

The application of this staff announcement was also noted in our annual report, on pages 35 and 44 of the annual report.

We sent a note on this to many of you calling your attention to it.

In short, the [INAUDIBLE] gross amount of reimbursements for certain costs to build and machine franchised property, having the effect of increasing reported revenues and expenses in equal and offsetting amounts.

The majority of the cost reimbursements are from payroll costs that manage properties where we're the employers. But the real important thing for everyone to understand is that this has no impact on our operating income, total or per share net income, cash flow, or financial position.

But we understand that -- we want to help you with that, so we will be sending you the gross-up amounts for the second, third and fourth quarters of 2001.

But we're pulling all that together, so give us a couple of weeks to get that out to you.

Now for the guidance, starting with our second quarter. We're expecting total revenue before the gross-up that I referred to earlier. Total revenue to be down in the 5 to 6% range from the second quarter of 2001. That's due to an estimated 1 to 2% decline in rev-par at our comparable hotels, property sales in 2001 and lower fee revenues.

This will be partially offset by the positive impact from adding the Waikoloa property that Matthew discussed. We're looking at total company EBITDA in the 300 million range and owned hotel of approximately 200 million for the second quarter. In addition to the effect of various property additions and sales, [IBA] at owned properties will be impacted because of increased insurance and health care costs. In terms of margins, we expect first quarter margins in the low to mid-30% range at the owned hotels.

The looted [EPF] is expected to be in the low 20% range, including 3 cents a share from the new accounting rules pertaining to goodwill and intangible assets.

That's compared with pro forma 26 cents in the second quarter of 2001. For the full year, we're expecting total revenue to be down about 1%, again that's before the gross-up, due to property sales, property sales partially offset by adding Waikoloa. The recognition of deferred time share revenue in the first quarter of 2001 and a modest decline in fee revenue due to lower incentive management fees and franchise application fees.

We are reaffirming our guidance of an anticipated rev-par increase of 2 to 3% at our comparable owned hotels for the full year.

And as we stated on the last call, we expect rev-par percentage growth to increase in each quarter this year. We anticipate total company EBITDA for the year to increase approximately 3% over last year, with owned hotel of about 715 to $720 million in 2002. We continue to anticipate owned hotel EBITDA margins in the low 30% range for the full year. Our EPS guidance is for the low to mid-60 cent range.

Again, with 12 cents of that coming from the new goodwill accounting rules. That would be compared with pro forma 57 cents, for fiscal year 2001.

And we're revising our CapX guidance for the year due to the restart of the two time share projects in Las Vegas and Orlando. And the new time share project at the New York Hilton. These projects will add about 40 million to our CapX in 2002. So when added to $190 million of maintenance and technology spending, and another $60 million for ROI and master plan projects, the cap number is now $290 million.

That's up from approximately $250 million. Then you also need to add $75 million for the cash portion of the Waikoloa transaction. So when you look at our EBITDA guidance this revised guidance and after interest, taxes and dividends, and the cash portion of the Waikoloa purchase, we anticipate generating about $220 million of net cash flow in 2002 that we would use to pay down debt.

So that is the quarter in time share in Waikoloa. New CapX guidance and other items, so I think, operator, we're now prepared to take questions.

Thank you.

Ladies and gentlemen, at this time if you have a question, press 1 on your touch tone phone. You'll hear a tone acknowledging your request, and if -- the question has been answered you may remove yourself from the cue by pressing the pound key.

One moment for our first

question. Todd, please state your company name.

Todd Joyner. Hi, guys.

Hi, Todd.

Question on time share.

Obviously did very well during the quarter. Just want you to reconcile that with the performance of one

of our competitors who had selling and marketing expenses. How are you managing that part of the business? And what are you seeing currently?

I think about the same.

Our time share margins actually were a lot better quarter over quarter because we had higher number of unit sales in our Hawaii property, with a lower cost of product. So our margins are up significantly over last year, when you exclude the deferred time share sales in the first quarter last year. And as a percentage of revenue, our marketing expenses were actually down quarter over quarter, also reflective of the fact that the Hawaii project is so profitable.

My guess, Todd, is that also -- I don't know who you're talking about our competitor, but we're getting high sale price in Hawaii, so it's probably that.

The prices on the units are probably higher than what your competitor's is.

Thank you.

Thanks.

Michael, please state your question.

Hi, guys.

Marc or Matthew, could you talk about if you could give us perspective on that second quarter guidance. I'm sure that you guys are aware [INAUDIBLE] down 5 to 7 for the second quarter.

Given how short the booking window is, can you talk about what gives you confidence in

the number, what you're seeing out there, if you want to share the April -- to date number with us, that would be helpful.

First, I don't know that we're going to share specific April information.

We'll try. good try. Excellent.

We're not going to give monthly numbers. I think I'll ask Dieter to address that because it really relates to trends in bookings.

Todd, April was a positive trend.

Comparison is -- helps a little bit. But our definite group bookings are very solid.

We had about 7% to 10% over last year. And that reflects in the second third and fourth quarter.

Also, I think we are seeing amount of positive trend in the [IBT] market.

So I think, Michael, the upshot is that this is what we're seeing in terms of the trends at our various properties.

It's the feedback that we get from our properties, our big owned hotels.

You know, I think in terms of what others are providing as

guidance, you know, we really can't speak to that. But better questions for them. But, you know, this is -- this is what we're seeing currently.

So is it fair to say at this point, you're as confident in your ability to make your second quarter guidance as you were at the similar time when you got it for the first quarter?

I don't think we'd be putting out guidance that we weren't comfortable with.

Yeah. Okay. And Dieter, could you give us a sense of how bad is San Francisco? And are there any signs, any encouraging signs there?

Well, San Francisco -- bad in the first quarter, but we've been able to pick up some pharmaceutical business and some association business, so there's a positive trend line as well.

But it will be soft, and it's a really tough market, I think.

What we're doing is we're redoing all the rooms. We're spending a fair amount of money there to get the property back, managing for recovery.

But the real issue there, you have is some supply. A new Omni that new opened.

There's a new Kimpton that opened, the Four Seasons just opened. And I was stunned to learn the other day that one of our competitors is actually building a new five star-plus luxury hotel -- I don't understand that one at all, but that's happening.

So I think that's going to

really be a very difficult market for quite some time.

Okay. Thanks, guys.

Bye.

David Anders from Merry Christmas, please state your question.

Thank you.

Could you comment on metric guide that shows you're picking up market share of upper --

upscale construction pipeline, and Marriott is losing their historical CAT market share, do you see any changes in the market? Are you changing your strategy on that front?

I'm going to ask Thomas Keltner, who is also in our remote location. Thomas, are you still on?

Makes it sound like I'm on a golf course, Marc.

No, remote as not in the office, not in isolated. Can you talk to that?

David had two points.

One, are we changing our strategy? And I guess the implication was, are we putting more of our balance sheet at work to get some of our hotels?

The answer is no. Our strategy hasn't changed. I think what has changed is people would recognize over the last couple of years that we have continued to increase market share.

We've continued to increase our performance versus the competitive sets, and as Matthew said in his remarks, that and unit growth are related.

And so I think it's -- you know, it's a very close competitive race between us and the competitor you mentioned, David.

But we've got great brands and they're performing well, and they have good brands, and we're happy with our position,

and we see that the future looks as good as it can be, given there's not going to be a lot of new construction in that part of the market.

So I think that there's going to be continued talk in our industry about conversions, and I think we're very well positioned there.

We've been really trying hard to get the DoubleTree brand back to where it needs to be.

And we're just about there. We're still working hard on that. But that becomes really an excellent conversion brand for us as people want to change their flags and maybe their property isn't quite exactly what Hilton needs to be or Westin or a Marriott.

It makes a great opportunity for us.

And I do think that it's going to be the competition will be as much on being able to deliver service and reservations and brand positioning and so on, unless buying the contract, because I think that that's going to be hard for other companies to do, given their balance sheet obligations.

And as to the focus you investors and lenders put on them, not to continue to do that.

So I think the playing field will level and the market share gains we talk about are so important. They're important to us because we own these properties and as our owners do better, we do better.

But it also makes our brands a more likely candidate for these conversion

opportunities.

I think, David, the other thing to think about too is that lot of the new full-service supply that's coming in are some of these big convention hotels that cities are building themselves.

And we've been real successful recently in -- and we've secured three good management contracts in Houston and Austin, one we announced today in Omaha.

There's another one we're hoping to announce soon. And a number of these -- Washington is looking at doing something. So that's where some of these new supplies are coming from.

And we're certainly getting our fair share of not more in the opportunity to manage these hotels.

Marc, if I can -- this is Thomas again from remote location.

If I can just give a little more color to that. Out of the 31 hotels we opened in the first quarter, four -- three were conversions and we just opened a new DoubleTree just a day or so, couple days ago, in Asheville.

That was a conversion.

And our pipeline of 360 or so hotels has about 23 or so conversions in it. But we've got probably that, plus another 10 or 15, that are working projects right now that reflect the interests of developers in brands that perform well.

So we're clearly seeing, as Matthew suggested, more activity in the conversion front and we just got to make sure those are the right hotels for the brand when we are interested in converting them.

Great. Matthew, just quickly, who is the seller of the Hawaiian property? Could you remind me of that?

It was a Taiwanese family.

Okay. Thank you.

Joyce Miner from Lehman Brothers, please state your question.

If you can can talk about the time share business. Sounds like part of the marginal performance there is because of the Hawaii property. Can you talk a little bit about what same story unit sales would have looked like in the quarter not that it's of course not a positive to continue having Hawaii to help you. And Matthew, it's interesting to see what you're doing with a couple floors in New York.

Have you seen anybody do that before? How much more opportunity is there? And what does it tell us about the relative economics of

using rooms for hotel rooms versus using them for time share rooms?

Joyce, it's Robert. Hawaii was in last year, so it is the same story. What I referred to earlier is that if you just take out the deferred portion last year that we recognized in the first quarter, our margins went up about six points.

Year over year, quarter over quarter.

Is it that you sold more in Hawaii this year or last year? You were saying you had a mixed benefit.

Sold more, but also the key for time share in the quarter was that our average gross sales price per week was up about 14%.

Overall.

More sales in Hawaii -- it's really all three of our active projects, Orlando, Las Vegas and Hawaii.

Higher average selling price?

That's correct.

Okay. Perfect.

And then in New York, yeah, there are some other urban time share properties, one is called the Ocean Club, that's not too far from the New York Hilton.

But those are dedicated time share.

I don't think there is another situation like this where you have a hotel that's taking a portion of it, large portion, and dedicating it to time share.

And it's kind of the same formula we've had on other resort type properties where you already have an infrastructure in place. You have a lot of people coming through the property.

You have pools and restaurants and so on. We think the same applicability and I think it's an interesting exercise if you just think about the sales price that we might get, anywhere from maybe 20,000 to 25,000 a week.

And multiply that by 50 weeks.

You're talking about room cost -- very simplified analysis, but you're talking about a room being valued at over a million bucks.

And then the other interesting part is all the other connected cities that we have, where we own big properties. We're looking at this as a test.

We're going to try it out, see how it works. But the guys that run the time share group have been right on

on all the projects that they have gotten into, and they are very, very optimistic about this project.

Very interesting. I'm sure if we valued you at a million per room, we'll have a pretty big number. Thanks.

I'm sure. The seed is planted. Thanks, Joyce.

Thanks.

William Crow, please state your company name and question.

Congratulations.

Bill.

Question is, I'm a little surprised with the acquisition in Hawaii, just because it's my view that your philosophy is to get rid of some of your owned real estate or reduce the percentage contribution in the owned real estate. Are you going to get more aggressive here if the pricing continues to be appealing?

And what is the status of the acquisition environment now? Are you starting to see the

bid spread as narrow?

No, we're not.

And this was an aberration. This was a situation with this family group that had pretty big investments in media business, in telecom business outside this country.

One of the important family members died a couple weeks ago, and it was kind of a mad scramble here for them to liquidate some of their assets and pay off some of their debts outside this country.

And so it was totally opportunistic.

We love this property. We love the price. I mean, this is truly an irreplaceable asset.

And I don't think there's going to be any other transactions that are like this. I mean, we talked to the investment community all the time and there's lots and lots of money lined up looking at situations that people thought might occur after 9/11, and just didn't happen.

There weren't -- you didn't have a situation of what we used to call inadvertent owners, insurance companies or lenders or whatever, that needed to get rid of hotels.

And there's -- there haven't been many transactions because a seller doesn't want to sell off of the last four quarters.

They don't really want to sell off of 2002 numbers. But a buyer doesn't really want to buy off of 2000 numbers either so this is a very special circumstance that by the fact that we knew the property so well, we were able to move very quickly, Ted Middleton, who works for me, has been camped out in Hawaii for the last two weeks.

And we think -- .

Tough job. Somebody has do it.

We cut a really good deal here.

And we may resell this hotel. So you got it right. Over time, we'd like to reduce our ownership side of the business to maybe 50/50.

This kind of goes against that. But the price was right. The opportunity was there. And we're delighted with the

purchase.

Thanks, guys.

Thanks, William.

Our next question comes from J. Cogan. Please state your follow.

Hi. Bank of America Securities. Congratulations on the quarter. I got a few questions for you.

One question, J. You know the rules.

He does.

All right, all right.

Got that down.

I'll pick the best one. With respect to the margins, as we look out to '02, owned hotel, as we think about '03 and beyond, we're hearing some cost savings initiatives have been somewhat permanent, and I'm trying to get your sense of how permanent should we expect some of these to be and can you maybe give us a sense as to -- look back at [PICO] margins, how much better can margins be over the next couple years for you?

I'll start, J. This is Marc.

Then I'll ask Dieter to talk to some of this. But in terms of peak owned hotel EBITDA margins, we were as high as 36% in 2000.

We're not just -- just not going to get specific on guidance for '03, '04. You know, we expect to see margins improve. We're continuing to do a real good job, we think, on the cost side of the business. And as EBITDA improves, we think we'll improve the margins. But at this stage, it's just too early to get into a specific guidance for out years on margins. But in terms of the second

part of your question, on cuts that are permanent or that may come back, Dieter -- you want to talk to what we're doing.

Jay, I don't think we need another liposuction.

We've taken a lot of auto operation, it's very lean. Cost containing and very effective. And our managers and the field are focusing really on guest satisfaction, to make sure we have a good equilibrium, and as well we're watching expenses are not creeping back.

We have full technology, a system in place, productivity ratios, labor efficiencies, contracts and so forth.

We can manage and measure these effects very,

very carefully.

Question?

I got a lot of questions.

One or two 2% rev pars. New York outperforming, could we see the Waldorf or New York Hilton showing up in the last quarter?

Could you help us understand which markets might be doing better than guidance? And can you talk about -- you said group bookings are doing well.

You can remind us of some of these project paybacks, Starlight Roof in the Waldorf?

Tell you what we'll do on that, I'll have Dieter talk generally about trends we're seeing and some of these important markets.

But I'm not going to talk

about specific hotel rev-par performance because, you know we don't do that. Valiant effort on your part. But Dieter, you want to talk generally.

I think, J., on the start are the performance, spectacular and it's helping all of us in the Waldorf to gain really up-customer business.

We haven't had a good market share in the past. So New York I think will be fine. And I think the Northeast is a little tough too -- Boston and going to Washington, Washington is picking up quite nicely. And in Florida, we see a positive trend as well. Chicago properties are performing much better.

And stabilizing and we should make our performer there. Going to San Francisco, we discussed -- the Northwest as well is a little tough too -- and Hawaii is doing very well.

But in the general trend, really, is that the regional market is up quite strong.

As a matter of fact, they're doing better than last year in many cases. So you have to look at the total aggregate of our business, and that's why we believe the projections we have are fairly good.

I think the other thing I would remind everybody, when we talk about San Francisco and the struggles of that market, people tend to focus on the San Francisco Hilton, which of course is such a huge property for us.

But I would also remind everyone we own a big DoubleTree in San Jose.

That's a hotel that's made as much as $20 million. So obviously that's being

impacted by everything that's happening in that market. So that's a tough one for us.

Okay?

All right.

Our next question comes from Michael Lapel from Morgan Stanley. Please state your question.

Congratulations on a nice quarter.

Thank you, mike.

I just want to follow up on group bookings and confirm that I think Dieter said earlier that your group bookings for the second and third -- second, third and fourth quarter of this year are trending about 7 to 10% ahead of where they were last year, is that correct?

That's correct. For -- within -- that's right. These are definite bookings.

Okay.

And the booking window is getting much shorter, as you know.

Yeah.

And I assume that's -- that's number of bookings, rate -- rate might be a little off of

where it was last year? Can you comment on the rate you're seeing?

I think each hotel has a different market mixer and demand pressure, so in some cases ahead and some cases we're discounted slightly.

Okay. Thank you.

Harry Circus from J.P. Morgan. Please state your question.

That's a good one! Haven't heard that one!

I'm writing that one down! Anyway, Harry, go ahead.

Scared him off.

Operator? Hello? Good. Hello?

Could you please re-queue for questions?

Let's go to the next question while he's trying to get back in there.

Okay, Steven Kent from Goldman Sachs. Please state your question.

Steve? Hello? Hello?

Please state your company name.

Hi, Harry.

This is Harry Circus.

It's Barnum and Bailey. Great show! All right. We'll try this again. I don't know if you guys have built any note receivable sales in your '02 estimates. Can you talk about whether or not you're going to do a note receivable sale related to time share sales, and possibly what kind of gain we can expect?

We're looking at that.

I did mention that the receivables have held in very well. The numbers that we've given

don't include that potential.

Okay.

I wouldn't look at it, Harry, in terms of a gain.

We would look at it in terms of a -- more from a credit standpoint.

We got a fair amount of these receivables and for us to periodically clean them out is the prudent thing to do.

Very good. Thank you.

Thanks, Harry.

Steven Kent from Goldman Sachs, please state your question.

Hello?

Keith Mills from UBS Warwick, please go ahead with your question.

Good afternoon. Congratulations on a great quarter.

Thanks, Keith.

Tom, a question, in the remote location.

If you could comment on the pipeline that Hilton has in terms of the number of rooms in the pipeline and what percent are franchise versus

what percent is managed, excluding the three convention hotels that Marc referenced.

Keith, I don't have all those details, but the pipeline of a little over 360 hotels is a -- is about a little over 50,000 rooms, and most of those -- almost all of those are franchised.

Some of the bigger hotels that Matt mentioned, the convention center hotels, will be managed.

So you're probably talking about much less than -- certainly less than 5,000

rooms, maybe less than 3,000, out of the 50,000 currently planned to be managed.

The way things seem to track, Keith, and this was true last year, it's true with the guidance we've given for the openings this year, and I think even looking out, but when we think about the number of hotels that we're going to open this year, 130 to 160, about 75% of those are either Hampton or Hilton Garden Inn and those are franchised hotels.

Okay. A follow-up question. Marc, if you could give us a sense of the rev-par change breakdown for the second quarter? You said down 1%?

Down 1 to 2% for the second quarter.

Okay. What is the percentage change in occupancy versus the percentage change in rate there?

No, actually, occupancy is up about a half point. And rates will be down a couple percentage points.

That relates back to when you think about Matt's comments earlier on, we talked about the group business being rate sensitive, and the [IBT] business is rate sensitive.

And one final question for Dieter.

Dieter, what we've learned in the first quarter was basically hotels had expected or budgeted for increased costs beginning in January.

Didn't start to increase until the month of March. And they're playing catchup into the second quarter. Is that consistent with what happened at Hilton?

The medical insurance costs.

No, these are more kind of property operating costs, where maybe for example you're budgeted increasing employees in January but didn't have the employees until March, for example?

No, I think they knew what they were up to, and energy expenses are down substantially for the first quarter.

And medical expenses are up.

So I don't see that.

Okay. Thank you.

Mr. Frank Lee from Credit Science, please state your company -- question.

Hello? Operator, we seem to be having a problem getting every other call in here. Getting questions.

Gentlemen, there are no further questions at this time.

Just gave up, huh?

Okay. Well, if there's nothing else, then again we appreciate your joining us this morning. And we'll be talking to you later.

Thanks, everybody.

Ladies and gentlemen, this concludes our conference call today.

Thanks for participating.