希爾頓酒店 (HLT) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hilton Hotels Corporation first-quarter earnings conference call.

My name is Kelly, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's conference, Mr. Marc Grossman, Senior Vice President of Corporate Affairs for Hilton Hotels Corporation.

Pleased proceed, sir.

Thank you, Kelly, and good morning, everybody, or afternoon if you are on the East Coast.

Before we get started -- and thank you for joining us this morning -- we just want to do a little housekeeping.

And I'm joined here in Beverly Hills by members of our senior management team as usual.

But first let me remind everyone that the press release we put out this morning and the conference call today will contain 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 this press release 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.

Also, I want to tell everyone that there will be a playback of this call available until March 3rd at 8:00 PM Eastern time.

Phone number for that playback is 888-286-8010, passcode number 96216203.

This call is also being webcast, and to access the webcast, go on www.Hiltonworldwide.com, go to the Investor Relations link and then go to Quarterly Conference Calls.

Plus, this call will be archived on our Investor Relations site.

Now the format that we started with last quarter we think worked real well and gave everyone an opportunity to ask lots of questions, and as we want to do is make sure we're addressing all your questions, the things that are of most importance to you.

So we are going to continue on with that format and proceed right to the Q&A session.

So Kelly, we will take the first question.

(OPERATOR INSTRUCTIONS).

Will Truelove, UBS.

Good quarter.

In terms of your outlook on some of the key markets like San Francisco, you noted that there is still some weakness out there.

Can you tell us what sort of outlook you're seeing in the San Francisco market for the rest of the year?

Well, San Francisco has shown some improvement.

The business is coming back there.

But that is probably the one area that probably has the most uncertainty of all of our markets because of the labor situation there.

You know it is a relatively small piece of the puzzle for us, but it is still important.

And we have had in the past 12 months, we have had strikes, we have had lockouts, we have now seen some boycott activity.

So if all the business stays on the books that we anticipate, we will see positive year-over-year results.

We're hopeful that we can work out the labor situation there.

Because the business is okay, it is just a bit of uncertainty.

And then my next question is about the share count.

I know you guys bought back 7 million shares -- congratulations -- in the quarter.

But the diluted share count figure from the fourth quarter of '04 and the first quarter here really weren't all that different.

Can you sort of walk us through what is going on with diluted share count, and why it's not going down faster than it probably should be I guess?

Well, this is Bob.

It has to do with the calculation of diluted shares.

Just to help you with the numbers a little bit, since the first quarter last year there were about 12.5 million shares that were issued due to option exercises.

Since the first quarter, we repurchased about 9.4 million shares, so the net increase in total shares was roughly 3 million.

Now you have to also factor in the averaging in the first quarter for share repurchases.

You know they were not all done at the beginning of the quarter, they were done throughout the quarter.

So you have to average that.

That adds another 3 million or so to the share count, the impact of averaging, and then you have to put in the impact of additional grants in 2005 of our restricted stock.

That adds another million.

So when you add all that up, it is a roughly $7 million net increase in the share count.

Now, of course, you're going to (inaudible) in the diluted share is already are in the options is already included in diluted share count, and the answer is yes, they are.

But remember the way the calculation works is that you assume that buy back the stock with the proceeds from exercises.

And a lot of that assumption negates the impact of the amount of shares that were issued upon exercise.

Standard treasury method, right?

Exactly.

Thank you very much.

I might have more questions later.

William Greene, Morgan Stanley.

I'm wondering if you can talk a little bit about what might have surprised you in the quarter?

In other words, what are the drivers behind your changes in guidance?

I don't know that it is so much -- this is Steve -- know that it is so much surprises.

I mean we have said for a long time and we recognize that we are in a really good part of the normal hotel cycle.

We are in that part of the cycle.

And it's probably going a little bit better than we had hoped at the end of last year.

So in other words you think it is more a revenue change, in other words more from rate, or is it cost driven?

Yes, Bill, it is really a combination of two things.

As Steve said, we're doing better than we thought, and that is really on the revenue side.

We improved our RevPAR guidance, and that on average is about .5 point improvement in guidance.

That results in about half the improvement that we see at owned hotels.

And then the other half is lower than expected costs, particularly in the areas of insurance.

It is balanced between the revenue line and the cost line.

Okay and then the next question is just on-time share.

The margins were higher than I was expecting.

Should they run around this rate, or is there some anomaly in the first quarter?

Yes, time-share just had an absolute blowout in the first quarter.

I mean part of it is -- well, typically that a business runs at around the mid-20s margin.

The margin in the first quarter was 28%.

Really a combination of three factors.

One is we're selling some of the lower-cost inventory which helps the overall sales profits.

The other is that we to the extent that we have available inventory we're renting those rooms, and in markets like Las Vegas and Hawaii, which are very hot markets right now, we're able to sell out the units when the available units that are not sold, that we are getting a nice room rate on those properties.

And the third component is our financing income.

Financing income is up because our portfolio balance is up quarter-over-quarter.

The other thing I would point to also just to kind of complete the thought, maybe not really a surprise necessarily, but the strength in the fee business that was a record first quarter in the fee business, $102 million.

So that is just an engine that, frankly, just really keeps chugging along extremely well.

Okay.

But just to be clear, so the takeaway is that there were some things in the first quarter that were a little bit stronger.

So mid-20s is probably a safe margin for time-share going forward?

Yes, it is.

Jeff Donnelly, Wachovia Securities.

Good results, gentlemen.

The first question was just margin improvement on your comparable-owned hotel portfolio.

It seemed a little soft at about 100 basis points on the RevPAR increase you had.

I'm just trying to understand the genesis of that.

Was it due to Chicago and San Francisco, how they shift or some other factor that maybe you can separate out for us?

Yes, there were a lot of factors that went into it, but Chicago and San Francisco were a big part of it.

The food-and-beverage profits were hurt because the group businesses in Chicago and San Francisco really were not quite where we had hoped.

So what happens is you have good results on the room side, but you don't have as much profitability in the food-and-beverage.

So we do expect Chicago to have a much much stronger rest of the year, and really think Chicago is an anomaly for the first quarter, and San Francisco, as I said earlier, we are hopeful that is going to do better.

We did have a couple of other technical factors, though, as you pointed out.

The Easter holiday was in Q2 last year versus Q1 this year, and also believe it or not, leap year actually added a day of income in Q1 2004 that we did not have in 2005.

(multiple speakers)

We had some increased costs in energy.

We also spent a little bit more in our sales and marketing expenses.

We think that is the right thing to do.

You're going to start seeing that.

We're going to open the Hilton Theater in New York this week.

We are sponsoring the U.S.

Olympic Committee, and we, particularly for the Hilton brand, we expect to take a little bit higher profile in the media later in the year.

What specifically leads you to expect that Chicago will be doing better in the second half of the year?

Stronger advanced bookings.

Any day that you can share there in particular or --?

We think we are going to be up in the -- I think we said in the last conference call we felt we would be up 5 or 6%, and we still think that is the case.

And then could you share with us what your RevPAR penetration figures were in the first quarter for each of the brands?

They are more similar than dissimilar to what was reported in the fourth quarter.

They still all run strong premiums.

Hilton as a brand on comparable hotels is above 110.

Embassy is above 120.

Doubletree is right around 98.

Homewood is above 120.

Garden Inn is above 123.

And the one I want to spend just a second on is Hampton which is also above 123.

But you will recall that last year we had a rather extensive "Make It Hampton" program where we made numerous changes across all 1300 hotels, and we rolled that out through the year.

So January, February, March were the first three months we had that had all those changes in all the Hampton Inn hotels compared to a year ago, January, February, March.

And the Hampton RevPAR numbers are up nearly 5 points over last year.

So RevPAR penetration still premiums everywhere.

Some brands are growing a little bit, some off a couple tenths of a point, but strong premiums across each of our brands.

Congratulations and just one last question then was on the status of Palmer House and where you are at with that and maybe just add-on what you're seeing on pricing on some of the bigger urban assets out there, and is there any concern that there is maybe some weakness in the condo market in Chicago to the extent that is part of your decision-making process there?

We have received a -- this is Bob -- we received a high level of interest in what we consider to be very attractive offers from many qualified buyers for the Palmer House, as well as some additional assets that we have in the market.

We are now complete with the bidding process, and we're working towards finalizing purchase and sale agreements with the winning bidder of all the properties.

We are very pleased to say that the properties are going to end up with experienced owners.

In fact, in many cases these are owners that have already have or own one or more of our brands.

And we're also happy to say that all the properties will continue to remain flagged within the Hilton family of brands, including the Palmer House.

Now in terms of pricing we are not going to get into that right now on the call.

Deals are going to be announced as they are completed, and our expectation is that we will be able to announce the deals certainly by summer.

Let me just add to that, that what Bob is talking about, it is not just Chicago with the Palmer House but several other properties that are going to spread across a pretty broad geographic range.

Joe Greff, Bear Stearns.

Most of my questions have been answered.

Just one quick question.

If you look at the first-quarter results and you were to ex out Chicago and San Francisco, what would have same-store RevPAR and comparable owned hotel margins have been in the quarter?

RevPAR would have been up 11.1, and margins would have been up almost 160 basis points.

Okay.

And then for the full year RevPAR 8 to 9%, if you were to ex out Chicago, what would that be?

That one we had not done yet.

Great.

Thanks, guys.

Chicago is going to do fine.

What does that mean?

Like I said, up 5 to 6%.

Great.

And that is really it.

Good release, guys.

Thanks.

Jay Cogan, Banc of America Securities.

Let me echo the nice job on the quarter and all.

I got a few quickies here for you.

On the RevPAR guidance for the year, considering you were at 9 for the first quarter, you have got the easy second quarter comp, why would RevPAR even be as low as 8% for the year?

Just wondering if you can just maybe explain that?

And then second on the margin issue, Matt, you mentioned -- or maybe it was Bob -- insurance costs, a little bit better outlook there, and we've talked a little bit about Chicago.

Are there any other things that are giving you improved visibility to the margins, you know allowing you to take them up as much as you did on a comp basis versus where you were at the last quarter?

On the RevPAR question, basically the answer is that the comps do get a little tougher as you move through the year.

But we are just very comfortable right now in looking at our forecast of providing guidance in that 8 to 9% range year-over-year.

In terms of visibility on the margins, certainly a lot of the margin improvement that we have put into our guidance comes from the fact that we are guiding up on RevPAR, and most of that RevPAR increase is due to the rate.

So the flowthrough is very strong on that.

Yes, I did mention on the insurance side that we are expecting benefit from lower insurance costs.

But generally you know it is the group business.

I mean the group business is going to get stronger in Chicago, as group business is strong in many of the other markets.

The flowthrough on the group business is very strong.

We expect much better food-and-beverage results in the second three-quarters of the year, so that is what gives us confidence that our margin guidance is -- will hold.

That is fair.

I guess as a follow-up to that, I know it is still early and I'm sure you might not even want to provide any formal guidance, but as we think about companies like yourselves, which has got a lot of group exposure in 2006, which should be a very good year in some of your big group markets like Chicago, San Francisco, Boston.

Given the expectations of margin improvement this year, how should we be leaning for next?

Of course, we are not going to get into guidance for '06.

But let me just say to echo what Bob was saying is, this is really the classic pattern in our business, where you see strength in group and the independent business travel begin to displace lower rated leisure business, and we see rate improvement across all the segments.

To illustrate that in the first quarter, the business' transient room nights were up 5.3%, wheres the leisure room nights were actually down 2.8%.

So we expect to see that pattern continue and for us the group business in particular.

Because not only do we get it in the rate, but then, as Bob pointed out, we get it in the banquet and food and beverage.

So it is just a classic pattern that plays out for us in our business.

I think, Matt, too another pattern that is important is as you go out '06 and even out into '07, you burn off business that was booked last year that was not as valuable as the business that will most likely be booked later this year and on into '06.

So it is the classic pattern, and it is going to drive margins up.

The other thing, too, in terms of the group rates that we're seeing, for the first three months of this year, group business booked in '05, for '05 rates were up right around 10%.

So we're seeing some good increases there.

I think as we look full year, we look at the end of '05 we will see our '05 group business up still probably right around 5% or so in terms of (multiple speakers) according to that group.

And just as a last quickie, Bob, did you say that you bought back 9.4 million shares of stock on an earlier question year-to-date, and does that mean that you guys --?

Not year-to-date, that was since the first quarter of '04.

So that includes fourth-quarter shares. (multiple speakers)

Year-to-date is up 7.2.

Yes.

Will Marks, JMP Securities.

Just really one question on these asset sales.

Assuming they go through, it is probably not going to be an insignificant amount of cash that you raise.

Can you touch on any taxes if there are any and what you would plan to do with the proceeds?

You know, we have always said in the past with the proceeds of sales on an after-tax basis we will kind of think about those in the same way we think about the excess cash flow that we're generating for operations.

And after reinvesting in our business and maintaining our properties, we are still going to have extra.

And over the next two or three years, our current intention is to return some of that extra, all of the extra, to our shareholders in the form of stock buybacks or dividends.

How about of the properties that you're selling, are the bases pretty low, or --?

There will be some taxes, but we have got some ways to manage some of the tax impact.

We have got some exchanges, and we have got some other possibilities.

But I think the first part of your statement was right, is that it will be a lot of money.

I mean it is not an insignificant amount of money that we're talking about.

I mean can we assume --?

On an after-tax basis or on a pretax basis.

And can we assume that you announced the 50 million share repurchase and you have started to act on that, but --?

No, no.

What we announced was an authority that the board gave to management to buy up to 50 million shares (multiple speakers).

We did not announce a purchase of that.

Sorry.

I am clear on that.

Can we assume that that is to be used or you won't just using your operating cash flow that perhaps you will use then some of the asset sale proceeds for (multiple speakers) --?

I think perhaps we will.

It just depends on the magnitude of that and the time, and we have said that over the next two or three years we would be spending capital back.

At that time, when people ask, well how about if you sell some properties, we said, well, we will think about that in about the same way as we do excess cash flow from operations.

And just last question, any dividend comment?

Well, we have continued to look at the, I would call it the market preference for getting capital back.

If a company says, I'm going to send capital back, I think the only ways you can do that is by a dividend, regular or special, or a stock buyback.

And we talked to people in the market, what would our shareholders prefer?

Would they prefer a regular dividend?

There is some good increase in regular dividend.

There are some good arguments for that in terms of continued management discipline.

And sometimes people say no, I would rather see it in the form of a stock buyback because it gives the shareholders an ability to decide whether they want to take the cash or not.

So to be honest with you, when you talked with a number of shareholders, they are very interested in the notion of capital being returned.

They are not as focused on how it gets back, whether it is by way of dividend or stock buyback.

Harry Curtis, J.P. Morgan.

Going back to Chicago really quickly, the strength that you see in the back half of the year, do you sense that that is convention business, or is it momentum in the business transient or smaller groups?

That is convention.

Okay.

And the second question pertains to the growth in your room base.

What percentage of the 5800 rooms in the quarter was conversion activity do you sense?

This is Tom.

Let me just scan through the list.

I guess we are probably -- probably about 20% with conversions.

And is that a fair --?

Some of those we converted -- I think Tarrytown from a Hilton to a Doubletree.

We converted Hilton Carson to a Doubletree.

So some of those were conversions within the brands which probably as I think about it are not in the numbers that we gave you because they would add to our room base.

But even excluding those, probably 15 to 20% were conversions.

And you would expect that same pace going forward for the balance of this year?

Certainly not more than that.

Bill Crow, Raymond James.

Nice quarter.

A few questions here.

In addition to the Palmer House, have you marketed or do you anticipate marketing any of your other big supertanker assets at this point?

This is Steve.

I'm not sure that I would class the Palmer House as a supertanker in the sense of the Waldorf or the Hilton Hawaiian Village or the New York Hilton.

I mean those are supertankers.

But the Palmer House is a big hotel, it is a good hotel, and based on the results that we have had both with the Palmer House but with the other groups of hotels we have been looking at selling, if we get these deals done in the manner that it is looking like we will get them done, we will be looking to sell some more assets.

Because it fits with that strategy that we set out, is that we think we found a place in the market where we can move our Company to be more -- where fees are a more important part of the profit equation than profits from owned real estate.

All right.

We have heard from a couple of companies that they have had some inventory issues with time-share selling out too quickly and not getting new inventory in place.

Could you kind of assess how Hilton stands at that given the strength in sales that you're seeing?

Yes, that is a really good question, Bill, particularly for us because you know we tend to focus on the big markets.

So we have a big focus in Orlando, and that one we have really done really well.

We had the SeaWorld project.

We have the Tuscany project.

I think we are on the seventh building out of eight there, but we are looking at additional inventory there.

And the good news in Orlando is that there is plenty of land around.

So the trick is to price it right, to get a good location so you can keep the sales force in place and so on.

So that one I feel pretty good about.

Las Vegas we're in really good shape there.

You know I think the whole project is going to be over 1500 units.

We're on the second tower of four.

Just the way it works there.

Towers three and four are actually a higher room count.

So in Las Vegas we are set for seven or eight years in terms of inventory.

Our third market is Hawaii.

That is one that we have made a lot of money on.

A lot of it has been kind of a technical factor because we had the tower that was apartments that we converted to time-share, and so we've gotten high prices and we had low cost there.

So that one is good.

We've got another sequel project at the Hilton Hawaiian Village that we are working on, is the Waikikian building.

We are in the process of permitting there.

And we are also interested in expanding over to the Hilton Waikoloa Village on the Big Island because we have picked up some small amount of inventory there, and we have been very successful in selling those units.

I think the average sale price there is in the $40,000 range.

So that could be an area that we could be expand.

We're also looking for a fourth leg to the chair, because we think that we need that.

But we also have a couple of onesies, twosies that we are looking at.

So the outlook is really good because we are focused on those big markets, and the trick is just to make sure that we continue to be able to feed them.

Right.

The labor situation, you know with hardly any resolutions thus far to the complex and the disagreements, we are approaching a point at which the unions are going to have that power by shifting everything into '06 anyhow if we don't get some of these things resolved.

Is that fair, and could you just give us an update on your views on labor?

I don't think I want to do that on the conference call here.

All right.

Final question.

Could you remind us -- you're adding back the $0.02 from the stock-based compensation cost.

That on an EBITDA basis was what, 25, $30 million?

No, 15 million.

Just for the expense associated with the unvested stock option still, that was -- that is 15 million or as you said $0.02.

Okay.

It looks given the strength of the first quarter and the outlook and the add-back of the 15 million, I guess I'm not looking for a response, but the guidance sure seems a little conservative for the balance of the year.

Anyhow, thanks, guys.

We cannot respond to that. (multiple speakers).

David Anders, Merrill Lynch.

Just two quick housekeeping.

First, tax rate going forward, should it be 35 or 36% or 35.5?

Let's play it safe (technical difficulty) and use 35.5.

Okay and the other question is just going back to your share count -- and I can pull the schedules -- but if you do continue to buy back stock sequentially, we will start to actually see it in the share count with the share count going down?

I understand your explanation, but we do go from 4Q to 1Q.

It did not really move much and --?

Yes, it would start going down.

We've just had to kind of overcome the option exercises that had taken place over the last year.

And, of course, if there is a lot more shares coming to the count related to option exercises, then that would mitigate some of the benefit.

But the answer is it depends.

Larry Haverty, Gabelli.

One more housekeeping, what is the net debt in the quarter?

In the release, Larry, that we had indicated it was 3.6 billion, and that was net of the 100 million that we have to put on our balance sheet related to the consolidation of a managed property.

(inaudible) cash.

Okay.

And then second I would like some drilling down if you could on Hawaii and what you see in foreign markets as it affects your Conrad properties, whether they are as good as the United States?

And I'm also interested in the rather significant real estate purchase you did in the first quarter on Hawaii.

Because it looks like Hawaii is kind of like New York, it is becoming very difficult to get development traction there. (multiple speakers) auger for a pretty good result for folks that own as much as you do.

Larry, it is Bob again.

Let me go back to that question because you said net debt.

Were you referring to net of unrestricted cash?

Yes, net of all cash.

Okay.

So we had in the quarter -- we had roughly 430 million of total cash.

So about 3.2 billion?

Yes.

Okay.

International travel, really important to us.

Year-to-date March, up around 17%.

This is travel coming into the United States and from outside the United States.

Yes and coincidentally that is the number from Japan, too, is 17%.

And a good bulk of that travel is to Hawaii.

And we see the same thing, that just in terms of I think of our Company we've got two really strong bookends is New York and Hawaii.

Very very difficult to develop.

You know we have been trying -- we've got such two great properties in the Big Island and in Oahu, we have been trying for so long to get somewhere in Maui and had not really been able to find anything because it is so expensive and so much of a girth of properties.

So we are very bullish on Hawaii.

We did buy the land under the Hilton Waikoloa Village two months ago or so.

We view that more as a financing transaction.

Should we borrow the money to buy it, or do we just keep leasing it?

The lease terms still had 60 years or so to go on it.

So for us it was value positive, and of course, it gives us total control of the property.

So Hawaii has been great for us, and we expect it to continue.

And we've got really big properties there.

This is Steve.

I think part of your question on the international was, how are things outside the United States? (multiple speakers)

Yes, in particular your Conrad properties.

And how it relates to Conrad.

You know, the best market in the world now is in the United States.

And so depending on where you are outside the United States, it is not as good, and in some places really not good at all.

But that won't be a negative for Conrad.

I think actually that will be a positive because between ourselves and Hilton International we have really made operating and financial commitments to grow that brand.

And I believe over the next few years the best growth markets are in the international markets and particularly in Asia where Hilton International has got a really good track record of being able to find management contracts.

Because that is the way we're going to develop Conrad is through management contracts.

So even though the markets in general and particularly in France and Germany and to some degree in England certainly are not as good as they are in the United States, there is still a lot of opportunity for us to develop the Conrad brand.

And the Conrad development in the U.S. has gone really well.

We've got a lot of interest in the product.

One of the big advantages that we bring is our willingness to put the Hilton Honors, points redemption and so on into that program, whereas the other luxury competitors do not.

So we are exploiting that.

What was your international RevPAR in the quarter, guys?

We don't break that out.

We don't break that out.

It is tiny for us because it is really Hilton International, the UK company that has the rights to the Hilton brand outside the United States.

That is really their business.

And the part, the little bit we have internationally, a couple of Conrad, a few Conrads and some franchises in (multiple speakers) Mexico, they are not very big.

They are not significant in our numbers.

David Katz, CIBC World Markets.

I just wanted to talk about the Hampton brand.

Most of my issues have been addressed already.

But where it is a peak occupancy for that particular brand?

And then just thinking about it strategically looking out over the next couple of years, how big does that get relative to the rest of your portfolio?

And then finally in the release, it talked about that being one of the growth brands in your system.

How much of that is new build versus conversions either from within your system or other brands?

Tom is going to answer this, but just keep in mind for us, this is a franchise product.

I don't think we own any, do we?

No, that is not true.

We are heavily invested in one Hampton Inn hotel. (multiple speakers).

Out of nearly 1300 Hampton Inn hotels.

Where is that one?

That one is in Memphis.

I've stayed there. (multiple speakers)

You know the Hampton brand is our largest producer of franchise fee income.

Where is the sweet spot in occupancy?

I think when you get Hampton up around 74, 75% it is running very very well.

We're not there.

We are at I think 72 month year-to-date something like that.

A little less probably.

So we've got room to move the occupancy at Hampton.

In terms of growth, it is not the most rapid growing brand we have got.

Actually Garden Inn is the fastest growing brand and has a lot more growth potential in units because we've only got 250-ish.

Having said that, if you look at places were there are not Hamptons, there is a lot of cities with 20, 25,000, 30,000 people that don't have a Hampton Inn hotel that have something that it's from another era that we can wind up building Hampton into.

So I think we're still going to have several years of aggressive growth of the Hampton brand.

Not percentagewise as fast as perhaps Garden Inn or Homewood.

But we have a lot of activity in new development in Hampton today, and between Hampton and Garden Inn, they still make up the biggest proportion of our pipeline.

Keep in mind for our Company, being the franchisor, what is so special about these Hampton and some of our other brands, is that we get real growth because we add units, because it's an expanding market like Tom said.

So we get real growth, plus the way you priced the product as a percentage of revenues, so you pass through inflation.

So we get inflationary growth, plus real expanding market share.

The key to these questions of operations and how well they do is vital to the owners of the property because that is what drives them to us.

Because that's why we franchise more hotels than anybody in the country, right?

Right.

And are those predominately new build?

More new growth.

Our pipeline, our development pipeline is significantly bigger than our major competitors.

And it is because that our brands actually really stand for something.

They have got owners that care about them.

They make more money using this brand than some other one.

And if you think about Hampton, you know it is 21 years old now as a brand.

And as I mentioned in an earlier question, we went through last year the "Make It Hampton" initiative where we freshened up all 1250 or 1300 Hampton Inns over a one-year period making 130 or 40 different changes per hotel.

That was incredibly well received by the owners, and now we're seeing the results of that as the customers vote with growth in RevPAR and growth in yield index.

That really has justified why we need to do that, and the owners have been fully supportive.

And are most of the new Hamptons that will be entering your system, are they new builds or conversions?

Almost all of them are new builds.

Our conversions are typically hotels that are in urban settings.

But if you look at Hampton, if you have more than 5 to 7% that were conversions, that would be a lot.

Jay Cogan, Banc of America Securities.

A couple of my follow-ups were already asked.

Just one, though, on the time-share line.

I think you said the last call 20% or so EBITDA growth for 2005 was a good expectation.

I was wondering if you guys are updating that at all with the performance we saw here in the first quarter?

Also, I know you said before you don't want to provide any guidance in regards to 2006 hotel operations, but given the amount of inventory you're going to be bringing on, do you want to give us some sense of what '06 might look like, especially since some of that will be new inventory?

I don't know about the accounting for some of that.

We are kind of sticking with our expectations of our time-share performance for the year.

We are -- the way it happens is our inventory mix is going to shift in the remaining quarters more towards we think the higher cost products.

Plus, we kind of get caught up in the percentage of completion accounting as we begin to sell the new phases in Orlando and Las Vegas.

And as we sell out of these existing phases and we are in sales mode but we're not open on the new phases, we're going to have lower number of rooms to rent.

So, therefore, we are going to have lower rental income.

So for right now we're not changing our guidance, but we will see it as we move through the year.

Will Truelove, UBS.

My follow-up question goes to some of the comments that you made throughout the call here.

You say you want to return money to shareholders, reduce the taxes on assets that are sold and become more fee-oriented I believe that is what you said, Steve.

So when I look at those kind of three requirements, the fastest way to get there, wouldn't it be to split your Company into a REIT and a C-Corp, and then when you sold the assets, just dip into those taxable net income out to the shareholders? (multiple speakers).

How do you feel about that?

Well, we studied that questions many many times and for several years.

Every time you do the analysis and consider all of the costs that are involved in becoming a REIT in terms of taxes that you trigger that you would not want to otherwise have, when you consider all of these things and you get to the end of the analysis, it is always dependent on a belief that the multiples in the two separate companies will have significant expansion over the multiple of a combined company.

And it is kind of the belief that in someway shareholders will find a lot more value in the split and not driven by any particular economics.

Not driven by tax economics or anything.

It is just kind of a promoter's notion that there is value in just having two instead of one.

And there probably is some values in that, but nothing like you have to believe in order to go through the cost, the economic cost of splitting into a REIT.

So we look it, and we have never come to the conclusion that it makes sense for this Company.

Asad Kazim, RREEF Funds.

Today a competitor announced a program where it sounds highly uneconomic to win market share at least in my opinion.

In markets that you guys have a big focus in, it does not seem like you're fighting for market share because occupancies are pretty high.

Effectively what you ought to be pushing for is higher rates.

And so does the marketing program with increased visibility, etc. that Matt talked about earlier, does that fit into generating higher rates, or is that a different avenue that you ought to go about I guess in order to capture higher rates?

Are you talking about Intercontinental said that you could stay at their place and then buy the American Express certificate?

Yes.

Yes, I don't know what to say about that one.

I seems kind of odd. (multiple speakers)

I think the best thing to say is not criticizing their program, but I think we agree with you, is that this is not the time where we need to cut rates whether you do it by simply lowering the rate or giving something else for free or however complicated you want to make it.

This part of the cycle is one where you buy both by changing business mix and directly you raise rates.

And so we will be continuing to raise rates.

Now when Matt was talking about focused and maybe a little bit more spend on our advertising programs and particularly as it relates to Hilton, it is primarily to advertise the really great operational changes we have been making at Hilton over the last year or so.

So it is to broadcast to people that we're disappointed perhaps because they did not like the way their television looked in the room or the fact they could not work the alarm clock. (multiple speakers)

Steve, I'm so glad that you brought that up because --

Here we go. (multiple speakers)

We're working very hard on improving the room's product in our system and our own hotels, and then we're seeing a lot of interest also with our third-party owners and franchisees.

Those are the bad TVs, high-speed Internet access and clock radios.

We are in the midst of a significant rollout.

We spent a lot of time researching the beds, the TVs.

We have come up with a great product.

We are rolling them out.

We're about 80% installed in our own hotels, and we hope to have them all done by the fourth quarter.

TVs were at about 90%.

We hope to have that done by June.

The clock radios have gotten a lot of publicity, even though we are only about 50% installed in the Hilton brand.

We have to have them in all of the brands by the end of July, and we do have high-speed Internet access in all of our properties.

So we are very excited about those improvements to the room product.

In particular, we are getting a lot of interest from our guests.

Our GMs love it, and we think that that is an important part of the equation, and it is working great.

Also, this is really more on the fee side of the business, but we're seeing some really good improvements in the Doubletree brand as well.

A lot of owners are really interested in Doubletree, putting a lot of money into the properties.

We are seeing that brand really start to gain a lot more traction, also.

Okay.

And just lastly, do you think you need to do anything different with H Honors in order to maybe capture more market share at the lower end because I guess hiring is doing just fine simply because there is people out there actually doing uneconomic things to capture market share?

You know, it is interesting that you say that, but at Hampton, which is our lowest average daily rate brand, we are well over 40, 45% of our occupancy comes from Hilton Honors members.

And so Hilton Honors is operating on all cylinders, and over the last four years, we have moved our share of wallet from our Honors' members expenditure on lodging from 40% to nearly 70%.

So that is operating just fine, and it is turned into as much of a recognition program as it has a frequency program.

The other thing I think it's fair to comment on, Matt mentioned the New York -- the Hilton Theater we are opening in New York this week, actually owned by Clear Channel, but it's got our name on it.

And he mentioned our sponsorship of the U.S.

Olympic Committee and the U.S.

Olympic team.

And that is something that the family of brands are doing.

Because you will see us promoting our whole organization of brands together to customers moreso in the future than we have done in the past.

We have no further questions at this time.

Mr. Grossman, please feel free to continue with your closing comments.

Okay.

Well, I think we covered the waterfront, everyone, and we have nothing more to add.

So we will be talking to you down the road.

Thanks for joining us, and we will see you later.

Thanks.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Have a good day.