希爾頓酒店 (HLT) 0 Q0 法說會逐字稿

Good morning and/or good afternoon, ladies and gentlemen, and welcome to your fourth quarter earnings conference call.

My name is Rob.

I will be your operator today.

Throughout this conference all lines will be on listen only. (OPERATOR INSTRUCTIONS) At this time I would like to turn the conference over to your host for today's call, Mr. Marc Grossman, Senior Vice President of corporate affairs for Hilton Hotels.

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

Thank you for joining us for our fourth quarter earnings call.

I am here with members of our senior management team.

But before we get started let me just remind everyone that the press release we put out this morning and this earnings call contain forward-looking statements within the meaning of federal securities law, including statements concerning business strategies and their intended results and similar statements including anticipated future events and expectations that are not historical facts.

The forward-looking statements in the press release and on the earnings call today 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 will also tell you that we have a playback of this call that will be available until February 27 at 8:00 PM Eastern time and that number is 888-286-1070, pass code 52722811.

This call is also available via webcast and to access that you go on www.openworldwide.com, click on the Investor Relations tab and then go on to conference calls.

I want to just say one other thing.

Our format the last several times has been to just jump right into the Q&A and we think that has been a very popular and well-received format.

We do have some upfront comments we want to get to this time around but our plan going forward is to return to the jumping right into Q&A.

But we do have some upfront comments we want to give you this time.

So to start with that, let me turn it over to our CEO, Steve Bollenbach.

Thank you and good morning.

Before I turn it over to Matt I just want to make a couple of comments.

First we are making great progress towards completing the Hilton International deal.

Hilton Group shareholders overwhelmingly approved the deal at their general meeting just last Friday and that was one very important and required step.

As we said in our press release this morning, we are on track to complete the acquisition during the first quarter.

Now there was great excitement when we announced the deal on December 29 in the financial markets and in the media and among our hotel owners, and very importantly among our team members in both our Company and Hilton International.

And this excitement is justified, but it is important to remember that we also had a great year in all aspects of our operations, owned hotels, fees, time-share, everything.

I know Matt is going to talk about our trip to New Orleans.

I just wanted to say that we held our board meeting there in January to show support for our team members there in New Orleans and I have to tell you it is an emotional experience.

We could not be more proud of our team members there who have really shown their spirit and their resiliency.

The only other thing I want to mention is the enthusiasm that is evident throughout our Company.

A lot of terrific things are underway and with the new worldwide opportunities presented to us with the Hilton International purchase, we are really, really excited about our future.

So with that, I would like to turn the meeting over to Matt.

Thanks, Steve.

I recently made a presentation for our general managers where I summed up everything about Hilton in two words.

We're rolling. 2005 was a great year for the hotel business and our Company.

Our big city-owned hotels showed double-digit REVPAR increases in New York, Honolulu, Boston, Washington, Seattle, and Atlanta, pretty much all the cities where we had a significant ownership presence.

We came close in Chicago.

We were up 9% and even San Francisco was up in REVPAR in spite of the labor issues there.

All segments of the business, business transient, group and leisure showed strong demand trends but it’s the business traveler that is enabling us to show big increases in average daily rates.

And ADR growth made up about 70% of our REVPAR gain during the year.

Along with our work on cost controls, this brought good flow through and industry-leading margins. 2006 is shaping up to be another outstanding year at these properties.

Group bookings for '06 are looking good.

Rates for groups will be up at least 5% and may go higher.

The combination of high demand and little new supply in many key cities means we are seeing the booking window lengthening.

People are booking earlier, giving us better visibility than we have had in some time.

And Chicago is looking especially strong on the group front.

I also want to say a word about New Orleans, which is not in our comp numbers due to the hurricane.

As Steve mentioned, we had our January board meeting at our property there and our team members are energized.

The hotel is looking good and the numbers for January at the hotel are actually pretty decent.

There's still a lot of work to be done getting the city back on its feet, but there is an incredible spirit there and I would encourage you all to support that city and think of it as a destination for your group business in 2006 and beyond.

We are also rolling with our brand development and fee business; virtually any way you look at it.

REVPAR growth, number of new units opened, the size of our pipeline, J.D.

Power award winners, just a fantastic performance.

Ours are the brands of choice because they perform for the owners and because of the number of product, service, and marketing initiatives we have introduced to keep these brands at the top of their game.

At the ALIS Conference last week in L.A., Embassy Suites introduced a new smaller prototype that will be perfect for secondary U.S. cities and international markets where land is at a premium.

We’ve had a lot of focus on redesigning the Hilton brands, new Crabtree & Evelyn bathroom amenities, great new beds, bigger TVs, a new advertising campaign, and the Hilton brand, in fact our whole family of brands, will get great exposure with our sponsorship of the U.S.

Olympic team at the upcoming Winter Olympics in Torino and the 2008 summer games in Beijing.

We have become accustomed to talking about the fabulous growth and performance at Hilton Garden Inn and Hampton Inn and that is still the case, but we are also very pleased with the growth of the Hilton and Doubletree full-service brands.

We added 12 Hiltons and 17 Doubletrees in 2005 and expect continued growth in 2006.

All told, our pipeline of 600 hotels is bigger than it has ever been and we expect to add around 200 properties across our system in 2006.

We expect our fee growth to be around 15% and that is not including any potential international development.

As you all know we introduced a new brand earlier this year, the Waldorf-Astoria Collection.

This will be an elite co-brand designation for a select number of high-end existing hotels around the world.

Waldorf-Astoria is perhaps the world's most recognized hotel name and it stands for luxury, style, and first-class service.

In addition to the Waldorf-Astoria itself, we are kicking off this brand with three of the great resorts in the world which we officially start managing tomorrow.

The Grand Wailea on Maui, the Arizona Biltmore in Phoenix and La Quinta near Palm Springs in California.

We are already getting lots of interest from potential owners and developers.

Our time-share business also had a great year, with profitability up almost 30%.

We are expecting another good year from time-share in 2006 with new projects in Orlando and Hawaii and continued strong sales in Las Vegas.

We are looking at time-share profits to be up about 10% in 2006.

I would like to wrap up by echoing Steve's sentiments and mentioning the enthusiasm and excitement we are seeing throughout the Company.

Much of this is related to the new opportunities we will have when we close our acquisition of Hilton International, but a lot also comes from the exciting things that are taking place within our brands and in our hotels.

I was at two company conferences earlier this month, one in Orlando for our Hampton Inn, Hilton Garden Inn, and Homewood Suites owners, and the other in Austin for our Hilton brand general managers.

At both of these events there was an energy and sense of anticipation that you could not only see and hear but you could feel.

And that same feeling is in our offices in Beverly Hills, Dallas and Memphis, and we sense that same enthusiasm with Hilton International's team members around the world.

So with that, let me roll it on over to Bob.

Thanks, Matt.

We thought this would be a good time to give investors an update on our financing of the Hilton International transaction and also to discuss our hedging strategy on the deal and then we will end up with a few comments on the guidance.

Earlier this month we held two well-attended bank meetings.

One meeting was in New York at the Waldorf-Astoria, where we had about 275 bankers in attendance either in person or on the phone representing over 100 banks.

The other meeting was in London at the Hilton Waldorf, where we had 75 bankers in attendance representing about 15 banks.

At these meetings our management team walked through the transaction much like we did with investors on the day we announced the deal and Mariel Joliet, our Treasurer, who did an outstanding job negotiating with our lead banks, presented the credit story.

Before our meeting we already had over 9 billion in committed funds from 15 banks, well in excess of our targeted amount.

Today commitments total over 12.5 billion.

The syndication closes this week and we expect to close on the financing in mid to late February.

This level of commitment is just staggering and it is certainly a testament to the value of having strong banking relationships, but it is also a testament to the compelling nature of the transaction and to the respect and credibility of this company and this management team.

Our total facility will now be 5.75 billion and comprised of three tranches of borrowings; a five-year $3.25 billion revolving credit facility, a five-year approximately $2 billion multicurrency term loan A, and a seven-year $500 million term loan B. The revolver and both term loans are prepayable without penalty.

Term loan A will be priced off a grid similar to the revolver, which is subject to our credit ratings and a leverage ratio as defined in our facility agreement.

Based on our ratings, which will likely be BB, BA2 and our pro forma 2005 leverage ratio, we expect initial pricing on the revolver and term loan A to be LIBOR plus 150 basis points, which today is about 6%.

Term loan B will be priced at LIBOR plus 137.5 basis points.

As you know, our sale and purchase agreement with Hilton Group requires settlement of the purchase price in pounds sterling.

I would like to take a moment to discuss how we have hedged that obligation.

On the day we announced the deal and early the following day we entered into a series of option contracts to buy the pound at a fixed price for settlement at closing.

Our strategy was simply to lock in the U.S. dollar cost of the deal, thereby protecting us against the risk of the dollar depreciating against the pound between signing and closing.

Economically and on an accounting basis we have limited our exposure to the cost of the options.

The options cost us about 55 million and declined approximately 10 million in value by the end of the day on the 30th, the last trading day of the year.

That decline in value is the majority of the $0.02 per share hedging loss that we noted in the release.

Since the end the quarter, the dollar has depreciated against the pound and we have made back that 10 million and then some.

But we still have three to four weeks to go before our expected closing date so the final accounting gain or loss will be determined at that time.

But the key takeaway here is that we have protected the U.S. dollar purchase price and limited our downside to the cost of the options.

Moving on to our 2006 guidance, you can see that we provided topline operating estimates for Hilton Hotels Corporation as a stand-alone company before any impact of the Hilton International acquisition.

In summary, we are expecting another strong year of results at our own hotels and another record year in the fee business and our time-share business.

We decided to limit our stand-alone guidance to the top line because to go further would have required explanations on our assumptions regarding use of cash among other things, so we felt it would be more appropriate to wait until the deal closes and then provide more details on our next earnings call.

With that, I will turn it back to Marc.

Thanks Bob.

With that, operator, we're ready for our first question.

(OPERATOR INSTRUCTIONS) Will Truelove, UBS.

Good quarter.

My question is on the profit growth in the time-share business.

It’s obvious that you're anticipating now to slow to roughly 10% in 2006.

How much of this is due to a mix shift and what you might be selling?

Any kind of accounting changes that might have to be gone through or just a general consumer slowdown?

This is Bob.

First of all we're not seeing any consumer slowdown at all.

The business is very, very strong.

The fact of the matter is that we are kind of running out of inventory a little bit.

In Hawaii in particular and in Orlando, we are sort of in that 75 to 80% sold out range.

So what we're doing is we're holding firm on prices, we are throttling back a little bit on sales just so we could have the construction of our new facility kind of catch up and keep all of our sales force there in place.

So there is nothing fundamentally wrong with the business.

There is no accounting charges or credits going through the numbers that we presented in that 10% growth number for 2006.

Any adjustments related to the new accounting change are below the line and in fact we expect those to be positive.

Sounds like a good problem to have.

The one last question then in the new Waldorf-Astoria brand that you introduced this year, how is that going to work with the Conrad brand which was normally I thought your luxury end?

Can you tell us how those are going to differentiate and what you see those going forward?

The short answer is we believe there's room enough for us to have two luxury brands.

The Waldorf-Astoria Collection is a co-brand to an existing property, an independent hotel, a stand-alone property that already has a well-established brand name but is looking to add a lot of the tools that we can bring, reservation system, marketing, Hilton HHonors, things of that nature.

We will look at very, very selective new build Waldorf-Astorias around the world, but those will be limited to gateway cities only in absolute top location in that city.

And at the ALIS Conference last week I said I thought that over a 15 or 20 year period if we had a handful of new build Waldorf-Astorias around the world that would be fine.

On the other hand I think there is still a very large market for luxury properties in resort areas, in other big cities around the world, and I think that that is the market segment that Conrad will be addressed to and so I think there is room for both brands.

Will Marks, JMP Securities.

I really just wanted to ask about -- and I don't know how much you can help me -- but in terms of guidance and how it has changed or if it really has changed from your last note, and I realize you had this range you gave before, EPS range.

And then I think I don't want to put words into your mouth when you announced Hilton International, you said it would be slightly accretive.

Can we assume that the earnings range is still the same or have any of the metrics changed?

Any costs gone up?

Any comments would be helpful.

We really can't get into any specifics as to the guidance from what we have given.

As I mentioned in my opening remarks, we're just going to wait until we close the deal.

We'll spend a lot of time looking at the numbers and at the time of our first-quarter earnings call be able to provide a much better guidance.

On the updated outlook you mentioned margin growth of 100 to 200 basis points and franchise fee growth of approximately 15%.

Can you comment if those two metrics were in the third quarter number in guidance?

Yes.

Those two metrics were.

Thank you.

One other question.

On the REVPAR growth, why are these a little bit weaker total revenue growth than the REVPAR growth?

Because we sold some hotels (multiple speakers)

On a same-store basis I thought the -- I am sorry -- you were showing a 10% revenue.

In the fourth quarter you're saying?

Sorry, yes.

In the fourth quarter our food and beverage growth was not as strong as the overall room revenue growth.

Food and beverage is roughly 30% of total revenues, so it was a little bit lighter than the overall REVPAR growth, and then below that the other 10% in telephone revenues and everything fell a little bit short of the overall room revenue growth as well.

Okay.

And do you see that trend continuing in '06?

It really depends quarter-to-quarter on the level of group business that we have.

In the fourth quarter in markets like Phoenix and San Francisco and actually to a limited extent, even the New York Hilton a bit showed food and beverage growth not as strong as the room revenue growth.

But I don't think it means anything in terms of the business going forward.

It sort of depends on the level of banquet business that we do generally in these big assets.

Okay.

Can I ask you one final question -- I know someone else will ask it, but just on wage increases, can you answer two questions?

One is -– or wages -- what percent of your overall costs are wages, and two, just any kind of update on what we should expect out of labor agreements.

In terms of the percentages, the all-in cost of wages and benefits runs in the (indiscernible) 48 to 50% range of our total cost structure.

Sorry, I missed that.

Fifty?

About 48 to 50.

Okay, and then in terms of the contract negotiations, any update?

As far as the wages are concerned, I think that we would probably be in the same range that we were for '05.

Okay, so I guess what I meant was on these labor agreements, is there any -- are you assuming this in the guidance, is there an assumption for having to lift wages, are these costs related to your contract negotiations?

We assume normal inflationary increases in wages and benefits in our overall stand-alone guidance.

Okay.

Thank you very much.

Bill Crow, Raymond James.

A couple of quick questions.

Is it fair for one to assume that since topline guidance has not changed but you're reluctant to give bottom-line guidance it’s really hinging on asset sales and the magnitude thereof over the next month or two that might make the real swing difference here?

Bill, the reluctance was not intentional in any way, shape, or form.

In other words, our guidance as a stand-alone company if we were to bring it all the way down we would have had to get into things like okay, what assumptions do we make in terms of use of cash -- excess cash on the balance sheet?

What assumptions do we make if you say well these are our stand-alone numbers are X, then you have to make certain assumptions about what would happen if the deal didn't go through, and how would that impact our guidance?

So it was more that we felt that giving topline guidance at this point was the right thing to do, and then once we closed the deal, get into a higher level of detail on the HI side then we feel that we can come out with a solid set of guidance both at the topline for the whole company, new combined company, and the bottom line.

It’s something that’s really more meaningful for you guys.

Can you -- of course we are asked to do, what you're saying you don't want to do with the estimates, but could you give us a feel for what the interest is in asset sales at this point, especially out in Europe?

We just had the ALIS Conference here last week, as you are aware, and I can say that there is a lot of activity if you will, lots of deal guys were hovering around and suffice it to say there's lots of interest in the HI assets both in the private and the public side.

So if the transaction market continues to be very, very strong, what we thought initially with this deal and what we said on our investor call and what we heard from interested buyers is that particularly in Europe and in the UK that the business is probably 12 to 18 months behind the U.S. in terms of growth so the feeling is that there's lots of upside in those markets.

So we feel very comfortable in terms of what our strategy is as to dispose of many of the HI owned assets and to take back long-term contracts and to use the proceeds to pay down debt.

One final question, different subject I guess.

How long should we anticipate that it will take before we start to see the introduction of Doubletree and Hampton and Hilton Garden into European or other international locations?

Tom, do you want to grab that?

I will grab that one, yes.

Bill, we are in the process of working with the folks at HI trying to figure out what brands and what countries and what priorities.

Clearly Europe is a market where it is a pretty mature market.

There's not a tremendous amount of new construction, so we will be looking at conversions there primarily, although there may be some limited numbers of new construction and I think once we get the deal closed we have had a tremendous amount of interest from our local U.S.-based franchisees but also from some folks that have a lot of international connections.

So you're going to see some activity in the latter part of the year, conversions sooner than new builds obviously but that is going to be both in Europe as well as Asia-Pacific and the Middle East.

Great, thank you.

Joe Greff, Bear Stearns.

(inaudible)

Jeff Randall, AG Edwards.

Just a question on the pipeline.

The 200 hotels and the 28,000 rooms for '06, can you give a sense as to what the relative contribution from the brands are in that estimate?

Jeff, this is Tom again.

Our openings in '06 will probably be two-thirds to three quarters in the focused service brands, primarily Hampton and Garden Inn, although Homewood is going to have a strong year and then about one quarter to 25%, to maybe one-third will be Doubletree, Hiltons, and Embassy Suites.

Okay, and I noticed you guys opted the development pipeline outlook from last quarter.

Can you talk about how much higher construction costs are impacting the pipeline or I guess what you're seeing there?

I think the story on higher construction costs will sort of unfold in '06.

There's a lot of folks seeing higher costs now, but I am not sure that was not a spike in reaction to what it might be.

Some people are seeing 10%, 12%, but that tends to be all over the board and I think as the year goes on we will probably have more hotels for the industry fall out of the pipeline than we have in the past.

We expect perhaps a few more to fall out for us, but less than the industry overall because the people that will be able to build are going to be the ones that have the brands that perform better and that tends to be our brands.

Okay.

On the '06 REVPAR projection of 8 to 10%, how much are you accounting for coming from rate?

About 85%.

Lastly just on the San Francisco REVPAR, can you tell us what that was?

It was low single digits.

And in terms of the year ago comp, how difficult was that?

San Francisco is a tough market for us, because (multiple speakers).

I guess my question is this -- are you finally anniversarying the labor issues there and the fact that you can't get convention business driven to that hotel so that the comp is easier, because a year ago, you were faced with the same issues.

Is that what is going on?

That was the city that the union chose to make -- to take their stand, and we were basically flat versus last year.

So what is going to happen for '06 --

So low single digits was the number in fourth quarter of '04 as well?

No, no.

You asked what the REVPAR increase was for '05, and I said it was low single digit.

Right.

Then I asked how difficult was the year-ago comp for that number.

I don't remember.

Okay, thanks.

Smedes Rose, Calyon.

Two quick questions.

On your buying these management contracts, I guess, from KSL, can you give a sense of what the range of investment is, or are you committed to investing at the property level in addition to buying the contracts?

Okay, let me talk about the KSL/CNL deal.

I can't give a lot of information because of the confidentiality agreement that we signed, but I can give you some color on the transaction itself.

And I do think -- it sounds like kind of a cliche, but I think really it truly was a win-win-win for all three parties.

For KSL, they are historically a very successful investor, developer of high-end resorts.

They are forming a new investment fund, and they really did not want to have any appearance of a conflict of interest.

And so for them, they wanted to get out of the management business and be able to focus on new deals.

The properties are doing well.

We wanted to keep their people, and so KSL was very happy that we were going to do that, so from their standpoint, we were doing the right thing as far as their employees.

For CNL, they were happy with KSL, but always felt that they would eventually go to a dedicated management company.

We have had a great relationship with CNL, plus in this deal we had no conflicts.

We did not have other properties in those markets, so it made us an easy choice for them.

They loved the concept of cobranding Waldorf-Astoria.

So for us -- for Hilton, it was great because as a Company, I think you all know we have great city-center hotels, a great convention network, fantastic franchise business, but we have always been rather weak in resorts and golf business.

And these three properties are great resorts with great golf.

Another thing, Maui, with our other two hotels in Hawaii, really makes us the king of the island, at least for 30 years, which is the term of the contract.

Then for us, the Waldorf-Astoria designation really is the icing on the cake.

It is an exciting new business line, lots of possibilities for us.

As I said in my remarks, our takeover of the properties is tomorrow.

In the two weeks since we announced the deal, we have $15 million of new leads.

We had a standing ovation at the employee meetings when our senior management went in to meet with the properties.

There's lots of interest in the Waldorf-Astoria Collection.

So, so far, the reaction to the whole assembly has been just fabulous.

We have committed to CNL that we would improve the spa at the Arizona Biltmore and we're going to improve the pool features at La Quinta.

Okay.

The other thing I wanted to ask you is on the new Embassy Suites prototype that you mentioned, what is your estimated construction cost per room on that versus on a regular Embassy Suites, I guess?

Tom, do you want to --?

You want me to take that, Matt?

Of course it depends on where you're building them.

We think this one is probably 10 to $15,000 less per key, so that would be in the 120 to $125,000 range, depending upon the city and the land cost.

The cost savings is not by building a less luxurious Embassy.

It is really, if you think about the land costs and the difference between a full atrium and single-loaded corridors versus the atrium that this prototype has and the fact that we can do double-loaded corridors with side-by-side suites, that results in the majority of the difference in the construction costs.

Tom, it's a smaller footprint too.

It's smaller land and the square footage per room is within a few feet the same, but the savings is in the land and the fact that we don't do single-loaded corridors.

Thank you.

Joe Greff, Bear Stearns.

[Jen Ganzi], Gabelli & Company.

I just was curious in when you announced your deal in I guess at the end of 2005, you said that the cost would be 5.71 billion and now you're saying 5.75 billion.

I was just curious why there is the difference.

You're talking about the credit facility?

Okay, when we announced the deal we had said it was going to be 5.5 billion and we now, we are upsizing it to 5.75 billion.

Is that because of the dollar falling or --?

The 5.75 is not associated with purchase price of HI.

It is the financing we're putting in place.

And originally the revolver part of it was 2.75 billion.

We have decided because of the amount of banks coming into the deal to upsize that and tap the greenshoe.

So now the revolver goes up by 500 million to 3.25.

That is the differential.

Will Truelove, UBS.

I just have a follow-up on the labor situation.

If I remember correctly the Toronto labor contract expires today.

Have you heard anything about the Toronto labor situation and how that might filter through to the other markets?

Let me take some time to talk about the labor situation and Toronto is a little tricky for us of course because we haven't closed on Hilton International yet.

There are contracts that come up first in Toronto, New York, Hawaii, Chicago, L.A., Boston and San Francisco and we have not started any negotiations yet in those cities.

Now historically these have been local negotiations in the specific city and they have been focused on wages, benefits, and work rules.

We want to negotiate fairly with the unions and the employees, as we have in the past.

But for 2006 the game has changed and we will be focused on the unions' desire to grow into new markets and new cities.

So if the issue that we face was just wages, benefits and work rules, I am confident that there would be no issue.

But it is not and what the union wants is something called card-check neutrality.

And what that is is a change in the way unionization of the work force takes place.

The current system is one of choice for the employee.

The union makes its case, management makes its case, an election takes place and the workers themselves decide.

This is the mandated method for union solicitation in our country.

What the union wants to do is do away with the election process, instead go to individual workers, get them to sign on for the union, and if they can get enough cards signed, the union is formed and then bargaining begins.

This can lead to the pressure techniques of organizing from decades ago, which is why the federally mandated secret ballot election process was instituted back in the '30s and '40s.

So with that as a background, here is what we're doing.

Number one, we are talking to our customers and we are assuring them of our ability to continue to run our business.

We are in active discussion with other employers and owners about the situation we all face.

Three, we have begun the process of communicating with all of our various audiences what the issues here really are.

We see this as a matter of choice for our team members.

Their choice to vote for or against the union where both the union and management make their respective cases and then the employees decide in a secret election.

This of course has the potential to be a difficult fight, but there is a lot on the line.

Our industry has been through some tough times, but it is stronger now than it has ever been and we intend to keep it that way.

So there will be a lot to say on this in the coming months, but that is the update.

Can I just ask it maybe slightly differently?

Is there any indication that tomorrow workers won't be working in Toronto?

Or will they be working tomorrow?

Again, we don't own the company.

Those are not our employees.

They're not our hotels, but from what we hear there is no indication of that.

Joe Greff, Bear Stearns.

Can you hear me now?

A question for you, Bob.

You had a 2.9% increase in cost per occupied room in the fourth quarter '05.

What was the full year '05 number?

And I guess implicit in your 100 to 200 basis points of owned hotel margin growth, what are the ranges for cost per occupied room there?

Joe, I don't have the full year number with me.

How about I give it to you offline?

Okay, great.

Thanks.

Ed [Apenzano], Sigma Capital.

I just wanted to get any commentary if possible on the London Times story a couple weeks ago regarding potential asset sales.

Is this the order of magnitude we should be expecting from the HI group, somewhere in the 3, $3.5 billion area?

We cannot comment on articles in the London Financial Times.

The key point is our strategy and as I articulated earlier, our strategy is to sell some of the owned assets, all of the owned assets where we still need to take a look at that of Hilton International once we close the deal.

We are not going to give any particular guidance about how long that is going to take, what the expected proceeds are.

The key takeaway is that it is our strategy to go and sell the assets and to pay down debt combined with taking back the long-term contracts.

This is Steve.

Let me just add a little bit more to that because that is kind of a subset of an overall strategy, which is to move our company from one that is less reliant on real estate and one that is more, our profits are more driven by our fee business, so that is what we're really about here.

I think it gets simplified and it is translated into the press as if you need to sell the assets to reduce the debt.

I'm sorry, and that is the way the article read, that it was a --

Let me finish.

We don't need to sell assets to reduce debt because all the cash flow we have in our Company will reduce the debt.

Maybe it takes a year longer, but you get to the same place.

But the important strategy here is moving the company from one that is less reliant on real estate and what we want to do is take advantage of these tremendous liquid markets that are paying huge prices for real estate.

So maybe it is making too fine a point of it, but I believe that we will sell lots of properties at very big prices.

And as a consequence we will reduce the debt quicker, but the more important thing is we're moving our Company to a fee driven company.

That is what the focus is on and it is okay.

It doesn't really matter to us but the newspaper prints it up like, gee, you have to sell the hotels to reduce the debt.

We don't.

That was the purpose to my question.

The follow-up to that is whatever potential proceeds will that all be earmarked for debt reduction or can we expect some share repurchases as well?

I would expect we're going to reduce our debt and return to investment-grade before we return money to the shareholders.

David Katz, CIBC World Markets.

Mine have been asked and answered.

Thanks.

Bill Crow, Raymond James.

Just a quick follow-up question for Tom.

I appreciate the color on the cost of the Embassy Suites.

Could you just go through the typical cost today for the other select serve properties within your portfolio?

Just kind of, by brand, the average cost.

Average construction cost?

Yes.

Oh boy.

If we start with Hampton Inn, you are probably 70 to $75,000 including land, but again, Bill, that depends upon where it is.

Homewood and Garden Inn are both in the 85,000 to 95,000, approaching $100,000 a key.

Again that is pretty highly variable because land cost is such a determining factor.

Yes, I appreciate that.

Thank you.

Bill [Segal, MDSAS].

Just following up on what you were speaking about regarding unlocking some of the real estate value inside the company outside of international, can you talk a little bit about how you guys approach some of your domestic owned properties, some of your more notable properties, and how you look at exit multiples and the value you could possibly unlock from selling some of those?

In terms of our domestic properties, what we've said is that there's a few properties that very, very important properties that we think it's valuable to simply have 100% control of the properties because they are so -- have such impact on the brand.

Beyond that, and as we have done over the last couple of years, we are prepared to sell all of our properties as long as we're getting very high prices as we view the price today and as we think the hotels will perform in the future.

These are strong multiples that we are able to sell at now.

Adam Cohen, CreditSights.

I just wanted to ask first you mentioned 1.3 billion on your balance sheet at the end of '05.

How much of that is restricted?

How much cash?

About 180 million is restricted at the end of '05.

Great.

Finally you mentioned that costs had increased with respect to your time-share business.

Can you just comment on what kinds of costs those are, are those construction, etc.?

The cost increases is mostly related to the cost of product and that is a function of the mix of sales in any particular quarter.

So we have what we have seen this year and what we will see next year is a shift from the lower cost of projects that we have done years and years ago, what we're selling out of, to the more recent projects that we’ve built such as in Las Vegas and newer projects in Hawaii, which have a higher cost of product.

The real issue is that going back in time as we took over the Lagoon Tower at the Hilton Hawaiian Village that was an apartment building and we converted that to time-share, so we did not have to start from scratch on the building.

That is when we talk about the lower cost it is just that our investment on a per unit basis is lower than what we're doing now where we are building foundations and building the entire property.

And in different geographies.

It is more expensive to build in Hawaii than it is in Florida.

Thank you very much.

I have no further questions.

I will turn it back over to Mr. Grossman for any closing remarks.

Again we appreciate you joining us this morning and we will be talking to you down the road.

Thanks again.

Thank you, sir.

Thank you again, ladies and gentlemen.

This brings your conference call to a close.

Please feel free to disconnect your lines now at any time.