希爾頓酒店 (HLT) 2007 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 Rob and I will be your coordinator for today.

At this time all participants are in listen-only mode.

We will conduct a question-and-answer session toward the end of this conference.

(OPERATOR INSTRUCTIONS)

At this time, I would now like to turn the call over to Mr.

Steve Bollenbach, CEO.

Good morning.

Thank you for joining us.

I'm opening the call this morning because Marc Grossman, as a lot of you know, is going to leave his position as Senior Vice President of Corporate Affairs and Communications.

Now he's still going to be with us as a consultant and he is here today but Atish Shah is going to take over his duties of moderating these calls.

I want to thank Marc for all of his hard work over many, many years and wish Atish a lot of luck on this new responsibility.

So, will you go ahead?

Thanks, Steve.

Good morning everyone.

Thanks for joining us for Hilton's first-quarter 2007 earnings discussion.

Before we get started, please note that the press release that we issued this morning as well as the conference call today contains forward-looking statements within the meaning of the Federal Securities Laws including statements concerning business strategies and their intended results and similar statements concerning anticipated future events and expectations that are not historical fact.

The forward-looking statements in the press release and call today are subject to numerous risks and uncertainties described in our SEC filings which could cause actual results to differ materially from those expressed and/or implied by our comments.

Forward-looking statements in the press release along with our comments today are effective only today and will not be updated as actual events unfold.

This call is being webcast.

You can access the webcast via hiltonworldwide.com, clicking on the investor relations link and then clicking on the conference call link.

Additionally, a telephone replay of this call will be available until Monday, May 7 at 8 PM Eastern.

To access the replay, dial 888-286-8010 in the U.S.

or 617-801-6888 overseas.

The pass code is 28720210.

Additionally, a replay will be archived on hiltonworldwide.com.

In terms of the format for this call, Matt Hart and Bob La Forgia are each going to make some introductory remarks and then we're going to go to Q&A for the majority of our time.

But with that, I will turn it over to Matt to get started.

Okay, thank you Atish.

Good morning everyone.

What I want to do is spend just a couple of minutes talking about the international business and particularly our acquisition of Hilton International just over one year ago and then Bob is going to walk you through the quarter.

The acquisition of Hilton International has been a resounding success on all fronts exceeding even our high expectations.

Our team members are pumped up about having reunited the company and all the opportunities that they see.

We have significantly expanded our development team.

We are designing new prototypes for our select service brands and we are training brand ambassadors for their new positions around the world.

We've had early success with the deals that we have announced in China and India and we are busy working on a number of great other opportunities worldwide.

We're installing our [On-Cue] knowledge platform throughout our international estate and as we've said before, we expect to complete the rollout by the end of 2008.

Roughly one year after acquiring HI, how are we doing financially?

As you recall, we purchased Hilton International for $5.7 billion.

We will have sold about $3.2 billion of assets by the end of this summer which will leave our basis in the rest of the HI business that we bought at around $2.5 billion.

Then if you apply to a market multiple, and let's say 14 times on the expected 2007 earnings of the remaining business switch is mostly fees, we would get to a value north of $5.5 billion or about 2.2 times that adjusted basis.

That of course is based on our current earnings outlook only.

It does not include the real upside of an HI deal which again is the ability to take all of our brands and expand their reach on a global basis.

And that value will come over the next several years as our international development efforts begin to bear fruit.

For the entire company, things are going really great.

Our fee business is strong.

Our development pipeline is the strongest in the industry.

Big cities like New York and Chicago are in high demand.

Our group business for the remainder of this year and through 2008 looks very good and the core timeshare business is performing very well.

With that, I will turn it over to the hardest working CFO in the business, Bob La Forgia, with some color on the quarter.

Thanks, Matt.

Actually I would like to talk about four things this morning.

First, I will do a quick wrap-up on the quarterly results.

Second, I will provide some commentary on our updated 2007 full-year outlook.

Then third, an update on asset sales.

And lastly, a few remarks on our capital allocation strategy.

First on the quarter, we are very pleased with our first-quarter results despite what is traditionally a seasonally weak period in the hotel business.

Our fee business continues to perform exceedingly well which is reflective of strong RevPAR increases across all of our brands and solid unit growth.

At owned hotels, despite group weakness in Hawaii and San Francisco, we performed better than our expectations with our properties in New York and Chicago posting very strong results.

Our leased hotels also performed better than expected reflecting strength in most major markets across Europe but particularly in Germany and the UK.

And though reported results in the timeshare business were impacted by percentage of completion accounting as expected, on an economic basis, Hilton Grand Vacations posted a 30% increase in gross sales.

In terms of EPS, now you have to parse through the numbers, but if you exclude the impact of non-recurring items in both periods, and put the first quarter 2006 on a pro forma basis, that is assuming the acquisition of Hilton International occurred on January 1 of last year instead of February 23, you'll see that our diluted EPS jumped a strong 33% over the prior year quarter from $0.15 a share last year to $0.20 a share this year.

Moving onto our outlook, again, a lot of numbers to parse through here.

But we have raised our expectations for full-year 2007, recurring diluted EPS guidance by $0.03 a share.

Now to help with the math, you will recall that in January we guided to recurring EPS in the range of $1.20 to $1.30 excluding the impact of asset sales.

When we announced the Scandic sale, we indicated that it would impact our full-year 2007 earnings by $0.10 per share assuming that we closed in April which we did.

And just to be clear on this point, the $0.10 per share impact of the Scandic sale was from the date of the closing through end of the year.

So effectively, our guidance back in January when adjusted to exclude Scandic for the remaining eight months of the year became $1.10 to $1.20 or a midpoint of $1.15.

Our revised outlook today for total recurring diluted EPS which includes Scandic for the first four months is now in the range of $1.15 to $1.21 for a midpoint of $1.18 and that again, is before the impact of any additional asset sales beyond Scandic.

That is a $0.03 a share increase from midpoint to midpoint and this reflects the impact of our recent solid first quarter and better-than-expected results coming out of the UK and Europe for the remainder of the year.

So the bottom line is that we continue to expect solid performances from all of our business this year.

Turning to the update on asset sales, last Thursday we announced that we completed the sale of Scandic for approximately $1.1 billion, and also we signed an agreement to sell up to 10 hotels and Continental Europe to Morgan Stanley Real Estate for about $770 million.

We are extremely pleased with the pricing on these transactions.

The Scandic deal, which was primarily a portfolio of leased assets sold for 10 times trailing 12 months EBITDA and the pricing on the 10 owned European assets was a solid 15.2 times trailing 12.

We expect to close on seven of the 10 European hotels by the end of the second quarter and the remaining three in the third quarter.

Upon completion of this deal, Hilton will have sold over $3 billion of assets, as Matt indicated, $3.2 billion, the assets that he acquired in the Hilton International acquisition and we will have sold over $4.5 billion of assets since the beginning of 2005.

Now except for Scandic which was a strategic disposition, we have retained strong contracts on nearly all the hotel sales and we have aligned ourselves with owners who have committed additional capital toward improving their investment in our brands.

And as noted in today's press release, the sales process is proceeding on the Hilton Caledonian and six domestic assets including the Hilton Washington and we expect to close on most of these by midsummer.

And lastly, I wanted to talk briefly about our capital allocation strategy as this is a question we frequently get from investors.

Some of you may recall in December at our investor day, we said that we expected to reach our target adjusted debt to EBITDAR ratio of 3.5 times sometime in 2008 based solely upon our projections of EBITDA growth and not taking into account any asset sales.

We also said that to the extent we were successful in selling Scandic and the 17 assets that were put up for sale, the timing of reaching our target could be accelerated into 2007 as proceeds from asset sales would be applied toward debt reduction.

Well we were successful in selling Scandic and assuming that the remaining for sale assets close this year, we would expect to reach our target leverage ratio by the end of the year.

Now our strategy for the utilization of excess investment capacity after we get to our desired leverage ratio is consistent with what we have communicated to investors previously.

First, we will look internally for projects that generate strong returns for our shareholders and to the extent we don't have opportunities to invest available capital in high return projects, we will send it back to shareholders.

In all likelihood, though, we will do a little bit of both.

And with that, I'd like to turn it back to Atish.

Great.

Thanks, Bob.

Let's get started with the Q&A.

Rob, may we please have the first question?

(OPERATOR INSTRUCTIONS) Bill Crow, Raymond James.

Good morning, guys.

Marc, thanks for your invaluable help through the years.

Matt, could you touch on the results in Europe?

The 4.8% RevPAR growth seems a little bit lower than what we would have expected and what sort of impact do you see from the strength of the euro and the pound as it relates to inbound traffic into your hotels?

I'm going to let Ian handle that.

Ian, you are in Dubai as I recall?

Yes, I am, yes.

Let me just say first of all in terms of the inbound traffic into London -- take that as an example but anywhere actually within that euro zone outside of the UK -- we've seen no tail off at all.

The U.S.

traffic between Europe and the rest of -- sorry the whole of Europe has been very strong in the first quarter we've seen no tail off at all from last year.

So we remain pretty positive about the way things are panning out for the rest of the year as well and particularly in the bigger hotels in London, Paris, Frankfurt, where we have the most of the U.S.

traffic, the financial centers.

I think the overall from a RevPAR perspective, we've been on a local currency on a local currency basis we've been very pleased with what we saw in the first quarter.

It continued -- we've seen a continued improvement and rate occupancy has been strong as it was through the end of last year, it has remained strong through the first quarter.

And the primary driver for us in London in particular has been rate through the first quarter.

In fact if you look at the rest of Europe, take an area for example like Benelux, where we have 10 hotels, we've seen very strong first quarter; Amsterdam has been up close to 20% for example where we have two hotels at the airport and downtown.

And even a resort area like Egypt which for us is very important because we have 14 hotels in that country, we've seen double-digit RevPAR increase again local currency through the first quarter so we are pretty pleased with what we've seen continuing through the start of 2007.

All right and then one final question.

The data we see out of Smith Travel regarding Hawaii has been weak pretty much all year.

I guess a two-part question.

First of all, what do you attribute that to?

And second, is that impacting your visitation to timeshare?

Okay, timeshare, it is not affecting at all.

On the hotel side, really the big thing, Bill, it was the fuel tax surcharge put on in Japan and that definitely has affected the Japanese tour and travel market.

And so we are having to scramble to replace that particularly at Hilton Hawaiian Village.

Waikoloa doesn't have as much inbound Japanese business.

They have some.

In Waikoloa we are doing some CapEx projects there; we are expanding the Dolphin Quest which will be a fantastic addition or expansion to that property and we are updating the trams at that hotel.

Now that hotel doesn't make as much money for us as Hawaiian Village but still will have some impact there.

So I think it is mainly handling that Japanese inbound and having to replace that.

But we are optimistic particularly Waikoloa should do better and the full year for Hawaii still looks pretty good.

Okay, thank you.

Steve Kent, Goldman Sachs.

Hi.

Could you just talk a little bit about the Morgan Stanley transaction, what the impact would be to your RevPAR forecast and your EPS forecast?

All things being equal, when that sale is completed?

Hi, Steve, this is Bob.

In terms of RevPAR, it is not going to impact it materially from our guidance that we have for our owned hotels in our current release here.

And in terms of EPS, that deal will be slightly accretive for the remainder of this year which is by the time those deals close it would be below $0.01 a share for the rest of this year and probably between for full year, probably between $0.02 to $0.02 accretive.

Steve, this is Matt.

Let me just jump in.

One of the big things and I've said this before on this call, that is really an important factor going on, is like for example with the Morgan Stanley deal in Europe, they have plans for significant CapEx at the hotels that they are buying.

I spent some time with them this weekend, if you remember also the buyers of some of our hotels in the Waldorf-Astoria collection, they bought from CNL, lots of CapEx plans there.

You know, we did the deal with the Palmer House.

That is going to be just getting a major upgrade.

Pittsburgh -- I met with owners in Anaheim last week and they have a major CapEx plan for these hotels.

So we are getting a lot of benefits with this robust sale market when the owners buy the hotels, they are making significant reinvestment in the hotels which is going to really help us and help our brand.

So we are very, very pleased with how all of this is working through our system.

One other just quick one on your RevPAR forecast of 9 to 10.

Can you just talk about the difference between the international versus the U.S.?

What was the rationale for the 100 basis points difference from the last forecast?

And last time -- I think maybe Joe Greff asked this question -- you said that international and U.S.

would be roughly the same or that it was sort of in that forecast already but maybe you could just comment on that again.

Steve, I think what you are referring to is that we took the high end of our RevPAR guidance range for owned hotels down from the high end on our prior guidance was 11%, we are taking that high end down to 10%.

Is that what you are referring to?

Exactly.

Basically that is just recognizing the little bit of a softness in Hawaii compared to our prior forecast.

Now Hawaii is still going to have a great year but it is just a little bit softer than we thought three months ago.

And also probably a little bit more softness in the first quarter than we expected in San Francisco.

Though again San Francisco is going -- the remaining three months of the year look really good there.

So that is why we took in the high end of the guidance and really no change in terms of the answer that I have given to Joe previously that the international results are generally consistent with the overall worldwide RevPAR guidance for owned hotels.

Okay, thanks.

Will Marks, JMP Securities.

Great, I thank you and good morning everyone.

I just have a question on the -- what '07 would look like on the asset sales -- the 10 sales that you are under contract with and you mentioned a trilling number -- how much growth would you expect from those assets in '07 approximately?

He said he's looking for a forward multiple.

Yes, exactly.

Okay, a forward multiple on those asset sales?

Yes.

It would be a hair under 15 times trailing to 12 -- I'm sorry forward.

The forward of just under 15 times.

Okay.

And then on the guidance you gave on how accretive that deal would be in '07 and '08, it doesn't seem like much but clearly it is very accretive on an EBITDA multiple basis.

And is the difference on the tax line in paying off interest that is not that expensive?

Yes, it is again -- it slightly accretive on a full-year basis.

Those assets that we -- they stay in the interest line but it's also a saving on the depreciation line because if you remember when we had to purchase account for the Hilton International transaction, so basically what we did is we put those assets on the balance sheet at full value.

And therefore, the depreciation expense associated with those assets were also at full value.

So the amount of depreciation savings, if you will, and the interest savings caused it to be slightly accretive when you take them out of the mix.

Okay, great.

I just had one other question.

I'm confused on the -- just the EPS guidance and how it actually it went up a little bit and I know I'm missing something.

Can you just walk through the steps with me?

Sure.

We took in our -- just to reiterate what I said on my opening remarks.

The midpoint of the guidance adjusted for Scandic went up by $0.03 a share.

The overwhelming majority of that increase is related to our leased hotels.

We took down our own hotel expectations a tiny bit; leased hotels again, mostly throughout the UK and in Continental Europe will do much better than we originally thought.

And then there is a bit of benefit below the line.

Okay, thank you.

Celeste Brown, Morgan Stanley.

Hi, good morning.

A couple of things.

First on the European asset sales, I believe a couple of them were unencumbered.

How much did that impact the multiple if at all?

And then secondly, can you give us a little bit of an update on progress on getting new international management and franchise contracts -- the non -- the non Hilton brands, please?

In terms of the fact that two hotels went unencumbered, this was sold more as a package so it is difficult to parse through.

But those hotels, one in Germany, the Hilton Weimar, frankly didn't make a lot of money; it's a small hotel in a really a secondary market.

So there wasn't a -- wasn't -- if you do parse out the components of the overall price, there wasn't a lot of value associated with that property anyway.

And the other unbranded property, the other property was already an unbranded property.

It was the Los Zocos resort in the Canary Islands.

And again, it's difficult to parse through the various multiples for each of the hotels.

But I would say just off the top that the fact that those two went unencumbered didn't impact the overall pricing that much, Celeste.

Okay.

Forgia: And on the international development front I think it has gone really well.

Most of our pipeline, as you know, worldwide, is centered on North America but we have some very good full service Hiltons that are in our pipeline outside of North America and -- but as we've said, the big push for us is the select service brands.

In India, we are under construction with one project.

We've got probably got another 12 to 15 sites that we are [again] on.

We are spending a fair amount of time and I think we are just about finished with what the exact prototype should be in terms of food and beverage outlets, what size the back of the house is, the room components and so on.

It is very exciting.

And our focus there of course has been on Hilton Garden Inn.

We've done a lot of work with a prototype for Hampton because we think that that is going to be a big opportunity in these markets too and we are particularly focused on China there.

So we've got a lot of activity and we are spending a fair amount of time also with owners that are interested in developing in Western Europe and Eastern Europe.

We are training our brand ambassadors because we want to make sure that these brands when they open and when they get going are well supported.

So it is kind of a time of building for the future both in terms of people side and the product side.

Can I just add a bit of color to that as well, Celeste?

You know the Conrad continues to be really strong out here.

I'm sitting in Dubai at the moment.

I was speaking at the Arab investment conference this morning which is the equivalent of Berlin over here in Dubai.

A great deal of interest out here and as Matt said, one of the things that we did when we did that deal in India was that was a deal we've been working on for like 18 months.

And we are very focused on the 10 markets that we said we would take the focused service brands to in making sure we partner with the right people because this is a long-term play.

So we are being pretty selective as well.

The level of interest is fantastic.

I mean it was great here today.

We signed a lovely Conrad in Abu Dhabi which will be built on the Corniche which is the prime real estate area of Abu Dhabi which is an up and coming Emirate State.

And in each of those 10 markets that we said we would focus on, we now have active local speaking developers in development offices working with potential local partners and being pretty selective about how we focus on the growth of the Garden Inn, Hampton by Hilton, Doubletree products there.

So there is a lot of stuff underway in each of those 10 markets that we said we were going to focus on.

Great.

Thank you.

Harry Curtis, JPMorgan.

Hello.

I wanted to focus a couple of questions on the domestic market if I could.

Year-to-date it looks like domestic occupancy is down a little bit and I'm wondering if that is voluntary or to some degree involuntary?

And if it is voluntary, are you wanting to bring in more transient group -- transient business as opposed to lower rated groups?

The second question is the domestic -- if you want to call it air pocket in pricing that we've seen in the first quarter -- do think that it improves over the next three quarters or do you think it stays about the same as in the first quarter?

Okay, well, on the first one, I would just go back to what Bob said.

You know we really just saw some unexpected weakness in Hawaii and that is a very big market for us.

And that did pull down our occupancy numbers just a little bit.

But, no, we are not seeking any kind of change in our market mix.

And our outlook as I said earlier for group business, which is probably the best leading indicator for the rest of the year is very strong.

We are seeing good strength in occupancy and a fair amount of pricing power for 2007 and 2008.

So, I think when you look at our results comparatively across all of our brands, I thought we had a great first quarter.

And when you look at just the domestic side, do you think that the next three quarters is a sequential improvement on the first quarter?

Yes.

Okay.

With that in mind, it seems to me that by really by the summer when you close on the Morgan Stanley assets that you could be at your target leverage ratio.

Don't you think your stock is a great value here?

We do.

How about buying some?

I think we've been pretty consistent for a long time saying that we want to get to the target that the EBITDAR ratio we think having that investment-grade rating is very important to a company with our size and stature and we want to be consistent with all of our stakeholders.

Okay.

That will do it for me.

Thanks.

Jay Cogan, Banc of America Securities.

Hi, good morning.

I've got a few questions -- similar types of questions.

As it relates to the buyback, since we were just talking about that, Bob, did I hear you say that by then end of the year you think you're going to get to that desired ratio?

You obviously know even more about what is going to happen with respect to the Caledonian and the other six domestic sales.

I was kind of curious when you line that up against your current EBITDA guidance, does it take you that long to get to that ratio which I know is a little bit different than just that simple LTM debt to EBITDA number on a consolidated basis?

Or perhaps could it happen a little bit earlier in the year?

And then I've got some RevPAR questions after that.

We don't, again, Jay, just to stay consistent with what we said, we are saying that we will get to the adjusted debt to EBITDAR and we laid out this calculation for -- at our investor day.

It is not a simple debt to EBITDA calculation.

We will get there by the end of the year.

Now pinpointing exactly at what point in time we are not going to do that.

We'd just like to stick with what we said by the end of the year we believe that we are going to get there with all the asset sales that we have on the docket right now.

Okay, and then as it relates to RevPAR, I was wondering if maybe you could just quantify some of the markets in the first quarter so for example, if Hawaii was a little bit softer what was the RevPAR number in Hawaii?

What was the RevPar number in New York?

I know San Francisco was up 8% for the market so I was kind of curious if you could talk a little bit more about how you guys did relative to that?

And then if maybe you had Chicago too.

I think we've gotten a lot of questions this morning on it.

I think people would be helped by just having a little bit firmer numbers on some of those key markets.

Yes, you know, we traditionally don't give out specific RevPAR numbers for markets, Jay.

We just sort of -- we lump them into either owned or systemwide.

But maybe a couple of facts if you'd like them, we -- our owned hotels for the quarter saw a 6% growth in RevPAR.

We did talk about the fact that there were -- we had some less-than-expected results in Hawaii and San Francisco.

You just take out those two markets out of our mix, which are pretty substantial markets, particularly Hawaii, RevPAR would have been up about 11.5%.

So they had a significant impact on the overall [recorded sales].

Got it.

That is a pretty significant impact, okay.

And then as it relates to the renovation activity because that is also something that we've talked about broadly but don't have enough data probably.

Can you talk a little bit more about what your expectation is the second quarter and beyond?

Because I notice in the press release it seems to indicate that the New York Hilton, for example, is still going to have some renovation activity going forward.

And I thought that was supposed to be closed, you know wrapped up by the end of the first quarter.

And then maybe talk a little bit about the Waldorf and the Hilton Hawaiian Village, and you know help us see how you are getting comfortable with these RevPAR numbers for the quarter and for the balance of the year.

Any additional color on that would be helpful.

The New York Hilton, we wrapped up at the end of last year for that component but there is another component continuing this year.

But overall if you look at the -- if you make the adjustment for renovation in both periods, our North American RevPAR will probably be impacted by, I would say, 40 to 50 percentage points overall for the full year.

Basis points.

Yes, I'm sorry.

Okay, so if you -- just apples-to-apples, you would have done -- you should be able to do 50 bips better if it hadn't been for that?

Yes.

So are we going to see more impact or less impact relative to what we saw in the first quarter over the next few quarters?

It depends -- like this particular quarter, the first quarter, we saw higher impact compared to last year.

Second quarter we will see lower impact, third quarter a little higher impact, and a bit of a higher impact in the fourth quarter.

But overall for the full year, the impact of disruptions on our EBITDA will be less than we had in 2006, but still a big number.

Jay, at the Hilton New York, we will be just about finished -- we are just about finished there now.

That was the room project, and you won't hear any more from us there.

Now we are looking at some very interesting food and beverage concepts at the Hilton New York, but the rooms project which has been very successful will be completed just about now.

Got it.

And my last question is if the second quarter is going to see relatively less impact year-over-year, should we be expecting then to see better North American owned RevPAR numbers than you just put up?

Have you, for example, been able to fix the Hawaii situation to some degree that you were alluding to before, and as you look at some of these other key markets, should 2Q come in better than 1Q?

But we don't give quarterly guidance, here.

What is happening, Jay?

Just asking questions.

It's our job.

Why don't we let Atish handle that one; let him start earning his pay.

Jay, we will stick with the no quarterly guidance for now.

Okay, thanks.

David Katz, CIBC.

Hi, good morning.

A couple of questions.

I apologize, Bob, if I missed this.

Did you disclose what the net proceeds were on Scandic and some of the other recently announced deals, what those net proceeds would be?

Yes.

We did.

Okay, if it's in the release, then we will go find it.

It is in those releases, yes.

Okay.

Are there other owned hotels that you have, let's say like the Waldorf, that you would consider either selling or bringing in a partner on at this point and further reducing your capital base on them?

Well, when we had our investor day, as you recall, David, we did identify that there were about 30 hotels or so that were in the category of eventually for sale.

We said about half of those hotels were saleable.

About one-third of the hotels in total were inside the U.S.

and two-thirds outside of the U.S.

Just to part through the numbers a little bit, we will have about -- after the sale of these hotels, the 17 hotels, the 10 European assets plus the Hilton Caledonian and then the 6 domestic assets, after those are done, we will have about 40 owned hotels in the system.

Ten of the hotels we've identified as brand builders, assets that are really important to own and control, hotels like the Hilton New York and the Hilton Hawaiian Village.

The remaining 30 hotels, again, as I mentioned, about half of those are saleable, and there's some bulky assets in that group.

We have one asset, the Hilton in Sydney, Matt was just down there -- great hotel; expecting a very strong year 2008 there.

So we may look to sell that hotel at the end of next year.

Same goes for a great hotel we have down in Sao Paulo.

It's a brand new hotel, still ramping up.

We'll maybe take a look at that next year as well.

We have another asset in that saleable category, the Caribe.

We have some -- still evaluating our options there.

There is some potential -- we are renovating the hotel.

There is some potential for development there.

So we are going to be taking a look at these assets, and our strategy is really still the same as it has always been.

We are going to opportunistically look to sell these assets over the next few years, and we are going to look to get out of them at attractive prices, align ourselves with owners who are committed to the brand, and get some great management contracts out of them.

Okay, one last one.

Is there any set of circumstances out there that we could consider where you might make an acquisition?

This is Steve.

You know, we have had this theme of being strategically complete, meaning that we are at all the price points we want to be at.

We are international now; we've got great growth opportunities.

So it is really hard for me to imagine that we would find a large group of assets or company to acquire, because the only thing that would ever attract us to that would be some sort of super-bargain purchase.

And I don't think those really exist.

So it is a long answer, but I don't see this company making an acquisition.

Great.

Thanks very much.

Jeff Donnelly, Wachovia Securities.

Good morning, guys.

I guess, Steve, considering in that vein, we've seen probably 20 billion or so in portfolio and company transactions in just the last two, three weeks.

Any conclusions you're drawing from those events and is it prompting you guys to rethink selling some assets or even parts of Hilton that might not have been on the table previously?

Probably not rethinking selling anything that we would have sold before.

I would say it is more encouraging, because we stay with some big and valuable assets that we would like to, for strategic reasons, sell the asset and take back a fee generating -- a management contract.

But absolutely, it is encouraging to these very, very high prices being paid for assets that are not really nearly as good as some of the assets we still want to sell.

So it is encouraging.

Any way for us to -- or any estimate you can give us maybe of either number of properties or dollar value that you would now think you might explore?

Well, I think what Bob just ran through is the right number.

I mean basically, we had this notion that we've got ten big important hotels that we need to own and totally control because they are important to generally the Hilton brand.

So outside of those, really we would over time like to sell all of those and take back management contracts on them.

Now some of them are -- a group of them are encumbered with a collateralized mortgage instrument, which I think burns off in '09 or something like that -- 2010.

So it is difficult to sell those.

But we've got a number of hotels, like Bob said in Sydney and Sao Paulo and San Juan, that are big hotels and worth a lot of money, and it's our strategy to sell those and take back contracts.

But we don't feel any pressure to do it.

And in answer to the question, to see the market is still very, very vibrant is really good news in trying to execute against that strategy.

Okay, and just a question if I could on the timeshare business.

Are you guys able to tell us what the cash earnings for that division look like in Q1 versus the prior year, and maybe elaborate on what specifically you attribute the lower unit sales to?

Was it tour volumes, closing rate or just price increases?

Well, in terms of cash earnings, we're not going to be able to give that number, Jeff.

But I think what you could say is that for the full year, even though our GAAP guidance is -- it will show a 20 to 25% reduction in profit, I could say on an economic basis our profits will be up, probably in the 15% range.

Unit sales, it's kind of a -- this is a complicated business to begin with.

The accounting is complicated, the entire business is complicated.

So the unit sales we did report in the quarter we were down 8%.

But actually, if you just look at the total transactions coming out of timeshare, we are actually up about 6%.

Let me just tell you the difference between the two.

Unit sales is just what it says; we sell a unit for one week, and that is a unit sale.

In the quarter, we had a significant number of upgrades, and that is why there is a difference between unit sale transaction and a non-unit sale transaction.

A lot of our existing owners of older products upgraded to the higher priced, newer product, particularly in Hawaii.

And this is typical when these new projects come up in a market where we have an older product, our existing customers get all excited about it and they come in and they want to buy the newer product.

In the first quarter, we saw a pretty significant number of upgrades.

About 23%, in fact, of our sales volume in the quarter were upgrades.

Last quarter, for instance, it was 13%.

So I think that is one reason.

I mean, you have to look at the total volume of transactions as opposed to just purely the unit sales.

And the other reason is that these newer projects are slow to ramp up.

We just got -- we just received approval to begin sales in our new projects at the Waikiki or at the Hilton Hawaiian Village -- we call it the [Waikikian] project.

We just received approval to sell that project in January.

And we just received approval to sell our third project in Orlando, our Ruby Lake project in February.

So we are kind of getting caught up here.

The good news is that we have been so successful in selling timeshares over the last few years that now we're kind of in that phase where we are kind of ramping up on newer projects.

That is helpful.

Just one last question for you, Bob.

A small point but your guidance is based on average diluted share count that is about 2 million shares or so higher than current levels.

Anything specific that you can contribute that increase to?

I think it is just a normal stock activity -- stock compensation activity for the year.

I don't think there is -- was it 2 million?

I didn't look at the difference, frankly.

Just Q1 was 2 million shares higher than Q4 already and for year end it's another 2 million higher.

I wasn't sure if there was something else was going on.

I think it is just normal stock compensation that was granted in Q1.

Okay, thanks.

Joe Greff, Bear Stearns.

Good morning, guys.

Steve, you mentioned before you talked about acquisitions.

What about developing additional brands?

If you look at Hampton, Hampton's ADR is -- at least in the 1Q was above $100.

Do you think you need another brand at that lower price point level?

And then I have a couple of follow-ups.

Joe, let me address that.

It's Matt.

We looked at that really carefully because you are right, Hampton Inn started as our midprice product and I think our average rate there is about $90 or so, so it has kind of moved out of that.

We looked at Red Roof when that was kicking around a couple of months ago.

And it's really tricky when you get to a lower average rate, you talked about really having a lot of volume going out there to really have an impact.

And then you worry about the impact issues that we have on our existing owners.

At this point we've got so much opportunity with the brands that we have and so much fantastic growth I think we are going to open 255 new hotels this year with no money from us.

It is just hard to get excited about redirecting your efforts toward another product line.

Having said that, I think that an interesting business line that has developed particularly on the East Coast of the United States is the all inclusive market has kind of a bad name in the U.S.

because of Club Med many years ago.

But the high end all-inclusive market is -- looks like it is at pretty popular concept and it actually reminded me -- reminds me of what timeshare was like in the mid '80s.

You know, the big companies really kind of looked at it but really didn't look at it that carefully until all the customers were voting with their feet and then we all got into it in a big way.

So we have nothing planned there, there is no imminent deals or anything but to me that's -- maybe it's not exactly a new productline but it is an interesting business evolution that I'm sure many of our customers are discovering.

So it is something that we need to look at.

Great, thanks, Matt.

And Bob, just kind of housekeeping stuff, you referenced in the press release for the domestic properties that insurance cost [8] into same-store margin.

Can you talk about when some of your bigger, larger insurance programs renew and what's your expectation for renewal pricing there?

Yes, the biggest one we have renewing is our property insurance.

And that renews on June 1.

We are we -- haven't priced it out yet so we are in the middle of doing that.

Our guys have been going around doing with the brokers and doing the marketing.

And we will see.

I mean right now we haven't factored in into our guidance any decline in property insurance rates.

We are hearing that rates will come down this year just anecdotally but we will see when we get there.

We are still right in the middle of the process.

Okay, great.

And then if you could just remind me -- I think you mentioned it at the analyst day in December, a 1% change in owned hotel RevPARs domestically translates into what EBITDA sensitivity?

I'm going to have to rerun the numbers based on our all the asset sales that we've done.

So I will maybe on the next call we will cover that off.

Great, thank you.

Will Truelove, UBS.

I've got four questions for you.

First of all, you mentioned your forward-looking kind of indicator for demand was group booking trends.

Can you give us a little more color as to how that is sort of playing out?

And what happens if they might be able to look book but attendance falls short?

How effective is that indicator?

My second question then is on timeshare of marketing expenses as a percentage of revenues.

How is the book to buy ratio -- or anything -- is there any kind of change in the trends of the consumer oriented buyer happening there?

My third question then would be on the deferred tax liability, obviously it has gone up since you bought Hilton International.

As you sell assets, are you worried that that liability becomes a true cash expense?

And I will follow-up with one more.

Let me do the first two and then Bob, you can do the third one.

The group trends for the rest of this year and for 2008 are very encouraging.

Occupancy expected or the actual bookings up in the mid single digits and we expect overall RevPAR to be up in the low double digits.

So we feel good about that.

We don't see the falloff that happened several years ago it seemed like that was a big thing.

But we don't quite have the issue with no shows at groups that we did a couple of years ago.

The people that book seem to honor their commitment.

And on the timeshare, I think the biggest change that we have is we are going more upscale with our product offerings.

Now as you -- just to remind you we are only in four markets, we think that we significantly lower our risk profile in the timeshare business by focusing on those markets.

We were able to keep our people, build careers for them, we know the customers, we know exactly what they are looking for.

And we develop properties to meet those expectations.

But generally the average price points have gone up quite a bit.

We are selling some units in Hawaii for $100,000 a week depending on the unit and where it is.

So it is a different sale.

But we have -- we've made the right adjustments.

We've increased the service levels to meet those expectations of the guests.

And we have not seen any real change in our percent marketing costs as an indicator of any more difficulty.

It's just a different approach that we take.

So, a higher price point but still the same margins for the business.

On the deferred tax liability, it's not something that we disclose what the cash liability is as opposed to the book liability.

It's not included in any of our disclosures.

We comply with generally accepted accounting principles in terms of our disclosure of our booked deferred taxes and it is just not a number that we put out there.

Okay, that's good.

And then finally just in terms of the way you are quoting some of the multiples on sale, do you use the last quoted currency price when you are dealing with Europe or do you use an average currency rate?

And why do you choose one versus the other?

Well, since the numbers are reported based on an average currency rate that when we quote about multiples we use an average currency of when we come up with the EBITDA portion of that equation.

Okay, great.

Thank you so much.

Jeff Randall, A.G.

Edwards.

Hi.

good morning.

I wondered if you could comment I guess the first one, the corporate level G&A outlook for 2007 in light of building infrastructure overseas?

The second question if you could cover maybe the strength of the limited service segment domestically and remind us what percentage of limited service is representative of Hilton's EBITDA?

And then lastly, you talked about these new prototypes for some of the brands.

I wondered if there were any environmental or green initiatives contemplated with any of these new prototypes?

Thanks.

Okay.

So, the limited service portfolio for the first quarter I think we outlined all of our brands and I think we had an outstanding result in terms of our RevPAR gains versus our competitive set.

And I think it was across the board.

So that is one scorecard that we are very happy with.

And then the scoreboard that probably matters even a little more is how those very positive results turn into more and more developers, owners and investors wanting to invest with our brand.

So, we've been saying this for some time.

Our pipeline is stronger than it has ever been.

We are at over 800 hotels, 110,000 new rooms and those are contracts that we have, deposits with owners, that is a real pipeline.

How that breaks out, the large majority of it is in North America.

And the majority is limited service.

So of 110,000 rooms, roughly 70,000 is limited service, roughly 40,000 is full service, about 5% are conversions, 5% are new builds.

So it's going great.

Can you speak to the percentage of limited services contribution to Hilton's '07 EBITDA?

We don't really break this out.

It's approximately 20% (inaudible)

Okay.

And then corporate level G&A outlook for '07?

You can expect that Jeff, that our run rate that we had -- if you look at the first quarter, I mean that is basically going to be our run rate in corporate expenses for the remaining quarters, give or take a few million here or there.

Okay, great.

And then my last question just on the new prototypes.

Are you guys doing anything from a green initiative standpoint there?

Ian, can you handle that one?

Yes, not actually not specific to the prototypes, but let's just say generally in terms of some of the international developments we've got.

One of the benefits of owning the Scandic brand for four or five years was that that was a very environmentally friendly brand.

It had a lot of initiatives within the company that were transferable to our international operations and we've done that and incorporated under a program which holistically we call, We Care.

That basically from design and built of hotel through to operations incorporates a lot of initiatives which are environmentally friendly.

We've won a number of awards for those.

One specifically that we've taken on top of that most recently you may have or may not have seen this, but in the UK, we just forward contracted all our electricity to be carbon neutral which we've been able to do because of the scale we've got in the UK.

That falls under the initiatives that we have for We Care.

And We Care looks at -- even things like how we direct some of our CapEx during the course of the year in terms of energy reducing initiatives.

But it also looks at the way of we dispose of a waste and how we train our team members to be conscious of environmental waste within the hotel.

So it all falls for us under the initiatives of We Care.

And all of the limited service or focus service brands that we introduce outside of the U.S.

will follow the same -- fall under the same umbrella.

But I guess We Care doesn't extend to the U.S.

effort?

We are looking very carefully at exactly how we combine the U.S.

or North American efforts with international and spending a lot of time.

Number one, in terms of making sure we are doing the right thing and sharing best practices but also how to market our efforts properly too.

Okay, great.

Thank you, guys.

We have time for one more question, Rob.

Okay, great.

Anna Massion, JPMorgan.

Hi, how are you?

On your guidance for 2007 for the full-year, are you including the pay down of debt when you calculate your interest expense?

Because it seems that if I just annualize your net interest expense that you had the first quarter, it's actually lower to where you are guiding to.

And if I take your net proceeds from the Scandic sale of roughly $1 billion at your average interest rate, my interest expense is substantially lower.

Our guidance does assume the application of the Scandic proceeds toward debt reduction.

Okay, I'm just confused.

Because if I look at your average expense then not including interest just your -- not including interest income you already have 116 in the quarter.

So I'm assuming that if I annualize that then that is where your guidance is today at so what am I missing?

I don't know.

We will have to work with you just to see exactly what you are missing.

But we do provide a full reconciliation of our expectations of our earnings and maybe that is what you are looking at -- the schedule in the back of the earnings release --

That is what I'm looking at and that's why I'm confused is I would assume that $1 billion of debt pay down is pretty substantial just from the Scandic sale alone.

If you use your average interest rate of roughly 6% or 7%, you should save like [60] million on an annualized basis.

And then if you prorate that for the year that is like 30 or 40 million depending on when the pay down occurs.

Right.

You know what I don't have with me to help you live is our prior interest expense guidance.

So perhaps we can do that off line.

And I guess just one more question.

Can you talk about what you are seeing on the expense side?

Like it seems like you are seeing insurance coming down and on a per room basis, how much did cost increase last quarter?

Yes, okay.

First of all, on insurance we addressed that earlier.

We do it -- it's a little bit too early to tell right now in terms of where insurance rates are going to be particularly on the property insurance side.

So hopefully we will have better information on the next call when it comes to insurance.

Most of the other costs I think we are doing fine on.

Having settled the union issue last year; wages are going to be up roughly in that 3% to 4% range.

Energy costs, of course that is always an interesting one but that could be up.

We expect that is going to be up roughly along the lines of inflation this year compared to the increases that we've seen previously.

Now of course you never know where that is really going to go and where the price of oil and the price of gas is going to go.

But we are forecasting about again a 3.5% increase.

In terms of cost per occupied room.

For North America, it was up 7.3% in the quarter.

We expect that that will come down in the remaining quarters of the year because first of all, the comps get a little bit easier particularly on the insurance side, number one.

And number two, we did have some union costs that were in last year's numbers that will not be in this year's members.

So we expect that number to come down more along the lines of inflationary increases of cost per occupied room compared to what it was in the first quarter assuming that particularly assuming that the property insurance rates come in at more or less at the same level this year as they did last year and hopefully like I said earlier, we will see a reduction in that.

Okay, thank you.

And now I'd like to turn the call back over to management for closing remarks.

Okay, thanks, Rob.

We appreciate everyone joining us today and we will be talking to you in the future.

Thanks again.

Ladies and gentlemen, thank you for your participation in the presentation today.

This concludes the presentation.

You may now disconnect and have a great day.