Tuesday, April 23, 2002

Hilton to buy
remaining 87% stake
in Waikoloa

It is paying a Taiwanese family
$75 million and 5.2 million in shares
for the Big Island resort

By Russ Lynch

Hilton Hotels Corp. is buying the 87 percent of the Hilton Waikoloa Village that it does not already own for $75 million in cash and 5.2 million Hilton shares, making the deal worth about $158 million at today's share price.

The Taiwanese family that owns the majority of the 1,241-room hotel and its 62 acres of land on the Big Island's Kohala Coast had to liquidate some holdings, making it possible for Hilton to buy the property at a reasonable price if it acted fast, said Matthew H. Hart, Hilton executive vice president and chief financial officer.

Announcing the purchase along with Hilton's first-quarter earnings report, Hart called the Hilton Waikoloa "the definition of an irreplaceable asset" and an important strategic property for the company. Hilton is paying only about 40 percent of the $400 million it cost to build the hotel, Hart said.

The resort, developed by Christopher B. Hemmeter and Japanese partners, was opened in 1988 as the Hyatt Regency Waikoloa. Hilton and the Taiwan group bought it in 1993 and renamed it.

When the deal closes, which is expected to occur in the current quarter, it will be the second Hawaii hotel entirely owned by Hilton. The other is the 2,998-room Hilton Hawaiian Village Resort & Spa in Waikiki. Hilton no longer has a management or ownership interest in Turtle Bay.

"Using our stock at its current price (about $16 a share) was not our preferred method for completing this transaction, but it was important that we act quickly to acquire this one-of-a-kind hotel while communicating to our debt holders and the rating agencies that we are committed to improving our credit profile," Hart said.

Art He said Hilton has been reducing its reliance on company-owned properties, preferring management deals for hotels owned by others, but the Waikoloa opportunity was to good to miss.

Later, in a conference call with investors and analysts, Hart said the company may sell the hotel in the future.

Hilton , the No. 3 U.S. hotel company, said first-quarter profit fell less than expected and the company raised its forecast for the year as leisure travel picked up.

Beverly Hills, Calif.-based Hilton's net income fell 38 percent to $34 million, or 9 cents a share, from $55 million, or 15 cents in the year-earlier period. Revenue fell 14 percent to $921 million. Hilton follows Marriott International Inc. in reporting better-than-expected results as consumers spend more on travel. Corporate travel, often the most profitable for hotel companies, still hasn't recovered from last year, preventing hotel companies from raising room rates, analysts and investors said. Hilton shares closed up 60 cents today to a two-year high of $16.01.

Bloomberg News contributed to this report.

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