Posted on: Sunday, August 4, 2002

Hilton shifting its focus to franchising

Bloomberg News Service

BEVERLY HILLS, Calif. — Hilton Hotels Corp. chief executive Stephen Bollenbach, whose company owns such landmarks as New York's Waldorf-Astoria, wants more earnings from roadside hotels such as the Hampton Inn in Cedar City, Utah.

Hilton in April licensed the Hampton Inn name to a local developer building the property along an interstate highway as part of Bollenbach's goal of boosting the third-largest hotel company's management and franchise fees to 50 percent of profits from the current 30 percent. Hampton Inn hotels average 94 rooms and charge about $77 a night, compared with $179 at the Waldorf.

Bollenbach is turning to franchising to generate a steadier stream of income amid the slump in business travel, which has cut profits for owners of large hotels in cities.

With its franchising plan, Hilton is going head to head with Marriott International Inc., the largest U.S. hotel company in sales, which focuses on franchising. The benefit of franchising and managing hotels is that fees are received regardless of a property's profit, and the cost of developing is left to the owner.

"The idea is to look a little bit more like Marriott, a less cash-intensive business," said Mark Foster, chief investment officer for Kirr Marbach & Co., which owns 573,000 shares of Hilton. "Marriott has been thought of as the premier company in the industry" because of its strength in opening hotels, he said.

Hilton owns, manages or franchises about 2,000 hotels, resorts and time-share properties. Among its properties are the 22-acre Hilton Hawaiian Village in Waikiki. The company also owns the Doubletree, Embassy Suites, Hilton Garden Inns and Homewood Suites chains.

Hilton shares have fallen 50 percent over the past four years while Marriott shares are down 8 percent. Hilton's shares trade at 17 times estimated 2002 earnings, compared with about 19 times for Marriott and Starwood Hotels & Resorts Worldwide Inc., owner of the Sheraton and Westin chains.