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The Honolulu Advertiser

Posted at 11:48 a.m., Wednesday, October 23, 2002

Hilton mold cleanup estimate now $20 million

By Andrew Gomes
Advertiser Staff Writer

Hilton Hotels Corp. today doubled its estimate of mold cleanup costs at Kalia Tower in Waikiki, figuring it will take $20 million to fix the problem at the hotel, and projecting that guest rooms will remain closed until the second quarter of next year.

The company took a $10 million charge against third-quarter earnings to correct mold growth at the 453-room tower at Hilton Hawaiian Village, following a $10 million mold correction charge taken in the second quarter.

Marc Grossman, senior vice president of corporate affairs for Hilton at its Beverly Hills, Calif., headquarters, said the company still has more work to do diagnosing the cause of the mold, but knows enough to anticipate reopening Kalia Tower six to eight months from now.

"We've made great strides getting our arms around the problem," he said. "There is a little more work to be done. We're not ready to come out with a definitive cause."

Grossman said the $10 million charge includes replacement of furniture and soft goods such as sheets, curtains and wallpaper being removed from every Kalia guest room and destroyed, as well as continued investigatory work and ridding mold from hallway ceilings in the neighboring Lagoon Tower.

The company emphasized that repair costs are still estimates. "Actual costs incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating these types of situations," Hilton said in its earnings statement released today.

Hilton officials, in a conference call today with stock analysts, said they plan to pursue "third parties" to recoup costs for correcting the mold problems. They did not comment further.

Despite having Kalia Tower closed since July, Hilton earnings are not anticipated to be significantly affected, Grossman said.

In fact, Hilton reported a 1.2 percent third-quarter increase in revenue per available room at company-owned hotels. That reversed two quarters of decreases and was fueled by strong occupancy in markets including Honolulu, the company said.

Honolulu joined Boston, Chicago, New York, San Diego and Seattle (airport) markets with occupancy above 74 percent, with some in the "solid 80s," the company said.

Hilton also reported strong time-share sales at its Lagoon Tower where about 46 percent of unit intervals have been sold, which helped the company's vacation ownership business increase earnings before interest, taxes, depreciation and amortization by 7 percent to $20 million.

Overall, Hilton reported third-quarter net income of $48 million, compared with $21 million in the third quarter of last year.

On a per-share basis, Hilton net income was 13 cents, up from 6 cents in the 2001 third quarter. The $10 million mold-related charge represented 2 cents per share of reduced earnings.

Quarterly revenue was down slightly to $934 million, compared with $942 million in the same year-ago quarter.

Hilton owns, manages or franchises about 2,000 hotels, resorts and vacation ownership properties around the world.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.