Ridding Hilton of mold may cost $20 million

By Andrew Gomes
Advertiser Staff Writer

Hilton Hotels Corp. has doubled its estimate of mold cleanup costs at Kalia Tower in Waikiki to $20 million and says the tower's 453 rooms will remain closed for another six to eight months.

The escalating costs and time frame are the latest indications of the complexities Hilton faces as it tries to find the cause of high humidity that led to the mold growth and has prompted the company to shut down all rooms since July.

With the additional estimated costs announced yesterday, the bill for correcting the mold problem is nearing about one-fifth what Hilton paid to build the $95 million tower, which opened a little more than a year ago at Hilton Hawaiian Village.

In the past three months, workers have made enough progress in diagnosing the cause of the mold that an estimated reopening time can be established.

But Marc Grossman, senior vice president of corporate affairs for Hilton at its Beverly Hills, Calif., headquarters, said the company still has more to do.

"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."

Hilton made the most recent announcement on mold costs yesterday in its quarterly earnings statement, saying it would take a $10 million charge against third-quarter earnings. It took a similar $10 million mold-correction charge in the second quarter.

Grossman said the most recent $10 million charge includes replacement of furniture and items such as sheets, draperies 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.

Hilton officials, in a conference call with analysts, said they plan to pursue "third parties" to recoup costs for correcting the mold problems. They did not comment further. Officials with Hilton Resorts Hawaii were not available yesterday for additional comment.

For the past six weeks, contractors have been removing furniture and other items from Kalia guest rooms. TVs, radios and other items made of metal or glass also are being removed pending a decision on whether they will be kept.

Despite the problems with the tower, Hilton yesterday 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.

Hilton also reported strong time-share sales at its Lagoon Tower, where about 46 percent of unit intervals have been sold.

Overall, Hilton reported third-quarter net income of $48 million, or 13 cents a share, compared with $21 million, or 6 cents a share, in the third quarter of last year. 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.

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