Hilton Hotels Corporation

FOUNDED: 1919

Contact Information:

HEADQUARTERS: 9336 Civic Center Dr.
Beverly Hills, CA 90210
PHONE: (310)278-4321
FAX: (310)205-4599
URL: http://www.hilton.com

OVERVIEW

The Hilton name has become nearly synonymous with hotel, and rightly so. In 1998 Hilton was the seventh-largest hotel company in the United States, and it has worldwide name recognition through its global hotel and gaming operations. The company develops, owns, manages, and franchises hotels, hotel-casinos, resorts, and vacation-ownership resorts. Through its subsidiaries, Hilton also has interests in designing and furnishing hotels and computer reservation systems for rental cars and hotels.

Hilton's lodgings division includes 231 hotels and resorts across the United States. Of this total, 51 are owned and/or managed by Hilton, while 180 operate under franchise agreements. The company's flagship properties include New York's Waldorf-Astoria, the Hilton Hawaiian Village, and the Chicago Hilton and Towers. Hilton's Grand Vacations subsidiary manages 18 vacation-ownership (time share) resorts in Florida and Nevada. The company continues to expand its hotel operations through the acquisition of full-service properties and through the addition of new mid-price hotels, such as the Hilton Garden Inn properties.

In 1997 Hilton announced a strategic alliance with Britain's Ladbroke Group PLC, owners of the Hilton name outside the United States. The alliance reunites the Hilton name worldwide for the first time in more than 30 years. With more than 400 hotels and resorts in 49 countries, the reunification by both companies adds further luster to Hilton's leadership position in the hospitality industry.

With 16 gaming facilities worldwide, Hilton Hotels Corp. is considered the world's largest casino gambling company. The company's acquisition of Bally Entertainment Corp. in late 1996 helped to vault Hilton into this leadership position in the world of gaming. Hilton's gaming division owns and operates eight hotel-casinos in New Jersey and Nevada, as well as riverboat casinos in Louisiana, Mississippi, and Missouri. In the Canadian province of Ontario, the company manages the Casino Windsor and the Northern Belle Casino with a partner.

COMPANY FINANCES

In 1997 Hilton Hotels Corporation reported net earnings of $250 million on revenue of $5.30 billion, compared with net income of $82 million on revenue of $3.94 billion in 1996. Per-share earnings of $.94 in 1997 were up sharply from $.41 per share in 1996. In 1995 the company reported a net of $173 million on revenue of __BODY__.65 billion, compared with 1994 net earnings of $122 million on revenue of __BODY__.51 billion. Per-share earnings for 1995 and 1994 were $.89 and $.63, respectively.

In 1997 room rentals accounted for 36 percent of Hilton's total revenue, while its casino operations generated 34 percent of the total. Food and beverage sales brought in another 19 percent of revenue; 1 percent was accounted for by management and franchise fees; and the remaining 10 percent came from other operations.

ANALYSTS' OPINIONS

The appointment of Stephen F. Bollenbach as president and CEO had the pundits opining—overtime—about Hilton's prospects. There is no single consensus, save for general agreement that Bollenbach's appointment was a wise decision.

"[Bollenbach] brings [Hilton] financial acumen—an in-depth knowledge of the hotel business and gaming business [and] he brings leadership skills," said Los Angeles-based hotel consultant Saul Leonard in an article in Hotel & Motel Management. "Steve Bollenbach has been a success at every place he's been. I see no reason not to see him continue his success at Hilton."

The investment community also scrutinized the situation. "Bollenbach is also taking steps to market and leverage the respected, if underutilized, Hilton name more aggressively," explains Financial World. "[One analyst] explains that Hilton missed the boat on the three-star, limited-service hotel market segment over the past 10 years and is now actively franchising the mid-price Hilton Garden Inn chain. The company expects to have 100 signed franchises by 2000."

Analysts wonder how all of these moves will translate into revenue and earnings gains. While Wall Street is excited about the prospects, its outlook for the company is more modest than Hilton's own. Joyce Minor of Lehman Brothers, for example, expects the stock's price to reach the mid-30s [sic] within a year or so and recommends the stock.

Another analyst, quoted in Financial World, insists that "analysts are conservative in their estimates." He also thinks they have "not really given credit for Hilton's hotel acquisitions and what they will mean for earnings growth."

HISTORY

Around the turn of the century Conrad Hilton rented out rooms in his family's home. It was a passion that was to last a lifetime. In 1919 Hilton left New Mexico and headed to Texas, where he planned to buy a bank. Hilton's plans for a career in banking were abandoned when he spotted a small hotel for sale in Cisco, Texas, between Abilene and Fort Worth. With the purchase of this small-town hotel, Hilton launched his career in the lodging business. He soon purchased additional properties, but his plans were stalled by the Depression. Hilton devised a scheme to lease the land on which hotels were located rather than buy the hotels themselves.

Determined to grow his business, Hilton made his way to California, where he began purchasing hotels in 1938. There he met a young starlet by the name of Zsa Zsa Gabor—they were married but later divorced.

Hilton Hotels Corporation was officially formed in 1946 with Conrad Hilton as its president. Trading in the company's stock was begun on the New York Stock Exchange. By 1948 Hilton had amassed enough properties in the United States and Mexico to necessitate the formation of Hilton International to manage his foreign assets. He opened his first European hotel in 1953. The following year he made the biggest transaction in the industry to date when he purchased 10 hotels in the Statler chain for a record $111 million.

Hilton made its first foray into gaming in 1949 when it opened a casino in San Juan, Puerto Rico, at the behest of the governor of Puerto Rico. Barron Hilton tells the story: "My father had been born and raised in the small town of Socorro, New Mexico, and had learned to speak Spanish even before he could speak English. So in responding to the Governor, he wrote back in Spanish. I believe the Governor was touched by this, and that this letter in his native language played a major role in our company securing the agreement to operate what became the Caribe Hilton."

The company continued to acquire properties and began franchising the Hilton name in 1965. Conrad's son, Barron Hilton, was appointed president in 1966 and chairman of the company upon his father's death in 1979; he remains chairman.

Stephen F. Bollenbach gained much attention in the 1990s for putting together Disney's $19-billion acquisition of Capital Cities/ABC while serving as CFO at Disney. He joined Hilton as CEO in 1996. Bollenbach is the first non-family member to head Hilton. Much was made of this transfer of power, and since confidence in Bollenbach was high, the market responded. Hilton's stock rose 21 percent within two days of his hiring.

In 1997 an alliance was hammered out between Hilton and Britain's Ladbroke Group PLC, which owns the rights to the Hilton name outside the United States. The agreement reunites the Hilton name worldwide for the first time in more than 30 years. More than 400 hotels and resorts in 49 countries bear the Hilton name.

STRATEGY

In its global strategy to expand its international hotel network, Hilton won some and lost some in the latter half of the 1990s. In 1996 the company acquired Bally Entertainment for $3 billion and announced plans to build 100 Hilton Garden Inns, a mini-chain of mid-price hotels. That same year, Hilton bought out Prudential's interests in six hotels, including Chicago Hilton & Towers, San Francisco Hilton & Towers, and New York Hilton & Towers.

Unsuccessful, however, was Hilton's hostile takeover bid for ITT, the owner of Sheraton hotels and Caesars World. ITT managed to elude Hilton for months through a series of escape maneuvers and eventually accepted a higher offer from Starwood, a real estate investment management company.

INFLUENCES

Among the trends that has shaped the strategy of the lodging industry in recent years, none has been more powerful than the economic boom in the United States and other parts of the world (much of Asia being a notable exception). According to a January 1998 report in Business Week, hotel room rates, bolstered by a combination of strong demand and a shortage of hotel rooms, climbed nearly 13 percent during 1996 and 1997.

However, what goes up must eventually come down. Business Week reported that U.S. hotel occupancy rates, which slipped slightly from 65.1 to 64.5 percent in 1997, will probably drop more in 1998, according to analyst Bjorn Hanson of Coopers & Lybrand. This slowing in hotel demand puts into question the need for the 140,000 new hotel rooms coming on line in 1998. Business Week reported that while the supply of hotel rooms will grow by 3.4 percent in 1998, the demand for rooms will climb by only 2.6 percent. While none of these trends is likely to result in a major industry shakedown, they do indicate that the going may be rougher in the remaining two years of the decade.

A saving grace in all of this for Hilton is the likelihood that demand for space in full-service hotels in gateway cities will continue to be strong. Most of Hilton's holdings fall into this category. Hilton's CEO Stephen F. Bollenbach remarked in Business Week, "For our hotels, these are the best of times, and it will continue."

CURRENT TRENDS

In an article assessing the positive aspects of the 1998 outlook for the lodging industry, Business Week predicted that room rates will increase by about 5.3 percent and many upscale hotels will continue to experience room shortages. On the downside, however, the article indicated that budget, mid-price, and extended-stay hotels are likely to be hurt by overdevelopment, and that occupancy levels in many parts of the United States are declining.

One trend that Hilton executives have tracked very closely is the growing American love affair with the Internet and electronic business. When marketing executives first campaigned for a sophisticated Internet site that would allow customers to book reservations on-line, those in charge of the bottom line insisted on some guarantees, according to a 1998 report in InformationWeek. Dieter Huckestein, president of Hilton's hotel division, said, "We wanted to be leading, not bleeding." According to Bruce Rosenberg, Hilton's vice president of marketing and distribution, every dollar spent on the company's web site generates about $10 in revenue. The company estimates that on-line room reservations produce roughly $2 million of revenue monthly.

PRODUCTS

Hilton Hotels Corporation develops, owns, manages and franchises hotels, hotel-casinos, resorts, and vacation-ownership resorts throughout the United States. The company's major units include Hilton Hotels Divisions, Hilton Gaming Division, Hilton Reservations Worldwide, and Hilton Equipment Corporation. As of early 1998 the company had 231 properties in 7 different product categories, including airport hotels, mid-priced hotels and resorts.

CORPORATE CITIZENSHIP

Hilton Hotels Corporation is involved in numerous charitable activities, particularly in the communities in which their properties are located. Among the corporatewide programs are Kids Voting USA, a national voter-education program, and the Hilton Gaming Scholarship Program, which grants scholarships to the children of employees.

In 1996 Hilton instituted a program for compulsive gamblers at its Australian property. The program provides information on where to seek assistance, as well as crisis intervention training for casino staff.

GLOBAL PRESENCE

For more than 30 years Hilton's domestic and international hotel operations were separated, with Lad-broke Group PLC managing Hilton hotels outside the United States. In 1997 Hilton and Ladbroke negotiated a strategic alliance that linked their operations and reunited the Hilton name worldwide. As part of their agreement, Peter George, Ladbroke's CEO, was given a seat on Hilton's board of directors.

Hilton has gaming operations in a number of foreign countries, including Turkey, Uruguay, and Australia. Conrad International Hotels has luxury properties in numerous international cities, including Jakarta, Brussels, Hong Kong, Dublin, and Barcelona.

EMPLOYMENT

In an effort to optimize the use of its human resources and improve management of team operations through all levels of its business, Hilton has instituted a program of five-day workshops called "Professional Development for Directors of Human Resources." The courses cover such topics as hiring costs, terminations, turnover, training, compensation, internal surveys, and grievances.

Hilton attaches a high level of importance to training at all levels of its operations. According to company literature, "the ongoing training of every Hilton team member is a crucial element of the continued success of the brand. Well-trained team members—from general managers to line workers—provide the consistent service that our customers expect and the quality lodging experience that keeps them coming back to Hilton." Such training begins at the top. New managers attend courses at the Hilton Quality Service Institute. Other training courses, held regionally, cover a variety of job skills as well as customer relations.

SOURCES OF INFORMATION

Bibliography

Gibbs, Melanie F. "Hilton Hotels Corp.: The Sleeping Giant Wakes." National Real Estate Investor, February 1997.

Golden, Fran. "Hilton Chief: More Purchases Likely: Hotel Company Looks to Future in Wake of $2 Billion Bally Acquisition." Travel Weekly, 13 June 1996.

Golden, Fran. "New Hilton Chief: Chain Will Grow by Investing in Hotels and Gaming." Travel Weekly, 27 May 1996.

Goldgaber, Arthur. "Honeymoon Hotelier: Hilton's Stock Quickly Doubled after Stephen Bollenbach Took Over as CEO. Now He Must Deliver." Financial World, 21 January 1997.

Henkoff, Ronald, and Andrew Serwer. "It Ought to Be No Contest: Hilton vs. ITT." Fortune, 3 March 1997.

Hilton Gaming News. Beverly Hills, CA.: Hilton Hotels Corporation, Winter 1996.

Hilton Hotels Corporation 1995 Annual Report. Beverly Hills, CA.: Hilton Hotels Corp., 1996.

Hilton Hotels Corporation Home Page, 1 June 1998. Available at http://www.hilton.com.

"Hilton Hotels Corporation." Hoover's Online, 1 June 1998. Available at http://www.hoovers.com.

Morris, Kathleen. "Industry Outlook: Services: Lodging." Business Week, 12 January 1998.

Violino, Bob. "Trends: Hilton Hotels-Reservations Online." InformationWeek, 27 April 1998.

For an annual report:

on the Internet at: http://www.hilton.com/corporate/index.html

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Hilton Hotels Corporation's primary SICs are:

5812 Eating Places

6794 Patent Owners and Lessors

7011 Hotels and Motels