Hilton Hotels Corp. Reports 46% Increase in Net Income; $89 Million Versus $61 Million in 2004 Perio

Two Big Hilton Markets, New York and Hawaii, Running in the 90% Occupancy Range at Strong Room Rates

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. October 14, 2008

BEVERLY HILLS, CA, October 27, 2005. Hilton Hotels Corporation today reported financial results for the third quarter and nine months ended September 30, 2005.

Third quarter highlights:

Diluted EPS of $.22 versus $.15 in 2004 period, an increase of 47 percent.

Total company Adjusted EBITDA up 9 percent to $279 million.

Comparable owned hotel RevPAR up 13.3 percent; strength in virtually all key markets led by New York and Hawaii; comparable owned hotel margins increase 220 basis points from Q3 2004 (New Orleans excluded from comparable numbers.)

Record fees of $119 million from RevPAR gains, new units; 17 percent increase from Q3 2004.

Timeshare profitability up 21 percent.

Hilton reported third quarter 2005 net income of $89 million, compared with $61 million in the 2004 quarter. Diluted net income per share was $.22 in the 2005 third quarter, versus $.15 in the 2004 period.

The company reported third quarter 2005 total operating income of $203 million (a 19 percent increase from $171 million in the 2004 period) on total revenue of $1.102 billion (a 7 percent increase from $1.033 billion in the 2004 quarter). Total company earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") were $279 million, an increase of 9 percent from $257 million in the 2004 quarter.

Owned Hotel Results

Strong increases in both room nights and rate across the business transient, group and leisure segments, resulted in many of the company's owned hotels showing double-digit revenue-per-available-room (RevPAR) gains in the quarter. These include company-owned hotels in New York City, Hawaii (which remain the two strongest U.S. lodging markets), Phoenix, Boston, Atlanta, and the steadily improving Chicago and San Francisco markets. Strong results were also reported at the company's owned hotels in San Diego and in the Washington, D.C., area.

Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $489 million, a 1 percent decline from $492 million in the 2004 period. Total revenue from comparable owned hotels (excluding the impact of 16 property sales dating back to July 1, 2004) was up 13 percent. RevPAR from comparable owned hotels increased a strong 13.3 percent. Comparable owned hotel occupancy increased 3.2 points to 82.4 percent, while average daily rate (ADR) increased 8.9 percent to $171.02. Approximately 70 percent of the quarterly RevPAR increase at the comparable owned hotels was attributable to the ADR gains.

Total owned hotel expenses were down 4 percent in the quarter to $350 million. Expenses at the comparable owned hotels increased 9 percent, primarily due to an increase in occupied rooms, along with increases in energy and marketing costs and $3 million in real estate tax credits received in the 2004 period. Cost-per-occupied-room increased 5.3 percent in the quarter.

Comparable owned hotel margins in the third quarter increased 220 basis points to 28.8 percent, owing to the aforementioned ADR gains and strong food-and-beverage revenues (up 12 percent from the 2004 period), particularly in New York and Hawaii.

The company's two owned hotels in New Orleans -- the Hilton New Orleans Riverside and the Hilton New Orleans Airport -- are excluded from the comparable numbers due to interruptions in operations caused by Hurricane Katrina. The hotels sustained relatively minor damage and both are now occupied, primarily with relief workers as well as Hilton employees.

System-wide RevPAR; Management/Franchise Fees

Each of the company's brands reported significant system-wide RevPAR increases, with particularly strong gains in ADR. On a system-wide basis (including managed and franchised properties), the company's brands showed third quarter RevPAR gains as follows: Hilton, 13.1 percent; Doubletree, 11.0 percent; Embassy Suites, 9.8 percent; Hampton Inn, 9.4 percent; Hilton Garden Inn, 8.9 percent; Homewood Suites by Hilton, 5.6 percent.

For the third consecutive quarter, management and franchise fees set a new quarterly record. Fees in the third quarter were $119 million, a 17 percent increase from the 2004 period. Approximately half of the fee increase was attributable to RevPAR gains and half from the addition of new units.

Brand Development/Unit Growth

In the third quarter, the company added 55 properties and 7,232 rooms to its system, including: Hampton Inn, 25 hotels and 2,334 rooms; Hilton Garden Inn, 13 hotels and 1,975 rooms; Homewood Suites by Hilton, 7 hotels and 645 rooms; Doubletree, 5 hotels and 1,314 rooms; and Embassy Suites, 3 hotels and 737 rooms. Nine hotels and 1,495 rooms were removed from the system during the quarter.

During the quarter, the Doubletree brand continued its strong growth with the opening of properties in Washington, D.C.; Memphis; Pittsburgh; and the greater Chicago and Los Angeles areas. The Washington, Memphis and Pittsburgh hotels are conversions from other brands. Also in the quarter, Conrad Hotels announced management contracts for a 320-room luxury property in Jakarta, Indonesia, (scheduled to open in 2008) and a 250-room luxury resort on the Caribbean island of Bimini (also scheduled to open in 2008). In addition, the first Hilton Garden Inn in Manhattan opened in the third quarter in Times Square.

At September 30, 2005, the Hilton system consisted of 2,357 properties and 370,111 rooms. The company's development pipeline had approximately 560 hotels and 75,000 rooms at September 30, 2005.

Hilton Grand Vacations

Hilton Grand Vacations Company (HGVC), the company's vacation ownership business, reported a strong quarter with profitability up 21 percent owing to strong unit sales in Las Vegas, Orlando and Hawaii; an increase in average unit sales price; and higher income from financing fees. HGVC had third quarter revenue of $142 million, a 30 percent increase from $109 million in the 2004 quarter. Expenses were $107 million in the third quarter, compared with $80 million in the 2004 period. Third quarter unit sales were up 3 percent, with the average unit sales price also up 3 percent.

During the quarter, HGVC celebrated the topping-off of its new 38-story, 423-unit Phase II tower on the Las Vegas Strip. Upon completion of the new tower (scheduled for summer 2006), HGVC will have 706 units on the Strip in two towers, out of a planned total of 1,582 units in four towers.

Additionally in the quarter, HGVC affiliated with Intrawest Corporation whereby Hilton Grand Vacations Club and Club Intrawest will offer reciprocal vacation packages to their respective members.

Asset Dispositions

As scheduled, the company in the third quarter completed the sale of the Palmer House Hilton in Chicago for $230 million. The new owner, an affiliate of Thor Equities, is expected to invest more than $100 million in capital improvements in the legendary property.

Hilton noted on October 24, 2005, the sale of the 385-room Hilton Boston Back Bay to Highland Hospitality Corp. for $110 million. The Boston property is one of eight hotels that Hilton had previously announced were being marketed for sale. The company continues to expect the majority of those hotel sales to close by year-end 2005.

Corporate Finance

At September 30, 2005, Hilton had total debt of $3.6 billion (net of $100 million of debt resulting from the consolidation of a managed hotel, which is non-recourse to Hilton). Approximately 13 percent of the company's debt is floating rate debt. Total cash and equivalents (including restricted cash) were approximately $958 million at September 30, 2005.

The company's average basic and diluted share counts for the third quarter were 381 million and 415 million, respectively.

Hilton's debt currently has an average life of 8.1 years, at an average cost of approximately 7.0 percent.

The company's effective tax rate in the third quarter was 34 percent. The tax provision benefited from certain state tax credits as well as credits associated with the company's synthetic fuel investment.

Total hotel capital expenditures in the third quarter were $67 million, with an additional $58 million expended for timeshare development.

The company did not repurchase any of its stock in the third quarter because it was engaged in discussions with Hilton Group PLC regarding a potential acquisition of Hilton Group's lodging business.

Nine-Month Results

For the nine-month period ended September 30, 2005, Hilton reported net income of $355 million, compared to $173 million in the 2004 period. Operating income for the nine months was $612 million (compared with $490 million in the 2004 period) on revenue of $3.354 billion (versus $3.092 billion in the 2004 period). For the 2005 nine-month period, when compared to the same period last year, total company Adjusted EBITDA increased 15 percent to $867 million.