MATTHEW J. HART was named Executive Vice President and Chief Financial
Officer of Hilton Hotels Corporation in May 1996. He has direct day-to-
day responsibility for the company's financial affairs. Prior to joining
Hilton, Mr. Hart was Senior Vice President and Treasurer for the Walt
Disney Company, where he was responsible for the company's corporate and
project financing activities. Before joining Disney, Mr. Hart served as
Executive Vice President and Chief Financial Officer for Host Marriott
Corporation. He held various financial positions at Marriott Corporation
(prior to the formation of Host Marriott), which he joined in 1981 as
Manager, Project Finance. He later served as Vice President, Project
Finance, adding the position of Assistant Treasurer in 1987 and Senior
Vice President, Finance and Treasurer in 1991. Mr. Hart has also been a
lending officer with Bankers Trust Company in New York. He graduated Cum
Laude from Vanderbilt University in 1974 and received his MBA from
Columbia University in 1976. He is on the Board of Directors of First
Washington Realty Trust, Inc. and Kilroy Realty Corporation.
Sector: lodging
TWST: Could you start by giving us a brief history of Hilton Hotels
Corp.?
Mr. Hart: Instead of going through the company's history, which dates
back to 1919, I'll just say that our company has been completely
reformulated in the last 24 months. We spun off the gaming operation
into Park Place Entertainment, which is now the world's largest gaming
company, and subsequently, we acquired Promus Hotel Corporation. Now we
are one of the world's largest pure-play hotel companies.
TWST: Are there acquisitions in your future?
Mr. Hart: With the acquisition of Promus, we're essentially complete in
terms of brands and market segments that we'd like to be in. I wouldn't
expect to see any significant acquisitions for a while.
TWST: Is there a possibility of a glut in the number of hotels?
Mr. Hart: There was a lot of analyst concern about overbuilding in the
business earlier in the year, but those concerns have dissipated. We are
in a healthy period in our business now. Demand actually exceeds supply,
especially in the markets that are very important to us, where we own
some very large landmark properties.
TWST: In your case, branding must mean a great deal.
Mr. Hart: Yes, and that's where the Promus acquisition came in; we've
changed the fundamentals of the company from effectively having one
brand to now having seven brands. We have a terrific leader of our brand
management function, Tom Keltner. We've grown the number of units and
fee income substantially, and our brands now can reach a huge customer
base in the United States.
TWST: What do you believe will be the most important trends and
developments in the hotel business over the next several years?
Mr. Hart: Continued consolidation of the business. Lodging is a business
where scale is important, where the technology needs of the business
demand scale and size to be able to deliver marketing programs,
advertising programs, customer tracking programs, and so on. It's an
expensive process and without a significant number of units to spread
those costs over, smaller companies can't stay competitive. Over time,
the three or four biggest companies will become bigger, and smaller
brands won't really mean much to potential customers.
TWST: Is there any place in your schemes for moderately priced hotels,
such as the new Hudson Hotel that Ian Schrager has put together in NY?
Mr. Hart: We offer a full range of property types. Hilton Garden Inn,
Hampton Inn and Red Lion offer a moderately priced property. Doubletrees
have a pretty wide range of pricing in their markets. I think what
you're referring to would be considered more of a boutique property,
defined more by the product offering than by the price. We're not in
that segment, nor do we have any plans to be.
TWST: What are the best opportunities for the company over the next few
years?
Mr. Hart: The exciting thing about Hilton for our investors is that
starting next year, and the year after, and the year after that, we're
going to be a generator of significant free cash flow. We have choices
on what to do with that free cash flow, whether it's to reduce debt, to
make selective acquisitions, or to repurchase our stock.
TWST: What distinguishes you from your competition? You've already
spoken of it, but could you go a little bit further than you did? What
really makes you stand out versus the others?
Mr. Hart: Generally speaking, the bigger companies all offer reliable
brands. They offer good service to their customers and convenient
locations. I think what distinguishes Hilton is that we have is that we
have very strong relationships with our owners and franchisees and are
responsive to their needs. Since we own a lot of hotels ourselves, the
services that we offer and we provide to other owners, we charge
ourselves, we use ourselves, and so, we have an empathy with owners
about issues that are important to them: How much do these services
cost? What are they designed to do? Will they really help the bottom
line? We are organized to make decisions promptly.
TWST: As CFO, where do you find yourself spending most of your own time,
and where do you see the company going?
Mr. Hart: We have all worked hard this year to make sure that the
integration with Promus has been carried out well. My poor golf game is
testament to that fact! The integration of Promus is complete, and now
we're making sure that we deliver all of the synergies that we promised
to our investors. I am happy to say that we are exceeding all of our
estimates, both on the cost saving side and on the revenue enhancement
side. Going forward, I'll be spending more time trying to help extend
the reach of our brands through more franchise and management
opportunities.
TWST: Could you tell us a little bit about your operating margins?
Mr. Hart: Our operating margins are the highest in the industry. In the
integration, we've been able to eliminate duplicate positions,
consolidate offices. We moved three different accounting offices into
one. We've consolidated our information technology functions under Tim
Harvey, and we are delighted with the results. We've moved a faster and
more efficiently than we thought on the cost saving side. On the revenue
enhancement side, we've exceeded our expectations in that we have been
able to increase the market share for each of our brands through
improved cross-selling, through the Hilton HHonors' frequent stay
program and through a much deeper and broader sales organization. We're
going to exceed our synergy expectations for 2000 and expect to do so
for 2001.
TWST: What do you see as the main risks you are facing, and how will you
deal with them?
Mr. Hart: We borrowed a lot of money to buy Promus and have more
floating rate debt than we'd like. We've recently completed a $500
million fixed rate mortgage that alleviates some pressure. We've
recently reached an agreement with our bank group to extend the term of
their revolving credit to October of 2003. With that flexibility, we'll
be turning our attention to terming out a lot of our debt in the public
markets.
TWST: Do you see yourself exceeding expectations over the next two or
three years?
Mr. Hart: Yes, I absolutely do, and the reason that we're able to do
that is because of the things that I've mentioned before: a much bigger
sales organization, cross-selling opportunities and the Hilton HHonors
program.
TWST: Are there any weaknesses in the company that have to be dealt
with?
Mr. Hart: No, we have a great team. With a merger, people always say
they're going to keep the best of the best, and we absolutely did that.
Dieter Huckestein took the best senior hotel managers from Promus into
his organization, and we took Promus' Information Technology area as
well as their Franchising area. I think Steve Bollenbach's the best CEO
in the industry. Everything's great but the stock price!
TWST: Where would you like to be by 2003 or 2004?
Mr. Hart: Several checkpoints: reaching $100 million in run-rate
synergies would be an important accomplishment; getting the Doubletree
brand to enjoy a RevPAR premium would be an important accomplishment,
and the most important thing would be to get our share price to where it
should be.
TWST: What don't investors know about the hotel business that they
should know?
Mr. Hart: The lodging business is one that historically has traded at a
10 to 12 times EBITDA multiple, and now it's trading at 7 to 8 times.
The market is factoring in some kind of fall off in our business that we
really don't see. Investors view the lodging business as one that's been
historically cyclical. The business has done well for quite a long time,
and so they're expecting something bad to happen. They don't want to
walk into a ballgame and find out it's the bottom of the 8th inning.
It's been interesting for us to see analysts looking for problems.
Earlier in the year, it was concern about oversupply. That concern seems
to have abated. There was a concern about gasoline prices that really
hasn't been an issue at all, nor will it be. People thought Priceline
was going to hurt our pricing power ' wrong! The latest concern is about
a fall off in demand. The industry has never been healthier. In the
large markets that are important to us ' like New York, San Francisco,
Chicago, Boston, Washington and Honolulu ' you can't get a room without
calling around! I get these calls all the time, and it's not for a deal,
it's just for a room! Profitability is extremely high, and we think it's
going to continue, especially for the way that we're in the business.
TWST: In what areas do you expect to see the greatest amount of growth
in the next two or three years?
Mr. Hart: We are in one industry, but in two businesses. One is the real
estate ownership and management business. The other is the brand
management and franchise business. In the first category, we own large
hotels in superb locations in America's 24-hour cities. They're largely
immune to competitive threats from new supply because there are
extremely high barriers to entry. Our franchise business has great
brands with limited geographic penetration. We think that there are
great opportunities for growth in both parts of our business.
TWST: What are the two most specific reasons for investing in your
company?
Mr. Hart: The first is that the industry is healthy; there is real
growth in our business, both short-term and in the future. Second is
that valuations are very low; specific to Hilton, we own some of the
best hotels in the country, and we control some of the best brands in
the industry. That's a formula for continued strong growth in EBITDA and
earnings per share.
TWST: Is there anything that we may have missed or overlooked that you
would like to mention?
Mr. Hart: You had a question earlier about something that might happen
that would lead Hilton to substantially exceed expectations. The key
point here is that expectations have to be very low. Investors must be
pricing into hotel stocks some kind of cataclysmic event, whether it
might be major overbuilding or a depression or a war. Lower valuations
exist across the board, not only for Hilton but for our competitors and
the REITs in the business. The industry is trading at multiples that
we've never seen before, in light of what any objective viewer would see
as a very healthy outlook for our business. So the short answer is,
expectations are low, and if we realize the opportunities before us in
any kind of reasonable economic environment, we'll exceed those
expectations.
TWST: Thank you. (MC)
MATTHEW J. HART
Executive VP & CFO
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
(310) 278-4321
(310) 205-7678 - FAX
www.hilton.com
Each Executive who is the featured subject of a TWST Interview is
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