• Hilton Hotels Corp makes quick divestment move

Hilton Hotels Corporation has moved quickly to start its divestment process. Just a week after completing its purchase of the hotel assets of Hilton International, it has put two of the largest conference hotels in the chain on the market.

The move is part of HHC's push to return to investment grade status by reducing its exposure to property.

The two hotels up for sale are the London and Birmingham Metropoles, with 1,054 and 794 rooms respectively. The London hotel is the largest conference hotel in the UK and the second largest in Europe.

The properties, which are being marketed by Christie & Co, could fetch as much as £400m. HHC is seeking to retain them on a long-term management contract.

At its full-year results conference call, held at the end of January before the Hilton International deal had completed, HHC's CEO Steve Bollenbach stressed that the sales were not just driven by the need to pay down debt. He pointed out that the company's strong cash flows would enable it to do that anyway, even if it took a year or two longer to obtain investment grade rating.

He said that HHC's strategy is to become less reliant on real estate and obtain more profits from the fee business.

Analysts at Citigroup looked at impact of selling $2.5bn of assets. If this was achieved along with the expected earnings recovery, then investment grade status would be obtained again by the end of 2007 so that debt was below 3.5 times EBITDA.

The analysts commented that factoring in $2.5bn of sales might be conservative given the strength of demand for hotel assets. They listed four drivers: robust industry fundamentals; low interest rates; large increases in construction and replacement cost; and strong residential trends which allow owners to monetize excess real estate.

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