Industry Update
Supplier News 1 November 2002

Hilton Brands Post Strong Third Quarter Development Activity - Hilton Brands Account for Nearly 21 Percent of New U.S. Hotel Development Pipeline

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BEVERLY HILLS, Calif.--Hilton Hotels Corporation HLT today announced that its brands opened 38 hotels in the 2002 third quarter, almost exclusively through franchise agreements and management contracts, accounting for 21 percent of the 176 U.S. hotels(a) opened during the period. As of September 30, 2002, Hilton's brands led all other hotel companies in number of hotels in the active pipeline within the U.S., accounting for 20.8 percent of all new projects and 19.4 percent of all rooms in the pipeline, according to Lodging Econometrics, the industry authority for hotel real estate.

Highlights of Hilton's development activity during the quarter include the opening of the 150th Hilton Garden Inn®, only six years after the brand was launched; the opening of 11 properties west of the Mississippi, where the Hilton Family of Hotels is placing more development focus; and 10 properties converted to the Hilton Family of Hotels.

In addition to the 38 hotels opened during the quarter, the company added one timeshare property representing 70 rooms.

"We remain on target to add 145 hotels and 18,000 rooms to our system in 2002," said Tom Keltner, president--brand performance and franchise development group, Hilton Hotels Corporation. "And just as our brands continued to gain market share from an operations viewpoint in the 2002 third quarter, we also gained market share on the development side of our business."

Keltner attributed the solid development results in the face of a challenging economy to the strength of the Hilton Family of Hotels. "Regardless of the phase of the economic or real estate cycle, strong hotel brands win," he said. "Developers and their lenders tend to migrate to strong brands in more difficult economic conditions because, historically, they have performed better, and this trend certainly holds true today. The high consumer acceptance of our brands, our powerful HHonors® guest reward program, the integrity of our brands, and our ability to cross-sell between our brands are seen as compelling advantages by developers and lenders alike.

"While financing is more difficult to obtain and the number of development projects is predicted by industry consultants to be at or near the bottom of the hotel real estate cycle, we see continued interest in developing the Hilton brands, as well as increased interest in hotel owners wanting to convert to our brands," he said.

Brand Development Highlights

  • Hampton Inn(R)/Hampton Inn & Suites(R) – Hampton represents roughly half of the company's overall openings. During the 2002 third quarter, Hampton opened 18 hotels with 1,527 rooms. Five of the hotels were opened west of the Mississippi, where the brand is focusing significant development attention.
  • The new Hampton Inn & Suites prototype, introduced in 2001, continues to gain in popularity with the development community. More than half of the Hampton hotels currently in development are Hampton Inn & Suites.
  • Urban development also continues as a viable option, as consumers push for more mid-priced hotel rooms in central business districts. The mid-market without food and beverage sector is underserved in most major metropolitan markets. The brand's first property in Manhattan – Chelsea in Midtown – is expected to open in early 2003, followed by Big Apple openings in Manhattan/Seaport later in 2003 and Midtown-Herald Square in 2004. The Hampton La Guardia Airport will open in early 2005.
  • Hampton's smaller prototype, a hotel with less than 60 rooms designed for tertiary markets, also has attracted significant development interest. The first hotel is expected to open in early 2003.
  • Hilton Garden Inn(R) – Hilton's mid-scale with food and beverage product opened 10 hotels and 1,377 rooms during the quarter, including its 150th property, a 189-room Hilton Garden Inn in Arlington, Va.
  • Hilton Garden Inn developments represent one of the cornerstones of Hilton's franchise growth strategy. Development interest in the brand remains high, representing approximately 25 percent of openings within the Hilton Family of Hotels. More than 100 Hilton Garden Inn properties are currently under development in the U.S.
  • Hilton Garden Inn recently received the distinguished "Highest Guest Satisfaction Among Mid-Price Hotel Chains with Full Food Service" award in the J.D. Power and Associates 2002 North America Hotel Guest Satisfaction Study(SM).
  • Homewood Suites by Hilton(R) – Hilton's upscale extended-stay brand opened six hotels and 725 suites in the quarter, including four conversion hotels.
  • One of the many advantages fueling interest in development of Homewood Suites by Hilton hotels is the Developer's Edge package, which offers developers reduced royalty fees, reduced application fees for multiple-hotel developers, semi-qualified sales leads, 500,000 Hilton HHonors points for new developers, and marketing and advertising/public relations support. The brand opened its 100th property in April 2001 and as of September 30, 2002, has 117 hotels open.
  • Homewood Suites by Hilton has maintained a strong development pace in the past nine months, with nearly 50 properties currently under design or development – a brand record. The need for extended-stay room nights has continued to grow in spite of the economic climate, as documented by the Highland Group (hotel investment advisors). They reported that demand for extended-stay room nights grew by 4 percent in 2001 compared to overall hotel industry demand last year, which was down 3.9 percent. Demand in the upscale extended-stay segment was even better, at slightly more than 4 percent.
  • Hilton(R) – Upscale hotels currently in operation continue to benefit from very little new supply being added, especially within markets where larger, urban Hilton hotels operate. During the quarter, one hotel with 385 rooms was added to the system that will convert to a Hilton post-renovation.
  • Hilton currently has nearly 30 hotels currently approved, in design or under construction, including convention center hotels in Austin (800 rooms) and Houston (1,200 rooms), Texas and Omaha, Neb. (450 rooms) that it will manage.
  • Doubletree(R) – Doubletree opened two hotels and 424 rooms during the third quarter of 2002, representing conversions in Key West, Fla., and Charlotte, N.C.
  • The brand continues to push growth by conversions as a highly attractive development option, representing roughly half of its hotels in the pipeline. The brand is seeing continued interest in conversions to Doubletree of comparable upscale hotels that stand to benefit greatly from a highly successful guest reward program such as Hilton HHonors, cross-selling through Hilton Reservations Worldwide and support of Hilton Sales Worldwide. Conversion projects are underway in Livermore, CA, and Mahwah, N.J. Hotels under construction include Anaheim, Calif., Bay City, Mich. And Springdale, Ark.
  • While not included in the Lodging Econometrics active pipeline figures, Doubletree is opening a resort hotel in Niagara Falls, Ontario, Canada in summer 2003.
  • Embassy Suites Hotels(R) – Embassy Suites Hotels opened a 150-room, Tier-2 prototype in Louisville, Ky., in the third quarter. The Tier-2 prototype for secondary markets offers a smaller footprint and is less costly to build than the traditional Embassy Suites Hotels design.
  • At the other end of the spectrum, major urban markets also remain an important focus, with central business district hotels opening in New York and Chicago within the past 18 months. The brand is looking to increase its urban presence via franchise or management agreements, in additional markets such as Dallas, San Francisco, Seattle, Los Angeles and Boston. Next quarter, the 174-suite Embassy Suites Hotel Denver International Airport will open.
  • While not part of the Lodging Econometrics figures, international development remains strong within the Embassy Suites Hotels brand, including openings within the next two quarters in Niagara Falls, Canada and Juan Dolio, Dominican Republic. Ideal for resort development due to their spaciousness, Embassy Suites Hotels has 10 resort hotels open and several resort properties under development at a diverse range of sites, including beach, ski and golf destinations within the U.S., Caribbean and in Latin America.
  • The hotel brand topped the upscale segment with the "Highest Guest Satisfaction Among Upscale Hotel Chains" award in the J.D. Power and Associates 2002 North America Hotel Guest Satisfaction Study(SM). The award marks the first time that a hotel has received the top award in the upscale category for two consecutive years and the only time a hotel brand has received a top position four times.

Hilton Hotels Corporation is an internationally recognized, preeminent hospitality company. The company develops, owns, manages, and franchises more than 2,000 hotels, resorts and vacation ownership properties. Its portfolio includes many of the world's best known and most highly regarded hotel brands, including Hilton, Conrad, Doubletree, Embassy Suites Hotels, Hampton Inn, Hampton Inn & Suites, Hilton Garden Inn and Homewood Suites by Hilton.

The following trademarks are owned by Hilton Hospitality, Inc.: Hilton®, Doubletree®, Embassy Suites Hotels®, Hampton Inn®, Hampton Inn & Suites®, Hilton Garden Inn®, Homewood Suites® by Hilton. HHonors®, Double Dip® and Points & Miles® are trademarks owned by Hilton HHonors Worldwide LLC. Conrad® is owned by Conrad Hospitality, LLC.

Note: This press release contains "forward-looking statements" within the meaning of federal securities law, including statements concerning business strategies and their intended results, and similar statements concerning anticipated future events and expectations that are not historical facts. The forward-looking statements in this press release are subject to numerous risks and uncertainties, including the effects of economic conditions; supply and demand changes for hotel rooms; competitive conditions in the lodging industry, relationships with clients and property owners; the impact of government regulations; and the availability of capital to finance growth, which could cause actual results to differ materially from those expressed in or implied by the statements herein.

(a) According to Lodging Econometrics, industry authority for hotel real estate.

Jeanne Datz Rice
Hilton Hotels Corporation Communications
Phone: +1 310 205-4545
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