Morgan Stanley to buy 10 hotels from Hilton

Hilton Hotels Corporation has confirmed that it has reached agreement to sell up to 10 hotels - with a total of about 3,330 rooms - to a fund managed by Morgan Stanley Real Estate for approximately EUR 566 mln. A statement on the sale was issued by Hilton Hotels on Thursday following reports in the media about a deal. The proceeds from the sale will be about EUR 450 mln after debt repayment, tax and transaction costs. Hilton Hotels will use the proceeds to pay down debt.

'Based on trailing 12-month earnings from the 10 hotels before interest, taxes, depreciation and amortization (EBITDA), the sale price represents an EBITDA multiple of approximately 15.2x,' Hilton Hotels said.

Hilton and Morgan Stanley Real Estate have agreed to long-term management contracts on five of the 10 hotels, including the Hiltons in Düsseldorf, Dresden, Paris Charles de Gaulle, Strasbourg and Zurich. Morgan Stanley Real Estate has agreed to invest approximately EUR 18 mln in the five hotels. In addition, long-term management agreements are expected to be established on the Hilton hotels in Brussels, Barcelona and Luxembourg - subject to Hilton and Morgan Stanley Real Estate agreeing to capital plans.

The ninth asset, Los Zocos Club Resort is an unbranded all-inclusive resort in the Canary Islands. It is being sold without an ongoing contract. Hilton Hotels said it would jointly evaluate the future intent for the Hilton Weimar in Germany with Morgan Stanley Real Estate. The Hilton branding will remain in place at the hotel pending the outcome of the evaluation. The sale of the hotels to Morgan Stanley is subject to regulatory approval. Hilton said the sale of seven of the hotels should be completed by the end of June 2007. The sale of the other three should be finalised by the third quarter of this year.

On completion of these transactions, Hilton will have sold over $3 bn (EUR 2.2 bn) of assets that it obtained in the acquisition of Hilton International in late February 2006. Over $4.5 billion of assets will have been sold since the company began its disposition program in 2005. ‘This transaction is a significant step for Hilton as we continue to focus on our strategy of growing our managed and franchise business, while reducing asset ownership and strengthening our balance sheet,’ commented Robert M. La Forgia, executive vice president and cfo of Hilton Hotels Corporation. Morgan Stanley Real Estate lready owns or has an interest in 13 Hilton family hotels

Hilton was advised by Banc of America Securities Limited. Morgan Stanley Real Estate was advised by Morgan Stanley.

Separately on Thursday, Hilton Hotels announced it has completed the sale of the 132-hotel Scandic chain to EQT for EUR 833 mln and the proceeds will be used for debt repayment.