Hilton sees reaching debt target in '07

By Deena Beasley

LOS ANGELES (Reuters) - Hilton Hotels Corp. HLT.N expects to achieve its target debt ratio sometime this year, making it suitable for an investment grade credit rating, the company's chief operating officer said on Tuesday.

Hilton should be able to achieve the target through planned hotel sales and free cash flow, Matthew Hart said, speaking at the Reuters Hotels and Casinos 2007 Summit in Los Angeles.

He also said that Hilton expects to sell its Scandic chain of European hotels by mid-year. The company has 17 other properties currently up for sale.

Hart said the company's debt target is 3.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA, which he said should merit a low investment-grade rating.

"Just the way the hotel sales have gone, our outlook for the Scandic sale, and the free cash flow we've been getting, I think it is probably sometime this year," Hart said about hitting the debt ratio target.

Once the target is achieved, Hilton will weigh the merits of using its cash to increase dividends or buy back shares, the COO said.

Hilton took on debt for its acquisition of Hilton International in February 2006 and since has focused on expansion in non-U.S. markets, including mid-market hotels for Asian countries such as India and China.

Those two in particular have mostly luxury and economy hotels. "There is very little in between," he said.

Hilton's first hotel in India, where the company has formed a joint venture with Indian property firm DLF Ltd., is slated to open in the fourth quarter of this year, said Ian Carter, chief executive of Hilton's international operations.

Investors have also wondered whether voracious private equity investors might have designs on Hilton, but Hart said he was not aware of any such discussions.

Easy access to capital has fueled a wave of consolidation in the hotel industry, including last year's $3.9 billion takeover of luxury hotelier Fairmont Hotels & Resorts by a consortium including Saudi billionaire Prince Alwaleed bin Talal, and the acquisition this week of Four Seasons Hotels Inc. FSH.TO by bin Talal and an investment firm owned by Microsoft Corp. (MSFT.O: Quote, Profile, Research, Stock Buzz) Chairman Bill Gates.

Shares of Hilton, which rose 1.1 percent to close at $36.61 on the New York Stock Exchange, are up more than 50 percent over the past six months, while the U.S. Hotels Index .DJUSLG has gained about 40 percent.

Hart said the U.S. hotel industry is still in the "third or fourth inning," of the post 9/11 recovery phase that began in 2004 as the economy, and business travel, picked up speed at the same time that construction costs and a hot housing market have curtailed the building of new hotels.

"We still have a long way to go," he said.