Mixed results for Hilton in Las Vegas

Gary Thompson

Tuesday, Oct. 20, 1998 | 12:23 p.m.

Hilton Hotels Corp. today said third-quarter earnings fell 16 percent, while its merger partner Grand Casinos Inc. reported higher net income due to a tax write-off.

Hilton said higher interest expenses and hotel-acquisition spending cut net income to $79 million, or 30 cents per diluted share, from $94 million, or 35 cents a share, in the 1997 third period. Revenue edged up 1 percent to $1.33 billion.

Grand said tax benefits relating to the write-off of a note receivable from its former subsidiary Stratosphere Corp. helped boost third-quarter net to $32.9 million, or 76 cents per diluted share, from $22.2 million, or 51 cents a share. Revenue rose to $182.2 million from $167.6 million.

Grand said the tax write-off added $13.1 million, or 31 cents a share, to 1998's third-quarter earnings.

Grand shares rose 62.5 cents, or 7.5 percent, to $8.9375, while Hilton stock was also up 62.5 cents, or 3.3 percent, to $19.50, in late-morning trading.

Despite the earnings decline, cash flow rose 8 percent to $297 million in the latest quarter due to continued strength of the hotel business, Hilton said.

Lodging division cash flow jumped 16 percent to $159 million because of higher revenues per available room at Hilton's top 10 hotels. Gaming cash flow was flat due to sluggish market conditions in Las Vegas and Reno and a low table game hold percentage in Atlantic City, Hilton said.

Cash flow at the Flamingo Hilton fell 12 percent, to $22 million, as room occupancy dipped to 87.6 percent and the average daily rate declined to $69.02. Higher slot win helped offset a drop in table game win, Hilton said.

Cash flow at Bally's Las Vegas rose $1 million, to $20 million, due to a higher table game win percentage and increased slot win. The Las Vegas Hilton more than doubled cash flow to $11 million from $5 million in the slow 1997 third quarter due a big increase in non-baccarat table game drop.

Grand said third-quarter cash flow rose 8 percent, to $61.4 million, with strong performances by its three Mississippi hotel-casinos. Fee income from Grand's three Indian management contracts was $21.6 million, down from $23.1 million in the 1997 quarter, when it was managing one more resort.

Hilton begins a "road show" Wednesday to offer investors details of its planned split into separate gaming and lodging businesses and subsequent acquisition of Grand by the new gaming company, to be called Park Place Entertainment Corp.

The plan calls for Grand shareholders to receive a little less than one share of Park Place stock for each Grand share they currently own. They'd also receive one share of a new Grand spinoff, which would retain Grand's Indian casino management business and other assets, including land in Las Vegas.

Grand shareholders would wind up with about 13.6 percent of Park Place, which would acquire Grand's three Mississippi casinos, giving it a total of 18 once the new Paris-Las Vegas hotel-casino opens next year.

Proxy statements covering the split and merger are to be mailed to shareholders of both companies by the end of October, Hilton said.

Meanwhile, Duff & Phelps Credit Rating Co. said it plans to cut the debt ratings of Hilton following the spin-off of the gaming business, which is expected to be completed by year-end.

The Park Place acquisition of Grand includes assumption of about $550 million of Grand debt. Hilton will split total debt between the gaming and lodging companies, giving each about $2.3 billion of debt.

Pro forma cash flow of the lodging business is about $650 million, or four times interest expense, Duff & Phelps said. The $700 million-plus pro forma cash flow of Park Place also is more than four times interest expense, the rating company said.