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Howard's way

01 December 2005
Howard's way

It's a torrid time to be put in charge of Hilton's hotels in the UK but Howard Friedman, the new area president of the UK and Ireland, is staying cool.

Perhaps it's because he has arrived from the tropical climes of Miami, where he headed Hilton International's operations in the Americas, that he seems chilled about the prospect of joining up with Hilton Hotels Corporation (HHC).

It is hard to be certain, however, because any discussion of the transaction between Hilton Group of the UK and its US-based sister is firmly classed as "no comment" for this interview. The £3.5b plus deal is simply too sensitive to chat about at this stage.

For the time being, the 50-year-old Friedman is focused on getting to grips with the UK estate. He arrived in the UK in August and has already visited just over half of the 70 properties. It is one advantage of his new berth compared with the previous: the concentrated geography makes it easier to keep in direct contact with his charges.

In the Americas, Friedman had fewer hotels - just 31 - but they were spread between Quebec in Canada and Buenos Aires in Argentina.

"This meant the hotels operated more independently. Of course, we had central brand standards but many functions, such as HR, were done locally," he says.

The other key difference is the nature of the Hilton hotels: in the Americas there were no provincial properties.

It has been a regular criticism of the Hilton brand that it is spread too widely between, say, the Park Lane property in London and the Hilton in Nottingham. Friedman argued that both are good Hiltons, only different. "As long as the Hilton is in the top two or three hotels locally then that's fine," he says. "The service should be as good but we won't have invested so much in the property."

He admits, however, that it has been hard to reconcile this issue from a brand standpoint. In the end, it comes down to customers understanding the differences. Provincial customers mostly stay in provincial properties, and vice versa for the big gateway hotels in London.

The problem has been eased thanks to the sale of 11 Hiltons earlier this year. They were bought by Stardon, a joint venture between Starwood Capital and Chardon Hotels, for £111m.

The properties have all left the Hilton family, with five of them adopting InterContinental's Holiday Inn brand under a franchise deal.

Friedman does not consider this a blow as he believes the hotels were simply not up to Hilton brand standards. The switch into Holiday Inn rather than the Scandic brand, which is owned by Hilton and is currently trying to launch a franchising operation, can hardly have been welcomed, though.

The Scandic by Hilton brand may eventually arrive back in the UK but Friedman admits that it does depend on the situation regarding the HHC offer. HHC has some strong midmarket brands such as Hampton Inn or Hilton Garden Inn and it is likely that rolling out Scandic in non-Nordic Europe will take a back seat in preference to these US brands.

What is not changing (whether HHC completes the purchase of Hilton International or not) is the gradual move away from owning hotels. There are currently 16 UK properties on the market, expected to fetch up to £400m.

The Royal Bank of Scotland, the purchaser of 11 Hiltons back in 2001, is currently tipped as the likely purchaser. Friedman will not confirm but he says the hotels are all likely to go to one buyer.

Unlike the 11 hotels that were sold earlier this year, however, Hilton is intending to retain 30-year management contracts. The hotels are being marketed by agent CB Richard Ellis Hotels as an investment opportunity. The sale will also be on different terms from the 11 hotels bought by RBS in 2001. In this transaction, the hotels were all leased back to Hilton, effectively on 40-year terms.

Unlike leases, management contracts will not be put back on to Hilton's balance sheet by City analysts and credit rating agencies as liabilities.

This makes the company's debt position look much better. Not surprisingly, Friedman says, leases are "off the agenda" for the time being.

More sales, providing the current batch are put away at a good price, are likely. Friedman reckons that within three years, as much as 40% to 50% of the Hilton UK estate could be managed on behalf of other owners.

And this is an area where Friedman's experience in the Americas - where there are just five wholly owned properties - should ease the change.

"The company will have to learn how to transition itself from pure owners into management. There is a lot to understand about the difference," he said.

He admits that some within Hilton in the UK are not entirely happy with the decision to sell the properties. But he's emphatic that it is the right decision and that selective disposals will continue as long as there is a strong appetite by investors to own hotel property and the interest rate environment remains benign.

The cash raised will be used to expand the Hilton brand, but not aggressively. Reaching about 100 properties from the current level of 73 (including impending openings) is the target over the next five years.

More money will be poured into the bedrooms within the existing estate, however. "We need investment into bedrooms, not food and beverage or similar services. By the end of 2007 the estate should be in good nick," Friedman says.

One of the other challenges facing the group is to keep control of expenses. Wages, utility costs, insurance and business rates are all proving tough to keep under control.

What Friedman is not overly worrying about, however, is the impact of any future terrorist atrocities. "You cannot tangibly manage an issue like that. You just have to focus on growing revpar," he says.

Arriving in the UK was less of a culture shock to Friedman than it would be for most Americans, as Friedman grew up in South Africa. Cultural icons such as cricket and Marmite were as much part of Friedman's childhood as any Briton's.

Despite never having visited Anfield, Friedman has been a lifelong supporter of Liverpool football club. He used to watch matches in his local South African cinema, several weeks after they were played.

Professionally, one of the most pleasing contrasts with his experience in the Americas and over here in the UK, is the strength of industry lobbying in Britain. Friedman singles out the British Hospitality Association for praise, stating that in the Americas lobbying on behalf of the wider hospitality industry is much weaker.

What he is less pleased about, however, is the planning regime. "It's incredibly complicated and very bureaucratic to build anything in the UK," he says.

And labour remains a problem, particularly in London. Friedman says it is generally easier to employ people in the Americas where there's a bigger pool of potential employees. Achieving good service standards in the UK is hard with this relative scarcity of labour.

Friedman has left the tropics behind him. Now UK industry observers will be curious see how long he stays cool under the collar in a brand new business climate.

HotelBedrooms
Hilton London Olympia 405
Hilton Aberdeen Treetops 120
Hilton Basingstoke 141
Hilton Bristol 141
Hilton Bromsgrove 148
Hilton Coventry 172
Hilton Dartford Bridge 178
Hilton Dunkeld House96
Hilton Edinburgh Airport 150
Hilton Gatwick Airport 791
Hilton Newbury - Centre109
Hilton Newbury - North112
Hilton Newport 148
Hilton Southampton135
Hilton Strathclyde 107
Hilton Swindon 171
Total3,124

Source: Hilton/CB Richard Ellis Hotels

Revenue and profit

*

RevenueProfitHalf year to 30 June 2005£303.9m£30.1mHalf year to 30 June 2004£318.7£38.9mHalf year to 31 December 2004£655.7m£88.7m* *Source: Hilton Group Interim report* Revenue per available room
Half year to 30 June 2005 Half year to 30 June 2004 Change
London £77.06 £73.57 +4.7%
Provinces£50.42 £50.81 -0.8%
Total UK£61.75 £60.46 +2.1%
*Source: Hilton Group Interim report*
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