Hilton selling Scandic to EQT for $1.1 billion

NEW YORK (Reuters) - Hilton Hotels Corp. HLT.N said on Friday it would sell its Scandic Hotel chain to private equity group EQT for about $1.1 billion as it seeks to reduce debt amid buoyant lodging valuations.

Lodging companies have been taking advantage of robust demand for hotel properties to trim their portfolios. On Thursday, Host Hotels & Resorts Inc. (HST.N) said it sold three Marriott hotels for $214 million.

Hilton said it agreed to sell Scandic, which operates mainly leased hotels, for about 10 times 12-month recurring earnings before interest, taxes, depreciation, and amortization

(EBITDA).

Leased hotels are generally considered less attractive than owned properties because companies in effect buy a rent payment rather than real estate. Of Scandic's 132 hotels, 121 are leased.

"This a great price," said Smedes Rose, an analyst with Calyon Securities, who said leased portfolios might be expected to fetch eight to nine times EBITDA. "There's still a lot of interest in lodging assets."

Hotel operators have been enjoying a multiyear boom. Strong demand and few new hotels have allowed hotel operators to steadily raise rates.

EARNINGS HIT

Hilton Hotels is targeting an investment grade credit rating after taking on debt to buy Hilton International in February 2006 in a $6 billion deal. Scandic came as part of the Hilton International deal and was put up for sale in August.

The company is looking to unload properties as it puts more emphasis on managing hotels rather than owning them. The company also has about 17 other properties on the block.

Hilton expects the sale of Scandic, the largest hotel operator in the Nordic region, to reduce 2007 recurring earnings by 10 cents per share.

"This particular transaction will enable us to reduce our income from leased hotels which, combined with a stronger balance sheet, would significantly strengthen our credit profile," Hilton Chief Financial Officer Robert La Forgia said in a statement.

Hilton, which also operates Hampton Inns and Embassy Suites, will maintain a presence in the region with three Hilton hotels in Finland, two in Sweden and one in Denmark.

The deal is expected to close in April 2007.

EQT has operations in Northern Europe and China and currently manages approximately 10.5 billion euros in 10 funds. In total, EQT funds have invested in about 50 companies.

Hilton shares were up 35 cents at $35.25 in midday trade on the New York Stock Exchange.