DALLAS--Jan. 6, 1997--Patriot American Hospitality, Inc. PAH and Hilton Hotels Corporation HLT announced they have entered into a strategic agreement for Patriot to acquire, manage and develop a range of first-class Hilton properties in key U.S. markets. Patriot anticipates investing over $300 million under the Hilton acquisition and development program during the next several years, with a goal of adding approximately 4,000 rooms to Patriot's portfolio. The alliance with Hilton is comprised of four key initiatives:

  • 1. Part one is Patriot's acquisition from Hilton of four Hilton Suites hotels, totaling 883 suites, for a purchase price of $104.7 million. The properties are in the Anaheim (Los Angeles), Auburn Hills (Detroit/Troy), Brentwood (Nashville) and Phoenix markets. Patriot intends to complete the acquisitions following the completion of its business combination with California Jockey Club and Bay Meadows Operating Company. Patriot's paired operating company will co-manage or franchise the properties through the alliance with Hilton.
  • 2. The second part of the program calls for development of new Hilton Suites in markets and locations selected by Patriot and Hilton. Patriot's paired operating company is expected to manage these properties when they are opened.
  • 3. The third aspect of the program involves the acquisition of upscale, full-service and all-suite hotels and their conversion to the Hilton brand.
  • 4. Part four calls for Patriot American to develop approximately 15 new Hilton Garden Inns, Hilton's new four-star lodging at a three-star price concept, in key growth markets throughout the U.S., selected by Patriot and Hilton. Development of several projects is expected to begin in 1997. Patriot American will issue forward equity commitments, then acquire and manage the hotels through its paired operating company upon completion.

About new development. "Industry supply and demand trends in certain markets will make selective hotel development feasible in the near term," said Patriot Chairman and Chief Executive Officer Paul A. Nussbaum. "We are screening for these specific markets now, where Hilton's reservation system denial rate is the highest, identifying areas with the most requests for Hilton lodging that cannot be accommodated. In order to expand and maintain our industry leadership position in the future, Patriot is planning new development in highly selective markets now. With Hilton's excellent brand identification, we see Hilton Suites and Hilton Garden Inns as highly attractive investment opportunities."

"This strategic program with Patriot offers Hilton a wide range of exciting vehicles for growth and profit," said Steven Bollenbach , President and CEO of Hilton Hotels Corporation. "As Hilton expands its brand both within the U.S., throughout North America and overseas, we view Patriot American as an extremely valuable ally."

Hilton Suites hotel acquisitions. "These four properties are all four-star, first-class, all-suite hotels," said Patriot President and Chief Operating Officer Thomas W. Lattin. "They are only five to seven years old and are positioned well in their markets. In addition to the immediate accretive value that this portfolio is expected to provide at closing, we see potential for substantial ROI growth. Also, we see excellent future opportunities for the all-suites product. Patriot has been looking for a vehicle to expand in this niche. Our alliance with Hilton gives us that vehicle."

Hilton Suites typically offer a large bedroom, living room and kitchen area, with wet bar, microwave, refrigerator and coffee maker. These full-service hotels also provide a restaurant, cocktail lounge, meeting facilities, business service center, exercise facilities, indoor pool and sauna.

  • Anaheim/Orange Hilton Suites. Opened in 1989, this 230-suite hotel is in the center of the Disneyland submarket of Los Angeles. The property is within walking distance of Anaheim Stadium, home of the California Angels, and a few miles from Disneyland and the Anaheim Convention Center. The hotel features a 10-story atrium and over 2,000 square feet of meeting facilities. Patriot currently owns two other hotels in the greater Los Angeles area; the Hyatt Newporter and the WestCoast Hotel and Marina in Long Beach.
  • Auburn Hills Hilton Suites. Located in Detroit's upscale Auburn Hills suburb, this hotel is proximate to Chrysler's headquarters, as well as other major concentrations of corporate headquarter facilities. The Auburn Hills Hilton Suites is also two blocks from the Pontiac Silverdome and three miles from a variety of other attractions, including the Palace at Auburn Hills, the home of the Detroit Pistons. Opened in 1991, the property has 224 units, arranged around a heavily landscaped five-story atrium with a water feature and fireplace. The hotel also has 2,900 square feet of meeting facilities, including four executive suites with separate conference rooms. Patriot also owns the Marriott Hotel in Troy.
  • Brentwood Hilton Suites. The 203-unit Brentwood Hilton Suites is located in the affluent Brentwood suburb of Nashville, within a short drive of Opryland, the Grand Old Opry, Music Row and the other major Nashville tourist attractions. The hotel has meeting facilities totaling about 2,900 square feet, including six conference suites. The Brentwood Hilton Suites opened in 1989. In addition to this Hilton property, Patriot American also has contracted to acquire another Nashville hotel, the historic Union Station Hotel.
  • Phoenix Hilton Suites. Located in The Phoenix Plaza, a multi-use development with 1.4 million square feet of Class-A office space and quality retail, the Phoenix Hilton Suites is proximate to downtown, Park Central Mall, Arizona Center, Phoenix Civic Plaza and America West Arena, home of the Phoenix Suns. The hotel's 226 suites include 20 conference suites and other meeting facilities totaling 4,000 square feet. The property opened in 1990. Patriot American also has executed a binding agreement with the owners of Resorts Limited Partners, Carefree Resorts Corporation and Resorts Services Inc. to acquire these entities and their assets, including the award-winning Boulders, in Scottsdale, the Lodge at Ventana Canyon, in Tuscon, and a contract to manage The Buttes resort, in Tempe.

Hilton Garden Inns development. Hilton's new Garden Inn brand is designed for both commercial and leisure travelers. Patriot's Hilton Garden Inn locations will focus on airport submarkets, tourist destinations and commercial suburban business enclaves, in markets with high barriers to entry.

The Hilton program and Patriot's 'paired-share' REIT strategy. According to Lattin, the program with Hilton is part of Patriot American's strategy to build a substantial "paired-share" REIT portfolio that will permit Patriot to receive substantially more of the cash flow from the management of its hotel properties – while still retaining the REIT tax-advantages in a non-conflicted structure. Patriot has a binding agreement to acquire a paired-share REIT, California Jockey Club and Bay Meadows Operating Company, subject to approval from the shareholders of both companies during the first quarter of 1997.

"The paired-share structure will enable Patriot to manage as well as own hotels," said Lattin. "This four-part program with Hilton teams Patriot's expertise with one of the best-known hotel brands worldwide and some of the top corporate management in the hospitality industry. Hilton's worldwide reservation system and Hilton 'Honors' guest rewards program offer strong leverage for growth.

"In addition to operating our own management companies within the paired-share structure, we also envision Patriot participating in management programs like this one with Hilton," said Lattin. "Strategically, Patriot's goal is to participate in management with industry leaders in their respective specialized niches. Whether these management companies are owned outright or in partnership with another entity, Patriot will capture for its shareholders higher percentages of cash flow from management of the hotels. In essence, Patriot intends to use its paired-share strategy and leverage its REIT status to benefit all parties.

"Under the joint management concept, Patriot will provide a variety of asset management services," continued Lattin, "with Hilton responsible for branding, marketing, the reservation system and day-to-day property-level management. In this way, Patriot will benefit from Hilton's management, while still capturing for shareholders a large portion of the hotel operating profits. In addition Patriot has the right, under the agreement with Hilton, to convert these hotels to a franchise arrangement and to self-manage these properties."

About Patriot American. Patriot's portfolio currently consists of 45 hotels, primarily full-service, with 10,923 rooms. Including the four Hilton Suites Hotels, Patriot also has under contract or letter of intent eleven other resorts and hotels, totaling 2,091 rooms. In addition to Hilton, major brands in Patriot's portfolio include Crowne Plaza, Doubletree, Embassy Suites, Grand Heritage, Holiday Inn, Hyatt, Marriott, Radisson, Registry, Sheraton Four Points, WestCoast and Wyndham. Patriot's professional asset management and focus on capital reinvestment in properties are designed to create long-term growth from the combination of improved operating performance and appreciation of real estate value. The company is aggressively seeking additional acquisitions in a number of major markets throughout North America

Marc A. Grossman
310 205-4030
Hilton