While Hilton representatives refused to provide any details regarding the decision to drop its brand name from the property, gaming and hospitality experts says that falling short from the brand’s quality standards may be enough to reconsider the deal. Like many hotel franchises, Hilton does not own most of the properties carrying its brand name, instead, the company leases the brand to real-estate companies or private investors.
For Colony Capital, Hilton Worldwide’s decision is only one of a long list of problems. The Santa Monica-based operator is facing other challenges in multiple fronts, including continuous losses, tougher competition from newer and more attractive rivals and millions of dollars in pending mortgage payments.
Colony Capital bought the Las Vegas Hilton in a 2004 for $280 million, but shortly after its purchase, the 2,955-room hotel began reporting operational losses. In 2009, the property posted net losses totaling $28.9 million. In 2010, loses reached $34.1 million, forcing the company to rework its $252 million debt with lenders. More recently, the hotel announced that it has missed mortgage payments corresponding to June, July and August, putting the landmark hotel into default status.
Colony is facing a similar situation with the Atlantic City Hilton, acquired in 2005 along with several riverboat casinos in Mississippi and Indiana. In July 2009, the company defaulted on loan payments and entered a standstill agreement in January with lenders on $348.2 million of debt owed, plus accrued interest. Since 2009, the Atlantic City casino has lost $46.7 million in operations, creating speculation regarding its future and a possible shutdown.
Hilton LV’s sister property in Atlantic City may also have its days counted. On May 30, a license deal that allowed Colony Capital to use the Hilton brand name at its Atlantic City property expired without a renewal, leaving the Hilton AC in the limbo. A few days later, the company announced the property will continue to operate under the ACH moniker, but only three weeks after the Atlantic City incident, Hilton informed its decision to pull its name from the famous LV Hilton by January 2012.
Currently, Colony and Whitehall, a parent of Goldman Sachs Group Inc., and Hilton LV’s main lender, are analyzing a series of options to rescue the property, including finding a new brand for the Las Vegas Hilton hotel, bringing in new investors or put the property on sale and assume the loss. But regardless of the solutions or possible outcome, it seems Hilton’s iconic brand would have to start looking for a new home in Las Vegas, or simply vanish from the largest gaming market in the U.S by 2012.