Hilton to sell Scandic for $1.1 billion

Hilton Hotels Corp. said Friday that it would sell its Scandic Hotels chain to private equity group EQT for about $1.1 billion as it sought to reduce debt amid rising lodging valuations.

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

Scandic operates mainly leased hotels, 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 is a great price,” said Smedes Rose, an analyst with Calyon Securities. “There’s still a lot of interest in lodging assets.”

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

Beverly Hills-based 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.

Hilton 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 Stockholm-based Scandic, the largest hotel operator in Scandinavia, to reduce 2007 recurring earnings by 10 cents a 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.

Hilton 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.