April 20, 2009 - --City-owned Hilton Omaha: Financial Performance

As the Hilton Omaha turns five years old, the city-owned convention hotel is grappling with an economic slowdown that has hurt business across the hospitality industry.

The Hilton saw a smaller-than-expected revenue increase and a drop in its occupancy rate in 2008.

Still, the city says it is more than happy with the performance of the $71 million hotel, which was built to help lure conventions and other events to the adjacent Qwest Center Omaha.

"We knew we needed a hotel," Mayor Mike Fahey said at a reception last week marking the hotel's fifth anniversary. "I don't think at the time we knew what we were getting into, but it certainly worked out well."

Brian Thomas, the Hilton's director of sales and marketing, called 2008 a "banner year" with events like the NCAA basketball tournament and the U.S. Olympic Swim Trials.

Nonetheless, the down economy and competition from several new hotels caused fewer people to stay at the Hilton last year. The drop in the hotel's occupancy rate was the first since it opened in 2004. Until last year, occupancy rates had steadily climbed.

The Hilton's occupancy rate was 75.1 percent last year, substantially lower than the projected 80.7 percent for 2008.

City Finance Director Carol Ebdon said the slumping economy started affecting business at the Hilton in the second half of last year. The Omaha hotel market, however, was better off than in many parts of the country, she said.

Thomas said fewer business travelers stayed at the hotel last year than the year before. Hilton managers recognized the slowdown last year and reacted with cost-cutting measures. The city declined to discuss those measures.

Dana Markel, executive director of the Omaha Convention and Visitors Bureau, said occupancy rates at hotels in Douglas County are currently down 10 percent over last year as more businesses continue to cut travel to save money.

The Hilton Omaha's decline in occupancy was not that severe -- down about 3 percent in 2008 compared to the prior year.

The hotel also faces more competition. The Omaha metro area has added more than 1,600 hotel rooms since 2004, bringing the total to about 12,000 rooms, according to metro area tourism officials.

In La Vista, two hotels have opened near the Cabela's Outdoor Outfitters store -- an Embassy Suites and a Hampton Inn & Suites -- and another hotel, a Courtyard by Marriott, is nearing completion.

In Council Bluffs, six hotels are either operating or being built near the Mid-America Center alone. Those hotels include a 153-room Hilton Garden Inn being built at the Horseshoe Casino.

"There have been more hotels in the entire market," Thomas said. "It has had a mild impact."

Despite the drop in occupancy, the Hilton's 2008 revenue was nearly $25.8 million -- just under a 2 percent increase, according to figures released last week at the World-Herald's request. But that increase was $2.5 million short of projections.

The revenue and occupancy projections for last year were made at the end of 2007, Ebdon said, before the problems on Wall Street and with the housing market.

Ebdon said the 2008 revenue still was more than enough to make $6.2 million in debt payments on the hotel last year. That means city taxpayers didn't contribute any money to pay the debt.

Excess revenue was added to reserve funds for future capital needs at the hotel and for emergency use if the economy gets even worse.

The hotel's 2008 revenues got a boost from a rate increase implemented last year, Thomas said.

The city pays the Hilton a fee to manage the 450-room hotel, which is connected by a skywalk to the Qwest Center.

Thomas said he doesn't expect 2009 to bring as much business from major events as last year, but he said he's confident that the Hilton will continue to thrive.

"We're still seeing business coming through," he said. "We anticipated that we would have less conventions in 2009, but all of the hotels (in Omaha) have persevered and are still bringing in business to the city."

--Contact the writer: 444-3100, [email protected]

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