ICS Magazine

Hilton takes $10 million charge for mold in Hawaii hotel

July 31, 2002
LOS ANGELES, July 30 (Reuters) - Hilton Hotels Corp. said on Tuesday it took a second-quarter charge of $10 million related to a 435-room hotel tower in Hawaii, now closed indefinitely after mold was discovered in the building.

The charge covers estimated future costs to fix the problem, which was discovered last month in the $95 million, 24-story Kalia tower that opened last year in the Hilton Hawaiian Village resort at Waikiki.

The tower was closed completely on July 23. About 71 rooms were occupied at the time. Kalia is one of a half dozen towers at the resort complex -- one of the biggest on Waikiki -- and accounts for about 15 percent of all rooms there. Hilton said final remediation costs are hard to predict, but added it expects the closure "will have no significant impact" on the resort's operating earnings for the balance of this year.

Excess humidity in the rooms is the source of the mold, Pat Terwilliger, senior vice president in charge of architecture and construction, told investors during a conference call to discuss the company's second-quarter results.

"We've got a team of technicians that are currently at the property," Terwilliger said. "My guess is we're going to find there's a number of contributing factors here."

Hilton Chief Executive Officer Stephen Bollenbach said the company intends to "keep open" its options on how it deals financially with issues like remediation, loss of business and other potential liability.

In addition to property damage and loss of business, Hilton could also face liability from a personal injury standpoint, according to lawyers who deal with mold liability.

Hilton said it has received just one report so far of adverse health affects that may be related to the mold. In that case, an employee sustained a rash but returned to work the next day saying she felt fine, according to Hilton.

Peter Schall, managing director for Hilton Hawaiian Village, said a team of experts hired to find the source of the mold identified it as Eurotium. The gray mold is also called Aspergillus.

When it grows indoors, Eurotium can irritate the eyes, nose and throat and trigger serious respiratory diseases such as asthma, said Joseph Jarvis, an occupational and environmental health expert also hired by Hilton to test about 50 employees who work in the Kalia Tower.

Hilton's potential for personal injury liability in the situation is unclear because precedents are relatively few in that area, according to attorneys familiar with mold liability. In general, most mold-related complaints come from people whose allergies are exacerbated by breathing in mold spores, they said.