Hilton Worldwide Holdings, the world's largest operator of hotel rooms, said it will continue to pursue spinoffs of its hotel properties and timeshare business to boost shareholder value.
The move will result in three separate companies, Hilton said in a statement on Friday. The properties will be spun off into a publicly traded real estate investment trust, while the timeshare business Hilton Grand Vacations will become a separate publicly traded company.
The transactions will enable "dedicated management teams to fully activate their respective businesses, taking advantage of both organic and inorganic growth opportunities as well as capital market and tax efficiencies,” Christopher Nassetta, Hilton’s chief executive officer, said in the statement.
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A spinoff of its real estate would help Hilton increase shareholder value while its rivals combine to overshadow it. The owner of brands including Waldorf Astoria and Embassy Suites also faces intensifying competition from online travel agents and startups such as Airbnb.
Hilton owns and leases about 147 hotels valued at about $13.5 billion, according to an estimate by David Loeb, an analyst at Robert W. Baird Co. The number is a fraction of the more than 4,600 properties worldwide that carry one of the company’s 12 brands.
Spinning off the properties Hilton owns into a publicly traded REIT would create entities that analysts estimate would have a combined market value higher than Hilton has now, and relieve the parent of the capital burden associated with maintaining the buildings. Hilton then would trade largely as an operating company, earning fees from managing and franchising hotels.
“The key driver is unlocking latent shareholder value,” Loeb said in an interview before the announcement. “Hilton thinks that separate ownership and brand businesses would allow each to trade at more favorable valuations.”
REITs are required by law to pay out at least 90 percent of taxable earnings to shareholders as dividends and, in exchange, don’t have to pay federal income taxes on those earnings. Blackstone, which took Hilton public in December 2013, still owns about 46 percent of the McLean, Virginia-based company.
Hilton has received a private-letter ruling from the Internal Revenue Service "on certain issues relevant to the qualification of the spin-offs as tax-free," Hilton said, without disclosing the contents.
The company plans to complete the spinoffs by the end of the year. The REIT will include about 70 properties and 35,000 rooms, and the timeshare company will manage almost 50 resorts in the U.S. and Europe.
News by Bloomberg, edited by Hospitality Ireland