The world’s largest hotel room operator, Hilton Worldwide Holdings, said it will continue to pursue and create directives of its hotel properties and timeshare business in order to boost shareholder value.
The final result will see three separate companies emerge. The properties will increase the publicly traded real estate investment trust, while the timeshare entities, Hilton Grand Vacations, will become a detached publicly traded company.
Christopher Nassetta, Hilton’s Chief Executive Officer, said in a statement that the main advantages to this restructure 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.”
Hilton’s shareholder value would dramatically increase with the spinoff of its real estate. The owner of brands that include the Embassy Suites and Waldorf Astoria also faces escalating competition from startups like Airbnb and online travel agents.
Hilton leases and owns around 147 hotels valued at an estimated $13.5 billion, according to David Loeb, an analyst at Robert W. Baird Co. This number is just a fraction of the 4,600 plus properties worldwide that carry one of the company’s 12 brands.
Analysts have estimated that this restructure of the properties owned by Hilton, into a publicly traded REIT would create entities with a combined market value far higher than Hilton has currently. Hilton would then earn fees from franchising and managing the hotels, trading largely as an operating company.
Loeb added in an interview; “The key driver is unlocking latent shareholder value,” “Hilton thinks that separate ownership and brand businesses would allow each to trade at more favourable valuations.”
Under the Real Estate Investment Trust, Hilton would be required by law to pay out at least 90 percent of taxable earnings to shareholders as dividends. In exchange, Hilton would then not 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, a Virginia-based company.
Without disclosing the exact content, Hilton did announce it had 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 plans to complete the spinoffs by the end of 2016. Included in the REIT will be around 70 properties and 35,000 rooms, and the timeshare company will manage almost 50 resorts throughout the U.S. and Europe.
Posted on: March 8, 2016
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