Waldorf Astoria hotels owner Hilton Worldwide Holdings will spin off most of its real estate assets into a real estate investment trust, joining a list of companies turning to the tax-efficient structure to maximise shareholder returns.
In the past year, companies including casino operator MGM Resorts International and restaurants owner Darden Restaurant have announced Real Estate Investment Trusts (REITs), which distribute 90% of their taxable income to shareholders.
Hilton, which is also spinning off its timeshare business into a separate publicly traded company, said yesterday that the REIT would own about 70 hotel properties with 35,000 rooms.
The company’s shares rose 8% in light premarket trading.
Hilton owned or leased 144 hotel properties around the world at the end of 2014. Analysts estimate that the properties are worth more than $10bn.
“We think this (the spinoffs) makes sense by simplifying the businesses and should result in a higher net valuation multiple,” JP Morgan analyst Joseph Greff wrote in a note.
The hotel operator expects to complete the spinoffs of both its real estate assets and its timeshare business, Hilton Grand Vacations, by the end of the year.
Hilton Grand Vacations manages nearly 50 club resorts in the US and Europe. The business accounted for about 12% of Hilton’s total revenue in the fourth quarter.
The net income attributable to Hilton’s shareholders rose five-fold to $814mn, or 82¢ per share, in the quarter ended December 31, mainly due to a tax benefit of $640mn.
Excluding items, the company earned 22¢ per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S.
Revenue rose about 1% to $2.86bn, but missed the average estimate of $2.96bn, hurt by a decline in occupancy and room rates in the Middle East and Africa.
The company’s shares were trading at $21.85 before the bell.
Up to Thursday’s close, the stock had fallen about 28% in the past 12 months, while the Dow Jones US Hotels index had declined about 17%.
Deutsche Bank Securities and Goldman Sachs & Co were Hilton’s financial advisers for the spinoffs.