IHIF Video: Why the REIT spinoff and organic growth is right for Hilton

Hilton NYC

BERLIN, Germany — During Hilton Worldwide's Q4 earnings call, the company gave some color on its move to spin off a number of its real estate assets into a publicly traded real estate investment trust and turn its timeshare business, Hilton Grand Vacations, into a separate publicly traded company.

At the International Hotel Investment Forum, Hilton Worldwide CEO Chris Nassetta, explained the logic. 

"We're doing this for simple reasons," he said, echoing the statements made at the time of the announcement. The three newly independent facets are, in truth, three different businesses that need dedicated managers. Shareholders, he added, should be able to choose where their funds go and should not have to support all three sides of the business—"which we hear constantly," Nassetta said.


Finally, each business must be fully activated. "We are fully activating our management franchise business and pretty fully activating the timeshare business, though there's higher growth for investing capital," he noted. "But since we're capitol-light, we don't want to." The real estate side does not require any kind of activation from a "new-unit point-of-view," Nassetta added, "because it's not what our core shareholder base wants us to do." Finally, he continued, there is a significant level of capital markets or cost of capital and tax efficiency as a result of breaking businesses apart. 


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The move, he insisted, is not intended to have an immediate benefit for the company. "We're doing this because of a fundamental belief, a strong belief, that these three businesses will be able to create more value as separate businesses," he said. "This is a long-term value accretion decision."

Real estate is 37 percent of Hilton's business, and the timeshare segment makes up another 12 percent. "Managed franchises are the rest," he said. "We're a combination of those businesses. If REITs are down, that part is down…Our valuation has those metrics embedded." 

Meanwhile, Marriott's acquisition of Starwood last fall still reverberates in the industry. "It wasn't as though we didn't have the opportunity to pursue Starwood," Nassetta said. "They very much wanted to have us in the process. They aggressively invited us into the process."

Hilton did not acquire Starwood, choosing to focus instead on its own organic growth. "We had a lot of momentum, and it's not to say that Marriott did anything that's not right," he said. "We did not think the returns we could drive would be commensurate with the risk, particularly factoring for the fact that we would slow what is tremendous momentum in our growth story—and that those 13 brands that we have are all purebred brands that lead their individual segments. We didn't want to disrupt what we think is a tremendously advantageous setup."


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