In REIT spinoff, Hilton ditching the real estate business

(Photo of Hilton Hotel in New York City)

As part of its fourth-quarter and full-year 2015 earnings call, Hilton Worldwide announced that it will spin off the bulk of its real estate assets into a publicly traded real estate investment trust and will turn its timeshare business, Hilton Grand Vacations, into a separate publicly traded company. 

“We have obtained IRS approval for both spins,” CEO Christopher Nassetta said during the call. Each segment will have its own dedicated management team, and investors will be able to allocate capital to the business best aligned with their objectives. “It will facilitate access to capital markets, it will be more tax efficient, and it will activate all three businesses fully,” Nassetta continued, noting that “activating” means organic and inorganic growth, both of which the business will be able to pursue. 

The real estate company will include approximately 70 hotels and 35,000 rooms, and will be one of the largest publicly traded hospitality REITs. “It will cover high-barrier, urban, resort, airport and convention markets,” Nassetta said.

“From my experience, running a successful REIT involves three three things,” he continued. “You need to be a great manager of balance sheets, great at asset management and great at capital allocation—knowing when to buy and sell. What we’re doing is building our portfolio.” 

Hilton expects the timeshare company to manage nearly 50 club resorts in the United States and Europe and have an exclusive, long-term license agreement with Hilton Worldwide to market, sell and operate resorts under the Hilton Grand Vacations brand.

“Our intention is to complete the spins by the end of the year,” Nassetta said, adding that the company will file Form 10 registration with the SEC sometime during the second quarter of 2016 and will be able to share more details at that time. “A well-defined brand portfolio will deliver long-term value,” he said.

During the call, Nassetta also talked up Hilton's newest brand addition, Tru by Hilton, a midscale brand with a proposed 25-percent lower room rate than Hilton's Hampton brand. According to Nassetta, Tru, which was announced during the ALIS conference in January, has 160 deals in process, many of which are being developed by current Hampton owners. The brand is Hilton's answer to attract new and younger travelers into its system.


A photo posted by Tru by Hilton (@trubyhilton) on

Global Growth
During the fourth quarter of 2015, Hilton Worldwide expanded to 100 countries and territories with the opening of the Hilton N'Djamena in Chad, for a total of 94 hotel openings in the quarter. 

Hilton Worldwide

For the quarter, the company saw net unit growth of more than 13,000 rooms. Thirty-one percent of gross openings were conversions from non-Hilton brands. 

Over the course of 2015, Hilton opened 320 hotels with more than 50,000 rooms and achieved net unit growth of 43,000 rooms, a 6.6-percent addition to the managed and franchised portfolio in 2015. As of that date, Hilton said it had the largest rooms pipeline in the industry, with more than 266,000 rooms at 1,616 hotels throughout 85 countries and territories, including 31 countries and territories where Hilton Worldwide does not currently have any open hotels. 
Approximately 142,000 rooms, or more than half of the pipeline, were located outside of the U.S., and more than half of the pipeline was under construction. 

Including rooms approved but not yet signed, Hilton Worldwide's pipeline totaled approximately 275,000 rooms. 

Significantly, all of the development pipeline is in the capital-light management and franchise segment. “Hilton Worldwide's continued global expansion has been achieved completely through organic growth with very little capital investment,” the earnings statement declared. 

Revenue for the quarter came in at $2.86 billion versus the consensus estimate of $2.96 billion. System-wide comparable RevPAR increased 3.7 percent and 5.4 percent for the fourth quarter and full year 2015, respectively.