Hilton Worldwide Holdings is reportedly looking to spin off its hotels into a real estate investment trust. The hospitality company has already gone to the Internal Revenue Service to seek approval for the transaction, which would involve "a large chunk" of its hotels, according to the Wall Street Journal.
Hilton owns or leases 147 hotels around the world. The properties, which include hotels under the Hilton and DoubleTree banners, could be worth more than $10 billion, analysts told the financial paper.
By going IRS for approval already, Hilton is exempt from a pending bill in Congress that would ban such transactions. That legislation is part of a year-end tax deal that would "grandfather" companies that requested IRS approval for spinoffs before December 7—which Hilton reportedly did.
REITs have become popular as a way to boost a company's stocks as the trusts do not pay high corporate taxes and tend to trade at higher multiples of their earnings than their parent companies. But as the Journal notes, the trend of spinning off assets into REITs has generated controversy from both politicians and regulators.
The IRS said in September that it was concerned about an “increasing number” of REIT spinoffs and was considering new rules to restrict these deals. The new bill, introduced by Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, is one of these rules. Yesterday, Brady acknowledged that some deals were already in progress, so the language was adjusted to apply to trusts that were not already in the works before December 7, as Hilton's was. This adjustment reduced the estimated revenue raised by the provision from $4.3 billion to $1.9 billion over 10 years.
The news may already be generating some good news for Hilton. According to CNBC, Hilton stock spiked as much as 10 percent after the WSJ story was released yesterday before dropping again by about half. It closed up more than 5 percent at $22.45. Overall, the company's shares are down about 14 percent this year.