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 maximize shareholder returns.
In the past year, companies including casino operator MGM Resorts International (MGM) and restaurants owner Darden Restaurant (DRI) have announced REITs, which distribute 90 percent of their taxable income to shareholders.
Hilton, which is also spinning off its timeshare business into a separate publicly traded company, said on Friday that the REIT would own about 70 hotel properties with 35,000 rooms.
The company’s shares rose 8% in light premarket trading.
Hilton (HLT) owned or leased 144 hotel properties around the world at the end of 2014. Analysts estimate that the properties are worth more than $10 billion.
“We think this (the spinoffs) makes sense by simplifying the businesses and should result in a higher net valuation multiple,” J.P.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 United States 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 $814 million, or 82 cents per share, in the quarter ended Dec. 31, mainly due to a tax benefit of $640 million.
Excluding items, the company earned 22 cents per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S.
Revenue rose about 1% to $2.86 billion, but missed the average estimate of $2.96 billion, 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 U.S. Hotels index had declined about 17%.
Deutsche Bank Securities and Goldman Sachs were Hilton‘s financial advisers for the spinoffs.
