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Hilton Worldwide’s REIT Spinoff Will Have a Made for America Look

Christopher Nassetta, President, CEO of Hilton Worldwide, Talks REIT Spin-Off
March 2, 2016
Christopher J. Nassetta, president and CEO of Hilton Worldwide Holdings, is drawing on his prior experience with Host Hotels & Resorts when he led that company through its transition from a corporation to a real estate investment trust (REIT).

This time he's upping the stakes, converting Hilton Worldwide into three separate entities, including a publicly traded REIT that will be formed from Hilton's real estate portfolio, and also spinning its timeshare business and keeping the hotel operating company as separate entities.

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

“I do have some vague memories of the REIT world from my prior life, but I've tried to expunge all of those,” he joked ini speaking with analysts this week regarding the moves, which he believes is the best structure for a company that has three sets of "terrific assets.”

The future REIT spinoff is currently expected to include about 70 hotels with 35,000 rooms, which will qualify as one of the largest publicly-traded lodging REITs. The REIT's portfolio will consist of luxury and upper upscale hotels located in urban and convention markets as well as resort destinations, some international markets, and airport locations.

Hilton said the REIT's portfolio will be appealing to the REIT investor base, which means it will consist largely of U.S. domestic properties where the lodging market is strongest. The REIT will include a small number of international assets, but they will be a small minority of the REIT's overall portfolio. Most of the international assets Hilton Worldwide will remain with the operating company, Nassetta said.

Overall as of Sept. 30, 2015, Hilton owned, leased, managed or franchised 4,480 hotel and resort properties, totaling 737,922 rooms in 97 countries, as well as 45 timeshare properties comprising 7,152 units. Of those, Hilton owned 147 properties totaling 59,962 rooms.

“We intend to elect REIT status for the newly formed real estate company, enabling it to operate in a structure that is competitive with its peers, to facilitate access to capital markets, and to be more tax efficient,” Nassetta said.

“From my experience, running a REIT really well involves three basic things,” he said. “It involves managing a balance sheet, it involves being really good at asset management, and it involves being a great capital allocator. And great capital allocator means knowing when to buy, knowing when to sell. There are times to do both of those things; there are times not to be doing those things.”

The time right now is not to either buy or sell, he added.

“Not to be trite about it,” he said, “but with the uncertainty in the world, now is not a great time to go out and buy. I also don't think it's a particularly great time to sell, because the capital markets for those kinds of transactions, the debt markets, have slowed down."

"So there are times in the REIT world where the best thing to do is really hunker down and really drive the value of what you have. And if you're going to buy anything, it would be to buy what you know best, buy your own shares in an environment where they're significantly undervalued. I think now is one of those times,” said Nassetta.

Largest Hilton-Owned Hotels in U.S.

HotelLocation# of Rooms
Hilton Hawaiian Village Waikiki Beach ResortHonolulu, HI2,860
Hilton New YorkNew York, NY1,985
Hilton San Francisco Union SquareSan Francisco, CA1,919
Hilton New Orleans RiversideNew Orleans, LA 1,622
Hilton ChicagoChicago, IL 1,544
Hilton Waikoloa VillageWaikoloa, HI 1,241
Hilton Parc 55San Francisco, CA 1,024
Hilton Orlando Bonnet CreekOrlando, FL 1,001
Hilton Chicago O'HareChicago, IL860

Editor's Note: Mr. Nassetta is a director of CoStar Group Inc.

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