Instant Analysis: Hilton Worldwide Holdings Inc to Spin Off Real Estate and Timeshare Assets

By Eric

What happened? For a company that has gone through numerous incarnations, Hilton Worldwide Holdings is engineering major changes with the announcement that it will split into three different companies: a real estate investment trust containing the bulk of its current assets; a standalone version of its Hilton Grand Vacations timeshare business; and, presumably, the bare bones of the present company.

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Source: Hilton

In the press release, the company quoted CEO Christopher Nassetta, who believes the new structure allows for "taking advantage of both organic and inorganic growth opportunities as well as capital market and tax efficiencies."

Hilton Worldwide said it will provide more details via regulatory filings. The company anticipates that the spinoffs will be completed by the end of this year.

Does it matter?Absolutely. We can safely say the cleaving of Hilton Worldwide into three entiuties will have a profound effect on the investment thesis, although at this point we do not yet have the finer details of the split.

These kinds of transformations have precedent. Last year, hotel and casino resort operator MGM Resorts Internationalrevealed it would transform into a REIT, while several years prior to that,Marriott Internationalhived off its timeshare unit into today's Marriott Vacations Worldwide.

Hilton Worldwide has solid reasons for splitting up. Generally speaking, REITs save on taxes, as they are required to pay nearly all of their earnings in the form of dividends, which are only taxed as income. And specific to the company, Hilton Grand Vacations has performed better than its parent company as a whole.

Time will tell if any or all of Hilton's new entities are stronger separately than as one. The aforementioned peers haven't been, at least in terms of stock price -- neither MGM Resorts International nor Marriott Vacations Worldwide has outperformed the S&P 500 since becoming a REIT.

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