Hilton shares jump after report of Reit plan for hotels

Pedestrians walk past a Hilton Worldwide Holdings Inc. hotel in San Francisco, California, US, Feb 16, 2015.
Pedestrians walk past a Hilton Worldwide Holdings Inc. hotel in San Francisco, California, US, Feb 16, 2015. PHOTO: BLOOMBERG

SEATTLE (BLOOMBERG) - Hilton Worldwide Holdings shares jumped following a report that the world's biggest lodging company plans to spin off its hotel properties into a real estate investment trust.

Hilton is seeking approval from the US Internal Revenue Service to make the transaction tax-free, according to a person with knowledge of the situation, who asked not to be identified because the information isn't public.

A spokesman for Hilton said he couldn't comment. An IRS representative didn't immediately return a phone call seeking comment. Hilton's plans were reported earlier on Wednesday by the Wall Street Journal.

Spinning off properties into Reits has become commonplace among restaurant, retail and casino companies seeking the tax benefits offered to property trusts. By law, Reits must pay out at least 90 per cent of taxable earnings to shareholders as dividends and, in exchange, don't have to pay federal income taxes on those earnings.

Hilton's shares rose 5.2 per cent to close at US$22.45 in New York on Wednesday (Dec 16), the biggest increase in two years. Hilton, which began trading as a public company in 2013, has dropped 14 per cent this year. The company owns or leases 147 of its more than 4,000 Hilton-branded properties, including the Hilton Chicago, Hilton San Francisco Union Square and Hilton Hawaiian Village Waikiki Beach Resort.

Other big hotel companies including Marriott International Inc have already spun off their real estate. Hilton CEO Chris Nassetta said on Hilton's third-quarter earnings call Oct 28 that the company continues to pursue strategic alternatives for its real estate and timeshare businesses.

Mr Nassetta headed up Host Hotels & Resorts Inc, a lodging Reit, before joining Hilton after Blackstone Group acquired it in 2007. Blackstone owns a minority stake in Hilton.

A Congressional bill filed last week would limit corporations' ability to spin off their real estate in tax-free transactions. Under the measure, a property spinoff would qualify for tax-free treatment only if the parent company and the spinoff were Reits "immediately after the transaction."