Last updated: 03:03 PM ET, Thu December 17 2015

Hilton Seeks IRS Approval to Spin Off Hotels into Real Estate Investment Trust

Hotel & Resort | Patrick Clarke | December 17, 2015

Hilton Seeks IRS Approval to Spin Off Hotels into Real Estate Investment Trust

PHOTO: The Hilton San Luis Potosi. (Photo courtesy of Hilton Worldwide)

Hilton Worldwide is reportedly planning to spin off its hotel properties into a real estate investment trust (REIT), according to the Wall Street Journal.

A successful effort would benefit Hilton in that REITs often pay fewer corporate taxes and trade at higher multiples of their earnings than their parent companies. 

Citing sources close to the situation, the WSJ reports that Hilton has already reached out to the Internal Revenue Service. Because Hilton sought IRS approval before Dec. 7, the company is grandfathered and exempt from a bill currently pending in Congress that would ban such transactions from taking place. 

"Hilton owns or leases 147 hotels around the world. Analysts have said the properties, which include hotels under the Hilton and DoubleTree banners, could be worth more than $10 billion," write Liz Hoffman and Richard Rubin of the WSJ.

The report comes two months after Hilton CEO Christopher Nassetta said that the company was considering "potential strategic alternatives" for its owned real estate.

Hilton has yet to comment on the report but said earlier that it would provide an update on its plan during its upcoming February earnings call. So, if an announcement is coming, it will likely come in early 2016.

The WSJ also points out that "a spinoff of Hilton’s real estate could lay the groundwork for a separation of its timeshare business in the future," a move that would would make it look similar to Marriott International.

CNBC reported that Hilton shares spiked by as much as 10 percent following the report before ultimately surrendering some of those gains and closing up more than 5 percent at $22.45. Overall, Hilton shares are down roughly 14 percent this year. 


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