Hilton Worldwide to buy 5 hotels for US$1.76b

[NEW YORK] Hilton Worldwide Holdings Inc, the world's largest hotel operator, agreed to buy San Francisco's Parc 55 and four other properties for US$1.76 billion with proceeds from its sale of New York's Waldorf Astoria.

In addition to the 1,024-room Parc 55, the company is buying two hotels in Orlando, Florida, and two in Key West that are already managed by Hilton, according to a statement Wednesday. The sellers in the transaction include Hilton's majority owner, Blackstone Group LP.

Hilton is planning to make the acquisitions with some of the proceeds from its US$1.95 billion sale of the Waldorf Astoria to China's Anbang Insurance Group Co, which has been completed. Under US tax-deferral rules, the McLean, Virginia-based company must complete its purchases with the proceeds within 180 days of the sale's completion.

Selling in New York and buying in other markets is a way "to accelerate your room-revenue growth," Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia, said in a telephone interview. Room revenue at Key West hotels, for example, has increased faster than the US average and in New York, he said.

"New York has slowed, in great part due to all the new hotels that have been added," he said. "In markets like Key West and San Francisco, it's a very long and expensive process to build new product, which makes it a great argument to buy there."

The Parc 55 is the fourth-largest hotel in San Francisco, a top US lodging market. Hotel occupancies in the area encompassing San Francisco and San Mateo averaged 84.1 per cent last year, compared with 64.4 per cent for the US, according to STR Inc.

The sellers of the Parc 55 include New York-based Blackstone and Rockpoint Group, a Boston-based real estate private-equity firm. Blackstone also owns the two Key West resorts. The current majority owners of the Orlando properties are Chicago-based Gem Realty Capital and Farallon Capital Management, a San Francisco-based hedge-fund firm. Blackstone holds a minority interest in both properties.

Hotel values have recovered to within 15 per cent of their 2007 peak. Prices for properties in big cities climbed 15 per cent during the past year, double the gain in smaller cities, according to indexes compiled by Moody's Investors Service and Real Capital Analytics Inc.

Hilton's acquisition is slated to close this month and the approximately US$100 million that's left of the proceeds from the Waldorf sale will be used to buy additional properties within the next six months, according to the statement.

BLOOMBERG