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Hilton to spin off real estate, timeshare businesses

[NEW YORK] Waldorf Astoria hotels owner Hilton Worldwide Holdings Inc will spin off most of its real estate assets into a real estate investment trust, joining a list of companies turning to the tax-efficient structure to maximize shareholder returns.

In the past year, companies including casino operator MGM Resorts International and restaurants owner Darden Restaurant Inc have announced REITs, which distribute 90 per cent of their taxable income to shareholders.

Hilton, which is also spinning off its timeshare business into a separate publicly traded company, said on Friday that the REIT would own about 70 hotel properties with 35,000 rooms.

The company's shares rose 8 percent in light premarket trading.

Hilton owned or leased 144 hotel properties around the world at the end of 2014. Analysts estimate that the properties are worth more than US$10 billion.

"We think this (the spinoffs) makes sense by simplifying the businesses and should result in a higher net valuation multiple," JPMorgan analyst Joseph Greff wrote in a note.

The hotel operator expects to complete the spinoffs of both its real estate assets and its timeshare business, Hilton Grand Vacations, by the end of the year.

Hilton Grand Vacations manages nearly 50 club resorts in the United States and Europe. The business accounted for about 12 per cent of Hilton's total revenue in the fourth quarter.

The net income attributable to Hilton's shareholders rose five-fold to US$814 million, or 82 cents per share, in the quarter ended Dec 31, mainly due to a tax benefit of US$640 million.

Excluding items, the company earned 22 cents per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S.

Revenue rose about 1 per cent to US$2.86 billion, but missed the average estimate of US$2.96 billion, hurt by a decline in occupancy and room rates in the Middle East and Africa.

The company's shares were trading at US$21.85 before the bell.

Up to Thursday's close, the stock had fallen about 28 per cent in the past 12 months, while the Dow Jones US Hotels index had declined about 17 per cent.

Deutsche Bank Securities Inc and Goldman Sachs & Co were Hilton's financial advisers for the spinoffs.