Heartbreakup Hotel- Hilton Will Split Into Three Publicly Traded Companies Later This Year

Hilton Worldwide Holdings(HLT) announced this morning that it has filed Form 10 registration statements for two previously announced spinoffs of its real estate and timeshare businesses.  CEO Christopher J. Nassetta said the spins will be completed later this year. Following the transactions, Nassetta will continue to lead Hilton, which will be an asset-lite fee-based business. On a pro forma basis, this business will have $1.77 billion and $1.83 billion of adjusted EBITDA in 2016 with 90% coming from franchise fees and management fees.

Hilton’s real estate will become Park Hotels & Resorts. Park, with 69 hotels and nearly 36,000 rooms, had $2.7 billion of revenue, $817 million of Adjusted EBITDA and $299 million of net income in 2015. It will be the second largest publicly traded lodging REIT. As we previously mentioned, Hilton appears to have made the request for this spin into the IRS ahead of the deadline set by new legislation ending the practice. Park will be led by industry veterans Tom Baltimore, previously President and Chief Executive Officer of RLJ Lodging Trust, as Chief Executive Officer and Sean Dell’Orto, currently SVP & Treasurer of Hilton, as Chief Financial Officer. On a pro forma basis, Park is expected to have adjusted EBITDA of between $795 million and $825 million. Prior to the spins, “it is anticipated that certain rooms at Park hotels in New York, Hawaii, and Washington D.C. will be contributed to HGV for future conversion to timeshare inventory.” Park’s Form 10 can be found here.

Hilton is late to the party with the spinoff of its timeshare business. Marriott International(MAR) spun off Marriott Vacations Worldwide(VAC) in 2011, and more recently, Starwood(HOT) spun off its Vistana timeshare business in a reverse Morris Trust transaction with Interval Leisure Group(IILG). Hilton Grand Vacations will have 7402 units at 46 resorts and 255,000 members. For the year ended December 31, 2015, HGV generated total revenues of $1.5 billion, net income of $174 million, Adjusted EBITDA of $373 million, and return on invested capital of 41.3%.  The company, which will be led by Mark Wang, who has led Hilton’s global timeshare operations since 2008, is projected to have between $370 million and $390 million of pro forma adjusted EBITDA in 2016. Hilton Grand Vacation’s Form 10 can be found here.

Given the recent spate of M&A in the lodging space, these three companies should be well positioned to either buy or be bought after they are independent. With premium brands and assets, there is likely to be much interest from strategic and financial buyers alike.

Disclosure: The author holds no shares in any stock mentioned