- Company to incur one-time transaction cost of $250 million
- Spinoffs of property unit and timeshares will be tax-free
Hilton Worldwide Holdings Inc. said the planned spinoff of its real estate will create a company, to be called Park Hotels & Resorts, that will be the second-largest publicly traded real estate investment trust in the lodgings industry.
The newly formed entity, which will contain most of Hilton’s properties, will have earnings before interest, taxes, depreciation and amortization of as much as $825 million in 2016, Hilton said in a statement on Thursday. In 2015, the unit had adjusted EBITDA of $817 million.
Hilton said in February it will spin off its lodging properties and timeshare business to create three separate, publicly traded companies in order to boost shareholder value as the hotel operator faces increased competition. One-time cash uses connected to the spinoffs will include a $250 million transaction expense, $200 million for a special dividend and $200 million for a tax acceleration.
“As a result of the proposed transactions, we expect to unlock growth opportunities that are embedded within the three businesses and take advantage of capital market and tax efficiencies,” Hilton Chief Executive Officer Chris Nassetta said in the statement.
On a stand-alone basis, Hilton’s pro-forma adjusted EBITDA for 2016 will be as much as $1.8 billion. The company will continue to pay out a dividend of 30 percent to 40 percent of recurring cash flow. Remaining free cash will be returned to shareholders and Hilton plans a share buyback once the spinoffs are completed.
The spinoffs of Park Hotels and Hilton’s time share business -- named Hilton Grand Vacations -- will be tax-free, according to the statement. Hilton’s main business of managing and franchising hotels will continue to exist under its current name. Hilton shareholders will own shares in all three entities once the deal is completed by the end of the year.
Hilton Grand Vacations, the timeshare unit, will have adjusted pro-forma EBITDA of as much as $390 million in 2016, the company said.
Hilton, based in McLean, Virginia, said it filed Form 10 registration statements with the U.S. Securities and Exchange Commission for its timeshare and the bulk of its real state business on Thursday.