Hilton Worldwide Holdings Inc (NYSE:HLT) today reported fourth quarter earnings and revenues, neither of which could beat analysts’ expectations. Still, the stock is up more than 6% in pre-market trading as news surrounding the company’s decision to spin off some properties and a business, brightened investors’ confidence.
The company reported adjusted earnings per share (EPS) of 22 cents for the quarter against a consensus Wall Street estimate also of 22 cents. A year ago, the company had posted adjusted EPS of 17 cents. Net income for the quarter based on Generally Accepted Accounting principles jumped five times to $814 million, translating into 82 cents per publicly traded share – an improvement that came about due to a $640 million tax benefit, the company said.
Revenues for the quarter were $2.86 billion, up 1% over the same quarter last year but lower than the average analysts’ bet of $2.96 billion. The company said lower occupancy and room rates in its Africa and Middle East segments capped the company’s top line performance during the quarter.
Spin-off of Hotel properties, Timeshares
Hilton also announced it was spinning off its real estate assets into a real estate investment trust (REIT), and also separating its Timeshare business, so as to operate as three separate companies. By the end of the year, the properties will trade publicly as REIT as well as the Timeshare business ‘Hilton Grand Vacations’, which will operate 35,000 rooms across 70 properties, the company said.
Analysts estimate the company’s properties to be valued in excess of $10 billion. Hilton Grand Vacations comprises 50 club resorts in Europe and the US, and accounted for about 12% of the company’s fourth quarter revenue.
The company believes operating as three separate units could unlock even more shareholder value and improve the separate entities’ valuations. Wall Street analysts also believe Hilton operating as three separate units could yield a higher combined valuation than as a whole.
US law requires REITs to distribute at least 90% of their taxable income to shareholders, an agreement that then waives of income tax liabilities for the company. Notably, several other companies with major real estate investments have spun them off into REITS over the past year. These companies include the fine dining restaurants chain operator Darden Restaurants Inc and casino operator MGM Resorts International.