Spinning off properties into Real Estate Investment Trusts (REIT) has become a common move among restaurant, retail and casino companies seeking tax benefits offered to property trusts. Among the companies that has recently been reported to be spinning off their properties is hotel magnate Hilton Worldwide Holdings Inc. which shares jumped 5.2 percent after the REIT spin off was revealed.
Hilton's shares rose 5.2 percent to close at $22.45. This is the company's biggest increase in two years. Such is good news for Hilton as their shares dropped 14 percent this year.
Last week, a congressional bill was filed limiting corporations' ability to spin off their real estate in tax-free transactions. The said bill indicates that a property spinoff would only qualify for a tax-free treatment if the parent company and the spinoff were REITs "immediately after the transaction." By law, REITs are required to pay out at least 90 percent of taxable earnings to the shareholders as dividends. In turn, they are spared from paying federal income taxes on those earnings.
According to a source who asked not be identified, Hilton is currently seeking approval from the Internal Revenue Service to make the transaction tax-free.
A spokesman for Hilton, based in Mclean, Virginia refused to make a comment. The IRS also wouldn't say a word about the transaction. Hilton's plans were reported last Wednesday by the Wall Street Journal.
However, last October 28, Hilton CEO Chris Nassetta did mention that the company will pursue strategic alternatives for its real estate and timeshare businesses.
Hilton is not the first hotel company to spin off their property. Other big hotel companies such as Marriott International Inc. had also opted for an REIT spin off.
In 2013, Hilton stated doing business as a public company. Now, the company already owns or leases 147 of its more than 4,000 Hilton-branded real estate properties which includes the Hilton Chicago, Hilton San Francisco Union Square and Hilton Hawaiian Village Waikiki Beach Resort.
