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With China's HNA As Investor, Hilton Faces New Overhang Potential

With China's HNA As Investor, Hilton Faces New Overhang Potential
While one problem has been solved, another problem may have been created by Hilton Worldwide Holdings Inc.’s newest big investor.
As overhang on the stock because of its heavy ownership by one company that planned to sell its shares was helped to be eased after China’s HNA Group Co. bought 25 percent of Hilton from Blackstone Group Plc. in March. Even as Hilton Chief Executive Officer Christopher Nassetta increased the company’s room count by more than a third, the Blackstone stake and the hotel operator’s debt load contributed to its shares lagging behind that of its chief rival, Marriot International Inc., since Hilton’s 2013 initial public offering. Hilton said in its earnings statement for that second quarter that it added 13,400 net rooms in the period.
As China moved to clamp down on financial risk-taking, Hilton’s January spinoffs of its real estate and timeshare business came. Growing regulatory scrutiny that threatens to scare off bond investors and raise its financing costs, is being faced by HNA, which has made more than $40 billion of foreign acquisitions, including stakes in Hilton and Deutsche Bank AG. The company may be required to liquidate some of its shareholdings if the Chinese government forces HNA to pay down debt as part of a broader crackdown on corporate leverage.
“One has to be attentive to this and realize there could be a block that hits the market,” said Samuel Lieber, CEO of Alpine Woods Capital Investors LLC, which manages more than $3.8 billion, including Hilton and Marriott shares. HNA can’t sell the Hilton stake for two years without certain conditions, including Hilton board approval. “That tells you that it’s going to be an orderly transition, if it even happens.”
On HNA’s shares in the company, there were no comments from Hilton. There were also no comments from HNA.
Hilton’s stock is up 13 percent this year through yesterday and so far, HNA is in the money with its investment in Hilton. Compared with the 47 to 51 cents it forecast in May, there was a 51 cents a share in second-quarter earnings from continuing operations and before special items, the lodging firm said on Wednesday.
with its acquisition of Starwood Hotels & Resorts Worldwide, Marriot became the world’s biggest hotel operator in September and Bottom of Form
Hilton shares have underperformed those of Marriott. A bigger presence in lifestyle and luxury hotels and a cohort of loyal guests was provided by the deal with Starwood. As part of its strategy of focusing on management and franchise revenue, Marriott has about 15 properties left to sell and the company sold the Westin Maui in March for about $317 million.
“With Marriott, you have the exact same fundamentals but the kicker is you have upside from Starwood integration and asset sales,” said Michael Bellisario, an analyst at Robert W. Baird & Co. “That’s why people are still more positive toward Marriott.”
HNA’s shopping spree for overseas travel-related businesses has gained from China’s surge of outbound tourism. And additionally, HNA could help Hilton grow in the country as China is a key expansion market for U.S. hotel operators. In addition to 100 already open in the area, Hilton has more than 230 hotels in its greater China pipeline.

Christopher J. Mitchell

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