Less than two years after going public, McLean-based Hilton Worldwide Holdings is preparing for its next corporate act.
The giant hotelier is considering a number of business initiatives, including paying a modest dividend to shareholders, repurchasing its stock and spinning off the 148 hotels it owns and leases around the world.
The company might also create a company for its timeshare business, which is headquartered in Orlando.
“We definitely plan to begin giving back capital in the second half of the year in the form of a dividend,” Hilton chief executive Christopher J. Nassetta said in an interview last week.
Nassetta said the company also plans to consider whether it wants to buy back some of its shares, which are trading in the $30 range, about 50 percent higher than the stock sold for at its initial public offering in December 2013. Shares have risen about 30 percent in the past 12 months, and buybacks could help boost the price by reducing the number of shares available to investors.
Nassetta’s comments come amid a strengthening in the hospitality sector, helped by increased travel, lower energy costs and a positive, if slowly growing, national and global economy.
Hilton and some of its dominant rivals, including Bethesda-based Marriott International and Starwood, benefit from a business model in which they manage hotels for someone else at a negotiated price. That model, known as asset light, tends to produce high profit margins because others own the real estate.
The hospitality industry has thrived despite potential head winds from hotel disrupters such as Airbnb.com, a Web site where people can rent lodging.
“The hotel industry is doing really well for one basic reason,” Nassetta said. “The fundamentals are very strong. Demand continues to grow at a reasonable pace, matching with historically low levels of capacity.”
Hilton’s bullish stock performance over the past 12 months no doubt helped prompt its largest shareholder, Blackstone Group, to recently sell more of its massive stake in the firm.
Blackstone last month sold 103.5 million shares of the hotel company, worth about $3 billion, reducing the private-equity giant’s ownership to 46 percent after the sale, down from 55 percent. The New York investment firm remains the hotel company’s largest shareholder.
“Now that Blackstone has reduced its ownership stake below 50 percent, that makes Hilton shares eligible for inclusion in the [Standard & Poor’s 500-stock index], which is a good thing,” said Bill Crow, an analyst with Raymond James & Associates. “We then anticipate the company being awarded an investment-grade credit rating,” which would lower its interest rates.
The once-in-a-generation migration of people into the middle class in China, Brazil, India and the Middle East is creating disposable income and a desire to travel. Nassetta plans to take advantage of that by increasing the number of rooms Hilton manages worldwide by 240,000 in the next three to five years.
That number, known as pipeline growth, is a key metric and is the highest in the industry.
“This company is incredibly well positioned at this point,” said Credit-Suisse analyst Joel Simkins.
The Washington area is part the Hilton growth story. The region has 91 Hilton properties, with more than 17,000 rooms. An additional 28 hotels are in the pipeline for the region, including the Conrad Washington, Canopy Rockville and the Home2 Suites by Hilton in Woodbridge/Potomac Mills.
Hilton also might spin off its Orlando-based timeshare business and 100-plus hotels that it owns, leases or partly owns in a joint venture into a real estate investment trust.
Nassetta knows the REIT territory well, having run Host Hotels & Resorts for several years prior to taking the Hilton job in 2008. Spinoffs are not expected before the end of 2016.
The company has sold two big properties, including the $300 million Hilton Sydney and the flagship Waldorf Astoria New York. The Waldorf sold in February for $1.95 billion to Anbang Insurance Group of China, the highest price ever for a U.S. hotel.
Hilton Worldwide operates 4,350 hotels, resorts and timeshare properties, consisting of more than 720,000 rooms in 94 countries and territories.
“There are a lot of levers that this company can pull over the next couple of years that will allow them to continue to unlock value,” Simkins said.
But he cautioned that the hotel industry should keep a close eye on disrupters such as Airbnb.
“These businesses are real and they are not going away,” Simkins said. “Hilton and other companies are going to have to determine if they dip their toe into this area and how is that going to affect their relationship with hotel owners? Only time will tell.”