HNA takes 25 per­cent stake in Hil­ton


A month af­ter China’s An­bang In­surance Group Co bought most of Strate­gic Ho­tels & Re­sorts Inc from Black­stone, the New York-based com­pany said Mon­day that it’s sell­ing about one-quar­ter of Hil­ton World­wide Hold­ings Inc to Chen Feng’s HNA Group for about $6.5 bil­lion.

Ear­lier this month, Black­stone agreed to sell a group of Dutch of­fice prop­er­ties to An­bang.

“For­eign cap­i­tal re­mains ac­tive in its pur­suit of high­qual­ity ho­tel brand and real es­tate in­vest­ments,” David Loeb, a se­nior lodg­ing an­a­lyst at Robert W. Baird & Co, said in a re­search note Mon­day. HNA “has a much longer-term in­vest­ment hori­zon than Black­stone” does.

Chi­nese firms have been step­ping up in­vest­ments in ho­tels and travel busi­nesses around the world as out­bound tourism surges. HNA in April agreed to buy Min­neapo­lis-based Carl­son Ho­tels Inc and its ma­jor­ity stake in Rezi­dor Ho­tel Group AB, owner of the Radis­son brand.

HNA last year pur­chased a mi­nor­ity stake in Red Lion Ho­tels Corp. HNA’s am­bi­tion is to sell the full range of travel ser­vices, in­clud­ing book­ing trips, ho­tel rooms and air­line tick­ets.

HNA will pay $26.25 a share in cash for the Hil­ton shares, or 15 per­cent more than the ho­tel com­pany’s clos­ing price on Fri­day. The trans­ac­tion cuts Black­stone’s in­ter­est in Hil­ton, the world’s sec­ond-largest ho­tel op­er­a­tor, to about 21 per­cent, ac­cord­ing to a state­ment Mon­day. By sell­ing the stake to a long-term holder, the HNA deal eases the over­hang that has ham­pered Hil­ton’s stock since its 2013 ini­tial pub­lic of­fer­ing.

Hil­ton rose 0.1 per­cent to $22.94 in New York trad­ing on Mon­day.

China ac­counted for more than half of the surge of Asian in­vest­ment in over­seas real es­tate in the first half, ac­cord­ing to CBRE Group Inc, the world’s big­gest com­mer­cial prop­erty ser­vices com­pany. Asian out­bound in­vest­ment has risen more than ten­fold to $47 bil­lion in 2015 from $4.3 bil­lion in 2009, with the US get­ting the lion’s share. Asian in­sti­tu­tions, es­pe­cially in­surance com­pa­nies, still have rel­a­tively low al­lo­ca­tions to real es­tate, which of­fers higher yields than they can get on bonds at a time of low to neg­a­tive in­ter­est rates, ac­cord­ing to CBRE.

Black­stone in Septem­ber sold 15 lux­ury US ho­tels to An­bang, the Chi­nese com­pany that bought New York’s Wal­dorf As­to­ria ho­tel for $1.95 bil­lion last year and made an un­suc­cess­ful run at Star­wood Ho­tels & Re­sorts World­wide Inc in March.

The Hil­ton deal, ex­pected to be com­pleted in the first quar­ter, helps both HNA and Hil­ton ac­cel­er­ate their busi­nesses in China, one of the fastest-grow­ing ho­tel markets, as well as cap­ture a greater share of in­ter­na­tional tourism. HNA, based in Haikou City, owns Hainan Air­lines and the sec­ond-largest on­line travel busi­ness in China.

The agree­ment al­lows HNA to ap­point two di­rec­tors to McLean, Vir­ginia-based Hil­ton’s board. HNA also will own a pro-rata stake in Park Ho­tels & Re­sorts, the planned spinoff of Hil­ton’s real es­tate, and Hil­ton Grand Va­ca­tions, the com­pany’s time­share busi­ness, ac­cord­ing to the state­ment. Both are set to be spun off around the end of the year.

HNA, which will be­come Hil­ton’s largest share­holder, can’t sell any of its stake in Hil­ton for two years and can’t in­crease its hold­ing to more than 25 per­cent with­out Hil­ton’s con­sent, ac­cord­ing to the state­ment. HNA also agreed to vot­ing rights that would keep part of its stake aligned with other share­hold­ers.

Black­stone is tripling its money in its sale of shares to HNA. The New York-based firm’s cost ba­sis in Hil­ton is about $8.60 a share. Black­stone’s fi­nite-life pri­vate eq­uity funds re­quire the firm to cash out of in­vest­ments by a cer­tain dead­line. It will likely con­tinue to sell down its stake, es­pe­cially as Hil­ton shares climb.

Black­stone bought Hil­ton in Oc­to­ber 2007 for $26 bil­lion in what was the last ma­jor real es­tate buy­out be­fore the fi­nan­cial cri­sis. The enor­mous debt bur­den from the buy­out, a joint deal be­tween

HNA Group, started in 1993, has trans­formed it­self from a tra­di­tional avi­a­tion com­pany to a con­glom­er­ate whose busi­nesses span fi­nance, leas­ing, ho­tels and real es­tate. The com­pany said it has $90 bil­lion of as­sets, $30 bil­lion in an­nual rev­enue and an in­ter­na­tional work­force of nearly 200,000 em­ploy­ees across North Amer­ica, Europe and Asia.

The Hil­ton in­vest­ment “is con­sis­tent with our strat­egy to en­hance our global tourism busi­ness, and we look for­ward to work­ing to­gether on new ini­tia­tives that lever­age our re­spec­tive strengths, ex­per­tise and tourism plat­forms,” Adam Tan, vice chair­man and CEO at HNA Group, said in the state­ment.

The com­pany this month agreed to buy the air­craftleas­ing busi­ness of CIT Group Inc for $10 bil­lion, a deal that came months af­ter HNA com­pleted the pur­chase of a stake in Azul Lin­has Aereas Brasileiras SA, Brazil’s third-largest air­line. It also agreed to buy part of Vir­gin Aus­tralia Hold­ings Ltd and ac­quire Swiss air­line caterer Gate­group Hold­ing AG, af­ter tak­ing over air­port lug­gage han­dler Swis­s­port In­ter­na­tional Ltd in Fe­bru­ary.

Chen and his brother, Chen Guop­ing, are the co-founders of HNA, al­though nei­ther is be­lieved to have a con­trol­ling stake. The group’s largest share­holder is said to be a char­i­ta­ble fund called the Hainan Prov­ince Ci­hang Foun­da­tion, which is headed by Zeng Haorong, the for­mer mayor of Haikou.

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