Can One Hotel Sale Be Worth Almost $2 Billion?

The hotel is an Art Deco masterpiece that has been an internationally recognized for its elegance and grace for more than a century. It is the flagship hotel of Hilton’s luxury brand, Waldorf Astoria Hotels & Resorts. Thinking of the cost of a single hotel being $2 billion is a hard number to mentally get to. That caveat being said, is one landmark hotel with phenomenal name recognition really worth $2 billion?

As part of the agreement, Hilton will retain management of the property and continue to operate the property for the next 100 years. Also the hotel will undergo a major renovation which intends to restore the property to its historic grandeur.

Hilton Worldwide intends to use the proceeds from the sale of the Waldorf Astoria to acquire additional hotel assets in the United States. The future acquisition(s) are being called part of a like-kind exchange and the deal(s) will be announced at a later date.

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It is worth noting that Blackstone Group L.P. (NYSE: BX) owns a stake of over 55% in Hilton after its most recent secondary offering of Hilton stock in early September. Blackstone brought Hilton public again in December 2013. Also worth noting is that since 2007, this luxury brand has grown its portfolio to a total of 27 landmark destinations including: Amsterdam, Beijing, Chicago, Dubai, Jerusalem, Ras Al Khaimah, and Shanghai. There are nine more additional hotels in the pipeline including key destinations such as Bali, Bangkok, and Beverly Hills.

Hilton shares gapped up at the opening bell to $24.68 from the previous close at $24.32. Shares have traded at $24.23 with just over an hour left in regular trading. The range on the day is $24.11 to $24.81. Hilton has a consensus price target of $27.42 and a 52-week trading range of $20.55 to $25.92. It has a market cap of almost $24 billion.

Maybe a hotel of this magnitude, located where it is located and with a 100-year management contract in place, is really worth close to $2 billion. Without getting to see the formal financials used in the valuation and without getting to see pro forma projections for the next few decades, we’ll just have to leave it up to Hilton and Anbang as to which group got a better deal.

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