(Bloomberg Gadfly) -- Real estate is fast turning out to be the gift that keeps on giving for troubled conglomerate HNA Group Co.
Under pressure to reverse a multibillion-dollar buying spree to pare its debt load, HNA is in the midst of a fire sale. It seems property is the answer.
In February, HNA sold two parcels of land on the site of the former Hong Kong airport for HK$16 billion ($2 billion), a return in the region of 10 percent in not much more than a year. It then pocketed a 15 percent capital gain last month on a fourth plot at the same site.
Flipping its stake in Hilton Worldwide Holdings Inc. looks still more lucrative.
HNA is seeking to offload part or all of its 26 percent interest in Hilton, the hotel chain in which it is the largest shareholder. Assuming it gets something close to market price for the shares, which rose 1.3 percent after the potential sale was announced, HNA could be looking at a roughly 42 percent return on an investment it's held for barely more than 12 months.
HNA's shares in Hilton's timeshare spin-off Hilton Grand Vacations Inc. were bought last March for $24.32 each and sold 368 days later for a weighted average of $46.10, a near-doubling in price. Stock in Hilton Worldwide is currently up about 45 percent from the $54.57 purchase level.
Even the Park Hotels & Resorts Inc. real estate trust spin-off has turned out well. While the shares barely moved -- up just 0.3 percent over the 359 days that HNA held them, on a weighted basis -- a magnificent dividend yield means they returned about 7.5 percent.
A two-year-lockup agreement that HNA signed when it acquired Hilton is probably of little consequence: It managed to skirt that bind when it exited both Park and Hilton Grand. The agreement can be voided on the say-so of independent directors, who are likely to prefer the option of a sell-off to the alternative of their largest shareholder going bankrupt.
As such, the Hilton stakes join Hong Kong real estate in potentially spelling quick, big gains for HNA.
Put together, the asset sales should amount to about $12 billion of the $16 billion the company needs to pocket by the start of July to head off a liquidity crunch.
An initial public offering of Swiss airline catering business Gategroup Holding AG, which had hoped to raise as much as 1.6 billion Swiss francs ($1.7 billion), was abandoned last month after investors balked at the high price HNA was seeking.
Ingram Micro Inc., which HNA acquired for $6.1 billion in 2016, and the Avolon aircraft-leasing business, which these days is probably worth north of $10 billion, are held indirectly via other HNA units, so won't be easy to jettison.
Quitting its stake in Deutsche Bank AG would remove a bone of contention in the fraying relationship between Chief Executive Officer John Cryan and Chairman Paul Achleitner -- but given the German lender's stock is down 27 percent this year alone, it's probably not the best time to be selling.
HNA has become the poster child for the travails that beset companies that expand too rapidly through debt. Perhaps if it had stuck to real estate, it would be less on the back foot.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
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