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Why Chinese investors are buying U.S. hotels, including $6.5 billion for a Hilton stake

Why Chinese investors are buying U.S. hotels, including $6.5 billion for a Hilton stake
The Hilton Long Beach hotel is part of the Hilton chain. China's HNA Group said it isbuying a25% stake in Hilton Worldwide Holdings Inc. (Reed Saxon / Associated Press)

Worried about a slowdown in their economy, Chinese investors are stepping up their spending on U.S. hotel properties with China's HNA Group announcing Monday that it is buying a 25% stake in Hilton Worldwide Holdings Inc.

HNA, the giant Chinese hotel and tourism company, plans to buy Hilton shares from affiliates of the investment firm Blackstone Group in a deal worth about $6.5 billion.

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The deal would give HNA a stake in Virginia-based Hilton — one of the nation's biggest hotel companies — and its planned spinoffs of Park Hotels & Resorts and Hilton Grand Vacations, which are expected to take place by the end of the year.

In the past few years, Chinese businesses and wealthy investors have been trying to diversify in the face of economic uncertainty in China by investing abroad in a variety of industries, including real estate and entertainment. Industry experts say the U.S. hospitality industry, with its vast real estate holdings, is seen as a stable investment.

"The hotel real estate market is very mature. There are not a lot of surprises," said Jan Freitag, senior vice president at STR, a hotel research firm. "It's a good place to park your money."

In the 12 months ended Sept. 30, U.S. hotels rented more rooms than in any previous 12-month period, according to STR.

Freitag said U.S. hotel companies are steadily adding more rooms to keep up with increasing demand.

The HNA Group's operations include hotels, airlines, airports, financial services and real estate. It employs nearly 200,000 people and posts annual revenue of about $30 billion.

In April, a division of HNA announced plans to buy Carlson Hotels, which owns several popular hotel brands including the Radisson, the Park Plaza, Country Inns & Suites by Carlson and the Club Carlson hotel rewards program.

Last week, Starwood Capital Group said that China Life Insurance Co. is leading a group of investors to buy a stake worth about $2 billion in a portfolio of 280 hotels spanning 40 states in the U.S.

Southern California investments include the recent $40-million purchase of a Hollywood Hills property that includes Yamashiro restaurant by Chinese hotel operator JE Group, which is expected to mount extensive redevelopment plans. China's Oceanwide Real Estate Group is putting up the three-building Fig Central hotel, retail and condo development in downtown L.A..

But not every hotel deal involving Chinese investors has worked out.

A transaction by China's Anbang Insurance Group Co. to purchase Hotel del Coronado near a major naval base close to San Diego from Blackstone Group was called off after opposition from U.S. national security officials, Bloomberg News reported, citing people with knowledge of the decision.

Still, the Chinese insurer completed the rest of that $6.5-billion transaction for 15 hotels that were part of Blackstone's Strategic Hotels & Resorts real estate investment trust. Among those hotels are the Loews Santa Monica Beach Hotel; San Francisco's Westin St. Francis; Ritz-Carlton resorts in Laguna Niguel and Half Moon Bay, Calif.; InterContinental Chicago, Fairmont Chicago, New York's JW Marriott Essex House; and the Four Seasons in Washington, D.C.

A representative for Blackstone didn't respond to requests for comment.

Anbang made a splash in 2014 when it bought the New York Waldorf-Astoria hotel for $1.95 billion, the second-largest Chinese acquisition of a U.S. hotel on record.

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Anbang was also part of the consortium that attempted to buy Starwood Hotels and Resorts Worldwide but dropped out after a bidding war with Marriott International.

Under the Hilton deal with HNA, Blackstone will keep an approximately 21% interest in Hilton Worldwide Holdings and will continue to have two seats on Hilton's board. HNA, which is paying $26.25 a share in cash, would appoint two directors to Hilton's board, bringing the total to 10 members.

Hilton Chief Executive Christopher J. Nassetta described HNA as a long-term investor in Hilton.

"We believe this mutually beneficial relationship will open new opportunities for our brands and guests around the world, particularly in light of HNA's strong position in the fast-growing Chinese travel and tourism market, the largest outbound travel and tourism market in the world," Nassetta said.

The deal is expected to close in 2017's first quarter.

Founded in 1993 as a regional airline based on Hainan Island, HNA Group now has assets valued at more than $90 billion. HNA said it operates and invests in nearly 2,000 hotels with more than 300,000 rooms. The company has 1,250 aircraft carrying more than 90 million passengers to 260 cities worldwide.

Hilton shares rose 3 cents, or about 1%, to close at $22.94. Blackstone Group shares increased 72 cents, or about 3%, to $24.79.

For more travel news, follow Hugo Martin on Twitter: @hugomartin

UPDATES:

4:15 p.m.: This article has been updated throughout with staff reporting, replacing an earlier article by the Associated Press.

This article was originally published at 7:05 a.m.

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