Breaking up is apparently not that hard to do
Breaking up is apparently not that hard to do
04 AUGUST 2017 7:18 AM

Spinoffs and carve-outs are all the rage in the hotel industry today as hotel companies grow increasingly aggressive in captivating investors late in the cycle.

It’s not been an uncommon thing to hear from publicly traded companies around the hotel industry the last couple of years that executives feel like their stocks have been undervalued by investors, and for an extended period following the announcement of Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide, many openly wondered if that was going to translate to an increase in mergers-and-acquisitions activity.

Some M&A has and is taking place, of course, but it seems like the real transaction du jour is not absorbing other businesses but splitting off segments of current businesses to give investors more of a pure play.

Obviously, spinoffs are nothing new in the hotel industry. Host Hotels & Resorts existence is proof of that. But it seems to be growing increasingly popular as hotel companies look to drum up interest and attention from the investment community at a point that is presumably late in the cycle.

It seems like this latest wave was truly sparked by Hilton, which at the beginning of the year spun off its owned real estate as a new real estate investment trust called Park Hotels & Resorts and its timeshare business as Hilton Grand Vacations.

AccorHotels also joined in, carving out of its owned real estate for a period. La Quinta Holdings announced earlier in the year it was considering such a move before formally announcing plans to spin off its owned assets as a midscale- and upper-midscale-focused REIT called CorePoint Lodging.

And now, the latest announced move is Wyndham Worldwide’s decision to split its company basically in half between its hotel brands (Wyndham Hotel Group) and timeshare business (Wyndham Vacation Ownership).

The rationale you seem to universally hear from these companies is the resulting companies are streamlined in their focus and present a simpler story to the investment community.

Like the prospects of hotel franchisors but not the owned real estate? Hilton today is a lot more appealing than it was a year ago, and La Quinta might be a more compelling investment in the near future.

Like the long-term growth prospects of timeshares? That was previously only half of your actual investment in Wyndham and just a sliver in Hilton.

I get it, but I wonder how much it will truly move the needle. I’m not sure the stock price for a company like Park has so far hit analysts’ expectations prior to the spin. And how many more companies are left out there where this is a true option?

I regularly cover the quarterly earnings calls for Hyatt Hotels Corporation, and it seems like at least once a call now their executives get the question from analysts on if they’re considering a spinoff of owned assets. The suggestion is, every time, summarily shut down as company officials say real estate ownership is a key function of their business and is viewed as integral for their strategy to grow their brands.

I’ll be interested to see how it goes from here and if more companies decided to jump on the bandwagon.

What do you think? Let me know via email or on Twitter.

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