“We can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives when companies spin off a subsidiary or division and hand out shares to their shareholders. Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years….” Pat McKeough shows how spinoffs and other “special situations” can create windfalls for informed investors.
HILTON WORLDWIDE HOLDINGS $73(New York symbol HLT; Consumer sector; Shares outstanding: 296.6 million; Market cap: $21.7 billion; Dividend yield: 0.8%; Takeover Target Rating: Medium; www.hiltonworldwide.com) owns, manages and franchises hotels under several brands, including Hilton, Waldorf Astoria, Doubletree and Embassy Suites by Hilton. The U.S. accounts for 73% of the company’s nearly 895,000 rooms.
In January 2017, the company completed two spinoffs: Park Hotels & Resorts Inc. (New York symbol PK), its lodging real estate investment trust (REIT); and Hilton Grand Vacations Inc. (New York symbol HGV), its vacation ownership company.
Since the spinoff, Hilton Worldwide has gained roughly 30%. However, the stock has dropped 9% since the start of 2018 on concerns that a potential economic slowdown would cut demand for travel and lodgings.
That decline has attracted the interest of activist investor Bill Ackman, whose Pershing Square fund now owns 10.9 million shares, or 3.7%, of Hilton Worldwide.
Ackman has yet to press Hilton’s management to make changes. He feels the company’s fee-based franchising model helps insulate it from any slowdown in occupancy rates. Hilton’s hotels under construction—increasing the number of rooms by 40%—should also boost its long-term prospects.
Hilton Worldwide is a hold.
BROOKDALE SENIOR LIVING INC. $7.82(New York symbol BKD; Consumer sector; Shares outstanding: 187.7 million; Market cap: $1.5 billion; No dividends paid; Takeover Target Rating: Highest; www.brookdale.com) operates 729 senior retirement facilities in 46 U.S. states. Those include assisted living facilities, dementia care centres and nursing homes. In all, the company serves about 93,000 residents.
The stock has dropped sharply, from a high of $38.74 in 2015 to its current price of $7.82.
As a result, activist investor Macquarie Investment Management, which owns 3.71% of Brookdale’s stock, wants the company to sell its real estate holdings. Macquarie estimates the stock is trading at a 50% discount to the estimated value of just the real estate holdings themselves.
Brookdale is already selling many of its less-important real estate. In the past year, it has sold or terminated the leases on 104 properties. By 2021, it aims to cut its overall portfolio by 20%. The proceeds from those sales could total $250 million.
In addition to Macquarie, another prominent shareholder, real-estate activist investor Land & Buildings Investment, wants Brookdale to sell more of its real estate.
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