“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 $77 (New York symbol HLT; Consumer Sector; Shares outstanding: 321.0 million; Market cap: $24.7 billion; Takeover Target Rating: Low; Dividend yield 0.8%; TSINetwork Rating: Average; 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 74% of the company’s 837,692 rooms.
On January 3, 2017, Hilton completed two spinoffs: Park Hotels & Resorts Inc. (see box, page 5), its lodging real estate investment trust (REIT); and Hilton Grand Vacations Inc., its vacation ownership company (see right).
Under the plan, Hilton Worldwide shareholders received one share of Park Resorts & Hotels for every five HLT shares they held and one share of Hilton Grand Vacations for every 10 HLT shares. Hilton Worldwide also undertook a reverse 1-for-3 share split immediately following the spinoffs.
For the quarter ended September 30, 2017, Hilton Worldwide earned $181 million, or $0.56 a share. That’s up 48.4%, from $122 million, or $0.37, a year earlier. Revenue rose 7.0%, to $2.35 billion from $2.20 billion.
Hilton has lots of room to further expand in the U.S. and internationally. The company’s Hilton Honours program is one of the biggest, with about 70 million members. It’s a very valuable asset considering 57% of the company’s bookings come through that channel.
The spinoff of Park Hotels lets Hilton Worldwide focus on expanding its franchise business, which now numbers 4,922 properties. The company has another 2,150 properties under development; third-party owners are financing those project, while Hilton Worldwide is set to manage them.
Hilton stock is up over 30% since the split, and now trades at a high 33.5 times the projected 2018 earnings of $2.30 a share.
Hilton Worldwide is a hold.
HILTON GRAND VACATIONS $42(New York symbol HGV; Consumer Sector; Shares o/s: 99.0 million; Market cap: $4.2 billion; Takeover Target Rating: Medium; No dividends paid; TSINetwork Rating: Average; www.hgv.com) develops, markets and operates 48 timeshare properties, comprised of 8,101 units. It has 284,000 timeshare owners.
Hilton Grand Vacations makes money in two ways: First, by selling and financing vacation ownership intervals (VOI’s)— usually a weekly stay—and second, from resort management fees. The location of its resorts—in prime markets such as Hawaii, New York City, Orlando and Las Vegas—is a big plus.
In the three months ended September 30, 2017, Hilton Grand Vacations earned $43 million, or $0.43 a share. That’s up 22.9% from $35 million, or $0.35, a year earlier. Revenue rose 4.7%, to $426 million from $407 million.
The stock is up 61% since the spinoff, and now trades at 19.8 times its projected 2018 earnings of $2.12 a share.
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