“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.
WYNDHAM WORLDWIDE $109(New York symbol WYN; Consumer sector; Shares outstanding: 102.8 million; Market cap: $11.2 billion; Dividend yield: 2.1%; TSINetwork Rating: Extra Risk; Takeover Target Rating: Medium; www.wyndhamworldwide.com) plans to spin off its hotel business as Wyndham Hotel Group. The company expects to complete the transaction in the first half of 2018. It has yet to announce the names and trading symbols for those new companies.
However, after the spinoff, the remaining company will be the world’s largest publicly traded timeshare corporation by sales. It includes current Wyndham Vacation Ownership and RCI, a vacation-ownership exchange network with more than 4,300 properties in more than 100 countries.
Last year, Wyndham’s hotel division generated revenue of $1.3 billion, while its timeshare businesses reported revenue of $3.4 billion.
Geoff Ballotti, CEO of Wyndham Hotel Group, will lead the hotel company, while Michael Brown, CEO of Wyndham Vacation Ownership, will lead the timeshare company.
Wyndham hired Brown earlier this year. Previously, he was the chief operating officer of Hilton Grand Vacations (symbol HGV on New York) when that business was spun off from Hilton Worldwide (symbol HLT on New York) in January 2017.
Wyndham itself was spun off from Cendant in 2006. WYN shares have more than tripled since the split.
Once the upcoming spinoff is completed, the hotel and timeshare companies plan to strike license agreements to jointly run their loyalty program, Wyndham Rewards. They’ll also cross-sell each other’s properties. Currently, Wyndham Rewards has about 52 million members, an increase of 10% over the last year.
Wyndham Worldwide is a spinoff buy.
LA QUINTA HOLDINGS $18(New York symbol LQ; Consumer sector; Shares outstanding: 117.5 million; Market cap: $2.1 billion; No dividends paid; TSINetwork Rating: Extra Risk; Takeover Target Rating: Medium; www. lq.com) is a chain of limited-service hotels, operating 885 properties in the U.S., Canada, Mexico and Honduras. Those properties operate under the banners of La Quinta Inn & Suites, La Quinta Inn and LQ Hotel. The company first sold shares to the public in April 2014 at $17 each.
La Quinta now plans to split its hotel and real estate businesses into two separate companies.
The hotel management company will continue to trade on New York under the symbol LQ and keep the La Quinta name. The spinoff will become a real estate company registered as a REIT; its units will trade in New York under the name CorePoint Lodging.
Following the spinoff, CorePoint will own 316 hotels with 40,500 rooms in 41 states. It will focus exclusively on midscale and upper-midscale hotels. A total of 32% of its rooms will be in the top 25 U.S. markets. Overall, 72% of its rooms are in the suburbs or near airports.
La Quinta will manage and franchise the hotels under 20- year renewable terms. It will earn a management fee of 5% of gross hotel revenue plus another royalty of 5% of gross room revenue.
The split will let La Quinta focus on its franchise business, which now includes 570 properties. It has another 249 under development. At the same time, CorePoint will be able to rebrand some of its hotels to banners outside the La Quinta family. The REIT can also acquire new hotels operating in competing networks if they offer better profit opportunities.
La Quinta expects to complete the spinoff in late 2017 or early 2018.
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