Hilton Completes Double Spinoff Of Park Hotels & Resorts REIT And Hilton Grand Vacations

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Hilton (HLT) completed the spinoff of a lodging REIT, Park Hotels & Resorts (PK), and of its timeshare business, Hilton Grand Vacations (HGV), earlier this week. The new companies begin trading the ‘regular way’ yesterday and shareholders should have received 1 HGV share for every 10 HLT shares owned and 1 PK share for every 5 HLT shares owned. When checking the math, keep in mind that Hilton also completed a 1:3 reverse split immediately following the spin.

While we previously discussed the spinoff, here is a brief summary of their individual makeups:

Hilton will continue to be led by Christopher J. Nassetta, president and chief executive officer (CEO). Kevin J. Jacobs will continue to serve as Hilton’s executive vice president and chief financial officer (CFO) and Michael W. Duffy will continue to serve as Hilton’s senior vice president and chief accounting officer. Its portfolio of 13 distinct brands leads the industry in market share premiums, resulting in leading rates of organic net unit growth with very low capital requirements.

Park, headquartered in McLean, Virginia, is led by Thomas J. Baltimore, Jr., chairman, president & CEO. Sean M. Dell’Orto serves as Park’s executive vice president and CFO and Treasurer, and Darren W. Robb serves as Park’s senior vice president and chief accounting officer. Park is now one of the largest lodging real estate investment trusts (REIT), with 67 premium-branded hotels and resorts with more than 35,000 rooms located in prime U.S. locations and international markets with high barriers to entry.

HGV, headquartered in Orlando, Florida, is led by Mark Wang, president & CEO. James E. Mikolaichik serves as HGV’s executive vice president and CFO and Allen Klingsick serves as senior vice president and chief accounting officer. HGV is a timeshare company that markets and sells vacation ownership intervals, and manages resorts in top leisure and urban destinations. HGV’s 46 resorts are located in premier markets, including the Hawaiian Islands, New York City, Orlando and Las Vegas.

The timeshare business appears to be the least loved, while the REIT will have to build up its portfolio and diversify itself. Many are (and have been for some time) applauding the parent company’s ‘asset light’ shift and believe the market will reward the company and its strong brand for the corporate restructuring:

Rachael Rothman, equity analyst at Susquehanna Financial Group, notes that the positive thesis on Hilton is simple: The company after the asset spin-off “will be the fastest- growing, highest return, most defensive lodging company under our coverage.” So she has raised her price target for the stock to $31 from 26, as she believes Hilton has all the attributes and management agility and ability to continue leadership in the industry.
“We expect the high fixed-cost, low capital-intensity business model, combined with the largest unit growth pipeline in the business, market-leading brands, and best-in-class management team, to drive shares higher,” Rothman argues. True, there are many competitors that also own, manage, and franchise lodging properties, she concedes, “but none has Hilton’s combination of 14% RevPAR (revenue per room) premium, 6% square-footage growth, 5% 2017 FCF (free cash-flow) yield, and 14% to 23% earnings per-share growth.”

Other firms also had upgraded the company prior to the split as well. The lodging industry is highly competitive (can throw AirBnB into the mix as well) and quite sensitive to the overall economic mood. Times have been good recently, but it will be interesting to see how all three businesses fare when things change.

Disclosure: Author holds no position in any stock mentioned.