Connecticut-based hotel operator Starwood Hotels & Resorts Worldwide Inc.’s (HOT) shares rose around 6.6% in the trading session on Tuesday after the company announced its intention to spin off its vacation ownership business – Starwood Vacation Ownership – into a separate publicly traded company. The transaction, subject to certain regulatory approvals, is expected to close by 2015-end.
The spin-off will not require shareholders’ vote and likely be tax-free for Starwood stockholders. The transaction will take place through a pro-rata distribution of the new entity’s stock to current shareholders of Starwood.
The spin-off will support the company’s asset disposition strategy and capitalize on increasing growth opportunities in the timeshare industry. Further, vacation ownership business involves continuous investment in the existing properties and development of new ones. The spin-off will enable the hotelier to use the capital for developing its hotel and franchise business.
In 2014, Starwood Vacation Ownership reported revenues of around $640 million, and over the past three decades has sold more than $6 billion vacation ownership intervals. After the spin-off, Starwood Vacation Ownership will develop and operate 22 timeshare resorts, and expand its currently owned land. Further, the new entity will ink long-term license agreements to maintain its association with the Westin and Sheraton brands.
Following the completion of the spin-off, Matthew Avril, who retired as President of Starwood’s Hotel Group, will be the Chief Executive Officer of the new company. He will be assisted by Stephen Williams, who will continue as the Chief Operating Officer.
Starwood presently has a Zacks Rank #3 (Hold). Investors interested in the hotel industry may consider stocks like Choice Hotels International Inc. (CHH), Intercontinental Hotels Group plc (IHG) and Marriott Vacations Worldwide Corp. (VAC). While Choice Hotels sports a Zacks Rank #1 (Strong Buy), Intercontinental Hotels Group and Marriott Vacations carry a Zacks Rank #2 (Buy).
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