GLOBAL REPORT—When it comes to spinning off part of the company into its own entity, what worked for Hilton and MGM Resorts International might work for Wyndham Worldwide and La Quinta Holdings.
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Executives at these top hotel companies, and Hilton’s real estate investment trust spinoff Park Hotels & Resorts, discussed the merits of such a move during first-quarter earnings calls with investors. Meanwhile, Hyatt Hotels Corporation sees strength in unity, with company executives dismissing any talk of a spinoff or mass sale of Hyatt’s real estate assets.
Here’s what the executives had to say on the subject. For Wyndham and La Quinta, any spinoff is still hypothetical—although Reuters reported this week that La Quinta is exploring a sale of the company that might play into an eventual REIT spinoff—while Hilton and MGM are starting to see the results of their companies’ decisions.
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Steve Holmes,
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Keith Cline,
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Chris Nassetta, |
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Tom Baltimore,
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James Murren,
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Mark Hoplamazian, president and CEO,
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Patrick Grismer, |
Steve Holmes, chairman and CEO, Wyndham Worldwide
“Questions have been raised in the last couple of earnings calls about a possible separation of the company. In February, we had a specific question with respect to the hiring of a new CEO at our timeshare business (Wyndham Vacation Ownership). I said that the board had asked me to maintain optionality by getting a CEO qualified to run a public company. We are confident that with the hiring of Mike Brown, we have found that person. The board wants to maintain its optionality because we remain dissatisfied with our valuation relative to our peers. The board continues, as always, to actively consider all alternatives on the future direction of our company. …
“We wanted somebody (for WVO) who we felt would be a good public company CEO, whether they were one before or not. And we wanted somebody who was capable of connecting the dots within our business. … In addition, (Mike Brown) really understands this business, which is a big help to me, because I would have spent a lot of time with somebody if they were coming from outside of the industry, which I was absolutely prepared to do if we couldn’t find somebody who knew the business already. … At (Hilton Grand Vacations) … he was involved with connecting HGV to the Hilton Hotel guest consumer base. He also worked at Marriott, both on the hotel side and on the timeshare side.
On whether a spinoff of the company’s timeshare business might interfere with the goal of driving more tours to its loyalty program, Wyndham Rewards:
“… having the interconnection to the hotel group and having the loyalty programs interconnected is a lot easier to do when you’re one company. So you certainly would want to have all of that in place before you made a decision to spin off. Once you do that though, then by contract you put the connections in place, which is what Marriott and what Hilton has done so far, and I believe Starwood did that as well. So I don’t see it as an impediment to harvesting that opportunity, particularly if it’s in place beforehand.”
Keith Cline, president and CEO, La Quinta Holdings
“As we mentioned from the onset of pursuing a potential spin, we had thought that this could be the next logical step as we think about the evolution of the business. And we really do believe that a spin (of) the organization into two independently operated companies with independent strategies and management teams, pursuing … opportunities that naturally follow to each business, could actually be additive to our strategies. And as you think about some of the investments that we’re putting into the business now, specifically a lot of the repositioning efforts that are going along … that clearly will benefit PropCo and OpCo in this potential new structure.
“So I think that our performance and the strategies that we’re putting in place really could be additive to a spin transaction regardless of whether we end up spinning the business into two organizations or not. We believe we’re on the right path to create long-term value for the entire enterprise, and spinning the company into two different organizations, I believe, wouldn’t (throw) that off track.”
Chris Nassetta, president and CEO, Hilton
“Post-spins, we’re a resilient fee-driven business with a very disciplined strategy that’s focused on growing market share, units and free cash flow per share, as well as preserving our strong balance sheet and accelerating our return of capital. …
“I feel great about what we’ve been doing in the capital investment side with our owners. … We are not the owner of anything in the U.S. market, but if you go around and look at what’s opening … at what we’re refurbishing around the country, I feel really good about it (post-spin). But this is … a phenomena that’s driven by underlying economics. And I’m not going to say that at some point (we’re not) eventually going to get back in the full-service and luxury development at a larger scale.”
Tom Baltimore, president and CEO, Park Hotels & Resorts
On how the real estate investment trust will grow following the spinoff from Hilton:
“I have been one of the strongest advocates for the need for consolidation. We want to be part of that discussion and dialogue at the appropriate time. We don’t have the currency today, and we certainly want to improve ourselves, build our track record and focus on the operational excellence in the embedded ROI opportunities that will hopefully give us the currency to be able to activate and then go on offense.
“Certainly … (the company will) look to brand- and operator-diversify over time. (We) love our partners at Hilton, but you certainly will see that as other families of brands (are added) to the mix as we move forward.”
James Murren, CEO, MGM Resorts International
Regarding MGM Resorts selling the National Harbor property to MGM Growth Properties:
“So, when we were on the road with the MGP road show … last year, we tackled this question. We said that it was our best guess at that time that the most appropriate time to discuss a transaction between MGM and MGP would have been after you have a couple quarters of operations, so that both companies can properly underwrite what the right valuation would be. And I think that’s exactly the timetable that we’re on today.
“National Harbor has done everything and a bit more than we had hoped it to do when we built it last year. The trajectory is exactly what we would have hoped to see. The upside is very apparent to us in terms of its cash flow potential, and the real estate value of the asset is unquestionably pristine. … I would expect that we would hold to that timetable that we discussed on the road show and start having robust discussions this year as early as the third quarter.”
Regarding MGM’s stake in MGP:
“I think that as an MGP shareholder, I like the scarcity value, and I like my position, but we do believe that MGP would benefit from … more liquidity, and that is absolutely a goal of MGP … to increase its public float. And it will do so because (MGM Growth Properties CEO) James Stewart … and (CFO) Andy Chien are aggressive young men, and they’re out on the prowl, and they will be acquiring assets, and I’m sure they will be acquiring assets that MGM Resorts has nothing to do with. And they will be raising equity to do that. I also believe that even in a transaction with MGM Resorts, it’s something that MGM Resorts should look at and allow for us to return cash to our shareholders rather than take back OP (Operating Partnership) units just as a matter of course.
“And so, I think that between the ROFO (Right of First Offer) assets, which we can always tailor—in terms of our consideration, in terms of OP units or cash, and third-party transactions—the public float of MGP will go up pretty profoundly over the next several years without MGM Resorts having to or wanting to do a secondary just for secondary’s sake. And so, I think that the objectives of the investors that would like to see a more public-floated MGP will be achieved through what I believe to be very substantial growth in that company, and growth that will be done with the balance sheet rigor that Andy and James have promised.”
Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
On whether recent sales are a sign Hyatt is looking to get out of real estate ownership to focus on an asset-light strategy:
“We’ve always been committed whether you’re looking at acquisitions that we made or corporate development historically … to organizing and structuring those investments so that we can actually sell those assets. And as I reflect back on the last few years … I'll give you a few examples. We have engaged in new development activity, where we bought a site or auctioned a site and got entitlements and then sold the whole project to a third-party developer in total, and therefore didn’t really deploy any capital. We’ve done that a couple of times with existing partners.
“We have both sourced new projects and also had new projects brought to us, wherein we ended up in a joint venture with a third-party developer, and in some cases we’ve actually gone and secured a site and built the hotel. One example was, we built a Hyatt Place in Omaha, which we then sold once we opened it.
“So … we recognize that from an activity-based perspective, maintaining any material construction activity on balance sheets is not particularly desirable because these projects are inheritably local development activities. In some cases … it’s been extremely useful to be in the market to be able to secure great locations for particular brand representation that we’re trying to drive, but in all cases, we are looking to increase the velocity of turning that capital over.
“So, I think, it’s consistent with how we’ve been behaving. I think what you’re seeing is an increased level of activity in engaging with third-party developers to make sure that we are keeping pace on offloading those kinds of commitments.”
Patrick Grismer, CFO, Hyatt Hotels Corporation
“… Just to clarify that when we talk about asset recycling, it is all-encompassing. So, it’s not simply traditional hotel acquisitions and dispositions, but it does take into account investments we’re making by way of corporate development, equally opportunities we’re seeking to bring in investors alongside us in those projects, equally liquidation of joint venture interest, as was the case with Playa, and equally investments we’re making as with Miraval. So we step back and look at our total asset position and our goal is to recycle our asset base, encompassing all of those different aspects of capital deployment and capital raising.”