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Is Hilton Worldwide Holdings More Than the Sum of Its Parts?

By Motley Fool Staff – Mar 7, 2016 at 9:19AM

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If the experiences of Marriott International are any indication, the answer might be an emphatic "yes."

Last week, Hilton Worldwide Holdings (HLT -0.90%) announced plans to split into three separate, publicly traded companies. In this segment of Consumer Goods: Industry Focus, Motley Fool analysts Vincent Shen and Sean O'Reilly talk about how Hilton's decision follows in the footsteps of Marriott International (MAR -2.24%) -- which is on track to overtake its rival as the largest hotel operator in the world.

A transcript follows the video.

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This podcast was recorded on March 1, 2016.

Vincent Shen: There's not as many details as I would like to share with our listeners right now. Basically, during the earnings call, everybody was asking questions about this, and they're answering as much as they can, but ultimately, they're saying, "Listen, we have filings coming in the second quarter where it's going to be much heavier in terms of the numbers, and allow you to do your analysis." 

But, just, to present this in a different way, in a proxy or precedent that we have, as you mentioned, is through Marriott actually. So, Marriott International is actually going to unseat Hilton soon as the No. 1 hotel operator in the world, once they finish their acquisition of Starwood Hotels & Resorts.

Sean O'Reilly: Not only that, I don't know if you came up with this in your research at all, but actually, Marriott's really expanding in Africa.

Shen: Oh, I didn't know that.

O'Reilly: They're really stepping it up. They had a deal last year to buy a bunch of properties from an African-based hotel chain, they're in South Africa. Anyways, sorry to interrupt.

Shen: No, that's fine. They're about to reign supreme. They announced the $12 billion acquisition of Starwood, not too long ago. I think it was in December.

O'Reilly: Yeah.

Shen: Interestingly, Marriott is kind of a test case for what Hilton is planning. Their timeline is very different, but ultimately, how they operate now is very similar to the structure that Hilton will have. Marriott spun off its real estate business in 1993, so, way back when. And then, that company eventually converted to a REIT in 1999; it's called Host Hotels & Resorts. Interestingly enough, actually, Chris Nassetta, who's the CEO of Hilton now, was the CEO of Host Hotels & Resorts.

O'Reilly: Ooh, they snagged him.

Shen: He was poached by Blackstone in 2007, after the private equity company had bought out Hilton.

O'Reilly: Did they give him a sack of money, like $50 million or something? (laughs) 

Shen: Probably something very attractive. But, I guess, it's just not all that surprising in this instance.

O'Reilly: Oh, yeah.

Shen: You have a guy here who's very familiar with this type of entity.

O'Reilly: Yeah. It's a small club running global hotel brands. But anyway.

Shen: So, going even further beyond that, Marriott also spun off its timeshare business into Marriott Vacations Worldwide (VAC -1.70%) in 2011. And if there's any indication of the potential there, Marriott Vacations Worldwide's stock has tripled since its creation, over the past four or five years, and the Hilton timeshare business, like you mentioned, it's only 12% of revenue, but it's been logging strong, strong growth.

O'Reilly: It's a way bigger chunk of their profits, as I recall.

Shen: Exactly. Much more substantial piece of the profits, and much better growth than the broader hotel business. And so, we expect way more details once the filings are in. But, it's definitely an interesting move. One of the last, probably, major tax-free REIT spinoffs that we're going to see, in the Hilton.

Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool recommends Marriott International. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Marriott International Stock Quote
Marriott International
MAR
$158.89 (-2.24%) $-3.64
Marriott Vacations Worldwide Stock Quote
Marriott Vacations Worldwide
VAC
$144.99 (-1.70%) $-2.51
Hilton Worldwide Holdings Stock Quote
Hilton Worldwide Holdings
HLT
$137.00 (-0.90%) $-1.25

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