Spin-offs in the Lodging Industry

Abstract

Many lodging companies now find themselves in a challenging position. They are finding it more difficult to attract capital as the industry's growth begins to stabilize due to the inherent cycles and the onset of supply growth. Companies seeking growth and access to public financing must confront questions regarding the best structure as the marketplace changes. Many hotel companies are hybrid enterprises, functioning as operating companies and heavy investors in real estate. The two sides of the business have different risk and potential growth profiles. Specialization achieved through spin-offs may lead to higher growth, better access to capital markets, and improvements in shareholder value. Other research has found a positive stock price reaction to the announcement of spin-offs for the overall market. This paper analyzes whether the financial market perceives spin-offs in the lodging industry as creating additional value. These results will assist lodging managers as they make decisions concerning the structure of the firm in an attempt to maximize value.