Tickers in this Article: MAR, H, HOT, WYN, VAC, IHG
Marriott Vacations Worldwide's (NYSE:VAC) first day of trading as an independent company came and went on Nov. 22, 2011. Existing shareholders of Marriott International (NYSE:MAR) received one share of its vacation ownership business for every 10 shares held in the parent. In its press release, J.W. Marriott, Jr., Chairman and CEO, declared, "... More than ever, we are focused on an 'asset light' strategy, with 99% of our properties operated under long-term management or franchise agreements. We expect to continue to grow our system around the world with the leading brands in the industry." Similar to what Four Seasons Hotels did a decade earlier, Marriott is focusing exclusively on managing hotel properties, not owning them. That's a good thing for investors.

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Shareholders
If you're an existing Marriott International shareholder, the question you're probably asking yourself is whether you should keep your shares in Marriott Vacations Worldwide. Without hesitation, the answer is yes. Evidence suggests spinoffs outperform the market in the first 18 months as an independent company. There are many reasons for this happening, but the most logical is that it allows the spinoff to focus specifically on what's best for its business and not the larger enterprise as a whole. Remarkably, the two often aren't the same.

I've just explained why shareholders should keep their new shares. But, what about your existing Marriott International shares? What does the separation do for them? In many respects it provides the exact same thing: Focus. While the vacation business has more to do with selling interval ownership at resort properties around the world, the hotel business is all about providing guests with the best possible lodging experience. Freed of the responsibilities that come with real estate ownership, Marriott International is able to make business decisions based solely on what's best for the hotel-paying customer, and less about maximizing sales on its resort real estate. Managing hotels is a completely different kettle of fish to owning them. The separation removes any ambiguities that might exist between the two. (To know more about spinoffs, read: Parents And Spinoffs: When To Buy And When To Sell.)

Growth Opportunities
Marriott International operates both full-service and limited service hotels. As of the second quarter, it had 100,000 rooms in its development pipeline. On the full-service side, 48% of the 38,000 rooms planned are in Asia-Pacific. Like many global businesses, emerging markets are a big part of its expansion plans. Additionally, it looks to grow market share in mature markets outside North America. As far as limited service is concerned, it plans to open 62,000 new rooms in the coming months and years with 82% of them in North America. It will achieve this growth by converting under performing full-service properties as well as increasing its limited-service franchising model.

Billionaire Sam Zell and Hilton Hotels, announced on Nov. 18, 2011 that it had acquired the Elysian Hotel in Chicago, and will convert it into a Waldorf Astoria. By attaching the famous name to what some call the finest hotel in the United States, Zell believes it can start making money. Marriott is doing something similar by creating the Autograph Collection, a group of independent luxury hotels that benefit from its huge customer base. With 20 hotels strong at the present, it's not dissimilar to Relais and Châteaux or Leading Hotels of the World with the added bonus of the Marriott network. For its part, Marriott receives franchisee fees from participating hotels.

An even more promising endeavor is its joint venture with AC Hotels in Spain, Italy and Portugal. At present, there are 88 hotels under the AC by Marriott brand with plenty of growth available in Europe and Latin America. The joint venture moves Marriott into fifth position in Europe in terms of market share. The deal was announced in January of this year. Look for big things from this particular venture. (For additional reading, check out: Find Quality Investments With ROIC.)

Marriott International and Peers
Company
Marriott International
11.7%
Hyatt Hotels (NYSE:H)
1.0%
Starwood Hotels & Resorts (NYSE:HOT)
9.0%
Wyndham Worldwide (NYSE:WYN)
7.8%
Intercontinental Hotels (NYSE:IHG)
17.5%
The Bottom Line
As J.W. Marriott mentioned in its press release announcing the spinoff of Marriott Vacations Worldwide, the remaining company will be able to focus on its management and franchise business, create a timeshare franchise fee stream of $50 million annually and ultimately a higher return on invested capital. The best part about the "new" Marriott is its stock is priced to move.
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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.


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