February 10, 2015 / 1:10 PM / 5 years ago

UPDATE 2-Starwood profit jumps; says to spin off timeshare business

(Adds profit forecast, background, analyst quote; updates shares)

By Ankit Ajmera

Feb 10 (Reuters) - Starwood Hotels & Resorts Worldwide Inc reported a better-than-expected rise in quarterly profit and said it would spin off its timeshare business as it looks to focus on operating properties instead of owning them.

Shares of the owner of the St. Regis and Sheraton brands of hotels rose as much as 8.7 percent to $77.46 as Starwood’s results and spin off plans overshadowed a lower-than-expected full-year profit forecast.

The spin-off of the timeshare business, which accounted for 11 percent of Starwood's revenue in 2014, into a publicly traded company comes nearly four years after Marriott International Inc spun off its timeshare business. (bit.ly/1zGuBFw)

Starwood’s plan is the latest move in the company’s “asset-light” strategy, under which it has sold properties worth about $1.5 billion over the past two years.

“Not only does SVO (Starwood Vacation Ownership) continue to have a great outlook for growth, but valuations for timeshare companies are at attractive levels,” Chief Executive Frits van Paasschen said in a statement.

After flat to declining revenue growth for four straight quarters, revenue in the timeshare business increased 15.2 percent in the fourth quarter ended Dec. 31. It generated revenue of $640 million last year.

Starwood said Matthew Avril, who retired as president of Starwood’s hotel group in 2012, will return to head the spun-off company. The spin off is expected to be completed by the end of the year.

Starwood’s net income rose 83 percent to $234 million in the fourth quarter.

Excluding items, profit rose to 97 cents per share from 73 cents and handsomely beat analysts average estimate of 76 cents, according to Thomson Reuters I/B/E/S.

Revenue fell a steeper-than-expected 1 percent to $1.49 billion. However, worldwide comparable systemwide revenue per available room (RevPAR) rose 4.4 percent in constant dollar terms.

RevPAR, a metric of hotel health, is calculated by multiplying a hotel’s average daily room rate by its occupancy rate.

Starwood blamed a strong dollar for its lower-than-expected full-year profit forecast of $2.87-$2.97 per share.

“We believe Starwood has set the 2015 expectation low, enabling a beat and raise story to persist throughout the year,” analyst Ryan Meliker of MLV & Co said.

Citigroup and Credit Suisse are Starwood’s financial advisers for the spin-off.

Through Monday, Starwood’s stock had fallen about 6 percent this year, compared with a roughly 12 percent fall in the Dow Jones U.S. Hotels Index. (Writing by Sweta Singh; Editing by Savio D’Souza)

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