In tandem with posting better-than-expected overall results for the first quarter, Starwood Hotels & Resorts announced plans to explore strategic and financial alternatives to increase shareholder value. According to Bruce W. Duncan, chairman of the board, no option is off the table. While executives declined to elaborate further, the move indicates a willingness to sell the company. However, the review could also result in a sale of real estate or acquisition of another company or other brands.
During an earnings call yesterday, Duncan said Starwood is in a strong position, but the company has an opportunity to move the needle even further. “The capital markets are good, consolidation is interesting to look at, and we’re going to pursue all alternatives,” Duncan said. “We think that’s the right thing to do in looking at how we can maximize the value for our shareholders.”
For the first quarter 2015, adjusted earnings before interest, taxes, depreciation, and amortization was $274 million and earnings per share before special items was $0.65, both of which were above the high-end of Starwood’s expectations. Worldwide, systemwide revenue per available room for same-store hotels was up 5.2 percent in constant dollars. The company signed 33 hotel management and franchise contracts, representing approximately 6,000 rooms, and opened 20 hotels and resorts with approximately 3,200 rooms.
When Starwood President and CEO Frits van Paaschen resigned in February and Adam Aron was named CEO on an interim basis, Starwood promised to take aggressive steps to accelerate growth. The company made its first big move with the launch of its 10th brand, Tribute Portfolio, on April 16. The new brand allows Starwood to address the four-star upper upscale independent hotel market. According to Aron, this is only one of several key initiatives Starwood will introduce in the near term as it looks to expand its footprint.
Another key strategy to speed up growth is ensuring all of Starwood’s brands are distinct, sharp, and at the top of consumers’ minds through focused and effective marketing and sales efforts, Aron said. That focus will begin with a comprehensive new marketing effort and reinvigoration of Sheraton, which represents more than 40 percent of Starwood’s global room footprint. There also will be heightened marketing and sales activity surrounding the Luxury Collection, Westin, W, and Aloft brands, he said.
Aron admitted Starwood was late coming to the select-service segment, with fewer than 200 in North America and only 300 globally. But the company is on track to open more select-service hotels in 2015 than any year since 2009, Aron said, and is dedicating resources to grow this footprint. “We have a significant appetite to use our balance sheet to accelerate growth, and we’re already doing it right now,” Aron said. “We are in active dialogue with one owner and one developer after another. If there is an opportunity to get to package with some owner developers in multiple hotel assets in select-serve, that’s of appeal to us.”
The company also remains laser-focused on asset sale disposition, with a target goal of $3 billion in cumulative asset sales by the end of 2016, $800 million of which it aims to achieve in 2015. This is on top of the $200 to $250 million in hotel asset value included in the Starwood Vacation Ownership spin-off, which it expects to complete by year-end. Aron said the company is removing internal roadblocks and bottlenecks that threaten to slow down the decision-making process.
“Sometimes opportunities for Starwood involve growth, and sometimes opportunities for Starwood mean capitalizing on hot transaction markets and disposing of hotel assets, all the while retaining long-term management franchise agreements on an expeditious timeframe,” Aron said.
Part of the delay in getting asset sales out the door in 2014 was an attempted bundled sale process in the first half of the year that didn’t pan out, said Tom Mangas, EVP and CFO. “We are expecting to have a more evenly balanced distribution of asset sales based on what we see in the pipeline for disposals in 2015 than what you saw last year,” Mangas said.
Aron dismissed the possibility that the strategic review might impact unit growth. “We have some very strong brands and no matter how the future of this company unfolds, our brands will endure. Our brands will be potent. Our brands can only be stronger than they are today, and those are the messages we’ll be carrying out to the hotel ownership and development community.”
