Why Did Starwood Sell Itself?

The last two years have been marked by turmoil for Starwood Hotels (HOT). Starwood’s properties include brands like the Sheraton, Westin, St. Regis, and W hotels.

It started in 2014 as a way to handle investors’ fears regarding capital allocation. In 2013, Starwood returned only $190 million to its shareholders through dividends. Although it significantly upped this to $2.4 billion in 2014, it was by then under the microscope for its slow growth.

At a time when competitors Marriott (MAR), Hilton (HLT), and Hyatt (H) were beating analyst expectations and raising guidance, Starwood’s growth has lagged not only industry growth but also investors’ expectations.

Starwood managed to add only 7,400 rooms in 2014 and 15,700 rooms in 2015. Its occupancy rate was the lowest among the top four players, and its revenue per available room (or RevPar) was the third from the bottom.

Some analysts believe the reason for this could be the last two CEOs’ inexperience in the hotel business.

One of the biggest strategies of HOT’s former CEO, Frits van Paasschen, was the push to the asset light model. Under this model, the company aimed to dispose of $3 billion in assets by the end of 2016. However, by the end of 2014, they had just managed to sell $817 million in assets.

According to Chad Beynon, a lodging analyst at Macquarie Securities Group, this failure to sell assets to other hotel chains was one of the major reasons for Starwood’s decision to sell off its business.

Investors can gain exposure to the hotel sector by investing in the iShares Russell 1000 Growth ETF (IWF), which invests approximately 3% in the hotel sector. This ETF invests 0.14% in Marriott International (MAR), 0.09% in Wyndham, and 0.12% in both Hilton Worldwide Holdings (HLT) and Starwood Hotels (HOT).