Starwood Hotels & Resorts Worldwide Inc

China ranks third in foreign direct investments in the US.

For 3Q16, analysts are estimating Expedia’s (EXPE) revenue to rise 31.3%. That’s slightly lower than the growth in the first and second quarters.

Airlines seem to have the highest return potential among travel and tourism stocks. Delta Air Lines has the highest return potential of 30.8%.

Since the merger received final approval on September 20, 2016, Marriott stock (MAR) fell 2.2%, while Starwood (HOT) stock rose 2.2%.

Wyndham has the highest return potential of 21% with a target price of $81. Marriott is next with a return potential of 18% and a target price of $79.15.

According to Marriott’s (MAR) CEO, Arne Sorensen, Starwood’s (HOT) guest loyalty program was a “central, strategic rationale for the transaction.”

On April 29, 2015, Starwood put itself up for sale. On August 29, 2015, Anbang offered to buy it at a 20% all-cash premium deal on its last closing price.

The Marriott-Starwood merger received final approval from the Chinese regulatory authority. Both chains completed the deal on September 23, 2016.

John Malone and Lions Gate (LGF) already control 43% of the vote, so it would be almost impossible for a hostile buyer to get anywhere.

Microsoft paid a 50% premium to LinkedIn’s June 10 closing price. At 7.5x revenues and 75x EBITDA, Microsoft is paying a lot. LinkedIn is a unique property.

Just as the merger was announced, Starwood loyalty program members showed concerns over their rewards points and elite status.

The Marriott–Starwood deal holds immense significance for Marriott International because the combined entity of Marriott International and Starwood Hotels and Resorts Worldwide would create the world’s largest lodging company.

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.

In this series, we will discuss why Starwood (HOT) decided to put itself up for sale, how a merger with Starwood would benefit either Marriott or Anbang, and who could probably win this takeover tussle.

Hotels with relatively large exposure to Europe will face the brunt of the terror attack in Brussels. European hotel chain Accor Group has 20 hotels in Brussels.

On March 21, Starwood and Marriott amended their merger agreement to top Anbang’s offer. The amended merger spread is trading at an annualized return of 1.3%.

On March 14, Starwood Hotels & Resorts Worldwide (HOT) announced that it received an unsolicited takeover approach from a consortium of investors led by China’s Anbang Insurance Group.

In 3Q15, Wyndham (WYN) saw its adjusted EBITDA margin decrease to 24.2% from 27.1% in 3Q14.

The forward EV-to-EBITDA multiple for the hotel industry currently stands at 9. It has declined from 13.1, which was recorded at the beginning of 2015.

The strong dollar has created challenging headwinds for the hotel industry, and tourists may look for alternative tourist destinations. It also affects the length of the stay for international tourists and how they spend their money.

The Conference Board Consumer Confidence Index as of November 2015 was 90.4 compared to 102.6 in September 2015.

The hotel pipeline tells potential investors how development activity in the hotel sector looks. It also points to the future supply trends.

Occupancy rates, which measure hotel capacity utilization, saw unprecedented growth in 2015. November 2015 occupancy rates saw a year-over-year growth rate of 3.2%.

ADR, or average daily rate, measures the average room price paid in the market. Hotels saw unprecedented occupancy levels in 2015 driven by strong demand.

Hotel investors can use the indicators discussed in this series to gauge the industry’s general trends. Leisure travelers make up ~60% of the total hotel room sales, and business travelers account for 40% of total sales.

In fiscal 2014, Marriott had forward EV-to-EBITDA multiple of 15.3. It was trading at 11.2 as of January 1, 2016, which was the highest among peers.

Marriott has one of the lowest asset bases among its industry peers, having reduced its PPE-to-total-assets ratio from 24% in 2012 to 21.2% in 2014.

Marriott’s operating margin increased from 5.9% in 2010 to 8.4% in 2014. Its operating income grew from $695 million in 2010 to $1,159 million in 2014.

Marriott now focuses on capital-light segments like franchised properties. Its fee incomes rose from $1.2 billion to $1.7 billion between 2006–2014.

Cost reimbursements make up a major component of Marriott’s revenues and mostly consist of salaries paid to employees working in Marriott-managed hotels.

Marriott International saw strong increases in RevPAR—from $87 to $110—between 2010 and 2014.

Marriott’s acquisition of Starwood will likely help Marriott double its international portfolio while diversifying its global presence.

Marriott has been able to expand its international business by both acquiring and creating brands that enable it to enter new markets and market segments.

In 2015, Marriott topped the ACSI survey with a score of 80. It also topped the survey in 2014 and 2013, with scores of 83 and 81, respectively.

At the end of 2014, Marriott had around 2,882 franchised hotel properties, with 388,670 rooms under the franchise model.

Marriott has 20 brands under its management, including luxury, lifestyle, and signature brands. Only 39% of its hotels in North America are full-service.

Marriott operates hotels under not just under the management model but also under the franchise model and the owned and leased model.

Marriott International is known for its wide range of budget and luxury hotels. Its acquisition of Starwood will make it the world’s largest hotel chain.

Hyatt’s EV/EBITDA has moved in line with the median valuation multiple of its peers. Hyatt, with rare exceptions, has always traded at a discount to the median valuation multiple of its peers.

As of December 31, 2014, Hyatt’s cash, cash equivalents, and marketable securities as a percentage of total assets is one of the highest among its peers, at 10%.

Hyatt had the lowest return on assets (or ROA) ratio among its peers at 4.6% for fiscal 2014 due to lower profits generated from its assets.

Operating margins for Hyatt Hotel (H) increased from 1.4% in 2010 to 6.3% in 2014. The growth in margins was largely driven by steady growth in revenue and declining expenses from the owned and leased hotels segment.

Hyatt’s (H) improving operating metrics have resulted in a strong growth in revenue. The company’s total revenue has grown from $3,527 million in 2010 to $4,415 million in 2014.

As of January 31, 2015, Hyatt had 36.8 million Class A shares entitled to one vote and 111.4 million Class B shares entitled to ten votes.

Hyatt repurchased $445 million of its own stocks in 2014. The company bought back about 7.7 million shares, which accounted for 5.5% of the total outstanding shares, at an average price of $57.8.

Hyatt is adapting an asset-light model, in which the company sells its less profitable properties and focuses on expansion by using management and franchise models.

Hyatt (H) operates its hotels and other business segments under three models: franchise, management, and ownership models.

Hotels that offer accommodation with limited services and amenities are called select service hotels. Hyatt (H) operates about 37,500 rooms and two brands under this segment.

A global hospitality group, Hyatt (H) operates industry-leading brands such as Park Hyatt, Andaz, Hyatt, Grand Hyatt, and Hyatt Regency. As of December 31, 2014, the company operated 587 properties with more than 155,000 rooms.

In 2014, Wyndham spent $652 million to purchase 8.6 million shares at an average price of $75.8, which was the equivalent of 7.3% of market capitalization.

Wyndham’s operating margins declined from 18.6% in 2010 to 17.6% in 2014 due to growing marketing and reservation expenses.

Improved operating metrics have resulted in a steady growth in Wyndham Worldwide’s total revenues, with all three segments growing over the past five years.

Vacation unit sales rely on disposable income available to customers. The stable US economy and growing household incomes have positive impacts on Wyndham.

Wyndham develops and acquires properties in order to sell timeshare units. It also sells inventory acquired by loan defaults and individual owners.

Wyndham Worldwide’s Wyndham Vacation Ownership segment is its largest business segment, accounting for 49.9% of its total revenues in 2014.

Wyndham invests in technology to improve its e-commerce capabilities and marketing abilities and to help it differentiate itself from competitors.

We can measure Wyndham’s rental and exchange business by average number of members, revenue per member, rental transactions, and average net price.

Wyndham Worldwide’s Wyndham Exchange and Rental segment is its most geographically diversified business segment, with a presence in over 100 countries.

Wyndham’s ADR growth in 2010–2014 was driven by a lack of supply growth in the economy segment and by an increase in domestic travel.

In 2014, the US accounted for two-thirds of the rooms in Wyndham Worldwide’s total portfolio, followed by the Asia-Pacific at 16.5% and Europe at 8.2%.

Wyndham had the lowest occupancy rate among peers in fiscal 2014. Its larger presence in the economy and midscale segments accounts for the difference.

Wyndham Hotel Group provides services under a franchise model but also offers professional oversight and operations support under a management model.

Since 2010, Wyndham’s stock has outperformed all its peers, growing by over 270%. In that time, Marriot grew by ~176%, Starwood by 102%, and Hyatt by 67%.

Wyndham Worldwide is considered the world’s largest hotel franchiser. It owns the world’s largest vacation ownership and exchange network.

The peers of Vail Resorts (MTN) include Hilton Worldwide Holdings, Marriott International, Starwood Hotels & Resorts Worldwide, and Hyatt Hotels.

Vail Resorts (MTN) has a market cap of $4.6 billion. Its YTD (year-to-date) price movement has been rising quarter-over-quarter in calendar 2015.

If the Starwood-Marriott merger closes, the spread goes to zero, and you make about $5.35. If the deal breaks, you lose about $12.00.

In the Starwood-Marriott merger, the companies have placed a limit on divestitures of $700 million, based on 12x annual EBITDA for any hotels required to be divested.

With the Starwood-Marriott merger, the companies expect to generate at least $200 million in annual cost savings beginning in the second year after the deal closes.

Marriott International (MAR) is buying Starwood Hotels & Resorts (HOT) in a big deal in the lodging and hotel space. The equity value of the transaction is about $12.2 billion and $13.4 billion if you include debt.

On Monday, November 16, Marriott International (MAR) agreed to buy Starwood Hotels & Resorts (HOT) for a combination of cash and stock.

On November 16, stocks at the bottom of SPY were Urban Outfitters, Starwood Hotels & Resorts, and Electronic Arts, yielding -7.4%, -3.6%, and -2.7%, respectively.

Hyatt Hotels’ peers outperformed the company in 3Q15 based on PS. But Hyatt Hotels was way ahead of its peers and the ETFs that invest in it based on PE.

In 3Q15, Hyatt Hotels had a price movement of $7.1 billion. After its 3Q15 release, its stock fell by 1.31% to close at $49.76 per share on November 3.

L3 Communications Holdings (LLL), an aerospace and defense stock, is expected to beat market estimates for corporate earnings. Its stock rose on October 28, ahead of its quarterly earnings release.

Starwood Hotels & Resorts traded at $74.81 on Tuesday, October 27. It was well above its respective 50-day and 20-day moving averages.

To value capital-intensive companies like hotels, we use the EV/EBITDA multiple.

The US hotel industry is expected to show growth across all parameters for the rest of 2015 and 2016.

RevPAR (or Revenue Per Available Room) is a key performance metric used in the hotel industry that indicates the hotel’s performance and the demand scenario for the hotel’s rooms.

The average daily rate is calculated as hotel room revenue divided by the number of rooms sold.

Vail outperformed its peers based on the PE ratio and price-to-sales ratio. Vail outperformed its ETFs based on the price movement, PE ratio, and PBV ratio.

Vail has a market cap of $3.75 billion. Its YTD price movement is stable. After the earnings report in 4Q15, Vail fell to -2.56% and closed at $103.05 per share.

The US hotel industry was badly affected by the economic crisis. Sales plunged, commercial-property prices collapsed, rooms remained vacant, and a weaker dollar added to the industry’s woes.

In the second quarter of 2015, Marriott International’s net income grew by a strong 25% YoY to $240 million. Demand increased in both the US and Europe.

Hotel companies in the US are finding new ways to attract more customers. Marriott and its competitors now provide a larger variety of lodgings tailored to different categories of travelers.

Marriott International (MAR) has made some key acquisitions since 2009, including brands such as AC Hotels, Gaylord Hotels, and Protea Hospitality Group.

Marriott finds that share repurchases are a more flexible way to award its shareholders than paying out dividends. The company repurchased 24 million shares for $1.5 billion last year.

Hilton is poised to grow in its industry and could generate substantial shareholder value for its investors in the long term.

Hilton stock currently has a high PE (price to earnings) ratio of about 39 in comparison to its industry peers.

Hilton has been focused on reducing its high debt levels and pays about $200 million in debt every quarter.

Hilton (HLT) saw strong revenue growth in 2Q15, which was driven by strong occupancy rates and room rates.

Hilton reported its 2Q15 earnings on July 29. Hilton stock surged by about 3% on that day, as the company’s results exceeded analyst estimates.

Co-branding relationships are an important part of the American Express business model. The costs of renewing and extending these relationships is increasing.

As noted in Starwood Hotels and Resorts’ (HOT) 4Q14 earnings call, the hotel room supply currently isn’t enough to bring occupancies down.

In 2006, Starwood’s management embarked on an asset-light strategy. It decided to sell a significant portion of Starwood’s owned hotel portfolio.

On February 10, 2015, Starwood Hotels and Resorts announced plans to spin off its vacation ownership business into a separate publicly traded company.

For 2014, Starwood’s RevPAR was up 5.8%. It was within the guidance range set out last year. It was driven by strong performance in the North America region.

Fiscal year 2014 revenue was negatively impacted by a 4.4% decrease in revenue from the owned, leased, and consolidated joint venture hotels segment.

The revenue from owned, leased, and consolidated joint ventures is primarily derived from hotel operations. This includes room rentals and food and beverage sales.

Starwood Hotels and Resorts (HOT) was founded in 1980. It’s based in Stamford, Connecticut. It’s one of the largest hotel and leisure companies in the world.