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.
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.
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.
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.
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.
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.
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.
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.
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 has been able to expand its international business by both acquiring and creating brands that enable it to enter new markets and market segments.
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 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%.
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.
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.
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.
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 Worldwide’s Wyndham Exchange and Rental segment is its most geographically diversified business segment, with a presence in over 100 countries.
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.
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%.
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 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.
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.
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.
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.
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.
Co-branding relationships are an important part of the American Express business model. The costs of renewing and extending these relationships is increasing.
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.
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.
Marriott added 70 new properties with 14,605 rooms to its worldwide lodging portfolio in 4Q14. Marriott’s 4,175 properties encompass nearly 715,000 rooms.
In December 2014, Adobe announced that it had been recognized by Gartner as a leader in the 2014 “Magic Quadrant for Digital Marketing Hubs” research report.
Highfields Capital Management LP is based in Boston. The fund was founded by Jonathon Jacobson in 1998. The fund’s US long portfolio declined slightly to $12.8 billion in the third quarter.
