STAMFORD, Connecticut—“It has been anything but business as usual in 2015,” Starwood Hotels & Resorts Worldwide CEO Thomas Mangas said as he described the company’s journey during the past year.
Starwood began 2015 with its global leadership shaping a new strategy to determine where the company should compete in the world and how it can succeed, Mangas said. The executives found Starwood could streamline its operations and improve efficiency. A cost savings plan announced in April exceeded its goals—reaching $25 million in SG&A savings in 2015—and delivered $70 million in savings for deployment in Starwood’s system funds.
The company also invested in innovation and growth, Mangas said, and launched a range of brand initiatives, such as its Tribute Collection and Sheraton 2020, which made it more competitive and delivered results. The year closed with 220 signings of new hotel management and franchise agreements, which Mangas said was a 26% increase over 2014.
“With the backdrop of the strategic review process that led to the announcement of Starwood's acquisition by Marriott that has been in the headlines, I'm proud to say that during 2015 our associates around the world rallied together to not only rethink how we run our business, but to deliver accelerated growth in the year,” Mangas said.
The merger ahead
Starwood leaders are excited about the proposed merger with Marriott International, Mangas said, and the two companies are making good progress toward a mid-2016 close of the deal. Shareholders of both companies will hold a vote 28 March. Based on the 20-page background on the merger section of the proxy statements, he said, Starwood officials conducted an extensive process exploring potential combinations with a range of partners before reaching an agreement with Marriott.
When asked why Starwood was still providing guidance with the pending merger, Mangas said Starwood is still an independent company that’s competing in the marketplace with the chance an outside party could still offer a bid.
“So we thought more transparency, maintaining the same level of transparency that we've been giving is important,” Mangas said. “I think it helps also the investment community and our shareholders understand what's going on in the marketplace, despite a lot of noise out there. So really for those two reasons we've continued to give guidance, and we'll do so as long as we're an independent company.”
In response to another question regarding the company’s decreased stock price and interest from other bidders, Mangas said Starwood executives talked with nearly everyone. If there were an alternative deal out there, a suitor would most likely go public with it. If there were something active that Starwood hadn’t disclosed yet, he said he wouldn’t be able to speak about it.
“I think that the financing markets have been tight for people who might be looking for access, make a cash bid,” he said. “But I think that the currency of other strategic players in the market have all seen similar stock price declines, in fact worse stock price declines than Marriott/Starwood together. So I think the economic condition’s really not right for, I would imagine, a competitive bid.”
Starwood continued to return cash to stockholders in the fourth quarter, said Alan Schnaid, CFO for Starwood. Dividends came to approximately $63 million during the quarter, he said, and share purchases amounted to about $43 million. However, as a result of the planned merger with Marriott that was announced in November, he said, the company has been precluded from buying back stock in the open market.
The strategy reviewed
The company is executing its strategic plan because of the announced merger with Marriott, not in spite of it, Mangas said. It’s the plan that Marriott is buying, he said, and the plan that will drive the most value to stockholders.
“Our strategy and the interventions we're taking during 2015 address the things we can tackle on our own, but what led us to this deal are the strategic benefits of scale and efficiency of the combined company that go beyond what Starwood can easily address in the near term as a standalone company,” he said.
As part of the company’s strategic review, Mangas said, officials looked at the travel behavior of its Starwood Preferred Guest members. They found SPG members on aggregate spend 34% of their travel dollars on hotel stays in the upscale and upper-midscale select-serve segments, and Starwood has only been capturing 7% of that spend, he said. While the growth of Aloft and its revenue-per-available-room performance have been strong in the past few years, Mangas said, the company still has a long way to go to capture a meaningful share of SPG members’ upscale travel spend.
Select service will continue its growth outside North America, Mangas said, and while Starwood’s brands will continue to have strength in full-service luxury and upper-upscale segments, the need for scaled select-service offerings continues to grow.
“The combination with Marriott clearly addresses this strategic need,” he said. “In addition, Starwood's full range of distinct lifestyle brands and our significant international presence provide Marriott with a complementary offering to its core brands in the hospitality space.”
Starwood owns 24 of its properties worldwide, Mangas said, but five of those are part of the spinoff of Vistana. Many of the remaining properties are in Latin America, where the economic environment would make it difficult to sell those, he said. The company also will continue to market its properties in North America as well as those in Europe, and Starwood has a complex operation in Fiji and Asia, Mangas said.
“So we're not holding anything back, and we've been running processes on the big value-driving assets there, and that's what gives us confidence that we can get the extra $800 million of incremental sales beyond the $200 million of spinout with Vistana to get to $1 billion goal,” he said.
- Read also: “Marriott readies for Starwood after solid 2015”
According to the numbers
Starwood’s worldwide system-wide revenue per available room for same-store hotels increased 2.8% in constant dollars in the fourth quarter, according to the company’s fourth-quarter news release. Similarly, Starwood saw its North American system-wide RevPAR increase 4.7% in the same time period.
Full-year worldwide RevPAR increased 4.1% in constant dollars compared to 2014, according to the release. North American system-wide RevPAR grew 5.4% year over year.
Adjusted earnings before interest, taxes, depreciation and amortization for 2015 came to $1.2 billion.
As of press time, Starwood’s stock price was down 6.2% year to date. The Baird/STR Hotel Stock Index was down 6.8% during the same time period.