Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT)
("Starwood") today announced a definitive agreement under which
Host Marriott Corporation (NYSE: HMT) ("Host") will acquire 38
properties from Starwood -- including hotels under the Sheraton, W,
Westin, St. Regis and Luxury Collection brands -- in a
stock-and-cash transaction valued at approximately $4.1 billion,
including debt assumption. As part of the agreement, Starwood will
generally continue to manage the properties under their current
flags for up to 40 years. The boards of directors of both companies
have approved the proposed transaction. THE PORTFOLIO: Host is
acquiring 38 hotels, including 20 Sheratons, 13 Westins, one St.
Regis, two W's, one Luxury Collection and one non-branded hotel.
The portfolio includes 28 hotels in North America, six hotels in
Europe and two each in Asia and Latin America. Total rooms in the
portfolio are 18,964. Total EBITDA pre-management fees for total
year 2005 for the portfolio are expected to be approximately $376
million, and $315 million post-management fees. Therefore, Host
will be acquiring approximately $315 million in EBITDA. 54% of the
post fee EBITDA in the portfolio is derived from Sheraton, 35% from
Westin with the remainder coming from the other brands. 81% of post
fee EBITDA is from North American hotels. A list of properties is
provided below. CONSIDERATION: Host will be paying $4,096 million
in cash and stock based on Host's closing stock price on Friday,
November 11th of $17.44. $2,329 million or 57% will be in the form
of 133.5 million shares of Host stock which will be distributed
directly to Starwood holders of record at closing. $1,767 million
will be in the form of cash and assumed debt including $104 million
in property specific debt and, subject to bondholder consent,
approximately $600 million in Sheraton Holding Corp. debt. The
remaining $1,063 million will be paid in cash to both Starwood and
its shareholders. Under the terms of the sale, a subsidiary of Host
will be acquiring, among other assets, all the stock of Starwood's
real estate investment trust in a transaction that will be taxable
to shareholders. In this transaction, Starwood's shareholders will
receive $11.18 in value for each share of class B stock they own
(based on Host's Friday closing price). This consideration will be
in the form of 0.6122 shares of Host stock and 50.3 cents in cash
for each Class B share. As a result $2,451 million in cash and
stock proceeds from the transaction, or 60% of total proceeds, will
flow directly to Starwood shareholders. Starwood will receive $941
million in cash and transfer $704 million in debt to Host. The
$11.18 of value that the Class B shareholders will receive on a per
share basis will represent taxable proceeds on the exchange of
their Class B shares and will be offset by the shareholder's cost
basis in the Class B shares producing a net capital gain or loss on
the transaction. Starwood will provide information to the
shareholders that will assist them in the determination of the
amount of the tax basis in their paired shares that is attributable
to their Class B shares. CONTRACT: The hotels sold will generally
be encumbered by license and management agreements with a 20 year
initial term and two 10 year extension options exercisable at
Starwood's discretion. The license agreement defines Starwood's
rights and obligations as a brand owner and pays a license fee of
5% of Gross Room Revenue and 2% of Food and Beverage revenue. The
management agreement defines Starwood's rights and obligations as a
manager and pays 1% of Gross Operating Revenue and Incentive fee
which is a share of profits in excess of a return on the owner's
investment. This unique structure provides enhanced influence to
ensure continued brand innovation, quality and consistent and
differentiated guest service experience. Under the agreements to be
entered into with Host total fees for the portfolio in 2005 would
have been $61 million. Starwood and Host are committed to working
together to add maximum value to this portfolio and find additional
opportunities to leverage their mutual strengths going forward.
OTHER TERMS: Starwood expects minimal corporate income tax expense
from the transaction. There will be the usual transaction costs
including transfer taxes, consent costs, banking and legal fees.
PROFORMA IMPACT: The effect of the acquisition on Starwood's 2006
results will depend on a number of factors including but not
limited to the timing of the transaction. The closing is not
expected to occur until near the end of the first quarter of 2006.
Further, the closing of some or all of the properties may not
occur, or could be deferred until a later time, depending on
various circumstances. However, for purposes of estimating a
full-year impact to Starwood's results, a January 1, 2006 closing
date for all of the properties in the portfolio was assumed.
Further, assuming the REVPAR and other operating parameters
underlying the guidance included in the company's Third Quarter
Earnings Press Release are unchanged and assuming (i) no other
asset sales (including those previously announced), (ii) the
amortization of the gain on the sale of the Host portfolio, and
(iii) a tax rate of 35%, we expect post transaction 2006 EBITDA to
be approximately $1.250 billion and post transaction EPS to be
$2.14 (based on 226.5 million shares outstanding on a fully-diluted
basis). Steven J. Heyer, Starwood Chief Executive Officer, said:
"This transaction puts a strategic stake in the ground,
accelerating Starwood's transformation from a real estate company
with some hotel brands to a consumer lifestyle company with a
branded hotel portfolio at its core. This well timed sale commits
Starwood to an 'asset right' strategy, shifting our revenue and
profit mix to place greater emphasis on successfully developing and
leveraging our renowned brands. As a result, Starwood will be
increasingly focused on driving top line growth and profitability
through marketing, branding, development and, above all, providing
superior experiences to our guests. At the same time, we will
benefit from having Host, an extremely high-quality company with a
solid leadership team, as our long-term partner." Mr. Heyer
continued: "This transaction enables us to orient the Company
toward fee-based revenues and profits, while gaining additional
resources to increase investment in our hotel brands, Starwood
Vacation Ownership properties, new category-killer initiatives,
such as aloft in the select serve market and developing a 'by
Westin'extended stay product, as well as international growth. In
addition, it provides increased opportunity to use our hotel
network as a powerful distribution channel for related products and
services, such as Bliss and the Heavenly Bed. The sale will
increase Starwood's growth rates and return on capital, diminish
the impact of cyclical fluctuations in the real estate market on
our business, reduce overhead costs and strengthen our balance
sheet to fund further expansion and allow us to return value to our
shareholders." Following the close of this transaction and other
transactions previously signed or closed, Starwood will continue to
own 93 properties with 28,432 rooms that produce more than $500
million in annualized EBITDA. Mr. Heyer said: "Even after this
significant transaction, Starwood will remain, and intends to
remain, one of the largest owners of hotel and vacation properties.
This remaining portfolio will include properties that serve to
facilitate innovation speed and proof of concept for our system,
support our vacation ownership business and provide significant
upside potential through re-branding or redevelopment. We will seek
new opportunities to maximize our return on invested capital
through continued effective management of our assets and the
continued purchase and churn of hotel real estate as opportunities
emerge." The transaction is subject to the approval of Host
Marriott shareholders and to customary closing conditions,
including necessary regulatory approvals. The transaction is
expected to be completed in the first quarter of 2006. Bear,
Stearns & Co. Inc. and Deutsche Bank AG. acted as financial
advisors and Sidley Austin Brown and Wood LLP served as lead legal
counsel to Starwood. Goldman Sachs served as financial advisor and
Latham & Watkins and Hogan & Hartson LLP served as legal
counsel to Host Marriott. -0- *T Properties North America
----------------------------------------------------------------------
Sheraton Location # of Rooms
----------------------------------------------------------------------
Sheraton San Diego Hotel & Marina San Diego, CA 1,044
----------------------------------------------------------------------
Sheraton Boston Hotel Boston, MA 1,216
----------------------------------------------------------------------
Sheraton New York Hotel & Towers New York, NY 1,746
----------------------------------------------------------------------
Sheraton Hotel Parsippany Parsippany, NJ 370
----------------------------------------------------------------------
Sheraton Indianapolis Indianapolis, IN 560
----------------------------------------------------------------------
Sheraton Needham Hotel Needham, MA 247
----------------------------------------------------------------------
Sheraton Centre Toronto Hotel Toronto, Ontario 1,377
----------------------------------------------------------------------
Le Centre Sheraton Hotel Montreal, Quebec 825
----------------------------------------------------------------------
Sheraton Stamford Hotel Stamford, CT 448
----------------------------------------------------------------------
Sheraton Hamilton Hotel Hamilton, Ontario 301
----------------------------------------------------------------------
Sheraton Providence Airport Hotel Providence, RI 206
----------------------------------------------------------------------
Sheraton Suites Tampa Airport Tampa, FL 259
----------------------------------------------------------------------
Sheraton Hotel Braintree Braintree, MA 374
----------------------------------------------------------------------
Sheraton Milwaukee Brookfield Hotel Brookfield, WI 389
----------------------------------------------------------------------
Sheraton Tucson Hotel & Suites Tucson, AZ 216
----------------------------------------------------------------------
Westin Location # of Rooms
----------------------------------------------------------------------
Westin Grand, D.C. Washington D.C. 263
----------------------------------------------------------------------
Westin Indianapolis Indianapolis, IN 573
----------------------------------------------------------------------
Westin Seattle Seattle, WA 891
----------------------------------------------------------------------
Westin Waltham Boston Boston, MA 346
----------------------------------------------------------------------
Westin Mission Hills Resort Rancho Mirage, CA 512
----------------------------------------------------------------------
Westin Tabor Center Denver, CO 430
----------------------------------------------------------------------
Westin Cincinnati Cincinnati, OH 456
----------------------------------------------------------------------
Westin Los Angeles Airport Los Angeles, CA 740
----------------------------------------------------------------------
Westin South Coast Plaza Costa Mesa, CA 390
----------------------------------------------------------------------
W Location # of Rooms
----------------------------------------------------------------------
W New York New York, NY 688
----------------------------------------------------------------------
W Seattle Seattle, WA 426
----------------------------------------------------------------------
St. Regis Location # of Rooms
----------------------------------------------------------------------
St. Regis Houston Houston, TX 232
----------------------------------------------------------------------
Other Location # of Rooms
----------------------------------------------------------------------
Capitol Hill Suites Washington D.C. 152
----------------------------------------------------------------------
International
----------------------------------------------------------------------
Sheraton Location # of Rooms
----------------------------------------------------------------------
Sheraton Skyline Hotel & CC London, U.K. 350
----------------------------------------------------------------------
Sheraton Warsaw Hotel & Towers Warsaw, Poland 350
----------------------------------------------------------------------
Sheraton Roma Hotel & CC Rome, Italy 634
----------------------------------------------------------------------
Sheraton Santiago Hotel & CC Santiago, Chile 379
----------------------------------------------------------------------
Sheraton Fiji Resort Nadi, Fiji 281
----------------------------------------------------------------------
Westin Royal Denarau Resort ('06) Nadi, Fiji 273
----------------------------------------------------------------------
Westin Location # of Rooms
----------------------------------------------------------------------
Westin Palace Madrid Madrid, Spain 468
----------------------------------------------------------------------
Westin Palace Milan Milan, Italy 228
----------------------------------------------------------------------
Westin Europa & Regina Venice, Italy 185
----------------------------------------------------------------------
Luxury Collection Location # of Rooms
----------------------------------------------------------------------
San Cristobal Tower Santiago, Chile 139
----------------------------------------------------------------------
*T Non-GAAP Financial Measures EBITDA represents net income before
interest expense, taxes, depreciation and amortization. The Company
believes that EBITDA is a useful measure of the Company's operating
performance due to the significance of the Company's long-lived
assets and level of indebtedness. EBITDA is a commonly used measure
of performance in its industry which, when considered with GAAP
measures, the Company believes gives a more complete understanding
of the Company's ability to service debt, fund capital
expenditures, pay income taxes and pay cash distributions. It also
facilitates comparisons between the Company and its competitors.
-0- *T Starwood Hotels & Resorts Non-GAAP to GAAP
Reconciliations - Future Performance In millions $ Year Ended
December 31, 2006 ---- Net Income 484 Interest expense 180 Income
tax expense 261 Depreciation and amortization 325 --------------
EBITDA 1,250 Loss on asset dispositions and impairments, net -
Discontinued operations - -------------- Adjusted EBITDA 1,250 Sold
Assets: Revenues 1,371 Expenses 946 Management Fee 65 Amortization
of Gain on Sale 50 *T Starwood Conference Call/Webcast Starwood
management will host a conference call and webcast for the
investment community on Monday, November 14, 2005 at noon (eastern)
to discuss the agreement announced today. To participate in the
conference call, please dial 877-502-9274 fifteen minutes prior to
the start of the call. A playback of the conference call will be
available following the call. To access the playback, please dial
888-203-1112. A live webcast of the conference call will also be
available online at starwood.com. About Starwood Hotels &
Resorts Worldwide, Inc. Starwood Hotels & Resorts Worldwide,
Inc. is one of the leading hotel and leisure companies in the world
with approximately 750 properties in more than 80 countries and
120,000 employees at its owned and managed properties. With
internationally renowned brands, Starwood(R) corporation is a fully
integrated owner, operator and franchiser of hotels and resorts
including: St. Regis(R), The Luxury Collection (R), Sheraton(R),
Westin(R), Four Points(R) by Sheraton, and W(R), Hotels and Resorts
as well as Starwood Vacation Ownership, Inc., one of the premier
developers and operators of high quality vacation interval
ownership resorts. For more information, please visit
www.starwoodhotels.com About Host Marriott Corporation Host
Marriott is a Fortune 500 lodging real estate company that owns or
holds controlling interests in upscale and luxury hotel properties
primarily operated under premium brands, such as Marriott(R),
Ritz-Carlton(R), Hyatt(R), Four Seasons(R), Fairmont(R), Hilton(R)
and Westin(R). For further information, please visit the Company's
website at www.hostmarriott.com. (Note: This press release contains
forward-looking statements within the meaning of federal securities
regulations. Forward-looking statements are not guarantees of
future performance or events and involve risks and uncertainties
and other factors that may cause actual results or events to differ
materially from those anticipated at the time the forward-looking
statements are made. These risks and uncertainties include the risk
that the transaction itself will not be consummated (in whole or in
part), that the timing of the closing of the transaction (in whole
or in part) will differ from current expectations, that the
anticipated benefits of the transaction will actually be realized
as well as other risks and uncertainties presented in detail in our
filings with the Securities and Exchange Commission. Although we
believe the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, we can give no
assurance that our expectations will be attained or that results
and events will not materially differ. We undertake no obligation
to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise).
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