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Starwood in spotlight
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October 21, 1997: 9:00 p.m. ET
With successful ITT purchase, Starwood Lodging steps onto center stage
From Correspondent Katharine Barrett
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NEW YORK (CNNfn) - Until stepping forward earlier this week as the friendly purchaser of ITT Corp., Starwood Lodging was a stranger to the financial headlines. However, in three short years, Starwood has become the largest real estate investment trust company in the U.S., and now, with more than 800 hotels valued at over $20 billion, the company is poised to become the largest lodging company in the world.
Three years ago, Starwood was as far as it could get from going head-to-head against Hilton Hotels Corp. in the upscale end of the hotel industry. It was a nearly bankrupt clutch of only 24 hotels, worth about $200 million.
According to Arthur Adler, lodging and gaming consultant for Coopers & Lybrand, Starwood owes its meteoric expansion to its 30-something chairman, Barry Sternlicht. Sternlicht is "the visionary, and really the financial mastermind behind Starwood," explains Adler. "He's the one who conceived of acquiring this paired-share real-estate-investment structure."
Starwood's paired-share structure is unique. One arm of the trust owns the brick and mortar of the hotel buildings themselves, and pays no corporate taxes. The taxable hotel operations are traded as a parallel stock.
Returns on the paired stock have been stellar, with earnings growing 30 percent a year. Four years ago, Starwood (HOT) traded at under 5, but now trades near 60. At the close of trading on the New York Stock Exchange Tuesday, shares had risen 1-9/16 to 59-3/16.
Under Sternlicht, Starwood has used these returns to expand through an aggressive campaign of trading properties and purchasing rival chains outright. In September, the corporation paid $1.8 billion for the fifteen-unit Westin hotel chain, ranked first among upscale hotels by both Frequent Flyer magazine and J.D. Power and Associates. A month previously, Starwood bought out Flatley Hotels for another half billion dollars.
Now, with Hilton's ambitions on ITT's Sheraton and Caesar's brands thwarted by Starwood's $10 billion offer, some are comparing the upstart hotel giant to Worldcom and its bold offer for MCI. And while a prize on the order of ITT will take some time to consolidate, industry observers claim that Sternlicht might be looking for more.
"I know they have their sights set on other domestic assets," says Steven Hash, real estate investment trust analyst for Lehman Brothers. "And they have their sights set abroad. There are a lot of hotels in this world and I know they're looking at a lot of them."
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