Starwood operates hotels and resorts around the world. The company derives revenue primarily from hotel operation management fees, franchise fees, and the operation of company-owned hotels.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On July 6, 1995, the Trust and the Corporation (collectively, the "Companies") completed a public offering of 11,787,500 paired shares. Net proceeds from the Offering of approximately $252.1 million together with proceeds from a new financing facility and cash on hand were used as follows: approximately $206.5 million was used to repay existing indebtedness, including $10 million which was used by the Trust to purchase the first trust deed on the Corporation's Milwaukee hotel, and approximately $53.8 million was used for the acquisition of the 462-room Sheraton Colony Square in Atlanta, Georgia and the 224-room Embassy Suites in Tempe, Arizona.
On April 12, 1996, the Trust and the Corporation completed a public offering of 2,000,000 paired shares (the "1996 Offering"). Net proceeds from the 1996 Offering of approximately $63 million were used, in part, to fund the acquisitions of the Clarion Hotel located at the San Francisco Airport (acquired on April 24, 1996) and Doubletree Guest Suite hotels located in Irving, Texas; Ft. Lauderdale, Florida; and Tampa, Florida (all three properties acquired on April 26, 1996).
On August 12, 1996, the Company completed a public offering of 10,000,000 paired shares (the "August 1996 Offering"). Net proceeds from the August 1996 Offering of approximately $338.0 million were used to fund the acquisition costs of the Teachers Portfolio and the balance is expected to be used to fund a portion of the acquisition cost of the HOD Portfolio.
On February 14, 1997, the Company acquired HEI Hotels, LLC, a hotel operating company which managed 19 hotels, and the Company acquired ten hotels (the "HEI Owned Hotels") that HEI owned in a joint venture with PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors. Realty and Operating issued to PRISA II and the owners of HEI limited partnership interests in Realty and Operating which are exchangeable for approximately 6.548 million Paired Shares (valued for purposes of the transaction at approximately $215 million), and paid $112 million in cash and notes in connection with the transaction.
On October 2, 1997, the Company completed the sale of 2.5 million Paired Shares at a net price of $53 per Paired Share to a group of institutional buyers in a direct placement. Proceeds from this sale of approximately $131.6 million were used to pay down existing indebtedness.
On October 15, 1997, the Company completed a private placement of 2.185 million Paired Shares, at a net price of $57.25 per Paired Share (the closing price on October 13, 1997), to an affiliate of the Union Bank of Switzerland ("UBS"). Proceeds from this offering of approximately $125.0 million were used to pay down existing indebtedness.
On January 2, 1998, pursuant to a Transaction Agreement dated as of September 8, 1997, the Company acquired Westin. In connection with the Westin Merger, all of the issued and outstanding shares of capital stock of Westin Worldwide were converted into an aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $.01 per share, of the Trust and 5,294,783 Class B Exchangeable Preferred Shares, liquidation value $38.50 per share, of the Trust and $177.9 million in cash. The aggregate principal amount of debt assumed by the Company pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The shares of Class A EPS, the shares of Class B EPS and the limited partnership interests issued in connection with the Westin Merger and the contribution of Seattle, Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or indirectly exchangeable on a one-to-one basis for Paired Shares.
On February 23, 1998, the Company acquired ITT. The aggregate value of the ITT acquisition in cash, Paired Shares and assumed debt was approximately $14.6 billion.
In February 1999, Starwood sold its remaining interest of approximately 9.5 million shares of ITT Educational Services, Inc. in a public offering and contemporaneous sale to Educational Services for net proceeds of approximately $310 million.
In April 1999, the Company disposed of its remaining interest in Madison Square Garden, L.P. for net cash proceeds of approximately $87 million.
On April 7, 2006, in connection with the transaction with Host Hotels & Resorts, Inc. ("Host") described below, the Shares were depaired and the Corporation Shares became transferable separately from the Class B Shares. As a result of the depairing, the Corporation Shares trade alone under the symbol "HOT" on the New York Stock Exchange ("NYSE"). As of April 10, 2006, neither Shares nor Class B Shares are listed or traded on the NYSE... On April 10, 2006, in connection with the Host Transaction, certain subsidiaries of Host acquired the Trust and Sheraton Holding from the Corporation. As part of the Host Transaction, among other things, (i) a subsidiary of Host was merged with and into the Trust, with the Trust surviving as a subsidiary of Host, (ii) all the capital stock of Sheraton Holding was sold to Host and (iii) a subsidiary of Host was merged with and into SLT Realty Limited Partnership (the "Realty Partnership") with the Realty Partnership surviving as a subsidiary of Host... Starwood shareholders received approximately $2.8 billion in the form of Host common stock valued at $2.68 billion and $119 million in cash for their Class B Shares. Based on Host's closing price on April 7, 2006, this consideration had a per-Class B Share value of $13.07.
In the third quarter of 2014, our Board of Directors authorized a $1.1 billion increase to the share repurchase program. During the three months ended September 30, 2014, we repurchased 10.4 million common shares at a weighted average price of $82.57 for a total cost of approximately $857 million. During the nine months ended September 30, 2014, we repurchased 12.5 million common shares at a weighted average price of $81.90 for a total cost of approximately $1,027 million. As of September 30, 2014, $688 million remained available under the share repurchase authorization approved by our Board of Directors.
Marriott International, Inc. and Starwood Hotels & Resorts Worldwide, Inc. announced that the stockholders of both companies approved proposals relating to Marriotts acquisition of Starwood. At closing, Starwood stockholders will receive 0.8 shares of Marriott common stock plus $21.00 in cash for each share of Starwood common stock.