NEW YORK— Starwood Hotels & Resorts Worldwide is apparently committed to substantially thinning out its property-ownership portfolio. However, the questions going hand-in-hand with this undertaking seem to be: How many properties does the company need to sell, and how fast does it need to sell them? No matter what course of action Starwood takes, it would seem the company has to do something, and do it quickly. Certainly, Wall Street market-watchers as well as those in the financial arena have lately taken to watching the company— and its balance sheet— quite closely. For starters, Standard & Poor’s maintains it is already in the process of taking the necessary steps to cut Starwood’s corporate credit rating to junk status. Specifically, S&P affirmed it may cut Starwood to junk from “BBB-minus,” its lowest investment-grade corporate credit rating. To this end, S&P Director and Analyst Craig Parmelee said his firm placed Starwood’s rating on Creditwatch— with negative connotations— on Dec. 20, 2002, specifically for the purpose of downgrading. At that time, S&P went on record as saying: “Significant asset sales [are]called for in order for Starwood simply to preserve its existing rating.” However, Parmelee further noted: “In the wake of Starwood’s publicly stated intent to sell off at least $500 million in assets this year, we contend the company needs to sell significantly more than that amount just to hold its present rating.” Meanwhile, Moody’s Investors Service already rates Starwood’s senior debt as below investment grade, or junk debt, at “Ba1.” According to Peggy Holloway, vp/senior credit officer at Moody’s, this determination is accompanied by a negative rating outlook— a result of the company’s “relatively high leverage levels in tandem with a generally negative industry outlook [especially in the near term].” Largely supporting Holloway’s contention, S&P’s Parmelee wrote: “Performance of the lodging industry has been weaker than expected in 2002, and Starwood’s hotel portfolio— which is primarily comprised of upscale properties in urban locations— has been more deeply affected than the portfolios of many of its peers.” Starwood’s capital expenses for 2002 were higher than had been expected at the start of the year, and because the lodging industry is unlikely to grow to any great extent in 2003, Starwood absolutely must sell-off assets and shore up its credit quality in order to preserve its investment-grade rating, Parmelee added. Picking up on that point, Holloway said Starwood’s rating could improve if, in fact, the company does sell off some of its hotels, realizes “significant proceeds [from such a divestment], and uses those proceeds expressly to pay down debt.” It had been reported that Starwood showed some $5.3 billion in debt as of this past Sept. 30. Meanwhile, several hotel brokers queried by HOTEL BUSINESS® said they are well aware of Starwood’s avowed proprietary and non-proprietary asset-disposition plans— on a portfolio as well as a one-off basis. Along these lines, the company recently shed the 321-room Doubletree Hotel Minneapolis At The Mall in Minnesota— a transaction exacting a reported purchase price of $47 million from the 28-year-old property’s new owners, the local airport commission. In line with this divestiture, another non-Starwood-branded facility several brokers see on the shopping block could well be the 10-year-old, 310-room full-service BWI Marriott— most likely as part of a multi-site portfolio encompassing a dozen or more corporate-owned properties. Calls placed to Mark Gordon at Sonnenblick-Goldman, Lou Plasencia at The Plasencia Group, and sources at Bear Stearns as well as at other market-savvy organizations elicited the notion that the group’s “For Sale” sign would encompass a substantial number of primarily East Coast-positioned Sheratons as well. In this sense, the word has been out for quite awhile that Starwood might be looking to get out of the real estate-ow
