Starwood Agrees to Sell Three Italian Hotels

Marco Ferrari, Starwood's director of external communication for Europe, Africa, Middle East, says the three hotel properties are: the 196-room Westin Excelsior and the 191-room Hotel Des Bains, both in Venice Lido and the 31-room Hotel Villa Cipriani in Asolo. Also part of the deal is some unspecified additional office, retail and storage space. The buyer, EST Capital, is an independent asset management company that specializes in the establishment and management of closed-ended property funds that are reserved to institutional and qualified private investors.

Ferrari says that Starwood is in discussions with EST Capital regarding whether it will continue to manage the properties once they are traded. Starwood expects the sale to close in the fourth quarter of this year. The hotelier currently operates 30 hotels in Italy. Starwood owns 10 of those hotel assets, including the three facilities now under contract with EST Capital.

Harry Curtis, managing director in the gaming and lodging sector in the Equity Research Group at JP Morgan, says he expects Starwood to use the proceeds for share repurchases. "The company is still eager to sell real estate at high multiples and buy back its lower multiple stock," Curtis notes. "We estimate HOT [Starwood] is trading at 9.1x 2008E EV/Ebitda and 8.1x 2009E EV/Ebitda, which is at least several turns lower than where its properties will likely sell, in our view."

He adds, "we believe the company's ultimate strategy is to maintain a trophy asset in key gateway cities, i.e., the St. Regis in New York City. Real estate is 40% of Ebitda now, but should decrease to 20% to 35% after asset sales." Curtis notes that he would not be surprised if Starwood undertakes additional asset sales in the next 12 months in light of what he terms are well funded global capital sources that might look to invest in some of Starwood's assets. According to Curtis, Starwood has on the market for sale the 665-room Sheraton Manhattan and the 219-room Westin Turnberry in Ayreshire, Scotland.