Host Marriott to buy 38 Starwood hotels

COLLEGE PARK, Md. - Host Marriott Corp. will buy 38 hotels from Starwood Hotels and Resorts Worldwide Inc. for roughly $3.4 billion in a deal that Starwood hopes will free it to build its luxury brands and that boosts Host's upscale and overseas hotel and resort holdings.

The deal announced Monday between the two lodging companies calls for Bethesda-based Host to give Starwood shareholders $2.33 billion of Host stock and pay $1.06 billion in cash. Host will also take on $700 million of debt as part of the deal.

Starwood, headquartered in White Plains, N.Y., owns and operates brand names including Sheraton, Westin, St. Regis and W hotels. The company is moving toward a model of operating its properties, rather than owning them, an approach adopted by competitors such as Marriott International Inc.

"This is a major step in Starwood's evolution as a company to become more of a fee-based, brand centric company," said William Crow, a lodging analyst with Raymond Jones & Associates.

The sale to Host accounts for about 40 percent of the rooms Starwood owns, but Starwood will continue to manage most of the properties that Host is buying for the next 40 years. Host will pay Starwood management fees, an arrangement that is usually more profitable for lodging companies than owning their own hotels, Crow said.

Company CEO Steven J. Heyer said shedding the real estate would allow Starwood to focus on selling its brands to customers that include younger guests and people seeking upscale amenities. Westin, for example, offers its plush "Heavenly Bed", which has fine sheets and bedding that has been copied by other hotel companies.

The sale accelerates "Starwood's transition from a real estate company with some hotel brands to a consumer lifestyle company with a branded hotel portfolio at its core," Mr. Heyer said in a statement.

For Host, a real estate investment trust that split off from Marriott in the 1990s, the purchase makes it the largest lodging company in the country and the sixth-largest public real estate investment trust, with an enterprise value of about $16 billion.

It also broadens the brand names Host owns. Currently, 70 percent of Host's properties are Marriott brands. After the deal closes, which is expected in the first quarter of 2006, Marriott properties will represent only about 50 percent of Host's holdings.