On Thursday, Fitch Ratings affirmed Starwood Hotels & Resorts Worldwide Inc.'s (HOT) ratings. The outlook was revised to Stable from Negative.
Fitch has affirmed the Issuer Default Rating (IDR) at 'BB+', $1.875 billion senior unsecured credit facility at 'BB+' and $2.7 billion of senior unsecured notes at 'BB+'.
The affirmation of Starwood’s ratings and its outlook revision to stable reflects the improved scenario in lodging. There is a modest recovery in industry demand trends. Additionally, the ratings reflect the company’s effort to strengthen the balance sheet, the repositioning of its timeshare business and its ability to access the capital markets during difficult market conditions.
Fitch expects a continuous recovery in revenue per available room (RevPAR) in 2010. Additionally, the demand for hotels in the international market is greater than in the U.S., and the company has significant international exposure -- more than many of its peers.
Further, the company has over 80% of its 85,000-room pipeline to be built in international markets. The pace of recovery is particularly fast in the Asia-Pacific region. Of its total pipeline, nearly 60% is in the Asia-Pacific market.
Starwood has also strengthened its balance sheet and reduced debt levels. The repositioning of the timeshare business is also encouraging and it is expected to generate good cash flows.
However, overall pricing continues to be weak, so the demand recovery remains fragile. Pricing pressures persist as hotels continue to offer heavily discounted rates to draw in travelers.
Then again, considering the sluggish recovery of the economy and slow booking pace, we do not expect any significant improvement of the top line. Additionally, an increase in hotel occupancy coupled with weak pricing would result in an increase in expenses. This would restrict margin improvement. Therefore, we have a Neutral recommendation on the shares.
Shares of Starwood were up 4 cents or 0.1% to $41.94 in Thursday’s regular session. The shares were up another 2 cents or 0.05% in the after-market session.