Starwood Hotels (Starwood) owns and operates many hotel properties under well-known brand names, including Sheraton, W, Westin, and St. Regis. Starwood focuses on the upper end of the lodging industry.

Choice Hotels (Choice) is primarily a franchisor of several hotel chains, including Comfort Inn, Sleep Inn, Clarion, EconoLodge, and Rodeway Inn. Choice properties represent primarily the mid scale and economy segments of the lodging industry. Exhibit 4.39 presents selected profitability ratios and other data for Starwood, and Exhibit 4.40 presents data for Choice. (Note that ROCE is not meaningful for Choice because of negative common shareholders' equity due to open-market share repurchases, not accumulated deficits. As of the end of 2008, Choice had repurchased over one-third of all common shares issued: 34,640,510 out of 95,345,362 shares.) One of the closely followed metrics in the lodging industry is occupancy rate, which gives an indication of the capacity utilization of available hotel rooms. A second measure is the ADR (average daily rate), which measures the amount actually collected for an average room per night. Finally, REVPAR (revenue per available room) also is an important measure, which measures period to-period growth in revenues per room for comparable properties (adjusted for properties sold or closed or otherwise not comparable across years). The interaction of occupancy rate and ADR is REVPAR.

*N/M: Not meaningful due to negative common shareholders€™ equity

REQUIRED
Analyze the changes and the differences in the profitability of these two hotel chains to the deepest levels available given the data provided. Compare and contrast the ROAs and ROCEs of both companies. Do the results match your prior expectations given the type of lodging for which each company specializes?

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Exhibit 4.39 Profitablity Ratios and Other Data for Starwood Hotels (Problem 4.27) 2008 2007 2006 Sales growth Profit margin for ROA (4.0%) 0.0% 2.9% 7.8% 10.4% 19.8% 0.55 0.65 Assets turnover 0.61 ROA 4.8% 6.8% 10.9% Profit margin for ROCE Capital structure leverage 5.6% 8.8% 17.4% 5.23 3.72 2.65 ROCE 21.3% 25.4% 17.8% Number of hotels 942 925 871 Number of rooms 285,000 282,000 266,000 Rooms per hotel Occupancy rate Revenue per available room night Average daily rate 305 303 305 71.1% 72.7% 71.2% $ 168.93 $ 237.45 $ 136.33 $ 191.56 $ 171.01 $ 235.18 Exhibit 4.40 Profitability Ratios and Other Data for Choice Hotels (Problem 4.27) 2008 2007 2006 Sales growth Profit margin for ROA 4.2% 14.0% 13.1% 16.7% 19.6% 22.6% Assets turnover 1.95 1.95 1.90 ROA 32.6% 38.2% 42.9% Profit margin for ROCE Capital structure leverage 15.6% 18.1% 20.9% (2.23) (2.88) (2.48) ROCE N/M* N/M* N/M* Number of hotels 4,716 4,445 4,211 Number of rooms 373,884 354,139 339,441 Rooms per hotel Occupancy rate Revenue per available room night Average daily rate 79 80 81 55.3% 57.9% 58.4% $ 40.98 $ 74.11 $ 41.75 $ 72.07 $ 40.13 $ 68.71