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Sheraton Corporation of America, 1961 Annual Report
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Starwood Hotels & Resorts. Sheraton Corporation of America, 1961 Annual Report - Image 16. 1961. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. University of Houston Digital Library. Web. May 23, 2019. https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1312.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Starwood Hotels & Resorts. (1961). Sheraton Corporation of America, 1961 Annual Report - Image 16. Annual Reports from the Hospitality Industry Archives. Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston. Retrieved from https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1312

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

Starwood Hotels & Resorts, Sheraton Corporation of America, 1961 Annual Report - Image 16, 1961, Annual Reports from the Hospitality Industry Archives, Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, accessed May 23, 2019, https://digital.lib.uh.edu/collection/hiltonar/item/1325/show/1312.

Disclaimer: This is a general citation for reference purposes. Please consult the most recent edition of your style manual for the proper formatting of the type of source you are citing. If the date given in the citation does not match the date on the digital item, use the more accurate date below the digital item.

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Compound Item Description
Title Sheraton Corporation of America, 1961 Annual Report
Creator (LCNAF)
  • Starwood Hotels & Resorts
Publisher Starwood Hotels & Resorts
Date 1961
Description Sheraton Corporation of America Annual Report for the year ending on April 30, 1961.
Subject.Topical (LCSH)
  • Hospitality industry
  • Hotel management
  • Corporation reports
Subject.Name (LCNAF)
  • Starwood Hotels & Resorts
Genre (AAT)
  • annual reports
  • business records
Language English
Type (DCMI)
  • Text
  • Image
Original Item Location Conrad N. Hilton Papers
Digital Collection Annual Reports from the Hospitality Industry Archives
Digital Collection URL http://digital.lib.uh.edu/collection/hiltonar
Repository Hospitality Industry Archives, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston
Repository URL http://www.uh.edu/hilton-college/About/hospitality-industry-archives
Use and Reproduction No Copyright - United States
File Name index.cpd
Item Description
Title Image 16
Format (IMT)
  • image/jpeg
File Name hiltonar_201609_023_016.jpg
Transcript 14 SHERATON'S FINANCIAL PHILOSOPHY Net Asset Value Calculations Earlier in the President's Report we referred to "adjustments" to basic earnings used to measure indicated net asset values. By basic earnings we mean earnings before interest, depreciation and income taxes. The adjustments to basic earnings attempt to take into account certain nonrecurring events and expenses. We allow for deficiencies or excesses, if any, from normal repairs and maintenance expenditures. We attempt to reflect the trend of occupancy and earnings. We also try to make appropriate allowance in advance for anticipated competition if new hotels are likely to provide serious competition. Our figures for capitalizing basic earnings, or the earnings multipliers as they are sometimes called, vary according to many factors, including age and location of the property, money rates, type of financing available, and the luxury status of a hotel. Investors in hotels are willing to pay a relatively higher price for any given basic earnings of luxury hotels in large American cities. Our multipliers usually range between eight and ten, which corresponds to capitalizing basic earnings on a ten to twelve and a half per cent basis. Due to our approximate fifty per cent debt ratio, the Company enjoys a certain leverage which raises this level of basic earnings to a rate of approximately fifteen per cent per annum. Long term leaseholds, not as readily mortgaged, frequently call for a slightly lower multiplier. We normally apply to leasehold earnings, after these are reduced by appropriate amortization, a multiplier of 6%. It should of course be pointed out that the multipliers themselves sometimes change with changing economic conditions in the real estate market. These factors we believe have all been carefully weighed and taken into account when indicated net asset values are calculated. In recent years rising interest rates, coupled with increasing reluctance on the part of financial institutions to make mortgage loans except to larger companies willing to provide parent company guarantees, have been noted. This disadvantage has been partially offset by a noticeable upward trend in the multipliers being applied in the industry to basic earnings, the yardsticks by which valuations are customarily arrived at both by the industry and by Sheraton. Both of these factors are of course beyond the control of management. Fortunately both have tended in the past to some extent to offset each other. Some inquiries have been received as to the reliability of estimated property values used in determining our indicated net asset values. Sales of Company properties over a long period of years were always made at sales prices in excess of the latest estimated values determined prior to the sales. In connection with many of these sales transactions, the Company received second mortgages on the disposed properties as a part of the proceeds. The second mortgages are usually recorded on the books at discounted values, which reflect the terms of the respective mortgages. There were in fact a few instances of hotels being sold when, after setting up reserves of 25 per cent against second mortgages taken in part payment, these properties brought slightly less than our latest estimated values. This however was more than counterbalanced by higher amounts realized in the majority of instances when properties were sold. On some $44,000,000 of property sales, comprising some fifteen transactions, such excesses over estimated values exceeded the losses by over a million dollars. Furthermore, the 25% reserves themselves have proven in practice to be too high. A recovery of over two million dollars from these excessive reserves is currently indicated, now that the second mortgages have been materially paid down or sold. This discussion is presented in order to clarify the record with respect to this controversial subject of net asset values. Those shareholders who have a further interest in this subject and in the subject of "Net Worth Accounting" are asked to turn to page Hfo. Profit Margins Sheraton's basic earnings margins are down from 18.3 per cent of gross income in 1957 to 15.8 per cent in 1961. Furthermore the average of all interest charges has risen from 3.9 to 4.9 per cent of gross income. The combined result of these two trends represents 3.5 per cent of gross income. This adverse factor reduces to 1.3 per cent when taking into account lower income taxes payable despite higher basic earnings, due to the increased permissible tax shelter the real estate companies are currently enjoying from higher depreciation reserves. The net shrinkage in profit due to the resulting narrowing margins amounts to less than three million dollars a year. There are, of course, several factors that should be taken into account when examining such profit margins. A major influence on profit margins, as stated before, is the higher interest rates prevailing throughout the country as compared with earlier years. For a company whose policy it is to finance half the indicated market value of its properties through the medium of long term debt, a rise from 4>/i per cent to 6 per cent in prevailing mortgage interest rates represents a substantial percentage increase in such costs. Sheraton interest costs have risen in part due to the fact that we issued in place of fixed debt obligations nearly $40,000,000 of twenty-five and thirty-year income and capital income debentures as an economical form of "insurance policy" to protect the Company should there ever occur a really serious business depression. The present earnings coverage of interest charges, both fixed and contingent, for the past year afforded by basic earnings of $32,000,000 was three fold. This earnings coverage, combined with a high degree of resistance to recent recessions indicates that this "insurance policy" may never be required. Nonetheless this protection strengthens the Company's credit position. The relatively high interest called for by our 7Vi per cent Capital Income Debentures is a burden we are glad to assume as an alternative to what might be !