Starwood Beefs Up Luxury Collection

Zacks

Starwood Hotels & Resorts Worldwide Inc. (HOT) recently revealed that it remains on track to unveil 10 new Luxury Collection Hotels & Resorts globally in the near term. The company has properties coming up in countries like China, India, Indonesia and Thailand.

We view the White Plains, New York-based company’s focus on enhancing luxury as quite strategic. Of its total pipeline of 95,000 rooms, 80% occupies the upper upscale and luxury segments. According to management, the extremely high net worth individuals were less affected by the global recession and increased by almost 30% since 2006. Hence, management plans to attract those guests.

Moreover, increased room rates lead to higher fees and eventually to a monetarily enriched portfolio. Management stated that, at the current level, its luxury brands comprise 10% of its total rooms and contribute 20% to its fees.

Luxury Collection Hotels & Resorts fall in the eponymous category. Management commented that luxury resorts generally have a higher demand abroad and hence Starwood has 90% of its Luxury pipeline outside North America.

Launched in 1906, the brand rides on a high growth trajectory and has already spread globally with 80 hotels in more than 30 countries. Well known for its upper-upscale hospitality and individuality, management sees the brand as a lucrative addition to its luxury hotels and invests $100 million in it. According to management, in the last five years, the brand’s reach has widened by 40% and achieved 270 points in RevPAR index.

Owing to saturation in the U.S. market, major hoteliers are exploring growth opportunities abroad. Starwood can capitalize on this trend as it has a broader international exposure than most other hoteliers such as Wyndham Worldwide Corporation (WYN) and Hyatt Hotels Corporation (H). Almost 60% of Starwood’s total pipeline is focused on the Asia-Pacific markets. In Asia, the company plans to finish the year with around 240 hotels.

Starwood currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock.

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