As part of its asset-light strategy, Starwood Hotels & Resorts Worldwide Inc. (HOT) recently closed the sale of the 97-room W New Orleans property to Chesapeake Lodging Trust (CHSP) for $25.5 million. Post sale, the property will continue to operate under Starwood’s W brand.
The asset sale is part of Starwood’s long-term strategy to strengthen financial flexibility, which in turn will maximize shareholder value. The company aims to unlock real estate value by giving away ownership of selective assets. A higher concentration of franchise fees reduces earnings volatility and provides a more stable growth profile.
Since late 2010, transition to an “asset light” business model has gained momentum in the hotels and REIT industry. Many of Starwood’s close competitors such as Red Lion Hotels Corporation (RLH) and Morgans Hotel Group Co. (MHGC) have embarked on this strategy. Companies intend to use the sale proceeds to invest in brand positioning as well as restructure the company’s balance sheet that includes paying off debt.
The property was acquired by Starwood in 1997 and converted into W New Orleans – French Quarter in 2000. It underwent extensive makeover prior to its sale. In the last two years, Starwood offloaded properties like St. Regis Aspen, the Westin Gaslamp (San Diego), W City Center (Chicago), and the Boston Park Plaza. Management indicates an increase in buyers’ interests, which coupled with improving lodging industry fundamentals will lead to future asset sales. Starwood currently retains a Zacks Rank #3 (Hold).
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