Starwood Hotels & Resorts Worldwide Inc. (HOT) completed the sale of Aloft Tucson University to Lightstone Value Plus Real Estate Investment Trust II, Inc. for $19 million. Lightstone Value is a REIT managed by New York City-based The Lightstone Group.
However, as part of the deal, the hotel will continue to be under Starwood’s Aloft brand and will be managed by Island Hospitality Management under a long-term license agreement.
The hotel, built in 1972, underwent a complete renovation prior to its re-opening in Apr 2013 under the name Aloft Tucson University. Located adjacent to the University of Arizona campus, the hotel is also in close proximity to the University of Arizona Medical Center and the heart of the city of Tucson. Additionally, the hotel is located at a stone’s throw away from the numerous corporate offices, and is easily accessible from the Tucson International Airport and Interstate 10. In our view, the upscale location of the hotel will be an added advantage.
Starwood remains committed to asset disposition in order to strengthen its financial flexibility. The company believes asset sale would help it to grow in the long term through management and licensing agreements instead of direct ownership of real estate.
Moreover, Starwood is focused on rebalancing its portfolio by increasing the contribution from managed and franchised hotels. This fee-based business is less capital intensive and also allows the company to earn a fee for managing/franchising the property.
In our view, Starwood’s strategy to divest cyclical, mature and non-core owned hotels and its transition to an ‘Asset Light’ model will be a major driver toward share price appreciation.
Proceeds from the sale of non-core owned hotels and sale or redevelopment of assets will provide Starwood with additional free cash that can be reinvested into high return-on-investment projects, share repurchases and increased dividends or acquisitions. In fact, with the recent sale will likely help the company to achieve its target of generating $3 billion from hotel sales before the end of 2016.
Starwood currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Marriott International, Inc. (MAR), with a Zacks Rank #2 (Buy).
In the broader leisure services sector, Wynn Resorts Ltd. (WYNN) and Las Vegas Sands Corp. (LVS) are also worth considering. While Wynn Resorts sports a Zacks Rank #1 (Strong Buy), Las Vegas Sands has the same Zacks Rank as Marriott.