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New Look for Sheraton New Orleans

Zacks Equity Research

As part of its continued brand-revitalization, Starwood Hotels & Resorts Worldwide Inc. (HOT) has decided on an extensive makeover of its Sheraton New Orleans Hotel for around $45 million. The venture will likely be completed in 2013.

New Orleans is one of the prime U.S. tourist spots and a favorite destination for business meetings. Citing the prospect, Starwood plans to revamp all 1,100 guest rooms, meeting facilities and other amenities at Sheraton New Orleans to garner more business from meetings and conventions.   

Hotel companies across the globe have been diligently working over the last couple of years to augment guest satisfaction to uplift their positions in a cutthroat environment. Brand conversion and remodeling soon became the trend. Earlier this month, Starwood announced its overhaul plans of more than 10 North American W properties. Several other Starwood brands and properties have already got their new look while some are in the queue.

Starwood is primarily considering older properties operating in dynamic markets like New York City, Seattle, Chicago, New Orleans and Los Angeles as ideal candidates for the upgrade. Apart from renovation, these properties generally unveil some new bar and restaurant concepts to attract more neighboring guests. Likewise, Sheraton New Orleans intends to unveil its refurbished bar in September 2012.

Since the last couple of quarters, Sheraton is spearheading Starwood’s market share growth. The brand covers around 30% of the company’s current total global pipeline. Recently, Sheraton was through with a $6 billion brand-wide revitalization program and is now busy with a three-year $6 billion international expansion program.

Citing Sheraton’s brand appeal, in March 2011, Starwood embarked on a two-phase $150 million remodeling program for The Sheraton New York, one of the largest hotels in New York City. In first-quarter 2012, Starwood revamped the Sheraton in Kauai. Yet another Sheraton at Rio is also lined up for overhaul later this year.

Renovation work, however, hurts near-term revenue when construction is on. Starwood’s management commented that extensive renovation at various properties lessened its owned EBITDA by approximately $5 million in the first quarter of 2012 and expects a similar impact in the second quarter as well. But after the overhaul work, existing properties pay off more.

White Plains, New York-based Starwood which competes with the likes of Marriott International Inc. (MAR) currently retains a Zacks #2 Rank that translates into a short-term Buy rating. We also reiterate our long-term Neutral recommendation on the stock.

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