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Starwood Continues Brand Conversion

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Starwood Hotels & Resorts Worldwide Inc. (HOT) recently announced the brand conversion of a former 150-room Four Points by Sheraton property to Aloft Tucson University. The property will undergo a complete makeover before being unveiled as an Aloft in the first half of 2013. This marks Starwood’s second conversion project followed by the switch of an existing Clarion property at San Francisco Airport to Aloft in September last year. Aloft San Francisco Airport is slated to open this fall.  

The Tuscan property enjoys a prime location, adjacent to the University of Arizona.  Apart from this, the hotel is easily accessible from various entertainment hubs, making it strategically fit for repositioning. 

Starwood is ideally targeting two types of prospects for the Aloft conversion. First are the well positioned, older hotels set up in the ‘70s or ‘80s, and second are the well-to-do independent hotels in need for a stronger brand.

Starwood set a trend in hotel designs with its Aloft and has spread its operations globally with more than 55 hotels it has opened since its launch in June 2008. In its three years of journey, Aloft has been on an uphill ride in terms of guest satisfaction scores, reflecting the brand’s strength and growing popularity. In the fourth quarter of 2011, RevPAR growth at Aloft was 12.5% or 12.8% in constant dollars, the highest among all the other brands.

The brand has already stepped into every region including North America, Europe, the Middle East, Latin America, India, Southeast Asia and China. Management’s confidence on this brand is evidenced by its recent decision to shut down two U.S. hotels and convert those to Aloft. Aloft as a brand name has also earned recognition as it offers an urban concept for modern travelers seeking a unique experience. Naturally, management is keen on converting properties to Aloft. More new markets are likely to experience the flavor of Aloft at a lesser cost.

Since late 2010, hotel companies are working hard on guest satisfaction to uplift their positions in a cutthroat environment. Apart from brand conversion, Starwood also focuses on remodeling existing brands like many of its peers namely Marriott International Inc. (MAR) and InterContinental Hotels Group (IHG) that are following this facelift trend.  

Starwood currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

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