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Starwood Enters Jiaozhou

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Starwood Hotels & Resorts Worldwide Inc. (HOT) recently inaugurated a property in Jiaozhou, near Qingdao city in the Shandong province, China, under its Sheraton brand. The latest opening is part of the company’s plan to foray into the second and third tier Chinese cities. It is the first Sheraton branded hotel, as well as the first hotel managed by Starwood Hotels & Resorts in Jiaozhou.

Owned by Qingdao Greentown Jiaozhou Bay Real Estate Development Company, the property features 270 rooms including 31 suites along with various other facilities. The Jiaozhou opening is strategically fit as it is the city’s first hotel with an international brand and hence is expected do good business. Besides, the property is in proximity to several popular sightseeing spots as well as Qingdao’s Liuting International Airport.

Since the last couple of quarters, Sheraton is spearheading Starwood’s market share growth. It boasts of a portfolio of more than 400 hotels in 70 countries. The brand covers around 30% of the company’s current total global pipeline. Recently, Sheraton completed a $6 billion brand-wide revitalization program and is now busy with a three-year $6 billion international expansion program.

Sheraton’s entry to China dates back to 1985 with the debut of Great Wall Sheraton Hotel in Beijing. Leveraging its first-mover advantage, Sheraton has become one of China’s most sought-after global brands. Given a surge in demand, Starwood is slated to open 12 new Sheraton hotels by the year-end. The company is now scrutinizing its opportunities in various untapped but highly populated Chinese cities.

China is all set to bring about a recovery in global tourism, and by 2020, it is expected to be the world’s largest travel destination. We believe that openings in second and third tier Chinese cities will provide the company a competitive advantage over most of its peers. Last year, Starwood shifted its management team to China to understand the market more closely through interactions with local stakeholders, while exploring new opportunities throughout the country.

However, Starwood’s close competitors like Marriott International Inc. (MAR) and Hyatt Hotels Corporation (H) are also binging on China. Starwood currently retains a Zacks #2 Rank that translates into a short-term 'Buy' rating. We are also maintaining our long-term “Neutral” recommendation on the stock.

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