Starwood Hotels & Resorts Worldwide Inc. (HOT) is set to further expand in the Kingdom of Saudi Arabia with two new hotels. The company has entered into a deal with Saudi Brothers Commercial Co. to open a Sheraton and a Four Points by Sheraton in Medina. The project is a part of Starwood’s plan to open more than 60 Sheraton hotels around the world over the next three years. Starwood has been in partnership with Saudi Brothers Commercial co. for many years now.
Sheraton Medina will feature 297 guest rooms along with other amenities while Four Points by Sheraton Medina will have 178 rooms. Both hotels are expected to open its doors in the fourth quarter of 2012.
Presently, Starwood Hotels & Resorts operates 10 hotels in Saudi Arabia under Sheraton, Westin and Le Meridien brands. Sheraton Medina will be Starwood’s fourth Sheraton in Saudi Arabia. The other three are Sheraton Jeddah Hotel, Sheraton Riyadh Hotel & Towers and Sheraton Dammam Hotel & Towers. However, the company will launch its Four Points by Sheraton brand in Saudi Arabia with its opening in Medina. Two other properties, namely Four Points by Sheraton Jeddah and Four Points by Sheraton Al Khobar are currently under development.
We believe Medina is a strategic fit for new hotels, as it is an important tourist destination owing to its historical importance. The hotelier is set to tap the tourism market in Medina where pilgrims throng every year for holy visits. One of Starwood’s major competitors Marriott International Inc. (MAR) already has a presence in Medina.
The Sheraton openings also affirm the dominant market share that the brand enjoys. Since the last couple of quarters, Sheraton is spearheading Starwood’s market share growth. The brand covers 30% allotment of the company’s current total global pipeline. Recently, Sheraton completed a $6 billion brand-wide revitalization program, including $400 million in signature brand initiatives. Sheraton is now investing another $5 billion to add more new hotels by year-end 2013.
Starwood has a strong pipeline for Middle East as the region offers compelling opportunities with its rising importance as a global business hub and leisure travel destination. According to UN World Tourism Organization, the number of tourists traveling to the Middle East is expected to reach 136 million by 2020 from 54 million two years ago.
By 2015, Starwood aims to make the Middle East the second region, after North America, operating all its nine brands –– St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points by Sheraton, Aloft and Element. The aim underlines the company’s focus on the region.
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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