White Plains, New York-based Starwood Hotels & Resorts Worldwide Inc (HOT) recently announced its intention of opening 10 new Sheraton hotels in Asia by the end of 2012. All the new resorts are planned for opening in China except one hotel which is slated for Indonesia.
Since the last couple of quarters, Sheraton the largest and most global brand is spearheading Starwood’s market share growth, aiming at a global expansion worth $5 billion over the next three years. The new hotels will come up in the Chinese cities of Hangzhou, Yantai, Guangzhou, Huizhou, Qingyuan, Sanya, Huzhou, Baishan and Macao and Bali in Indonesia.
The company is poised to benefit from the reviving economy and consequent increase in demand for hotels. In the recently concluded third quarter, Starwood experienced occupancy gains on the back of economic recovery and a surge in demand for leisure as well as business travel.
Revenues jumped 9.3% year over year to $1,372 million in the third quarter, with revenue per available room witnessing a considerable growth. System-wide RevPAR for same-store hotels increased 11.6% (7.4% in constant dollars) year over year all over the world. International system-wide REVPAR for same-store hotels increased 15.2% (6.8% in constant dollars).
With the average daily rate picking up and strong return of group business, the company expects room rate to drive 50% or more of RevPAR growth in 2011. Group booking pace is up mid-single digits for 2012. Leisure demand is also increasing, as wealthier consumers find themselves in good financial shape.
It has over half of its hotel properties outside the U.S., an international exposure that not many of its peers can boast. Additionally, over 80% of the company’s 85,000 room pipeline will be built in international markets.
The demand for hotel rooms in the international market is greater than in the U.S. and the pace of recovery is particularly fast in the Asia-Pacific region. Of the company’s total pipeline, more than 60% is concentrated in the Asia-Pacific markets. Within Asia-Pacific, China promises immense growth potential with visits expected to double by 2014.
Starwood’s China business remains on track to triple within five years. Management’s target is to open one hotel every two weeks in China this year. Starwood’s current U.S. portfolio is roughly seven times the current size of the number of hotels in China. But the company expects China to outpace the U.S. in the near future as its largest operation.
Starwood enjoys a first-mover advantage in China as it opened the first branded hotel, The Great Wall Sheraton Hotel, in Beijing in 1985. Presently, Starwood operates four and five star hotels in China and is preparing to take a lead with a pipeline, significantly larger than its peers.
However, Starwood’s nearest competitor Marriott International Inc. (MAR) and Hyatt Hotels Corporation (H) are also expanding their presence in the Asia-Pacificmarket.
Starwood currently retains a Zacks #2 Rank, which translates into a short-term 'Buy' rating. We are also maintaining our long-term Neutral recommendation on the stock.
HYATT HOTELS CP (H): Free Stock Analysis Report
STARWOOD HOTELS (HOT): Free Stock Analysis Report
MARRIOTT INTL-A (MAR): Free Stock Analysis Report
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