Starwood Hotels & Resorts Worldwide Inc. (HOT) recently signed a deal to acquire a 49.8% stake at Design Hotels AG from Arabella Hospitality SE in Germany. Financial terms of the deal were not disclosed. The transaction is scheduled to close in the first quarter of 2012.
Berlin-based Design Hotels boasts of a portfolio of over 200 member hotels in 40 countries providing distribution, sales, marketing and consulting services for hotels. Starwood shares a longstanding partnership with Arabella Hospitality, 20 units of which it manages or franchises in Europe. Arabella Hospitality seeks to rebalance its portfolio mainly on ownership and asset management and divested its shares in Design Hotels.
Starwood remains hopeful on the overall hospitality environment in Europe in the absence any drastic downfall. There are more visitors to Europe compared to the US because it is easier to get a visa for the EU countries. Although, Europe is now the epicenter of the global crisis due to the nagging Euro-zone debt problem, management did not feel the brunt in the third quarter, with RevPAR growing 7% involving 1.8 points of occupancy growth.
We believe, Starwood will witness a softening in booking trends in the ongoing fourth quarter as its European business is driven by the leisure segments located specifically in Spain, Italy and Greece. These countries are the most exposed to sovereign debt challenges. Starwood projected RevPAR growth for fourth-quarter in Europe in the 3% to 4% range, keeping the economic tension in mind. For 2012, Starwood’s worldwide RevPAR range comprises 4% to 8% reflecting a continued recovery at the high end and a feebler one at the low end.
On a positive note, we have seen the effect of crisis is not uniform across the region. Among the affected countries, Germany, where the deal is based, remains comparatively well positioned. Secondly, probably it is the right time to acquire an existing asset in Europe rather than setting up a new one through a franchised deal due to credit constraints in the continent.
Satrwood, which competes with Marriott International Inc. (MAR), currently retains a Zacks #3 Rank that translates into a short-term Strong-Hold rating. We also maintain our long-term Neutral recommendation on the stock.
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