Starwood Hotels & Resorts Worldwide Inc. (HOT) recently named its Sheraton brand as its largest and primary global growth driver.
Beating all the other major Starwood brands, such as W and St. Regis, Sheraton currently has the longest stretch in the company’s global pipeline with a 30% allotment. Notably, the brand leads the company’s China portfolio, making it one of the largest international hotel operators in that country.
Sheraton boasts a current portfolio of more than 400 hotels in 72 countries. The brand boasts 92% awareness among business travelers, the highest compared with any other hotel brand. 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 approximately 50 new hotels by the end of 2013.
Outside the U.S., China is already Starwood’s largest market, representing eight of its brands. The company plans to open 25 new Sheraton hotels this year, including 16 in cities across China. Starwood is also slated to open its fourth Sheraton in Shanghai, its second in Beijing and launch two in Guangzhou. With the addition of 16 new hotels, Sheraton will operate 53 hotels in China, by the year end.
Sheraton’s emergence in China dates back to 1985 with the landmark 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. The company is now targeting various Chinese cities, which are under-penetrated but densely populated. One such city is Shantow, where the company recently sealed a deal to build a Sheraton.
However, Starwood’s nearest competitor, Marriott International Inc. (MAR) also plans to double its portfolio in China, which remains the second largest market of Marriott after North America, over the next five years.
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. Starwood’s 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 country.
Apart from China, Sheraton will spread to India, Japan and South Korea. Bangalore, India and Hiroshima, Japan will see their first Sheraton hotels this year while Seoul, South Korea and Montreal, Canada will witness the inauguration of their second properties.
Starwood currently retains Zacks #3 Rank, which translates into a short-term Hold rating. We also reiterate our long-term Neutral rating on the shares.
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