Four Points by Sheraton, one of the upscale hotel brands of Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) recently inaugurated its third property in Mexico. Owned and managed by Mexican Sora Group, the property in Colonia Roma features 90 rooms, more than 9,300 square feet of flexible meeting space along with various tech-savvy amenities. The new Four Points also marks the fifth Starwood brand in Mexico City.
With everyone looking forward to the winter season in Latin America, we believe the timing of the recent hotel opening is appropriate. Further, the property is in proximity to several popular sightseeing spots.
Starwood set a new trend in hotel designs with its Four Points by Sheraton brand and has spread its operations globally with more than 160 hotels. Starwood plans to open as many as 23 Four Points hotels in 2012 itself, thus making it the second largest pipeline across the company’s brands.
Strong economic growth is driving the hotel’s expansion in Latin America, overruling the high rate of inflation. In the first quarter of 2012, Latin America led the overall RevPAR growth clocking a year-over-year 14.4% increase, while RevPAR at Mexico scored even a better growth of 17.0%.
A fraction of the rising middle income population in Mexico has an inclination to spend on travel and leisure. Apart from tourism, the region is successfully emerging as a business hub. The U.S. groups are once again taking interest in Mexico for business and leisure. Moreover, a long-standing presence in this country allows Starwood to enjoy a stable relationship with owners and developers across the country. Therefore, Starwood sees more construction opportunities in Mexico with an abundance of natural resources. The stellar performance from this region is expected to continue in the near future.
Owing to the saturation in the U.S market, major hoteliers are exploring growth opportunities abroad. The current trend shows that the economic balance of power has been shifting from the developed world to the rapidly growing economies and this transition has not escaped Starwood’s notice. Going by this trend, Central and South America promise solid growth going forward.
The company should be wary of its competitors, as they too are in expansion mode. Several major hoteliers like Marriott International Inc. (MAR - Analyst Report), InterContinental Hotels Group (IHG - Snapshot Report) and Hyatt Hotels Corporation (H - Snapshot Report) are also poised to beef up their portfolio in that region, thus making the market competitive.
Starwood currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.