Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) plans to expand its operations in Latin America by 50% over the next five years. This will lead to the opening of seven hotels per year on an average in that region.
Starwood has been focusing on this fast growing region for quite some time. Starwood sees more construction opportunities in Latin America with around half a billion people and an abundance of natural resources.
The affluent middle class population in Latin America which grew by 50% over the last decade and greater footfall in the region caught the attention of Starwood. Apart from being a tourist hub, the region is also emerging as a business hub.
Starwood’s entry into Latin America dates back to 1963 when Sheraton Maria Isabel debuted in Mexico City. The property also marks the first international hotel company in Latin America. Leveraging its first-mover advantage, Starwood has become one of the most sought-after global brands in Latin America.
Starwood currently operates 72 hotels in 13 countries with a total of 15,600 rooms. Since 2007, its footprint in Latin America grew 36% making it the largest high-end hotel operator in the region. Presently, it has a pipeline of 19 hotels and intends to open six more under four different brands across four countries through 2013.
Among all other Latin American countries, Brazil and Colombia are expected to lead the growth trajectory. Brazil is set to witness a surge in demand driven by the resurgence of the middle class. A large number of hotels will be constructed in the country to cash in on the FIFA World Cup, which is scheduled in 2014 along with the Olympics in 2016.
Of late, Colombia has also undertaken steps to improve its economy and hotel infrastructure and thereby become an attractive destination for foreign investment and international hotel brands.
On the flip side, while Brazil and Colombia promise solid growth in the region, Argentina remains a laggard. In the first quarter of 2013, Starwood’s Latin America revenue per available room (RevPAR) was flat. Management expects the sluggish trend to persist in the region owing to deteriorating political situation, rising inflation and an over-valued currency in Argentina. However, we believe, these threats are short-lived.
Starwood currently carries a Zacks Rank #3 (Hold). Other players in the same industry, which look attractive at current levels, include Marriott Vacations Worldwide Corp. (VAC - Snapshot Report), Las Vegas Sands Corp. (LVS - Analyst Report) and Wynn Resorts Ltd. (WYNN - Analyst Report). While Marriott Vacations carries a Zacks Rank #1 (Strong Buy), Las Vegas Sands and Wynn Resorts carry a Zacks Rank #2 (Buy).