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Starwood to Overhaul W

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Starwood Hotels & Resorts Worldwide Inc. announced that more than 10 North American properties of one of its high-end brands, W, will undergo extensive makeover in the coming 18 months. The renovation will cost more than $100 million. Starwood will carry out the project in association with its several ownership groups, including Host Hotels & Resorts Inc. (HST - Free Report) , Rockpoint Group and Estein & Associates USA.

Starwood remains on track to spread its W operations globally through more than 50 hotels by the end of 2013. The brand was launched in 1998, in New York. The W brand has a high growth trajectory and is already present in every region including North America, Europe, Latin America, Asia-Pacific, the Middle East and Africa.

The brand has been on an uphill ride in terms of revenue generation, reflecting its strength and growing popularity. In the first quarter of 2012, RevPAR growth at W was 8.5% or 8.8% in constant dollars, second highest among all the other Starwood brands.

Starwood mainly considered older properties operating in dynamic markets like New York City, Seattle, Chicago, New Orleans and Los Angeles as ideal candidates for upgradation in order to maintain consistency with the newer ones. Apart from renovation, these properties will also unveil some bar and restaurant concepts to attract neighboring guests.

Since late 2010, hotel companies are working hard on guest satisfaction to uplift their positions in a cutthroat environment. Brand conversion and remodeling became the trend. Following the facelift trend, in March 2011, Starwood embarked on a two-phase $150 million remodeling program for The Sheraton, New York, one of the largest hotels in New York City. Apart from refurbishment, Starwood also focuses on brand conversion via remodeling.  

Renovation work, however, hurts revenue in the near term when construction is on. Starwood’s management commented that extensive renovation at various properties lessened its owned EBITDA by approximately $5 million in the first quarter of 2012 and it expects a similar impact in the second quarter as well. But after the overhaul work, existing properties pay off more.

Many of Starwood’s peers like Marriott International Inc. (MAR - Free Report) and InterContinental Hotels Group are also walking the same path. 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.

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