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Starwood Accelerates Overhaul Work

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In a concerted effort to strengthen its position in a cut-throat environment, Starwood Hotels & Resorts Worldwide Inc. has been striving to improve guest satisfaction for the past few quarters. The entire hotel industry has mirrored this strategy over the last couple of years and has witnessed a series of brand conversions and asset renovations across the globe.

Starwood, one of the leading players in this sector, is committed to refurbish most of its brands including W, The Luxury Collection, Sheraton and Westin. Starwood has primarily focused on repositioning its older properties operating in dynamic markets in order to maintain consistency with the newer ones. Apart from the proposed renovations, these properties will also be provided with innovative bar and restaurant concepts to attract neighboring guests.  

In June this year, Starwood initiated an extensive remodeling program for more than 11 North American W properties for around $100 million. The project, slated to be finished within 18 months, recently unveiled the fully-refurbished W New Orleans costing $9 million.  

Starwood’s another brand, Luxury Collection Hotels & Resorts, will also undergo a $200 million project to reinvigorate some of its most renowned assets in Europe. Luxury Collection has already reopened the famous Hotel Alfonso XIII in Seville and Hotel Maria Cristina in San Sebastian this year. This is likely to be followed by the unveiling of the revamped Gritti Palace in Venice and Prince de Galles in Paris in 2013.

In addition, Sheraton, one of the company’s most important brands that spearheads Starwood’s market share growth concluded a $6 billion brand-wide revitalization program. It is currently working on another three-year $6 billion international expansion program.

At the same time, Sheraton has other assets under renovation namely Le Meridien, Kuala Lumpur and Jakarta as well as Sheraton, Jakarta and Singapore. Starwood has one of the largest collections of luxury hotels in the industry and seeks to retain a market-leading position through continuous upgrade.  

Starwood plans to reduce its exposure in owned real estate. Market speculations are also rife that Starwood deploys its capital into renovating the owned assets to prepare them as lucrative acquisition targets in a more standardized acquisition environment.   

Though renovation work affects near-term revenue, comparable sales and EBITDA, it is likely to boost returns once completed.

As a point of reference, one of the hoteliers, MGM Resorts International (MGM - Free Report) planned to spend around $350 million in capital expenditures in 2012 for room remodeling at MGM Grand Las Vegas and the Spa Tower at Bellagio. MGM had once commented that it expected an average daily rate lift of $10–$20 for the new rooms at MGM Grand.

White Plains, New York-based Starwood currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also reiterate our long-term ‘Neutral’ recommendation on the stock.

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