Starwood Hotels to launch another soft brand
10 FEBRUARY 2015 1:01 PM
Executives at Starwood Hotels will launch a new hotel collection to fill the “white space” between their existing Luxury Collection and Design Hotels.
STAMFORD, Connecticut—Another soft brand is in the works for Starwood Hotels & Resorts Worldwide.
The collection will fill the “white space” between the high-end Luxury Collection and the recently acquired German-based Design Hotels AG, Frits van Paasschen, president and CEO, said Tuesday during an earnings call with analysts, which was webcast.
“This is something we began in discussion with owners at the latter half of 2014,” van Paasschen said.
Executives are in discussions regarding conversion of a number of properties, but the CEO declined to share specific details.
“Negotiations are sometimes hard to predict in terms of their actual point of conclusion,” he said. “Until we have something or specific to say, I’m not going to comment on those.”
The move comes as Starwood, which added 7,406 net rooms (or 2% to its existing portfolio of 354,225 rooms) to its global portfolio during 2014, looks to accelerate unit growth to be more in line with its peers.
“We were disappointed with our net rooms growth in 2014,” said CFO Thomas Mangas. “We are taking several actions to drive to our longer-term target of 4-5% net rooms growth.”
Regarding the new soft brand, he said, “It’s a way we’re evolving our business model to meet some key opportunities that we’ve not been able to access with our nine core brands.”
As of press time Tuesday afternoon, Starwood’s shares (NYSE: HOT) were up 7.7% in the day’s trading. Year to date, the company’s stock was down 5.4%. The Baird/STR Hotel Stock Index, meanwhile, was up 0.2%.
More growth levers
Executives also have deployed more “feet in the street” to support higher levels of deal activity and more complicated deals, Mangas said.
“We’ve been one to go out there and do pretty straightforward key money deals,” he said, adding the development community is looking for more creativity and flexibility to get projects off the ground.
Acquisitions represent another growth lever.
“We have been a company that was built on acquisitions,” Mangas said, referring to the company’s 2005 buy of Le Méridien and the 2014 completion of its Design Hotels deal. “I think you’ll see us being a bit more intentional here as that being an inorganic lever to drive unit growth.”
While the company maintains an opportunistic approach to deals sourcing, executives are unlikely to target any select-service brands, Mangas said. Starwood is seeing “tremendous” interest in its existing slate, which includes Aloft, Element and Four Points by Sheraton, he said.
“I think we’re going to stick with our knitting on the brands we’ve developed,” he added.
Also helping unit growth: The 175 management and franchise contracts signed during 2014 represented the second-best year in the company’s history.
Together, these efforts should push unit growth back into the 4%-to-5% target range, the CFO said.
“I’m very confident that with this mix of actions you’ll see us make significant progress here,” he said.
Starwood’s executive team is committed to its asset-light goals set in 2013 of selling $3 billion in assets and generating 80% of revenues through fees by the end of 2016.
The company sold six wholly-owned and one unconsolidated joint-venture hotel for gross cash proceeds of approximately $585 million during the fourth quarter. For the full year, eight hotels were sold for proceeds of $817 million.
Expect a similar pace in 2015, executives said.
“We’re in active discussions with our properties with different owners around the world. Some of those are widely known. Some of those are more discreet,” van Paasschen said.
Starwood owns 36 of the 1,222 hotels in its portfolio, 13 of which are in North America.
Executives have countered criticism of a lackluster disposition pace in recent years, arguing they’re holding out for offers that reflect the value of each asset.
“It’s probably been more of a good thing than a bad thing that we’ve been doing this carefully, because 2015 is a year we’ll see more interest and higher value,” van Paasschen said.
“That said, we don’t want to wait until it’s too late, either,” he added.
Mangas said interest around the world is high. “The buyer community continues to be strong,” he said.
If Starwood unloads $800 million worth of assets in 2015, that leaves approximately $1 billion worth of sales needed to hit the $3-billion target by the end of 2016, according to executives.