Post-CEO exit, Starwood urges unit growth
 
Post-CEO exit, Starwood urges unit growth
24 MARCH 2015 8:03 AM
Unit growth is a key phrase at Starwood Hotels in 2015 as the company looks to capitalize on the progress made during 2014.
REPORT FROM THE U.S.—With an order from the new top man at Starwood Hotels & Resorts Worldwide echoing throughout the organization, the company is putting an emphasis on unit growth for 2015.
 
Starwood Hotels’ announcement last week that it is marketing three assets in Fiji (the luxury, 300-room Sheraton Fiji Resort; The Westin Denarau Island Resort & Spa, which comprises 276 rooms; and the Denarau Golf & Racquet Club) illustrates this strategy. Proceeds from asset sales will go to fund general corporate purposes, which could include growth, said Simon Turner, president of global development at Starwood Hotels.
 
The asset sales are taking place as Adam Aron, who took over the CEO suite in February on an interim basis following the departure of Frits van Paasschen, keys the company’s unit-growth drive.
 
Unit growth
Starwood signed 175 management and franchise contracts during 2014, representing approximately 34,700 rooms. Michael Bellisario, an analyst at Robert W. Baird & Company, said Starwood needs to keep pace with competitors. Marriott International added 46,000 rooms to its portfolio in 2014, and Hilton Worldwide Holdings added more than 36,000 rooms.
 
Marriott and Hilton are telling this really good story about unit growth,” Bellisario said.

Starwood Hotels & Resorts Worldwide systemwide portfolio size during van Paasschen’s tenure
 
During a conference call earlier this year, Aron said one of his priorities will be to drive pipeline growth.
 
“He has told us he is not here to babysit,” Bellisario said of conversations Baird officials have had with Aron. 
 
Carrie Bloom, a representative for Starwood, declined to identify a timeline in the search for a new CEO. Bellisario said an important distinction to make about Aron is that Starwood has described him as being CEO on an interim basis, and not interim CEO. This indicates Aron could be in the top spot at Starwood for some time, “much longer than three or six months.”
 
“In our eyes and view there is a difference. … He gave up everything on the spot over the weekend (when asked to take the job). If he were an interim CEO, he would not have given them up,” he said.
 
Turner said portfolio development has indeed kicked into a higher gear at Starwood. The 175 deals signed a year ago represent the most since the 2007/2008 timeframe. Starwood’s portfolio consists of more than 1,200 properties worldwide.
 
“It’s a healthy mix between management contracts and franchised,” Turner said during a telephone interview. “We don’t want to have all of our eggs in one basket. It’s also a healthy mix between conversions and new builds with more new builds than conversions at this point.”
 
Bellisario said Baird’s model assumes Starwood won’t hit its unit-growth stride for at least a couple of years. “It’s not going to happen overnight,” he said.
 
  • Read Hotel News Now’s “2015 Big Brands Report” for more about the companies and brands driving unit growth. 
 
Internal growth
Bellisario said Starwood officials are determined to grow internally. During the company’s fourth-quarter earnings call, van Paasschen noted a soft brand is in the offing for the company. Turner declined to elaborate. 
 
Bellisario said one of the first hotels in that collection is the James Royal Palm on Miami’s South Beach, which Chesapeake Lodging Trust bought as part of a $278-million deal earlier this month. 
 
“I think that’s a good first deal,” Bellisario said. A message left for Doug Vicari, executive VP and CFO at Chesapeake, was not returned prior to press time.
 
Aside from the soft brand, Turner said the company wants to step up development of its Element brand, which launched late in 2007 and represented 14 hotels as of 31 December 2014. The downturn played a big role in stunting that brand’s growth, Turner said.
 
“In the history of the hotel business, there probably wasn’t a more challenging time to launch a new brand,” he said. “We certainly didn’t foresee the leisure downfall and the Bear Stearns downfall and the capital markets crisis.
 
“What was fascinating was we had four or five hotels open and consumer reaction was extraordinarily good. We thought about putting it on ice, but we said, ‘You know what? Consumers like this brand so much.’”
 
Going forward, the biggest challenge for Starwood will be to pick the initiatives and strategy that are going to create the most amount of shareholder value, Turner said.
 
“If you spread yourself too thin and try to do everything, at the end of the day you’re going to dilute your efforts,” he said. “It’s about prioritizing the priorities. I think that we struggle with that day in and day out. We have to continue to test ourselves to look at new initiatives and re-examine old initiatives.”
 

2 Comments

  • hermann simon March 25, 2015 10:37 AM

    you have by now understood that its time to move faster yo keep with the competition if you feel that number of units are important. However you have missed out in India, China and Russia very badly which are the merging markets for the next 50 years. The question is only what do you want! It does not matter which side you will move but do not overlook that hotel business is not made only on the share and stock market its made in each guestroom all the time and therefore you will need to look at the possibilities to increase rev. bar..............good luck, you can do it but get the right team players in the public view.

  • HotelsLife March 26, 2015 9:55 AM

    Ironic enough how people forgot quickly what FVPaasschen put through for Starwood. Owners and Shareholders are looking at the very very short term just like we learned nothing from economic trurndown.

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