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A Hotel Upstart Steps Aside

Now that master dealmaker Barry Sternlicht has announced his plans to step down as CEO of Starwood Hotels & Resorts Worldwide, the focus is on whether his successor will be a hotel veteran. The fact that Sternlicht has approached candidates from outside the hotel industry, including executives with retail and entertainment backgrounds, offers a clue.

Industry observers say that someone with a strong marketing touch could be an ideal candidate for publicly traded Starwood (NYSE: HOT), which operates Sheraton, St. Regis, W and other chains. “The hotel industry can learn a lot from someone who understands marketing consumer products,” says Thomas McConnell, senior vice president of CB Richard Ellis, a brokerage and advisory firm in Los Angeles. “If Starwood got someone from a company like Pepsi, that might not be a bad idea.”

Sternlicht announced in October that he will officially step down as soon as a new CEO is chosen, but there is no specific timetable for the transition.

At a time when hotels are still struggling to boost occupancy rates, Sternlicht — who will remain as executive chairman and a major shareholder — could use help to win back business travelers and maintain growth. The company plans to continue renovating its Sheraton units and expanding W Hotels, the trendy chain founded by Sternlicht.

Altogether, Starwood plans to open 36 full-service hotels and resorts by the end of 2004. The pipeline includes W Hotels in Dallas and Fort Lauderdale, along with a Westin in Las Vegas and a Sheraton in Capetown, South Africa.

Much of the new construction will focus on upscale resorts and developments. A major project is the St. Regis Museum Tower, a 42-story hotel and condominium complex located next to the San Francisco Museum of Modern Art. Starwood has invested $126 million in the project and expects to realize proceeds of $180 million from sales of condominiums when the projected is completed in 2006.

Sternlicht's track record is impressive. In 1995, Sternlicht took over a nearly bankrupt real estate investment trust and began a flurry of deals that built up an industry giant. Much of the operating team that managed Starwood's growth remains in place. Starwood recently promoted Robert Cotter to president and COO. A company veteran, Cotter served as president of international operations.

“Sternlicht seems to have planned the transition well,” says Mark Woodworth, executive vice president of PKF Consulting in Atlanta. “Cotter is a longtime Sheraton person.”

Besides continuing to build up the successful W operation, Sternlicht says he will play a future role in capital investment and real estate matters, his specialty. One long-term goal is to reduce the number of hotels that Starwood owns, putting more emphasis on developing revenues from franchise and management fees. During the second and third quarters of 2003, the company sold 15 domestic hotels to investors who will franchise most of the properties in the Starwood system.

In addition, Starwood sold five hotels in Italy, for which the gross proceeds were $1.1 billion. By cutting back on ownership, Starwood reduced its debt and gained flexibility to expand through franchising.

The belt tightening has helped the company bounce back from hard times. As a result of the war in Iraq, business travelers stayed home and Starwood suffered a net loss of $117 million in the first quarter of 2003. Since then, sales have revived — the company reported net income of $48 million in the third quarter.

Overall, Starwood's revenue per available room increased by 4.4% in the third quarter compared with a year earlier. W Hotels were noteworthy, showing an increase of 13.5%. That promising performance should make the task of Sternlicht's successor easier.

TAGS: News Hotel
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