Starwood Hotels Remains Bullish On China

Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT), which operates the Sheraton, Westin and W hotel brands, is moving ahead with its expansion in China, even as the world's second-largest economy suffers a rare slowdown in growth.

Stamford, Conn.-based Starwood now has more than 100 hotels in China, making the country its largest market outside the U.S. It has another 100 hotels planned. It opened 11 new hotels in China in the first half of 2012 and has another 13 expected this year.

"Some would argue that makes us vulnerable to a downturn in China. That might be true, but this is the more important point: China has a long way to grow," said Frits van Paasschen, Starwood's CEO, during an earnings call Thursday. He believes China still has a low inventory of hotels relative to the size of its economy.

"Look at it this way: China's economy is over one-third the size of the U.S., but there are less than one-quarter the high-end hotels to serve that market. So unless you think China will stall permanently, it appears that there's much more risk in missing out on the growth than living through the fits and starts inevitable in an economy this large and growing this fast," said van Paasschen.

China may become increasingly important for Starwood because of Europe's continuing debt turmoil. In Europe during the second quarter, Starwood had lower revenues per available room, an important financial metric in the industry, while all other regions had gains.

Starwood raised its outlook for the rest of the year. In contrast, Starwood's rival Marriot International Inc. (NYSE: MAR), the world's largest public hotel operator, said in June that growth in the Middle East and Asia had slowed.

Shares of Starwood rose 6.38 percent to $52.71 at Thursday's close.