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Starwood believes the timing is right to get out of the real estate business to a great extent as it joins Marriott and InterContinental in focusing on management fees as the more stable and lucrative revenue stream.

Starwood Hotels & Resorts Worldwide Inc., owner of the St. Regis, Sheraton and Westin brands, plans to sell $2 billion to $3 billion of hotels in two to three years, Chief Executive Officer Frits van Paasschen said today.

“If markets continue to improve for the sale of hotel assets,” properties in North America, Latin America and Europe would be sold as Starwood hones its focus on managing hotels and brands rather than owning real estate, van Paasschen said in an interview in Dubai, the CEO’s base for a month ending today and home to 14 Starwood hotels.

The company, based in Stamford, Connecticut, has been selling real estate to focus on operations driven by fees, which are less susceptible to economic slumps than revenue from owning buildings. Starwood is divesting assets and cutting costs to boost revenue and protect its investment-grade credit rating, which it regained in 2011 after being cut to junk when sales sank in 2009.

The company is seeking to increase hotel-management revenue to 80 percent of the total from 25 percent five years ago, the CEO said. Management fees currently make up around 60 percent to 65 percent of total revenue, meaning Starwood has met or is close to reaching a goal that van Paasschen spelled out less than six months ago on an Oct. 25 conference call.

“Our balance sheet is very strong,” van Paasschen said. “As we generate cash either from ongoing operations or from the sale of additional real estate, that represents cash that can be returned to our shareholders” through increasing dividends or buying back shares, he said.

Competitors Sales

Starwood symbolically moved its headquarters to Dubai from Stamford for a month starting March 4 to emphasize its global strategy and commitment to the Middle East and Dubai, which has the highest concentration of Starwood hotels after New York. The company relocated to China for a month in 2011.

Competitors such as InterContinental Hotels Group Plc are also selling properties to boost revenue. IHG, owner of the Holiday Inn and Crowne Plaza brands, has sold about 191 hotels since becoming an independent company in 2003. Marriott International Inc., the largest publicly traded U.S. lodging chain, gets about 90 percent of its earnings from fees, Chris Snow, a CreditSights Inc. analyst, said last year.

Potential buyers of Starwood’s properties range from real estate investment trusts in North America to investment funds around the world to sovereign-wealth funds and high-net-worth families or individuals, van Paasschen said.

Starwood has sold at least six properties in the past year, including W New Orleans, W Chicago Lakeshore, W Los Angeles/Westwood and the Manhattan at Times Square Hotel, according to data compiled by Bloomberg.

The company owns 42 hotels “out of nearly 1,150 that we have on our system,” van Paasschen said. “We have joint ventures and leases for a number of hotels beyond that.”

Starwood typically has agreements to manage the properties that it sells, with some lasting as many as 40 years, he said.

Editors: Jeff St.Onge, Ross Larsen, Andrew Blackman. To contact the reporter on this story: Zainab Fattah in Dubai at [email protected]. To contact the editor responsible for this story: Andrew Blackman at [email protected]. 

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Tags: real estate, starwood

Photo credit: The W New Orleans, which Starwood has already sold. Sean Davis / Flickr

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