Starwood to open budget line of hotels

Jeannine DeFoe

Monday, June 6, 2005 | 11:15 a.m.

Starwood Hotels & Resorts Worldwide Inc. will introduce a budget version of its W Hotels in 2007 to compete with chains owned by Hilton Hotel Corp. and Marriott International Inc.

The new chain, tentatively called XYZ, will have more than 500 locations by 2015, White Plains, N.Y.-based Starwood said today in a statement. Each XYZ will include 90 to 180 loft-like guest rooms, booths for preparing business presentations and lobbies with 24-hour food service and lounges.

Starwood, whose W hotels charged $222 a night for a room last quarter, has lacked a lower-price chain to compete with brands including Hilton Garden Inn and Courtyard by Marriott. Starwood, owner of the Sheraton and Westin chains, needs to get bigger, Chief Executive Steven Heyer said today at an investment conference in New York.

"They are trying a different twist to hit a segment of the market already populated by other chains," said Sam Lieber, chief executive of Purchase, New York-based Alpine Management & Research LLC, which manages $2.9 billion including more than 900,000 Starwood shares. "If they can do it, it will be another engine of growth."

Net income at Starwood rose 28 percent last year to $395 million and more than doubled last quarter. The company's shares fell 31 cents to $57.44 at 12:22 p.m. in New York Stock Exchange composite trading. Through yesterday they had risen 39 percent the past year.

XYZ stems from demand by real estate developers for more affordable hotels patterned on W in cities including Palo Alto, California; Cambridge, Massachusetts; Raleigh-Durham, North Carolina; Tampa and Minneapolis, the company said.

"Affordable doesn't have to be boring as brands like Jet Blue, Mini Cooper, West Elm and Target have proven so brilliantly," Heyer said in the statement. "With the DNA of W, XYZ will democratize design and offer guests an environment that is extraordinarily social."