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In preparation for the HOT Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HOT’s Q1 earnings call and subsequent conferences/releases.

Post earnings call commentary (June 21 – Jefferies Conference / June 8 – Goldman Conference)

  • “We’re very focused on deleverage; we’d like to be a solid investment grade rating over time. That means additional debt pay-down in the coming years; we do have maturities that come due in ‘12 and ‘13 that we will pay down with some of that excess cash. But we are also very focused with any incremental cash that we generate from time share and our lodging operations, as well as selling assets to reinvest that capital in the business and accelerate our growth.”
  • “There’s still not a lot of capital available for buyers to put debt on those properties, so the pool of capital is still relatively limited.”
  • “You won’t get that kind of ramp in incentive fees that you might have gotten if you had a lot of old U.S. contracts, because we didn’t see that kind of decline either. Having said that, we will get some ramp”
  • “Hotels will be as profitable as rate. Rate is the make or break variable… Rates are still well below where they were, at least 10%, 15% in some places. Rates will not only get back to where there were in nominal terms, but I am convinced they will go well past, there is no question about it, because there really isn’t going to be any hotel construction unless they do that.”
  • “On the cost side… the insurance markets are tighter, so insurance costs are going up but they are not such a big chunk of costs that they will be a big factor. The same with utilities. F&B, we tend to want to pass on those costs… if we have big inflation, there will some cost pressures, but hopefully, we also have rate flexibility. What happens to margins in this industry over the cycle, entirely a function of rate. It is the variable to watch.”
  • “Our immediate priority in priority order, reinvest in the business, pay down some debt. Those are the first two priorities. We scaled back investing in our business through the tough times in ‘09 and to some degree in ‘10. We’ve begun to scale it back up in our own hotels. Our own hotels need some capital.”
  • “My guess is we’ll get to a BBB rating sometime next year. Once we’ve gotten to those, then we get to the point where, where do we put excess cash? Well, clearly acquisitions, if they are available, we would be interested, not of real estate, but of brands.”
  • “So if there is a slowdown going on today, I think the rule of thumb people have had is, we may see it in our business six months from now.”
  • “Yes, the environment is good today in terms of pricing, but it’s not a deep market for hotel sales. So we did $6 billion or $7 billion of the hotel sales in the ‘06, ‘07 timeframe in one $4 billion-plus sale. I don’t know of anybody out there today who is in the market for a $2 billion portfolio.”
  • “We get a very small percentage of our business from OTAs (Online Travel Agency) today, less than 5%.”

Youtube from Q1 Conference Call

  • “Our vacation ownership business continues to be a strong source of cash, and with small re-investments, we can sustain our sales and cash generation at current levels through 2013.”
  • “Our group pace – or the total amount of group business we have on the books for 2011 – is on track to be up double-digits. We’re also on track for our group pace in 2012 to be ahead of 2011. In fact, we now have more business on the books for 2012 than we did in early 2006 for 2007.”
  • “Our corporate negotiated rates, we’re happy to report that we achieved the high single-digit increases that we were seeking. Coupled with rising occupancies, transient revenue increased 15% in Q1, and from what we can see today, this trend is continuing in Q2, with room nights booked one month out on track to increase double-digits and with ADRs up over 6%.”
  • “Midweek occupancies now are approaching 2007 levels in gateway cities such as New York, London, Paris, Hong Kong, as business travel, particularly at the high end, remains robust.”
  • "We expect to make $5 million to $10 million in Japan, a $20 million to $25 million EBITDA shortfall for the year. Given the financial condition of the Sheraton Grande Tokyo Bay, we have written off our equity investment. All in all, Japan will be a headwind this year.”
  • “U.S. Booking pace remains strong in China, though comparisons will be affected by the lapping of the World Expo in Shanghai in Q2 and Q3 last year.”
  • “Moving on to the Middle East and Africa, the political turmoil in North Africa continues, with no clear end in sight. Our one hotel in Libya is shut, and travel into most North African countries is down sharply. We have 24 hotels across the affected countries, which includes all of North Africa plus Bahrain, Syria, and Jordan. We expected to earn at least $15 million in fees this year. We now estimate our fees will be cut in half, with no incentive fees earned and base fees down sharply.”
  • “EMEA division is working on offsetting shortfalls from the Middle East in other parts of the region The first quarter is a small quarter in continental Europe, but booking pace suggests strength as we enter Q2.”
  • “Drug wars and the negative press in the U.S. have decimated leisure travel into our Mexican resorts. In the peak season, occupancies were in the 50s, and rate was down sharply, as we have to replace U.S. guests with lower-rate domestic business.”
  • “In Latin America, the gap between high local inflation while currencies appreciate relative to the dollar is severely hurting our owned hotel margins, particularly in Argentina. This inflation devaluation gap caused our owned margins to decline as much as 400 basis points in Q1. We are working on improving our dollar rate realization with our global accounts and by remixing the business.”
  • “Based on current trends, we expect second quarter RevPAR growth to be in the same range as first quarter growth in North America, despite tougher comparisons.”
  • “In Q1, worldwide RevPAR was 10% below the Q1 2008 peak, 9% lower on rate and 100 basis points lower on occupancy.”
  • “Our vacation ownership business continues to be stable. Sales to existing owners have picked up, and tour flows are getting better. Default rates also continue to decline.”
  • “Japan, North Africa, and the sale of the Westin Gaslamp will reduce Q2 EBITDA by approximately $10 million”
  • “Sales have continued at good square foot rates and high deposits, and we’ve been in contact with people with signed contracts to alert them to the upcoming closing schedule. As we have indicated, there will be income recognized from closings that are completed in 2011 which is not included in our outlook. We will provide our best estimates as we get closer to actually initiating the closing process. Any cash from closings this year is also not included in our estimate of cash flow from our vacation ownership and residential business.”
  • “When you look at the lower-rated channels, OTA, our business with OTA has probably peaked at 5% to 6% of room nights, whereas when you went back to 2007, that number was closer to 2% or 3%, so there’s several percentage points that we can gain by moving to our own higher-margin distribution channels instead of using the OTAs. And our business with government is relatively small, call it just under 3%, and at the prior peak, that was probably 1% or 2%. So there’s some room to grow there from a mix standpoint.”