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“We continue to see strong demand across both business and leisure travelers. This demand fueled growth across each of our nine distinct and compelling brands. Our efforts to hold the line on costs enabled us to beat EBITDA and EPS expectations in the quarter."

- Frits van Paasschen, CEO


  • Adjusted EBITDA $262MM and EPS of $0.50 (excluding special items) vs. guidance of $245-255MM and $0.42-$0.46 and consensus of $256MM and $0.46
  • WW Systemwide SS RevPAR: 11.8% (8.2% in constant $) and SS NA RevPAR: 9.5% (8.7% in constant $)
    • In line with constant dollar guidance
  • "Excluding special items, the effective income tax rate in the second quarter of 2011 was 25.4%"
  • "International gross operating profit margins for Same-Store company-operated properties were flat, negatively impacted by political unrest in the Middle East and North Africa, as well as the earthquake in Japan. North American Same-Store company-operated gross operating profit margins increased approximately 170 basis points, driven by REVPAR increases and cost controls."
  • "Management fees, franchise fees and other income were $201 million, up $24 million, or 13.6%... Management fees increased 11.0% ...and franchise fees increased 19.5%... Excluding North Africa and Japan, management fees increased 16.1%."
  • "At June 30, 2011, the Company had over 350 hotels in the active pipeline representing almost 90,000 rooms."
  • During the second quarter of 2011, 13 new hotels and resorts (representing approximately 2,900 rooms) entered the system. Six properties (representing approximately 1,700 rooms) were removed from the system during the quarter"
  • [Owned, leased, consolidated JV]: "Second quarter results were impacted by the effect of the earthquake at the new leased St. Regis Osaka, five renovations and three asset sales."
  • "Originated contract sales of vacation ownership intervals increased 8.1% primarily due to improved sales performance from existing owner channels and increased tour flow from new buyer preview packages. The number of contracts signed increased 5.3% when compared to 2010 and the average price per vacation ownership unit sold increased 2.0% to approximately $14,800, driven by inventory mix."
  • "Selling, general, administrative and other expenses decreased 4.3%...due to lower accruals for incentive compensation and lower legal expenses, offset by a weaker dollar."
  • Capex: $51MM of maintenance and $32MM of development capital. Net investment spending on VOI & residential was $31MM
  • During 2Q, HOT "completed the sales of... Westin Gaslamp (San Diego) and W City Center (Chicago), for cash proceeds of approximately $237 million. These hotels were sold subject to long-term management contracts. Additionally ... the Company sold a consolidated joint venture hotel, the Boston Park Plaza, for cash proceeds of approximately $44 million and the buyer assumed $57 million of debt...The Company recognized an after-tax loss in discontinued operations of $18 million as a result of the sale."
  • 3Q Outlook: 
    • Adjusted EBITDA $225 - $235MM (includes impact of asset sales which reduced EBITDA by 8MM)
      • Guidance is below consensus of $240MM - The Westin Gaslamp and W Chicago were previously announced but the Boston Park Plaza announcement is new
    • SS Company Operated WW RevPAR:  7-9% in constant $ (500bps higher at current FX rates)
    • Branded SS Owned WW RevPAR:  8-10% in constant $ (700bps higher at current FX rates)
    • Fee growth of 13-15%
    • VOI and residential earnings:  Flat
    • D&A: $76MMM
    • Interest expense:  $55MM
    • Income from continuing ops: $70-78MM
    • Tax rate:  25%
    • EPS:  $0.36-$0.40 (consensus $0.37)
  • 3Q Outlook 
    • Adjusted EBITDA $975MM - $1BN
      • Unchanged from prior guidance. 4Q consensus is $293MM vs. implied guidance of $280-295MM
    • SS Company Operated WW RevPAR: 7-9% in constant $ (300bps higher at current FX rates)
    • Branded SS Owned WW RevPAR: 8-10% in constant $ (400bps higher at current FX rates)
      • 1% higher than prior guidance
    • EBITDA impact of asset sales: $20MM
    • Branded SS WW Owned Margins: 150-200bps
    • Fee growth of 11-13% (1% higher)
    • VOI and residential earnings: $130-140MM (Unchanged)
    • SG&A growth: 4-5% (unchanged)
    • D&A: $310MMM (vs. prior guidance of $320MM)
    • Interest expense: $230MM (prior guidance of $240MM)
    • Cash taxes: $80MM
    • Tax rate: 25%
    • EPS: $1.67-$1.77 ($0.07 raise)
    • Capex: $300MM for maintenance; $150MM for investment projects & JVs. VOI ex Bal Harbour: $165MM of positive cash flow
    • Closing of Bal Harbour units to commence in late 4Q11. Capex of $150MM


  • Many developers around the world are interested in investing in hotel development. Their corporate clients and affluent leisure customers are healthy.
  • Rate and occupancy are now equally contributing to RevPAR growth and expect that going forward, ADR will be more of a driver
  • Latin America was their fastest growing region.  Europe performed well despite soveriegn debt issues. Mexico is recovering. Asia Pacific grew 16% outside of Japan and Shanghai.
  • 8th quarter in a row of RevPAR index growth
  • Rates on newly booked business for 2012 are up 9% and 12% for beyond 2012
  • Business transient revenue is up 9%
  • Forsee strong rate increases for corporate rate negotiations next year and the balance of this year
  • Leisure business - 7% price increase this quarter
  • VOI:  For the first time in 4 years realized price increases.
  • Expect solid group and transient pace for the balance of 2011
  • SPG drives 50% of their occupancy in China
  • Exceeded the high end of their guidance despite the sale of 3 large assets which cost them $5MM in the quarter
    • Gaslamp was already announced and factored into their guidance
  • Core business is performing better than they expected at the beginning of the year
  • So far in July, the momentum of the second quarter is continuing. They see no change in trends so far and therefore assume that the normal RevPAR recovery will continue.
  • No change in US momentum headed into 3Q
  • No improvement in sight for the Middle East. The Gulf continues to work through oversupply issues as well. Most significant impact on their business is on incentive fees.
  • Asia is now their 2nd largest region which should double in 5 years. Demand continues to outpace supply in Asia. China ex Shanghai was up 12%.
  • Vacation ownership - default rates are back to 2007 levels.  Remain focused on cash flow generation with a securitization planned for 4Q.
  • More comfortable for the midpoint of their guidance range than the high end reflected by the Street. Their guidance for FY11 has remained unchanged despite the events in Japan and the sale of 3 assets.
  • North Africa and Japan are projected to negatively impacted management fees by $18MM for FY11. 4Q growth will be lower than in the first 3 Q's of the year.
  • 40% of their fees are earned in the US
  • Remain on track to open 70-80 hotels in 2011
  • Bal Harbour:  Plan to start closing in November. Sales pace is good - especially from Latin American buyers


  • Usually 1/3 of their group business in 2011 was booked in 2011, 1/3 was likely booked in 2010 and 1/3 was booked in the year for the year...which is typical
  • Their leverage ratios are approaching investment grade, but rating agencies are more conservative in calculating leverage. They include leases and don't give credit for cash on the balance sheet. They have $650MM of maturities next year.
  • Have no philosophical issues with returning excess cash to shareholders, it's really an issue of timing for them
  • They are signing most of their new deals in Asia and Latin America for fresh construction. North American signings have more conversions.
  • Their NA hotels will have margin improvements above 200bps, but international will be below 150bps - given the margin pressures in Latin America.  L.A. had 75bps of negative impact on the quarter's margins.
  • As time passes they do believe that there will be good ROI investment opportunities for timeshare, but the business will not get back to its prior scale
  • The group pace for 2012 continues to improve, but today it's mostly volume driven rather than rate for what's on the books. However, new business being booked is at much higher rates.
  • Approaching 60% of the value of the condos at Bal Harbour under contract ($1BN in total). Indications are that closing rates will be high.  Prices are still at pre-crisis levels.
  • M&A environment - not deep enough for a large portfolio sale. See pricing improving substantially, but it's a one's and two's market