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Like every other release, Starwood beat consensus estimates and put forward lackluster guidance.  While the quality of the Q was just OK, 2012 RevPAR guidance shows the health of this business.

“It is still too early to have a clear view into 2012. There are, to be sure, many clouds over the global economy. But three facts give us cautious confidence. First, in developed markets, occupancies are now at 2007 levels and at a point where rates historically have always risen. And yet, few new hotels are being built. Second, many emerging markets are continuing to see strong growth. Even if economic activity were to cool down, we see unmet demand for hotels. Third, our efforts to gain share have enabled our brands to outgrow the marketplace for more than eight quarters in a row.”

- Frits van Paasschen, CEO


  • So far, this doesn't feel anything like 2009.  Even in a lackluster economy, their leisure and corporate customers are still traveling.
  • In Europe, austerity measure have led to a slowdown in RevPAR growth, although their customers are still traveling 
  • North American RevPAR increased 8% with growth in Phoenix of 23%, Honolulu 14%, San Francisco 14, and New York 5%.  
  • Europe's RevPAR grew by 7% including Paris at 19%, Barcelona at 15% and Florence at 8%
  • Tokyo occupancies are recovering  but RevPAR was still down 12% compared to last year pre-disaster levels
  • Asia Pacific RevPAR up 16%, excluding Japan and Shanghai.  Chinese hotels excluding Shanghai: Beijing +24%, Bali up 40%, Jakarta 14% and Mumbai 11%.  
  • Latin America is booming;  RevPAR: Rio +19%, Cancun +25%, Mexico City +25% and Buenos Aires +24%
  • RevPAR for Africa and the Middle East: in countries not touched by political turmoil, RevPAR increased 6%  
  • Majority of their pipeline will open over the next 4 years
  • HOT opened 320 hotels since 2008
  • W is poised to be reach 100 hotels in a few years.  St. Regis: 17 expected to open over the next few years with 90% outside of the US
  • Since 2007 they have grow Westin 37% outside the US
  • SPG international members will soon exceed domestic members
  • Asset sales have averaged 19x since 2007
  • Vacation Ownership team returned $700MM of capital over the last few years
  • Will continue transferring to asset light. Seeing weaker demand for assets right now but they can afford to be patient.
  • Currently, their incentive fees are higher quality than 2007's since their current incentive fees are largely international and based on first dollar in
  • Occupancies are at levels now where ADRs have typically risen, which is why they are looking for double digit corporate rate increases.
  • Expect that SG&A will only grow 2-3%/year in 2012 from 2010 
  • Will step up investments in technology and systems which should help them gain share and reinvest in their asset base to keep their assets fresh
  • Transient RevPAR grew 9% with group RevPAR up 7% in 3Q. Secondary indicators like leads and cancellations also remain positive.   
  • 90% of group business is already on the books for 2011
  • Transient booking momentum remains strong and are not seeing any change in trends in 4Q
  • Projecting that Q4 RevPAR growth in North America will remain generally in-line with Q3. Closely watching Canada which is showing some signs of softness partially due to the strong Canadian dollar.  
  • Didn't see the negative impact from European austerity measures in their RevPAR in 3Q. Have seem some impact/ slowdown from economy in September and therefore projecting RevPAR growth of 3-4% in the 4Q. 
  • Rate of RevPAR decline in ME&A moderated in 3Q. YoY fee growth comparisons will suffer in 4Q - as they will not earn any incentive fees.  In total our 2011 fees in N. Africa will be down $10MM-  in-line with prior estimates
  • Asia continued to power along in 3Q, India was soft.  Japan is slowly recovering - FY impact of Japan remains at $20MM as previously estimated.  Expect a small sequential decline in Asia RevPAR in Q4.
  • Latin America will grow double digits in 4Q
  • Hope to complete a securitization in 4Q and if they do they will generate over $200MM from VOI in 2011.
  • 4Q EBITDA estimates was negatively impacted by $4-5MM due to a strenghening of the dollar.  All EBITDA in Q4 will be negatively impacted by approximately 8 million versus last year due to renovations and pre-opening costs at our new St.Regis Bal Harbour.
  • High end of their RevPAR range in 2012 assumes a continuation of current trends while the low end assumes low GDP and almost all growth from their fee business since owned hotels are unlikely to have any EBITDA growth at 4% RevPAR growth.  They are well prepared from a liquidity and balance sheet standpoint should the worst case scenario play out
  • Will have some major renovation projects scheduled for next year:
    • Will shut down Gritti Palace in Venice and Maria Cristina in Spain
    • Major refurbishment of Sheraton Rio 
    • Shut down two hotels to convert to Alofts
  • Have hedged Euro risk (50%) for 2012
  • Have been in contact with buyers at Bal Harbour and expect that closings will proceeds.  Will provide an update in February and will clearly separate the Bal Harbour impact on results so that investors can track core earnings
  • Anticipate generating almost $1BN of cash from selling condos.  Sales in 2011 have been robust.  Have received almost 50% deposits on 2011 sales.  Expectations from the impact of sales remain unchanged from what they laid out on their last investor day.  Average price per-square-foot on units under contract exceed $1,300.
  • Will shortly announce their 2011 dividend and will execute on share buybacks as they see fit.


  • Assume current rate in FX continuing for their 2012 forecasts (as of last week)
  • Rationale of renovations for 2012 is that the transaction environment is really weak anyway and that fully renovated assets are easier to sell
  • 2012 FCF estimate: at least in the $350-400MM range post dividend and all renovations
  • Pace for group bookings going into 4Q is up 6% - mostly rate driven with room nights mostly flat
  • SG&A always has quarterly volatility.  Since 2009, they have materially decreased costs.  Q3 to Q4 SG&A changes are mostly timing issue related.
  • Demand slowdown in Europe?
    • Slowdown in Rome and London- don't know if this is a sustainable trend. Even if RevPAR flat-lines in Europe there wouldn't be a lot of down side to their estimates since that was contemplated in the ranges they've given
  • Right now it's all about raising rates at their managed properties in NA - obviously they don't have the same leverage on the franchised hotels.
  • Seeing some strength in F&B but not a full recovery, but they are seeing better flow through due to their cost cuts.
  • Trends in NY are pretty good right now
  • Remain interested in acquiring brands with excess cash flow but not assets. 
  • Goal is to be a solid BBB rated company- which should happen over the next 12 months (2.5-3x)
  • Beyond that they will look at returning cash to shareholders - dividends and buybacks


  • Excluding the IRS settlement HOT reported $0.42 cents of EPS and $241MM of Adjusted EBITDA, 8% and 3% ahead of consensus, respectively

Management commentary

  • “Our brands showed strong top-line results around the world, driving managed and franchised fees up 17% in the 3rd quarter. Our Company-operated hotels translated higher REVPAR into margin increases of 140 basis points. We are also pleased with our continued footprint growth. Over the past four years, we have opened almost 320 new hotels, bringing our total to 1,071. We expect to continue growing faster than the market, both in terms of REVPAR and footprint, thanks to our brand momentum and exposure to rapidly growing markets."
  • “In an uncertain world, investors should also note that our balance sheet is in great shape, with net debt below $1.7 billion. In the coming weeks, our St. Regis Bal Harbour project will start generating cash as we begin closing on previously sold residential units. We expect more cash in 2012 as we complete this project."


  • 4Q11
    • Adjusted EBITDA: $270-280MM
      • reduction of $10MM off the top end and a $5MM raise off the bottom
    • SS WW Company Operated RevPAR & Owned: +6-8% (no FX impact)
    • Management & franchise fees & other income: +7-9% (-200bps impact of Japan & N. Africa)
    • VOI & residential earnings: flat to +$5MM
    • Bal Harbour: incremental earnings of $10MM and EPS of $0.03 and $30MM of cash proceeds from closings (not included in guidance)
    • D&A: $76MM
    • Interest expense: $56MM
    • EPS: $0.53 to $0.57
  • 2011 (changes from prior guidance)
    • SS WW RevPAR (company operated and owned): same but impact of FX benefit 100bps less than prior guidance
    • Earnings from VOI and residential increased by $5-10MM to $140-145MM from prior guidance
    • SG&A growth down 1% to 3-4%
    • D&A: -$8MM to $302MM
    • Interest expense: -$5MM to $225MM
    • Cash taxes: -$15MM to $65MM
    • EPS: +$0.02 - $0.08 (excluding the $0.18 IRS settlement benefit) to $1.75-$.179
    • Capex: Maintenance, renovation & tech: -$50MM to $250MM offset by a $50MM increase in investment projects and JV commitments to $200MM. VOI (ex Bal Harbour) net cash flow $35 higher to $200MM
  •  2012
    • WW SS Company Operated RevPAR: 4-8%
    • Adjusted EBITDA: $1.03-$1.12 and EPS: $1.96 to $2.25
      • Includes $20MM YoY decrease due to renovations, asset sales and FX and no earnings from Bal Harbour
    • 1% change in RevPAR = $15MM of EBITDA and 1% change in US Dollar vs. FX basket = $5MM

3Q Result commentary

  • SS WW RevPAR system-wide +11.6% (7.4% constant dollars)
  • SS WW Owned Hotel RevPAR +16.2% (9.2% constant dollars)
  • "EPS from continuing operations was $0.60, including a benefit of approximately $0.18 primarily from the favorable settlement of an IRS audit. Including special items, which primarily relate to a gain on an asset exchange transaction, EPS from continuing operations was $0.85"
  • Income from continuing operations included "a tax benefit of $35 million primarily from the favorable settlement of an IRS audit"
    • Total IRS refund received was approximately $40MM in 3Q11
  • There were $47MM of  after tax 'special items' in the quarter primarily related to a gain on an asset exchange
  • "Management fees benefited by approximately 300 basis points due to the conversion of 19 European hotels from franchise contracts to management contracts during the quarter. Excluding North Africa and Japan, management fees increased 25.8%."
  • In 3Q, HOT  "signed 24 hotel management and franchise contracts, representing approximately 6,300 rooms, of which 15 are new builds and 9 are conversions from other brands."
  • "At September 30, 2011, the Company had over 350 hotels in the active pipeline representing almost 90,000 rooms"
  • In 3Q11, 19 new hotels (4,900 rooms) entered the system and 6 hotels were removed from the system
  • At NA SS Owned hotels, revenues rose 7% while expenses increased 5%. WW owned SS revenues increased 14.6% whiles expenses rose 10.7%. 
  • 3Q Owned, Leased, and Consolidated JV results were impacted by 6 renovations and 4 asset sales. 
  • "Originated contract sales of vacation ownership intervals increased 3.8% primarily due to increased tour flow from new buyers and improved sales performance from existing owner channels. The number of contracts signed increased 8.2%... and the average price per vacation ownership unit sold decreased 2.7% to approximately $14,000, driven by inventory mix."
  • "Selling, general, administrative and other expenses declined relative to 2010 due to lower accruals for incentive compensation and lower legal expenses."
  • Capex: $79MM of maintenance and $77MM of development. Net VOI and residential spend: $30MM primarily on Bal Harbour
  • "On September 30, 2011, the Company executed a transaction with its former partner in a joint venture that owned three luxury hotels in Austria... The Company acquired two of the hotels, Hotel Imperial (Vienna) and Hotel Goldener Hirsch (Salzburg), in exchange for its interest in the third hotel, Hotel Bristol (Vienna), and a cash payment, by the Company, of approximately $27 million. The Company entered into a long-term management contract for the Hotel Bristol. The Company recorded a pretax gain of approximately $48 million and a deferred gain of approximately $30 million in connection with this transaction"