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.



Core results in the quarter were softer than top line results imply.  While owned, leased and consolidated JV revenues were stronger than we estimated, flow through was weaker due to higher CostPAR.  The beat on fees was largely due to a boost from the conversion of 19 European hotels from franchise to more lucrative management contracts.  VOI and residential was below our estimate for both top and bottom line results.  Lower SG&A, interest expense and D&A all helped the bottom line and drove the beat in the quarter.




Revenue of $783MM was 1% ahead of our estimate and adjusted EBITDA was 2% better than we estimated.  


Owned, leased and consolidated JV revenue of $441MM was 1% above our estimate but lower margins resulted in segment results that were $9MM below our estimate.

  • Given higher RevPAR, we were surprised that owned hotel revenue didn’t grow more than just 2.4% YoY
    • Room count was down 7.5% YoY but SS WW RevPAR was up almost 15%
    • We estimate that room revenues grew 11% YoY but that ancillary revenues including F&B were down 11% YoY.  We don’t think that this is surprising as many hotels that raise ADR’s are giving more away like free breakfast, local calling, free parking and internet which used to be a source of incremental revenue.
  • RevPOR increased 8.9% while CostPAR increased 8.2%, resulting in poor flow through consistent to what we saw in 2Q11

Management, franchise fees, and other income came in 5% better than we estimated – with most of the upside coming from management fees benefiting from the conversion of 19 European hotels from franchise to management contracts during the quarter.

  • Net of the conversion of the European hotels, room growth was 30bps better than we estimated
  • Management base fees were 6% higher than we estimated, while franchise fees were 6% lower - for reasons already mentioned
  • Incentive were $3MM better

VOI and residential revenue and segment results were 5% lower than we estimated

  • Originated sales revenue was $3MM lower than we estimated – likely due to lower pricing on sales mix
  • Other sales service revenue was $4MM lower than we estimated
  • Deferred revenue was in-line

Lower SG&A, interest expense and D&A all helped the bottom line and drove the beat in the quarter.

  • SG&A was down in the quarter vs. general guidance for a 3-5% increase
  • D&A was $3MM below guidance
  • Consolidated Interest expense was down $7MM sequentially and $8MM lower than our estimate

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