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Core metrics a little light but cash flow and balance sheet are exceptionally strong

“The year looks to be somewhat stronger than 2012, as the uncertainty we saw in major world economies
is showing signs of giving way to stronger demand growth. Beyond next year into the foreseeable future, we are bullish about the long-term outlook on the global high-end lodging industry."

- Frits van Paasschen, CEO


  • 2012 was a year of uncertainty, which lead them not to expect an uptick in travel in Q4.  Customers were holding back and in wait-and-see mode during the quarter.
  • Based on supply and demand dynamics, we should see strong RevPAR growth over the next few years in NA
  • In 2012, total system revenue in China was up 27%
  • Argentina and Chile are a drag on the Latin America region
  • Owned hotel portfolio: don't read too much into the poor results this quarter. Given the small size of their portfolio, there is bound to be a lot of variability in results.  Also sold the Aloft in Lexington.  Average multiple has been 16x on their 10 sales this year.
  • Fees accounted for 62% of their ongoing EBITDA before SG&A
  • Some people argue that their balance sheet is too strong and that they should return more cash to shareholders. However, their strong balance sheet helped them achieve a record low interest rate on their latest bond issuance of just 3.125%.
  • They will continue to use dividends and share buybacks to return cash to shareholders
  • Continue to see a choppy world and an uncertain global economy. At the high end of their guidance they expect a recovery in some markets like China and NA (over the 4Q)
    • Expect higher room rates in NA and Europe where demand outstrips supply
  • Delta partnership:  First type of partnership of its kind giving top customers of each brand equivalent status benefits across both brands. 
  • In 2012, SPG total hotel revenues grew 12% and 16% from their Elite members. Getting more business from their best customers is a high return spend. 
  • Relocating their management team to Dubai for the month of March. They had a lot of good results from their China relocation last year- spurred more deal signings, better working relationships within their management, helped them understand the need to localize their offerings. 
  • While RevPAR came in the low end of their range, good cost control and other factors helped them achieve good results
  • Do not believe that the RevPAR slowdown throughout the year in 2012 was structural but rather driven by:
    • Chinese government transition and the impact of a Chinese slowdown on the surrounding region
    • US Presidential elections
    • European structural issues in the South driven by austerity
    • Market specific issues in the Middle East and Argentina
  • Their 2013 guidance assumes accelerating RevPAR growth
    • Asia: 5-7% (middle part)
    • Europe:  5-7% (low part)
    • ME:  middle part of range
  • Only European companies and financials are talking about cost cuts
  • Business momentum in January is good:
    • NA: Jan +7% at company operating hotels. Rooms sold in opaque channels are declining. Group pacing is trending in the mid-single digits.  Booking cycle continues to lengthen.
      • Expect a mid-single digit increase in corporate rates
      • RevPAR growth: 6-7% as the year progresses
    • Europe: benefit from easy comps in markets like Greece and Eastern and Central Europe.  
      • Small Q because of the weather
      • Expect a better year for the region
      • Supply situation remains good.  Customers are cautious and sensitive to range.
      • Forecast RevPAR at or below the low end of their range
    • Asia Pacific: 
      • Chinese RevPAR was +6%
      • Expect the rate of growth to pick up as the year progresses; expect it to ramp to the high end to above their guidance range
      • All 3,900 rooms are now open at Sheraton Macau and they are sold out for CNY
      • Indonesia and Thailand are booming - expect double digit growth
      • Growing sentiment that things in India are getting better - mid-single digit growth is expected
      • Japan- slow and steady growth
    • Middle East & Africa:  RevPAR growth at the mid-point of their range
    • Latin America
      • Mexico:  improving- expect it to be the engine of Latin America growth for them in 2013
      • Argentina:  inflation is ~25% and impacting their markets. Likely to get worse until they devalue
      • Brazil:  slowed as China slowed but is now recovering
  • Owned hotel portfolio: only represent 5% of their total rooms. Performance is increasingly driven by market specific events and renovation distruptions.
    • St Regis NY, Westin Maui, Sheraton Rio, and the Sheraton Park Lane in London
    • Also impacted by asset sales - $25MM based on what was sold in 2012
    • Situation in Canada improving should improve results in NA results in their owned portfolio
  • $200MM of cash delivered by SVO in 2012. They are adding selectively to inventory in Florida and have inventory in Mexico.  Will continue to manage this business for cash in 2013.
  • Potentially another $10MM of restructuring costs will be in 1Q13 and is incorporated in their SG&A guidance
  • Expect to grow rooms by more than 4% in 2013
  • They are raising prices at Bal Harbour and getting over 1300/SQFT on recent sales. Unlike last year, do not expect them to significantly exceed their guidance since they have limited inventory to sell. Will try to complete sales by year end
  • Expect capital spend in their owned hotels to peak this year and decline going forward,especially as they continue to sell more hotels.  
  • They will not pay down more debt in 2013
  • They will only make a very compelling acquisition ala Le Meridian. Otherwise all cash will go back to shareholders


  • Starting to see an uptick in China as soon as the transition was announced.  Also expected that it will take a few months to ripple through. Most announcements occur in March and things should get better from there. This 1Q is going to be the trickiest quarter of the year for the country - so the January trend of +6% is very encouraging.
  • Their NA RevPAR came in below the industry RevPAR: part of that is due to their geographic mix (Pheonix, NY, Canada) vs. industry average. Continue to be encouraged by corporate rate negotiations, group bookings, etc
  • M&A environment: Believe that they are entering a window of opportunity. There is more liquidity and ability to get financing. Significant amount of money from ME&A and Latin America. Plan on being very active in the market. Goal is to move as soon as they can to execute their asset sale program. However, given the number of hotels they have to sell and size of their hotels, they do expect sales to be lumpy.
  • Quarterly dividend vs. annual? Something that they will consider and talk to their Board about. You should not think of their annual dividend as special.
  • They are past the point from where they have rates on the books that are artificially low from when the economy was in a worse place.  Given the supply/demand imbalance for the next few years, they still expect that RevPAR growth should remain strong for the next few years.
  • Their approach over the last few years has been a rifle shot approach to selling assets. They still have seen a frothy market for portfolio sales.  So they are still targeting individual asset sales. There are no sacred cows in their portfolio. Everything is for sale.
  • With the exception of some financial institutions, they are getting good feedback on travel for 2013 vs. 2012. 
  • Corporate negotiated rate expectations are a little lower from where they expected to be mid-last year.  
  • Did see a bit of a downtick in some parts of Europe recently, but the 1Q is not particularly indicative of the year.  They also had a lot of hotels under renovation that are back online now and that should help them.
  • Companies have been very cautious about adding back costs.  Group business coming in a slow and steady way.  However, they feel like that is good because it makes the trend more sustainable.
  • Group business is a smaller % of business outside the US. Hence as they become more international, that business becomes less important for them.
  • Transient business is easy to turn on and off based on opportunities. 
  • REIT spinoff?  That would be one way of more quickly realizing the value of their portfolio. However, there is a spinoff discount and extra overhead that comes with 2 companies so they think that they can recognize better prices on individual sales.  However, never say never.
  • Have been good at getting multiples in excess of their current multiple on their sales. Have been balanced on what they are selling - some great hotels and some so so hotels. Despite all the sales, their EBITDA on owned will still be higher so the value of that portfolio should also be higher


  • HOT reported $0.70 of EPS from continuing operations and $325MM of Adjusted EBITDA, which included $32MM of Bal Harbour EBITDA
  • WW System-wide RevPAR: +4.1% in constant $ (3.6% in actual dollars)
    • NA SS RevPAR: +5.2% in constant $ (5.4% in actual)
  • During the quarter, the Company signed 40 hotel management and franchise contracts,
    representing approximately 8,400 rooms, and opened 17 hotels and resorts with ~ 3,900 rooms. During the quarter, 11 properties (representing ~2,600 rooms) were removed from the system.
  • During the quarter, the Company completed sales of hotels for gross cash proceeds of
    approximately $275 million, retired $725 million of debt, issued $350 million of 3.125% Senior
    Notes due 2023, paid an annual dividend of $1.25 per share, and repurchased 3.5 million shares at
    a total cost of $180 million and an average price of $52.07 per share.
  • Going forward, we will deploy capital by reinvesting in our business and by returning cash to
    shareholders through dividends and stock repurchases
  • We are poised to benefit from higher rates in North America and Europe where demand is growing but supply is already short. Even more important, the dramatic economic growth in Asia, Latin America, Middle East and Africa is fueling demand for our brands worldwide.
  • Originated contract sales of vacation ownership intervals and numbers of contracts signed decreased 2.3% and 0.8%, respectively, primarily due to lower tour flow and average price partially offset by a slight increase in closing efficiency. The average price per vacation ownership unit sold decreased 1.1% to approximately $14,400, driven by inventory mix.
  • Bal Harbour revenues were $99MM in 4Q.  HOT closed on 27 units and realized cash proceeds of $96MM.  Through December 31, 73% of available units were closed on and revenues recognized were $810MM and EBITDA of $160MM.
  • SG&A increased 5% YoY, primarily due to severance costs of $9.0 million. The Company has recently completed certain changes to its organization structures in its Europe, Africa, and Middle East division and its Americas division. Some of those changes were made in the fourth quarter of 2012 and the Company recorded approximately $9.0 million in severance costs which is included in selling, general and administrative costs for the fourth quarter of 2012. Other changes will take place in the first quarter of 2013 and the Company expects to record severance costs of approximately $10.0 million in selling, general and administrative costs in the first quarter of 2013.
  • Capex: $58MM of maintenance and $73MM of development capex
  • On October 24, 2012, the Company completed a securitization involving the issuance of $166 million of
    fixed rate notes. Starwood is contributing approximately $174 million in timeshare mortgages resulting in
    an advance rate of 95% with an effective note yield of 2.02%. The proceeds from the transaction were
    used for general corporate purposes and will pay down the securitized vacation ownership debt related to
    its 2005 securitization in 2013
  • The Company’s Board of Directors increased its annual dividend by 150% to $1.25 per share. The
    dividend was paid by the Company on December 28, 2012 to holders of record on December 14, 2012.
  • As of December 31, 2012, approximately $180 million remained available under the Company’s share
    repurchase authorization