HOT 4Q CONFERENCE CALL NOTES

Solid Q4 tempered by modest guidance outside of the US.

CONF CALL

  • In 4Q last year, projected 5-7% REVPAR growth for 2013.  GDP in 2013 was slower than in 2012 and REVPAR growth reflected that.
  • Latin America:  +1% 
  • Mexico REVPAR continued its rebound
  • Brazil uncertainty with elections
  • Argentina:  a mess with currency issues
  • Egypt:  civil war affected visitation
  • Dubai/Gulf:  booming business
  • China: +2% REVPAR in 2013; market did not rebound as much as HOT hoped due to govt austerity, flooding in Sichuan, bird flu scares in East, soft govt business
    • 13% of fee revenues
  • Asia (ex China): REVPAR up 7%:  strong performance in India; adverse FX impacted REVPAR by 80bps
  • Strong corporate transient demand in NA
  • 15 more properties coming to Africa in next few years
  • Residental sales at Bal Harbour did well;  Bal Harbour essentially sold out. 
  • Asset light:  sold 6 hotels and one non-core asset for total of $263MM
  • SVG share of occu stayed consistently above 50%.  Global sales organization posted another year of double digit growth as well and for 2014 is set to bring in more than twice the revenue than it did in 2009.
  • Repurchased 4.9MM shares for $216MM
  • 2014
    • US set to improve
    • Europe will muddle through another year
    • Customers telling them they are adding staff and plan to travel more
    • China
      • 2nd and 3rd tier city development continues
      • Good sales momentum in Chinese corporate accounts
      • Strong Chinese outbound travel
  • Mobile accounts for 42% of site visits to Starwood, up from 16% two years ago
  • Mobile bookings growing 5x faster than web bookings did 10 years ago
  • New technology:  smart check-in
  • 2013 FX headwind: $17MM
  • 2013 US REVPAR:  6.3%
  • 4 condos left to sell at Bal Harbour
  • Sold a hotel for over $1 million per key
  • Net debt:  $528MM
  • Sale of St. Regis Bal Harbour added another $200MM to cash balance in January
  • No longer report out Bal Harbour profits:  will be ~5 MM in 2014
  • Expect NA REVPAR trends (6.7% REVPAR) to continue; supply subdued, occu continues to climb helping ADR too
  • Negotiated corp rates: up mid single digits for 2014
  • Group rates:  up mid single digits for 2014
  • Canadian business remains sluggish and the weakening Canadian dollar will also be a drag. 
  • NA REVPAR 5-7% outlook:  rate will account for 75-80% of the increase
  • Despite the Harsh weather, January REVPAR at Company-Operated hotels in North America was up almost 8%.
  • Q4:  saw mid single digit REVPAR growth in Spain, Italy and the U.K.  Only Germany was a little soft,  offset by strong growth across eastern Europe.  Occupancies continue to rise which is a good sign, and rate growth could accelerate.  Nevertheless assume Europe REVPAR growth in 2014 will be at the low end of worldwide outlook range.  Europe also had a good January but it's the low season.  
  • China:  expect to outperform in 2014
  • China:  On track to get 200 operating hotels in near future
  • Expect 2014 REVPAR growth in China to pick up from the Q4 trend of 3.1%
  • Expect Asia REVPAR to continue to grow at the high end of global REVPAR outlook range of 5 to 7%
  • Middle East and Latin America:  expect REVPAR at the lower half of 5-7% range
  • Mgmt and franchisee fees:  45% from US, 12% from Europe; 40% of fees from growth markets
  • 85% of incentive fees outside of US; >75% of international hotels pay incentive fees vs 25% in US
  • Expect Bal Harbour to be fully done selling by 1H 2014
  • M&A:  next 18-24 months could be prime time for asset sales.  They intend to be active in the market.
  • Cash flow priority:  1st is to pay down debt and achieve BBB rating
  • Will move to a quarterly div payment schedule in 2014
  • Will be aggressive buyers of stock.  614MM in buyback authorization availability

Q & A

  • No buybacks in 4Q; hurting the stock?
  • Reducing capital spending on owned hotels as they finish renovations
  • On pace for $750MM in asset sales per year ($3BN by 2016)
  • Transaction market:  markets are becoming deeper. More buyers. Private equity/sovereigns are back.
  • Sheraton:  50% US, 50% non-US
  • Group:  return of incentive travel in Europe; higher volume of smaller meetings
  • China:  no crackdown on luxury
  • Half hedged to euro exposure at $1.36
  • A plus or minus 1% move of the dollar uniformly against other currencies is still about 5 million.
  • Portfolio sales may pick up
  • Any future portfolio sale would therefore mark a significant uptick in that demand
  • Will do a timeshare securitization in 2014 - around $250MM
  • D&A guidance for 2014:  It includes the proportion of the JVs so it's going to be higher than what you're seeing on our balance sheet...It will be a little higher because it's going to reflect the investments we've been making both in the renovations we've been doing and some of the technology...normalized will be +5-6%