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Takeaway: Just the spark this underperforming stock needed. Solid all around.

CONF CALL

  • Major corporate clients continue to tell HOT that they will travel more
  • International travel to and from US: +7%, reaching new highs
  • Mexico/Indonesia:  strong growth
  • 2 uncertainties:  Middle East and Europe
  • 2014 NA REVPAR: 7%
  • Group business continues to strengthen
  • Supply picture benign. Not enough supply to bring down occupancy
  • Little construction activity in upper upscale segments
  • Expect NA recovery cycle to continue
  • China:  2014 REVPAR up over 8% (ex Macau: +4%)
    • Accounts for 14% of fees
    • 15% of footprint
    • 1/3 of pipeline
  • LATAM REVPAR: +3%
  • Brazil/Argentina continue to struggle
  • In Europe, despite uncertainty, performance at hotels improved in 2H 2014.  2014 REVPAR: +3%
    • Spain/Greece bounced back. Germany picked up through 2014
    • Looking ahead, Europe still unclear. Not factoring in robust recovery for European business in 2015
  • ME and Asia-Pacific will be a mixed bag in 2015.
    • Thailand showing pickup in transient/group business
    • Africa held back by low commodity prices
  • HOT hotels outperformed its comp sets
  • Core fees grew ~7%
  • >60% of the rooms that entered HOT's system in 2014 were high end properties,
    • >8% located internationally
  • Net room growth below 4-5% target due to:  longer development times in emerging markets, fewer in the year for the year conversions, and higher proportion of select service hotels with lower average room counts
  • Plan to launch collection brand that will fit btw Luxury Collection and design hotels
  • US strongest market, particularly in select-service
  • Recent transactions with Aloft selling at prices well above their construction costs
  • Accelerate growth in NA by growing Aloft, Element, and Four Points
  • Expect to stay at or near target debt levels
  • Spinoff vaca ownership:
    • Conversion to asset-light
    • Want to drive growth in SVO on its own
    • Expect to place 5 hotels with the new company (key timeshare locations) - Los Cabos, Cancun, Puerto Vallarta, Sheraton Steamboat, Sheraton Kauai
      • $20m EBITDA, valuing $200-250m asset sale value
      • $400m headwind on leverage assuming they operate in 2.5-3x net leverage range
  • Post spinoff -
    • 75% of EBITDA  (pre-SGA) will come from fees
    • Expect to be well above 80% asset-light target in 2016
    • Expect HOT to continue to look for ways to cut G&A
    • HOT expects to receive new annual license fee of $30-40m from SVO
    • Transaction related expenses not included in guidance
    • Form 10Q filing in 2Q 2015
    • Will achieve 80/20 asset-light model earlier than expected 
  • 4Q NA REVPAR: +5.8% overvall: REVPAR in South/West up 8% and 9%, respectively. However due to heavier mix in north region esp. NYC, adversely affected performance.
  • Hawaii continue to be a challenge in face of lower demand from Japan due to weaker yen. Remixing business there by increasing focus on inbound travel from mainland US.
  • Group revenue up 9% for business into all future years.
    • Double-digit increase in revenue booked in the quarter for the quarter. December was largest group booking month in history.
    • >70% of 2015 business on the books
  • Nearly 60% bids in. Expect corporate rates in the mid single digits on average
  • Grew share in South America despite volatile markets
  • Q4 France REVPAR essentially flat
  • Q4 Germany REVPAR: +5%; UK REVPAR: +3%
  • Q4 mainland China REVPAR : +2.8%; austerity programs continue to impact the market there. North China remains weak
  • SG&A increased 3% - at low end of revised range - due to better cost controls
  • Closed 6 hotel dispositions including Sheraton on the Park, St. Regis Rome, Sheraton Ambassdor, and Philadelphia triplex.
  • Net debt/EBITDA: 1.4x (2.9x based on S&P)
  • ~950m cash located offshore
  • In February, paid down CP balance by roughly 400m using cash
  • 2015 guidance (before share repurchase)
    • Core fees should grow 8-10% in constant dollars
    • 42M EBITDA lost from hotels sold in 2014
  • M&A market in 2015 remain hot. Expect to close transactions in 2014 that will generate proceeds in line with 2014 levels or $800m worth of hotels.
  • Expect to return 550-600m in regular divs
  • Expect to remain at high end of leverage range: 2.5-3x 

Q & A

  • 2015 REVPAR guidance was actually raised: difference btw systemwide and company-operated is only 30bps.
  • Repatriation:  Sees strong opportunity to return foreign sales back to US through next couple of years
  • Acquisition focus not targeted at low end...probably in spaces they are currently competing today
  • CFO guidance of $700-800m includes the capital going into SVO
  • Share repurchase 2015 guidance: $300-350m
  • Could move up leverage level in the future
  • Seeing a little better Europe/ MEA. China is flat. North America going better. 
  • Owner feedback going in right direction in North America
  • Feel good on Westin brand
  • 2015: Good fee growth in North America (but not acceleration since many of the contracts haven't hit certain thresholds) but stronger international fees