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
