Takeaway: Q4 performance, 2015 guidance, and clear strategic and capital deployment vision justifies 52 week high stock price and big multiple


  • Every region signed a record number of deals in 2014
  • Added 5 brands in 5 years (Autograph, Moxy, AC Hotels, Gaylord, Protea)
  • Edition: 2 London/ 1 Miami already open; New York Edition will open in next few months; closed Miami Edition last night
  • Booked $10bn revenue on; nearly 20% coming through mobile 
  • Rewards membership: 49m (contributed 1/2 of worldwide occupancy)
    • 60% new members were next generation travelers
    • 40% new members are outside NA
  • 2015: gross rooms growth 7% (6% net of deletions)
  • Supply:  STR estimates supply increased 0.9% in 2014 and expects 1.3% growth for 2015 
  • Have 10% share of NA rooms
  • Have 26% of share for under construction market
  • Expect to have more than 100 Autograph hotels open by end of 2015
  • 16 Moxies in pipeline (Europe) and 5 Moxies in pipeline (US)
  • Last month, approved 2 Moxy deals in Manhattan. Expect 150 Moxy hotels open by 2023. 
  • Aggressive expansion abroad for limited service (Residence Inn/Fairfield)
  • In 2014, US htoels reported 20% increase in guests coming from Greater China
  • Q4 2014:
    • Higher termination fees added 1 cent
    • NA systemwide REVPAR : ~7%
      • Strong REVPAR in San Francisco, Pacific NorthWest, Florida
    • Transient demand was strong. Nearly half of top 20 markets increased retail REVPAR by double digits
  • Q4 Group REVPAR rose 6%; 4% growth in full service hotels reflecting holiday timing
      • For 1Q 2015, group revenue pace up 6% while FY 2015 group pace is up 5%. Meeting planners bullish, booking windows lengthening and room rates are strengthening
      • In 4Q, group room revenue booked for all future periods increased 9%.
      • 2015 corporate rates will increase 5-6%
  • Across US system, international guests make up only 5%. So don't see FX headwind for US business
  • Expect 5-7% 2015 NA REVPAR
  • Caribbean/Latin America
    • REVPAR rose 8% in 4Q
    • Strong leisure/good group drove results in Caribbean/Mexico
    • Brazil soft
    • Expect constant dollar REVPAR of mid single digits for 2015
  • Europe
    • Q4 REVPAR: 3%
    • Good group attendance, strong holiday demand in Germany/Austria, easy weather comps
    • Weak Russia
    • In 2015, London will benefit from strong group business and rugby Cup later.  
    • ~30% of European lodging demand comes from outside Europe (20% NA, 6% Asia)
    • Expect 2015 REVPAR increase in low single digit rate
    • In 2014, 7% of fees came from Europe
  • MEA
    • REVPAR up 15% in 4Q
    • Egypt strong
    • Expect 2015 REVPAR increase in high single digit rate
    • In 2014, 3% of fees came from MEA
  • Asia Pacific
    • REVPAR increased 3% in 4Q
    • Weaker yen boosted Japan
    • RevPAR in Greater China increased slightly reflecting strong Shanghai demand offset by the disruption from political demonstrations in Hong Kong.  
    • In 2015, expect demand will remain strong in Shanghai and improve in Hong Kong...a mid single digit growth rate for the region.
    • In 2014, 9% of fees came from Asia-Pacific (5% from Greater China)
  • Operations outside US contributed 25% of fees in 2014
  • For 2015, 1% move in dollar, net of hedges would change adjusted EBITDA by $3m
  • In 2015, new accounting rules require service charges to be included in property revenue. Expect WW house profit margins would increase 60bps instead of 90bps as a result of this change
  • 2014: incentive fees increased 18% with more than half of hotels worldwide paying incentive fees
  • 2015:  fee 9-11% growth
    • Incentive fees growing in low double digit rate
      • Constrained by unfavorable FX, lower deferred fee recognition, and renovations
    • Estimate FX to reduce fee revenues by $15-20m in 2015
  • 2015 guidance excludes pending Delta acquisition.  P&L impact from Delta will be 'noisy'.  Transaction should be modestly accretive in 2016.
  • REVPAR sensitivity unchanged: 1 point REVPAR = $20m fees and $5m on owned/leased
  • 2015:  plan to renovate several owned/leased hotels and begin construction Fairfield Inn Brazil
  • Cash return to shareholders in 2015 will be at least that in 2014
  • 1Q 2015
    • Fee growth in mid teens rate with higher relicensing and application fees
    • While group pace is strong, full service RevPAR growth in North America is likely to be a bit lighter than later in the year due to property renovation schedules and the recent northeast snow storms.  
    • Expect owned leased and other revenue net of expenses will increase more than 20% with the Addition of the Protea leased hotels and higher credit card branding fees.  
    • G&A should increase in the first quarter reflecting higher brand initiatives and hotel development expenses.  However, first quarter G&A will also benefit from a roughly $12  million net favorable impact to our legal expenses associated with certain litigation resolutions.

Q & A

  • Difference between upscale and UUP #s is really about group
  • In a higher rate environment, transient grows faster than group
  • Shortcoming of REVPAR is that it doesn't include non-room revenue...that's associated with group business
  • Don't think near maturity of cycle
  • Focused on G&A costs flat, growing at a minimum
  • Limited service paying fees: 50% in 2014, 38% in 2013
  • No hotel renegotiations that have moved the needle
  • Lending market getting a little better for big hotels but it's targeted.
  • Lead times extended out for construction
  • Full service development:  very small volume of deals
  • Asia-Pacific REVPAR rising in 2015: In 1H 2014, Thailand was rough. China should be similar to 2014 but easier comp.
  • Potential Asset sales ($600-650m) 
    • Have small Courtyard in Europe on the market. 
    • 2 EDITIONS in Miami and Residences 
      • Expect $50m in Residences
    • Also will collect some notes due 2015 ($30m)
    • Preferred stock coming due
  • Buyback vs dividend:  buyback more flexible. PE multiple at 26 (higher than 20-yr avg of 22) but think EPS can grow 20% in next couple of years so valuation not a concern
  • Conversions:  into Marriott and Renaissance brands from independents
  • Capex breakout:  need to spend $80-100m to finish Edition buildings. Don't need to put a lot of capital to get new Select-Service hotels. $100m or so on key money and loans. Not more aggressive on key money than their competitors
  • US Net room growth:  most will be upscale in secondary markets
  • Half of 2015 openings will be US. Most will be franchised select service and extended stay hotels
  • Assume breakeven on Miami Edition Residences
  • Intensely competitive business
  • NY international exposure: 10-15%
    • FX will hurt arrivals in NY
    • Room night international arrivals to NY down 3% in 4Q 2014
  • FX helping travel to Paris/London
  • Shanghai REVPAR: 6-7%; continues to see it perform well
  • Expect govt austerity to continue to China
  • Q4 interest accretion $7m benefit: had been recording too much interest on accreting bond.
  • Expect US pipeline to continue to grow
  • Expect fewer signings in China in 2015
  • Delta impact in 2015:  transaction costs will result in a couple of pennies impact (not in guidance)
  • Fees 1Q 2015:  more chunkier relicensing fees than other quarters
  • Tough comp for 3Q 2015:  in 3Q 2014, had $15m deferred fees
  • Expect franchise fees to grow faster than managed fees
  • Expect REVPAR for franchise and managed to be roughly comparable
  • FX impact most pronounced in Europe 
  • Moxy Europe per key costs:  40-50k euro range
  • Diluted share count at end of 2014: 286m 
  • 1Q NY Group could be negative: (Super Bowl comp, snow storms and supply)
  • Expect NY to underperform by few hundred basis points with Q4 2015 being the weakest 

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