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“We ended 2009 with the best REVPAR results we have seen since the third quarter of 2008, and our continued focus on costs allowed us to beat expectations again in the quarter. Lodging demand continued to improve in the fourth quarter, with group and business transient posting positive bookings. After being buffeted by headwinds throughout 2009, our portfolio is set to begin a rebound in 2010 from a deep drop-off.”

- Frits van Paasschen, CEO

Forward Looking Comments from the Release

  • "While business conditions continue to improve from depressed levels, it is very hard to forecast the pace of recovery, especially rate. While group bookings have picked up, booking pace for 2010 has continued to lag behind 2009. Booking windows for both transient and group business have remained short. As such, late breaking business is a larger component of what will drive our performance in 2010 making forward looking predictions four quarters out particularly challenging."
  • "Full year 2010 REVPAR at Same-Store Company Operated Hotels Worldwide could be flat to +5% in local currency and approximately 100 bps higher in dollars at current exchange rates. REVPAR at Branded Same-Store Owned Hotels Worldwide could be -2% to +2% in local currency and approximately 100 bps higher in dollars at current exchange rates."
  • 2010 adjusted EBITDA "guidance": $750MM with one point of RevPAR driving +/- $15MM of EBITDA
  • 1Q2010 guidance:
    • "REVPAR change at Same-Store Company Operated Hotels Worldwide of -2% to flat in local currency (+1% to +3% in dollars at current exchange rates)."
    • "REVPAR change at Branded Same-Store Owned Hotels Worldwide of -3% to -5% in local currency (-1% to +1% in dollars at current exchange rates)."
    • "Management and franchise revenues will be up approximately 1% to 3%."
    • "Operating income from our vacation ownership and residential businesses will be flat to down $5 million"
    • Adjusted EBITDA guidance: $135-145MM
    • EPS: $(0.04) to $0.00


  • I love a call that starts with quoting Timmy
  • Group & transient business started to improve and was only down 7% in the 4th Q
  • ADR improvements will lag the general economic environment, since group and corporate rates are priced looking backwards
  • Looking ahead, its safe to say that their headwinds (Luxury, Urban, International, FX) will become tailwinds
  • As they shed assets they will continue to have higher cash yields
  • Were able to beat EBITDA by $50MM (oh but that included a $23MM gain and $20ish MM of cancellations)
  • Guests are coming back to luxury
  • Asia had +1% RevPAR (including 600bps of FX benefit - note that benefit will dissipate through 2010 at current rates)
  • $315MM was generated liquidating VOI
  • No maturities due over the next 2 years
  • Restructured the VOI business, and as a result decided to curtail existing projects, stop new projects, and lower prices (ala Marriott- no surprise)
  • Rolled out a new yield management tool that should help them price more efficiently
  • Bottom of a cycle is a great time to open hotels
  • Cleaning up Le Meridian and Sheraton brands
  • Spent $6BN re-branding Sheraton
    • Am i the only one that hears them say this on every call for as long as I can remember ... this is long long repositioning
    • Apparently this is a 3 year rebranding cycle
  • NY saw occupancy levels of 88% in 4Q09
  • Leisure continues to lead the way
  • 60% of their hotels are either freshly renovated or brand new
  • Estimate that by 2015, 400MM Indian and Asian travelers will have the means to travel internationally
  • Over 50% of their hotels are internationally located and 80% of their pipeline is international
  • Pipeline as a % of their existing assets is the highest in the business
  • 80% of their income is from fees...but some of those fees are non-cash and non-recurring
  • 4th Q story was all about the return of the corporate traveler, and they beat the quarter due to close in bookings. The beat was entirely driven by better occupancy especially for weekday room nights
  • Rate continues to lag, Jan rate was -9% compared to -12% in October
  • Cancellations were down 30% and leads for group bookings were actually up
  • Business have started to confirm meetings that were put on hold
  • Internationally they are seeing similar trends, Asia leading the way with +7% RevPAR (occupancy up 9%) in Jan
    • China led the Asian recovery, and Japan was the only market that lagged
    • EMEA was down 2% in Dec & Jan, occupancy turned positive and rate decline moderated
    • Latin America is the weakest, but improving quickly
  • Timeshare: SVO generated over $300MM in cash flow.  Decided not to develop some land that they own. Other projects where they had developed some phases but then decided not to develop others.  Also decided to accelerate sales in existing projects by cutting prices
  • What will make or break 2010 is late breaking corporate bookings
  • Don't extrapolate current trends though as comparisons for RevPAR will get tougher in the 2H2010, uncertain how the economy will look like in the 2H2010. It's also positive that some of the fastest growing markets in Asia can slow
  • Europe flat to up 3% and US flat to down 3%, growth will be driven by EM: (Asia 5-8%, Latin America could grow a lot as well with its commodity exposure to asia, ME can grow 6-8% as well)
  • It is unclear that the FX will remain a tailwind, as many forecast a stronger dollar
  • Expect Mgmt fee growth to track RevPAR growth
  • Occupancies are likely to be positive but rate will likely be negative, hence they will need to monitor costs
  • They will have margin reductions in owned EBITDA again in 2010
  • VOI business will be down $40MM on a SS basis as well - but $23MM is due to no gains accounting, but that will be offset by $40-45MM benefit from new SFAS accounting
  • Claim that the $750MM needs to be compared to an apples to apples 2009 # that is $20MM lower due to asset sales
  • 4.0x  leverage ratio
  • Will be working with their bank group to extend their R/C beyond 2011
  • The cash flow generated from SVO should cover capex at Bal harbour (which may be lower given deposits)


  • Rates for domestic group bookings for 2H2010
    • 2011 is seeing a higher rate than 2010
    • Moderation in rate in 2010 is getting better (compared to 2009)
  • Will continue to pull out $150MM or so a year out of timeshare for a few years
  • Will continue to be a net seller of real estate, but are looking for very high multiples, isn't the best time to sell
  • Regarding reinvestment, they will continue to invest in IT and explore renovation projects at existing projects
  • Only after they become investment grade would they consider share buybacks
  • Domestically they ended well with share for W & Westin but lost share for Sheraton, gained share internationally
    • Tend to do better in up cycles with share and worse in down cycles
  • Growth in occupancy has enboldened them to take a stronger stance on rate
  • Sheraton Manhattan (deflagged it) - future plans. Don't want another BalHarbour project.  Reason they deflagged it, was because this property just doesn't represent the brand standard anymore. They want to take their time fixing it up.  Will spend $4BN over the next few years on Sheraton rebranding
  • Net debt would decline $100-200MM before the SFAS adjustment ($445MM of securitized non-recourse debt comes back on the balance sheet)
  • Current pace of sales in Timeshare can be sustained for 2-3 years with little incremental investment (basically they have many years of inventory to liquidate without the need to replenish it)
  • Any effort to acquire distressed assets?
    • Continue to want to move to asset light, preference to look at any opportunities like that with a partner
    • Would rather grow brands and flags to grow market share rather than buy assets
    • We're also not seeing truly distressed assets, despite expectations
  • Outside the US and W. Europe there are still opportunities for ground up construction, inside the US they are focused on conversions.
  • Expect attrition to taper off (now that they are close to completing repositioning), think that exits next year should be closer to 5% (or 30 hotels with 300 rooms a price), so many 50 net hotel additions
  • Select service growth has been less successful internationally - they are more focused on full service growth
  • Outside the US, group isn't as large a part of the business, and the group they have is usually in the year for the year.
  • They will definitely down year over year for group, but think transient will be stronger and make up the difference
  • With occupancy up and rate down, they expect 10-15% declines in owned EBITDA