Starwood Hotels & Resorts Worldwide (HOT)

Q1 2012 Earnings Call

April 26, 2012 10:30 am ET


Stephen Pettibone - Vice President of Investor Relations

Frits van Paasschen - Chief Executive Officer, President and Director

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Vasant M. Prabhu - Vice Chairman, Chief Financial Officer, Executive Vice President, Chief Financial Officer of Starwood Hotels & Resorts and Vice President of Starwood Hotels & Resorts


Joshua Attie - Citigroup Inc, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

William A. Crow - Raymond James & Associates, Inc., Research Division

Robin M. Farley - UBS Investment Bank, Research Division

Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

David Loeb - Robert W. Baird & Co. Incorporated, Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Ian C. Weissman - ISI Group Inc., Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Christopher Agnew - MKM Partners LLC, Research Division



Good morning, and welcome to Starwood Hotels & Resorts First Quarter 2012 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Stephen Pettibone, Vice President of Investor Relations. Sir, you may begin.

Stephen Pettibone

Thank you, Sylvia, and thanks to all of you for dialing in to Starwood's First Quarter 2012 Earnings Call. Joining me today are Frits van Paasschen, our CEO; and Vasant Prabhu, our Vice Chairman and CFO.

We will be making statements on this call related to company plans, prospects and expectations that constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as Starwood or it's management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. All such statements are based on our expectations as of today and should not be relied upon as representing our expectations as of any subsequent date. Actual results might differ from our discussion today. I point you to our 10-K and other SEC filings available from the SEC or through our offices here and on our website at for some of the factors that could cause results to differ.

With that, I'm pleased to turn the call over to Frits for his comments.

Frits van Paasschen

Thanks to all for joining us today. Before I get started, please join me in congratulating Stephen Pettibone on his new role. I'm sure that Stephen's 5 years with Starwood and his knowledge of what drives our business will be a great resource for all of you.

On today's call, I'll follow a format that will be familiar to those who you who've been listening in before. I'll start by sharing some thoughts on the global business climate and on demand for high-end travel. I'll then discuss our Q1 business results and our outlook for 2012. That will lead me to a quick recap of our cash position and philosophy on returning cash to shareholders. I'll finish my business discussion by delving into a strategic topic, an in-depth look at how we stand to benefit from the growth in global travel. Before wrapping up, I'll comment on some executive retirements that we recently announced.

I'll now turn to my first topic, the business climate. You might recall that last quarter, we suggested that 2012 had more potential to surprise to the upside than to the downside. We still believe this, and it's worth a moment to explain why. To start with, our corporate clients and our leisure guests tell us that their appetite for travel is quite robust. I still have yet to hear from a customer that plans to travel less in 2012 than in 2011.

In short, corporate travel plans reflect confidence in their business and in the global recovery. Contrast that with the financial markets. High gold, oil and treasury prices, for example, suggest a great deal of uncertainty. It seems that the financial markets are pricing in a few low probability, but nonetheless high impact events like a eurozone crisis, a Chinese hard landing or Middle East conflict. If these events don't come to pass, then 2012 will likely do better than some expect.

So from our vantage point, the global lodging recovery is forging forward in a turbulent world. North America, Europe and Japan have unusually tight supply this early in the business cycle, thanks to a decade of below-trend hotel construction. The result is sustained REVPAR growth, and we expect the law of supply and demand will push rates upward for some time to come. Even if developers were building hotels tomorrow, it would be at least 3 years before that supply would hit the market. But in all likelihood, construction won't start tomorrow.

It's worth exploring why we believe that. First of all, hotels have been selling at prices below replacement costs. So if you want to own a hotel, you're better off buying an existing one than selling a new one. Compounding this, our REIT share prices, which are trading at a significant discount to the value of the hotels they own. So until reprices rally, rates are going to be selective in buying hotels.

At the same time, in the wake of the crisis, banks are still paring back their real estate exposure. That explains why commercial real estate loans in general, and especially construction loans, continue to decline. So supply is tight and looks set to stay that way for a while. But demand in North America, Europe and Japan has continued to build. Companies are profitable and in great financial shape, and they're in search of growth outside of their home markets.

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