Starwood Hotels & Resorts Worldwide (HOT)
Q3 2011 Earnings Call
October 27, 2011 10:30 am ET
Frits van Paasschen - Chief Executive Officer, President and Director
Jason Koval - Vice President of Investor Relation
Previous Statements by HOT
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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
William A. Crow - Raymond James & Associates, Inc., Research Division
Joshua Attie - Citigroup Inc, Research Division
Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division
Joel H. Simkins - Crédit Suisse AG, Research Division
Steven Kent - Goldman Sachs Group Inc., Research Division
Robin M. Farley - UBS Investment Bank, Research Division
Joseph Greff - JP Morgan Chase & Co, Research Division
William C. Marks - JMP Securities LLC, Research Division
Shaun C. Kelley - BofA Merrill Lynch, Research Division
Good morning, and welcome to Starwood Hotels & Resorts Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Mr. Jason Koval, Vice President of Investor Relations. Sir, you may begin.
Thank you, Sylvia, and thanks to all of you for dialing into today's third quarter 2011 earnings call. Joining me 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 its 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 starwoodhotels.com 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?
Frits van Paasschen
Thank you, Jay, and thanks, all, for joining us. As in prior calls, today, I'll start by offering our perspective on global events and how they influence our business. Last time we spoke, the U.S. debt ceiling debate was in the news and today, all eyes are on Europe. And there is persistent talk of a possible hard landing in China. All these uncertainties eroded business confidence and global GDP growth has slid below 4% for the first time in 8 quarters. And while it seems unlikely, we can't rule out the possibility that today's issues are a prelude to a full-on double dip. What we can say is, that so far, this does not feel anything like 2009. And despite the headlines, the impact on Starwood is far less dramatic than you might think. Even in a lackluster economy, both our corporate and leisure customers are doing pretty well and still traveling.
Right now in Europe, this caused austerity and weak recovery of slow demand growth, but the effect is neither drastic nor uniform across the region, and our business in many emerging markets continues along its strong trajectory. So with that as a back up, I'd like to turn to 3 topics for today's call. First, our recent results and an update on the current state of our business and pipeline. Second, a review of what we've accomplished since 2007 and why we're positioned for 2012 and beyond. And third, our outlook for the rest of 2011 and our preliminary view of 2012.
So let's start with our Q3 results. We beat the high end of our guidance EBITDA by $6 million and EPS by $0.02. Worldwide REVPAR grew by over 7% and tight cost controls helped to drive 140 basis points increase in GOP margins. Our results led the market in the developed world. North American REVPAR increased 8% with growth in Phoenix at 23%; Honolulu, 14%; San Francisco, 14%; and New York, 5%.
Europe's REVPAR grew by 7%, including Paris at 19%, Barcelona at 15% and Florence at 8%. And in Tokyo, occupancies are recovering well from earlier this year, but REVPAR was still down 12% compared to last year pre-disaster.
These results pointed the resilience of both our fee businesses and the sustained growth in high-end global travel. We're confident that the trends will continue to work in our favor. And to explain why, let me reconcile the disconnect between dismal economic headlines and our trend lines.
Imagine a scenario, let's call it, Economy A where the land of the haves. It has full employment, a record low interest rates, corporations flush with cash and prospects for global growth. Economy A shows little slack capacity in our industry and no near-term growth. Well, Economy A pretty much sums up the high end hotel business in the U.S. if not the rest of the developed world. Unemployment among experienced college educated workers in the U.S. for example, is around 4%. Affluent households have low personal debt and our corporate customers are enjoying another year of growth, with expectations for the S&P 500 profits to be up 13%. And travel continues to remain the key to their pursuit of growth around the world. In Economy A, we weren't surprised to see occupancies reach prior peak levels in the quarter and room supply is growing at scant 0.5%, which is a small fraction of its average over the last 4 decades. So the basic law of supply and demand would tell us the rates will continue rising. Eventually, they'll reach a point where they trigger new hotel development and from where we sit today, supply growth remains years away as few new projects are being financed.