Starwood Hotels & Resorts Worldwide (HOT) Q2 2010 Earnings Call July 22, 2010 10:30 am ET Executives Frits van Paasschen - Chief Executive Officer, President and Director
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 on our call today. We're happy to report that the economic recovery continued with the global GDP growth rising above 4%. This fueled lodging demand and drove our business in the second quarter. Occupancies continued to climb and rate increased for the first time since Q3 of 2008. At today's occupancy levels, we're confident that rates will sustain their rise through the year. And as each month passes, we're increasingly convinced that the great lodging depression of 2008 and 2009 is behind us. Nonetheless, we continue our scenario planning in the face of an uncertain economic picture. Our base case remains cautious about the near-term recovery, playing out somewhere between the new normal and the typical past recoveries. Longer-term, we continue to be bullish about getting more than our fair share of the huge secular growth in demand in emerging markets. So with that as a backdrop, I'd like to cover four topics today. First, a review of our second quarter results; second, an update on why Starwood is well positioned to own the upswing; and third, some background on our owned assets and our strategy for getting the most value as we move toward asset light; and fourth, a look at how we create value for our owner partners. So let me start with the first topic, some second quarter highlights. We were able to beat EBITDA expectations by $50 million and EPS by $0.10. For some time now, we've been talking about our leading global position, our strong brands and our skew towards luxury. And it was precisely these drivers that accounted for our strong top line results. Company-operated REVPAR growth was nearly 30% in Asia Pacific and Latin America. North America company-operated REVPAR was up 12%. And Europe, despite its troubling headlines, was up 10% in local currency. Only Africa and the Middle East under-performed, thanks mostly to oversupply in the Emirates. Overall, worldwide-owned REVPAR jumped 16%, and margins expanded by 400 basis points.
The big story behind our REVPAR growth is the rebound in business travel, which is 75% of our business. Revenues from global accounts and midweek occupancy are nearly back to 2008 levels. The sectors that are leading the charge are financials, consulting and tech.Group business played out well in the second quarter also, with surging booking in the quarter for the quarter. For the first time in two years, total group business on the books is in positive territory. I should also add that booking windows remain quite short, often only four to five months out. So we expect additional pickup for 2011 during this year. Overall, new leads were up 20% and rates for 2010 bookings were up 16%. The rebound in business travel bodes well for corporate rate negotiations this fall. After two years of declines, industry-wide occupancies have now reached levels where rates tend to rise. North American property saw occupancy above 71% in the quarter, with midweek levels in June for New York, Boston and Chicago over 90%. So it's not a surprise that ADRs are up roughly 5% in North America for June and July. And in London, June midweek occupancies were 98%, with Paris and Rome at 92%. Throughout 2009, we talked about our commitment to contain costs as we moved into the up-cycle. Our efforts are paying off as margins increased 400 basis points in the quarter. Around the world, our 145,000 associates did a great job of maintaining a lean structure. And at the same time, we were able to deliver record guest satisfaction scores even as hotels continue to fill. This success speaks well to our efforts at communication, branded service culture training and succession planning. We're proud to say that Starwood is a great place to work and build a career. Read the rest of this transcript for free on seekingalpha.com