Starwood Hotels & Resorts Worldwide (HOT) Earnings Report ...s.t.st/media/xtranscript/2015/Q1/13041799.pdf · You can find a reconciliation of the non-GAAP financial measures discussed

CompanyName:StarwoodHotels&ResortsWorldwideIncCompanyTicker:HOTSector:Services

Industry:LeisureEventDescription:Q4 2014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 24

StarwoodHotels&ResortsWorldwide(HOT)EarningsReport:Q42014ConferenceCallTranscriptThefollowingStarwoodHotels&ResortsWorldwideconferencecalltookplaceonFebruary10,2015,10:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

StephenPettibone;StarwoodHotels&Resorts;VP-IRFritsvanPaasschen;StarwoodHotels&Resorts;CEO,PresidentTomMangas;StarwoodHotels&Resorts;CFO,EVPMattAvril;StarwoodHotels&Resorts;PresidentoftheHotelGroup

OtherPart icipants

HarryCurtis;Nomura;AnalystFeliciaHendrix;Barclays;AnalystStevenKent;GoldmanSachs;AnalystShaunKelley;BankofAmerica;AnalystCarloSantarelli;DeutscheBank;AnalystNikhilBhalla;FBR;AnalystJoeGreff;JPMorgan;AnalystRyanMeliker;MLV;AnalystThomasAllen;MorganStanley;AnalystBillCrow;RaymondJamesandAssociates;AnalystDavidLoeb;RobertW.Baird;AnalystRobinFarley;UBS;AnalystRichHightower;EvercoreISI;AnalystVinceCiepiel;ClevelandResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

GoodmorningandwelcometoStarwoodHotels&Resortsfourthquarter2014earningsconferencecall.

(OperatorInstructions)

I' llnowturnthecallovertoMr.StephenPettibone,VicePresidentofInvestorRelations.Sir,youmaybegin.

StephenPet t ibone (VP-IR):

Thankyou.ThankstoallofyoufordialingintoStarwood'sfourthquarter2014earningscall.

JoiningmetodayareFritsvanPaasschen,ourCEOandPresident;TomMangas,ourCFOandExecutiveVicePresident;andMattAvril,whofollowingcompletionofthespinoffofourtimesharebusiness,isexpectedtobecomeCEOofthenewcompany.

WithbothfourthquarterearningsandtheSVOspendtocover,wearegoingtoextendthecalltoallowfor45minutesofQ&Afollowingourpreparedremarks.




Beforewebegin,I' liketoremindyouthatourdiscussionsduringthisconferencecallwillincludeforward-lookingstatements.Actualresultscoulddiffermateriallyfromthoseindicatedintheforward-lookingstatementsandforward-lookingstatementsmadetodayareeffectiveonlyasoftoday.Weundertakenoobligationtopubliclyupdateorrevisethesestatements.ThefactorsthatcouldcauseactualresultstodifferarediscussedinStarwood'sannualreportonForm10-KandinourotherSECfilings.Youcanfindareconciliationofthenon-GAAPfinancialmeasuresdiscussedintoday'scallonourWebsiteatwww.StarwoodHotels.com.

Withthat,IampleasedtoturnthecallovertoFritsforhiscomments.

FritsvanPaasschen(CEO,President):

Thankyou,Stephen.We'redelightedtohaveallofyoujoinus.Fortoday'sQ4earningscallwewillfollowtheusualformatwithbothTomandmypreparedremarks.Thiswillincludealookbackon2014,aswellasouroutlookfor2015.Ontopofthat,wewillprovidesomefurthercoloronourplantospinoffourvacationownershipbusiness,solet'sgetstartedwithalookatthe2014performance.

IfyougobacktoourQ4callfromayearago,wesaidthattheglobaleconomyhasseenastringoffoursimilaryearsinarowandfromamacrostandpointtheseyearswerecharacterizedbyaslow,butcontinuing,recoverywithitsfairshareofregionalfitsandstarts.Ouroutlookfor2014wasformoreofsameandthatismoreorlesshowitplayedout.Thelong-termdriversofdemandgrowthforglobaltravelandforhigh-endlodgingbrandsremainedfirmlyinplace.

Atourhotels,occupanciescontinuetoriseevenasweexpandourfootprint.Ourmajorcorporateclientscontinuetotellusthattheywillbetravelingmore.AirportsaroundtheworldarereportingrecordnumbersofpassengertrafficfromLAtoFrankfurttoBeijingtoSingapore.

In2014,Dubai'sairportbecametheworld'sbusiest.YoumightrecallthatDubaiisthecitywiththemostStarwoodHotelsoutsideofNewYorkandthehomeofourpartner,EmiratesAirlines.InternationalairtraffictoandfromtheUSin2014wasup7%,reachingall-timerecordlevels.BehindthatgrowthareencouragingindicatorsofdemandfromhealthyUSGDPfigurestolowunemployment.Wesawbrightspotsinothermarketsaswell,suchasMexicoandIndonesia,whereourhotelshadstrongRevPARgrowth.

InIndia,PrimeMinisterModi'sadministrationhasbroughtafreshfocusonbusinessgenerallyandontourisminparticular,makingthisagreattimetorelocateourglobalheadquarterstothesubcontinentforthemonthofMarch.And,evenasChina'sgrowthslowedto7%,itstotalincrementalGDPwillbeaboutthesameasUSincrementalGDP.Ofcourse,2014wasnotwithoutitschallenges.AstrongerUSdollarhighlightsnotonlyglobaluncertainty,butitalsocreatesaheadwindforourownP&L.Mostofthatuncertaintycenteredontworegions:theMiddleEast,givenrecentconflicts,andEuropewithRussia,Ukraine,andGreece,nottomentionEurozonedeflation.

So2015startedwithabackdropofvolatilityincurrenciesandcommoditiesaswellasthecollapseoftheRussianeconomy,butmostindicatorssuggestthatevenifthisyearisdifferentfromthepast,theglobalrecoverywillcontinueforafewmoreyears.Ourperformancein2014mirroredthemacroenvironmentanditturnedouttobeaverysolidyearforStarwood.RevPARwasupnearly6%for2014,rightinthemiddleoftheguidancerangethatwesetoutayearago.

Asweexpected,NorthAmericawasourstrongestregionwithRevPARup7%.andQ4markedourseventhstraightquarterofrecordhighoccupancy.Groupbusinesscontinuedtostrengthenandtheyearsawanuptickinthevolumesofnear-termsmallermeetings,buildingonthetrendthatwe'veseenforawhile.Thesupplypictureremainsrelativelybenign,thatisnotenoughnewsupplytobringoccupanciesdown.Weareseeingmoreconstructionactivityintheselectservesegment,butalmostnoindustrysupplygrowthintheupperupscaleandluxurysegments.Againstthebackdropoflowoilpricesandlowinterestrates,wesee




potentialfortheNorthAmericarecoverycycletocontinueforsometime.

InChina,2014RevPARwasupover8%,excludingMacaualittleover4%.Occupancywasup480basispointsto61%.RevPARindexwasuponceagainaswell.Chinanowaccountsfor14%ofourfees,morethan15%ofourfootprint,andaboutathirdofourpipeline,andevenasChina'sGDPnumbersmoderate,weareseeingrisingdemandforourbrands.OuractiveSPGmemberbaseisnownearlyfourtimeswhatitwasfouryearsagoandoutboundtravelfromChinatoourhotelswasupnearly20%in2014.

Lookingback,China'seconomyismorethan2timesasbigin2014aswhenIjoinedin2007andby2018it'seconomyisprojectedtobeanother40%larger,whichiswhywemaintaintheviewthat,despiteanynear-termchallenges,there'smoreriskinstayingonthesidelinesinChinathaninpursuingrapidgrowth.

TurningtoLatinAmerica,RevPARwasupover3%.MexicoleadtheregionwithRevPARgrowthabove20%.BrazilandArgentinacontinuetostruggle,sodespitealiftfromtheWorldCupourresultsinbackhalfof2014reflecttheillsoftheSouthAmericaneconomy.For2015,onecanhopethatthepost-electiongovernmentinBrazilwilltakestepstorestarttheeconomicgrowth,butArgentinalookstobringmoreofthesame.Despitethesemacroissuesinbothcountries,ourbusinesseshelduprelativelywell.Ourhotelshavesignificantlyoutperformedtheircompetitors,whichspeakstothestrengthofourbrandsandourdistribution.

InEurope,despitetheuncertainty,theperformanceatourhotelsimprovedinthesecondhalfof2014.Full-yearRevPARwasupover3%.SpainandGreecebouncedbackintheyear.BusinessinGermanypickedupthroughtheyear.Lookingahead,Europe'ssituationisstillunclear,butmostforecastscallformodestgrowth.BanklendingstandardsareeasingandtheECBquantitativeeasingmighthelp,atleastinsofarasaweakereurowillbringmoreUStouriststoEurope.But,tobesure,wearenotfactoringinarobustrecoveryfortheEuropeanbusinessin2015.RevPARintheMiddleEastandAfricagrew2.4%andourAsia-PacificmarketsoutsideofChinagrewalmost3%.

Inbothregionsgeopoliticaleventswereadragonbusinessandtheseregionsarelikelytobeamixedbagin2015aswell.Somemarkets,Thailandforexample,areshowingapickupinbothtransientandgroupbusiness.Otherareas,liketheresource-richeconomiesinAfrica,arebeingheldbackbycommodityprices.DrivingourRevPARgrowthin2014wasanotheryearofrisingRevPARindex.

Inotherwords,ourhotelsinaggregatearoundtheworldoutperformedtheircompetitiveset.Wearedrivingrevenuethroughoureffortstoconnectbetterwithguestsandcustomers.Webuiltupourabilitytohelpourassociatesonpropertyatcustomercontactcentersandinoursalesorganization.Asaresult,theycandeliverbetterexperiencesandbettertargetourcustomers.

Alongtheselines,forexample,wehavebettersystemsinrevenuemanagement,bigdataofferengines,webchannels,andaccountinformation.DrivenbyRevPAR,ourcorefeesgrewnearly7%.SG&Afortheyearcameinjustunder5%,atthehighendofourinitialguidancerangebutlowerthanweexpectedatthetimeofourQ3call.

Basedontheseresults,alongwiththestrongperformanceatourownedhotelsandSVO,wedeliveredadjustedEBITDAof$1.24billion,abovethehighendofexpectationslaidoutatthebeginningoftheyear.In2014weopened15,000roomsaroundtheworld.Thisincludesour200thWestin,whichwasamilestoneforthebrand.Inall,over60%oftheroomsthatenteredoursystemin2014werehigh-endproperties,eitherluxuryorupperupscale,andmorethan85%werelocatedoutsideoftheUS.Thismeansonaper-roombasisthattheywillgeneratehigherfees.

Asofthestartof2015,ourhotelsoutsidetheUSaccountfor56%ofourglobalfootprint,upanother2%fromlastyear.In2014we[signed]dealsfor175newhotels,representingabout35,000roomsandabout10%ofourcurrentfootprint.Nonetheless,ournetroomsgrowthduringtheyearwasonly2%,whichisbelowourtargetof4%to5%.




Aswementionedonrecentcalls,thiswasdrivenbythreefactors:longerdevelopmenttimesinimportantgrowthmarketslikeChina,fewerin-the-yearfor-the-yearconversions,andahigherproportionofselectservehotelswithloweraverageroomcounts.Tobesure,wearetakingactiontogetourselvesbackonourgrowthtrajectory.

Alreadyin2014wehadoursecond-bestsigningyearever.Infact,wesigned100morehotelsthanweopened,whichbodeswellforfuturegrowth.Wehavealsoputinplaceresourcestosupportevenmoredealsintheyearsahead.Intheveinofgettingfeetonthestreet,wehaveaddedlocaldealexecutivestosupportgrowthmarketsandintheUStosupportgrowthsegments.Westreamlinedourprocessforconvertinghotelstoourbrandandweareselectivelyusingourbalancesheettocatalyzedevelopment,aswellasfindingnewwaystobringhotelsintooursystem.

Alongthoselinesandbuildingonthe20yearsofexperienceinTheLuxuryCollection,aswellasthesystemsimprovementsthatwehavemadeinrecentyears,wearenowplanningtolaunchacollectionbrandthatwillfitthewhitespacethatliesbetweenLuxuryCollectionanddesignhotels.ThisnewofferingwillallowustopluginunbrandedpropertiesthatmeetthequalityexpectationsofourcoreSPGtravelersandbroadenourabilitytogrowandreachanevenbroadersegmentoftravelers.

RightnowtheUSiscertainlythestrongestlodgingmarketforbrandedgrowth,particularlyintheselectservesegment.WehavebeenworkinghardtoensurethatourbrandsresonatewithUSconsumersanddevelopers.TakeAloft;it'sfootprintisupover15%overlastyearandweplantoopenour100thpropertyin2015.

Aloft,alongwithWandElement,willbethefirsthotelbrandtohavekeylesscheck-ininstalledateverypropertyaroundtheworld.Aloftappealstoyoungtech-savvytravelersandthesetravelersareincreasinglydrawntoSPG,whichaccountsforoverhalfofitsoccupants.Aloft'sriseinRevPARisatestamenttothatloyaltyaswell,withAloftratesalreadyonparwithmajorselectservebrands.WehaverecentlyseentransactionswithAloftsellingatpriceswellabovetheirconstructioncosts.AllofthisexplainswhylastyearourAloftsigningsinNorthAmericawerethehighestsincebeforethecrisis.

AnothergrowthacceleratorforusisElement.Thispastyear,infact,wesignedmoredealsforElementthatwehaveopenproperties.WealsosignedarecordnumberofFourPointsbySheratonin2014.FourPointsisoursecond-largestbrandbyroomsinourdevelopmentpipelineandweareontracktoopenour200thFourPointsbySheratonthisyear.

SothisishowweintendtoaccelerateourgrowthinNorthAmerica,butatthesametimeweviewourglobalgeographicmixasalong-termstrength.Thetrendlinestellusthatwearewell-positionedastheleaderinmarketswhereanotherbillionpeoplewillmovetocitiesinthecoming20years.Soletmeturnnowtocapitalallocation.In2014,wereturned$2.4billionincashtoshareholdersandreducedoursharecountbyover10%.Thesereturnswerefundedthroughacombinationofoperatingcashflow,increasingourleverage-to-targetlevels,andthroughassetsales.

Specificallyonthatlastpoint,wesoldeighthotelsfortotalproceedsofabout$800million.Tomwillshowyoumoredetailsonourplansforcapitalallocationin2015andforourreturnofcash,butIwantedtomentionafewpoints.Weexpecttostayatornearourtargetdebtlevels,whichiswherewefindourselvesnow.

You'vealsoseenthatwehavedeclaredourfirst-quarterregulardividendof$0.375ashare.OurBoardhasalsoapprovedanincreaseinoursharerepurchaseauthorizationby$750million.Thisbringsmetoadiscussionofourplanstospinoffourvacationownershipbusiness.Throughthistransactionweexpecttocreateapure-playvacationownershipcompanywithaseasonedmanagementteam,astrongbalancesheetthatissettopursuegrowth.Atthesametime,thetransactionwillaccelerateStarwood'sasset-lighttransformation.

Onequestionyoumightaskiswhetherweareturningawayfromthetimesharebusiness.Therealityisthat




wecontinuetobelieveinthisbusinessandinthevalueofourbrandstoleadtheindustry.Putsimply,throughthisspinoffwearenomoreexitingthetimesharebusinessthanweareexitingthehotelbusinesswhenwesellhotelswithlong-termcontracts.And,justlikesellinghotels,weareconvertingStarwood'sparticipationinvacationownershiptoanasset-light,fee-basedbusinessmodel.ThestrengthofourbrandsintheSPGplatformwillfuelgrowthandshareholdervalueforbothcompanies.Youmayalsoaskaboutthetimingofthisspinoff.

Whynow?Firstofall,capitalmarketscurrentlyprovidegreatvaluationsforspinoffsingeneralandtimeshareinparticular.Second,thishasbeenastrongbusinessforStarwoodintermsofcashgenerationtothetuneofover$1billionoverthepastsixyears.Aswelookaheadinourcoremarkets--Hawaii,Mexico,andOrlando--weseethatthisbusinesscandomorethanreplenishinventory.Itcandrivesignificantgrowth.

InMexico,forexample,demandforourvacationownershippropertieshasledtosalesbeyondourexpectations.TheWestinSt.JohnhasshownthatwecansuccessfullyconverthotelstotimeshareanddemandforourinventoryinMauipointstoagreatopportunityinHawaiifortheirnextphaseinKa'anapali.Theseinvestmentsmakeperfectsenseforthetimesharebusiness,buttheydon'tnaturallyfitwiththecapitalreturnprofileofaglobalfee-basedbusinessatthecenterofStarwood'sstrategy.

Allofthistellsusthatthisistherighttimetoletourvacationownershipbusinesspursuethatgrowthonitsown.Asastandaloneentity,thenewcompanyispositionedtohavedirectaccesstodedicatedcapital.Itcomestomarketwithagreatbusiness,leadingbrands,abest-in-classteam,aplatformwithscale,andalonghistoryofsuccess.Inthepast30yearsit'ssoldsome$6billioninunitsatsomeofthehighestunitprices.Lookingahead,thenewcompanywillhaveaclearplanforgrowth.

SosplittingStarwoodandSVOwillenableshareholderstoinvestintwopure-playpropositions.AlookattheshareholderbasisforexistingtimesharecompaniessuggeststhenewcompanywillattractadifferentshareholderbasethanthatofStarwood,shareholderswithagreaterappetitetoinvestinthiskindofgrowth.Andasafoundationforthatgrowth,weexpecttoplacefivehotelswiththenewcompany.Thesepropertiesareinkeytimesharelocationsandwillprovideareadysourcefornewinventory.

AndfromStarwood'sperspective,we'vereducedourownedhotelcount,movingusfurthertowardsourasset-lightgoals,whileatthesametimeputtingthesefivepropertiesinthehandsofalong-termpartner.Andweintendforthatpartnershiptotaketheformofanarm's-lengthagreementwithStarwood,includinganSPGaffiliationandlicensingagreementforthetimesharebusiness.TheCompany,aswellasitsownerswithtimeshareintervals,willretainanaffiliationwiththeWestinandSheratonbrandand,throughSPG,accesstoourglobalnetworkofhigh-endhotels.

Ourgoalistocreatealong-termrelationshipthatensuresnodisruptionorchangefortimeshareownersandalsoensureslong-termprotectionofStarwood'sbrand.LeadingtheCompanywillbeMattAvril.Wearedelightedtohavealeaderforthisbusinesswhoknowsusandknowsourbrands.Mattbringsenergy,experience,andexpertiseinthetimesharebusiness.YoumayrecognizeMattasaformerseniormemberofStarwood'sleadershipteam,whountil2012waspresidentofourhotelgroup,overseeingallofourhoteloperationsworldwide.He'sspentover25yearsinthetimesharebusiness.Mattwillreturnaschiefexecutiveofficerofthenewcompany,joiningSteveWilliams,SVO'schiefoperatingofficer,toleadthisterrificteamofassociates.

Andthisleadsmetoapointthatdoesn'tstandoutonSVO'sbalancesheet,butinmyopinionisarguablyitsgreatestasset.SVOhasagreatculture.Yearin,yearouttheassociateengagementstoresareamongthehighestinStarwood.Thisculture,andthetalentthatgoesalongwithit,havemadeforgreatresultsinbothsales,withindustry-leadingmargins,andinguestservice,withguestsatisfactionscorestoproveit.Itisalsowhyover60%ofourbuyersareexistingownersofourtimeshareintervals.These220,000ownersareSVO'sbiggestfans.




Insummary,Iamveryproudofourvacationownershipteamandhowitsucceededthroughtheyear.There'salotofworktodobetweennowandtheplannedspinoff,butfromapositionofstrengthweareconfidentthatthisistherightstepattherighttimeforbothStarwoodandthenewcompany.

BeforeclosingmypreparedremarksIwanttocommentonourprogresstowardsasset-light.Weexpectthatfollowingthespinoffwewillend2015withabout75%ofourEBITDAbeforeSG&Afromfees,evenwithouttheadditionalassetsalesthatweexpectin2014--thatweexpecttobeat2014levels.Tomwillgiveyoumoredetailsonouroutlookforassetsalesin2015,butasweapproachourgoalofthe$3billioninassetsalesbytheendof2016aswelaidoutatourDubaiinvestorday,weexpecttobewellaboveour80%asset-lighttarget.

Withthat,IampleasedtohandthecallovertoTom.

TomMangas (CFO,EVP):

Thankyou,Frits.Goodmorningandthanksforjoiningusonthecall.GiventhatFritsgaveathoroughreviewoftheyear,Iwillfocusmyremarksonthefinalquarterof2014.Iwillthenshareourguidancefor2015andthefirstquarterandwillgiveafewspecificsonourreturnofcapitalplansandthevacationownershipspin.

Inthequarter,worldwidesystemwideRevPARforsame-storesalesgrew4.4%inconstantdollarsand2.3%whenaccountingforforeignexchangeimpacts.Thiswasconsistentwithourexpectationsgoingintothequarter.Thisallowedustodeliverfeegrowthfrommanagement,franchise,andotherfeeincomeof10.9%andcorefeegrowthof3.7%comparedtolastyear.Thesefeegrowthrateswerereducedbyroughly200basispointsduetotheimpactofforeignexchange.OurfeegrowthandgoodSG&AcostcontrolallowedustodeliveradjustedEBITDAof$335millionaheadofourguidancerangeof$310millionto$320million,analmost7%increaseovertheprioryear.

Theseresults,combinedwithoursharerepurchaseactivityandfavorableeffectivetaxrate,poweredouradjustedearningspershareto$0.97,a33%increaseovertheprioryear.Notsurprisingly,NorthAmericaledthegrowthwithRevPARgrowthof5.8%inconstantdollars.RevPARintheSouthandWestregionswerestrong,up8%9%,respectively.However,ourheaviermixofbusinessintheNorthregion,andNewYorkinparticularwithitslargesupplyincrease,mutedourperformance.

HawaiicontinuedtobeachallengeforusinthefaceoflowerdemandfromJapanduetotheweakeryen.WeareremixingthebusinesstherebyincreasingourfocusoninboundtravelfrommainlandUS.WesawgoodresultsinHawaiiinDecember,sowearehopefulthatwewillseemoregrowththerein2015.

OverallforNorthAmerica,ouraveragedailyratewasup3.4%andouroccupancywasup160basispoints.Groupbusinesscontinuestogetbetterandwehadanincrediblystrongbookingsinthequarter,withgrouprevenueupover9%forbusinessintoallfutureyears.Wehadadouble-digitincreaseintherevenuewebookedinthequarterforthequarterandDecemberwasthelargestgroupbookingmonthinourcompany'shistory.Ourpacenumbersaregrowingstrongly,reflectingthattrend,andcurrentlywe'vegotover70%ofour2015expectedbusinessonthebooks.

Onthetransientfront,wearemakingprogressinthecorporateratenegotiationprocess,andwithnearly60%ofthebidsin,weexpectrateswillbeupinthemidsingledigitsonaverage.LatinAmericaRevPARwasup2.8%.MexicocontinuestodrivetheregionbothinMexicoCityandinourcoastalresorts.Importantly,wegrewshareinSouthAmericadespitesomevolatilemarkets.GreaterChinaandEuropebothsawaRevPARgrowthatorabove4%inconstantdollars,despiteslowingconditionsthere.WhileFXwasonlyaslightheadwindtogreaterChina,EuropesawactualRevPARdecline3.3%.

InEurope,wesawaveragedailyrateup1%andoccupancywasup200basispoints.Greeceandsouthern




Europesawgoodrecoveriesofaweak2014base.GermanypoweredalongwithRevPARgrowthof5%andtheUKenjoyed3%RevPARgrowth.Francewasessentiallyflat.ThedeclineofRussiainboundtraveltotheAfricaandMiddleEastregions,especiallyDubai,duetotheweakrublecontributetoRevPARdeclinesof30basispointsinourAfricaMiddleEastregion.FortheAfricaMiddleEastregionaveragedailyratewasdown1.5%,butoccupancyincreased70basispoints.

GreaterChinasawaveragedailyratedeclinesof1%offsetbyoccupancyup320basispoints,largelydrivenbythecontinuedrampupoftheSheratonMacau.RevPARinmainlandChinawasup2.8%.Performancecontinuedtobeimpactedbythegovernmentausterityprogramandsupplygrowthputpressureonrateandoccupancyinsomemarkets.PerformanceinthenorthofChinaremainedweak,buttheeast,especiallyShanghai,continuedtheirstrongperformancewithRevPARupover7%.

InAsia-PacificoutsideofgreaterChina,RevPARgrew1.2%withstronggainsinAustralia,Fiji,India,andJapanoffsetbycontinuedweaknessinMalaysia,Indonesia,whichhadasizableAPECeventintheprioryear,andlowerinboundRussiantravelinkeyresortmarketsinIndonesia,Thailand,andMaldives.Worldwide,allourbrandsgrewRevPARinthequarterinconstantdollarterms.

AloftRevPARgrew8.7%asthisbrandcontinuestobuildmomentumdomesticallyandinternationally,growingoccupancy300basispoints.BoththeWestinandSaintRegisbrandsdeliveredRevPARgrowthabove5%.LeMeridiensawtheweakestRevPARgrowthacrossourbrands,drivenlargelybygeographicmix,asthisbrandhasaheavyfootprintinAfrica,MiddleEast,andAsia.

Turningtoourownedandleasedportfolio,afterabusyyearofassetdisposalswecurrentlyownorlease36hotelsandresorts:13areinNorthAmerica,12areinEurope,8areinLatinAmerica,andtheremaining3areinAsiaPacific.Thesenumbersincludethefivepropertiesweplantocontributetothevacationownershipspin.Iwillcoverthatinmoredetaillater.Forthequarter,RevPARforthesame-storeownedhotelsincreased4.7%.Revenueforthesehotelswas$370million,adeclinefromthesameperiodin2013,drivenbyouraggressiveassetsaleprogramandimpactofforeignexchange.

Thevacationownershipbusinesssawrevenuesincrease15%to$167million,drivenlargelybyrecognitionofpreviouslydeferredrevenuesfromthesalesatWestinSt.John.Originatedcontractsalesofvacationownershipintervalsdeclined2%duetoloweraverageprices,partiallyoffsetbyhighercontractsignings.SG&Aforthequarterincreasedjustunder3%versustheprioryearto$109million.TotalyearSG&Agrowthwasatthelowendofourrevisedrangeatjustunder5%aswedeliveredstrongcostcontrolinthefinalquarter.

Inthequarter,weclosedonsixhoteldispositions,includingourSheratonontheParkproperty,theSt.RegisRome,theSheratonAmbassador,andthePhiladelphiaTriplex.Totalassetsalesyieldedgrossproceedsof$585millioninthequarter.Fortheyear,weenjoyedgrossproceedsof$817million,soabigquartertowardsourasset-lightstrategy.

Lookingbackatthehotelswesoldoverthepasttwoyears,ourtotaltaxcosthasbeenlessthan10%.Althoughtheremaybetransactionswherewehavealargertaximpactinthefuture,webelievethatonanaggregatebasiswewillabletocontinuetosellourhotelsatthisleveloftaxefficiencygoingforward.

Turningtoreturnofcapitalonthebalancesheet,asFritsmentioned,wecontinuetobeactivebuyingbackthestockinthefourthquarter.Intotalwepurchased7.8millionshares,or$609million.Wealsopaidtotaldividendsof$173million,includingthelastofthefourspecialdividendsfromtheBalHarboursale.Withtheseactionsandthecashgeneratedbyassetsalesandtheoperations,wetooknetdebttoEBITDAto1.4timesonastraightbasisor2.9timesbasedonhowS&Pcalculatesit,whichagainexcludesourforeigncashandincludesadjustmentstheymakeforoperatingleasesandothersmalleritems.

Netwereachedthehighendofourleveragetargetbytheendofthequarter.Grossdebtonthebooksis$2.7



©2014TheStreet,Inc.AllRightsReserved Page8 of 24

billion.Netdebtwas$1.7billion,excludingthedebtandtherestrictedcashassociatedwiththesecuritizedvacationownershipreceivables.Weendedtheyearwithcashandcashequivalentsof$1billion,thanksinlargeparttotheproceedsontheassetsaleswecompletedinthefourthquarter.Ofthatamount,approximately$950millionwaslocatedoffshore.

InFebruarywepaiddownourcommercialpaperbalancebyroughly$400millionusingcashonhand.Nowletmeturntoguidanceforthefullyearandforthefirstquarter.First,weexpectsystemwideRevPARtogrow5.7%in2015inlocalcurrency.

Thisisdifferentfromthecompany-operatedguidancerangewegavelastquarterfortworeasons.First,itnowincludesourexpectationsforfranchisepropertiesand,second,itreflectsanimprovedoutlookfortheUSandinpartsofAsia-Pacific.IfcurrentFXrateshold,thiswillreduceUSdollarRevPARbyroughly300basispointsfortheyear.

Similarly,corefeesshouldgrow8%to10%,againinconstantdollars.USdollarfeegrowthwillseeasimilar300basispointreduction.Ourreportedfeegrowthisexpectedtogrow2%to4%,drivenbyboththeFXheadwindandroughly$35millionabovenormalterminationandotherone-timefeesin2014,mostofwhichwehighlightedlastquarter.WeexpecttogrowSG&A2%to4%followinglastyear's5%growthrate.

Weexpectourownedhotelmarginstoincrease25to75basispoints.Aswecontinuetoshrinkourownedportfolio,improvementinmarginsbecomesverypropertydriven.In2015ourownedpropertiesinArgentinaaresuppressingcompanywideownedmargingrowth,giventhedifferentrateofchangeinlocalinflationversustheofficialexchangerateoftheArgentinianpeso.OwnedEBITDAwillbelowerbyapproximately$42millionduetohotelswesoldin2014.

Weprojectourvacationownershipandresidentialsegmenttogenerate$140millionto$150millionofEBITDA.Aswesaidinthepast,we'vemanagedthebusinessforgoodinternalratesofreturn,nottogrowearnings.In2015,thelowerEBITDAversus2014islargelyduetoourlappingtheselloutofBalHarbourandtheimpactofdeferredrevenueonapercentageofcompletionaccountingaswerampuptheinvestmentinnewinventory.

Alltogether,theseresultsenableustodelivertotaladjustedEBITDAof$1.175billionto$1.200billion.Thisrangereflectscurrentforeignexchangerates,whicharereducingEBITDAbyroughly$35millioncomparedto2014.Wealsoexpectcashtaxesto$110millionandourfull-yearnormalizedeffectivetaxratetobe32%.Weexpectinterestexpensetobe$135million.Weexpectthistoyieldadjustedfull-yearearningspershareof$2.87to$2.97beforeincrementalsharerepurchases.Asaresult,weareprojectingcashflowfromoperationsof$700millionto$800million,or$860millionto$960millionbeforeinvestment--additionalinvestmentintimeshareinventory.

Intotal,weexpecttoinvestapproximately$560millionincapitalintheyearbehindnetroomsgrowth,onITinfrastructureandinnovation,onownedhotelmaintenancecapital,andontimeshareinventory,includingprojectsliketheKOR3projectatKa'anapalithatFritsmentioned.Thislevelisabout25%higherthantheaverageofthepastthreeyears,mostlydrivenbythebigKOR3investment.

Forthequarter,weareprojectingadjustedEBITDAintherangeof$250millionto$260million,drivenby4%to6%constantdollarRevPARgrowth.ReflectingthecurrentFXenvironment,theRevPARrangewillbemorelike1%to3%inactualdollars.Thiswillresultincorefeegrowthof3%to5%.Totalmanagementfees,franchisefees,andotherincomewillbeflatduetoalargeone-timefeeintheprioryear.Weexpectadjustedearningspersharetobe$0.53to$0.57.

Nowturningbacktothespinoffannouncement,Iwouldliketocoversomedetailsoftheexpectedtransaction.Thetransaction,whichisexpectedtobetax-freetoshareholdersandwillbeaffectedthroughaproratadistributionofthenewentitystocktoexistingStarwoodshareholders,willcreateapremierupperupscaletimesharecompanyuniquelypositionedforgrowthwithaclearinventorystrategy.Underthisstrategywe




expectthatthenewcompanywillcontinuetofocusonaddinginventoryatitsexistingpropertiesandwithlandavailablefordevelopmentatmanyofthe22resortsitcurrentlyoperates.Itiswell-positionedtogrowfromthatexistingbase.

Toallowthenewcompanytoincreasescale,fuelsalesanddistribution,andaddadditionalinventory,Starwoodexpectstocontributefiveofitsownedproperties--WestinLosCabos,WestinCancun,WestinPuertaVallarta,SheratonKauai,andSheratonSteamboat--tothenewcompanywiththeintentionthatthehotelswillbesourcesoffuturetimeshareinventory.Wecarefullyanalyzedthebestusesforallourpropertiesandbelievethesepropertiesarebestpositionedfortimeshareconversions.

Inaddition,SVOcurrentlyplanstobeginconstructionofanewtimeshareresortcomplexadjacenttoitsexistingWestinKa'anapaliOceanResortinMaui.Thisisatremendousopportunitytoaddhigh-qualityoceanfrontinventoryinoneofthegreattimesharemarketsandit'sonewherewehavealreadygottengreatreturnsatourfirsttwoKa'anapaliprojects.Weareincludingcapitalrelatedtothisprojectin2015ofapproximately$80millioninourdevelopmentcapitalguidance.AsFritsmentioned,weintendforthenewcompanytoenterintolong-termagreementswithStarwoodrelatedtotheongoingrelationshipbetweenthetwocompanies.

Oncewehavefinalizedthoseagreementswecansharethekeytermswithyou,butatahighlevelourexpectationisthatalicenseagreementwillprovideanannualfeetoStarwoodconsistingofameaningfulfixedbasefeeandavariablefeebasedonoverallvacationownershipinterestsales.WealsoexpectthattheagreementswillprovidethatexistingandfutureownersofStarwood-brandedvacationownershipintervalsreceivesimilarservicesandbenefitsastheydotoday,includingaccesstoSPG.

Atthistime,webelievetheproformaimpacttoStarwoodwillincluderemoving$140millionto$150millionofvacationownershipEBITDAandapproximately$20millionofEBITDAfromthefivehotelsweintendtocontributetothenewcompanyoffsetbythenewannuallicensefee,whichweexpecttobeintherangeof$30millionto$40million.SVO'sG&Aisalreadycapturedinitsdirectexpenses,sowearenotguidinganyspecificchangetoStarwood'sG&Aexpenseasaresultofthetransaction,butwecontinuetolookforwaystoremovestrandedcostsanddrivethecompetitivecoststructure.

Wewouldexpectsomeincrementalpubliccost--publiccompanycostatthenewcompany,butit'stooearlytogiveyouanestimateofwhatthosewouldbe.Weexpecttoincurtransaction-relatedexpensesduringtheyear,butwearenotincludingtheminouradjustedEBITDAguidance.Weexpecttogiveyoumorecolorontheselaterintheyear.Fromabalancesheetperspective,we'restillworkingtodeterminewhattheappropriatelevelofleverageforthenewcompanywillbe.

Althoughweassume,ataminimum,anyreceivablesassociatedwiththevacationownershipandcorrespondingdebtwouldbepartofthenewcompany.WewilldiscloseadditionalfinancialinformationregardingthetransactionuponthefilingofaForm10registrationstatementwiththeSEC,whichweexpecttobeinapositiontofilesometimeinthesecondquarter.

Untilthenitwon'tbeappropriatetoprovidespecificdetails,includinghowwearethinkingaboutthecapitalstructurefortheCompanyalongwithotheritemssuchasthenameofthenewtimesharecompanyandfurtherinformationregardingitsBoardofDirectorsandfullmanagementteam.

Iwanttoaddressafewmorerelateditems:ourprogresstowardsasset-lightandhowthistransactionfitswithourstrategy;ourviewonassetsalesandreachingour$3billiongoalbytheendof2016;and,last,whatyoucanexpectfromareturnofcapitalfromStarwoodin2015.Whilewehavetalkedaboutour80/20asset-lightgoalformanyyears,inearly2013wesetoutatargetofreachingthatgoalbytheendof2016.Completionofourvacationownershipspinoffwillmeanthatwewillreachour80/20asset-lightgoalslightlyearlierthanwehadanticipated,butwealsosaidin2013thatreachingourgoalwouldmeanthatwecouldgenerateapproximately$3billioningrossproceedsfromhotelsales.




Sittinghereatthehalfwaymarkwe'vereachedapproximately40%ofthat$3billiontarget,includingthevalueofthefivehotelsthatweintendtocontributetoourvacationownershipspinoffandwhichweexpectwillultimatelybeconvertedintonewvacationownershipinventory.Reachingourasset-lightgoalearlydoesnotmeanthatwearebackingoffourintentiontosellourremainingownedassetsandreachthe$3billiongoal,andthespinoffdoesnotchangethewayweareapproachinghotel--sellinghotels.Oursuccessinsellingbothtrophyandnon-trophyhotelsin2014demonstratesourfocustoreachourgoal.

Aswelookintotherestof2015,theassetsalemarketcontinuestolookstronganddemandforourhotelsremainshigh.Witharecordnumberofhotelsonthemarket,ourexpectationistoclosetransactionsin2015thatwillgenerategrossproceedsinlinewithour2014level.Itishardtogiveanexactdollaramountatthispointbecausethetimingofrealestatetransactionsishardtopredict.

However,ourrealestateteamisactivelypursuingtransactionsthatmakesenseforStarwoodandourshareholders.Thisleadsmetothetopicofreturnofcash,whatyoushouldexpectfromStarwoodin2015.Investinginourbusinessonprojectsthatexceedourcostofcapitalremainsourfirstpriority.

Intheabsenceofastrategicassettobuy,weexpecttoreturnapproximately$550millionto$600millionincashtostockholdersintheformofregulardividends,whichweannouncedwillbea7%increaseovertheregularreportingdividendoflastyearandsharerepurchases.Thisamountassumeswecompleteourspinoffofvacationownershipandisafterouranticipatedinvestmentinexistingbusinessforgrowthasoutlinedinourguidance.

Atthislevelofreturnwewouldexpecttoremainatthehighendofourguidanceleveragerangefortheyear,whichis2.5to3timesgrossadjusteddebttoadjustedEBITDA.Ifwedofindanattractiveacquisitiontarget,wewouldreduceourrepurchasestostaywithinornearourtargetlevelrange.The$550millionto$600milliontakesintoaccountadditionalborrowingcapacityfromthegrowthofourhotelbusiness,EBITDA,andgrossproceedsfromassetsalesinlinewith2014results,offsetbyadeclineindebtcapacityrelatedprimarilytothelowerEBITDAduetothespinofftransaction.

Totheextentassetsalescomeinhigherthanlastyear,wewouldlooktoincreasetheamountofrepurchaseswecompletein2015.CashlocatedoutsideoftheUS,whichcouldbesubjecttotaxshouldwerepatriateit,isnotincludedinouranticipatedreturnofcapitalin2015.

Ourapproachtodividendsremainsconsistentwithwhatwe'vepreviouslycommunicatedwithatargetpayoutratiointhe30%to50%rangeandabest-in-classyield.Ourapproachtorepurchasesin2015willbeacombinationofmostlyprogrammaticbuyingwithanabilitybuymoreifthestockpricedeclines.Whilethevolumesinanygivenquartermayfluctuate,wewillbefocusedonbeingpricesensitivewherewecan,butwewillalsoadjustourapproachastheyeargoesontomeetthefull-yearexpectationswe'relayingouttoday.

BeforemovingtoQ&AIwillturnitovertoMattAvril,thefutureCEOofthenewtimesharecompany,herewithustodaytotalktoyouabitmoreaboutthebusinessfromhisperspective.Forthoseofyoudon'tknowMatt,hebeganhiscareerwithStarwoodin1989throughVistanaandservedbothaschieffinancialofficerandsubsequentlyco-presidentandmanagingdirectorofoperationsduringhistenure.HebecamepresidentofStarwood'shotelgroupin2008withoversightresponsibilityfortheCompany'sglobalhoteloperationsforallnineofStarwood'sbrandsanditsglobalsalesorganization.Throughouthistenure,MattcontributedgreatlytoStarwood'ssuccessasaglobalenterprisedrivingkeyinitiativesandbestpracticesacrossallgeographies.GivenMatt'sextensiveexperiencewithStarwoodoveralland25yearsofexperiencewithSVOandthetimeshareindustry,itwasanaturalfit.Matt?

Matt Avril(PresidentoftheHotelGroup):

Thankyou,Tom.I'mgratefultobeheretodaytotalktoyouaboutthenewcompanyIhavetheopportunityto




joinasCEOfollowingcompletionofthespinoffandforthechancetobepartneringwithSteveWilliamsandthetalentedSVOteamonwhatwillbeanexcitingnextchapterforourguests,associates,andinvestors.Asareminder,SVOwasfoundedin1980asVistana,wentpublicin1997,andwasacquiredbyStarwoodin1999.

Throughoutitsmorethan30-yearhistory,SVOhasbuiltandmaintainedaterrificreputationwithitsguestsandforitsoperatingperformance.Atourcore,weintendtoremaintruetoourcompanymissionofbeingthepremierproviderofoutstandingvacationexperiences.SVO'scommitmenttoourvalues-basedcultureandtoprovidingmemorableguestexperiencesremaincornerstonesofwhatwedo.

Overthelast15years,SVOwasabletobringitsexpertiseinthetimesharemarkettogetherwiththeworld-classbrandsofStarwood,deliveringoutstandingfinancialresultsinavarietyofenvironments.Throughthistransaction,weexpectthatthenewcompanywillbetheleadingdeveloperandoperatorofhigh-quality,brandedupperupscaletimeshareresortsinthemostdesirabledestinations.

WeexpecttocontinuetooperateanddevelopnewresortsundertheSheratonandWestinbrandsaswepursueourbusinessplan.GuestsandtimeshareownerswillcontinuetoenjoyextraordinaryexperiencesatSVO'sresorts,alongwithaccesstoStarwood'sworldwideportfolioofpropertiesandaward-winningSPGprograms.Wealsoexpectthatnewinvestorswillbeabletobenefitfromoursignificantgrowthopportunitiesaswebuildonalongtrackrecordofsuccess.

Ourbusinessstrategywillbebackedbyanattractivecombinationofpremierbrands,SPGloyaltyprogram,high-qualityproduct,strongbusinesseconomics,talentedassociates,andourexperiencedleadershipgroup.Wearecurrentlyintheprocessofdevelopingournewnameandlogo,whichwebelievewillcontinuetodeliveronthebrandequitywehaveestablishedinthemarketplace,whileemphasizingouridentityandculture.

Asyouwouldexpect,wearehardatworkonourgrowthplangiventheopportunitiesthatwillexistpost-spin,particularlywiththenewlycontributedassets.ItisworthnotingthatSVOoperatedat2timesthecurrentleveloforiginatedsalesinthe2006-2007timeframe.WebelievewehavetheinfrastructureandresortdestinationstoreturntheCompanytothatlevelofperformance.Weanticipateholdinginvestorandanalystmeetingsrelatedtothespinoffinthethirdandfourthquarterof2015,withaplantocompletethespinoffbyyear-end.

Additionally,manylogisticaldetailswillbedeterminedoverthecourseofthenextfewmonthsasweprepareforthespinoffandfinalizetherelateddocuments.Importantly,thenewCompany'sheadquarterswillbelocatedinOrlando,Florida.Thiswillallowustomaintainourcurrentbusinesslocationsinordertocontinuetoofferuninterruptedservicestoourcustomersandtakeadvantageofourtalentedin-placeleadershipteam.

WehaveaphenomenalgroupinOrlandoandacrossallofourlocations,andweexpectexpandingopportunitiesfortheseassociatesastheydriveoursuccessdayinanddayout.Thisisauniquehigh-growthopportunityinthehospitalityindustry,andwehopeyouwillshareourenthusiasmabouttheexcitingnewprospectsforthevacationownershipbusinessasastandalonecompany.

Withthat,IwillturnthecallbackovertoStephen.


Thankyou.Wewouldnowliketoopenupthecalltoyourquestions.Intheinterestoftimeandfairness,pleaselimityourselftoonequestionatatimeandthenwewilltakeanyfollow-upquestionsyoumighthaveastimepermits.Sylvia,canwehavethefirstquestion,please?

QUESTIONS&ANSWERS

Operator:




HarryCurtis,Nomura.

HarryCurt is (Analyst-Nomura):

Goodmorning,guys.Quickquestiononthebalanceofthehotelsthatyoumaysellsincemostofthemareinternational,giventhestrengthofthedollar.In2015,doesitchangeyourappetiteatalltosellthesehotels?Andcanyoutalkalittlebitaboutrepatriationofthecapital?Thanks.


Harry,thisisFrits.IwillstartwithananswerandthenTommaywanttoaddsomemorecolorcommentaryaswell.Thenetanswertoyourquestionis,independentoffluctuationsinthevalueofthedollar,wearecommittedtoourasset-lightprogramandtosellingabout$800millionworthofhotelsin2015.That,ofcourse,issubjecttoindividualnegotiationsandsomeofthesetransactionscantakealittlebitmoreorlesstimeaswe'vebeenthroughthat.

TherealityisIthink,too,thatthestrongerdollarhappensinthecontextofanumberofotherthingsthatarehappeningintheglobalmarketplace.Sobyitselfastrongerdollarmeanssomequantitativeeasinginsomeothermarkets,whichisloweringinterestratesandpotentiallyraisingcapratesinthosemarkets.Dependingontheindividualhotels,astrongerdollar,forexample,maymeanactuallymoretourismandbetterperformanceinsomeofourItalian-ownedassets.

SointhewholeIthinkitistoughtocommentonwhetheritwillevenaffecttheeconomicsofsalestoanysignificantdegree.YouheardTommentioninhispreparedremarksthatweintendtocontinueourstreakofbeingabletoreturncapitalfromthosesaleswithprettyefficienttaxleakage.sothatwouldbesomethingwewilllooktocontinuetotrytodo.

Withthat,I'mgoingtohandtoTomandseeifyouwanttoaddanythingtothat.


Ithinkyoucoveredit.Ourexpectationiswe'regoingtocontinuetodriveanefficientrepatriationofassetsaleproceeds.About13ofthehotelsthatwestillownareinNorthAmerica,eightinLatinAmerica,12areinEurope,soIthinkwewillhavestrongopportunitytoreturntheforeignsalesbacktoUSthroughthenextcoupleofyears.

Operator:

FeliciaHendrix,Barclays.

FeliciaHendrix(Analyst-Barclays):

Thankyoufortakingmyquestion,kindofacomboforTomandFritshere.With2014behindusyouguysdefinitelymadealotofpositivestrides,whichyoutalkedabout.Youincreasedcapitalreturntoshareholders.Wehaveseenapickupofassetsales.DespiteFX,yourresultsinthefourthquarterwerebetter.Yousoldyourtimesharebusiness.Yet,whenwelookatyourpeers,youdolagtheminunitgrowthandRevPARgrowth,andmuchofthatisduetothechainscalesinwhichyouoperate.

Tom,you'vetouchedonthisbefore,butagain,nowthatyouhaveseveralquartersunderyourbelts,arethereanythoughtsorplanstoeitherexpandintooraccesshighergrowthsegments?Frits,youtalkedaboutthenewcollectionbrand,soIdon'tknowifthat'spartofit,butdoyouhavehotels--andalsowiththatdoyouhavehotelsinthepipelineforconversiontothatbrand?





Yes,thisisFrits.Iwillstarttoaddressyourquestionsfirst,Felicia,andthen,asyoudirectedsomeofthistoTom,Iwillgivehimachanceaswell.Firstofall,intermsofRevPARgrowth,themixofourproperties,bothbygeographyandbrand,explainsalmostentirelywhateverthatdifferencemightbe.Infact,it'soneofthereasonsIwascarefultopointoutthatonaRevPARindexbasisweonceagainthisyearactuallygainedshareforourindividualhotels.

Andaswelookacrossmarketsandbrands,weseethatweareholdingupwellinlikegeographiesagainstlikebrands,whichisconsistentwiththat.Intermsofunitgrowth,asIpointedoutagaininmypreparedremarks,therewereafewfactorsintheyearthataffectedthat.WeareworkinghardtoensurethatwhilewehavehadacomparativeadvantageinmarketsoutsideoftheUS,wearenotgoingtowaitforthosemarketstobouncebackrelativetotheUS.Wehave,webelieve,aggressiveandrealisticplanstomakesurethatwecangeneratemoreunitgrowthintheUSandinNorthAmericaatthesametime.

Then,finally,withrespecttothecollectionbrand,thisissomethingthatwebeganindiscussionswithownersinthelatterhalfof2014.Wedon'thaveanyspecificannouncementstodate,butthereareanumberofpropertiesthatwerewellalongintermsofourconversations.Iwillthough,however,addthequalification,asIdowithassetsales,negotiationsaresometimeshardtopredictintermsoftheiractualpointofconclusion.

Andso,untilwehavesomethingmorespecifictosay,I'mnotgoingtocommentonthose.AndIknowyouhadacommentforTomonhisimpressions.Ibelieveoverall,aswellasothersegments,particularlyinthebudgetarea--andIwillhandofftoTomtodealwiththose,althoughIwillsaythatlargelyspeakingweseethemidmarketandbelowasadifferentbusinessmodelfromtheonewearein.

But,Tom,youmaywanttoaddsomemoretothataswell.


Iwouldsaythatouracquisitionfocusisnottargetedatthelowendatthispoint.Wefeellikeoureffortsattheselectservearegainingsignificanttraction.Wehaveabout40%ofouroverallpipelinebetweenAloftandFourPointsbySheraton,andweareexcitedatthegrowthwe'reseeingthere.ALISinLosAngelesacoupleweeksago,there'stremendousmomentumandexcitementbehindtheAloftbrandandthekindofreturnsdeveloperscanseeinthatbusinessheredomestically,soIthinkwe'regoingtostickwithourknittingonthebrandswehavedeveloped.Obviouslywearelookingforacquisitions,butprobablyinthespacesthatwearecurrentlycompetingintoday.Soweactuallythinkwebringscaleanddifferentiatedcapability.

Operator:

StevenKent,GoldmanSachs.

StevenKent (Analyst-GoldmanSachs):

Couplequestionsonthetimesharespin.WehaveEBITfortimeshareessentially.Idon'tthinkwehaveEBITDAandI'mjustwonderingifyouaregoingtogivethatdepreciationnumbersoonerratherthanlater,andmaybeinfrontoftheForm10.ThereasonIaskthatisbecausewearealltryingtodosomeofthepartsandanalysisonthat.Thesecondthingisontimeshare,justtostaywithinthat,isshouldwebeaddingthefivehotels'earningsintothisnewentity?

SowearegoingtoputthatinandthehistorictimeshareEBITisnotwhattheforwardwillbe?ThenonefinalthingforMattfromyourdaysatVistanaandalsoinvolvedwithtimeshare,yousaidthattimesharesaleswereverystrongin2006/2007,almost2x.Whatwereyoudoingbackthenthatyouarenotdoingnow?Anddoesitreallycomedowntothatyoumayneedmoreinventoryinordertoachievethosekindsofmomentum--thatkindofsalesmomentum?





Allright,soletmestartoffwith--sowearecontributingfivehotels.Theyareoperatingashotelstoday.Theywillbeoperatingashotelsmostlikelywhenthisentityspinsandovertimethebusinessteamwillbedevelopingitstransitionplansforthosetomovefromhotelstobetimeshareinventory.Anditwon'tbeallornothing;itwillphaseinovertimeastheywilltakepiecesoftheassetsandmovethemtotimeshare.Andastheysell,convertwingsoftheproperties.

So,yes,youshouldbetakingthatEBITDAandmodelingitintothenewbusiness.AndonyourpointonEBITDAversusEBITandgivingyouthepieces,Stephen,youwanthelponthat?


Yes,absolutely.TheP&Lnumbersthatyouhavethere,Steve,thevacationownershipandexpenses,excludedepreciationandamortization.OurD&AisallintheconsolidatedD&Aline,soeffectivelyyoudohavethenumberyouarelookingfor.SoturnitbacktoMatt?


Sure.Steve,thanksforthequestion.Ithinkthere'ssortoftwoorthreethingsthatyouwouldlookat.Clearly,comingoutof2007andintothe2008/2009environmenttherewasaconsciousdecisiontoscalebackthelevelofactivityofthebusinessgenerally.whenyoulookatwhatwasgoingoninthesecuritizationsmarket,whichwasthebackendpartofthisstoryinallsituations.Andsotherewasaconsciousdesiretoscalebackthatshowsupinscalingbackguestflowandeverythingthatgoeswiththat.ThosewereconscioustochoicesatthetimeandthoseweresortofsubsequentlymaintainedinplacerelativetotheinventorydecisionsthattheCompanyhasmadeoverthelastfiveorsixyears.

Butwhenyougobackandlookattheoperatinglevelatthattime,it'sreallyinthecoremarketsthatwearetoday:Hawaii,Orlando,andMexico.Wehavethephysicalfacilitiesinplacetoscalebackupourguestflowovertimeinsortofanorderlyway,andwe'vegotaccesstosecuritizationmarketsthatwillallowustocontinuethat--todothatinacapitalefficientway.SoIthinkthoseareacoupleofthehighlights.

Operator:

ShaunKelley,BankofAmerica.

ShaunKelley(Analyst-BankofAmerica):

Goodmorning,everyone.Justtwoquestions.ThefirstonewouldbeIjustwaswonderingifyouguyscouldoutlinealittlebitbetterhowyoustrategicallydecidedbetweenchoosingthepathofaspinoffforthetimesharebusinessandpossiblyevaluatingsalealternativesforthatbusiness.

Myfollow-upquestionwouldbe,andthisispossiblyjustaclarification,buttheveryendofthepreparedremarksasitrelatestocashreturns,Tom,Ithinkyouhadsaidthatthe$550millionto$600million.Didthatinclude$800hundredmillionorsomethingsimilarto2014inproceeds?Because,ifso,I'mhavingtroublegettingthecashbridgetoworkonthat.Thatwouldbehelpful,thanks.


Shaun,thisisFrits.IwilltalktothespinversussalepiecefirstandthenIknowTomwillclarifythecashquestionyouhadaswell.Webelieve,firstofall,thatSVOasastandalonecompanywithaccesstoashareholderbaseisagreatmodelforthatbusinessandourabilitytopartnerwiththeteamasit'sinplaceissomethingweareveryexcitedabout.Justaswhenwesellhotels,ourgoalistomakesurethatwehaveacrossthetableanentityandagroupofpeopleandateam,nottomentionaworkingrelationshipandstructure,thatpositionsusforthelongtermtocreatevalue.




Soforusrightnowthatwouldbeintheformofaspin.Aswealsosaid,though,inthecourseofourremarks,there'squiteabitofworktodobetweennowandthespin.Andasyouwouldimagine,intheinterestofourshareholdersbutalsointheinterestofthefuturebusiness,wewillentertaindiscussionsasweseefit.Sowiththat,Shaun,I'mgoingtohandtoTomtotalkaboutthecashreturnfor2015.


I'mgladyouasked,Shaun,becauseIwantthistobereallyclearandsoletmejustwalkyouthroughit.Wedescribedinmyscriptcashfromoperationsanexpectationof$700millionto$800million.ThatincludesthecapitalgoingintoSVObecauseinthewaywetreatourbalancesheetandourcashflowswedoputtheCapExassociatedwithSVOspecificallyintocashfromoperations.

Ifyouexcludedit,itwouldstartwithmorelikean$860millionto$960millionnumber.So$700millionto$800million.Wearespending$400millioninthebalanceofthebusinessongrowthactivitiesandnetroomsdevelopmentpipelinethatwedescribedatITinnovation.

Nowthekeypiecethatyoumaybemissingis,becauseofthespin,wearelosingleveragecapacity.Wearetakingthose--thehotelEBITDAthatweareputtingin,thefivehotelsoftheEBITDA,plustheSVOEBITDAoutofthecorecompanyandthatisdrivingabouta$400millionreductioninourleveragecapacitybyyear-end.Thenwewillpaytheregulardividendswhichcouldballparkinto$250million.Thesharerepurchasethatweguidedabout$300millionto$350million.

Andthen,yes,youneedtheassetsalesatlastyear'slevels,roughlylastyear'slevelscomingbackatthesamesortofgross-to-netyieldtogetyoubacktothatbridgeequalizing.

Operator:

CarloSantarelli,DeutscheBank.

Carlo Santarelli(Analyst-DeutscheBank):

Thanks,mostofmyquestionshavebeenanswered.But,Tom,ifyouwouldn'tmindprovidingalittlebitofcoloraroundthegrowthstrategy.Clearly,youguyshavediscussedmaking--spendingalittlebitmoreinthatbusinessoratleastredirectingeffortsinthatbusiness,butcouldyoutalkabouthowmaybestrategywithrespecttounitgrowthhasevolvedhereoverthelastfewmonthsandquarters?


Sure.IwillletFritschimeinafteryougivemetheopportunity.Iwouldsaythat,look,weweredisappointedwithournetroomsgrowthin2014andwearetakingseveralactionstodrivetoourlonger-termtargetof4%to5%netroomsgrowth.

Iwouldsaythefirstthingwearedoingisweareputtingincrementalfeetonthestreetandresourceacrossfunctionsincludinginfinance,myfunction,andlegaltosupporthigherlevelsofdealactivityand,frankly,morecomplicateddealactivity.Ithinkwehavea--ourMOinthemarketiswehavebeenonetogooutthereanddoprettystraightforwardkeymoneydeals.AndIthinkthedevelopmentcommunityislookingforustobringadditionaltoolstohelpthemgetdealsoffthegroundinformsofdebtguaranteesoroperatingguaranteesanddifferentformsofbalancesheetparticipationthatwegenerallyhavenotdonebeforebutwearetacklingnow.Andtheresourcetosupportit.

ThesecondthingIwouldsayisweare--wehavebeenacompanythathasbeenbuiltonacquisitionsandwereallyhaven'tdoneacquisitionsincetheLeMeridiendealbackin2005/2006otherthantheDesignHotelsacquisitionacoupleyearsago.AndIthinkyouwillseeusbeingabitmoreintentionalhereonaddingthatasthelevertodrivenetroomsgrowth,soinorganiclevertodrivethat.




ThethirdthingisIthinkwehavebeenmoreopeninourbusinessmodel.ThingslikethecollectionbrandthatFritsannouncedtodayisawayweareevolvingourbusinessmodeltomeetsomeofthekeyopportunitiesthatwehavenotbeenabletoaccesswithournon-corebrands.

SoIthinkwe'vetakenseveralactionstobemoreaggressiveonthegrowthfront,thingsthatareinourcontrol,adaptingsomeofourbusinessmodel.I'mveryconfidentthatwiththismixofactionsthatyouwillseeusmakesignificantprogresshere.Frits,doyouwanttoanything?


Yes,Carlo,I'mgoingtojumpin,too,andmostlyreemphasizeandattempttoclarifysomeofthethingsthatbothTomandIsaidinourpreparedmarks.Oursystemlargely,intermsofdevelopingthehotelfootprintoverthelastfewyears,hasbeenbuiltto--directedwherewehaveseenourstrengthandwherethegrowthhasbeenandthathaslargelybeeninupperupscaleandluxuryinmarketsoutsideoftheUS.

AsthemarkethasshiftedverysignificantlyfromadevelopmentstandpointintermsofnewhotelstoNorthAmericaandselectserve,weneedtoredirectandhavealreadyoureffortstowardthatsegment.Thegoodnews,asIsummarizedinmypreparedremarks,isthatthethreebrandsthatwehavethereareingreatshape.Theycomplementeachotherandtheyhavestrongmomentum.

AndasTomspoketoit,andasIwitnessedmyselfinconversationsthatwehadwithNorthAmericanownersinALIS,thereisarenewedenthusiasmandinterestinparticularlytheAloftbrand,butIwouldsayforbothElementandFourPointsbySheratonaswell.Thatallhavingbeensaid,wearecertainlynot,byanystretch,givinguponourgrowthmarkets.

Again,Iwanttoemphasizethatbeyondevenmypreparedremarksearlier,wecontinuetoseethefundamentalsdrivingunderlyinggrowthinmarketsaroundtheworld,whichiswhy,evenifNorthAmericaatthisexactmomentistheflavorofthemonthfromalodgingperspective,whenyoulookovertimeandthepotentialinamarketlikeIndia,thatisanenormousopportunityforusandonethatwethink,giventhenewModiadministration,isreallyexciting.

IwouldjustalsopointoutthatinChinathisyearwewillreachapointwherewehave300hotelsbetweenthoseopenandthoseinthepipeline.Andwhilesomeofthetimeframesonthosepipelinepropertiesmaytakelongertodeliver,Chinaisoneofthehighest-yieldmarketsintermsofwhenahotelgetssignedthattheyeventuallyandultimatelyopen.

Tomalludedtosomeofthesupportacrosstheprocess.Imentionedsomeofthestreamliningandworkthatwearedoingtomakesurethatwhenwehaveadealandanopportunitywecanrespondcrisplyandquickly,butwecanalso,ifnecessary,onatemporarybasistieupahotel,whichthenleadsmetothecollection-basedstrategy.AndIwouldjustsaythis:wehavealmost90LuxuryCollectionhotels.

Wehave20yearsofexperiencewiththeCollectionbrandthere.WewereveryexcitedtobringDesignHotelsintooursystem.Andit'sonlythankstothefactthattheprocessforacquiringacompanyinGermanyisasarcaneandtimeconsumingasitisthatithastakenawhiletobringthatintooursystem.AswegotclosertotheDesignHotelsteamitbecameverycleartousthat,amongthosenearly300hotels,theyhaveastrongcollectionbrandwithadistinctpositioning.AndsowemadethestrategicdecisionatthatpointtosaythattherewaswhitespacebetweenLuxuryCollectionandDesignHotels.

Andwiththesystemsupportthatwe'veinvestedinthelastfewyears,webelieveoursystemscandriverealincrementalvaluetoproperties,butwealso,ofcourse,believethatintherightmarketsourbrandswillcontinuetodrivevalueabovethat.Butitgivesusanothertoolinourarsenaltotrytogrow.Wehaven'ttalkedmuchaboutexits,butwehavebeenthroughaprocessinthelastseveralyears,bothwithLeMeridienandSheraton,tocleanupthosebrands.Wethinkthatwillbegintotaildownandourexitswillbelower




accordingly.

AndthenfinallyonM&A,wecontinuetobeactivelookingatthemarket.Wethinkitisasimportanttodoagooddealasitistoavoiddoingadealthatmaygiveusagreatheadlineintermsofunitgrowth,butendsupwithagrabbagofhotelsthattakealongtimetomanagethrough.Andsowewillmaintainbothourfinancialaswellasoursystemdisciplinethere,butrestassured,especiallywiththecontinuedgenerationofcashfromourbusiness,wearegoingtolookatM&Aaswell.

Operator:

NikhilBhalla,FBR.

NikhilBhalla (Analyst-FBR):

Goodmorning,quickquestions.One,afteryourtimesharespinoffandIthinkyousaidthenpreviouslythatbytheendof2016youwant80%ofyourbusinesstobeinternational.Sothequestionhereis,afterthetimesharespinoff,howmuchofyourbusinesswouldbeinternationalatthatpointintime?


ThisisTom.Idon'tthinkthatwehaveevermadeastatementthatwewant80%ofourbusinesstobe--.


Ithinkthe2016timeframewasforfee-basedversusowned.Wehavesaidthatwebelieve,giventrajectoryofourpipeline,thatwewouldtrendtowardsand80%internationalfeebaseaswell.Wehaven'tputatimeframeonthat,butifyoujustlookatthecontinuedaccelerationofgrowtharoundtheworld,that'ssomethingthatweseelikelyhappening.

Idon'tthinkitwouldsurpriseanybodytowakeupinmanyyearstimeandfindthatourChinabusinessisatleastasbigasNorthAmerica,justbyvirtueofitsabsolutesize.Butespeciallygiventheexchangerateenvironmentasoneexample,thatisnotatargetthatwewouldputaspecifictimeframeagainst.

Operator:

JoeGreff,JPMorgan.

JoeGref f (Analyst-JPMorgan):

Goodmorning,everybody.Withregardtothefourhotelsthataregoingtothespun-offtimesharecompany,youdescribedthemasbeingcontributedorplacedwiththetimesharecompany.Areyoureceivinganycashproceeds,orwhatconsiderationareyoureceivingorhowareyouthinkingaboutthat?Thenbacktoanearlierquestionwithevaluatingspinorsell;didyouactuallyactivelytrytosellthebusinessinanykindofsoftway?ThenIhaveafollow-upbalancesheetquestionforTom,thanks.


Joe,thisisFrits.I'mgoingtobeginaddressingsomeofyourquestions,handofftoMatt,andthenwewillgiveyouachancetoaskTomyoursecondsetofquestions.Firstofall,it'sactuallyfivehotelsthatweareputtingintothespinoff.ThatisthreeinMexico,oneinSteamboatinColoradoandoneinKauai,andwecarefullyselectedthoseasplaceswherewehaveaproventrackrecordofsellingproperties.

WeseedemandandgoodeconomicsforbeingabletogiveSVOagreatpipelineofnewinventory.AndourpointofviewisthatwewouldputthatintothenewentitythattheEBITDAwouldbetransferredalongwithit.Thatwewould,aspartofthefeestructurethatwewilllayoutintheForm10,becompensatedasStarwoodfor



©2014TheStreet,Inc.AllRightsReserved Page18 of 24

thosebrandsbutcreateasystembywhichiseasyenoughforthenewcompanytomaketherightdecisiontogrowitsownbusiness.

SothatIhopeclarifiesyourquestionsaroundthebrand.Tom,doyouwanttoaddsomethingtothat?


Yes,well,theconsiderations.Theshortansweriswehaven'tworkedthrough--thisisfundamentallywhatthebalancesheetofthenewcompanygoingtolooklikeanddowetakecashfromthenewcompanybeforethespin.

Sowearenotpreparedtocommentonthatatthispoint.Rightnow,we'rejustexpectingtocontributethehotelsandwewillrevealwherewethinkthestartingbalancesheetpositionisforthenewcompany,whichwouldreflectanyformofdistributionthatmightcomebacktotheparentpriortospin.


Then,Joe,Ithinkyouaskedwhetherwehadlookedquietlytosellthisornot.Ourpointofviewis,andIalludedtothisearlierinananswertoaquestion,weseethetremendousvalueandwethinksufficientscaleforthisbusinesstobeonitsown.Idon'tthinkitwouldsurpriseanyofusthattherewouldbesomepeoplewhomightexpressaninterestinthebusinessassomeotherownershipstructure.

AndasIsaidearlieraswell,wewilllookatthat,butwewillmaketheconsiderationbasedhereon,aswedosellourhotels,theeconomics,thepartner,thegrowthprospects,theabilitytoprotectourbrands,andallthethingsthataseitheraHOTshareholderoratimeshareshareholderyouwouldwantustomake.IwanttohandtoMattbecauseIthinkifhewant--orIcanaskyou,Matt,ifthere'sanythingyouwanttocommentonthosefivepropertiesandhowyouviewthosemarketsfortimesharelookingahead?


Whenyoulookatspecifically,asFritsalludedto,inMexico,wherewehavehadtheWestinLagunaMarpropertyintheCancunmarketthathasbeenaterrificsuccessfortheCompany,thisgivesusadditionalopportunityinthatmarketplaceanditalsogivesustwobeachheadsontheWestCoastofMexicoinCaboandPuertaVallarta.Sowethinkwewillbewell-positionedtocontinueinthatmarketplace.

InHawaiiwiththesuccesswehavehadonMaui,theSheratonpropertyinKauaigivesusanotheropportunitytoprovideanewexperienceforourguestsbutalsoadddistributioncapability,whichIthinkisoneoftheimportantthingsinconsidering--whenyouthinkaboutthesehotels,yes,theEBITDAfromthehotelswillmoveover,butsowillalloftheguestflowopportunitiesthatcomefrompeoplestayinginthosehotelstobeaffordedtheopportunitytoowntimeshare.

Andsowethinkwe'regoingtohaveexpandeddistributionaswegoforward.Obviously,thatallcyclesbackeventuallyintermsofthefeeopportunitytoStarwoodonanongoingbasisfromoriginatedsales.


Iamgoingtogoontothenextquestion,Joe.Youcangetbackinthequeue.JustforfairnessIwanttotryandgetthroughasmuchofthequeueaswecanintheremaining20minutes.Nextquestion,please.

Operator:

RyanMeliker,MLV.

RyanMeliker(Analyst-MLV):




Goodmorning,guys.Ijustwantedtotalkalittlebitaboutassetsales.Ithinkeverybodyhasansweredallthequestionsonthetimeshareandthespinoff,butyouguys--obviouslyassetsalesacceleratedinthefourthquarter.WehaveseensomebignumberscominginNewYorkwithregardstoChineseinsurancecompaniesopeninguptheirwalletsforUSinvestments.

Iamjustwondering,doyouexpectassetsalestocontinuetoacceleratethroughout2015?AreyouseeingwiththechangesintheChineseMinistryofCommerce'sIguessredtapeandprocessesallowingmoreChineseinvestorstoinvestoutsideofthecountry?AreyouseeingmoretractionforyourEuropeanassetsoryourotherAsianassets?Justanycoloronwhatwemightbeabletoexpectgoingforwardandhowthingsaretrendingwouldbehelpful.


Ryan,wehavebeencarefultosaythatwewillcontinuewiththepacetogettothe$3billionbytheendof2016,recognizingasyousawinthefourthquarterrelativetothefewthatprecededit,assetsalesarelumpythings,especiallywhenyoulookatsomeofthebiggertransactionsthatwearetalkingabout.

Alongthelines,though,andthenatureofyourquestion,wehaveseenmorecapitalfromdifferentareasintotheasset-buyingactivity,includingUSREITsbutalsosomeChinesefinancialinstitutions.Youwould'venoticed,forexample,thatthebuyeroftheSheratonontheParkinSydneywasaChineseinsurancecompany.Sowewillcontinuetolookatsellingeachofourpropertieswherewecan.

Whilewepacedoursalesitcertainlyhasbeenprobablymoreofagoodthingthanabadthingthatwehavebeendoingthiscarefully,becauseIthink2015isayearwherewewillseemoreinterestinhighervalueandsomerecenttransactionshavecertainlypointedinthatdirection.Thatsaid,wedon'twanttowaituntilit'stoolate,either.Sothisisamatterofcontinuingonanasset-by-assetbasiswiththetargetsetofownerstoidentifyandsetupthebestpricesforthat.Withthat,I'mgoingtohandtoTom.


Ithink,toyourcorequestionthere,Ryan,IdothinkthatmanyoftheChineseinsurancecompaniesindividualsarelookingfordiversificationandarelookingforaplacetobeabletoputmoneyfor50,100yearsthattheyknowisgoingtobetherethatcanearnanappropriatereturn.AlsowithourMiddleEastbuyers.SoIthinkthebuyercommunityisgoingtocontinuetobestrongandsupporttheguidanceweprovidedonassets.

Operator:

ThomasAllen,MorganStanley.

ThomasAllen(Analyst-MorganStanley):

Goodmorning,guys.Twoquestions;firstonejustonleverage.Toyouranswertoanearlierquestion,youhighlightedthatthespinwouldcreateabout$400millionofheadwindsonyourleveragecapabilities,butoncethespinisconsummated,shouldn'ttherebeanopportunitytoputonsomeincrementalleveragegivenyouwillnolongerhavethenon-recoursetimesharedebtontheparentlevel?

Thenthesecondquestion.Justofyour5%to7%RevPARguidancefor2015,canyoujusthelpusthinkaboutNorthAmericaversusinternationalRevPARoutlookandhowyouarefactoringinanytransactionalorfundamentalimpactofthestrongerUSdollar?Thankyou.


Great,thisisTom.You'reright,the$400millionistheheadwind.Thatdoespresumeweareoperatinginthe2.5to3timesnetdebttoEBITDAleveragerangefortheyear.IwillsaythatIthinkit'slogicaltoassumethat




overtimeasweshedassetsthroughourasset-lightstrategy,andcertainlythespinisabigcomponentofthat,thatweoughttobeabletomoveupourleveragelevel.Wearenotguidingonthatnowand,frankly,thatissomethingthatwearegoingtocontinuetodialoguewithourratingagenciesinordertopreserveourratingsthatwehavetoday.

CertainlyIthinkMarriotthasdemonstratedacapabilitythereacoupleyearsaftertheirspintodothat.IalsothinkthattheirpredominantbusinessbeingNorthAmericasupportsthatkindoflessriskyviewrelativetoourmoregeographicallydiverse.Itmaynot,butthat'scertainlysomethingwearedialoguingwithourratingagenciesandthinkcouldbeabenefitandanupsidedowntheroad.Certainlynotsomethingwe'regoingtobeexercisinginthecurrentyear.

RelativetoRevPAR,weareseeingpositivesignsoutthereonRevPAR,bothinNorthAmerica,ourownexpectation.Wehaveaddedinourfranchisehotels,butrelativetoourownexpectationthatwewouldhavelaidoutinOctober,we'reupalmost100basispointsonourownRevPARexpectationfortheyear,inclusiveofthatfranchisepiece.

ButwearealsoseeingalittlebitbetterEurope.WeareseeingalittlebitbetterAfricaMiddleEastandrestofAsia.Allarestrongerthanwhatwethoughtgoingintothethird--intothefourthquarter.Thatwaswhenwegaveourinitialguidanceof4%to6%andiswhat'sencouragingustotakeourguidancerangeupfortheyear.WedidindicatethatisonalocalcurrencybasisandthatFXisimpactingourrangesbyabout300basispointsandknockingthosedown.Soitisasignificantheadwindacrossthemarkets.


ThisisFrits.IwouldjustaddacoupleofotherpointsjusttoemphasizeevenmorewhatTomhassaid.Firstofall,ofcourse,thelocalcurrencynumberinthe300basispointsreflectstoday'sexchangerates.Andyou,aswellasanybody,canmodelinwhatyouexpectotherwiseifnottoday's.Andthenjustintermsofourincreasingtheoutlookfor2015sincewelasttalked,someofthatisrelatedtocontinuedmomentuminRevPARindexinsomeofthesystemsinvestmentsthatwehavemadetoimprovetheindividualperformanceofourhotels.

Iwouldsayasageneralization,andagainthisisverymuchconsistentwithwhatyoujustheardfromTom,anincrementalmodestimprovementgenerallyintrendlinesaroundtheworld,withsomeputsandtakes,butslightlybetteroutlookthanbefore.Andthenapartofthisisdriven,althoughIwouldn'toverstatethis,byhavingourfranchisepropertiesand,therefore,thewholesystemputtogether.SothoseIthinkaresomeofthebuildingblockstotheoutlooksuchaswehaveitrightnow.

Operator:

BillCrow,RaymondJamesandAssociates.

BillCrow(Analyst-RaymondJamesandAssociates):

Goodmorning,guys.Tom,firstforyou,goingbacktoJoe'squestionaboutcompensationforthefiveassetscontributed,couldyouatleasttalkabouthowyouarethinkingaboutthevalueofthoseassets?Andthesecondpartofthatquestionishowdoyoucomeuptothe$30millionto$40millionbasefeesthattheSVOwouldpayStarwood?

Then,Frits,foryou,I'vecoveredStarwoodfor15yearsandyouhavealwaysbeenknownasanownersbrandcompanyandagreatrelationshipwiththeowners.WearestartingtohearaboutgrowingfrustrationofcommunicationsbetweentheownersandStarwood,somefrustrationwiththeWestinbrandinparticular.WehaveseensomeREITspulltheflagoffproperties.Isthatimpedingunitgrowthandhowdoyou--?Maybethisisanoverreaction,butIjustwanttogetyoursenseforhowtherelationshipiswiththeowners.





Okay,letmestart;thisisTom.Asweoutlined,wethinkwe'vegotabout$20millionofnetEBITthatmoveswiththehotelstoSVO.Andsoputting--theyareinterestingpropertiesinthattheyalreadyhavesomesortofconnectivitywithothervacationownershipstructuresaroundtheminmanyplaces,sotheyarenot--aswedidourevaluationonwhatisthehighestandbestuseforthem,weconcludedthatSVOwasthehighestandbestuseversusastraightsalethathadalittlecomplexitywithit.

SoIthinkwearevaluingthesehotelsprobablyinthe$200millionto$250millionofassetsalevalue.Thatishowwegettothe40%ofour$3billiontarget,inclusiveofthesaleswe'vepreviouslydone.Sothatishowwearethinkingabouttheirvalueandthetransferthatcomeswiththat.Iwillsayonthe$30millionto$40millionofbasefees,weareexpectingthatthebusinessrelationshipwiththespincompanywillbeatanarm'slength,soweareengineeringalicensefeestreamthatwethinkwillstandthetestofanarm'slengthtest.

Wehavebeenlookingcertainlyatourcompetitionwho'sdonethisandothercompanieswhohavesimilarformsofrelationshipandfeellikethisbasefeewithagrowthcomponentinitisprettystandard.It'sonethatwethinkwouldstandthetestoftimeandalsodeliverafairgoingincentiveforthevacationownershipbusinesstogrowthebusinessandnotbeburdenedbyanonerousfeeongrowth,butalsoensureasteadyfeeinreturnforourperfectbrandsthatthebusinesswillreceive.

Withthat,overtoFrits.


Bill,thanksforthequestionbecauseIthinkthereareafewthingsherethatIcanaddressthatmayclarifythesituation.Thefirstis,whilewedon'tpublishthenumbers,wedoonaregularbasistrackourownerfeedbackonaquantitativelevelandwehavecontinuedtoseethattrendgointherightdirectioninaggregateinNorthAmerica.

Andforthereasonyoualludedtoatthebeginningofthatpartofyourquestion,wedoseeourselvesinthebusinessofcreatinggreatreturnsforowners.Havingrelationshipswiththoseownersliesattheheartofourbusinessmodelandissomethingwetakereallyseriously.

ThesecondwithrespecttoWestin,it'squiteinteresting.We'veseenRevPARindexforWestincontinuetorise.It'sperformingwellinNorthAmerica.Infact,it'sRevPARindextodayisashighorclosetoashighasithasbeeninthehistoryofthebrand.Intermsofpipelineworldwide,it'salmostasstrongas--well,it'sactually,intermsofaroomsbasis,inthetophalfamongourbrandsoverallandhasastrongapipelineaswehaveseen.Youheardmementionthatweopenedour200thWestinaroundtheworldjustrecently.

Andso,again,ifyoulookattheoverallupperupscalebusinessmodelinNorthAmerica,whichbroadlyspeakinghasbeenunderpressureforthelastsixorsevenyears,weactuallyhavetwobrandsbetweenWestinandtheMeridianthatcontinuetobuckthattrendandhavegrowth.Intermsoftheflag,Ithinkwhatyouarereferringtoareoneortwoisolatedinstances,notsomethingthatweseebyanymeansasbeingsystemicfortheWestinbrand.

Overall,wefeelgoodaboutwhereWestinisintermsofitspositioning,focusingonwellnessandtheeconomicmodelthatliesbehindit.

Operator:

DavidLoeb,RobertW.Baird.

DavidLoeb(Analyst-RobertW.Baird):




Goodmorning.Ikindofhaveoneandahalfonassetsales.Frits,justbrieflyyoutalkedaboutthebenefitsofweightingontheassetsalesintermsofpricing,butisn'ttherealsoatrade-offinbuyingbackstockatmuchhigherpricesthanifyou'dusedfewerproceedsafewyearsagotobuymorestock?

Thenasafollow-uptobothHarryandRyan'squestion,youhadlistedwithbrokerswellmorethan$800millioninassets,let'sjustsay,overthelastyear.Haveyoupulledsomeofthelargerorhighervalueassetsthathadbeenlistedwithbrokersfromthemarket,ordoyoujustplantobemoreselectiveoropportunisticwiththesaleofthoseassets?


So,David,firstofall,youareabsolutelyright;there'satrade-offbetweenwherethestockisandassetsales.Andifit'sapuretrade-offbetweensellingassetsandstockprice,thatpointwouldbecorrect.Thepictureisalittlebitmorecomplicatedthanthatbecauseitdependsonhowwewillbeallocatingcapitalinthefuture.

Althoughclearlysharerepurchase,asyou'veheardfromTomtoday,remainsanimportantpriorityforus.Ithinkthepointtherewasthatwehavecertainlyseenanincrementalincreaseinthevalueofassetsaroundtheworldandsothattrade-offissomethingthatwehaven'tfelttoobadlyabout.Wedon'tkeepalistofhotelsthatareonthemarkettoday.

There'snowherethatthatoughttobetrackedinthemarketplace.Icantellyouthatweareinactivediscussionswithourpropertieswithdifferentownersaroundtheworld.Someofthosearemorewidelyknown,someofthosearemorediscreet,whichiswhyasageneralcasewetrytobeveryclearaboutwhatwethinkthevolumewillbeforayear,whichinthiscasewesaidisaboutonaparwithlastyearat$800million.Theactualnumberwilldependonsomeofthoseindividualconversations.

IguesstheonlyotherthingIwouldaddtothatislastyearwedidexplore,asIthinkmanypeopletalkedabout,amultiplepropertysale.Whatwedeterminedindiscussionsaroundthatwasthatweweremuchbetteroffdoingthesetransactionsonaone-offbasisbecauseofthetypesofownersthatwereinterestedindifferentassets.

Operator:

RobinFarley,UBS.

RobinFarley(Analyst-UBS):

Great,thanks.Twoclarifications.OneisonyourRevPARguidance,Iknowyousaidyouhavebetterfranchiseexpectationsthanyoudidlastquarter.Iwonderifyoucouldcommentjustonthe--Ithinkcompany-operatedwashowyougaveguidanceaquarteragowhenyoutalkedaboutcompanyoperatedbeingup4%to6%.

SoIwonderifyoucouldgiveussomeinsightintowhatyourRevPARexpectationsareforthatsameset.Andthenalso,justlookingatthe$3billioninassetsalesthatyouhadtargetedby2016,amIdoingthemathrightthatthatleavesover$1billioninassetsalesfornextyearinordertomeetthatgoal,assumingthatyoudothe$800millionthisyear?Sojustwantedtoconfirmthat,thanks.


Robin,thisisTom.Thedifferencebetweensystemwideandownedandmanagedisonlyabout30basispointstotalfor--onaworldwidebasis.Soit'snotabigdriverofourincrease.We'regettingamuchbiggerliftfromperformanceinthemarkets,asIoutlined.AndIthinkweareseeingstrongerperformanceincertainlyNorthAmericathanwethoughtbeginningofthequarter.




Europe,asIindicated,andAfricaMiddleEastisupmeaningfullyversuswhatwethoughtacouplemonthsago.Again,restofAsiaisperformingstrongly.Chinaisflat,soit'snot--Chinaishaving--weexpectChinatohaveagoodRevPARinthemiddleofthezonethatwe'veoutlinedintotalfortheworldwideperformance,butit'snotunchangedversusourpriorguidance.

Operator:

RichHightower,EvercoreISI.

RichHightower(Analyst-EvercoreISI):

Goodmorning,guys.Thanksfortakingthequestionattheendhere.Mostofthemhavebeenanswered,butaquickquestionontimesharegoingforward.Itseemslikeyouguysarestillcommittedtokeepingthatacapital-intensivebusinessintermsofdevelopmentonthebalancesheetandsoforth,ratherthanusingexternalcapital.AndIthinkthatmanyofyourcompetitorsinthatbusinesshavesortofgravitatedtowardsacapital-lightmodel.Justwonderingwhatthethinkingisbehindthatandwhereyouseethebusinessgoingforward.


Rich,thisisFrits.IwillmakeacouplecommentsandthenI'msureMattwillwanttoaddsomeaswell.FromthestandpointofStarwood,assumingtheplannedspingoesforwardaswehaveoutlined,fromaStarwoodperspectivethatwouldputusinanasset-lightmodelwithrespecttothetimesharebusiness,whichisconsistentwithwhatwe'vebeendoingwithourhotelassetsaswell.Intermsofhowthenewcompanyintendstofinanceandmanagegrowth,thatisastructureandaseriesofdecisionsthatthatmanagementteamwillbemakingastheyseefit.AndonthatI'mgoingtogiveMattanopportunitytoaddanycolorhewouldliketoatthispoint.


Ithinkacoupleofcomments.One,IthinkincertainkeymarketshavingacertainamountofexposuretothatinventorythatwehaveareasonablepaceofsalesexpectationsIthinkwillserveusandourcustomerswell.Havingsaidthat,howweultimatelysecurethecapitaltodoexpansionsinsomeofthesemarketsorconvertsomeoftheproperties,wewillmakethosedecisionsaswegoforwardbasedonthechoicesthatareavailabletous.

Asyouarealludingto,Ithinkyouseeinventorylevelsoutamongstthecompetitivesettodayfromanywheretosomewherebetweenoneandtwoyearstoasmuchassixyearsinsortofon-balance-sheetinventory.AndIthinkwewilllookatallofthosethingstakingintoconsiderationthepaceofsales,theconsumertakefortheproductinthosemarkets,andthesourcesofcapitalandstructuresthatwouldmakethemostsense.

TheCompanyhastoday,andwillcontinuetohave,inventoryrecoveryprograms.Ithinkinthemannerthatyouarealludingtoonsomeofthecompetitiveset.Thathasbeenpartoftherecurringoperationtodateandwillbesogoingforward.Sowewilllooktoblendallthosethingsforacautiousproductandacapitalmanagementdynamic.


Ithinkwehavetimeforonemorequestion.

Operator:

VinceCiepiel,ClevelandResearch.

VinceCiepiel(Analyst-ClevelandResearch):




CouldyoucommentonthetrajectoryofNorthAmericaversusinternationalfeegrowth?Ithinkyoumentioned5to7onacorebasis.AndwhenyouadjustforFXandgetintothosenumbers,whatdoyouthinkaboutcoregrowthNorthAmericaversusinternationalfor2015?


Yes,sothisisTom.IwouldsaythatweareenjoyinggoodfeegrowthinNorthAmerica,butit'sstrongerinternationallyrightnowinourbasedfeesandalsoourincentivefees,largelybecausewehaveincentivefeesfromdayoneinourinternationalcontractsandgenerallyinNorthAmericawehavetohitcertainthresholds.Wehaven'tquitehittheminNorthAmericayet,givenwearearelativelynewcompanywithnewercontracts.SoIwouldsay,relativetototalfees,itisfaster-growingtotalfeegrowth,alsoreflectingourfootprintgrowthintheinternationalmarketsrelativetoNorthAmerica.


JusttoemphasizewhatTomsaid,whatwearenotyetseeingistheaccelerationinNorthAmericaofourfeebasebasedonincentivefeeskickingin.Wearestillafewyearsawayfromthatinanumberofourcontractsandsothatissomethingthathasheldbackournear-termoutlookforfeegrowthinNorthAmerica.Ofcourse,overtimewedoexpectovertimetobeabletogetthereandthelongerthiscyclecontinuesthenearerthatgets.


Thanks,Frits.Iwanttothankallofyouforjoiningustodayforourfourthquarterearningscall.WeappreciateyourinterestinStarwoodHotels&Resorts.Ifyouhaveanyotherquestions,feelfreetoreachouttous.Takecare.

Operator:

Ladiesandgentlemen,thisconcludestoday'sStarwoodHotels&Resortsfourthquarter2014earningsconferencecall.

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Documents

Starwood Hotels & Resorts Worldwide (HOT) Earnings Report ...s.t.st/media/xtranscript/2015/Q1/13041799.pdf · You can find a reconciliation of the non-GAAP financial measures discussed