Starwood 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Mature markets continue to show steady improvement

“This year’s begun pretty much along the same trend line that we’ve been seeing since the end of the economic crisis. Across mature markets, namely North America, Japan and Europe, growth and demand showed a steady improvement on last year and from what we can see, conditions are set to stay along that same trajectory.”

Occupancy rates peak, late cycle dynamics at play, REVPAR growth through price increases

“Across North America, occupancies once again were pushed to record highs. At this point, you’d expect late-cycle market dynamics in North America with REVPAR growth predominantly coming through higher rates, which is generally what we’re seeing. Yet despite this, we’re still several years away from seeing any real increase in supply in most markets.”

High end supply especially tight

“At the upper end, new supply is especially scarce, so as long as the U.S. continues its even modest economic growth, it seems likely that high occupancy and rising rates are here to stay for a while.”

China stronger than expected

” in China. For this first time in over a year, performance was stronger than we expected…Our result was especially good in light of government austerity, not to mention a slight drop in inbound travel to China. We’ve also improved our profit margins despite rising costs.”

China will have challenges though

“We’ve maintained for some time that an economy as large and rapidly changing as China’s will see some fits and starts. And while we agree with our owner partners that the Chinese economy has many years left to grow, we also recognize that China will need to make significant structural changes along the way.

In the near term, we don’t have much visibility into where the business is headed as transient booking windows are short, and we also have fewer large customers from whom to get a general read on business, let alone a commitment to meetings and conventions with long lead times.

What we can see in China remains — that it remains a relatively low occupancy market. So it’s likely that our growth will be driven more by occupancy than rising rates. Wages have also been rising faster for some time now, so we’re adapting our staffing levels to maintain our margins.”

Tighter liquidity has tempered the pace of real estate development in China

“On the development front, our view is the tighter liquidity has tempered the pace of real estate development. Many of our new hotels are slated for Tier 2 and Tier 3 markets and are part of mixed-use developments. As a result, the time it takes between signing and opening new hotels has become longer.”

Make your customers happy

“our business model is to make global guests happy so we can deliver great returns to our owners.”

Sheraton going to some obscure cities

“Looking at Sheraton’s pipeline, nearly 1/3 of the hotel’s — of the brand’s new hotels will be in markets where we don’t yet have — that don’t yet have a high-end hotel. These are cities like Aktobe in Kazakhstan, Nouakchott in Mauritania, Erbil in Kurdistan. Around the world, we estimate, in fact, that there are about 200 cities that could support one or more Sheratons that don’t yet have one, and there’s, of course, great potential for the rest of our brands as well.”

Trying to sell hotels as fast as they can

“Moving on to asset sales. We continue to believe the market for hotel sales is becoming deeper with a larger pool of buyers and more buyers looking for portfolio deals. We have a significant number of assets on the market in North America, Europe and Asia. Our intention is to get transactions completed on acceptable terms as fast as we can.”

The growth in Airbnb is a real thing

“Yes. Look, I think that the growth in Airbnb is a real phenomenon. I think the perspective that anything that reflects on more healthy demand for travel and encouraging people to get out, just like discount airlines as well, is generally a good thing for travel, not the other way around.”

Private equity driving demand for hotels

“in the U.S. the buyer base is institutional. And what we’re seeing in the U.S., as we said on our last call is for the past several years, we were only able to sell hotels in ones and twos because the primary buyer was public REITs who would buy a hotel, issue some stock and then come back for another hotel. What we’re seeing now, of course, is much more private equity money and, therefore, a greater interest in portfolio sales.”