Marriott International, Inc. (MAR) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to Starwood Hotels & Resorts Fourth 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.

Thank you, Sylvia, and thanks to all of you for dialing in to Starwood's Fourth Quarter 2012 Earnings Call. Joining me today are Frits van Paasschen, our CEO; and Vasant Prabhu, our Vice Chairman and CFO. Before we begin, I'd like to remind you that our discussions during this conference call will include forward-looking statements, actual results could differ materially from those indicated in the forward-looking statements. And forward-looking statements that are made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. The factors that could cause actual results to differ are discussed in Starwood's annual report on Form 10-K and in our other SEC filings. You can find a reconciliation of the non-GAAP financial measures discussed in today's call on our website at www.starwoodhotels.com. With that, I'm pleased to turn the call over to Frits for his comments.

Thanks, Stephen, and thank you, all, for joining us. For my prepared remarks today, I'll cover 4 main topics: First, a recap of our results for Q4 and for the year 2012; second, our outlook for 2013 and beyond; and third, some color on the SPG Delta partnership we just announced; and fourth, the upcoming relocation of our senior team to Dubai and the Emirates for the month of March. I know many of you are also interested in hearing about our capital allocation plans. I will touch on that topic briefly, but rest assured, Vasant will go into more depth in his comments as well. I'll turn now to the results that we announced today. If there were a key word to describe the business climate in Q4 and indeed, for most of 2012, that keyword would've been uncertainty, uncertainty about U.S. election results and the ensuing fiscal cliff, uncertainty about the government transition in China and lingering uncertainty about Europe. This uncertainty led us in our last call to say that we did not expect an uptick in travel in Q4. And in fact, the trends we've talked about then continued through the end of the year. Our occupancies remained strong, thanks to long-term drivers of travel. But our sense is customers were holding back in wait-and-see mode until the uncertainties passed. This showed up in a deceleration in REVPAR growth in Q4. And yet, despite the deceleration, we posted Q4 EBITDA results at the high end of our expectations. For the full year, EBITDA came in at $1.063 billion, and as always, that's not including Bal Harbour. This was well within the baseline range we shared with you at the beginning of the year. In fact, if you take into account $10 million in EBITDA from hotels sold during the year, our EBITDA was almost exactly at the midpoint of the range we set at the start of 2012. In looking back on our results, it's useful to look at the 4 key levers for driving value: one, controlling SG&A; two, adding to our base of total hotel rooms; three, growing REVPAR, or revenue per room; and four, getting full value from our owned real estate. Here's a quick rundown on those 4 levers. In 2012, our run rate SG&A growth was 3%, which is close to global inflation. You'll note that our reported SG&A growth was more like 5% for the quarter and the year, that includes some onetime items, including severance, which will help us contain our run rate costs. As for the second lever, our hotel base showed net rooms go to 4.4%, if you exclude the sale of the nearly 700-room, former Sheraton Manhattan. You should know that this kind of growth 3 to 4 years after the crisis is remarkable. As a reminder, it typically takes 3 to 4 years to build a hotel once an agreement has been signed. So you might've expected a lull in rooms growth a few years after the crisis. But that did not happen. Thanks to [indiscernible] and rapidly developing markets around the world, and thanks to a strong member of conversions from other brands in North America. REVPAR growth, the most variable lever for creating value, grew [indiscernible] percent in Q4 in constant dollar exchange rates and 5% for the full year 2012. This was at the low end of our baseline range. You might recall that when we started the year, we said that 2012 had potential to surprise to the upside. But that didn't come to pass. Instead, this is how we saw our business play out around the world. In North America, Q4 REVPAR was up 5.2% despite the backdrop of the election and fiscal cliff. Business activity continues to rise but with very few new build hotels of any kind coming onstream so occupancies remain at near peak levels. If the U.S. economy continues on this trajectory, the basic laws of supply and demand suggest that we'll see strong growth in room rates for the next few years. Europe remained at a stalemate during 2012, and we're not expecting much different in 2013 even though Southern European bond spreads suggest rise in confidence. For our business, malaise within Europe is offset by demand for our hotels from outside the region, from the Americas, from Asia and from the Middle East. So Europe remains less of a drag than you might think, with REVPAR of 1% in local currencies and occupancies in gateway cities well into the mid to high 70s. In Asia Pacific, REVPAR grew 4%. The key question in 2012 was the government transition in China that took place in the fourth quarter. With that behind this, we're seeing demand pickup, as government activities starts to resume and business returns to normal. Our teams on the ground today see near term positives for demand in key markets. Target GDP growth has been revised up from 7.5% to 8%, and developers continue to be confident in our longer term prospects as we see more new hotel deals. For 2012, I might also add that our total system revenue in mainland China was up 29%. And demand in investment from China is driving growth in markets throughout Asia and as far away as Africa. I saw encouraging signs during a recent market visit to South Africa, Angola, Nigeria and Gabon. Africa is the one region that was left behind by growth development in the last 20 years, but we see that changing. And we have 10 confirmed deals in our pipeline alongside the 37 hotels we already have open, and we're in advanced discussions for many more. Our Africa business is tied partly to the Middle East where we saw good results, led by Gulf area markets. Latin America was up 5.8% but is now largely behaving more like a collection of countries than a region. Mexico's rebounding and poised to benefit from labor costs that are now nearing parity with China. Chile is strong, but Argentina and Uruguay are down. In fact, including -- excluding those 2 countries, the region would've been at 8.5%. And this now brings me to our fourth lever in driving value: getting the most out of our owned real estate. For the quarter, our owned hotels came in somewhat below our expectations, with REVPAR up just over 1%. You should not read too much into this. There should be more variability among 51 hotels concentrated in a few markets versus a system of over 1,100 hotels across 100 countries. In fact, looking back over the past 12 quarters, REVPAR at our owned portfolio outperformed the system half the time. You might also recall our owned properties bounced back quickly after the crisis and enjoyed occupancies 420 basis points above our system average. So as we continue to sell hotels, our owned hotel results may well become the more variable. Over the past 12 months, we sold 10 properties at valuations above 16x EBITDA for $580 million. That reduces our owned and leased room count by about 10%. Our most recent sales include the former Sheraton Manhattan in Q4 and the Aloft and Element Lexington that we just announced. Our sales of other owned real estate, namely Bal Harbour and Vacation Ownership reflect growing confidence among high-end real estate buyers. We're very happy to report that we finished 2012 with 73% of Bal Harbour units sold and closed. Thanks to real estate sales, footprint expansion and REVPAR growth, we closed 2012 with fees accounting for 62% of our ongoing EBITDA before SG&A. And that puts us closer to our goal of having our earnings driven 80% or more by management and franchise fees. Our balance sheet is also stronger than at any time in the company's history. Some may argue that it's too strong, that we should've return more cash to shareholders. But we've been quite clear for some time now that we're going to err on the side of being conservative, and that approach has rewarded us with what may yet be the lowest rate ever for a U.S. lodging company for a 10-year bond, 3.125%. You should also be aware that we returned over $0.5 billion to shareholders in 2012. We increased our dividend by 150% to $1.25 per share, that makes for a yield of over 2% and represents $240 million. We also repurchased 3.5 million shares in Q4 for $180 million and that was on top of 2.8 million shares repurchased earlier in the year for $140 million. Our approach to capital and return going forward remains the same, using dividends and share buybacks to return cash to shareholders. In summary, during 2012, we performed well along the 4 key drivers of value, resulting in a strong cash position. We held our constant check for the fourth year in a row, grew our footprint strongly with quality hotels and contracts, sustained high REVPAR and occupancies in an uncertain environment and despite a correction among our owned hotels, we extracted great value from our real estate sales. So with 2012 behind us, what's our outlook for 2013? As I mentioned earlier, last year, we said we thought 2012 might just surprise to the upside but that didn't materialize. Today, we continue to see an uncertain world and a choppy global recovery and this explains both our conservative balance sheet and our scenario approach to planning for 2013. Our 2013 REVPAR range is 5% to 7%. The low end of this range projects modest improvement in the trends from last year. The high end projects 2013 to be on track to a better version of 2012. It has China rebounding post government transition, Europe without a major crisis and North America steadily picking up steam. One month into the year, early signs point to the upside, but it's still early days. I'll leave it to Vasant in a few minutes to share with you more detail on current trends and our outlook for 2013. And as we look beyond 2013, we remain resolutely bullish on the long-term outlook for global high-end lodging. We are poised to benefit from higher room rates in North America and Europe, where demand will outstrip supply and even more important, the dramatic economic growth in Asia, Latin America, Middle East and Africa continues to fuel demand for our brands worldwide. So this takes me to my third topic, our new partnership with Delta Airlines. I want to start by setting this latest development in the context of our long history of game changers for our industry. Starwood first introduced the Heavenly Bed, the W brand and No Blackouts for SPG. In the last few years, we created the Aloft and Element brands, launched the Ambassador Program, led the way with digital and web-based marketing, introduced the Link@Sheraton, all the while bringing W and Westin innovation to new global markets. And in the past 18 months alone, we transformed SPG with new benefits and incentives. Across all of our hotels, we've rolled out systems so our guests can tell about their stays in realtime and more importantly, enable our associates to respond. We've been on the cutting edge of mobile connectivity with guest apps that are breaking ground, not just in English but in Chinese on multiple mobile platforms. So this brings me back to Delta. This morning, we announced Crossover Rewards, a loyalty partnership that's the first of its kind. It extends benefits from air to hotel, from hotel to air for program elites who fly Delta and stay Starwood. Here are some of the highlights. SPG Platinums will receive Delta Medallion benefits at the airport and in-flight with priority check-in, priority boarding and a free checked bag. And SPG elites will, for the first time, earn Starpoints in addition to SkyMiles from flying Delta. Delta Diamond and Platinum Medallion members will receive SPG Elite benefits at our hotels, SPG check-in, late checkout and free in-room Internet. Delta Medallion members will also earn SkyMiles in addition to Starpoints, when staying at Starwood. Putting service benefits and point earnings together is a real plus for frequent travelers. In one bold stroke, we've made both loyalty programs more attractive. And as we deepen our relationship with Delta, we'll explore new ways to add more benefits and make 1 plus 1 equal 3. I should add also that Delta shares our spirit of innovation and is the world's largest airline in terms of scheduled passengers and fleet size. The definitions line up well with key markets. So putting the strongest airline together with the largest high-end lodging company creates something that can't be replicated. Our Delta partnership is a natural extension to the work we've been doing to stand apart in loyalty. Last year, we transformed SPG benefits and for some time now, SPG Moments provide once-in-a-lifetime experiences through partnerships with Live Nation, Cirque du Soleil, Formula One Mercedes team and the U.S. Open Tennis. Last year, by the way, was a great one for SPG. Driven partly by our expanded offerings, total hotel revenues grew 12%; from our Elite members, 14%; and from Platinums, 16%. And retention of our Elite members was up 6% year-over-year. This is just more proof that getting more business from existing loyal customers is a high return marketing spend. The Delta partnership represents another high return investment, recruiting new loyalists from among existing high-frequency travelers. Crossover Rewards is another great way to grow both our business and Delta's. So before handing off to Vasant, I want to spend a couple minutes talking about another kind of innovative move that we're making, our relocation to the Emirates and Dubai for the month of March. It's been about 1.5 years now since our month-long relocation to China. And I said then, that I wanted to get us closer to where the growth was. The move made us better in several important ways. First, we saw that new ways of working are needed in extreme growth markets. Nothing stretches your thinking like opening a new hotel every 2 weeks, having as many hotels under construction as open, doubling our China SPG member base, and hiring up to 20,000 associates per year. The experience taught us ways to become more agile everywhere. Second, fast-growth economies like China are also at the cutting-edge in areas such as mobile, design and sustainability, not to mention creating state-of-the-art properties and brand icons. We increasingly look to these regions for inspiration and new ideas that drive our business. Third, we will remind you yet again, that globalization is not westernization. We explored how to adapt our brands to address local travel preferences and the needs of smaller disparate accounts. The temporary move made a permanent change in our internal mindset, bringing together our global and Chinese teams and laying the groundwork for better rapport and more frank dialogue. This is paying off in better decisions and improving our operations. Fourth, our headquarters move drew wide attention to our success and strong growth in China, which has solidified our position as the most global high-end hotel company in the minds of our corporate customers, marketing partners and business community. And finally, our presence made a powerful impression on Chinese hotel developers, driving our pace of signing to new record levels. China is our largest growth market today in terms of both new hotels and outbound travel. And China is a locomotive for growth across Asia, Latin America and Africa. What excites us is not [indiscernible] more travel, but whole new travel patterns and new travel infrastructure in new places. Dubai is a perfect example. The Emirates defined a new crossroads in global travel from China to Africa, or Southeast Asia to Europe. Dubai Airport is one of the fastest-growing in the world, and Dubai is the city after New York with the most Starwood Hotels. It epitomizes the changing face of travel with global companies, consultants, banks and new businesses setting up operations there. As a result, Dubai has become a global gathering place. Today, if you sit in the plaza of the Burj Khalifa, you'll hear a mix of languages and see diversity such as you would only in London or New York. So as a final note before I hand off to Vasant, I want to remind you that when we're in the United Arab Emirates, we'll host an Investor Day in Dubai on March 13. The meeting is a chance for you to hear more about our business in the region and our long-term global outlook. Please join us and see for yourself this dynamic region and witness firsthand what's happening in global travel. So with that, let me turn the call to Vasant.

Thank you, Frits, and good morning. Despite the uncertainty and the second half slowdown in global REVPAR growth, we were able to deliver 2012 EBITDA in the middle range we gave you at the start of last year. While REVPAR came in at the low end of our range, good cost control at owned hotels and our SG&A helped offset the revenue shortfall. Once again, we delivered double-digit fee growth and another year of 4-plus percent room growth. Even after opening 69 hotels, our pipeline continue to expand to 300 hotels and 100,000 rooms, concentrated in the high-value, luxury and upper upscale segments and high-growth emerging markets. We generated $800 million in operating cash flow before capital expenditures, $460 million from Bal Harbour condo sales and over $500 million from asset sales. We deployed $370 million of this cash in our core business to renovate owned hotels, enhance our technology infrastructure and grow our pipeline. We reduce debt by over $900 million and returned $560 million to shareholders through dividends and buybacks. Frits recapped 2012 results, so I'll focus my comments on business trends around the globe, our outlook for 2013 and how we plan to deploy our cash. Through 2012, REVPAR growth slowed from 6.4% in Q1 and 6.9% in Q2 to 4.7% in Q3 and 4.1% in Q4. We do not believe that this slowdown was driven by structural demand supply factors but rather, by specific concerns, which are now abating. In China, the once-in-a-decade leadership transition resulted in a fall, which caused REVPAR growth to drop from high to the low single digits. The slowdown in Chinese growth impacted related markets like Australia, Brazil and other parts of Asia. In the U.S., uncertainty created by the presidential election, followed by the fiscal cliff negotiations, also caused businesses to adopt a wait-and-see attitude as we approached the end of the year. In Europe, there are [indiscernible] structural demand issues created by austerity programs in the South, but demand from outside Europe and low supply growth have allowed modest REVPAR growth to continue. As always, there are country-specific issues: Macroeconomic problems in Argentina; political turmoil across parts of the Middle East and North Africa; and a destructive cyclone that caused 1 of our 2 owned hotels in Fiji to be shut down. But part of the course in a global hotel business. Our baseline scenario for 2013 assumes that REVPAR growth will accelerate as the year progresses from the 4% to 6% in Q1, which is impacted by holiday shifts, to a 5% to 7% rate for the year. Underpinning this view are macroeconomic forecasts that projects another year of steady, new normal growth for the global economy. Developed markets, held back by Europe, are expected to grow 1% to 2%. Emerging markets, led by China, are expected to grow 5-plus percent. Analysts anticipate that profits of global corporations, our core customer base, will have another year of growth, up 6% to 7% for companies in the S&P, the FTSE and Euro Stock Indices; and up 9% to 10% for companies in the MSCI Emerging Markets Index. As we talk to our customers around the globe, we are not hearing about expense reduction programs outside some European companies and the financial services sector. In the U.S., energy costs are declining, and there is a manufacturing renaissance. U.S. housing is showing signs of recovery, buoying consumer confidence in balance sheets. In Europe, there is more talk of pro growth policies. The Chinese economy appears to be on track to achieve 7% to 8% growth, pulling along other commodity-rich economies. Interest rates remain low, and major central banks are expected to continue their extraordinary monetary policies to support the recovery. Against this positive demand backdrop, the lodging industry benefits from unprecedented low supply growth in the developed markets, with occupancies already at peak levels and rates approaching prior peaks in nominal terms. In emerging markets, secular demand growth continues. As always, there are pockets of oversupply that typically work themselves out over 6 to 9 months periods. As you know, our business does not offer much hard data going out 4 quarters. As such, we have to count on trends in demand and supply drivers to formulate our view of the future. So far, business momentum in January is good and supports our baseline scenario that REVPAR growth will re-accelerate. So here's a quick spin around the globe. In North America, January REVPAR at company-operated hotels was up 7% versus 4.6% in Q4. Corporate and retail transient momentum is strong. Rooms sold in opaque channels are declining, improving rate realization. Group pace is tracking in the mid-single-digits for the year. Leads were up 27% in Q4. Booking windows continue to lengthen. As we have indicated before, group business in the cycle has come back slowly but steadily, and companies remain careful about growing their cost base. We expect that negotiated corporate rates will be up in the mid-single digits in 2013. Occupancies in North American hotels reached 71.6% in 2012 versus a peak of 71.4% in 2007. Rates in 2012 are only 4% below peak 2007 rates. Supply growth is expected to remain muted at under 1% in 2013. As such, we expect to pass our prior peaks and nominal REVPAR. We forecast REVPAR growth in North America at the 6% to 7% level as the year progresses. In Europe, Q1 is a small quarter due to the weather. As such, it does not tell us much about the longer term trend. We will benefit from easy comparisons in markets like Greece, and growth in Central and Eastern Europe. London will be hurt when it laps the Olympics. At this time last year, there was high anxiety about the euro breakup. We start this year with the euro about $1.35 to the dollar, a prediction few would've made. Capital flowing back to the euro territory, more talk of pro growth economic policies, a surge in European stocks, all point to a better year for the lodging business in Europe. Despite the problems in Europe, our hotels finished 2012 with occupancies of 66.2%, above prior peaks. Rate and local currencies was 6% below the prior peak. As we enter the 2013, the supply situation remains very favorable. However, European corporate customers remain cautious about committing to group meetings and are sensitive to rates. Given the many challenges in Europe, we forecast REVPAR growth at or below the low end of our outlook range of 5% to 7%. In China, REVPAR growth dropped from the 6% to 7% range in the first half of 2012 to roughly flat in the second half, leading up to the once-in-a-decade leadership transition. As we expected, business has begun to pick up post the transition. In January, Chinese REVPAR was up 6%. The transition is still ongoing with significant meetings coming up in March, when the new leadership formally takes over at multiple levels and new policies are announced. As such, we expect the rate of growth to pick up as the year progresses and year-over-year comparisons also become easier. North and Central China are growing strongly. The East is stable, and the South is working its way out of supply-demand imbalances, particularly in Guangzhou and Hainan. All 3,900 rooms are now open at the Sheraton Macau, and we are sold out for the Chinese New Year coming up. This is a testament to the power of the Sheraton brand with the Chinese guest as is the fact that more than 2/3 of the business is not gaming-related. So far, trends in China are playing out as we have predicted in prior calls. We expect REVPAR growth in China to ramp from the middle of our 5% to 7% range to the high end or higher as the year progresses. And our total business continues to grow from 109 hotels currently open, to almost 130 hotels by the end of 2013. Across the rest of Asia, Southeast Asia is a bright spot. Indonesia and Thailand are booming. We expect double-digit growth across this region in 2013, and trends in January would support this. There's growing optimism in India that things are getting better as the government seeks to push through more reforms and the Central Bank is easing very high interest rates. After a weak 2012, we expect mid-single-digit REVPAR growth in India. The developed economies of Asia, Japan and Australia, will have slow but steady growth, helped once again by the absence of supply. Overall, Asia x China should grow REVPAR in the 6% to 7% range this year. Africa and the Middle East benefited from easy comparisons in the first half of 2012 but trends slowed in the second half as political turmoil continued in Egypt. The Gulf and Saudi Arabia was strong all year, especially Dubai. We expect these trends to continue into 2013. We forecast REVPAR growth in this part of the world in the middle of our REVPAR outlook range. Finally, in Latin America, it is a tale of 3 countries: Mexico, Brazil and Argentina. Mexican growth is accelerating as crime fails a bit, there's optimism around the new government and the wage rate differential with China narrows. Business travel in Mexico is up, and American leisure travel is coming back. We expect Mexico to be the engine of Latin American growth for us in 2013. At the other end of the spectrum is Argentina, where we have 2 large owned hotels. Argentina REVPAR is declining while local inflation hits 25%, squeezing our margins. The inflation/devaluation gap is hurting Argentina's competitiveness and hitting exports and travel. This is only likely to get worse until a devaluation resets the equation. Brazil hit a soft spot as China slowed but is now recovering. All in all, we expect Latin America to grow REVPAR in the lower half of our 5% to 7% REVPAR outlook range. As you said before, our owned hotel port -- set is no longer representative of our system as a whole. Owned and leased hotels now represent only 5% of our total rooms. The performance of our owned hotel portfolio is increasingly driven by events in specific markets and at specific hotels. We have also been impacted by heavy renovation activity. Major hotels under renovation in 2012 included the Gritti Palace, the Alfonso XIII, the Maria Christina, the Westin Peachtree and the Aloft San Francisco Airport. Hotels that will be under renovation in 2013 include the St. Regis New York, the Westin Maui, the Sheraton Rio and the Sheraton Park Lane in London. In addition, we have been selling hotels. This year, our owned EBITDA will be reduced by $25 million from hotels sold over the past 12 months. As a result of our geographic mix and hotel-specific issues, owned REVPAR globally was only up 2.5% in local currencies. With productivity improvements and tight control of expenses, we were able to offset some of the revenue shortfall and increase margins by 40 basis points. In 2013, we're expecting higher REVPAR growth of 3% to 6% globally and margin gains of 50 to 100 basis points. With the situation in Canada improving, North American owned hotels should have a better year. In Latin America, Mexican hotels have good momentum, but Argentina will be a drag. In Europe, hotels coming out of renovations should help growth. The data pack that accompanies our earnings release provides the geographic mix of our owned lease profits to help you better assess the performance of this business. Our Vacation Ownership business had a good year. As you know, our primary focus for the past several years has been on cash generation. In 2012, SVO delivered over $200 million in cash, including a securitization on best-ever terms, a yield of 2.02% with an advance rate of 95%. We are adding selectively to inventory in Orlando and Palm Springs, and we have inventory in Mexico. Our margins are strong, and our loan portfolio continues to improve in quality, the default rates at all-time lows. In 2013, we will once again focus on cash flow. Profit growth will be modest, which drags down our total EBITDA growth. SVO should deliver another $150 million, bringing the total cash we have derived from this business to over $1 billion since 2009. As this recovery has progressed, we have kept a lid on our SG&A growth. We have done this while continuing to invest heavily in building our infrastructure in Asia and Africa and the Middle East. We also invested in building our IT capabilities and selectively in other areas that can drive future growth. We funded these increases by keeping costs in all other areas flat or cutting back in North America and Europe where appropriate. In Q4 and into Q1, we have been making additional adjustments, incurring some severance costs of approximately $9 million in Q4 and potentially another $10 million in Q1. These costs are included in our SG&A growth estimate of 3% to 5% for 2013. So these are the assumptions that drive our EBITDA outlook range of $1.115 billion to $1.140 billion x Bal Harbour. We expect to open another 70 to 80 hotels and grow net rooms once again by more than 4%. Fees will be up 9% to 11%. Bal Harbour significantly exceeded our expectations in 2012. By the end of the year, we had closed -- sold and closed on 73% of condos available for sale. As we enter the year, momentum remains strong. We have been raising prices and are realizing well over $1,300 per square foot. To date, we have recognized $800 million in revenues from condo sales and are confident we will hit the $1 billion mark at sellout. We have booked $160 million in [indiscernible] so far and project another $50 million in EBITDA from condo sales this year. Unlike last year, you should not expect us to significantly exceed this number. We have only so much inventory left to sell, and we will be making every effort to complete sellout in 2013. Bal Harbour should deliver at least $100 million in cash this year. Including [ph] Bal Harbour, our outlook for 2013 EBITDA is a range of $1.165 billion to $1.190 billion. Assuming a tax rate of 32%, our EPS outlook range is $2.59 to $2.68. As always, there are risks that could disrupt this baseline scenario. They're mostly political in nature, which can impact economic growth like another euro crisis, gridlock over the devils in Washington or spillover effects of a Middle East event. Moving on to our cash generation and cash deployment program. Over the past 5 years, we've generated $4.3 billion in cash from operations and $1.6 billion from asset sales. We reinvested $1.6 billion in our core business to enhance the value of our owned hotels, our technology capabilities and to grow our pipeline. We've paid down $2.3 billion in debt and returned $1.6 billion to shareholders through dividends and stock buybacks. At our Investor Day in 2010, we outlined our cash deployment priorities and executed as we promised. We have reinvested in our core business at a healthy clip. We expect the capital spend at our owned hotels to peak this year and decline as we complete renovations and continue our asset sale program. We have paid down debt to achieve a solid investment-grade rating. We have no current plans to pay down any more debt. Should the need arise, we believe that we have the capacity to increase our leverage while sustaining our BBB rating. We will continue to generate significant cash from operations and from asset sales as we complete our transformation to asset-light over the next 3 years. There are only 2 avenues to deploy this cash, a value creating acquisition like the Le Méridien or to return cash to you, our shareholders. We have a great portfolio of brands and do not need to make an acquisition unless there is compelling value and a complementary business like Le Méridien offered. We increased our dividend to $1.25 last year, one of the best yields in our sector. We have a clearly stated dividend policy, which we will adhere to, increasing our dividend as warranted by our earnings growth and cash profile. We have always been shareholder-friendly in terms of returning cash and returning any cash we cannot productively deploy back to you in the form of buybacks and dividends. Since 2003, through the end of 2012, we bought back 82 million shares for $4.5 billion. And in addition, we have returned $4.3 billion in the form of cash dividends and special stock dividends. And we expect to do this again as and when it makes sense. With that, I will turn this back to Stephen.

Thank you, Vasant. We'd now like to open up the call to your questions. [Operator Instructions] Sylvia, can we have the first question, please?

Your first question comes from Shaun Kelly from Bank of America.

It seems like the forecast really relies a lot on kind of the outlook in China, and so Vasant, the data that you gave, the 6% number for January, could you just help us understand maybe how that improved across the quarter, in the fourth quarter and what you're kind of -- just what you're seeing on the ground there a little bit more maybe in terms of occupancy versus rates, so we can understand some of the supply and demand dynamics there?

Sure. I'll say a few things, and I'm sure Frits might want to add. We did start to see an uptick almost as soon as the leadership transition was sort of announced. You should understand that this transition really happens with some 2 big events, the Chinese Communist Party has in March. So we always expected that it takes a few months to ripple through. So there's changes in multiple levels and big policy announcements that are going to happen in March. There's no question that we are seeing a resumption of the usual travel activity. As these things have become clearer, there's still some caution on the F&B side, you may have read some of that in the press. But overall, as our people talk to customers and we look at trends, our expectation is that the trend actually begins to be better post March when the new leadership effectively, at all level, takes over. In terms of supply and demand imbalances, they're working themselves out. There's only a couple of places where we would say that there's another few months left. Guangzhou is one where there's quite a few openings; Hainan is as much a function of the airport becoming larger to accommodate more people coming in. But places like Shangzen that have a little bit of overcapacity are better now, Shenyang is better now. So overall, it's playing out in almost every respect as we had expected.

Yes, Shaun, I don't have a lot to add to Vasant's answer other than to reiterate that because you have the Chinese New Year's coming up and then some of the important government transition events in March, the first quarter of this year, the one we're in right now, is likely to be the one that's the most tricky in terms of the rest of the year. So the fact that we see 6% in January from our perspective is quite encouraging. And I think again, along the lines of what Vasant said, the slowdown and I should be careful here, the deceleration that we saw in growth in the fourth quarter has reversed itself nicely and that puts us, we believe, in a good position for the rest of the year.

Yes and the only other thing to highlight is as you know, as you get to the second half, I mean, you do benefit from easier comparison. So to the extent that anyone cares about the 2-year run rate, we'll take the run rate we have today. That would suggest a very strong second half, but we'll wait and see.

Your next question comes from Ryan Meliker from MLV & Co. Ryan Meliker - McNicoll, Lewis & Vlak LLC, Research Division: I just had a couple of quick questions for you. I was hoping you might be able to give us some color on -- if you can give us any indication regarding REVPAR penetration for your properties in North America? Obviously, REVPAR growth slowed and I know last quarter, you talked about group bookings kind of coming to a -- holding up a little bit. But it looks like your North American regular U.S. REVPAR growth came in below the upper upscale average in the quarter and certainly, below the U.S. industry average. Any color on what's going on in the U.S. and whether you expect to outperform or underperform current expectations for the U.S.?

Yes, Ryan, this is Frits. Just looking back on the fourth quarter and the year, any difference that we see between the overall industry numbers and our performance, we can easily attribute to the geographic mix of our properties. So if you look at our concentration in places like Phoenix and New York and Canada, which were generally slower than the rest of the market, that pretty much explains -- in fact, it explains almost entirely the difference between the overall aggregate number for the industry and ours for the quarter. At least, we continue to be very encouraged by rate negotiations, by group booking pace and by the strength of our brands. As an overall bellwether, the strength of Sheraton, and its momentum in North America, continues well in addition. So overall, I don't think there's an issue here beyond geographic mix.

Your next question comes from Joe Greff from JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: I was hoping you could just give us a sense, from your point of view, of the asset sales transaction market in the U.S. and globally? Obviously, a number of us on this call were in Los Angeles a few weeks ago for the Atlas conference and we spoke to a number of brokers. But from your point of view, can you just talk about the appetite of the potential buyer and whether or not that buyer universe [ph] Is broadening out beyond where it was for most of 2012?

Yes, Joe, I think as you heard at Atlas and as we've heard from other parts of the world, we do believe that we're entering a window of opportunity here where there is more liquidity in the asset market, no question about it. There's certainly more money coming in, that is willing to offer debt in terms of structured deals in the U.S. The biggest buyer base in the U.S., we think will remain the public REITs. Many of whom have been in the market issuing stock lately. And there is a significant amount of private money from the Middle East and Asia and in for certain assets from Latin America. So we are certainly keen to step up the pace of asset sales. We will be in the market very actively. All the indications are that it will be a more robust asset sale market this year than it was last year. So our goal is to move as fast as we can down the track of finishing our asset sales program. Frits, you wanted to add?

Yes, again along the lines of what Vasant said, the underlying factor is whether they're revaluations or where we are in the cycle, interest rates all point to a steady growth in the interest among hotel buyers. And on that basis, we would hope that we would have a pickup in the rate of asset sales in 2013. But I will caveat that by saying, given the number of hotels we have to sell and the size of the transactions that might be accompanied with that, this is still pretty lumpy. So it's not as though we were selling in small quantities and therefore, we could predict more tightly sort of what that would be. I think the factors would point to a pickup for this year, coming up over last year.

Your next question comes from Joshua Attie from Citi.

As you mentioned, the balance sheet is in great shape and it's only going to get better as earnings grow and more cash comes in from asset sales. What are your thoughts in moving to a quarterly dividend versus an annual one, which some people might view as more of a special, despite the fact that you pay consistently every year?

Yes, it's certainly something that we would consider. We have obviously -- we will discuss this with our Board to the extent that we're going to move to a quarterly profile, we'll let you know. But Josh, I mean, we don't -- we view this dividend as very sustainable and very much a part of our long-term policy. Nobody should think of it as a special dividend. And I do believe as you said, it makes sense to consider a quarterly payout. So we'll keep you posted as we have those kinds of discussions internally.

Your next question comes from Steven Kent from Goldman Sachs.

Could you just talk a little bit more about group rates and conference rates? And the reason I'm asking is a few years ago, you were rolling off a lot of corporate and conference -- conference and group rates that were artificially low. Is there still more to that or is that phenomena dissipated? And you mentioned earlier that your corporate rates are in the mid-single digits, is that where we should really expect for the next few years or are you seeing resistance from corporates, just broadly?

Yes. So Steve, this is Frits. I'll answer your group question, first. To your point, given the length of time that most of group meetings are booked, yes, we're past the point where there's a lot of overhang from win rates were, as you put it, artificially low coming out of the crisis or during the crisis for that matter. In terms of corporate rates, again, simple math here but mid-single digits increase in rates, plus growing trends in volume and occupancy, we think is a pretty good story in an environment where supply is set to grow at less than 1% again this year, which as you know, is well below the historic average of 2% and has been, by the way, now for the better part of a decade. To make a prediction going forward as to what the point estimate is for rates or even the range, I'm not sure I'm ready to do that right now. But as we've been saying for some time now, the supply-demand dynamics of a steadily growing, if not, picking up U.S. economy, and tight supply additions, which we can pretty much anticipate now based on construction volumes for at least the next 3 years, we'd tell you that there is a good run still of room rate increases and you can plug in your own GDP growth number to decide exactly where to plug that.

Your next question comes from David Loeb from Baird. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: This is sort of a follow-up to Joe's question. You're clearly -- the owned hotels are now -- owned hotel EBITDA is tilting much more towards international. Are your targeting selling international markets more aggressively? Can you talk a little bit about the financing backdrop in those markets? And then finally, would you consider selling any of the 4 largest EBITDA contributors, which I believe, are Sydney, the large Toronto hotel in Montréal and the Venetian?

Yes, David. So I think to your point, what we've done over the last 3 or 4 years and the way we've described it is what we've called a rifle shot approach to selling assets, which is identifying particular types of buyers, typically REITs or sovereign wealth funds or high net-worth individuals in different parts of the globe, and sold them assets that makes sense for that. And I would say that the one distinction, even today, with a pickup in asset sales. And what was at play before the crisis is we still haven't seen the really frothy, multiple-property volumes picking up. So we may still be in the mode of selling individual assets. Clearly, we'd love to pick up from there. In terms of targeting international, it really comes down to the same logic which says, if we see demand for particular assets in markets, we would be sellers. And to be clear, whether it's the 4 largest EBITDA-producing properties or any other hotel in our system, our goal is to be an asset-light company. And to that end, there really isn't a property on our list that we would deem as unsellable. So in that sense, yes, we would consider selling any of those 4.

Your next question comes from Harry Curtis from Nomura.

Just as a follow-up to your earlier comments, Frits. As you speak to your CEO peers, can you give us a sense what their body language is on business travel for the next year or 2?

Yes. Look, I would say, and having spent some time speaking with our customers both here and North America but also in travels around the world, pretty much with the exception of some of the financial institutions, demand from professional services from tech companies, from global companies, law firms, all of those folks are telling us yet again in 2013, they're likely to travel more than they did last year and that their business books are full to the point of forcing them to do that. And one of the things that we've spoken to a number of times on these calls is the fact that particularly, as you have global companies based in the mature and developed markets, where there is an economic growth and they're in search of growth in the emerging markets, they're getting people out and traveling. So my own sense is whether it's talking to CEOs or travel planners or other folks who have significant travel budgets, is that their constraint in terms of their activity is not a limitation on travel expense, it's on finding good people and getting after opportunities. And that, of course, is great news for us.

Next question comes from Robin Farley from UBS.

You talked about corporate negotiated rates ending up this year in the mid single-digit range. Is that -- it seems like you maybe last time talked about high digit range and I'm just wanted to get your call on why that changed? And then also, if you have any comments on Q4? Your European REVPAR seemed underperformed kind of the region average and if you have any color around that.

Yes, on corporate negotiated rates, mid-single digits is sort of where it is today. Yes, it's a little lower than where we were earlier, sort of middle of last year in terms of what we would have liked to get. Certainly, this is a function of the industry dynamic. But also, the time in which these negotiations are going on certainly, was a time of a certain amount of anxiety in different parts of the world. We do have some flexibility on how we manage these rates going forward. These rates are based on availability of rooms, et cetera. Occupancy, as you heard, are at peaks. If we are more days, mid-week when we are close to sell out, there is flexibility in terms of what the rates you can realize. So we could realize a better than mid-single-digit rate during the year based on the supply-demand dynamics. In terms of Q4 in Europe, again, like Q1, Q4 is not hugely representative of our European business in terms of what's going to happen for the rest of the year. Those of you who follow us know that the second and third quarters is the most important quarters in Europe. It was -- we did see a little bit of a downtick in some parts of Europe but overall, it hangs in that sort of the low single-digit level. As we said earlier, January and February and most of the first quarter doesn't tell you much about the trend and we are not expecting Europe to do much this year. As we said, the REVPAR will be potentially below the low end of the range we have given you for the company as a whole.

And Vasant also, some of the renovations that we had in Europe [indiscernible] the other explaining factor there for Europe.

Yes. And that will help us this year because last year was a very big year for renovations in Europe. Gritti Palace was shut down, the Maria Christina was shut down, the Alfonso XIII was open for part of the year. So those coming back should help us, especially in the owned hotels side and also, overall REVPAR.

Your next question comes from Felicia Hendrix from Barclays.

Vasant, you gave us some color in your prepared remarks on group bookings. You said that they'll come back slowly and steadily this year. Obviously, the group business took a hit with the fiscal cliff concerns at the end of the year, and my assumption is that we're seeing a lag in group now in the first quarter. But so, as you're thinking about the full year, I'm just wondering if you can give us some more color on the pace of improvement you expect to see as group recovers through the year? And then also, if you could give us some early thoughts on what you're seeing for group business in 2013.

Yes, I mean, I'm sure, Frits will add something to this but in our view on this whole cycle, which maybe you heard from others, too, is that just like us, companies are being very cautious about adding back cost. So this hasn't been a cycle where people have gone back to doing things exactly the way they do it -- did it in the past when it comes to large group meetings and making commitments and all that. So the group business as you saw, is coming back, but it's coming back sort of in the slow and steady mode, which is fine by us because makes it more sustainable. And frankly, American corporations being cautious about costs and cautious about their balance sheets, makes this recovery more sustainable in the long run, especially when you combine that with all the low supply we have. So we are happy with the mid-single digits we're seeing. We like what we're seeing in leads. We like what we're seeing in booking windows. So -- and really, group is really only a reasonable -- it's a good leading indicator only in North America because outside the U.S., it's a smaller part of the business and it also gets booked much closer in. The other part of your question was around 20 -- the future years. Here again, the only data that's reliable is North American and it looks fine. I don't think there's anything we would highlight on that. I don't know, Frits, if you want to add anything to this.

Yes. Look, I think you covered it, Vasant. The point about -- as you look outside of the U.S. and see that the group business, by and large, is less important as a percentage of total revenue, means that as our footprint grows around the world and as our percentage of rooms outside of the U.S. increases, it makes the group business slightly less important for us today than it was 5 years ago and certainly, will be less important on that basis 5 years from now. In terms of the U.S. itself, as Vasant pointed out, even though there's been steady growth and a continued recovery in the U.S., I think there is a decent amount of uncertainty as we referred to. And look, the trends in business is easy to turn on and off if you're running a company, managing expenses. Committing to group business means having confidence on what's going to be happening 12 to 24 months out. And our sense is that people see near-term opportunity and a basis for getting out and traveling but for all the reasons that we keep hearing about, there is some reluctance to put as much down on the group business and make that commitment as there would've been prior to the crisis. What we're seeing now has been a continuing theme since we emerged from 2009.

Your next question comes from Jeff Donnelly from Wells Fargo.

Moving first [ph] -- second Josh's call for maybe considering a quarterly dividend. Frits, I think maybe the frothiness that you are seeing out there around portfolio transactions, it seems to reside with nontraditional companies announcing these REIT spinoffs. And I'm sure it isn't lost on you because there's a pretty bit valuation disparity between the hotel REITs and the brands. Is a REIT spinoff a feasible avenue for you guys in your owned portfolio? I mean, could that make sense for you? And I guess maybe as a follow-up, if I could just squeak it in is, do you have an updated perspective on even spinning off the Timeshare business?

So the answer to that last part is no updated perspective and no current plans. In terms of the spinning off a REIT, look, we maintain our commitment to being an asset-light company for all the reasons that we've talked about at great length, that being the extraordinary characteristics from an investor perspective of the fee business. Spinning off a REIT would be one avenue to more quickly realizing a business structure for ourselves along those lines. I think the thing to keep in mind, though, is when you spin off a REIT, you have to deal with an IPO discount, you have to deal with incremental SG&A to support that. And by and large, as we've looked at the REIT spin off as a vehicle for getting to asset-light, it's been less effective, from our own perspective, than the kinds of sales that we've been able to make over time. But in this period of never say never, we continue to look at a variety of different avenues, and we have a number of hotels and portfolio of hotels that are ready and available for sale and to be marketed and we'll continue to look at whichever vehicle makes the most sense.

Your final question comes from the line of Will Marks from JMP Securities.

I guess, we'll keep on the subject of the owned portfolio one more time. You gave us a figure, I don't know if it's been a year but on the value of the owned portfolio but you've sold some assets since then. Any update on that figure? And/or you mentioned the 16 multiple on what you -- for the last 10 you sold I believe, would that figure be applicable to the remainder of the portfolio?

So we don't today have an updated value either on a multiple basis or a per key basis, that may be something we go back and speak to in one of our future calls. In terms of overall multiples, it's such an interesting mix of properties and supply and demand characteristics. I wouldn't put a number on that either. I mean clearly, we've been good at getting multiples on average that exceed our own corporate valuation and clearly, we would seek to continue to do that. But it will depend on each individual deal. Vasant, you may want...

No, I think the only thing I would say is without giving you -- a, our views haven't changed in terms of the value of the hotels that we have left. We have tried to be balanced in what we sold in that we've sold some, what you might call, great hotels and some not so great hotels. So what we've sold is not that out of sync with what we have. We still have many, many great hotels as you know. As you know, many of these big, good, international hotels. The only thing I would point is, there's no reason to believe the value is lower for the simple reason that despite all the sales our EBITDA is higher than it was. So it is higher next year meaningfully than it was last year. Therefore, if you believe the multiple is what it was, it's worth more.

Well, thanks Frits and Vasant, I want to thank all of you for joining us today for our Fourth Quarter Earnings Call. We appreciate your interest in Starwood Hotels & Resorts. If you have any other questions, feel free to reach out to us. Take care.

Ladies and gentlemen, this concludes today's Starwood Hotels & Resorts Fourth Quarter 2012 Earnings Conference Call. You may now disconnect.