Marriott International, Inc. (MAR) Q4 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to Starwood Hotels & Resorts Fourth Quarter 2013 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 2013 Earnings Call. Joining me today are Frits van Paasschen, our CEO and President; 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 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.

Thank you, Stephen, and welcome, everybody, to our fourth quarter call today. For my prepared remarks, I'm going to follow my usual format and cover 4 main topics: First, I'll spend several minutes on our 2013 performance and what it says about the state of our business; second, I'll share a few brief thoughts on returning capital to shareholders; and then I'll turn to our outlook for 2014; and then finally, I'll highlight some of the exciting ways that we're using digital technology to connect with our guests. So turning now to our performance in 2013. Let me start by reflecting on what we said on our Q4 call 1 year ago. We said then that despite the choppy global recovery, we were steadfastly focused on the long-term trend lines of rising wealth, massive urbanization and greater connectivity. Our caution about the short term explains our conservative stance on both cost and leverage, and our confidence about the long term explains our rapid global expansion and our investments in technology to meet guests' changing expectations. On our Q4 call last year, our baseline scenario called for 2013 REVPAR growth between 5% and 7%. As we described it, the low end of that range reflected a modest improvement on 2012; the high end envisioned 2013 that was a stronger version of 2012, with Europe averting a crisis, North America picking up steam and China rebounding. Looking back on the year, global GDP growth was actually slower than in 2012. In fact, GDP growth was slower than in the past 3 years. Our REVPAR was in line with this tepid environment, with worldwide growth of 4.9%, just below the low end of our baseline scenario. Here's how 2013 played out around the world: In Europe, full year REVPAR was up almost 2%, starting from a decline in Q1 to a more healthy 4% in Q4. Occupancy remained high, nearly 68% for the full year, but Europe didn't see a full-blown crisis even if woes in Greece and Portugal did make the news. Latin America proved again to be a mixed bag. The disparate results across the region added up to a modest overall 1% increase in REVPAR. Mexico continued its rebound, starting with resorts and followed by urban locations. Brazil's economic engine sputtered. And with elections later this year, the outlook remains unclear. Argentina was still a mess. Even with the most recent peso devaluation, the gap between the official and unofficial exchange rate remains large. Performance across Africa and the Middle East was also mixed, with full year REVPAR up almost 5%. Unrest in Egypt and civil war in Syria discouraged travel in neighboring countries. Saudi visa restrictions slowed the flow of visitors during Ramadan and the Hajj. The Emirates, by contrast, delivered double-digit REVPAR growth. Sub-Saharan Africa continued its growth story, with company-operated hotels up 6% in the fourth quarter. Both Le Méridien and Sheraton were both first movers in Africa. And as a result, we have more high-end hotels there than any other company. In total, we have 37 properties in Africa with another 15 coming on in the next few years. Turning to China. REVPAR was up over 2% for 2013. Our REVPAR index numbers suggest that we continue to outperform the market. But for the year, China did not rebound as strongly as we hoped. We saw clearly the government austerity is here to stay, which was felt most strongly in our hotels in the north and west regions. On top of austerity, regional hotels had to cope with a variety of headwinds: flooding in Sichuan, Zhejiang and Fujian provinces; ethnic unrest in Xinjiang; and bird flu scares in the East. We saw softness in the government business, but it was partially offset by better trends across our corporate business. Despite the challenges, underlying demand in China seems set to grow for years to come. Recently, we were delighted to see that the Sheraton Macao has now welcomed its -- welcomed 2 million guests, less than 6 months after reaching the 1-million mark. The year also ended better across China than it began, with occupancy up in the fourth quarter 3 percentage points and REVPAR up 3.5%. China now represents a meaningful piece of our global business, accounting for 13% of our fee revenues. Asia, apart from China, performed well, with REVPAR up 7%. Performance there was, in fact, much better than the 7% sounds when you consider that India, our largest country outside of China, was soft all year. Even more importantly, [indiscernible] those against most Asian currencies, shaving nearly 8 percentage points off our REVPAR growth. I'll conclude with my round-the-world look in North America, where our 2013 REVPAR was up 6%. We've now seen 3 quarters in a row of record occupancy. The lodging recovery in North America continued unabated, driven by strong corporate transient demand, empowering through the government sequester and shutdown. So I hope that gives you a flavor for how our business performed globally. Overall, fees and other income increased 9% during 2013, just below the low end of our baseline scenario. This is in line with global REVPAR and the effect of a stronger dollar. Our owned hotel business came in solidly, with REVPAR up 5% and margins up 110 basis points, both above baseline. In North America, owned hotels did even better, with REVPAR up nearly 10% and margins up a full 3.5 percentage points. SVO also did quite well versus our baseline. And another highlight was the residential sales at Bal Harbour, which served as a testament both to the St. Regis brand and rising global demand for ultra-luxury. As we speak, Bal Harbour is essentially sold out. And as you probably know, just a few weeks ago, we brought the Bal Harbour development story to a close with a $213 million sale of the hotel, not to mention a long-term management contract. I'll leave it to Vasant to give you the postmortem on Bal Harbour. But it's safe to say, all is well that ends well. But please be assured that doesn't mean we're going to do another project like this. In addition to Bal Harbour, we made good progress in 2013 towards our asset-light goal, having sold 6 hotels and 1 noncore asset for a total of $263 million. So that brings us to our full year result. EBITDA, excluding Bal Harbour, came in at $1.144 billion, which is above the high end of the range that we gave you at the start of the year. This is an especially strong result if you consider that global REVPAR was slightly below our baseline. We sold 6 hotels and gave up their corresponding EBITDA, and foreign exchange worked against us. This success comes, of course, thanks to the hard work and talent of our associates around the world. It also speaks to the strength of our brand and the resilience of the fee business model. Our momentum also puts us on firm footing to gain more share of global growth, and it seems that hotel owners share our confidence. In 2013, we opened 74 new hotels in 22 countries. Last quarter, I spoke about the value of our high-end global pipeline. The good news is that the pipeline is only getting more valuable. By the end of 2013, we signed an all-time record 227 agreements, 75 renewals and 150 for new hotels. That is the most new deals since 2007. And as of today, over 75% of our pipeline consists of properties in fast-growing markets. You should also note that over 20% of the new deals were conversions from existing hotels to our brands. That's the highest number for us since 2006, and we believe it speaks to the power of the Starwood system and the strength of our non-distinct brands. The power of the Starwood system showed up in another year of rising REVPAR index across our entire system and in the sixth consecutive year of rising guest satisfaction scores. SPG share of occupancy has stayed consistently above 50%. And the work we did last year to add new benefits with SPG transformation, as well as our Delta alliance, is paying off with double-digit growth in revenue from our Elite members. Our global sales organization posted another year of double-digit growth as well. And for 2014, it's set to bring in more than twice the revenue than it did in 2009. Among our individual brands, I want to mention Le Méridien. This year marked the most signing since Le Méridien entered our system 8 years ago. And in 2014, we expect to open a record number of hotels for the brand. We worked hard to reinvent the Le Méridien as a lifestyle brand with its own distinct brand voice, a voice that's resonating with our guests and creating value for owners. I also want to mention Sheraton. The brand's portfolio of hotels is stronger than ever. And thanks to developer interest, its pipeline for new hotels has never been larger. We're aiming to open our 500th Sheraton by 2016. The Link@Sheraton can be found at virtually all hotels, and we've upgraded Club floors now with over 120 locations. Both initiatives are appreciated by guests and generating incremental revenue. Across all of our brands, we've kept discipline on exiting properties that can't feasibly get to standard, off-brand hotels of lower guest satisfaction, lower REVPAR and lower fees. Time and again, we find that pruning off-brand hotels is a catalyst for growth and it will reward owners who invested in their properties. So while we hate to lose hotels, it was the right thing to do to accelerate our hotel exits in the fourth quarter. So this brings me to my second topic. A brief look at the return of capital to shareholders. It bears repeating here that we generate cash from selling hotels and from our fee business, not to mention nearly $1 billion from SVO in the last 5 years. This has enabled us to strengthen our balance sheet and invest in our hotels. But we can also return capital to shareholders as we did in 2013. We paid a dividend of $1.35 per share for a total of $256 million and announced our move to a quarterly dividend. We also repurchased 4.9 million shares for $316 million. That adds up to over $570 million in cash returned to shareholders on top of nearly 39% appreciation in our stock price. Not a bad year. For 2014, especially in light of our current leverage and cash position, we'll work hard to continue returning cash to shareholders. And as we've said before, we'll consider all options: ordinary dividends, special dividends and share repurchases. So since I mentioned 2014, let me share some thoughts on our outlook for the year and what it means for this year's baseline scenario. In a nutshell, our baseline assumes that we'll see more of the same. Across the global economy, we've seen a string of 4 similar years characterized by a muted recovery, punctuated by regional fits and starts. All signs are that 2014 will follow a similar course. The U.S. economy looks set to improve, though nothing points to a dramatic pickup. Europe seems likely to muddle through for another year. And across all of the mature economies, our corporate customers are sending more executives in search of growth around the world. Our customers tell us that they've added staff and plan to travel more in 2014 than in previous years. And despite using more conferencing technology, they see no substitute for being face-to-face. Customers also say that keeping their people happy on the road is an important part of their retention strategy. And in a similar vein, we're seeing the return of incentive trips. Across the rapidly urbanizing economies, we see the same wide range of performance as last year. India and Brazil, for example, are entering an election year with economies that are sagging. The recent QE tapering headlines have added to the woes of some other individual countries. Still, all indications are that the long-term trend lines of rising wealth, development and growing infrastructure are set to continue. This long-term view applies to China as well. In 2014, the country stands at a crossroad in its transformation. The recent 5-year plan shows an awareness in China's challenges: the environment, income inequality, corruption and a need to move to a more innovation- and consumption-driven economy. So while we don't have much forward visibility into our China business, in the spirit of calling it as we see it, I can say 3 things with confidence: First, the pace of development in second- and third-tier cities continues. In the coming years, these cities will represent more than 200 metro markets, with more than 1 million people. We're on track to open more hotels this year than last year, and our signing pace for new deals last year finished at a record pace. Many of those deals are in these newly emerging cities. Second, we see good sales momentum among our Chinese corporate accounts. We've tailored our sales efforts to their unique needs, being highly decentralized and tending to book the last minute. The result has been double-digit increases in our corporate business and a full pipeline of new prospects. And third, our strong presence in China means dramatic growth in Chinese outbound travel to our properties around the world. We're benefiting from being the clear market leader in China with more upper upscale and luxury hotels than Hilton, Marriott and Hyatt combined. SPG is another strength for us in China, accounting for 55% of our occupancy. We finished the year with a 21% increase in Chinese SPG outbound travelers to our hotels around the world. So while we can't tell you exactly how the year is going to play out in China, we do know that we've got the right strategy for the long term. So let me conclude this topic by translating this worldview into our 2014 baseline. Following our usual practice, we built our outlook for 2014 factoring in what our hotels are seeing around the world and our view overall of the macroeconomic environment. In aggregate, we're setting our baseline at 5% to 7% in global REVPAR growth and adjusting for asset sales and assuming the dollar at today's exchange rates, that works out to EBITDA in the range of $1.2 billion to $1.225 billion. In just a few minutes, Vasant will share more detail on our baseline. But before handing off to our Vice Chairman, I want to say a few things about my fourth topic: our investments in digital technology. As Tom Friedman recently pointed out in an op-ed piece, we're living in a world of exponential change, where consumers have unprecedented access to information and the ability to use that information in new ways. This is changing the way consumers interact with brands and what they expect from the companies behind those brands. The challenge is to keep pace with these changes, as today's novelties become tomorrow's table stakes. Put simply, we see connectivity, especially through mobile, as the great opportunity for dialogue with travels. And this dialogue opens new avenues for innovation. Our efforts to become more agile have changed how we work and where we direct our energy. That includes SG&A spending. As a reminder, we've consistently gotten credit from investors for our discipline in controlling SG&A costs. That won't change. But alongside investing in growth geographies, we'll devote resources to stay in sync with what our guests want and to put better information in the hands of our associates. Increasingly, when we talk about technology, we're really talking about mobile. Two to 3 years ago, we saw transactions begin shifting to mobile. It's been a priority for us ever since. At Starwood, mobile accounts for 42% of our site visits, up from 16% just 2 years ago. Mobile bookings are growing 5x faster than web bookings did 10 years ago. This year, more guests will reach us through smartphone or tablet than through PCs. So we were the first in our industry to leverage state-aware technology that allows us to connect with our guests realtime with relevant offers. But mobile is much more than commerce. We built our SMS capabilities to communicate with guests on their terms. Our customer contact centers use social media to see what our guests are saying about our hotels in realtime. And our apps are so compelling that millions of SPG members have opted in. At last count, our mobile and websites are available in 8 languages with more to come. So through efforts like these, we can have a 24/7 dialogue in and out of stay. Last year, for example, we engaged in nearly 3 million social media interactions with our guests. These interactions allowed us to resolve issues for guests in the moment and to deliver more personalized service. Smart check-in is a great example of how we're redefining the hotel experience. Our guests can completely opt out of the age-old check-in process, no more swiped credit cards or keycard. Keyless check-in by smartphone is being piloted today at 2 hotels. That would be the Aloft Harlem and the Aloft Cupertino. Our goal is to begin rolling out Smart check-in to every Aloft, W and Element around the world later this year. We see Smart check-in as just a natural progression. Because when you think about it, people use their mobile devices to buy a cup of coffee, order a car or shop for just about anything. Why wouldn't our guests want the same kind of mobile experience when they arrive at a hotel? But just because it's a logical step forward doesn't mean it's been an easy one. We started down this path more than 5 years ago, rebuilding our core legacy systems from the ground up. We've made them more flexible and more able to add new technology quickly and cost effectively. This has made it possible for us to lead the industry, for example, with our Chinese language Android app, our Arabic website and booking capability and the design and launch of our iOS 7 app. Looking ahead, Smart check-in is just the tip of the iceberg. We're taking digital and mobile innovation and combining it with revenue management systems, big data offer -- engines and an integrated set of reservations and loyalty systems. These efforts will strengthen our 9 distinct brands and provide a platform for SPG. As we like to say at Starwood, it's all part of building loyalty beyond reason. I look forward to keeping you posted on these developments. And with that, I'll hand over to Vasant.

Thank you, Frits, and good morning to you all. At this time last year, we provided you our outlook for 2013. As with all forecasts, they're not particularly useful the day after you make them. This was true in 2013. The real world threw a few curve balls at us, but we were able to roll with the punches, as they say, and deliver on our commitments to you. Worldwide REVPAR growth in local currencies for 2013 came in at 4.9%, at the low end of our outlook range of 5% to 7%. Exchange rate proved to be a significant headwind versus what we had assumed in our outlook, dragging profits, as reported in dollars, down by as much as $17 million. We sold 6 hotels, which reduced our earnings in the year by another $8 million. And yet we delivered 2013 full year EBITDA x Bal Harbour of $1.144 billion, at the high end of our outlook range of $1.115 billion to $1.14 billion. The big positive surprise last year was the strength of the U.S. business, where our REVPAR grew 6.3%. The big negative surprise was market weakness in China. However, we were able to grow REVPAR by 2.2% in China by outperforming the market by as much as 600 basis points. Europe surprised by not falling apart, as many were predicting early last year. Growth accelerated through the year, approaching 4% in Q4. Asia had robust 7% REVPAR growth in local currencies. But a sharp and abrupt weakening mid-year in the yen, the Aussie dollar, rupee and the rupiah caused dollar REVPAR to actually decline 1%. In Latin America, Argentina went from bad to worse, Brazil slowed markedly, but Mexico recovered strongly, growing REVPAR over 8%. In Africa and the Middle East, Egypt was back in turmoil, while Dubai and the Gulf boomed. Through all this turbulence, we grew our GOP margins at company-operated hotels worldwide by 80 basis points, our EBITDA margins at owned hotels by 110 basis points, management and franchise fees by almost 9%. We opened 74 hotels and signed 152 contracts of future hotels. Our SG&A stayed under control, growing 4%. SVO was stable. We have only 4 condos left to sell at Bal Harbour, and we sold the hotel for over $1 million a key. We ended the year with net debt of $528 million and cash in excess of working capital needs of about $620 million after capital spending, dividends and buybacks. The sale of the St. Regis Bal Harbour added another $200 million to our cash balance in January. As we enter 2014, there are new sources of turbulence and new anxieties about the global economy. Hopefully, what 2013 and the past few years have demonstrated is the power of our brands, the resilience provided by the best diversified global footprint in lodging and the ability of this management team to react and adapt to what will likely remain a volatile global environment. As always, we'll provide our outlook for 2014. As always, we expect that not everything will play out as we expect today. As always, we'll try to stay flexible and nimble to deliver as best we can on the commitments we make. Over the next few minutes, we'll take a quick trip around the globe, discuss our plans for asset sales and how we expect to deploy the cash we are generating. We are reiterating the outlook we provided previously for 2014 company-operated worldwide REVPAR growth of 5% to 7% in local currency. We expect worldwide owned REVPAR growth of 4% to 6% and EBITDA margin gains of 75 to 125 basis points. Exchange rates remain headwinds at current rates. REVPAR as reported in dollars is likely to be lower by 25 to 50 basis points. Factoring in exchange rates, management and franchise fees are expected to grow 8% to 10%. SG&A growth is expected to stay in the 3% to 5% range, even as we make infrastructure investments in growth markets and in new capabilities. SVO profits are expected to stay flat for another year. This gives us a 2014 EBITDA outlook range of $1.2 billion to $1.225 billion. To get to these numbers, you have to reduce our 2014 owned EBITDA by approximately $30 million to account for 6 hotels sold in 2013, the sale of the Bal Harbour hotel in January and 1 leased hotel where we expect to terminate the lease early in exchange for a long-term management contract and a major renovation. EBITDA is hurt by a few million due to exchange rates and lower gain amortization, but this is offset by a few million in profits from selling the 4 remaining Bal Harbour condos through the course of the year. We will no longer separately report Bal Harbour profits, which will be de minimis, $5 million or so compared to the $119 million we reported last year. A quick snapshot of our outlook by region. In North America, REVPAR at company-operated hotels grew 6.7% in Q4. We expect these trends will be sustained. Supply growth remains subdued. Occupancies continue to climb, which will help rate growth accelerate. Transient business is robust, growing 8% in 2013. Negotiated corporate rates are up in the mid-single digits for 2014. Group business is also pacing up in the mid-single digits after growing 3% last year. The Canadian business remains sluggish, and the weakening Canadian dollar will also be a drag. We expect North American REVPAR growth at the upper end of our 5% to 7% outlook range, with rate accounting for 75% to 80% of the increase. We think the mood in corporate America is positive, with a renewed focus on revenue growth and investment spending, which is good for our business. Despite the harsh weather, January REVPAR at company-operated hotels in North America was up almost 8%. In Europe, we ended the year well, with REVPAR up over 4% in local currencies in Q4. While European economies remain fragile and the euro could still be an issue, we're hopeful that the improving trends will continue. In Q4, we saw mid-single-digit REVPAR growth in Spain, Italy and the U.K. Only Germany was a little soft, offset by strong growth across Eastern Europe. Occupancies continue to rise, which is a good sign, and rate growth could accelerate since we're reaching peak occupancy levels across Europe. Nevertheless, we're assuming Europe REVPAR growth in 2014 will be at the low end of our worldwide outlook range. Europe also had a good January, but it's the low season. We'll have to wait until March and April to get a better sense of the European trend in 2014. In China, we believe the leadership remains determined to rein in spending by government officials. Consequently, we have aggressively moved to diversify our business. We feel good about the growth of our corporate and leisure business. Our infrastructure advantage and the power of our brands helped us to significantly outperform the markets in 2013, and we expect to outperform again this year. We see strong trends in corporate segments like technology, automotive, finance and consulting. The Chinese consumer is also in good shape, driving healthy growth at our Hainan resorts and Macau over the recent Chinese New Year week. Outbound travel from China continues to grow in the double digits. As the rules for spending by Chinese government officials at hotels are now clear, perhaps there will be some improvement in this segment. However, we do not expect that government-related business will go back to levels we have seen in the past. We had 130 hotels operating in China at year-end 2013. Our pipeline remains robust. We are not seeing much change in the pace of openings and new project signings. We're on track to get to 200 operating hotels in China in the near future. We expect 2014 REVPAR growth in China to pick up from the Q4 trend of 3.1%, helped by hotels we opened in 2012 that are now in the same-store set and still ramping up. The recent events in Thailand have significantly hurt business in what is an important market for us in Asia. REVPAR in Thailand was down double digits in January, and we do not expect any improvement in the first half. Some business has moved to Indonesia and Malaysia, which are both growing fast. In Q4, Indonesia was up almost 29% and Malaysia up 7%. Abenomics seems to be bringing the Japanese economy back to life. Corporate travel to key Japanese cities is growing again. REVPAR in Japan was up as much as 20% in Q4. India is weak and will likely stay that way until the elections are completed later this year. We expect Asia REVPAR to continue to grow at the high end of our global REVPAR outlook range of 5% to 7%. However, exchange rates will likely remain volatile and a continuing headwind. Egypt has a significant impact on our reported REVPAR numbers for Africa and the Middle East. After growing over 20% in the first half, Egypt was down 37% in Q4 on renewed turmoil. X Egypt, this region grew almost 4%, helped by the Gulf countries and South Africa. Saudi visa restrictions, due to the continuing renovation activity in Mecca, remain an issue. We expect some improvement in 2014 as comparisons get easier. REVPAR growth will likely come in at the lower half of our outlook range. In Latin America, the Argentinian crisis is reaching the acute stage and will need to be monitored. Our business has already taken a big hit over the past few years. We'll have to see what the impact of the recent devaluation will be. The World Cup should help Brazil this year and the Sheraton Rio is coming out of renovation. Mexico remains a bright spot especially at the resorts. Latin American REVPAR is forecasted to grow in the lower half of our 5% to 7% outlook range. As we previously indicated, we expect same-store owned REVPAR to grow 4% to 6% in local currencies globally, with margin gains of 75 to 125 basis points. You should adjust our owned EBITDA by approximately $30 million for hotel sales completed in 2013, as well as the St. Regis Bal Harbour. In addition, we are close to completing negotiations to terminate a lease on an important hotel early, in return for a long-term management contract and the owner's commitment to undertake a significant renovation. Once this is done, we will, of course, let you know the details. After these adjustments, we expect strong growth in our owned EBITDA as a result of several key hotels coming out of renovation, in particular the St. Regis New York, the Westin Maui and the Sheraton Rio. As a result, our total owned EBITDA growth in 2014 after adjusting for asset sales will be higher than what same-store numbers might lead you to. Management and franchise fee growth will be held back to some extent by exchange rate effects. We expect 8% to 10% growth for the year, with some fluctuations in the rate of growth from quarter-to-quarter. In 2013, we derived 45% of our fees from the U.S. and another 12% from Europe. We get more than 40% of our fees now from growth markets. While there may be some near-term concerns about some of these markets, we think our strong footprint and infrastructure in emerging markets gives us unique advantages. We remain as bullish as we have ever been about the long-term prospects for these markets, with the revolution in global travel continuing to unfold fueled by rising middle classes, urbanization and infrastructure development. 85% of our incentive fees are derived from outside the U.S. Over 75% of our international hotels pay incentive fees versus 25% in the U.S. SVO was stable across the board on tour flow pricing and close rates. Profits were flat but cash flow was good. We're increasing our capital spend at SVO by adding some inventory in Orlando, Palm Springs and St. John. We forecast another year of flat profits. Due to percentage of completion accounting and other factors, there will be some quarterly volatility, with profits down in Q1 and up in Q4. Cash flow will be higher due to a securitization of receivables planned later this year. Receivable quality continues to improve with defaults at pre-crisis lows and high FICO scores. At Bal Harbour, we have 2 condos left to close and 2 left to sell. We expect that we will be done in the first half. To-date, we have realized $1.1 billion in revenues from condo sales and $280 million in profits. In addition, we sold a hotel in January for $213 million. In total, we have generated $500 million of cash in excess of the capital we spent on this project, and we have an iconic St. Regis in a spectacular location. The project also demonstrated the power of the St. Regis brand among the global elite who are our owners at the St. Regis residences at Bal Harbour. Moving onto asset sales and deployment of cash. The next 18 to 24 months could be prime time for hotel sales. We intend to be very active in the market. We believe we have the best hotel portfolio money can buy. We have been and will continue to be patient sellers to realize appropriate values for the assets we own. Since 2010, we've been able to sell hotels for good value, but markets have not been deep. There is a sense that this may be changing. If it does, we are ready to step up the pace of asset sales, moving to sales of portfolios of the hotels as market conditions permit. We remain committed to our goal of generating $3 billion from hotel sales before the end of 2016, as always contingent on market conditions, the right price and the right partners. So how do we plan to deploy the cash we're generating? We laid out our cash deployment game plan for you a couple of years back and have been executing as we promised. Our first priority was to pay down debt and achieve a BBB rating. This is done, and we have acknowledged that our leverage is now below our long-term goals. We can add debt as and when we might need to. Our second priority was to reinvest in our core business. We have invested to renovate many of our major hotels over the past 3 years. This is now tapering off. We are investing as needed to grow our hotel pipeline. We have also significantly stepped up our investment in technology to build our capabilities in mobile, social, cloud and big data, as Frits indicated. This will continue. In 2014, our capital spend in the hotel business will be about $400 million, lower than in prior years due to the tapering off of renovations. As a result, our operating cash flow is strong and asset sales will add to our cash. We continue to regularly evaluate acquisition opportunities that could complement our business, as Le Méridien did, should they become available at values that are acceptable. Any cash we cannot productively deploy we will return to you, our shareholders, as we have done in the past. We have a healthy dividend, with an almost 50% payout ratio and a 1.8% yield. We are moving to a quarterly payment schedule this year. We will announce the first quarterly dividend after our board meeting next week. In the past 2 years, we have bought back approximately 11 million shares for $635 million. As we have said before, we will be aggressive buyers of our stock with an eye on intrinsic value. We have $614 million in buyback authorization available to deploy. Over the past 10 years, we have returned almost $10 billion in cash to our shareholders, $1.9 billion through regular dividends, $4.9 billion through stock buybacks and $2.8 billion in special dividends, including the whole stock distribution. Over the same 10-year period, the total return you have realized from owning Starwood stock has been 224%, which is 2.2x the S&P 500 and significantly higher than our major lodging peers. In the last 12 months, our total shareholder return was 41%, once again well ahead of the S&P and our peers. We will continue to be disciplined allocators of capital and return cash we cannot deploy at acceptable rates of return to you through regular dividends, stock buybacks or special dividends, as our track record demonstrates. As Frits said, with our debt and cash position what it is, we will work hard in 2014 to return cash to shareholders. With that, I'll 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 Felicia Hendrix from Barclays.

Vasant, just want to kind of -- my question is on the point that you just ended with, and that is deploying your capital. And I'd like to talk about buying back stock for a moment. I think you've been pretty clear in the past about the analysis that you all do internally regarding buybacks and you have your own intrinsic value formulas. You haven't -- you didn't -- well, you bought back stock in the quarter. But since you last reported, you didn't buy back a lot of stock. And given everything that you've laid out and given the growth that you've talked about and all the great things that are going on for the company, we would assume that your stock price would continue to rise. So can you just talk to us a bit about how you are valuing -- how you are evaluating that intrinsic value calculation and how we all should think about your appetite for buying back stock in the future?

Yes. This is -- as we've told you before, Felicia, this is a regular conversation we have among ourselves here, as well as with our board, and we will have it again next quarter. As you would expect, we go about assessing intrinsic value, which is as much art as science in the ways you might. We look at all angles, peer multiples, discounted cash flows, all the various approaches that you might take. It is a range. We discuss it regularly, and we make some judgments on what our intrinsic value is. And our approach has been that we are buyers of our stock, we feel that it is below intrinsic value. Just a few things I might point out because, I guess, you're asking the question on the basis that there were no buybacks in the last quarter. First of all, one quarter doesn't tell you much about what we might do. The second thing to note is we did pay a dividend in the last quarter of $1.35. As Frits said, that's $260 million that actually went back to shareholders in the last quarter. The third point, I think is we can understand some concern if our stock was underperforming and we were not deploying the capacity we have, perhaps, to buy back stock. That, as you know, has not been the case. We had total shareholder return of 41% last year, and we're well ahead of S&P and our peers for the last 10 years. We could also perhaps understand if there was some concern that we were overpaying for acquisitions. We never have and certainly do not plan to. The other thing I would point out is despite having the cash in the balance sheet that we have, we're actually reducing our capital spending on our own hotels as we finish our renovations. And in fact, you've seen us sell hotels. And now, we're terminating a lease early, where on accessible terms, we have owners who are willing to take on the renovation. So the point of all this is essentially to say that despite the cash we have, we remain disciplined allocators of capital and we have a track record of returning significant cash back to you. And buybacks, as you know, are not the only avenue. We have dividends, special dividends, and we've used all avenues. So we do, as Frits said, have plenty of dry powder, and we will use it as we've done in the past to really focus on driving shareholder value.

Your next question comes from Harry Curtis from Nomura.

Did your lawyers keep you from buying any stock back in the quarter? It just strikes me as strange that you acknowledge that your intrinsic value is above where the stock is today and you've got an extremely under-levered balance sheet. Over next couple of years, you're going to generate $5 billion of operating cash, plus just levering up to, say, 2x. What's keeping you from doing it?

Well, I mean, 2 things: One, we're talking about 1 quarter here. That doesn't tell you much about what we might do. And in the last quarter, as you know, we had bought back quite a bit of stock. And if you look at our track record, there's no evidence that we don't return cash back to shareholders. So I don't think one should overreact to what happens in one quarter, number one. Number two, I guess having once said we weren't able to buy stock in the quarter because we were constrained by other considerations, we have to forever answer that question. Having answered that once before, I guess, we should say, no, we were not constrained in terms of buying back stock. And I'm not sure you should read too much into what precisely our intrinsic value considerations are and so on. As we said earlier, I mean, we have multiple avenues to return stock -- cash back to you. In the fourth quarter, we did return $260 million back in the form of a dividend. We have done special dividends, we have done buybacks, so we look at all angles.

Your next question comes from Joe Greff from JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: I'll refrain from asking a capital allocation buyback question because I don't know if you're going to see anything incremental from this point forward. But it's on top of mind from everybody. And obviously, it's weighing on the stock price today, and you guys know that.

Yes. Joe, I just want to make it very clear that we -- Frits and I and our board fully understand that the pace of asset sales and the pace of cash return is a significant priority for our investors. We know that. So you should be quite sure that the message is clear and has been heard, and not just because you just delivered in the first 2 questions. We know that.

Right. So that was the non-answer to the non-question, Joe. What was your actual question? Joseph Greff - JP Morgan Chase & Co, Research Division: Yes. No, my question is this: within your 2014 owned hotel margin improvement guidance, what's -- if you were to break that out between U.S. and non-U.S., how would you explain that margin improvement between those 2 broad geographies?

Yes. Actually, we might get a little bit better performance in some of our European hotels and we will be held back by what's happening in Argentina. So Mexico should help, the U.S. will be okay and Europe should be better.

Your next question comes from Robin Farley from UBS.

I know you mentioned -- you reiterated the $3 billion in asset sales by 2016. And I think you first started talking about that dollar amount and time frame in early 2013, which would be a pace of something like $750 million a year of asset sales. So I wonder if you could just comment on whether -- have you always expected it to be more weighted towards 2015 and 2016? Or in other words, how do you feel about the pace of those asset sales versus that target?

Yes. Robin, this is Frits. And when we made the statement at our Investor Meeting in Dubai last year, we fully expected that you and others would look at the 4 years and the $3 billion and do exactly what you've done, which is try to decide whether we're on pace each year at $750 million per year. The reality is that we have said and will continue to say that first of all, our pace of sales is very much dependent on appetite and demand among the hotel ownership community and transaction volumes. And in that area, we've seen some pickup in demand. Our assessment when we made this statement looking out to 2016 is yes, that, in fact, the market would continue to improve over that time period; and therefore, it's more likely that there would be more sales as we got through to the 3 years than -- or the 4 years laying it out since last year than where we began. The second piece is, and I think that people need to appreciate this for its importance as well, we are, as a management team and as a business, committed to the fee part of our operations. And as such, it's very important for us, particularly when we sell iconic hotels that we want to have part of our system, that we sell them to partners that we want to work with over the long term. So the key for us is to have a robust slate of buyers we want to work with in a transaction environment that would enable us to sell. So we're continuing to focus on our goal of getting to 80% fee-driven, which, as you'll recall, was the basis under which we had made the projection or -- if that's the right word, the estimate for the $3 billion in sales. We're still very much committed to that track. This is, I think, a classic example of the motion you see is only the transactions that are completed. What you don't see are the active discussions that take place every day as we look at opportunities and alternatives. So long way of saying, recognize the pace question. It doesn't concern us, the direction and the strategy hasn't changed, and we are looking forward to the transaction environment making it more attractive as we look ahead.

Your next question comes from Thomas Allen from Morgan Stanley.

Two questions on asset sales, just following up. So the first question, can you talk about how receptive buyers are for purchasing assets in the various regions you have hotels? And then any comments around cap rates? And then the second question is, a lot of the large deals that have been done recently have been with sovereign wealth funds, what's the appetite from other typical buyers?

We actually think that the markets are becoming deeper, and there are more buyers now seeking to deploy larger amounts of money. Our sense, as we told you earlier, was it used to be the public REITs in the U.S. who came in for one hotel at a time, issued stock, et cetera. We now think that there are people who are willing to do portfolio sales. We think private equity is back, had not been in the market before. Certainly the sovereigns are back. So we're optimistic that -- as I think I said in my comments, that this is prime time for asset sales, and we intend to fully take advantage of it. You might recall that in 2006, we probably sold $6 billion worth of hotels. If this is something like that, then you should expect us to not wait until 2016 to get our $3 billion done but do it sooner; as always, contingent on market conditions, prices and all that. Cap rates-wise, it's purely a function of what hotel you're selling. I mean, we've seen sub-5% cap rates on some of our better hotels, and 6% to 7% on some of the more suburban and airport hotels. In terms of region, we feel pretty good about -- we feel very good about the U.S. We think there's interest in Mexico. We certainly think Brazil is -- this could be a good time, given the World Cup and the Olympics. Argentina is going to be hard. We think there's definitely a market for our hotel in Sydney. And then because of the nature of our hotels in Europe, because the hotels we have in Europe are largely trophies, that's a global market and it's not a Europe-specific market. So we feel pretty good about most of the regions.

Yes. Thomas, this is Frits. I would just add a couple of things to reinforce Vasant's point. The first is we do see the buyer market around the world getting deeper. And what that really means is that increasingly, we see regional buyers interested in hotels in the regions where they reside or where they tend to be more active. The second is that, and we've said this for quite some time now with respect to our North American business, the supply demand environment for hotels here and the fact we had 3 straight quarters of record occupancies, would tell you that the fundamentals of operating hotels have been pretty favorable and look to be set that way for a while. So I agree with Vasant. We certainly don't wait until the 11th hour. On the other hand, being patient in selling assets up until now, I think, has worked in the interest of shareholders, not the other way around.

Your next question comes from Josh Attie from Citigroup.

In the prepared remarks, you mentioned the possibility of special dividends. Can you elaborate on that? How seriously is that being considered? Why might you prefer or not prefer that versus the alternative? And are there any tax reasons why that might make sense?

We've done special dividends before. We did as much as, if I remember right, $3 billion in special dividends, which mean whole stock and a special dividend in '06. I don't think the logic we would give you would be any different than what you would see elsewhere. They make sense under certain circumstances. We are open to them. We've done them before. Certainly, when there are sources of cash that are event-like, it's an opportunity to do it. It's certainly an avenue to get cash back to shareholders in a more reliable way at times. So we consider it as much of an avenue to return cash, as we consider buybacks and our regular dividend.

Your next question comes from Steven Kent from Goldman Sachs.

Can you just tell me how many shares or how much shares you bought back quarter to date? And then also, REVPAR for Sheraton and Méridien were both weak this quarter, under 4% at least. I'm looking at them on the constant dollars. Is that turnaround starting to fade on those 2 brands?

Yes. Méridien and Sheraton, remember, when you look at brands, their performance is very much a function of their global footprint. So if you look at Méridien, it is very big in the Middle East. And because of what's happening in Egypt and Saudi -- in fact, Saudi is a huge piece of the business for Méridien. I think almost 10% of the brand's fees come from Saudi, and there's a visa restriction. So you have these peculiarities that don't tell you much about how the brand itself is doing. We feel very good about what's happened to the Méridien brand over the years. Similarly for Sheraton, as you know, Sheraton has a significant footprint in China, which is among the weaker markets last year. And then Sheraton also has a very big footprint in places like Europe. Sheraton, in fact, is 50-50 U.S.-non-U.S. So it is more dependent on what's going on in other parts of the world. So again, I don't think you can read too much into a global REVPAR performance of a brand.

Your next question is from Smedes Rose from Evercore.

I just wanted to ask you a little more about what you're seeing on the group side. You mentioned some incentive business coming back. And are you continuing to see some reluctance from kind of larger groups, but improvement in kind of what we might just call higher-end corporate group business? Or can you -- and maybe -- I'm not sure if you gave any pace numbers for the year, but if you could repeat them, if you have any.

Well, pace for 2014 is pace in the mid-single digits. I think that we are starting to see the return of incentive travel especially in locations in Europe. So that's a good sign of increasing corporate confidence. I think that the trends that we were seeing through most of last year are continuing in. I mean, the nature of group is a little bit different than it used to be. It's higher volumes of smaller meetings, and we don't see a lot of that changing. We had seen some pretty good production into the out years. So I think that the trends are all going in the right direction.

Your next question is from Ian Weissman from ISI Group.

Yes, most of my questions have been asked and answered. But just a quick question on China. Just given the crackdown on government business and luxury, has it caused you to shift your strategy going forward going a little bit more downscale?

Yes. Ian, this is Frits. So there hasn't been a crackdown on luxury as such. There's certainly been a focus by the government on austerity for conspicuous activity at hotels and other locations for government officials. The reality is that the luxury business in China overall and demand among business transient travelers into China and then leisure travelers continues to be very strong. So as Vasant pointed out in his remarks, if you look at the volume of guests coming into Macau, if you look at the flow of guests to Hainan island, which is a place where we have a significant luxury and resort presence, I think what you'd conclude is that while government demand for the high end in conspicuous consumption has certainly been curtailed, the organic growth in consumer and business demand, we believe, is well positioned to offset that. So no, our focus is still on the portfolio of the 9 brands that we have in China. We've seen growth and demand for each of those in different places and in different kinds of markets.

The next question is from Patrick Scholes from SunTrust.

Where do you stand with your hedging strategy and exposure right now? And what is the latest sensitivity for your earnings as it relates to fluctuations in interest rates? I know you used to, couple years ago, give that out.

You meant interest rates or exchange rates? I guess, exchange rates.

Exchange rates, yes.

Yes, look, we have a very diversified portfolio in terms of currency exposures. And we don't view sort of speculating on currencies as something we should do. Having said that, we have, as you know, for the past few years hedged about half our exposure to our -- half our euro exposure. And less to make a directional bet on the euro, but more to go to a fixed and variable kind of approach to the euro and reduce some of the volatility. And we've done it again. We've hedged about half our exposure of our profits to the euro at about 1.36, if I remember right. And other than that, there's not a hedging we're doing. And our -- so the plus or minus 1% move of the dollar uniformly against other currencies is still about $5 million.

1.36 is the hedge. That's right.

1.36 is the hedge, yes.

Your next question is from Bill Crow from Raymond James. William A. Crow - Raymond James & Associates, Inc., Research Division: Real quick. Point A is you've talked about the buyer group widening, broadening out. Is there more interest in portfolio deals than there has been previously? Number two, what do you think the value of owned assets will be post the $3 billion of sales? I think that you did not throw every asset into the mix at the time you announced that, maybe I'm wrong, maybe you go to 0, but if you could answer that. And then finally, what sort of proceeds do you expect from the lease transaction you talked about hurting EBITDA? And then the timeshare note sales, how much cash do you anticipate, have you built into the model from that?

All right. I'll start. And Bill, I probably won't get to every one of your questions. And therefore, I'm sure Vasant will come in behind me. In terms of your first question related to demand for portfolio sales, seeing as how we really haven't undertaken a portfolio sale of significance for some time. We've had a few multiple property sales, but largely focused around a single asset or a combination of assets. I think any future portfolio sale would, therefore, mark a significant uptick in that demand. And I think the best thing for us to say at this point is we're certainly testing the market for portfolio sales, but it would mark the first time in quite some time for us, if we were to undertake one of great significance. The second part of your question related to what the value of our owned assets would be as we look ahead. And remember, and I mentioned this a bit earlier in an answer to a question on this call, our focus has been to get to a business that is at least 80% driven in terms of its earnings by our fee business. And our logic for doing that is because we believe that the fee business, as we've outlined before, has extraordinary characteristics in terms of its potential for long-term growth and its ability to generate cash while it's doing that. The reason we haven't said 100%, Bill, is that we will have leased hotels, which technically don't fit in the category of fees. We have a vacation ownership business today. And we also believe that we don't want to completely preclude our ability, if necessary, on a relatively small scale, to undertake any transactions where we end up owning a hotel as a part of what we're doing. So I think if you add all those things together, it's not an easy thing to say that if 3 years from now we've sold $3 billion worth of assets, what's the value of what we have left. I think that depends so much on the complexion of what we sell and what the performance of those properties is at that point. But I think thinking in terms of that 80%-plus fee-driven, look at what our company is built up from by then is the way to think about it. And then in terms of consideration for the lease, we don't generally get into the details on that. The salient detail for you is that we're focusing on being able to get significant capital into a leased asset in exchange for a long-term management contract. And so the way we would look at this is on a present value basis, according to what consideration we get for making that change, the capital requirements of that asset that no longer fall onto us and the potential to have a long-term management contract, which in any one year might have lower EBITDA than the lease would have for as long as the lease lasted. But clearly, we would do that with an eye towards having a much longer contract than the duration of the lease. So I know you went through a lot. I think I got through it all. But I'm going to hand to Vasant in case there's anything I missed over.

Yes. I think the timeshare, we'll look to do a securitization later this year. And because we didn't do one last year, it could be roughly in the range of $250 million in cash from a timeshare securitization. And in terms of the lease itself, once the deal is done, we'll give you some more details. It's an important hotel. It allows us to lock in a key location for a very long time. We'll get some consideration in cash, but the rest will be avoidance of a capital spend that we were planning this year, anyway.

Your final question comes from Ian Rennardson from Jefferies.

Depreciation and amortization, you're guiding to about $310 million, which is $40-something million above where it was in 2013. What's the cause of that, please?

I don't think it was that much. It was less than that.

The D&A that we guided to includes the proportion of the JVs. So it's going to be higher than what you're seeing on our balance sheet, if that's what you're referring to. It is going to be a little bit higher because it's going to reflect the investments we've been making both on the renovations we've been doing and some of the technology. So...

I think if you normalize it, it's up probably 5% or 6%, if I remember right. But it is the investments that we made in our owned hotels that are now renovated and opened. So you start depreciating the new capital that went in, and it's the investments in our technology infrastructure. But it is not such a big increase once you normalize it and do apples-to-apples. Some of your questions, I'm sure Stephen can do that.

Yes. Ian, if you have any questions, feel free to reach out. So 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. Thanks for joining us.

Ladies and gentlemen, this concludes today's Starwood Hotels & Resorts Fourth Quarter 2013 Earnings Conference Call. You may now disconnect.