Good morning, and welcome to Starwood Hotels & Resorts' third quarter 2014 earnings conference call. (Operator Instructions) I would 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 into Starwood's third quarter 2014 earnings call. Joining me today is Frits van Paasschen, our CEO and President; and Thomas Mangas, our CFO and Executive Vice President. 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 am pleased to turn the call over to Frits for his comments.

Thank you, Stephen, and greetings to all of you from Italy. We're calling your from the beautiful St. Regis and Westin hotels here in Florence, where we're holding a meeting of our top-100 leaders from around the world. Following our usual format, I'm going to cover four main topics today. First, an overview of our Q3 business performance and the global business environment. Second, our outlook for the rest of the year as well as our initial thoughts on 2015. Third, I'll walk you through how we're working to deliver more value to our hotel owners, guests and corporate customers. I'll finish my remarks with a few thoughts on our upcoming relocation to India for the month of March. Following my remarks, I'm delighted to say that I can hand the mike over to our new CFO, Tom Mangas, who joined us in September. As many of you know, we were looking for someone who has deep understanding of global brands, is operationally savvy, and has hands on experience as a public company CFO. We also wanted someone with the energy and personality, both to roll up their sleeves with hotel operators and to step back and think about our strategic direction. With his 20 years at P&G, along with his time at Armstrong Building Products as CFO, and most recently CEO of their largest division, in Tom we found someone who checked all the boxes. I'll leave it Tom to introduce himself further and to share his initial thoughts on Starwood. He'll also take you through the latest on our capital structure as well as a little more detail on our outlook. Now, I'll turn to my first topic, our performance. On a summary level, the key trend lines that we saw in the first half of year continued…

Thank you Frits. Good morning and thank you for joining us on the call. Given this is my first earnings call with Starwood, let me take a few moments to introduce myself and share with you a couple of the reasons why I joined Starwood. Then I will carry on with the balance of the third quarter review and fourth quarter outlook. First, a bit on my background. I am an operations-oriented CFO. My experience includes almost 20 years in a variety of finance and accounting roles at Procter & Gamble, working on brands like Tide, Gillette and Pantene. I was the CFO for P&G's 10-country hub of Turkey, Central Asia and Caucasia, based in Istanbul. Later, I was the divisional CFO of P&G's $17 billion Global Fabric Care business and eventually was the CFO of P&G's $24 billion Beauty and Grooming business. I left P&G at the beginning of 2010 to become the Chief Financial Officer at Armstrong World Industries, a $3 billion commercial and residential building materials company. After four years as a CFO, I was appointed CEO at Armstrong's worldwide flooring products division, which is about half the company's sales. It was from that role, that I was recruited into this role working with Frits. I was attracted to this role for four core reasons. First, I love the brands and properties. As a frequent global traveler, I enjoyed my guest experiences at Starwood's hotels and also really valued my SPG Program benefits. Growing up in the consumer product space, I am really attracted by strong brands and belief in their power to drive disproportionate growth. Second, I believe in the secular trend of a rapidly growing middleclass, who want to travel and stay in great properties, creating significant upside for our company with this tremendous global…

Thank you, Tom. We'd now like to open up the call to your questions. In the interest of time and fairness, please limit yourself to one question at a time, then we'll take any follow-up questions as time permits. Sylvia, can we have the first question please.

Your first question comes from Joseph Greff from JPMorgan.

The question I had for you, Frits, related to your footprint commentary earlier in the prepared remarks. Last three quarters it's been in that 2%-plus range below the 4% to 5%. You talked about development lead times becoming a little bit longer, which I could interpret as being a little bit temporary. But your comment about reaccelerating that net unit growth, what gives you confidence that that can happen? And what gives you confidence that some of these shifts that you're maybe seeing in the development community. You talked about, emerging market for the U.S. and developing markets upper-upscale in luxury to mid market. What gives you confidence that these shifts are temporary versus a function of relative penetration rate? And then, my follow-up question for Tom. Just looking at the pieces of your 4Q guidance, it looks like you bought back quarter-to-date somewhere between 4 million and 5 million shares. Can you help us out and talk about that?

This is Frits, and I'll address your question regarding footprint growth. So you alluded to a number of factors that I also talked about in my prepared remarks. So I'll try to assess those in the context of whether I see those as being temporary or passing or something that either one change or we can deal with. So the first is the shift in the timeline and I would imagine that, first of all, even if the timeline stay longer, at some point we'll be in a steady stay, where we just have a slightly longer gestation period for properties. But I think in some cases, we may even see some of those timelines come back and slide. And of course, we're going to continue to focus on conversions, both in North America, which has been a catalyst for our growth, but also increasingly in markets like India, where in more difficult times many hotel vendors have realized and recognized the benefit of looking into a global system. In terms of the U.S. business, yes, I don't expect that we're going to see an increase in the average size of hotels. So clearly for us the key is to find new ways to accelerate our growth in the Specialty Select segment in North America and that's something that we're intend on doing. And then finally, I do think that in other markets around the world, we could see a pick up in growth momentum again, in terms of overall signings. So our sense is that across those three areas, as well as looking at other ways to expand the reach of our footprint and our pipeline for delivering high paying guest to great hotels, we're going to explore other avenues of growth as well. So I hope that gives you a little bit more color and background on what we're thinking about in terms of making sure that we get the net rooms level back to where we think is right for us. And I'm going to hand now Thomas, as you had asked him a question as well.

Yes. So we are in the market in the fourth quarter. We continue to pursue a more programmatic approach to share repurchases. You can do the math. Basically we've guided $2.3 billion to $2.4 billion in total cash returned to shareholders and we are expecting to pay our regular and special dividend. You can get to about $500 million to $550 million of cash repurchases in the fourth quarter that we're going to make, which will largely consume, but not fully consume the full authorization the Board has given us. So we continue to make good pace and rate on the programmatic repurchase program.

Next question please.

Your next question comes from Thomas Allen from Morgan Stanley.

So first question for you, when you were talking about your capital return, I mean you talked about that 2.5x to 3x leverage, you talked about going more asset-light and you mentioned that you could get leverage higher, especially if you could find attractive asset-light businesses to buy. Can you just talk a little bit about the balance of returning capital to shareholders with potentially doing acquisitions? And if you were to do acquisitions, now where do you think -- what do you think you're missing? And then just a quick follow-up. In the press release you talked about in Dublin, The Westin Dublin converting from a leasehold to a franchise. Can you just touch on that quickly?

Sure. So the company has framed the range of 2.5x to 3x on rating agency basis. One, I think the company and I value are BBB rating on our debt at the company level. And so I think you'll see us try to be in the zone. I mean part of my philosophy on capital allocation is to be transparent on what our intensions are and execute on what we say we're going to execute. And so I think you'll see us try to be in that zone of 2.5x to 3x. And I can imagine with asset sales we might creep below it, with an intent to get into the zone. And again with potential acquisition opportunity, creep above it, we intend to get back into the zone. Clearly, I think as we went through the net rooms count, the discussion that Frits laid out there, we need to grow and part of my focus in coming to this company, and as Frits asked me, how do we help -- how do I help the company grow. And I think one way we help the company grow is leveraging the balance sheet to drive growth through acquisition or other more creative deal forms that allow us to sign up, in bigger scale owners to deals that create significant value for us and for them. And so I do think you'll see from me a posture of using the balance sheet to drive acquisitions. And I think the shape and the form of the name will -- I don't know enough yet to answer that question on who are the right targets for us, and clearly it seems to be a very active space and one that this company has had a terrific track record of executing against, starting with its origin, including Le Méridien deal. So stay tuned. On the Westin Dublin, yes, that was simply a very onerous lease of a hotel that we have terminated the lease and had a significant lease termination payment, and we flipped it to a management contract that we are very pleased with on a long-term basis. So it's nothing more than that.

And I'm just going to jump in. First of all, I think Tom Mangas did a great job answering the question this early. And Tom Allen, just a couple of more thoughts on your question. We have and we'll continue to look at acquisition opportunities. I think Tom was correct and careful in pointing out that we're looking at asset-light businesses, not going out and buying hotels, so I think that's pretty clear. And that also our 2.5x to 3x leverage range reflects the current mix of EBITDA income, but as our business shifts increasingly to asset-light, as Tom was also referring too, that will give us the potential through lower volatility to be able to take that leverage ratio up as we look ahead. And then Tom's thoroughly up to speed. Yes, the Dublin lease was not one that was very well structured from our own return standpoint. It also carried with it all the volatility and implied debt that a lease always does. So when we can, we try to find ways to convert lease arrangements to other situations. And in this case with Dublin, we were able to do that and move ourselves to franchise arrangement with a partner that we feel very good about. So this was a win-win from our perspective. And of course, also it's a way of moving to being more asset-light in the shape and form of our earnings. Next question please?

Your next question comes from David Loeb from Baird.

If you could just give us a little more color on the bump in the G&A guidance. I understand about new initiatives, but $7 million, $8 million seems like a lot for mobile check-in. Are there other big lumpy items in that number?

Now, that's really the primary one. Certainly, we are launching several initiatives under the SPG banner, mobile check-in is the big one to have the significant amount of expense with it, because not to get to technical on you, but this is something we are pushing out to both owned and managed hotels and generally we are pushing out devices into the buildings that we don't have a fee recovery mechanism in place right now, because we're really trying to prove and qualify the idea. So we're absorbing the expense in the quarter, this quarter and next quarter as we try to roll them out. And over time I think it serves both as an effective marketing expense to drive excitement and buzz in the hotels where our guest will value it, and overall drive greater occupancies we believe, and rate in these hotels. So that's really the main driver on this SG&A increase for the year.

Yes, I think the other point is just that there is always going to be some puts and takes in our P&L and some of those flow-through SG&A. And Tom alluded to a few of those in his prepared remarks. For us, the main one we wanted to call out was our initiative around keyless check-in. But it's one among several that we're working on, and we'll give you a little bit more clarity around that when we close the year in terms of what some of the other factors might have been.

Next question please?

Your next question comes from Felicia Hendrix from Barclays.

Tom, I have a multi-parter for you. First, wondering if you could provide more color on the fourth quarter guidance. I am just wondering, how much are you expecting North America growth to slow sequentially? And then correspondingly, are you expecting something like low-single digit growth from international, if at all? And then if you could just talk about your view on U.S. RevPAR growth for the fourth quarter, well, that was part of my question, but also for 2015. And then you said something about citywide shifting from the fourth quarter into the third quarter. How much did the North America RevPAR benefit in the third quarter from the shift at citywide?

Felicia, you're challenging me on my first call with the three-parter. That's impressive. So let me try to tackle it. So let me start with the fourth quarter. Yes, we are seeing a deceleration given our geographic mix, but also in North America. So North America, as we called out was up 9% in RevPAR. We still think North America is strong in the mid-single digit, but we are seeing the group sales being weaker going into the quarter in North America, than what we saw in the first three quarters of the year, which is giving us a pause there. And part of that is, because we did see a shift in the citywides, out of the fourth into the third in markets where we have significant concentration of hotels like Boston, New Orleans, Dallas, San Diego and Seattle, so North America is a deceleration versus what we enjoyed in the third quarter, but also Latin America is a deceleration, largely because we have the World Cup in the part of the third quarter, we don't have that. And we know with the hurricane, we had in Cabos that we took couple of our properties out of the mix there, which were showing strong growth. So we don't have quite the same footprint in a strong growth region that we had for the bulk of this third quarter. And the last thing of real measure is in China we are seeing pressure on ADR. We're starting to lap the Sheraton Macau ramp. So I think there is enough, very tangible things that led us to believe that 3% to 5% range was the right range. Now, I didn't mention Europe, I do think that we had a strong base in Europe in the fourth quarter of 2013. And Russia continues to be weak for us. So I think we continue to feel like we're doing the right things and executing well and we're playing the hand we're dealt in terms of he geographic mix and this is a quarter where it's slightly weak. Relative to your point on 2015 in North America, we continue to think North America is the strong market next year and is likely going to be in the same zone as it has played out for 2014, so we don't expect a major deceleration or change in the North America trajectory. And I do think the one thing that we're cautious about is both the group activity going into the fourth quarter as well as group going into the years in the low-single digits, and that has given us some pause for; first, being more bullish, but frankly we think that the 4% to 6% RevPAR range for the total system is pretty attractive range. It's not far off of where we are this year, and where I think most people are externally. And so we feel like it's an aggressive one and we're seeing some share growth in there.

I might just add a couple of things to that. And obviously, I think Tom for four weeks in, has given a pretty comprehensive answer. I'd just throw a few other things into the mix as we look at Q4. In Europe in Q3 we did benefit a bit from the shift in Ramadan, which gave us a few more strong weeks in Q3 that we won't obviously see in Q4. Also Yom Kippur finding a place in Q4 in North America meant the business might be a little softer in terms of comparison there. And then I want to make sure that we're being not too negative in terms of what we're saying about group, because group was very strong in Q3. We've had good in the year, for the year bookings. Q4 is generally a slightly weaker quarter. And as we look into next year again, the momentum is still there. So this isn't a major change in trend, it's a bit of a reallocation of some of the revenue that we saw land in Q3 versus land in Q4. So I want to make sure that that's clear. I think it's also important to emphasize what Tom stated at the end and that is that we are seeing relative performance improvements against our hotels and their comp sets. So our RevPAR index numbers continue to show a positive trend, which in our industry at least is the way we talk about growing market share. And then I think as we look into next year, one of the things in addition to some of the group bookings that makes me feel comfortable is the fact that when we talk to our bigger corporate customers and ask them whether they're hiring and traveling more next year than this year, which is something we often do as we get to the fall, the answer again, as you look into 2015 is that their momentum for travel continues to be strong. So we think 4% to 6% is a good range today given all that's happening in the world. And as we said all along, in February, we will give you a bit more on what 2015 ends up looking like.

Next question please.

Your next question comes from Ryan Meliker from MLV & Co. Ryan Meliker - MLV & Co.: Just a quick question with regards to asset sales. I appreciate the color that you gave, that you might see a couple more assets trading hands by yearend. I am just wondering. You gave some good color in terms of slowing economic growth in Asia and in Europe, and some of those concerns that could weigh on 4Q results. Do you see any impact on that dynamic weighing on your ability to sell assets outside of the U.S. as we go into 2015?

No. Ryan, this is Frits. I think the first is, we didn't actually say a couple of asset sales, we said we were working hard to have more news with you, so just to be totally clear. But the performance of our own hotels is continuing to be strong. And the trends that we're talking about here are much closer to deceleration than they are to less good performance. Meaning our hotels are still going to be up and performing well next year. And I think that reflects growing demand. I mean bear in mind, in China we had huge jump in occupancy within market. We continue to see strong outbound in Chinese travel as well. And so I know the momentum factors that lie behind secular growth and demands that Tom referred to in his assessment of deciding to come to Starwood I think are definitely playing out here. So no, that has not been a factor in terms of conversations that we're having around selling assets. And we'll give you more when we have it.

Next question please.

Your next question comes from Nikhil Bhalla from FBR.

Just on the timeshare side, Frits, could you just give us some sense of what's happening? Why are the sales sort of not picking up or actually been slowing down through the year, what maybe going behind that? And also some color on the inventory you have to sell on the timeshare side?

We've pulled over $1 billion out of the timeshare business in last four, five years as we've talked about, and we continue to believe that that's thanks to the very strong brands and the great team that we have in the business. They, in fact, have been so good that we've sold through a lot of the extra inventory that we had. And that I think more than anything lies behind the change of pace, so one of the things that we're looking at is finding balance sheet friendly-ways to make sure that we can secure inventory to maintain the business. I think that we've been very clear; I shouldn't say, I think, I know that we've been very clear about our sense that while we believe this is a great business for our guest and for our SPO owners, that we didn't want to have this be a major growth engine for us as a company, because we wanted to focus on being asset-light. And so the goal has not been to grow this business, and that isn't our goal today either, but our goal is to make sure that we have sufficient inventory to maintain the momentum that we have.

Next question please?

Your next question comes from Robin Farley from UBS.

You gave some color around some of the reasons for the slowdown in growth in Q4. But they don't necessarily sound like kind of one-off or one-quarter type issue. So I guess how are you comfortable that those factors will lead to re-acceleration after Q4, just based on your early '15 guidance? And then just so if you can, separately if you can quantify, in China you mentioned kind of some slower development there. Can you give us a percent of rooms in your pipeline in China that are under construction now and how that compared to a year ago or a quarter ago?

Yes. Robin, so this is Frits. I think the important thing to look at when you compare our fourth quarter to our full year outlook for 2015 is that in any one quarter, we're going to see numbers move around a fair amount. And even though this is a very big system with global reach, individual quarters do tend to move around just a bit. So in some respect, if Q3 was a bit higher than the trend line we're talking about and Q4 is a little bit lower than the trend line we're talking about, the basic level of growth, the fact that our hotels are broadly at high occupancies and we're seeing most of that growth in RevPAR now or increasingly through rate, I think is behind our feeling comfortable there. Clearly, the shift in some of the holidays is more of a temporary thing. The Macau ramp down clearly will be something that will come in the next year. But at the same time, we're seeing underlying transfer growth that make us feel comfortable at this stage for this kind of growth range. In terms of your second question around China, I don't know that that's a number we specifically release. But what I can tell you is that as we go through each of the proposals that our development team in Chain brings to us, and we review those every couple of weeks in direct conversion between our global feasibility and development team and our development teams on the ground around the world, and what we clearly see in -- I think there was a technical difficulty here. Excuse me. So what we're seeing is a tendency for those hotels to be slated, to open, five and sometimes six years from now as opposed to two or three years out in front. And that's more of the issue for us than bigger financial questions. I did allude of the fact that there were a very small number of developers that looked like they had financial difficulties. The reason I mention it is, because up until now we haven't seen any developers with that. So I wanted to highlight that, well, it's not a huge number, there is some of that taking place in the market today. So Stephen if there is more you want to add to that.

Next question please?

Your next question comes from Shaun Kelley from Bank of America.

So I just wanted to ask about, overall when we look at the quarter same-store RevPAR was up 6.9%. It looks like base fees were below that or if we looked at your just total worldwide RevPAR and we looked at your overall fee growth, the spread was pretty wide. So the question is, like, why are fees now trailing your overall RevPAR growth, which I think this is the first quarter, we've seen that in quite a while. Is there is something in new units that we should be focused on? And my follow-up question is, on incentive management fees that number dipped down, it was below what we were expecting as well. So kind of following up, does that imply anything about the kind of new hotel margins or margin growth for some of your international hotels? And how should we think about incentive management fees in the next year? That'd be helpful.

Shaun, this is Frits, I'm going to make a couple of comments, and hand to Tom, because I know he wants to add a bit more to answer your question. You should know, first of all, that our fees generally speaking both in terms of franchise as well as management are a function of topline revenue and incentive fees profitability of our hotels. And so at anytime, if all we're looking at our cash fees relative to the performance of our hotels, we should see growth in our fee base when RevPAR is up, that's faster than RevPAR and likewise if it's flat or down the other way. So the only reason that wouldn't be the case would be one or two things. First, we might have some one-time fees that are in a year prior, which in this case is what we're talking about or we can have new hotels entering on to the system that are on average at lower rate. And aside from the fact that we have slightly more Select Serve hotels entering the system there, I can tell you that our contracts on average actually continue to get better, because we have more discipline today than we ever have, and whether we're looking at legacy contract or for that there especially legacy Le Méridien contract, they are actually getting stronger. So in actual fact, I think that the strength of the base of our business, when it comes to our agreements with hotels, is actually getting better. The mix has not significantly shifted there. So this is largely a function of some one-time moves. And Tom, do you want to add anything to that or?

Well, I think you covered it pretty completely though, Frits. I just want to reiterate that, excluding the one-timer that we had in the third quarter, I think the real phenomenon on the third quarter is we had a big non-recurring fee last year that's suppressing the total fee growth down to only 2.5%. If we exclude that one-timer, we're growing more like 7.3% in total fees. Incentive fees continue to grow and we are not seeing a different change or change introductory in incentive fees. We're still having a significant portion of our contracts outside of North America paying on a systemwide basis. About 70% of our managed hotels pay incentive fees and about 85% of our total incentive fee income comes outside from North America or outside the U.S. So I think we're not calling it all differently than we've done before. We're really just trying to reflect kind of the base period impacts in getting to that core fee growth measure that we described.

We have time for one more question, please, Sylvia.

Your final question comes from Joel Simkins from Credit Suisse.

One quick question I guess for you Frits. First, in terms of this Design Hotels portfolio, just walk us through sort of the economics there, what sort of long-term strategy as an opportunity? And then, also, perhaps a follow-up for Tom. Again, I know you're early into your role here. You got an earlier question on timeshare. I just wanted to understand sort of how you view that business longer term? How core strategic it is going forward?

Yes, Joel, so I'll address your question with respect to Design Hotels, first. The arrangement the Design Hotels has today as a company with its member properties is not anywhere near as deep as the one we have with hotels that are part of our system. And so what we are looking at are ways to bring value from the capabilities that we have developed to those hotels. And of course, as we do that, we'll find ways to make sure that we get some of that value back. It's a bit early, because in spite of having begun the discussions to get at least partial share of this company earlier on, it hasn't been until only recently that we have been fully at liberty to have open discussions strategically with Design Hotels' management. And yet also have not yet had a chance to explore exactly how we might do this to negotiate with the current owners. So while I'd love to be a little bit more specific now, I think it'd be better for us to do our homework, and come back to you with some initial insights as to how the structure of that might work, once I have a better idea of how we might get started. What I think is attractive about this though is, if you go online, if you look at the hotels we're talking about, they're very intriguing properties. They are the kind of indigenous authentic properties that come actually with a different feel than either say, Le Méridien or W or Luxury Collection. So they're very additive to our mix of hotels, bringing us to new locations also. And I am absolutely sure based on our initial discussions, that we're going to find ways that work for Starwood and that are very beneficial for the owners of the properties. And so with that, I'll hand over to Tom, to add some comments on vacation ownership.

You're right. I'm four weeks into the job. I have not even been down to Orlando yet to meet the team. So that's something I've got slated next week, when I am back in the United States. Clearly, we have a world-class vacation ownership business, one that we're very proud of, one that's built a lot of value overtime, very successfully building our properties in prime markets like Orlando and Hawaii and in Mexico. So this is something Frits has asked me to get into and look at, because it's clearly a very capital-intensive business. It needs capital to grow. It's lumpy capital. And right now as we're pursuing an asset-light strategy, we're not quite clear how to square the circle on pursuing a high capital in terms of business, as we move to asset-light. So that's something I'm going to be working on in the next several months, as I evaluate the business, and I'll be bringing forth to Frits and the board my own thoughts and stay tuned.

Thanks, Tom. Thanks, Frits. I want to thank all of you for joining us today for our third 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.