• Starwood suffers despite revpar strength

Despite robust revpar numbers, Starwood Hotels saw its share price drop nearly 3% after its third quarter results last week.

Slower than expected timeshare sales were the main cause but this fed into general fears about the direction of the economy, particularly consumer spending.

During the conference call for its results, Starwood blamed the timeshare situation on softness in Hawaii caused mainly by building delays and therefore not having anything to sell. It warned this problem would persist into 2008.

Making things even worse was the postponement of a planned securitisation of timeshare revenues which would have netted about $25m.

The picture for the core hotel business, however, was much better with what the company described as “continued strength across the globe”.

It said it was renegotiating corporate rate deals with high single digit increases and it expected revpar to be up by 6% to 8% next year for comparable owned hotels worldwide. Revenues from management it expected to grow by between 13% and 15%.

New CEO Frits van Paasschen outlined five themes where the company would create value: strong differentiated brands that drive revpar; operations that deliver a superior guest experience while remaining cost effective; asset right – the right balance of asset ownership; growth from both the rise in global prosperity and increased hotel brand penetration in Europe; prudent capital allocation that would enable both increased investment and further capital returns to shareholders.

On the asset right theme, he said that he expected the company to complete the previously announced $450m worth of asset sales. The credit market turmoil might affect the timing of future asset sales but it would not affect the intention to sell, he added.

The raising of the cost control issue by van Paasschen was also noteworthy given the stage of the business cycle. Alongside an asset right approach that should reduce volatility, the ability to deliver superior guest experience while keep a lid on expenses is clearly positioning Starwood for any dip in demand.

At the end of the quarter, Starwood’s pipeline was 480 hotels with 115,000 rooms. Of these, 70% are either upper upscale or luxury and half are outside the US. Management contracts represent 60% of the number.

Recent announcements include a W in Bangkok, Le Meridiens in Croatia and Egypt, a Westin in Portugal, and a Sheraton in Zhoushan, China.

Income from continuing operations was $143m compared to $148m last year. Adjusted EBITDA was $348m against $328m. Worldwide revpar across the system was up 9.5%.

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