Timeshare Overview. March 6, 2008

Transcription

1 Timeshare Overview March 6, 2008

2 Safe Harbor Statement These presentations contain forward-looking statements within the meaning of federal securities regulations. These forwardlooking statements generally can be identified by phrases such as Starwood or its management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Similarly, statements in this release that describe the Company s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Future results, performance and achievements may be affected by general economic conditions including the severity and duration of any downturn in the US or global economy, the impact of war and terrorist activity, business and financing conditions, including the availability of mortgage financing, foreign exchange fluctuations, cyclicality of the real estate, including the sale of residential units, and the hotel and vacation ownership businesses, operating risks associated with the sale of residential units, hotel and vacation ownership businesses, relationships with associates, customers and property owners, the impact of the internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in U.S. and foreign tax laws and their interpretation), travelers fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions, and other circumstances and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Please note that these presentations include non-gaap financial measures. For definitions of certain terms used herein and a presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and a reconciliation of the differences between the non-gaap financial measure disclosed and the most comparable financial measure calculated and presented in accordance with GAAP, please refer to the Company s web site at 2

3 Agenda Industry Overview Starwood Overview Timeshare Project Overview Development Update Conslusions 3

4 Industry Overview 4

5 Timeshare Industry Strength In 2005 and 2006, the Vacation Ownership industry continued to have rapid growth and positive demographic trends 16% Sales CAGR since 1993 Worldwide sales of $14B in 2006, with US sales over $10B Penetration rates remain low among qualified consumers (~7%) Target consumer base growing 30%+ over next ten years Purchasing power of target consumers increasing 35% High owner satisfaction rates Owner base becomes brand loyal through great vacation experiences Regatz: Resort Timesharing in the US Confrence Board Publication: The Road to Affluence 2010 RCI: Resort Timeshare Worldwide 5

6 Timeshare Industry Growth Timeshare sales continue to deliver each year US Timeshare industry revenue growing at 16% CAGR $14 $12 $10 $8 $6 $4 $2 $0 $11.0 $10.3 $9.4 $8.6 $7.7 $7.9 $6.7 $6.5 $5.7 $6.1 $4.8 $5.1 $5.3 $4.5 $3.2 $3.7 $4.2 $4.8 $5.5 $1.5 $1.7 $1.9 $2.2 $2.7 $104 $103 $105 $64 $67 $70 $77 $86 $93 $103 $112 $114 Worldwide Timeshare Revenue ($B) 1/2/ $12.3 $9.0 $124 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 $14.0 $10.5 US Timeshare Revenue ($B) 2/ $134 US Lodging Revenue ($B) 3/ $350 $300 $250 $200 $150 $100 $50 Consistent and Dramatic Growth in Timeshare Industry Since 1993 Market US Timeshare Worldwide TS US Lodging CAGR 16% 9% 6% 1/ Bear & Stearns Equity Research (Extrapolated Estimates for 2003 & 2005), PWC data for / ARDA 2006 State of Vacation Timeshare Industry, Bear & Stearns Equity Research, PWC data for / Smith Travel Research (2005 & 2006 estimate based on extrapolation of reported room revenue) 6

7 Timeshare Industry Economic Impact Economic impact of the Timeshare Industry on the US economy was estimated at $91.8B* in 2005 and is driven by three forces: 1. Direct owner driven economic impact of $31B $23B was driven by the timeshare operation and includes: Resort Operations of $10B Purchases of timeshare of $9B Maintenance fees of $4B $8B in additional owner driven economic impact including construction, resort employment and other direct vacation related purchases 2. Indirect economic activity impact of $52B includes: Indirect employment impact of $13B Other activity of $39B 3. Tax revenues of $8B are also generated from this activity Includes timeshare employee taxes, property and occupancy taxes and taxes on activities in other industries *Source: PWC Economic Impact of Timeshare Industry, 2006 Edition; data available rounded to $billions 7

8 Key US Timeshare Industry Ratios Overall industry margins are driven by public companies who enjoy broader distribution systems and well positioned brands which drive higher price points All US Timeshare Companies % of Originated Sales Public Companies Private Companies Sales & Marketing Costs 44% 41% 51% Product Costs 25% 27% 22% General & Administrative 9% 9% 8% Estimated Uncollectable Sales 8% 6% 13% HOA Subsidies 2% 1% 4% Originated Pre-Tax Margin 12% 16% 2% Source: PWC Financial Performance Survey 2007, 2006 Data 8

9 Starwood Overview 9

10 Starwood Timeshare Operating Strategy Operating strategy remains focused on developing and executing the mixed-use model to create value by leveraging: Hotels, amenity infrastructures and land holdings Resort management infrastructure and operating costs Marketing spend (room nights and customer incentives) internally Starwood brands SVO distribution capabilities within proven markets Support and enhance Starwood relationships with existing and prospective owners for new hotel opportunities Create positive system impact through incremental brand marketing Create a valuable customer base of brand loyal, highly satisfied owners 10

11 Starwood Competitive Advantages Continued use of multiple brands Sheraton, Westin and St. Regis Focused on profitable business segments in the US, Caribbean and Mexico where we can operate with more efficient sales and marketing costs Pricing premiums in common markets over competitors Combination of scale, multiple brands and price points, and efficient distribution model yields superior results Inventory and projects to support growth objectives over the next three years is more than 90% identified and owned today Predominantly mixed use model leverages resort assets 11

12 Starwood Mixed Use Strategy Synergies Incremental system value synergies realized by aligning Timeshare & Hotel assets closely Hotels Benefits to Hotels Guaranteed occupancy year round Additional revenue from preview guests, renters and owners Leased hotel space Concierge services HOA shares in certain hotel operating costs Leverage Resources Amenities Management Infrastructure SVO Benefits to Timeshare Access to guests for tour flow Access to great brands Leverage existing assets & infrastructure Rooms for preview and explorer packages VOI Sales to hotel & vacation package guests 12

13 Starwood Brands Product portfolio well balanced and addresses the needs of a vast demographic audience % of Total 2007 Contract Sales 1/ (originated sales) 30% 61% 9% Price Range 2/ $8K - $53K/ Week $15K - $114K/ Week $176K - $760K/ Fraction Average 2007 Contract Amount ~$13,700 ~$36,300 ~$400,000 Target Customer Household Income Age Net Worth >$50k $75k - $750k >$75k $150k - $1M >$150k $1M+ 1/ Excluding Harborside at Atlantis 2/ Price ranges based on annual products and of resorts in sales during

14 Starwood Vacation Ownership Overview Over 200,000 unique owners ~16% of owners have purchased more than one week Total Resorts Resorts in Operation Resorts in Active Sales # Units 1/ , , Unbranded & JV Total ,781 1/ Includes existing units and/or in active pre-sales / development 14

15 Financial Performance Starwood Vacation Ownership & Residential Delivers Best in Class Financial Results 2007 results were down because of the decision to defer a receivable sale 35% 30% 25% 20% 15% 10% 28% 27% SVO/RES $200 26% % 25% % HGVC 24% $100 23% 23% 16% 15% 15% 14% 12% MVCI Op. Income CAGR SVO = 24% HGVC = 23% (2006) MVCI = 20% Operating Income Margin $300 $2,000 $1, $0 Total Revenue CAGR SVO = 24% $1,000 HGVC = 24% (2006) MVCI = 13% 439 $500 Operating Income 306 MVCI SVO/RES HGVC , $0 Total Revenues 2,065 1,840 1,721 1,502 SVO/RES 1,005 1, HGVC MVCI Source: Information was obtained or calculated from the respective segment disclosures in the most recent 10-K reports, with SVO s revenues excluding any VOI condo recovery gross-up (from SVO management reports). 15

16 Operating Income Distribution 2007 Operating Income Distribution 1/ JV Equity Earnings Resort Income 4% 7% Timeshare sales are the main driver of segment profitability and they account for over two thirds of segment income Financing Income 22% Timeshare Sales 67% Financing income is a valuable income stream which is comprised of the following components Interest Income Gain on Sale of Receivables Retained Interest Amortization Resort operations income continues to grow as new resorts are added to the system Equity earnings is driven by our joint venture with the Kerzner group at the Atlantis Resort 1/ Timeshare sales also includes G&A, Depreciation & Amortization, Net Interest Expense and Other Income 16

17 Starwood Originated Sales Growth Originated sales CAGR of 19% between 2001 & 2007 Revenue growth trends experience some variability due to the nature of the business model 2007 Originated Sales were down slightly due primarily to declining close rates in Hawaii as the Westin Ka anapali Ocean Resort North neared sell out Originated Sales ($M) 1/ $800 $739 $714 $600 $507 $581 $400 $249 $290 $358 $200 $ Yr/Yr Chg 17% 23% 42% 15% 27% (3%) 1/ Originated sales includes Timeshare and Fractional sales, excludes JV s 17

18 Key Financing Metrics Average original loan amount is $19,300 Average FICO score 705 Average down payment 14% Weighted average interest rate 12.2% Total portfolio is approximately $850M, includes loans that have been securitized by SVO $569M Timeshare and Fractional on balance sheet at 12/31/07 $285M in off balance sheet securitizations Total annual delinquency including defaults remains below 6%, up just slightly from all time lows in

19 Timeshare Project Overview 19

20 Timeshare Project Lifecycle Feasibility / Investigation Site Identification Scope Estimation Cost Estimation Project Underwriting Approval Starwood Board of Directors Review Development / Construction Detailed Project Specs Local Government Review Construction Begins Sales Center Developed Sales Start Up to 24 months before completion Resort Activity Construction Completed Resort Opening Resort Management Sell Out in 2 15 years Finance Committee Review A project typically has several important phases during it s lifecycle Feasibility / Investigation: This is the first step in evaluating a project for potential financial returns and includes inputs from Construction, Sales and Finance. Executive Review / Approval: Projects that pass the feasibility test are then presented to Starwood Executives and Board of Directors for review and approval. Development / Construction: Begins with preparing detailed project specifications and working with local governments to ensure proper due diligence has been completed. Once local approvals have been received construction begins. Sales Start: Pre opening sales can begin as much as 24 months before resort completion. Resort Activity: Resort officially opens, and the Starwood Resort Operations team begins servicing owners, managing the property, coordinating renters, collecting dues 20

21 Evaluating a Vacation Ownership Project A typical vacation ownership project has three distinct phases of review Data Gathering Modeling Economics Construction (Master Budget, Schedule, Massing, Program ) Construction cash flow model Outputs: Construction expenditure, escalation, cost of sales, percentage of completion Timeshare model Outputs: overall economics, receivables sales, returns Initial request for underwriting (Model Initiation form ) Sales & Marketing & Consumer Profile (financing ) Pricing model Outputs: price by unit type, view, season, biennials, splits, and contract pricing Channel distribution model Sales and S&M costs by channel, e.g. preview packages, integration, OTC Room block requirement Starwood Economics Incremental model Outputs: incremental economics to hotel due to SVO presence Resort Resort model Outputs: resort economics, HOA fee estimate After-Tax Unlevered IRR Ranges from 11% - 40%+ 21

22 Hypothetical Timeshare Project Example Originated Earnings This hypothetical example of earning streams of a timeshare project at a new location ~160 2 bedroom lock off units built in two equal 80 unit phases Sell out occurs over 7 years Typical cost rates: Sales & Marketing 30% - 40% Product Costs 25% - 35% G&A 5% - 8% Originated Earnings Financing Earnings Resort Earnings Timeshare Sales Earnings Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Originated Margins (Hypothetical) Total Pre-Tax (33%) 23% 29% 27% 26% 28% 41% 51% 56% 46% 29% 22

23 Hypothetical Timeshare Project Example GAAP Earnings Percentage of completion accounting materially impacts GAAP results Reduces early year margins (Y1 & Y2) Increases Y3 margin GAAP Earnings Phase 1 Complete Phase 2 Complete Financing Earnings Resort Earnings Timeshare Sales Earnings Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 GAAP Margins (Hypothetical) Total Pre-Tax (64%) (17%) 37% 27% 26% 28% 41% 51% 56% 46% 29% 23

24 Development Update 24

25 Starwood Inventory Pipeline Summary of existing and future inventory pipeline # Resorts # of Units (1) In In Active Pre-sales/ Future Total at Brand Total (2) Operations Sales Completed (3) Development (4) Capacity (5),(6) Buildout Sheraton , ,424 4,492 Westin , ,164 2,486 St. Regis The Luxury Collection Unbranded Total SVO, Inc , ,595 7,178 Unconsolidated Joint Ventures (UJV's) Total including UJV's , ,635 7,416 Total Intervals Including UJV's (7) 218,660 29, , ,632 1) Lockoff units are considered as one unit for this analysis 2) Includes resorts in operation, or active sales 3) Completed units include those units that have a certificate of occupancy. 4) Units in Pre-sales/Development are in various stages of development (including the permitting stage), most of which are currently being offered for sale to customers. 5) Based on owned land and average density in existing marketplaces 6) Future units indicated above include planned timeshare units on land held for development by the Company or applicable UJV. There can be no assurance that such units will in fact be developed and, if developed, the time period of such development (which may be more than several years in the future). Some of the projects may require additional thirdparty approvals or permits for development and build out and may also be subject to legal challenges as well as a commitment of capital by the Company. The actual number of units to be constructed may be significantly lower than the number of future units indicated. 7) Assumes 52 intervals per unit. 25

26 New Resorts Westin Ka anapali North Ocean Resort (sequel project) 296 Units Maui, Hawaii Opened Mid 2007 Westin Princeville Ocean Resort 179 Units Kauai, Hawaii Opening Mid 2008 Westin Lagunamar Ocean Resort 296 Units Cancun, Mexico Opening Mid 2008 Sheraton Steamboat 45 Units Steamboat Springs, Colorado Opening Late

27 Growth at Existing Resorts 615 Units Completed 287 Units under construction Opening Future Capacity of ~553 Units 106 Units Completed 40 Units under construction Opening Mid 2008 Future Capacity of ~120 Units 272 Units Completed 70 Units under construction Opening Future Capacity of ~160 Units 198 Units Completed ~300 Units to begin construction in 2008 Sequel project 27

28 Projects Currently Under Development Westin Desert Willow 300 Units Selling Late 2007 Westin Riverfront 113 Units Selling Early 2008 Westin Los Cabos 64 Units Selling Late 2008 St. Regis Punta Mita ~40 Fractional Units Selling Late

29 Future Development Westin Ka anapali Ocean Resort III (sequel) ~390 Units Status: Owned & Entitlement Pending Sheraton Kauai Ocean Resort ~365 Units Status: Owned & Entitlement Approved 29

30 Conclusions 30

31 Conclusions Starwood s entry into Vacation Ownership has proven strategically successful, leveraging assets. Results to date have been exceptional continuing growth opportunities are substantial. This successful brand extension will continue to: Loyalize customers with a strong brand connection Generate highly satisfied customers at the resort experience level Generate premium margins Provide visible growth and less cyclicality Create substantial earnings from its owner base & resorts both short term and long term Create strong system economics within the timeshare model and the hotel income statements Overall brand enhancement through marketing efforts 31