Executives
Frits van Paasschen - Chief Executive Officer, President and Director
Vasant Prabhu - Vice Chairman, Chief Financial Officer, Executive Vice President, Chief Financial Officer of Starwood Hotels & Resorts and Vice President of Starwood Hotels & Resorts
Jason Koval - Vice President of Investor Relation
Analysts
Shaun Kelley - BofA Merrill Lynch
David Katz - Jefferies & Company, Inc.
Felicia Hendrix - Barclays Capital
Janet Brashear - Sanford C. Bernstein & Co., Inc.
Joseph Greff - JP Morgan Chase & Co
Charles Scholes - FBR Capital Markets & Co.
Harry Curtis - Nomura Securities Co. Ltd.
Robin Farley - UBS Investment Bank
Steven Kent - Goldman Sachs Group Inc.
William Marks - JMP Securities LLC
Starwood Hotels & Resorts Worldwide (HOT) Q1 2011 Earnings Call April 28, 2011 10:30 AM ET
Operator
Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Starwood Hotels & Resorts First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I will now turn the call over to Mr. Jason Koval, VP of Investor Relations.
Jason Koval
Thank you, Sylvia, and thanks to all of you for dialing in to Starwood's First Quarter 2011 Earnings Call. Joining me on today's call are Frits van Paasschen, our CEO; and Vasant Prabhu, our Vice Chairman and CFO.
We will be making statements on this call related to company plans, prospects and expectations that constitute forward-looking statements under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking 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. All such statements are based on our expectations as of today and should not be relied upon as representing our expectations as of any subsequent date. Actual results might differ from our discussion today. I point you to our 10-K and other SEC filings available from the SEC or through our offices here and on our website at www.starwoodhotels.com for some of the factors that could cause results to differ.
With that, I'm pleased to turn the call over to Frits for his comments. Frits?
Frits van Paasschen
Thank you, Jay, and good morning. Thanks, all, for joining us on our call today. Let me begin with the observation that once again, so much has happened since our last call. Like many of you, we've been gripped by the catastrophe in Japan and the political turmoil in the Arab world, not to mention the drug violence in Mexico, Portugal's fiscal woes, the near shutdown of the U.S. government and the rising cost of commodities.
Despite all of this, our view of the global economy and the lodging recovery remain unchanged. We maintain that the recovery continues on in an uncertain and volatile world. For several quarters now, we have been and remain cautiously confident about a bumpy recovery in the near term and bullish about Starwood's prospects in the long term.
With operations in 100 countries, our associates are never far from world events. Their eyewitness accounts and their great courage to do whatever it takes to protect the safety and comfort of our guests make for some of the most remarkable and inspiring stories I've heard in my career. Our closer view around the world, along with our dialogue with global accounts, also tell us that right now, world events have not derailed the forces driving this recovery. The rise of emerging markets, the financial health of global companies and the demand for travel in an ever more digitally connected world.
So at a macro level, we're seeing activity consistent with global GDP growth at 4%, with occupancies at our own properties that are now greater than 2007 levels. So despite all of the turbulence, this is a great time to be a global branded company in the hotel business. With this world view in mind, we've kept our resolve to sustain this performance, overcome obstacles and position Starwood to thrive. Our resolve extends beyond our conservative approach to our balance sheet and our relentless focus on costs. We continue to be on offense, with numerous efforts to grow faster than the marketplace.
Our results in the first quarter are a direct result of this result. In that context, I'd like to cover 3 topics for today: First, a quick recap of the first quarter; second, a snapshot of recent events and what they mean for the rest of 2011; and third, a look at how we create value for owners and how this, in turn, creates value for shareholders.
So let's start with first quarter results. Our worldwide REVPAR grew by over 9%, excluding the effects of foreign exchange. Notably, for the first time in a recovery, rate contributed as much as occupancy to REVPAR growth. As many of you know well, this follows the pattern of a typical lodging recovery. As hotels fill, rates rise.
Outside of North America, Japan and Mexico -- excuse me, outside of North Africa, Japan and Mexico, REVPAR around the world grew by more than 10%. North American Owned Hotel margins increased by 150 basis points, and worldwide margins would've increased by over 200 basis points were if not for the inflationary pressures in Latin America, which Vasant will describe later.
Overall, our first quarter was a great start to the year, and it underscores our ability to grow faster than the market. No matter how you measure it, our brands are in terrific shape. For example, Smith Travel Research estimates that our REVPAR index in North America is up over 300 basis points, with each of our 9 brands showing REVPAR index improvement. This marks the fifth quarter in a row that across our system, both REVPAR growth and REVPAR index had outpaced the market.
Our largest brand, Sheraton, sustained its best ever performance in guest satisfaction, meeting planner satisfaction, REVPAR index, pipeline and, not to mention, the 4- and 5-star ratings. Sheraton REVPAR was up over 9% in Q1 in North America, significantly faster than 4% for Marriott. All of this was to drive home the point that the significant investment we and our owners have made in Sheraton continues to pay off. The momentum we enjoy by Sheraton and our entire portfolio of brands, despite a turbulent world and softness in a few U.S. metro markets, shows that we're holding to our baseline 2011 for both REVPAR and EBITDA.
In addition, our Vacation Ownership business also performed well in the quarter. Both tour flows and close rates increased by 4%, while pricing was off slightly as a result to product mix. As another sign of the recovery, we're encouraged to report that annualized defaults and delinquencies have now dropped to levels last seen in late 2007. Our Vacation Ownership business continues to be a strong source of cash, and with small re-investments, we can sustain our sales and cash generation at current levels through 2013.
In summary, we beat the high end of our EBITDA expectations by $3 million and EPS by $0.04 despite the events in Japan and North Africa -- which brings me to my second topic of today: a quick look at our business trends. The key takeaway is that we see nothing right now that suggests we should change our outlook.
Let's start with our group business. After a record-breaking group production last December, sales leveled off somewhat in the first 2 months of 2011, but in March, business accelerated, and we ended the quarter with 6% more business booked than in the prior year. As proof of growing business confidence, our corporate group business jumped 35% in the quarter. This provided a nice tailwind for rates. And as a result, our group pays or the total amount of group business we have in the books for 2011 is on track to be up double digits. We're also on track for our group pays in 2012 to be ahead of 2011. In fact, we now have more business on the books for 2012 than we did in early 2006 or 2007.
And group business is evolving in a way that favors our global footprint and a high end positioning. Here are a couple of examples of what I mean. Sales for North American group business, booked from outside North America increased 20% in the quarter. And North American business booked by global accounts grew by 60%. These trends are only likely to continue.
Overall, our top accounts are rapidly growing global firms and professional services, financial services and technology. And as these industries continue to grow, we stand to benefit disproportionately. Already, we know that we get much more than our fair share of business from firms like McKenzie, Deloitte and PwC. In fact, today, 1 in 4 Starwood Preferred Guest Platinum members is a consultant.
Our data suggest that SPG members overall have higher incomes than any other hotel loyalty program. Moreover, our brands also resonate with Gen Y and tech-savvy travelers that work in high-growth idea industries. This explains our jump of about 50% on our business with the likes of Google, Apple, Facebook and Amazon in just the past 3 years.
Turning now to our corporate negotiated rates. We're happy to report that we achieved the high-single-digit increases that we were seeking. Coupled with rising occupancies, transient revenue increased 15% in Q1. And from what we can see today, this trend is continuing in Q2, with room nights booked one month out on track to increase double-digits and with ADRs of over 6%. We're now 2 years into our efforts to improve our revenue management systems, which are enabling us to push up rates and switch out lower price business while increasing occupancy and market share. And midweek occupancy is now approaching 2007 levels in gateway cities such as New York, London, Paris, Hong Kong, as business travel, particularly at the high end, remains robust.
We often get asked whether we're concerned about rising oil prices. And no doubt, price-sensitive leisure travelers and some lower-rated business will be affected. But high-end travel is less elastic, and it's worth noting that lodging demand and oil prices show little correlation over time. Upon reflection, this actually makes sense. Consider these 2 scenarios: Scenario 1, oil prices rise with higher demand for oil. This usually means more economic activity and more travel. Scenario 2, oil prices rise as a result of tight supply. The net effect is less travel. Today, we're seeing a mix of both scenarios. Some of the rise in oil prices is a function of uncertain supply tied to political unrest. At the same time, economic growth is driving demand for all commodities including oil.
A more straightforward barometer for us is simply to ask our customers. And they tell us that they plan to travel more and spend more in 2011 than in 2010. And along the same line, the Global Business Travel Association raised their projected growth in business travel spending from 5% to 7% in 2011.
Another question we get asked a lot lately is whether we're concerned about the recent softness in New York, a marker we often cite as a leading indicator. And here's why we're not as worried about this as you might think. It comes down to 3 things: weather, group demand and supply. I won't dwell on the New York winter but we'll touch briefly on group demand.
Group business came back in New York early in this recovery as planners were reluctant to book events at high-end resorts. As the appetite for resorts returns, some group business has cycled away from New York. Today, the biggest downdraft on New York is a 7% increase in supply over the past year.
New York, by the way, stands alone in the developed world in this respect, and absorbing the new supply will take some time. Already for Q2, we're starting to see occupancies build. And for our part, we've accounted for 1 of every 4 new rooms in New York. This includes 6 new-build hotels: 2 Alofts in Harlem and Brooklyn; the Element Times Square; 2 Sheratons in Brooklyn; and Tribeca and the W Downtown. And after that, 2 recent conversions: The Helmsley to The Westin; and The Chatwal to Luxury Collection. So for all of our growth around the globe, it's New York that becomes the first market where all 9 brands will be present.
So to conclude this topic, I hope this discussion gives you clarity about why we remain encouraged by the pace of our business.
I'd like to turn now to my third and final topic for the day: a glimpse at some of the ways we create value for our owners. For those of you who've watched Starwood over the years, you know that we're transforming from being a hotel investment company to a global operator of lifestyle hospitality brands. Today, 95% of the hotel's carrier brands are owned by others. This means that we're more committed to the fee business and better aligned with our owners than ever before. If we create great returns for our owners, they're more likely to invest in our brands and sign up for additional hotels. So for the next few minutes, I'd like to share with you some examples of what we shared with our North American owners at our recent meeting about how we're working to create value. These fall into 3 areas: First, our portfolio of brands; second, our operational capabilities; and third, our ability to bring high-end guests.
So let me start by discussing some of our brands. What sets us apart is our portfolio of compelling brands, whose purpose is simply to create emotional connections and return business with travelers. Each brand is distinctive so there's no brand blur. This means we can add hotels of different brands in the same market, and they complement rather than compete with each other. All this enables us to drive even more growth. We're already the largest luxury hotel company in the world. Luxury Collection alone is about the same size as Four Seasons. St. Regis has doubled its footprint in the past 2 years, and we'll open 10 new Luxury properties around the world this year. And no other hotel company has a brand like W.
And similar to W, Westin is becoming a global brand and continues to be a category killer in the U.S. And we're already seeing that Aloft and Element can do to the specialty select business what W has done to Luxury: generate outsized returns by using a distinct point of view and positioning to bring attitude and design flair to an undifferentiated market.
Aloft is not even 3 years old today but is driving REVPAR results nearly equal to its largest competitor. And I've already talked about Sheraton's momentum today, which is helping drive Four Points to new heights. Our owners are benefiting from the strength of our portfolio as REVPAR index has now risen for 5 straight quarters.
Operational excellence is another way we can create value for owners. We have experienced teams in the field with proven abilities to driving top and bottom line in our properties. We're also investing heavily in the systems that will make their hotels more profitable. As we reduce our portfolio of owned hotels, we're increasingly redirecting our capital and attention to revenue management, sales capabilities and cost controls. By working closely with our owners on these investments, we ensure the best possible returns for them.
Take revenue management, where we've already invested more than $40 million without increasing fees to our owners, where implemented the new systems and training, and resulting in a sustained 3.5% increase in REVPAR, and we believe we can double that improvement over time. Similarly, in markets where we've reoriented our sales resources, our hotels are now leading their competitive sets, and this is before the sales systems improvements come on stream.
We also continue to invest in our cost containment tools, which have contributed to industry-leading margin improvements over the past year. Importantly, these cost cuts have not pulled us away from the record high guest satisfaction, even as occupancies and rate have risen.
These efforts are all part of our path-to-peak initiative, and to getting all of our hotels in our system up-to-and-beyond their pre-crisis peak profits. This is a multiyear focus for Starwood, and we'll aggressively pull all the levers to get there. And remember, as rate increasingly drives the REVPAR growth, we believe the best margin improvement is yet to come as we keep our cost-per-occupied-room in check.
The third way we create value for owners is by putting affluent heads in Heavenly Beds. We make this possible through our central delivery systems and our best-in-class loyalty program, SPG. We have 11 websites, 1 for each of our 9 brands plus www.starwoodhotels.com and www.spg.com. In total, they drive roughly 20% of our bookings today. Some people are surprised to learn that our own websites drive over 3x as much occupancy for us as all other third-party sites combined. Smart travelers know that they can only get best rate guarantee, all of our inventory and SPG points by booking with us, which mean our websites, our call centers, our global distribution centers, 50% of our bookings come through central delivery.
And speaking of SPG, we see this as the glue that binds all of our brands. We led the industry with no blackout dates and providing redemption across our 3 luxury brands. And as our footprint of hotels has grown, SPG has grown even faster. In 2005, SPG members accounted for 34% of our stays. Now SPG is at 47%, or almost 1 in every 2 guests at our hotels. And SPG guests spend more than the average guest.
SPG is also fueling our newest brands, driving 60% of occupancy for Aloft and Element. And with our global footprint, we now have more active members outside the U.S. than inside. So SPG drives occupancies around the world, and it will only increasingly drive business to each of our owners as more travelers travel across regions.
In summary, these are some of the ways we create value for owners. Virtually everything we work on is with an eye towards creating value for them, through great experiences and brand connections with guests. And owners are noticing. We signed 10 conversions in the U.S. in Q1, and our owner engagement has never been better, with 96% extremely satisfied with what we presented at our conference and 90% proud of being affiliated with Starwood.
So to wrap up my prepared remarks, let me leave you with 4 thoughts. First, Starwood is structurally different from other lodging companies. We're focused on the 4- and 5-star categories and have the largest and fastest growing presence in international markets. For example, we opened roughly the same number of rooms in 2009 as 2010, but the percentage of non-U.S. rooms increased from 43% to almost 70%, and that will be even higher in 2011. We're also extending our lead. In the past couple of years, for example, we opened more rooms in India than our 3 biggest competitors combined. We already derived 60% of our fees outside of the U.S.
Second, we can sustain growth faster than the market. Structurally, we benefit from our positioning, customer base and global growth. At the same time, we're investing in capabilities that show promise of multiyear improvements.
Third, our focus on creating value for owners has helped us create a high-quality pipeline. Over 80% of our 85,000 rooms will be 4- and 5-star properties outside of the U.S. These are high-value contracts, thanks to high ADRs and incentive fees. So our growth should be faster on a relative basis and result in strong absolute fee growth. And this is before the implied fees, we also expect to capture from selling our own hotels and maintain the management contracts on it.
As you saw in the quarter, we sold The Westin Gaslamp in April, and we're closely watching the bid-ask spread on other assets as we go to market.
And finally, let me remind you that we remain cautiously confident about the lodging recovery. The business environment today looks turbulent but robust, with strong group and transient pace and rates becoming a larger contributor to our REVPAR growth. As such, we expect worldwide REVPAR growth of 7% to 9% in 2011, in line with our trajectory of our baseline scenario. So despite the headwinds in North Africa, Japan and Latin America, softness in big metro markets like New York and D.C., not to mention an asset sale, we're maintaining our prior baseline 2011 EBITDA in the range of $975 million to $1 billion and increasing our EPS in the range from $1.60 to $1.70.
Now let me turn the call over to Vasant.
Vasant Prabhu
Thank you, Frits, and good morning, everyone. We were able to exceed our expectations in the first quarter despite the significant unexpected events in Japan and North Africa and the deteriorating crime situation in Mexico. In our business, as you all know, we're impacted by wars, terrorism, political instability, national disasters, pandemics, financial crises and [indiscernible] recessions. We expect 1 or 2 will enter each year somewhere and have learned to roll with the punches, so to speak.
However, the events of the first quarter, the tragic earthquake/tsunami in Japan and the turmoil all across North Africa, are more significant than the earthquake in Chile, the H1N1 scare in Latin America, the riots in Thailand and the various terrorist incidents that we've had in the last few years. Nevertheless, a strong cyclical recovery around the globe allowed us to offset a $5 million-plus negative impact from Japan and North Africa throughout performance elsewhere in our business.
As Frits indicated, this global cyclical rebound continues, and it is our intent to offset negatives as best we can with positives elsewhere. As such, we're keeping our profit outlook for the year unchanged. In the next few minutes, I'll quickly review business conditions around the world and provide some color on our outlook for 2011.
Japan had a significant impact on our business. We have 15 hotels operating in Japan. We expected to earn $25 million to $30 million in EBITDA this year, with about half of this coming from the 802-room Sheraton Grand Tokyo Bay outside Tokyo Disneyland, of which we own 25%.
We also just opened a new lease St. Regis in Osaka, in October 2010, which is expected to break-even in 2011. All the other hotels are managed or franchised. As may be expected, travel into Japan is down significantly, resulting in large occupancy and rate shortfalls at all hotels. With a nation in mourning, events and spending on events like weddings is down very sharply, and unlikely to recover soon, hurting food and beverage, which is over 50% of Japanese hotel revenues.
The Sheraton Grand Tokyo Bay is particularly hard hit, as Tokyo Disneyland was shut and while it is now open, we do not expect a recovery to normal levels anytime soon. The St. Regis in Osaka will likely lose $7 million to $8 million this year instead of breaking even. As such, we expect to make $5 million to $10 million in Japan, a $20 million to $25 million EBITDA shortfall for the year. Given the financial condition of the Sheraton Grand Tokyo Bay, we have written off our equity investment. All-in-all, Japan will be a headwind this year.
We are offsetting some of this shortfall from strength elsewhere in Asia. Despite Japan, local currency REVPAR across Asia grew by 11%, led by China and China-related economies: Hong Kong, Taiwan and Australia. REVPAR in China was up 22%, with rates up 11% and occupancy up 5 points. We expect to have almost 100 hotels opened in China by the end of 2011, making China easily our second largest country after the U.S.
Booking pace remains strong in China though comparisons will be affected by the lapping of the World Expo in Shanghai in Q2 and Q3 last year.
India's growing well, too. We've had a very successful launch of the Westin brand in India, with 5 Westins open in the major cities over the past 18 months. The Westin Mumbai was recently voted the best new luxury hotel in India. We have 32 operating hotels with 4 more to open this year, including a spectacular new Sheraton in Bangalore. Our goal is to get to 100 opened and pipelined hotels in India by 2015.
As a reminder, our operating hotels in Asia are in the 4- and 5-star and above category, and as such, each hotel earned significantly more in fees than smaller, lower price point brands. In summary, Asia ex-Japan continues to be a major engine of our growth.
Moving on to the Middle East and Africa. The political turmoil in North Africa continues, with no clear end in sight. Our one hotel in Libya is shut and travel into most North African countries is down sharply. We have 24 hotels across the affected countries, which includes all of North Africa, plus Bahrain, Syria and Jordan. We expected to earn at least $15 million in fees this year. We now estimate our fees will be cut in half, with no incentive fees earned and base fees down sharply. This assumes that the instability will not spread to Saudi and the Gulf, where we have the bulk of our business.
In the first quarter, business conditions were stable in Saudi and the Gulf. We are seeing strong growth in Sub-Saharan Africa and expect it will continue in line with the commodity boom. As in Asia, our EMEA division is working on offsetting shortfalls from the Middle East in other parts of the region. In particular, our iconic W Barcelona, which opened in late 2009, has been a runaway success and continues to significantly exceed expectations despite the malaise in spend. And our new lease, W Leicester Square, which opened in February, is off to a very strong start.
Also helping our robust business conditions in Germany, Austria and Eastern Europe. The first quarter is a small quarter in Continental Europe, but booking pace suggests strength as we enter Q2. In Latin America, Mexico is our largest business, with 25 operating hotels, 3 owned resorts in Cancun, Cabo and Puerto Vallarta. And an owned hotel each in Mexico City and Monterrey.
The drug wars and the negative press in the U.S. have decimated leisure travel into our Mexican resorts. In the peak season, occupancies were in the 50s and rate was down sharply as we had to replace U.S. guest with lower rate domestic business. While conditions are tough currently, we're long term bullish in Mexico, and our business continues to grow with a new St. Regis, a new Westin and a second W in Mexico City and a great new St. Regis Resort in Punta Mita, with more hotels in the pipeline.
Also in Latin America, the gap between high local inflation while currencies appreciate relative to the dollar is severely hurting our own hotel margins, particularly in Argentina. This inflation devaluation gap cause our own margins to decline as much as 400 basis points in Q1. We're working on improving our dollar rate realization with our global accounts and by remixing the business.
In North America, a robust cyclical recovery in lodging is clearly underway. REVPAR grew over 11% despite Starwood being over at New Yorkers, which only grew 8%. Frits reviewed some of what we've seen as it relates to transient and group base. As we've said earlier this year, rate is a crucial make-or-break factor, and so far, we're on the right track. North American rate was up 5% in Q1. Our corporate renegotiations have ended well. Group rate is picking up, and transient rate continues to improve as occupancies rise in the remix business. We're outperforming the competition as we gained 300 basis points per share across all of our brands with outstanding performance by brand Sheraton.
The situation in New York will improve as the year progresses and the market absorbs new supply. In Q2, we expect occupancies in the 90s at our New York hotels and REVPAR growth in the mid-teens. Based on current trends, we expect second quarter REVPAR growth to be in the same range as first quarter growth in North America despite tougher comparisons.
Overall, our Owned Hotel portfolio performed well in Q1, with REVPAR up 12% and margins up over 200 basis points, ex-Latin America. Rate was up 4%. Cost control continues to be good, driving strong flow-throughs. Year-over-year comparisons are affected by opening costs of the new leased W London, the St. Regis in Osaka, one renovation and one hotel sold last year. Our fees are up strongly at 15.7% despite the Japan-North Africa impact, which reduced worldwide REVPAR by over 100 basis points and hurt global GOP margins by 50 basis points.
In Q1, worldwide REVPAR was 10% below the Q1 2008 peak, 9% lower on rate and 100 basis points lower on occupancy.
Finally our vacation ownership business continues to be stable. Sales to existing owners have picked up and tour flows are getting better. Default rates also continue to decline. As a result, SVO exceeded our expectations in Q1.
Moving on to our outlook for the quarter and the year. In Q2, we expect REVPAR growth at Company Operated Hotels to be up 7% to 9% in local currencies globally, approximately 9% to 11% as reported in dollars. Fees will be up 10% to 12%, hurt by 200 basis points due to Japan and North African issues. Owned Hotel REVPAR globally is estimated to grow 8% to 10% in local currencies, 12% to 14% in dollars. Owned margins should be up 150 to 200 basis points, with North America at the high end of the range and international margins pressured once again by Latin America.
Japan, North Africa and the sale of The Westin Gaslamp will reduce Q2 EBITDA by approximately $10 million. As such, we're projecting a Q2 EBITDA range of $245 million to $255 million and an EPS range of $0.42 to $0.46 based on a 24% tax rate.
For the full year, we are maintaining our EBITDA outlook range of $975 million to $1 billion. The global company operated REVPAR forecast remains unchanged at 7% to 9% in local currencies, 8% to 10% in dollars. Fee growth is also unchanged at 10% to 12%, hurt 200 basis points by Japan and North Africa. Owned REVPAR expectation are up 100 basis points to 8% to 10% in local currencies, 10% to 12% in dollars. Same-Store Owned EBITDA will be higher, offset by the loss of the St. Regis Osaka and the sale of The Westin Gaslamp. SVO will be $5 million better. Our SG&A will be up 4% to 5% due to a weaker dollar. Approximately 1/3 of our SG&A is denominated in Euros and Asian currencies. We are raising the EPS range by $0.05 due to lower depreciation and amortization and interest expenses.
With regard to Bal Harbour, we remain on track to obtain a TCO and start closings late in the fourth quarter. Sales have continued at good square foot rates and high deposits, and we've been in contact with people with signed contracts to alert them to the upcoming closing schedule. As we have indicated, there will be income recognized from closings that are completed in 2011, which is not included in our outlook. We will provide our best estimates as we get closer to actually initiating the closing process. Any cash from closings this year is also not included in our estimate of cash flow from our vacation ownership and residential business.
Our balance sheet continues to get stronger. We finished the quarter with net debt before securitized receivables of $2.1 billion. We had cash on hand of around $750 million, with almost $600 million in excess of working capital needs. As you know, Q1 is typically a cash-used quarter for us. Off the end of the quarter, we received $110 million from the sale of the Westin Gaslamp. We're working on other asset sales and we'll announce them if and when they close. Our ratios continue to be well below covenant levels, and we have no bond maturities until May 2012.
In summary, as Frits said, we remain cautiously confident. The world remains an uncertain place and could yet throw some surprises at us. With a strong balance sheet, good cost control, the best global footprint in our industry and a great brand portfolio, we think we are very well positioned to weather the storms that may come our way.
With that, I'll this back over to Jay.
Jason Koval
Thanks, Vasant. We'd now like to open up the call to your questions. So in the interest of time and fairness, please limit yourselves to one question at a time, and then we'll take any follow-up questions you might have as time permits.
Sylvia, we're ready for the first question, please.
Question-and-Answer Session
Operator
Your first question comes from Steve Kent from Goldman Sachs.
Steven Kent - Goldman Sachs Group Inc.
Just on your group rate expectations over the next couple of years. You said that you now have more group business now in 2012 than you did in 2006, 2007. Is that on a Same-Store sales basis or same hotel or is that just because you have more hotels? And maybe you could just give a little bit more color on that.
Frits van Paasschen
Jay, do you want to answer the specifics and then I'll comment more generally on group?
Jason Koval
Sure. So when we're looking at the group business, that's a North American number for group. We do have a few more hotels in the system today in North America, which would help that number. I think more importantly, when we look at the Same-Store set, our pace is pacing to be up close to double-digits this year, and the pace for 2012 over 2011 is also positive. When you break that pace down, that's a revenue number. It's mainly driven by volumes today but rate did turn positive over the last few months, and we would expect rate to be a larger contributor over time, particularly as the corporate group bookings continue to improve, which are more short term in nature.
Frits van Paasschen
Yes, Steve, so just to keep in mind, and we have added a number of strong group hotels over that time period. I'm thinking of the Sheraton Phoenix or Denver or Dallas. On the other hand, a lot of our footprint growth in North America has been our select-serve or specialty-select brands, particularly Aloft. So there is some unit growth there, but the fact that overall, we have that kind of growth speaks to the health of the group business and its growth right now.
Operator
Your next question comes from Janet Brashear from Sanford C. Bernstein.
Janet Brashear - Sanford C. Bernstein & Co., Inc.
You talked a little bit about your brands and your growing REVPAR index through Smith travel in North America, and you said you gained 300 basis points. Can you give us a little more about maybe which brands were driving the 300 basis points increase? I assume that was for the quarter. And then maybe talk to us a little bit about how you think about your international market share?
Frits van Paasschen
Yes, Janet, this is Frits. In terms of REVPAR index growth in North America, the great thing that we're looking at right now is that all 9 of our brands have gained. Clearly, with Sheraton being the largest brand, it contributes most to that growth. But we're seeing strong momentum with Westin and with W, for example, also. So we feel very good about the overall trend rate for us. And I think in part, that's driven by what we've done to reinvigorate our sales and to put energy behind SPG. As we look outside of the U.S., as you know, the ability to measure REVPAR index, which isn't exactly the same thing as market share, by the way, but our ability to measure that as in the same granular way as in North America is a bit more difficult. What we tend to look at is the strength of our individual properties, end markets and their growth. And we continue to see great momentum there that continues to build. So while we do have some numbers, by the way, that corroborate that on a REVPAR index basis, we're also seeing it in properties where we don't have those numbers. But we're seeing strong REVPAR growth that we think is at least on par and generally ahead of the marketplace. Vasant, or Jay, I don't know if you want to add some color to that.
Vasant Prabhu
Yes. I think, relatively speaking, clearly, Sheraton, it's a big chunk of our business, had the great share gains. But the other brands that clearly did extremely well, share-wise, W for sure across the system. And Aloft, it's about 36 Same-Store Hotels right now, but they're having a great year and as you can see, getting to levels of REVPAR and rev index that we feel very good about.
Operator
The next question is from Joseph Greff from JPMorgan.
Joseph Greff - JP Morgan Chase & Co
If I look at your Pages 2 and 3 in the data packet, and I'm looking at the rate growth or rate contribution coming from the owned hotels versus the rate growth or rate contribution REVPAR growth on systemwide or company-operated, the owned hotel rate growth was a little bit less than those other 2 categories. Can you help explain what drove that? And then a quick second question, if I may. If Frits or Vasant, if you can give us an update in terms of your thoughts on asset sales from a timing perspective? If there are more assets being marketed now than say 3 months ago, and how you view the environment right now in which you could sell assets?
Frits van Paasschen
Yes, so Joe, this is Frits. Why don't I start with the second part of your question, then I'll hand back to Jay or Vasant to address the first part? We're seeing significant growth in demand for properties but not yet at the level that's consistent with a larger group of properties going to market. And so our philosophy certainly still today is to look at what we've been describing as rifle shot sales opportunities, by which we mean specifically, individual hotels going to a set of owners, particularly well capitalized REITs that have an interest in certain types of hotels like the strong brands in gateway cities. I think that over time, obviously, we will expect that there will be a broader base of buyers and more general capital coming in that would make an acceleration of our sales process better. I would be speculating to tell you when exactly I think that is going to take place. What I like is the fact that interest and demand and hotel transactions continues to build. It still needs to go a fair ways for it to be deep enough to consider selling a more meaningful part of our portfolio. And as I say, I hesitate to put a time frame on it because I think it's just too hard to know whether that will be even more of us in 6 months or in 18 months. But as we get into, let's call it, the middle stages of this cycle, we should be in a place where we can do something more significant. So with that, Jay and Vasant, do you want to take a shot at Joe's question regarding the owned hotel rates?
Vasant Prabhu
The owned hotel rates is easy to explain. We have about 3 owned hotels in New York. And in the first quarter, as you know, rate was soft in New York. So for example, in the first quarter, the ADR for our owned hotels in New York was actually down about 3% for the whole company-owned set -- I mean, company-operated set in New York. ADR was about flat. So that was pretty much it. It was a little bit of softness in New York. We see that changing quite a bit in Q2. Our owned hotels in New York are going to have some nice rate improvements, along with the company-operated set in New York. So it was all New York related.
Jason Koval
Yes. I just -- we've talked a fair amount of New York already in some of our prepared remarks. We continue to be impressed as time goes on with the tremendous resilience of the New York market and so the fact that it stands out now in the developed world as a market where capacity is being added says one thing. The fact that you see the growth and entrepreneurship, the redevelopment and the reinvigoration of neighborhoods, whether it's Harlem or Brooklyn or Hoboken, I think is a real tribute to the vitality of that market. So I think that absorbing the capacity won't be completely resolved by Q2, although occupancy certainly look very strong there. But even this 7% increase in room supply, I think, you'll see get picked up and you'll see that market continue to build in the next couple of years.
Operator
Your next question comes from Robin Farley from UBS.
Robin Farley - UBS Investment Bank
I've been hopping on earnings calls so I don't know if you've addressed this already, but can you talk a little bit more specific about your SG&A guidance being higher? Is that just currency or are there other things in there? And I guess if you already addressed this, I can follow up after the call.
Frits van Paasschen
Yes. So Vasant spoke to that in his prepared remarks, Robin, and talked about the impact particularly of foreign exchange with some of our nondollar-based SG&A around the world. Vasant, do want to add anything to that?
Vasant Prabhu
No. Actually, our SG&A expectations have not changed relative to where they were at the end of last year. But the dollar is weaker today than it was at the end of last year, and we have about 1/3, as I said in my comments, of our SG&A in Euros and Asian currencies. All of which are quite a bit stronger today. So that's really all there is to it.
Frits van Paasschen
Yes, and I might just add, Robin, we haven't said it on this call but we have on the last few and nonetheless maintain it, that we want to hold our headcount in our corporate SG&A flat through this year and into next year. And we continue to work hard to do that. What that means is, when we find areas where we want to invest to support growth, as in Asia or to support our specialty select business and so forth, we were finding ways to offset that by continuing to be careful and efficient about how we spend.
Operator
Your next question comes from David Katz from Jefferies & Company.
David Katz - Jefferies & Company, Inc.
And I also will apologize if it's somewhere in the prepared remarks, which seemed quite compressive. But I wanted to just talk about the opportunity to continue recycling capital and where you are on all that. We clearly, from the lodging REIT communities, see a lot of activity and lots of other checks seems to suggest that there is activity in the property sale market. Where are you at with that? And what can we reasonably expect from you in the next several quarters?
Frits van Paasschen
Vasant, you want to pick that up?
Vasant Prabhu
Sure. As we've said, we're certainly in the market testing asset sales. As you know, our goal is to be asset lighter over time. We did do one sale in the first quarter, and we have other things we're looking at. And the liquidity and the money that these public REITs are able to raise is certainly -- those are the buyers we're seeing. In terms of our own recycling of capital, outside of the U.S., it remains the case that owners are not looking for our money. Pipelines are strong and capital is available. In the U.S., we have indicated that in the right circumstances, we would be definitely willing, if there is a win-win to help get things moving and work with owners on that. Beyond that, we are immediately in the mode of reinvesting in our business. We have been undertaking some big renovations, as you know. So we've told you what our capital spend this year. We also are going to lower debt some more. We have no maturities this year, but we do have about $600 million next year. So we will be using cash to do that. And then finally, at some point, with asset sales, et cetera, we will look at -- we certainly are looking at ways to grow through acquisition, certainly brands more than real estate. And then we've been very good about cycling cash back to shareholders in the past. And at some point in the cycle, we might be doing that too.
Operator
Your next question is from Shaun Kelley from Bank of America.
Shaun Kelley - BofA Merrill Lynch
I just wanted to ask, I guess real briefly, going back to some of the international pieces. Could you just help us understand a little bit more the offsets for what you saw in kind of the softness that you saw in Japan and in the Middle East? I think you cited Asia-Pacific specifically. Could you talk a little bit more about, I guess, the non-Japan piece and what you're seeing to get a little bit of that offset as it relates to EBITDA?
Frits van Paasschen
Yes, so Shaun, one thing I think to keep specifically in mind here is that, and this is what Vasant and I both said in our prepared remarks. What we're seeing is a strong underlying global economic and lodging recovery, punctuated by a few areas that are dramatically weaker for reasons that are entirely explainable for outside or, if you will, exogenous factors. So specifically, if you look at Asia, Japan is off for the reasons we all understand and appreciate. On the other hand, the other 5 areas throughout what we call Asia-Pacific are up and doing strongly, led by China but also Southeast Asia and the rest of ASEAN. As Vasant mentioned, India is strong. Australia driven by commodity sales, is extremely strong. Latin America, likewise, some areas where the commodity sales are driving the strength of the economy like Chile, very good. But in Argentina, where you have an inflation and dollar revenue-based issue, things go the other way. And so, I think the thing to keep in mind here is outside of those places we cited, like North Africa, Syria, Jordan, Bahrain, Japan and Argentina, things continue actually a bit stronger than the midpoint of our guidance or our baseline at the beginning of the year would've had us. But as we put together our baseline, we anticipated, because as Vasant pointed out, there's always something going on somewhere when you have operations in 100 countries. And so this is a balancing of those and the fact that the underlying recovery is still pretty strong. Vasant, do you want to add anything to that?
Vasant Prabhu
No, the only thing I would add, Frits, is that North America is a bright spot. We had really good strong results in the first quarter despite just one or 2 of these soft spots. And we're seeing some really good momentum going into Q2. And Q2, as you know, begins to lap some big increases from last year and despite lapping one of our tougher comparisons, we think our momentum REVPAR growth-wise in North America in the second quarter is not a whole lot different than what it was in the first quarter.
Operator
Your next question comes from Patrick Scholes from FBR Capital Markets.
Charles Scholes - FBR Capital Markets & Co.
I'm wondering if you can give us a little more color on your REVPAR growth for the Sheraton brands, specifically in North America. And I see here that in the results at the headline, North American REVPAR number is plus 10.1%. However, that seems to be excluding some hotels under renovation. If we were to look at all of the hotels for the Sheraton brand in North America over the past year, what would that number be closer to?
Frits van Paasschen
So Jay, do you want to talk about our Same-Store calculation and what the impact of Canadian FX and so forth and renovation might be just so we're crystal clear on this one?
Jason Koval
Sure, there are a few parts that you have to dissect when you look at the REVPAR number. I mean, Canada has a slight impact based on how the currency moves. So the Canadian dollar strengthened, so that's been a little bit of a tailwind. So if you look at our North America systemwide Sheraton number, 10.1%, excluding the impact from the Canadian dollar, it's 9.3%. These numbers are Same-Store numbers. We define Same-Store, I think, similar to our competitors in the industry, where if we have hotels that are impacted by renovations, meaning more than 25% of the potential occupied rooms in a quarter are impacted, then we would pull that out of the Same-Store set, and that hotel would not go back into the set until a full year has passed, i.e. 5 quarters. So the Same-Store results for Sheraton excluding any kind of FX were 9.3%, which is very strong, I think. And that's why you've seen those REVPAR index gains that we spoke about.
Frits van Paasschen
Yes, so Jay, let me just add to that, too. Patrick, I think that if just the absolute REVPAR growth number were the only one that we were hanging our results on, that would be one thing. What I tried to emphasize in some of my prepared remarks is, we made a significant investment and commitment to Sheraton over the last several years, both in terms of the investments our owners have made but also in our support of that brand. And as a result, virtually, every metric and every way you want to cut and slice those metrics, Sheraton has a great deal of momentum in the marketplace today. And that momentum, if anything, is building even if now in Q1 this year, we lapped what was a strong quarter for the brand, again, virtually across any metric in Q1 of 2010. So the emphasis here is on the fact that we made the investment and put the effort behind Sheraton. We're see those results, they continue to build. And that's part of what's making that top line number so much stronger than the rest of the marketplace.
Vasant Prabhu
I think the only thing I would add is if your question was, do we do Same-Store numbers differently than our competitors? One in particular who brought it up on their call, to the best of our knowledge, not at all.
Operator
Your next question comes from Will Marks from JMP Securities.
William Marks - JMP Securities LLC
Supply-related question. One in New York is, are we still seeing new supply come in or has most of it come in the first 4 months of the year? And two, any markets outside of New York in the U.S. where there may be also some impact from your supply?
Frits van Paasschen
Jay, you want to take that?
Jason Koval
Yes. So Will, as Frits mentioned, the supply growth over the last year has been roughly 7% in New York. One out of 4 of those rooms were Starwood-branded properties. There are additional hotels opening over the coming year. So I think if you look at the Smith Travel data, you'll see that there's kind of a low mid-single digit increase expected. So there are additional units opening over the coming year. New York is the only market I can think of in North America that has those types of supply growth. That's why you'll see for the full year supply growth for North America closer to 0.5%. One other market where there is some supply that's opened over the last year has been London, but that number is more like a 3% or 4% growth number, not 7% like in New York.
Frits van Paasschen
Yes, Jay. I'm glad you mentioned one and I was actually going to bring that up. We just opened, as Vasant mentioned in his remarks, the W in Leicester Square. And based on my look at the numbers, it is the strongest opening of a W in the history of the brand. And we were looking at 90% occupancy numbers in the first few weeks of operations. Remember, that hotel opened just on February 14 of this year. Its REVPAR compared to its competitive set is ramping very nicely. So you're looking at a market there where there's been some incremental supply. But the addition of a brand with the cachet and the following now that W has around the world points to the strength of that result. And by the way, now with the strong W in London, we believe we're going to see that much more outbound demand for W from the U.K. in some of the markets where people go. And a great example of that would be Barcelona where again, you're looking at a market with significant overall macroeconomic issues but great performance of a new hotel there as well.
Operator
Your next question is from Felicia Hendrix from Barclays Capital.
Felicia Hendrix - Barclays Capital
So a quick question for you and then just a little housekeeping thing. Your franchise revenues came in a lot better than we had expected. Obviously, you're growing the number of hotels and REVPAR is better. But I was just wondering is there's anything else there that you would want to note? And then also, I was just wondering, just housekeeping, if you had to adjust your North America REVPAR results, adjusted for the Easter benefit, what that might be?
Frits van Paasschen
Jay, you want to handle that?
Jason Koval
Felicia, I'd actually need to back into what the number would be excluding the Easter benefit. So I'm sorry, I don't have that at the top of my head but I will call you back with that.
Vasant Prabhu
On the franchise revenues, yes, there is new hotels. We certainly have added quite a few. It's the Aloft's ramping up. You saw that we had some healthy growth in Aloft revenues. But in general, the system has done well. A lot of our franchise hotels tend to be Sheratons, and Sheraton certainly is doing very well.
Frits van Paasschen
Yes. Vasant mentioned Aloft just there, and I talked about it briefly in my remarks, Felicia. But I think what's exciting about that brand is, as you know, it typically takes a hotel about 3 years to get up to steady state. If you've been following Aloft, you'll know that the first one opened less than 3 years ago. We'll come on that in a couple of months here. And yet the brand overall is ramping up to a point where it's very close to REVPAR numbers with its key competitors. And so we think again the reason for that quite simply is, Aloft is to the specialty select business in many respects where W has been on the luxury side. And what was, I think, so interesting about our experience with W over the years, is here's a brand that began as a conversion brand for 3- to 4-star properties and a new type of environment and it literally got pulled into the luxury space. Now I'm not going to suggest that we're hoping for Aloft to get pulled into the upper upscale segment of the business, but we do think that because of its cachet, because of its attitude, because of its design positioning and, by the way, because of all these things together, not just one of those things, this brand has vitality that I think is going to sustain our franchise growth over time. By the way, not just in North America but as we open around the world.
Operator
Your next question comes from Harry Curtis from Nomura Securities.
Harry Curtis - Nomura Securities Co. Ltd.
Frits, you had spoken about how mix was helping, and what would be helpful to understand is what percentage of your mix is still in the discount channels. Where would you expect that to go as REVPAR continues to march higher? And to put it into perspective, maybe you can give us a sense of what the mix of your discount business was in 2007 versus where it is today?
Frits van Paasschen
Okay. I'm going to ask Jay to give some specifics on that to the extent we break it out, Harry. But I think that one of the important takeaways for us is the revenue management tools that we have and that we're rolling out and continuing to improve, are enabling us to have a clearer insight into forecast demand and occupancy at our properties. And what that then further enables us to do is to reprice based on that and to mix out business in a more sophisticated way. And I think that the analytical capability of the systems, as well as the training of our associates to be able to use those systems to make real changes, is something that we're very excited about. And so that's how we continue to be able to cycle business out. Obviously, on the group side, having a long-standing book business, now that takes our longer time to roll out. On the other hand, group rates were also probably the least hard affected. But Jay, do you want to give whatever specific parameters that we generally share on this?
Jason Koval
Sure. So I mean, you hit on group, which is naturally one of the areas where you have business that you booked in 2008, 2009 and early 2010 at rates that might not necessarily have been increased as we're trying to get volumes into the hotels. Group business, now we're seeing rate increases, and we're going to continue to be aggressive in pushing forward rate increases as we get some of the higher-rated corporate group back into the mix. Frits has talked a lot about corporate rates, and corporate rates were down close to 20% from peak levels. We're clawing some of that back this year with the increases that we negotiated, and we would expect that over the coming years as well. When you look at the lower-rated channels, OTA, our business with OTA has probably peaked at 5% to 6% of room nights. Whereas when you went back to 2007, that number was closer to 2% to 3%. So there's several percentage points that we can gain by moving to our own higher-margin distribution channels instead of using the OTAs. And our business with government is relatively small. Call it just under 3%, and at the prior peak, that was probably 1% to 2%. So there is some room to grow there from a mix standpoint.
So with that, that wraps up our first quarter earnings call. We appreciate your interest in Starwood Hotels & Resorts, and if you have any additional questions, please reach out and we'll talk to you then. Goodbye.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
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