CEO Frits van Paasschen laid out the company’s capital allocation strategy during an earnings call with analysts, but investors were unmoved. Shares of the company fell 5.5% in the day’s trading.

Frits van Paasschen addressed Starwood Hotels & Resorts Worldwide’s naysayers head on Thursday.

 The president and CEO laid out the company’s capital allocation plans during an earnings call with analysts. Months of criticism over Starwood Hotels’ capital allocation strategy came to a head in April during a tense question-and-answer session with analysts on the company’s first-quarter earnings call.

 “In the wake of our previous calls and in subsequent meetings with many of you, I want to lay out our approach to capital allocation, including leverage, stock buybacks and dividends,” he said Thursday during the company’s second-quarter earnings call, which was webcast.

 Executives plan to return available excess cash to shareholders in four ways. The first two—regular quarterly dividends and share repurchase—are evergreen, he said.

 The company’s target payout ratio for regular dividends for 2014 will be nearly 50%. On a go-forward basis, the target will be between 30% and 50%, which is an increase over the 25%-to-40% range used previously.

 The systematic annual program to repurchase shares, put in place only recently following criticism from investors, aims to offset at a minimum the annual dilution of stock-based compensation, van Paasschen said.

 “In 2014, that amounts to roughly $85 million,” he said.

 The other two discretionary levers include: stepping up the pace of share repurchases; and special dividends, which most likely would be tied to asset sales.

 Executives intend to return approximately $1.35 billion to shareholders during 2014 in total, van Paasschen said.

Wall Street responds

Starwood’s capital allocation strategy was met with lukewarm, if not negative, response from investors. The company’s stock (NYSE: HOT) was down 5.5% in trading on Thursday. Year to date the stock is down 0.4%.

The R.W. Baird/STR Hotel Stock Index is up 12.9% year to date.

“We believe investors still have many unanswered questions on (the company’s capital allocation strategy, available debt capacity and disposition progress), which is evidenced by the stock's underperformance today, especially following comments on the conference call about capital allocation,” David Loeb, senior research analyst at Baird, wrote in a research note.

Having a positive impact on shares of the company was van Paasschen’s clarification of Starwood’s share repurchase strategy, Loeb added.

“The company reaffirmed its intention to exhaust its remaining repurchase authorization by year end, which currently stands at approximately $416 million,” he wrote. “We believe this removes one layer of uncertainty that has caused investors some angst over the last several quarters. We expect analysts and investors to once again incorporate share repurchases in their models, which should boost per-share estimates.”

Asset dispositions

Van Paasschen said the transaction market continued to improve during the quarter, and executives were seeing more interest in the company’s non-core properties.

“That interest, however, continues to be for single-asset transactions,” he said. “At least as we see it today, the appetite for portfolio sales at strong prices and on acceptable terms is not there.”

Starwood made no asset dispositions during the quarter, the CEO said, adding, “We are in advanced discussion on a number of deals.”

“Keeping with our asset-light strategy,” van Paasschen continued, “we continue to look at selling individual hotels, balancing price, long-term agreements and commitments to invest in the property.”

Executives are holding steadfast to their goal of driving 80% of earnings before interest, taxation, depreciation and amortization through fees. To that end, the company signed 45 hotel management and franchise contracts, representing approximately 8,500 rooms, during the quarter. Starwood also opened 19 hotels and resorts with approximately 3,800 rooms.

CFO search

The search to replace former CFO Vasant Prabhu, who in April resigned as vice chairman and CFO to join NBCUniversal, remains ongoing, van Paasschen said.

“As you might expect we have seen a high level of interest from many qualified candidates,” van Paasschen said. “We are working with (a third-party search firm) to move the search forward, and we are making good progress.

“We will let you know as soon as we have some concrete news, but you should rest assured we are working as quickly as possible while making sure we have an exceptional person for the job,” he said.