Starwood Reports Second Quarter 2010 Results
WHITE PLAINS, NY (Jul 23, 2010) — Starwood Hotels & Resorts Worldwide, Inc. (HOT) yesterday reported second quarter 2010 financial results.
Second Quarter 2010 Highlights
- Excluding special items, EPS from continuing operations was $0.35. Including special items, EPS from continuing operations was $0.42.
- Adjusted EBITDA was $226 million.
- Excluding special items, income from continuing operations was $67 million. Including special items, income from continuing operations was $79 million.
- Worldwide System-wide REVPAR for Same-Store Hotels increased 13.1% (11.9% in constant dollars) compared to the second quarter of 2009. System-wide REVPAR for Same-Store Hotels in North America increased 12.0% (10.6% in constant dollars).
- Worldwide Same-Store company-operated gross operating profit margins increased approximately 150 basis points.
- Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 18.4% (16.4% in constant dollars) compared to the second quarter of 2009. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 21.1% (17.6% in constant dollars).
- Margins at Starwood branded Same-Store Owned Hotels Worldwide increased 400 basis points.
- Operating income from vacation ownership and residential increased $6 million compared to 2009.
- During the quarter, the Company signed 25 hotel management and franchise contracts representing approximately 6,400 rooms and opened 18 hotels and resorts with approximately 4,100 rooms.
Management and franchise revenues increased 14.0% compared to 2009.
Second Quarter 2010 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the second quarter of 2010 of $0.42 per share compared to $0.78 in the second quarter of 2009. Excluding special items, EPS from continuing operations was $0.35 for the second quarter of 2010 compared to $0.22 in the second quarter of 2009. Excluding special items, the effective income tax rate in the second quarter of 2010 was 16.1% compared to 23.5% in the same period of 2009.
Income from continuing operations was $79 million in the second quarter of 2010 compared to $140 million in 2009. Excluding special items, income from continuing operations was $67 million in the second quarter of 2010 compared to $40 million in 2009.
Net income, which includes a $36 million after-tax gain in discontinued operations from the sale of two hotels, was $114 million and EPS was $0.61 in the second quarter of 2010 compared to net income of $134 million and EPS of $0.74 in the second quarter of 2009. Net income in 2009 includes a $120 million income tax benefit associated with an Italian tax incentive program.
Frits van Paasschen, CEO said, “Starwood’s global footprint and strong brands drove the Company’s second quarter revenues and earnings above expectations. Average daily rates are back into positive territory as occupancy levels continue their steady ascent towards pre-crisis levels. The relaunch of Sheraton is enjoying a terrific response with strong increases in North American market share during the first six months of 2010.”
“While global lodging demand is solid, the economic outlook around the world remains unpredictable. We will continue to plan for a range of potential scenarios, but each entails a focus on driving top-line growth with strong discipline in our cost base. We remain cautiously confident in our near-term outlook and are bullish over the long-term given our growth prospects.”
Second Quarter 2010 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 13.1% (11.9% in constant dollars) compared to the second quarter of 2009. International System-wide REVPAR for Same-Store Hotels increased 14.6% (13.8% in constant dollars).
Worldwide Same-Store company-operated gross operating profit margins increased approximately 150 basis points in the second quarter driven by REVPAR increases. International gross operating profit margins for Same-Store company-operated properties increased approximately 180 basis points, and North American Same-Store company-operated gross operating profit margins increased approximately 140 basis points.
Management fees, franchise fees and other income were $177 million, up $11 million, or 6.6%, from the second quarter of 2009. Management fees increased 16.3% to $100 million and franchise fees increased 20.6% to $41 million.
During the second quarter of 2010, the Company signed 25 hotel management and franchise contracts, representing approximately 6,400 rooms, of which 18 are new builds and seven are conversions from other brands. At June 30, 2010, the Company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.
During the second quarter of 2010, 18 new hotels and resorts (representing approximately 4,100 rooms) entered the system, including the Le Meridien Philadelphia (Pennsylvania, 192 rooms), Sheraton Brooklyn New York Hotel (New York, 321 rooms), Sheraton Hsinchu (Taiwan, 359 rooms), and The Romanos, a Luxury Collection Resort, Costa Navarino (Greece, 321 rooms). Six properties (representing approximately 1,600 rooms) were removed from the system during the quarter.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 18.4% (16.4% in constant dollars). REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 21.1% (17.6% in constant dollars). Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 14.3% (14.7% in constant dollars).
Revenues at Starwood branded Same-Store Owned Hotels in North America increased 15.9% (12.6% in constant dollars) while costs and expenses increased 10.6% when compared to 2009. Margins at these hotels increased 390 basis points.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 16.0% (14.0% in constant dollars) while costs and expenses increased 10.3% when compared to 2009. Margins at these hotels increased 400 basis points.
Revenues at owned, leased and consolidated joint venture hotels were $437 million, compared to $386 million in 2009.
Vacation Ownership
Total vacation ownership revenues increased 5.6% to $131 million when compared to $124 million in 2009. Originated contract sales of vacation ownership intervals decreased 1.3% primarily due to the closure of fractional sales centers in 2009. The average price per vacation ownership unit sold decreased 7.5% to approximately $15,000, driven by price reductions and inventory mix. The number of contracts signed increased 5.9% when compared to 2009 due to higher closing efficiency partly offset by lower tour flow.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 17.9% to $92 million compared to the second quarter of 2009, due to the timing of accruals for incentive based compensation this year when compared to last year. SG&A head count was flat and cost controls remained strong in the quarter.
Capital
Gross capital spending during the quarter included approximately $25 million of maintenance capital and $49 million of development capital. Investment spending on net vacation ownership interest (“VOI”) and residential inventory was $28 million, primarily related to the St. Regis Bal Harbour project.
Asset Sales
On April 15, 2010, the Company completed the sale of the former W Court and Tuscany in New York for gross proceeds of $78 million. These hotels were sold unencumbered by management contracts and are no longer part of the Starwood system.
Balance Sheet
At June 30, 2010, the Company had gross debt of $2.979 billion, excluding $375 million of debt associated with securitized vacation ownership notes receivable that are required to be consolidated under ASU 2009-17. Additionally, the Company had cash and cash equivalents of $162 million (including $72 million of restricted cash), or net debt of $2.817 billion, compared to net debt of $2.883 billion as of March 31, 2010. Net debt at June 30, 2010 including debt associated with securitized vacation ownership notes receivables was $3.192 billion.
At June 30, 2010, debt was approximately 78% fixed rate and 22% floating rate and its weighted average maturity was 4.6 years with a weighted average interest rate of 6.93% excluding the securitized debt. The Company had cash (including current restricted cash) and availability under the domestic and international revolving credit facility of approximately $1.381 billion.
On April 20, 2010, the Company executed a new $1.5 billion Senior Credit Facility (“New Facility”). The New Facility matures on November 15, 2013 and replaces the former $1.875 billion Revolving Credit Agreement, which would have matured on February 11, 2011. The New Facility enhances the Company’s financial flexibility and is expected to be used for general corporate purposes.
IRS Tax Settlement
In January 2009, the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of the Company’s 1998 disposition of World Directories, Inc. Under the proposed settlement, the Company expects to receive a refund in 2010 of over $200 million as a result of tax payments previously made.
Outlook
For the Full Year 2010, based on our second quarter results and our expectations for the third quarter:
– Adjusted EBITDA is expected to be approximately $815 million to $845 million assuming:
- REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 100 basis points lower in dollars at current exchange rates).
- REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 7% to 9% in constant dollars and in dollars at current exchange rates.
- Management and franchise revenues is expected to be up approximately 7% to 9%.
- Operating income from our vacation ownership and residential business is expected to be approximately $115 million to $125 million.
- Selling, General and Administrative expenses is expected to increase 6% to 8%.
- Depreciation and amortization is expected to be approximately $332 million.
- Interest expense is expected to be approximately $262 million and cash taxes are expected to be approximately $75 million.
- Full year effective tax rate is expected to be approximately 20%
- EPS before special items is expected to be approximately $0.93 to $1.05.
- Full year capital expenditures (excluding vacation ownership and residential inventory) is expected to be approximately $150 million for maintenance, renovation and technology. In addition, in-flight investment projects and prior commitments for joint ventures and other investments is expected to total approximately $150 million. Vacation ownership is expected to generate approximately $200 million in positive cash flow, including proceeds from a planned securitization in late 2010. Bal Harbour capital is expected to be approximately $140 million.
For the three months ended September 30, 2010:
Adjusted EBITDA is expected to be approximately $185 million to $195 million assuming:
- REVPAR increases at Same-Store Company Operated Hotels Worldwide of 8% to 10% in constant dollars (5% to 7% in dollars at current exchange rates).
- REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 8% to 10% in constant dollars (5% to 7% in dollars at current exchange rates).
- Management and franchise revenues is expected to be up approximately 7% to 9%.
- Operating income from our vacation ownership and residential business is expected to be flat to up $5 million.
- Depreciation and amortization is expected to be $82 million.
- Interest expense is expected to be $67 million.
- Income from continuing operations, before special items, is expected to be approximately $28 million to $36 million, reflecting an effective tax rate of approximately 22%.
- EPS before special items is expected to be approximately $0.15 to $0.19.
Special Items
The Company’s special items netted to a benefit of $21 million ($12 million after-tax benefit) in the second quarter of 2010 compared to a $26 million charge ($100 million after-tax benefit) in the same period of 2009.
The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):
(a) During the three and six months ended June 30, 2010, the Company recorded restructuring credits associated with the reversal of previous restructuring reserves no longer deemed necessary. During the three and six months ended June 30, 2009, the Company recorded restructuring charges associated with its initiative to streamline operations and eliminate costs, including severance, lease termination fees and the write-off of leasehold improvements.
(b) During the three and six months ended June 30, 2010, the net gain primarily relates to a gain of $14 million from property insurance proceeds related to an owned hotel damaged by a tornado and a $5 million gain that resulted from the step acquisition of a controlling interest in a previously unconsolidated joint venture. During the three and six months ended June 30, 2009, the charge primarily reflects a loss on the sale of one owned hotel and the impairment of the Company’s retained interest in securitized receivables and certain fixed assets.
(c) During the three months ended June 30, 2010, the expense primarily relates to tax expense at the statutory rate for restructuring credits and gains. During the six months ended June 30, 2010, the expense primarily relates to tax expense at the statutory rate for restructuring credits and gains, partially offset by the adjustment of deferred tax assets associated with prior year impairment charges due to a change in a foreign tax rate. During the three and six months ended June 30, 2009, the benefit primarily relates to tax benefits at the statutory rate for restructuring credits and gains, partially offset by the adjustment of deferred tax assets associated with prior year impairment charges due to a change in a foreign tax rate. During the three and six months ended June 30, 2009, the benefit primarily relates to tax benefits at the statutory rate for restructuring and impairment charges, partially offset by permanent tax charges associated with the loss on asset dispositions.
(d) During the three and six months ended June 30, 2009, benefit relates to an Italian tax incentive program through which the tax basis of Italian owned hotels were stepped up in exchange for paying a relatively minor current tax. As a result, the Company recognized a net deferred tax benefit of $120 million under the program.
The Company has included the above supplemental information concerning special items to assist investors in analyzing Starwood’s financial position and results of operations. The Company has chosen to provide this information to investors to enable them to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of core on-going operations.
Starwood will be conducting a conference call to discuss the second quarter financial results at 10:30 a.m. (EDT) today at (706) 758-8744. The conference call will be available through a simultaneous web cast in the Investor Relations/Press Releases section of the Company’s website at http://www.starwoodhotels.com. A replay of the conference call will also be available from 1:30 p.m. (EDT) today through July 29, 2010 at 12:00 midnight (EDT) on both the Company’s website and via telephone replay at (706) 645-9291 (pass code #57055870).
Definitions
All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations attributable to Starwood’s common shareholders. All references to continuing operations, discontinued operations and net income reflect amounts attributable to Starwood’s common shareholders (i.e. excluding amounts attributable to noncontrolling interests). All references to “net capital expenditures” mean gross capital expenditures for timeshare and fractional inventory net of cost of sales. EBITDA represents net income before interest expense, taxes, depreciation and amortization. The Company believes that EBITDA is a useful measure of the Company’s operating performance due to the significance of the Company’s long-lived assets and level of indebtedness. EBITDA is a commonly used measure of performance in its industry which, when considered with GAAP measures, the Company believes gives a more complete understanding of the Company’s operating performance. It also facilitates comparisons between the Company and its competitors. The Company’s management has historically adjusted EBITDA (i.e., “Adjusted EBITDA”) when evaluating operating performance for the total Company as well as for individual properties or groups of properties because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items, such as restructuring, goodwill impairment and other special charges and gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. The Company’s management also uses Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. The Company has historically reported this measure to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and provides a means to evaluate the results of its core on-going operations. EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and such metrics should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may be different from the calculations used by other companies and, therefore, comparability may be limited.
All references to Same-Store Owned Hotels reflect the Company’s owned, leased and consolidated joint venture hotels, excluding condo hotels, hotels sold to date and hotels undergoing significant repositionings or for which comparable results are not available (i.e., hotels not owned during the entire periods presented or closed due to seasonality or natural disasters). References to Company Operated Hotel metrics (e.g. REVPAR) reflect metrics for the Company’s owned and managed hotels. References to System-Wide metrics (e.g. REVPAR) reflect metrics for the Company’s owned, managed and franchised hotels. REVPAR is defined as revenue per available room. ADR is defined as average daily rate.
All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology.
All references to management and franchise revenues represent base and incentive fees, franchise fees, amortization of deferred gains resulting from the sales of hotels subject to long-term management contracts and termination fees offset by payments by Starwood under performance and other guarantees.
Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with 1,011 properties in 100 countries and 145,000 employees at its owned and managed properties. Starwood Hotels is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis(R), The Luxury Collection(R), W(R), Westin(R), Le Meridien(R), Sheraton(R), Four Points(R) by Sheraton, aloft(SM), and element(SM). Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high quality vacation interval ownership resorts. For more information, please visit www.starwoodhotels.com
To view the full press release accompanied by financial tables, please go to http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTQzNTV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
Note: This press release contains forward-looking statements within the meaning of federal securities regulations. 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. Further results, performance and achievements may be affected by general economic conditions including the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations, cyclicality of the real estate (including residential) and the hotel and vacation ownership businesses, operating risks associated with the hotel, vacation ownership and residential businesses, relationships with associates and labor unions, 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 the introduction of new brand concepts and other risks and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Future vacation ownership units indicated in this press release include planned units on land owned by the Company or by joint ventures in which the Company has an interest that have received all major governmental land use approvals for the development of vacation ownership resorts. There can also 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 third-party 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. There can also be no assurance that agreements will be entered into for the hotels in the Company’s pipeline and, if entered into, the timing of any agreement and the opening of the related hotel. Although we believe the expectations reflected in 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.
SOURCE: Starwood Hotels & Resorts
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