First Quarter 2010 Highlights
— Excluding special items, EPS from continuing operations was $0.13. Including special items, EPS from continuing operations was $0.16.
— Adjusted EBITDA was $179 million.
— Excluding special items, income from continuing operations was $24 million. Including special items, income from continuing operations was $30 million.
— Worldwide System-wide REVPAR for Same-Store Hotels increased 6.3% (3.0% in constant dollars) compared to the first quarter of 2009. System-wide REVPAR for Same-Store Hotels in North America increased 2.8% (1.2% in constant dollars).
— Management and franchise revenues increased 5.6% compared to 2009.
— Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 6.6% (2.1% in constant dollars) compared to the first quarter of 2009. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 5.8% (2.8% in constant dollars).
— Operating income from vacation ownership and residential increased $3 million compared to 2009, including the impact of ASU 2009-17 (formerly SFAS 167).
— During the quarter, the Company signed 13 hotel management and franchise contracts representing approximately 3,000 rooms and opened 14 hotels and resorts with approximately 2,600 rooms.
— On April 20, 2010, the Company executed a new $1.5 billion Senior Credit Facility which matures on November 15, 2013 and replaces the existing Revolving Credit Agreement which would have matured on February 11, 2011.
First Quarter 2010 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) yesterday reported income from continuing operations for the first quarter of 2010 of $0.16 per share compared to $0.04 in the first quarter of 2009. Excluding special items, which net to a benefit of $6 million in 2010 and a charge of $18 million in 2009, EPS from continuing operations was $0.13 for the first quarter of 2010 compared to $0.15 in the first quarter of 2009. Excluding special items, the effective income tax rate in the first quarter of 2010 was 14.5% compared to 17.8% in the same period of 2009.
Income from continuing operations was $30 million in the first quarter of 2010 compared to $9 million in 2009. Excluding special items, income from continuing operations was $24 million in the first quarter of 2010 compared to $27 million in 2009.
Net income was $30 million and EPS was $0.16 in the first quarter of 2010 compared to net income of $6 million and EPS of $0.03 in the first quarter of 2009.
Frits van Paasschen, CEO said, “Lodging demand for our nine global brands accelerated as we moved through the first quarter, allowing us to beat expectations on robust top-line growth. We continued to hold the line on costs. Most encouraging for us was that occupancy gains were led by the luxury market. This benefits Starwood, thanks to our leading presence in the four and five star categories. With the depths of the downturn behind us, we have a long runway ahead as we move into the upcycle.”
First Quarter 2010 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 6.3% (3.0% in constant dollars) compared to the first quarter of 2009. International System-wide REVPAR for Same-Store Hotels increased 10.7% (5.2% in constant dollars).
Worldwide Same-Store company-operated gross operating profit margins increased approximately 10 basis points in the first quarter driven by REVPAR increases. International gross operating profit margins for Same-Store company-operated properties increased approximately 150 basis points, and North American Same-Store company-operated gross operating profit margins decreased approximately 180 basis points.
Management fees, franchise fees and other income were $153 million, up $9 million, or 6.3%, from the first quarter of 2009. Management fees increased 10.1% to $87 million and franchise fees increased 9.4% to $35 million.
During the first quarter of 2010, the Company signed 13 hotel management and franchise contracts, representing approximately 3,000 rooms, of which nine are new builds and four are conversions from other brands. At March 31, 2010, the Company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.
During the first quarter of 2010, 14 new hotels and resorts (representing approximately 2,600 rooms) entered the system, including the W Hollywood Hotel & Residences (California, 160 rooms), the Westin Mumbai Garden City (India, 88 rooms), the Westin Austin at the Domain (Texas, 331 rooms), and the Sheraton Qiandao Lake Resort (China, 250 rooms). Seven properties (representing approximately 4,200 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 6.6% (2.1% in constant dollars). REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 5.8% (2.8% in constant dollars). Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 7.9% (0.8% in constant dollars).
Revenues at Starwood branded Same-Store Owned Hotels in North America increased 5.6% (2.6% in constant dollars) while costs and expenses increased 5.3% when compared to 2009.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 5.9% (1.6% in constant dollars) while costs and expenses increased 6.0% when compared to 2009.
Revenues at owned, leased and consolidated joint venture hotels were $381 million, compared to $380 million in 2009.
Total vacation ownership revenues decreased 2.2% to $131 million when compared to 2009. Originated contract sales of vacation ownership intervals decreased 4.9% primarily due to the closure of fractional sales centers in 2009. Excluding fractional, originated contract sales decreased 0.8% compared to 2009. The average price per vacation ownership unit sold decreased 7.5% to approximately $16,800, driven by price reductions and a higher percentage of biennial inventory. The number of contracts signed increased 3.6% when compared to 2009 due to higher closing efficiency partly offset by lower tour flow.
Vacation ownership results include the impact of ASU 2009-17 (formerly SFAS 167) discussed further below.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 4.1% to $76 million compared to the first quarter of 2009.
Gross capital spending during the quarter included approximately $16 million of maintenance capital and $13 million of development capital. Investment spending on net vacation ownership interest (“VOI”) and residential inventory was $30 million, primarily related to the St. Regis Bal Harbour project.
In October 2009, the Company’s Board of Directors declared its annual dividend of $0.20 per share. The dividend was paid by the Company on January 14, 2010 to holders of record on December 31, 2009.
Impact of Accounting Standards Update (“ASU”) 2009-17
The Company adopted ASU 2009-17 (formerly SFAS 167) on January 1, 2010, which required the consolidation of entities associated with our previous securitization transactions. As a result of the adoption of this rule, on January 1, 2010 the Company’s assets (primarily short-term and long-term securitized vacation ownership notes receivable net of loan loss reserve) increased by approximately $401 million and its liabilities (primarily short-term and long-term securitized vacation ownership debt) increased by $444 million. Beginning retained earnings was reduced by $26 million (net of tax) as the cumulative effect of a change in accounting principle. As a result of applying ASU 2009-17, vacation ownership revenues in the first quarter of 2010 increased $14 million compared to 2009 and interest expense includes $6 million related to the securitized vacation ownership debt.
At March 31, 2010, the Company had gross debt of $3.047 billion, excluding $406 million of debt associated with securitized vacation ownership notes receivable that was required to be consolidated beginning on January 1, 2010. Additionally, the Company had cash and cash equivalents of $164 million (including $73 million of restricted cash), or net debt of $2.883 billion, compared to net debt of $2.819 billion as of December 31, 2009. Net debt at March 31, 2010 including debt associated with securitized vacation ownership notes receivable was $3.289 billion.
At March 31, 2010, debt was approximately 76% fixed rate and 24% floating rate and its weighted average maturity was 4.7 years with a weighted average interest rate of 6.88% excluding the securitized debt. The Company had cash (including current restricted cash) and availability under the domestic and international revolving credit facility of approximately $1.679 billion.
On April 15, 2010, the Company completed the sale of two hotels for gross proceeds of $78 million.
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 existing $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.
For the Full Year 2010:
Based on our first quarter results and our expectations for the second quarter, full year 2010 REVPAR at Same-Store Company Operated Hotels Worldwide could be up 5% to 8% in constant dollars and approximately 100 bps higher in dollars at current exchange rates. REVPAR at Branded Same-Store Owned Hotels Worldwide could be up 4% to 7% in constant dollars and approximately 100 bps higher in dollars at current exchange rates.
At the midpoint of these REVPAR ranges, adjusted EBITDA would be approximately $810 million (+/- 1 point of REVPAR drives +/- $15 million of EBITDA).
— EPS before special items would be approximately $0.88.
— Management and franchise revenues will increase approximately 6% to 9%.
— Selling, General and Administrative expenses will increase 3% to 5%.
— Operating income from our vacation ownership and residential business will be approximately $115 million to $125 million, including the impact of adopting ASU 2009-17.
— Full year depreciation and amortization will be approximately $335 million.
— Full year interest expense will be approximately $262 million (including $20 million to $23 million from the impact of adopting ASU 2009-17) and cash taxes will be approximately $75 million. — Full year effective tax rate will be approximately 22%. — Full year capital expenditures (excluding vacation ownership and residential inventory) would be approximately $150 million for maintenance, renovation and technology. In addition, in-flight investment projects and prior commitments for joint ventures and other investments will total approximately $100 million. Vacation ownership is expected to generate approximately $150 million in positive cash flow, including proceeds from a planned securitization in late 2010. Bal Harbour capital will be approximately $140 million.
For the three months ended June 30, 2010:
— Adjusted EBITDA is expected to be approximately $200 million to $210 million assuming:
— REVPAR change at Same-Store Company Operated Hotels Worldwide of
9% to 11% in constant dollars (11% to 13% in dollars at current exchange rates).
— REVPAR change at Branded Same-Store Owned Hotels Worldwide of 9%
to 11% in constant dollars (12% to 14% in dollars at current exchange rates).
— Management and franchise revenues will be up approximately 11% to 13%.
— Operating income from our vacation ownership and residential businesses will be flat to up $5 million.
— Income from continuing operations, before special items, is expected to be approximately $40 million to $48 million, reflecting an effective tax rate of approximately 22%.
— Interest expense is expected to be $66 million.
— Depreciation and amortization is expected to be $83 million.
— EPS before special items is expected to be approximately $0.21 to $0.25.
The Company’s special items netted to a pre-tax benefit of $1 million ($6 million after-tax) in the first quarter of 2010 compared to a $22 million charge ($18 million after-tax) in the same period of 2009.
The Company has included 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 conducted a conference call to discuss the first quarter financial results at 10:30 a.m. (EDT) yesterday 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) through May 6, 2010 at 12:00 midnight (EDT) on both the Company’s website and via telephone replay at (706) 645-9291 (pass code #57051808).
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 1,000 properties in almost 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
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.
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SOURCE: Starwood Hotels & Resorts Worldwide, Inc.
Starwood Hotels & Resorts Worldwide, Inc. Jason Koval, 914-640-4429