Starwood Reports 2nd Quarter 2010 Results
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Starwood Reports 2nd Quarter 2010 Results
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2010-07-23
Starwood Hotels & Resorts Worldwide, Inc. (NYSE:
HOT) today 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).
Management and franchise revenues increased 14.0% compared to 2009.
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.
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).
Increases in REVPAR for Worldwide System-wide Same-Store hotels by region:
REVPAR
Region Reported Constant dollars
North America 12.0% 10.6%
Europe 6.3% 10.0%
Asia Pacific 31.7% 24.2%
Africa and the Middle East 0.1% 0.2%
Latin America 29.7% 29.7%
Increases in REVPAR for Worldwide System-wide Same-Store hotels by brand:
REVPAR
Brand Reported Constant dollars
St. Regis/Luxury Collection 10.7% 11.5%
W Hotels 33.1% 32.2%
Westin 11.4% 9.9%
Sheraton 13.5% 11.9%
Le Méridien 8.8% 9.2%
Four Points by Sheraton 12.6% 9.9%
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 companyoperated
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 Méridien 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 aftertax
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):
Three Months Ended
June 30,
Six Months Ended
June 30,
2010 2009 2010 2009
$ 67 $ 40 Income from continuing operations before special items ................. $ 91 $ 67
$ 0.35 $ 0.22 EPS before special items ................................................................ $ 0.48 $ 0.37
Special Items
1 (5) Restructuring, goodwill impairment and other special charges, net (a) 1 (22)
20 (21) Gain (loss) on asset dispositions and impairments, net (b) ................ 21 (26)
21 (26) Total special items – pre-tax ............................................................ 22 (48)
(9) 6 Income tax (expense) benefit for special items (c) ............................ (4) 10
— 120 Italian income tax incentive (d) .......................................................... — 120
12 100 Total special items – after-tax ........................................................... 18 82
$ 79 $ 140 Income from continuing operations .................................................. $ 109 $ 149
$ 0.42 $ 0.78 EPS including special items ............................................................. $ 0.58 $ 0.82
(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 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 begin_of_the_skype_highlighting (706) 758-8744 end_of_the_skype_highlighting. 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®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® 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.
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