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Starwood Reports Third Quarter 2010 Results

Starwood Reports Third Quarter 2010 Results

Category: Worldwide - Industry economy - Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2010-10-29


Starwood Hotels & Resorts Worldwide, Inc.
(NYSE: HOT) today reported third quarter 2010 financial results.

Third Quarter 2010 Highlights
􀂃 Excluding special items, EPS from continuing operations was $0.25. Including
special items, EPS from continuing operations was a loss of $0.03.
􀂃 Adjusted EBITDA was $205 million.
􀂃 Excluding special items, income from continuing operations was $47 million.
Including special items, the loss from continuing operations was $5 million.
􀂃 Worldwide System-wide REVPAR for Same-Store Hotels increased 10.0% (11.1%
in constant dollars) compared to the third quarter of 2009. System-wide REVPAR
for Same-Store Hotels in North America increased 10.6% (10.0% in constant
dollars).
􀂃 Management and franchise revenues increased 7.7% compared to 2009.
􀂃 Worldwide Same-Store company-operated gross operating profit margins increased
approximately 140 basis points.
􀂃 Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased
10.8% (12.5% in constant dollars) compared to the third quarter of 2009. REVPAR
for Starwood branded Same-Store Owned Hotels in North America increased 12.5%
(11.2% in constant dollars).
􀂃 Margins at Starwood branded Same-Store Owned Hotels Worldwide increased 110
basis points.
􀂃 Operating income from vacation ownership and residential increased $10 million
compared to 2009.
􀂃 During the quarter, the Company signed 20 hotel management and franchise
contracts representing approximately 4,500 rooms and opened 17 hotels and
resorts with approximately 3,300 rooms.

Third Quarter 2010 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported
a loss from continuing operations for the third quarter of 2010 of $0.03 per share compared
to EPS of $0.20 in the third quarter of 2009. Excluding special items, EPS from continuing
operations was $0.25 for the third quarter of 2010 compared to $0.14 in the third quarter of
2009. Excluding special items, the effective income tax rate in the third quarter of 2010
was 23.0%.
Special items in the third quarter of 2010 included a pretax charge of $55 million ($52
million after tax or $0.28 per share) and were primarily related to the loss on the sale of
one hotel. Special items in the third quarter of 2009 included an $11 million after tax
benefit or $0.06 per share primarily related to a tax benefit on a hotel sale.
The loss from continuing operations was $5 million in the third quarter of 2010 compared to
income of $36 million in 2009. Excluding special items, income from continuing operations
was $47 million in the third quarter of 2010 compared to $25 million in 2009.
The net loss was $6 million and $0.03 per share in the third quarter of 2010 compared to
net income of $40 million and EPS of $0.22 in the third quarter of 2009.
Frits van Paasschen, CEO said, “We were able to beat expectations thanks to our top-line
growth initiatives that powered third quarter REVPAR results. Our distinctive and
compelling brands are gaining share, and our strong presence in the key global cities
positions us well to benefit from the return of the business traveler.”
“New hotel signings are being driven by our emerging markets platform. We expect overall
new supply in developed markets to remain well below historic rates of growth, resulting in
a multi-year supply/demand imbalance. In North America, supply growth in the Upper
Upscale and Luxury segments is expected to fall below 0.5% in 2011, and remain at these
low levels for a few years to come. This limited supply will support our ability to recover the
rate we gave up in 2009 and 2010. In that context, we are seeing a recovering transaction
market as buyers appreciate the great upside ahead for hotel owners.”
Third Quarter 2010 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 10.0% (11.1% in
constant dollars) compared to the third quarter of 2009. International System-wide
REVPAR for Same-Store Hotels increased 9.1% (12.5% in constant dollars).

Worldwide System-wide REVPAR for Same-Store changes by region:
REVPAR
Region Reported Constant dollars
North America 10.6% 10.0%
Europe 0.9% 11.7%
Asia Pacific 20.5% 15.8%
Africa and the Middle East (0.4)% 1.4%
Latin America 28.2% 28.2%
Increases in REVPAR for Worldwide System-wide Same-Store hotels by brand:
REVPAR
Brand Reported Constant dollars
St. Regis/Luxury Collection 6.3% 11.5%
W Hotels 18.9% 18.7%
Westin 8.4% 8.7%
Sheraton 11.3% 11.4%
Le Méridien 5.1% 10.6%
Four Points by Sheraton 12.4% 12.0%
Worldwide Same-Store company-operated gross operating profit margins increased
approximately 140 basis points in the third quarter driven by REVPAR increases and cost
controls. International gross operating profit margins for Same-Store company-operated
properties increased approximately 130 basis points, and North American Same-Store
company-operated gross operating profit margins increased approximately 160 basis
points.
Management fees, franchise fees and other income were $173 million, up $10 million, or
6.1%, from the third quarter of 2009. Management fees increased 8.0% to $94 million and
franchise fees increased 16.2% to $43 million.
During the third quarter of 2010, the Company signed 20 hotel management and franchise
contracts, representing approximately 4,500 rooms, of which 15 are new builds and five
are conversions from other brands. At September 30, 2010, the Company had
approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.
During the third quarter of 2010, 17 new hotels and resorts (representing approximately
3,300 rooms) entered the system, including the W New York Downtown (New York, 217
rooms), the Westin Resort, Costa Navarino (Greece, 123 rooms), Sheraton Zhongshan
(China, 350 rooms), Sheraton Udaipur Palace Resort & Spa (India, 228 rooms), and four
new Alofts with 521 rooms (Chennai and Bengaluru, India; Brussels, Belgium, and Tulsa,
Oklahoma). Three properties (representing approximately 300 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 10.8%
(12.5% in constant dollars). REVPAR at Starwood branded Same-Store Owned Hotels in
North America increased 12.5% (11.2% in constant dollars). Internationally, Starwood
branded Same-Store Owned Hotel REVPAR increased 8.3% (14.5% in constant dollars).

Revenues at Starwood branded Same-Store Owned Hotels in North America increased
9.2% (8.0% in constant dollars) while costs and expenses increased 6.0% when compared
to 2009. Margins at these hotels increased 250 basis points.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 7.5%
(9.1% in constant dollars) while costs and expenses increased 5.9% when compared to
2009. Margins at these hotels increased 110 basis points.
Revenues at owned, leased and consolidated joint venture hotels were $427 million,
compared to $388 million in 2009.
Vacation Ownership
Total vacation ownership revenues increased 3.2% to $129 million compared to $125
million in 2009 driven by the impact of ASU 2009-17. Originated contract sales of vacation
ownership intervals decreased 4.8% primarily due to lower tour flow and a lower average
price. The number of contracts signed decreased 3.6% when compared to 2009 and the
average price per vacation ownership unit sold decreased 2.5% to approximately $14,000,
driven by price reductions and inventory mix.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 7.1% to $90 million
compared to the third quarter of 2009.
Capital
Gross capital spending during the quarter included approximately $28 million of
maintenance capital and $24 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.
Asset Sales
On September 29, 2010, the Company completed the sale of one hotel for gross proceeds
of $70 million. This hotel was sold subject to a long-term management contract.
Balance Sheet
At September 30, 2010, the Company had gross debt of $2.860 billion, excluding $532
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 $405 million (including $48 million of restricted cash), or net debt of
$2.455 billion, compared to net debt of $2.834 billion as of June 30, 2010. Net debt at
September 30, 2010 including debt and restricted cash associated with securitized
vacation ownership notes receivables was $2.966 billion.
At September 30, 2010, debt was approximately 81% fixed rate and 19% floating rate and
its weighted average maturity was 4.5 years with a weighted average interest rate of 6.87%
excluding the securitized debt. The Company had cash (including current restricted cash)
and availability under the domestic and international revolving credit facility of
approximately $1.762 billion.

During the third quarter of 2010, the Company completed the securitization of
approximately $300 million of vacation ownership notes receivable. Approximately $93
million of proceeds from this transaction were used to terminate the privately placed
securitization completed in June 2009. The net cash proceeds from the securitization were
approximately $180 million.
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. In October 2010, the previously proposed settlement was formally agreed
to by both the Company and the IRS through the execution of definitive documents
stipulating the terms of the settlement. The executed settlement and decision documents
were filed with the US Tax Court and signed by the Court, resulting in a transfer of the case
to the IRS for processing the refund. The Company expects to receive a tax refund of over
$200 million during the fourth quarter of 2010.
Outlook
For the Full Year 2010:
􀂃 Adjusted EBITDA is expected to be approximately $840 million to $845 million,
assuming:
􀂃 REVPAR increases at Same-Store Company Operated Hotels Worldwide of
8% to 9% in constant dollars (approximately 50 basis points higher in dollars
at current exchange rates).
􀂃 REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 9%
to 10% in constant dollars (approximately 100 basis points higher in dollars at
current exchange rates).
􀂃 Management and franchise revenues increase approximately 8%.
􀂃 Operating income from our vacation ownership and residential business of
approximately $125 million.
􀂃 Selling, General and Administrative expenses increase approximately 11%.
􀂃 Depreciation and amortization is expected to be approximately $330 million.
􀂃 Interest expense is expected to be approximately $256 million and cash taxes are
expected to be approximately $75 million.
􀂃 Full year effective tax rate is expected to be approximately 19%.
􀂃 EPS before special items is expected to be approximately $1.09 to $1.11.

􀂃 Full year capital expenditure (excluding vacation ownership and residential
inventory) is expected to be approximately $140 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 $140 million.
Vacation ownership (excluding Bal Harbour) is expected to generate approximately
$225 million in positive cash flow, including proceeds from the securitization
completed in the third quarter. Bal Harbour capital expenditure is expected to be
approximately $150 million.
For the three months ended December 31, 2010:
􀂃 Adjusted EBITDA is expected to be approximately $230 million to $235 million,
assuming:
􀂃 REVPAR increases at Same-Store Company Operated Hotels Worldwide of
7% to 9% in constant dollars (approximately 50 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 (approximately 50 basis points lower in dollars at
current exchange rates).
􀂃 Management and franchise revenues increase approximately 4% to 6%.
􀂃 Operating income from our vacation ownership and residential business
increases approximately $5 million to $10 million.
􀂃 Depreciation and amortization is expected to be $82 million.
􀂃 Interest expense is expected to be $62 million.
􀂃 Income from continuing operations, before special items, is expected to be
approximately $69 million to $73 million, reflecting an effective tax rate of
approximately 20%.
􀂃 EPS before special items is expected to be approximately $0.36 to $0.38.

For the Full Year 2011:
In Developed markets, the macroeconomic environment is uncertain with high
unemployment and high public/private debt. While there are concerns about slower, “new”
normal demand growth, the lodging supply situation is very favorable. In Emerging
markets, macroeconomic growth has been strong, driving high secular growth in both
lodging demand and supply. While visibility is improving, booking windows remain shorter
than normal. We remain of the view that several scenarios could play out. Based on what
we know at this point, our most likely scenario for 2011 assumes the continuation of
current trends and a normal, global lodging recovery:
􀂃 Adjusted EBITDA is expected to be approximately $950 million to $980 million,
assuming:
􀂃 REVPAR increases at Same-Store Company Operated Hotels Worldwide of
7% to 9% in constant dollars.
􀂃 REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 7%
to 9% in constant dollars.
􀂃 Management and franchise revenues increase approximately 9% to 11%.
􀂃 Operating income from our vacation ownership and residential business of
approximately $125 million.
􀂃 Selling, General and Administrative expenses increase 1% to 2%.
􀂃 Depreciation and amortization is expected to be approximately $330 million.
􀂃 Interest Expense is expected to be approximately $250 million.
􀂃 Income from continuing operations is expected to be approximately $278 million to
$300 million, reflecting an effective tax rate of approximately 25%.
􀂃 EPS is expected to be approximately $1.44 to $1.55.

Special Items
The Company’s special items netted to a charge of $55 million ($52 million after-tax) in the
third quarter of 2010 compared to a $25 million charge ($11 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):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2010 2009 2010 2009
$ 47 $ 25 Income from continuing operations before special items ................. $ 138 $ 92
$ 0.25 $ 0.14 EPS before special items (a) ............................................................. $ 0.73 $ 0.51
Special Items
1 (2)
Restructuring, goodwill impairment and other special credits
(charges), net (b) ........................................................................... 2 (24)
(56) (23) Loss on asset dispositions and impairments, net (c) .......................... (35) (49)
(55) (25) Total special items – pre-tax ............................................................ (33) (73)
3 36 Income tax (expense) benefit for special items (d) ............................ (1) 46
— — Italian income tax incentive (e) .......................................................... — 120
(52) 11 Total special items – after-tax ........................................................... (34) 93
$ (5) $ 36 Income (loss) from continuing operations ........................................ $ 104 $ 185
$ (0.03) $ 0.20 EPS including special items ............................................................. $ 0.55 $ 1.02
(a) Diluted shares for the three months ended September 30, 2010 are 190 million.
(b) During the three and nine months ended September 30, 2010, the Company recorded restructuring credits associated
with the reversal of previous restructuring reserves no longer deemed necessary.
During the three and nine months ended September 30, 2009, the Company recorded restructuring charges associated with
its initiative to streamline operations and eliminate costs, including severance, lease termination fees and write-off of
leasehold improvements.
(c) During the three months ended September 30, 2010, the net loss primarily reflects a loss on the sale of one hotel.
During the nine months ended September 30, 2010, the charges above were partially offset by $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 months ended September 30, 2009, the charge primarily reflects impairment charges of approximately $23
million associated with an investment in a hotel management contract which was subsequently cancelled, the Company’s
retained interest in securitized receivables and the carrying value of one hotel. During the nine months ended September
30, 2009, the charge also includes impairment charges of $26 million of the Company’s retained interests in securitized
receivables and certain fixed assets.
(d) During the three months ended September 30, 2010, the benefit primarily relates to a tax benefit on the sale of one
hotel. During the nine months ended September 30, 2010, the net expense primarily relates to tax expenses at the
statutory rate for restructuring credits and losses partially offset by the adjustment of deferred taxes associated with prior
year impairment charges due to the change in a foreign tax rate.
The results for the three and nine months ended September 30, 2009 primarily reflect tax benefits at the statutory rate for
the special items and a tax benefit for a hotel sale with a higher tax basis, partially offset by permanent tax charges
associated with the loss on certain asset dispositions.
(e) During the nine months ended September 30, 2009, the 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 third quarter financial results
at 9:00 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 12:00 p.m. (EDT) today through November 4, 2010 at 12:00
midnight (EDT) on both the Company’s website and via telephone replay at (706) 645-
9291 (pass code #62012981).
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.
Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure
companies in the world with 1,025 properties in nearly 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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