Starwood reports second quarter 2006 results
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Starwood reports second quarter 2006 results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-07-28
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Starwood Hotels & Resorts Worldwide, Inc. (NYSE:
Second Quarter 2006 Highlights
Excluding special items, EPS from continuing operations was $0.74 compared to
$0.70 for the second quarter of 2005. Including special items, EPS from continuing
operations was $3.01 compared to $0.65 in the second quarter of 2005.
Worldwide System-wide REVPAR for Same-Store Hotels increased 9.7% compared
to the second quarter of 2005. System-wide REVPAR for Same-Store Hotels in
North America increased 10.5% when compared to the second quarter of 2005.
Worldwide REVPAR for Same-Store Owned Hotels increased 11.0% compared to
the second quarter of 2005. North America REVPAR for Same-Store Owned Hotels
increased 12.8% when compared to the second quarter of 2005.
Margins at Starwood branded Same-Store Owned Hotels in North America and
Worldwide improved approximately 360 and 300 basis points, respectively, when
compared to the second quarter of 2005.
Management and franchise revenues increased 59.3% when compared to 2005,
including revenues from the Le Méridien hotels and the hotels sold to Host.
Excluding residential sales, contract sales at vacation ownership properties
increased 31.0% when compared to 2005. However, reported revenues from
vacation ownership and residential sales only increased $1 million when compared
to 2005 primarily due to the impact of percentage of completion accounting for presales
at projects under construction.
Excluding special items, income from continuing operations was $169 million
compared to $156 million in the same period of 2005. Net income, including special
items, was $680 million compared to $145 million in the second quarter of 2005.
Total Company Adjusted EBITDA was $332 million when compared to $391 million
in 2005. The year over year reduction is due primarily to the sale of 48 hotels since
the second quarter of 2005 and stock option expenses, offset in part by increases in
management fees and the Company’s share of gains on the sale of several hotels in
unconsolidated joint ventures.
The Company completed the sale of 33 hotels to Host Hotels & Resorts, Inc.
(“Host”) for approximately $4.1 billion.
Since January 1, 2006, the Company has returned more than $3.9 billion to
shareholders, including $2.8 billion in connection with the Host transaction,
approximately $810 million for the repurchase of approximately 13.2 million shares
of its stock and $276 million in dividends.
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported
EPS from continuing operations for the second quarter of 2006 of $3.01 compared to $0.65
in the second quarter of 2005. Excluding special items, EPS from continuing operations
was $0.74 for the second quarter of 2006 compared to $0.70 in the second quarter of
2005. Excluding special items, the effective income tax rate in the second quarter of 2006
was 13.7%. The effective tax rate includes an $11 million benefit following the favorable
resolution of certain tax matters related to audits that closed during the quarter. Special
items net to a $511 million benefit primarily due to significant one-time income tax benefits
realized in connection with the Host transaction.
Income from continuing operations, including the special items discussed above, was $680
million in the second quarter of 2006 compared to $145 million in 2005. Excluding special
items, income from continuing operations was $169 million for the second quarter of 2006
compared to $156 million in 2005.
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Income from continuing operations for the second quarter of 2006 as compared to 2005
was impacted by four major items:
Operating income was impacted as a result of the sale of 48 hotels since the second
quarter of 2005. These hotels had $47 million of revenues and $36 million of
expenses (before depreciation) in 2006 as compared to $371 million of revenues
and $250 million of expenses (before depreciation) in the same quarter of 2005.
These hotels generated approximately $25 million of management and franchise
revenues in the second quarter of 2006.
The Company implemented SFAS 123(R), “Share Based Payment,” on January 1,
2006 which resulted in approximately $10 million of non-cash stock option expense.
Vacation ownership and residential operating income declined approximately $16
million due to the impact of percentage of completion accounting for pre-sales at
projects under construction.
The Company recorded an $18 million gain representing its share of gains on the
sale of several hotels in unconsolidated joint ventures during the second quarter of
2006.
Net income was $680 million and EPS was $3.01 in the second quarter of 2006 compared
to net income of $145 million and EPS of $0.65 in the second quarter of 2005.
Steven J. Heyer, CEO, said “I am very pleased with our results this quarter. We beat our
expectations for Same Store Owned RevPar growth, delivering 12.8% in North America and 11% Worldwide, with all of our brands delivering solid results. Our flowthrough was
truly outstanding. Margin growth of 360 basis points in North America and 300 basis points
on a Worldwide basis, once again leading the industry and outperforming our
expectations. Revenues in our management and franchise business were also very
strong, delivering growth of 59.3% in the quarter. Our SVO pipeline remains full and
vacation ownership demand remains strong, with contract sales up 31% in the quarter.
We have good momentum in our business and we’re making progress on the objectives
we set during our analyst day. All of our brands are moving full steam ahead with their
initiatives to deliver branded signature services to our guests. Our Real Estate Group is
driving growth in our pipeline, with deal signings up 43% year to date.
I am confident that our recent appointment of Matt Ouimet, President, Hotel Group and the
combination of the Real Estate Group with SVO will only enhance our ability to drive future
results. As we promised at our Investor Day, we’re looking very hard at our owned hotel
portfolio. We already have 15 hotels out on the market for sale and we’re assessing
redevelopment opportunities at several other locations.
Since our window for share repurchase opened in November of 2005, we have bought
back more than $1 billion of our stock and returned another $3.1 billion back to
shareholders in connection with the Host transaction and dividends paid during the year.
We remain committed to successfully growing our business and creating value for our
shareholders.”
Operating Results
Second Quarter Ended June 30, 2006
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Same-Store Owned Hotels increased 11.0%. REVPAR at Same-
Store Owned Hotels in North America increased 12.8%. REVPAR growth was particularly
strong at the Company’s owned hotels in Boston, Los Angeles, Chicago and Toronto.
Internationally, Same-Store Owned Hotel REVPAR increased 8.8% excluding the impact of
foreign exchange, and as reported, in US dollars, Same-Store Owned Hotel REVPAR
increased 7.4%.
Revenues at Same-Store Owned Hotels in North America increased 12.2% while costs
and expenses increased 7.1% when compared to 2005. Margins at Starwood branded
Same-Store Hotels increased 360 basis points.
Revenues at Same-Store Owned Hotels Worldwide increased 9.8% while costs and
expenses increased 5.4% when compared to 2005. Margins at Starwood branded Same-
Store Hotels increased 300 basis points.
Reported revenues at owned, leased and consolidated joint venture hotels were $674
million when compared to $939 million in 2005. Reported revenues were impacted by the
sale of 48 hotels since the second quarter of 2005. These hotels contributed $47 million in
revenues in 2006 compared to $371 million in the same quarter of 2005. -4-
Reported operating income from owned, leased and consolidated joint venture hotels was
impacted by the sale of 48 hotels since the second quarter of 2005. These hotels had $47
million of revenues and $36 million of expenses (before depreciation) in 2006 as compared
to $371 million of revenues and $250 million of expenses (before depreciation) in the same
quarter of 2005.
Management and Franchise Revenues
Worldwide System-wide (owned, managed and franchised) REVPAR for Same-Store
Hotels increased 9.7% compared to the second quarter of 2005 including 13.6% in Latin
America, 12.5% in Africa & the Middle East, 10.5% in North America, 8.6% in Europe and
5.0% in Asia Pacific. The 10.5% increase in System-wide REVPAR for Same-Store Hotels
in North America by brand is: St. Regis/Luxury Collection 16.3%, W Hotels 11.6%,
Sheraton 10.5% and Westin 10.3%.
Management fees, franchise fees and other income were $174 million, up $55 million, or
46.2%, from the second quarter of 2005. Management fees grew 70.9% to $94 million and
franchise fees grew 19.2% to $31 million. The increases are related to the addition of new
hotels (including Le Méridien hotels and the hotels sold to Host), and growth in REVPAR of
existing hotels under management, offset in part by fees associated with hotels that left the
system.
The hotels sold to Host and the Le Méridien hotels contributed $23 million and $16 million,
respectively, of management and franchise revenues during the second quarter of 2006.
Worldwide Le Méridien hotels that were in operation during both periods had REVPAR
growth of 10.7% in the second quarter of 2006 when compared to 2005 with ADR
increasing 9.1% and occupancy increasing 100 basis points.
During the second quarter of 2006, the Company signed 32 hotel management and
franchise contracts (representing approximately 8,200 rooms: 7 Sheraton, 7 Four Points by
Sheraton, 6 Westin, 4 W Hotels, 4 Le Méridien, 2 aloft, 1 St. Regis, and 1 Luxury
Collection) including the Westin San Francisco (San Francisco, California, 667 rooms),
Westin Aruba Resort & Spa (Palm Beach, Aruba, 478 rooms) and the W Doha (Doha,
Qatar, 443 rooms). Of the hotels signed in the quarter, 20 were new builds and 12 were
conversions from other brands. The Company’s active global development pipeline grew to
approximately 300 hotels with more than 80,000 rooms at June 30, 2006, driven by strong
interest in its Le Méridien and aloft brands. Roughly half of its pipeline is in international
locations. The Company continues to target signing approximately 150 hotel management
and franchise contracts in 2006.
During the second quarter of 2006, 14 new hotels and resorts (representing approximately
5,100 rooms) entered the system, including the Westin Boston, Seaport Hotel (Boston,
Massachusetts, 790 rooms) and the Sheraton Philadelphia City Center (Philadelphia,
Pennsylvania, 757 rooms). Nine properties (representing approximately 1,000 rooms)
were removed from the system during the quarter. The Company expects to open more
than 50 hotels (representing approximately 14,000 rooms) in 2006.
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Vacation Ownership
While contract sales of vacation ownership intervals were up 31.0%, total vacation
ownership reported revenues decreased 1.0% to $191 million when compared to 2005 due
primarily to the impact of percentage of completion accounting for pre-sales at projects
under construction. The average price per vacation ownership unit sold increased
approximately 12.7% to $25,413, and the number of contracts signed increased
approximately 16.4% when compared to 2005.
While reported revenues declined slightly year over year as discussed above, reported
expenses increased primarily as a result of the accelerated recognition of sales and
marketing expenses in accordance with the new timeshare accounting rules which were
implemented effective January 1, 2006.
During the second quarter of 2006, the Company was actively selling vacation ownership
interests at 15 resorts compared to 11 resorts in the second quarter 2005. The Company
acquired approximately 30 acres in Palm Desert, California near its Westin Mission Hills
Resort and plans to build a Westin-branded vacation ownership resort. In addition, the
Company purchased land in Aruba where it plans to build a 154 unit Westin-branded
vacation ownership resort adjacent to a hotel that joined Starwood’s system in the second
quarter and will be converted to the Westin Aruba Resort & Spa. The Company expects to
break ground and begin sales on both these projects in early 2007. Starwood Vacation
Ownership is also in the predevelopment phase of several other new vacation ownership
resorts.
Residential
The Company recognized residential revenues of approximately $43 million from sales at
the St. Regis in New York and the St. Regis Museum Tower in San Francisco. During the
second quarter, the Company sold the remaining two condominiums in San Francisco, and
to date the Company has recognized approximately $248 million in revenues from the sale
of the project’s 102 condominiums. Also during the quarter, the Company entered into
contracts to sell 7 condominiums at the St. Regis in New York.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 28.7% to $121 million
compared to the second quarter of 2005. Approximately $9 million of the increase is
related to stock based compensation, including approximately $8 million of stock option
expense. The increase is also due to higher costs of sales and other expenses at the
Company’s Bliss Spa business driven by its growth as well as additional overhead
associated with the Le Méridien acquisition.
Asset Sales
During the second quarter of 2006, the Company completed the sale of 33 hotels to Host
for total consideration of approximately $4.1 billion (including cash, Host stock and the
assumption of debt).
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In addition to the portfolio of hotels sold to Host, during the second quarter of 2006, the
Company sold one wholly-owned hotel for cash proceeds of approximately $56 million. On
May 23, 2006 the Company announced its intention to sell $500 million to $1 billion of
assets over a 12-18 month period. It is anticipated that three hotels will be sold in the third
quarter of 2006 for cash proceeds of approximately $90 million.
Capital
Gross capital spending during the quarter included approximately $69 million in
renovations of hotel assets including construction capital at the Sheraton Centre Toronto
Hotel in Toronto, Canada and the Westin Resort & Spa, Cancun in Cancun, Mexico.
Investment spending on gross vacation ownership interest (“VOI”) inventory was $102
million, which was offset by cost of sales of $46 million associated with VOI sales during
the quarter. The inventory spend included VOI construction at the Westin Ka’anapali
Ocean Resort Villas North in Maui, Hawaii, the Westin Aruba Resort & Spa in Palm Beach,
Aruba, the Westin Princeville Resort in Kauai, Hawaii and the Westin Lagunamar Resort in
Cancun, Mexico.
Share Repurchase
During the second quarter of 2006, the Company repurchased approximately 5.1 million
shares at a total cost of approximately $305 million. From July 1, 2006 through July 26,
2006, the Company repurchased approximately 1.0 million shares at a total cost of
approximately $58 million. Year to date through July 26, 2006, the Company repurchased
approximately 13.2 million shares at a total cost of approximately $810 million. At July 26,
2006, approximately $833 million remained available under the Company’s share
repurchase authorization. Starwood had approximately 219 million shares outstanding
(including partnership units) at June 30, 2006.
Dividend
The Company’s former REIT subsidiary declared a second quarter dividend of $0.21 per
share, which was paid on April 7, 2006. It is currently expected that, subject to the
approval of the Board of Directors, the remaining 2006 dividend of $0.42 per share will be
declared by the Company in December 2006 to be paid in January 2007, as set forth in the
dividend policy that was adopted by the Board of Directors.
Balance Sheet
At June 30, 2006, the Company had total debt of $2.820 billion and cash and cash
equivalents (including $329 million of restricted cash) of $635 million, or net debt of $2.185
billion, compared to net debt of $3.171 billion at the end of the first quarter of 2006.
At June 30, 2006, debt was approximately 62% fixed rate and 38% floating rate and its
weighted average maturity was 4.8 years with a weighted average interest rate of 6.86%.
The Company had cash (including total restricted cash) and availability under domestic
and international revolving credit facilities of approximately $1.823 billion.
During the second quarter of 2006, the Company redeemed its convertible bonds. The
Company settled the $360 million of principal in cash, and it settled the conversion spread
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by issuing Company shares. Also during the second quarter of 2006, the Company
redeemed $150 million of 7.75% debentures issued by its former subsidiary, Sheraton
Holding Corporation.
Results for the Six Months Ended June 30, 2006
EPS from continuing operations increased to $3.34 compared to $1.01 in 2005. Excluding
special items, EPS from continuing operations was $1.15 compared to $1.05 in 2005.
Excluding special items, income from continuing operations was $260 million compared to
$233 million in 2005. Net income was $685 million and EPS was $3.02 compared to $224
million and $1.01, respectively, in 2005. Total Company Adjusted EBITDA, which was
significantly impacted by the sale of 50 hotels since the beginning of 2005, was $598
million compared to $679 million in 2005.
Outlook
The Company’s guidance for 2006 assumes the following changes since the last time we
provided estimates:
The impact of three hotel sales which are expected to close in the third quarter and
the sale of 10 hotels in joint ventures that we hold minority interest in, offset by the
retention of two hotels in Fiji that were previously expected to be sold to Host.
The transfer of $17 million of income from condominium sales from 2006 into 2007.
A reduction in business interruption insurance of $5 million in the third quarter of
2006 that was collected in the second quarter of 2006.
For the three months ending September 30, 2006:
Adjusted EBITDA would be expected to be approximately $300 million assuming:
REVPAR at Same-store Owned Hotels in North America increases
approximately 9% -11% versus the same period in 2005.
North America Same-Store Owned Hotel EBITDA growth of 13%-15% with
owned hotel margin improvement of approximately 150 – 200 basis points.
Growth from management and franchise revenues of approximately 50% to 55%
including revenues earned from the hotels sold to Host, and 25% to 30%,
excluding the hotels sold to Host.
Operating income from our vacation ownership and residential business in line
with the third quarter of 2005, due to timing of residential sales.
Income from continuing operations, excluding special items, would be expected to
be approximately $109 million at an effective tax rate of approximately 35%.
EPS would be expected to be approximately $0.49.
For the full year 2006:
Adjusted EBITDA would be expected to be approximately $1.275 billion assuming:
REVPAR at Same-Store Owned Hotels in North America increases
approximately 11% versus 2005.
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North America Same-Store Owned Hotel EBITDA growth of 19% - 20% with
owned hotel margin improvement of approximately 200 - 250 basis points.
Growth from management and franchise revenues of over 50% including
revenues from the hotels sold to Host and approximately 25 - 30%, excluding
revenues from the hotels sold to Host.
An increase in operating income from our vacation ownership and residential
business of approximately $10 million to $15 million (including gains on sales of
vacation ownership notes receivable of $10 million to $15 million in the fourth
quarter of 2006).
Full year income from continuing operations, excluding special items, would be
expected to be approximately $531 million at an effective tax rate of approximately
26%.
Full year EPS would be expected to be approximately $2.37.
Full year capital expenditures (excluding timeshare inventory) would be
approximately $500 million, including $200 million for maintenance, renovation and
technology and $300 million for other growth initiatives. Additionally, net capital
expenditures for timeshare inventory would be approximately $175 million.
Full year cash interest expense would be approximately $210 million and cash taxes
of approximately $150 million.
The Company’s guidance excludes the first and second quarter special items discussed
below as well as:
Transition costs of approximately $6 million for the remainder of the year associated
with the Le Méridien transaction which closed in 2005.
Special Items
The Company recorded net credits of $511 million (after-tax) for special items in the
second quarter of 2006 compared to $11 million of net charges (after-tax) in the same
period of 2005.
Special items in the second quarter of 2006 primarily relate to significant one-time income
tax benefits realized in connection with the Host transaction.
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