a Year Earlier; Takes a $72 million Expense Related to a Change in Accounting for
Management Fees Grew 55.6% to $56 million and Franchise Fees Grew 20% to $36 million
Hotel Operating Results
|WHITE PLAINS, N.Y. - April 27, 2006 -- Starwood Hotels & Resorts
Worldwide, Inc. (NYSE: HOT):
First Quarter 2006 Highlights
Income from continuing operations, including the special items discussed above, was $77 million in the first quarter of 2006 compared to $79 million in 2005. Excluding special items, income from continuing operations was $91 million for the first quarter of 2006 compared to $77 million in 2005.
Income from continuing operations for the first quarter of 2006 as compared to 2005 was impacted by four major items:
Total Company Adjusted EBITDA decreased 7.6% to $266 million when compared to $288 million in 2005. Cash flow from operations was $145 million compared to cash flow from operations of $59 million in 2005.
Steven J. Heyer, CEO, said "It was an outstanding quarter. We beat our growth expectations in all business segments, delivering North America Owned REVPAR growth of 12.8% and margin growth of 300 basis points. Worldwide System-wide REVPAR grew 10.3% and our management and franchise revenues grew over 34%, continued evidence that the lodging business remains robust.
We remain focused on our strategic initiatives - service excellence; brand development; pipeline development; vacation ownership growth; real estate development and repositioning. We launched new advertising programs for Westin and Sheraton, and we began to retrain our associates around the world to deliver branded signature services to our guests. We also completed the most significant component of the Le Meridien integration.
Since the beginning of the year, we returned more than $3.5 billion in value to our shareholders. We closed on the bulk of the assets sales to Host, returning $2.8 billion directly to shareholders in Host stock and cash, we repurchased $447 million or 7 million shares of our stock and we paid $276 million in dividends."
First Quarter Ended March 31, 2006
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Same-Store Owned Hotels increased 9.8%. REVPAR at Same-Store Owned Hotels in North America increased 12.8%; 15.8% at W, 13.6% at Westin, 13.4% at St. Regis/Luxury Collection and 10.3% at Sheraton. REVPAR growth was particularly strong at the Company's owned hotels in New York, San Diego, Atlanta, Seattle and Chicago. Internationally, Same-Store Owned Hotel REVPAR increased 3.4% excluding the impact of foreign exchange. As reported, in US dollars, Same-Store Owned Hotel REVPAR increased 1.8%, with Latin America up 21.0%, Europe down 2.2%, and Asia Pacific down 16.2%.
Revenues at Same-Store Owned Hotels in North America increased 12.0% while costs and expenses increased 7.9% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 300 basis points.
Revenues at Same-Store Owned Hotels Worldwide increased 8.9% while costs and expenses increased 6.0% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 225 basis points.
Reported revenues at owned, leased and consolidated joint venture hotels
were $822 million when compared to $813 million in 2005.
Reported operating income (before depreciation) from owned, leased and consolidated joint venture hotels was impacted by two factors:
Worldwide system-wide (owned, managed and franchised) REVPAR, excluding Le Meridien, increased 10.3% compared to the first quarter of 2005. System-wide REVPAR for Same-Store Hotels in North America, excluding Le Meridien hotels, increased 12.1%; W Hotels 15.1%, St. Regis/Luxury Collection 13.0%, Westin 12.4% and Sheraton 11.2%.
Management fees, franchise fees and other income were $132 million, up $28 million, or 26.9%, from the first quarter of 2005. Management fees grew by 55.6% to $56 million and franchise fees grew 20.0% to $36 million. The increase is related to the addition of new hotels (including Le Meridien), growth in REVPAR of existing hotels under management, offset in part by fees associated with hotels that left the system.
Le Meridien hotels contributed approximately $14 million of management and franchise fees during the first quarter of 2006. The integration of Le Meridien, which the Company acquired in November of last year, is proceeding well. During the first quarter, the Company completed the full integration of the reservations, distribution, loyalty and sales functions, allowing Le Meridien hotels to take advantage of the power of Starwood's global infrastructure and sales and marketing systems, giving it a solid foundation for growth.
During the first quarter of 2006, the Company signed 28 hotel management and franchise contracts (representing approximately 7,700 rooms; 12 Westin, 10 Sheraton, 2 W Hotels, 2 Four Points by Sheraton, 1 St. Regis and 1 Le Meridien) including the Sheraton Philadelphia City Center (Philadelphia, Pennsylvania, 757 rooms), Westin Beijing at Chaoyang (Beijing, China, 558 rooms) and the Sheraton Guangzhou-Teem Plaza (Guangzhou, China, 442 rooms). Of the hotels signed in the quarter, 20 were new builds and 8 were conversions from other brands. The Company had approximately 260 hotels and approximately 76,000 rooms in its active global development pipeline at March 31, 2006, with roughly half of that number in international locations. The Company expects to sign approximately 150 hotel management and franchise contracts in 2006.
During the first quarter of 2006, nine new hotels and resorts (representing approximately 1,600 rooms) entered the system, including the Westin Arlington Gateway (Arlington, Virginia, 336 rooms) and the Le Meridien St. Julians (St. Julians, Malta, 276 rooms). Eight properties (representing approximately 2,100 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.
While sales of vacation ownership intervals were up 18.5%, total vacation ownership revenues decreased $32 million or 17.1% to $155 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 6.1% to $28,708, and the number of contracts signed increased approximately 11.3% when compared to 2005. Fractional sales at the St. Regis in New York in the first quarter of 2006 were higher than anticipated due to a faster than expected start to the project.
While reported revenues were down year over year as discussed above, reported expenses were relatively flat 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 first quarter of 2006, the Company was actively selling vacation ownership interests at 15 resorts, compared to 11 resorts in the first quarter 2005. New resorts in active sales included the Westin Lagunamar Resort in Cancun, Mexico. In addition, the Company started pre-sales at the Westin Princeville Resort in Kauai, Hawaii and the St. Regis Residence Club in New York during the quarter. Starwood Vacation Ownership is also in the predevelopment phase of several new vacation ownership resorts.
During the first quarter of 2006, the Company recorded a one time expense of $72 million (after-tax) as a cumulative effect of a change in accounting associated with the adoption of SFAS No.152, "Accounting for Real Estate Time-Share Transactions."
The Company recognized residential revenues of approximately $39 million from continuing sales at the St. Regis Museum Tower in San Francisco, a decrease of $5 million compared to 2005. To date, the Company has invested approximately $334 million in the St. Regis San Francisco project which opened in November 2005. Through March 31, 2006, the Company has recognized approximately $237 million in revenues from the sale of the project's 102 condominiums. The condominiums have sold faster than anticipated in the first quarter and, as of the end of the quarter, only three condominiums remained available for sale.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 29.3% over the first quarter of 2005. Approximately $10 million of the increase is related to stock based compensation, including approximately $9 million of stock option expense. The remainder of the increase primarily relates to costs of sales and other expenses at the Company's Bliss Spa business.
On April 10, 2006, the Company completed the sale of 28 hotels to Host for total consideration of approximately $3.54 billion (including cash, Host stock and the assumption of debt). The Company expects to complete the sale of the seven remaining hotels in the portfolio later this quarter and expects to receive proceeds of $661 million in cash and $31 million in the form of property level debt which Host will assume when those sales are closed.
In addition to the portfolio of hotels sold to Host, during the first quarter of 2006, the Company sold five wholly-owned hotels for cash proceeds of approximately $269 million and recorded a net pre-tax gain of approximately $30 million associated with these sales. It is anticipated that two additional hotels will be sold in the second quarter of 2006 for approximate cash proceeds of $105 million.
Gross capital spending during the quarter included approximately $70 million in renovations of hotel assets including construction capital at the Sheraton Hotel & Towers in New York, New York and the Sheraton Centre Toronto Hotel in Toronto, Canada. Investment spending on gross VOI inventory was $39 million, which was offset by cost of sales of $34 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 Sheraton Vistana Villages in Orlando, Florida, the Westin Princeville Resort in Kauai, Hawaii and the Westin Kierland Villas in Scottsdale, Arizona.
During the first quarter of 2006, the Company repurchased approximately 7 million shares at a total cost of approximately $447 million. At March 31, 2006, approximately $596 million remained available under the Company's Board authorized share repurchase program. Starwood had approximately 218 million shares outstanding (including partnership units and exchangeable preferred shares) at March 31, 2006.
The 2005 annual dividend of $0.84 per share, declared on December 20, 2005, was paid on January 20, 2006. Also during the first quarter of 2006, Starwood Hotels & Resorts (the "Trust") declared a dividend of $0.21 per share, which was paid on March 10, 2006. In addition, the Trust 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 Corporation in December 2006 to be paid in January 2007, as set forth in the recently announced dividend policy that was adopted by the Board of Directors.
At March 31, 2006, the Company had total debt (including debt classified as held for sale) of $4.226 billion and cash and cash equivalents (including $295 million of restricted cash) of $1.055 billion, or net debt of $3.171 billion, compared to net debt of $2.941 billion at the end of 2005. Following the first phase of the Host transaction, net debt decreased by approximately $677 million (representing the gross cash proceeds received by Starwood in the transaction and debt assumed by Host) to approximately $2.5 billion and is expected to further decrease upon the closing of the sale of the remaining assets to Host later this quarter with $661 million of expected cash consideration and $31 million of debt to be assumed.
At March 31, 2006, debt was approximately 56% fixed rate and 44% floating rate and its weighted average maturity was 4.9 years with a weighted average interest rate of 6.09%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $1.619 billion.
All comments in the following paragraphs and certain comments in this release above are deemed to be forward-looking statements. These statements reflect expectations of the Company's performance given its current base of assets and its current understanding of external economic and geo-political environments. Actual results may differ materially.
The Company's guidance for 2006 assumes:
The Company recorded net charges of $14 million (after-tax) for special items in the first quarter of 2006 compared to $2 million of net credits (after-tax) in the same period of 2005.
Special items in the first quarter of 2006 primarily relate to debt defeasance costs and transition costs associated with the Le Meridien transaction, partially offset by the net gains realized on the sale of several hotels.
The following represents a reconciliation of income from continuing
operations before special items to income from continuing operations after
special items (in millions, except per share data):
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.
All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations. 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 ability to service debt, fund capital expenditures, pay income taxes and pay cash distributions. 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 the special items described on page 9 of this release and/or revenues and costs and expenses from hotels sold, 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 used Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. Due to guidance from the Securities and Exchange Commission, the Company now does not reflect such items when calculating EBITDA; however, the Company continues to adjust for these special items and refers to this measure as Adjusted EBITDA. 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 hotels sold to date, 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 hurricane damage.) 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 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 approximately 850 properties in more than 95 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®, Sheraton®, Westin®, Four Points® by Sheraton, W®, Le Meridien® and the recently announced aloft(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.
Starwood Hotels & Resorts Worldwide, Inc.
|Also See:||Starwood Reports Net Income for the 4th Qtr of 2005 Increased 59% to $159 million; For the Full Year 2005, Starwood's Earnings Up 7% to $422 million / Hotel Operating Statistics / February 2006|
|Starwood Reports 15% Increase in 4th Qtr Profit; Net Income $100 million vs $87 million a Year Earlier, REVPAR for Same-Store Owned Hotels Worldwide Increased 11.1% / Hotel Operating Statistics / February 2005|