Starwood Reports 2nd Qtr 2006 Net Income Soars to $680
million from $145 million -
$511 million from One-time Gains on the Sale of 33 Hotels to Host Hotels
Hotel Operating Statistics
|WHITE PLAINS, N.Y - -July 27, 2006 --
Starwood Hotels & Resorts Worldwide, Inc. Second Quarter 2006 Highlights
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.
Income from continuing operations for the second quarter of 2006 as compared to 2005 was impacted by four major items:
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.
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.
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 Meridien 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 Meridien hotels contributed $23 million and $16 million, respectively, of management and franchise revenues during the second quarter of 2006. Worldwide Le Meridien 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 Meridien, 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 Meridien 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.
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.
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 Meridien acquisition.
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).
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.
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.
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.
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.
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 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.
The Company's guidance for 2006 assumes the following changes since the last time we provided estimates:
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.
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):
Three Months Ended
Six Months Ended
Income from continuing operations
$680 $145 Income from continuing
operations $757 $224
(a) Restructuring and other special charges, net primarily related to
(b) During the three months ended March 31, 2006, the Company
(c) During the three months ended June 30, 2006, the Company incurred
(d) For the three months ended June 30, 2006, primarily reflects
(e) Represents taxes on special items at the Company's incremental tax
(f) Primarily relates to a deferred tax asset recognized on the
(g) Income tax benefit in the three and six months ended June 30, 2006
Starwood will be conducting a conference call to discuss the second quarter financial results at 10:30 a.m. (EST) today. The conference call will be available through simultaneous webcast 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 12:30 p.m. (EST) today through Thursday, August 3 at 12:00 midnight (EST) on both the Company's website and via telephone replay at (719) 457-0820 (access code 4870671).
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 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 revenues and costs and expenses from hotels sold, restructuring 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. 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(R) 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), Sheraton(R), Westin(R),
Four Points(R) by Sheraton, W(R), Le Meridien(R) 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
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 and the hotel and vacation ownership businesses, operating risks associated with the hotel and vacation ownership 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 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 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. Although we believe the expectations reflected in such 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.
Starwood Hotels & Resorts Worldwide, Inc.
|Also See:||Starwood Hotels & Resorts Reports 1st Qtr Net Income Falls to $5 million from $79 million a Year Earlier; Takes a $72 million Expense Related to a change in Accounting for Timeshare Transactions; Management Fees Grew 55.6% to $56 million and Franchise Fees Grew 20% to $36 million / Hotel Operating Results / April 2006|
|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|