|17% increase to $0.70 in combined pro forma funds from operations (FFO) per paired share.|
|12.3% increase in same store REVPAR for 106 owned hotels in NorthAmerica.|
|11.2% increase in same store REVPAR for 151 owned hotels worldwide.|
|EBITDA margin for 151 owned hotels worldwide increased from 26.0%to 29.4%.|
|30 new management or franchise agreements executed.|
|15% increase in EBITDA at Caesars Atlantic City.|
|Share repurchase program increased to $135 million.|
|Management team reorganized and integration plan proceeding rapidly.|
Starwood Hotels Resorts (the Trust) and Starwood Hotels Resorts Worldwide, Inc. (the Corporation) (together "Starwood" or the "Company") (NYSE: HOT), the world's largest hotel and gaming company which operates the Sheraton, Westin, St. Regis, Luxury Collection, Ciga and Caesars brands, today announced record combined financial results for the first quarter ended March 31, 1998.
Pro Forma Results
For the first quarter of 1998, combined pro forma FFO was approximately $150 million or $0.70 per diluted paired share on combined pro forma revenues of $2.1 billion compared to combined FFO of approximately $33.1 million or $0.60 per paired share on combined revenues of approximately $173 million for the corresponding period in 1997 as reported on an actual basis by Starwood.
The pro forma results for the first quarter of 1998 reflect the February 23, 1998 merger (the "ITT Merger") of the Company with ITT Corporation ("ITT") as if the ITT Merger had occurred on January 1, 1998 and assumes the sale of a number of previously announced non-core businesses with total gross proceeds of approximately $3.4 billion, of which approximately $2.3 billion has been realized. In addition, on May 1, 1998 the company sold a portfolio of 8 hotels for gross proceeds of $245 million.
Hotel Group Results
On a same-store-sales basis, results for the first quarter of 1998 at the Company's 179 owned and leased hotels, reflect an increase in revenues of 12.2% to $744 million from $663 million in 1997, an increase in EBITDA margins to 28.0% from 25.3%, and an increase in EBITDA of 24.1% to $208.5 million from $168.0 million in 1997. Excluding 28 hotels held for sale, under significant renovation, or for which comparable results do not exist, EBITDA margins increased from 26.0% in 1997 to 29.4% in 1998 and EBITDA increased 28% to $200.1 million in 1998 when compared to the same period in 1997. For the quarter, REVPAR for these hotels increased 11.2% to $94.58 from $85.07 in the corresponding period of 1997. The increase in REVPAR was due to the increase in ADR of 7.7% to $140.10 from $130.09 and an increase in occupancy to 67.5% from 65.4% in the corresponding period in 1997.
"I am pleased with our results this quarter, produced at a time of considerable corporate restructuring and reorganization. Our industry leading REVPAR results are a reflection of the extraordinary asset base we have so painstakingly assembled these past three years. Nearly sixty percent of HOT's domestic lodging EBITDA is derived in the New England, Mid-Atlantic (predominantly New York City) and Pacific regions in markets specifically targeted for acquisition because of their higher barriers to entry," said Chairman Barry Sternlicht.
Additionally in the quarter, some of our largest properties were out of service including the 717 room Doral Inn in New York and a 428 room tower at the Sheraton Prudential Center in Boston. Most exciting are the prospects for the portfolio as it undergoes the renovation process. The results, to date, of our carefully planned renovation projects which have been featured in design magazines are outstanding. As an example, the Westin Washington, Westin Philadelphia Airport and Edmond Meany achieved REVPAR gains from 30 to 70% for the quarter."
"Since the ITT acquisition closed only five weeks before the end of the quarter, the quarter reflects almost no benefits of the merger. I believe the best is yet to come. There are virtually no benefits in the quarter of cross selling or improved marketing nor cost cutting measures now being implemented as our company was not yet operating as a unified force. I am also very pleased with the performance of our important divisions in Europe and Latin America where REVPAR grew 14% and 12% respectively for the quarter offsetting the weakness in Asia."
As of March 31, 1998 the Company's portfolio of owned, managed and franchised hotels totaled approximately 660 hotels in 68 countries with almost 215,000 rooms. During the quarter, the Company signed 30 new management and franchise agreements for its various brands and currently has applications filed on an additional 27 properties.
Including the Desert Inn in Las Vegas which was held for sale at March 31, 1998, the Company's Gaming group recorded revenues of $318 million in the first quarter of 1998, up 9% from the prior year's quarter, and a 37% increase in EBITDA to $63 million this period. Excluding the Desert Inn results, Gaming Group EBITDA was flat when compared to the first quarter of 1997, reflecting improved results at all properties offset by Caesars Palace in Las Vegas.
Gaming accounts for approximately 25% of the Company's total pro forma EBITDA from ongoing operations in 1998 with approximately 8% of company EBITDA derived from Caesars Palace, approximately 8% from Caesars Atlantic City and the balance from Caesars 8 other casino operations in five countries.
At Caesars Palace, an additional 1,130 rooms and 91,000 square feet of convention space were in service in the first quarter of 1998 versus the same quarter in 1997. The new rooms, which have significantly improved the asset's competitive position, were immediately absorbed with occupancy and ADR rising to 93% and $135 compared with 89% and $132, in the same period in 1997.
However, due to the adverse impact of the Asian markets on high-end baccarat play, primarily during the Chinese New Year, EBITDA at Caesars Palace decreased by approximately $6 million to $26 million for the first quarter of 1998 when compared to the same period in 1997. Food and beverage revenues rose 59% and slot win increased 21%.
EBITDA at Caesars Atlantic City was $29 million in the first quarter of 1998 up 15% over the same period in 1997, despite the fact that 17% fewer slot machines were in service due to ongoing renovations. The impact of an additional 620 rooms in the first quarter of 1998 resulted in gains in all revenue categories bringing total revenues up 6% to $104 million in 1998 when compared to $98 million in the first quarter of 1997. The 30,000 square foot casino expansion and replacement of slot inventory is scheduled to be completed by Labor Day with façade renovations completed by June 30, 1998. Upon completion, Caesars Atlantic City will boast 3,600 slots and 125 tables versus current inventory of 2,300 slots and 100 tables.
The Company's remaining Gaming facilities, including Caesars Tahoe, Sheraton Halifax, Sheraton Sydney, and Sheraton Tunica reported an increase in EBITDA of approximately 9% to $12 million in the first quarter of 1998 when compared to the first quarter of 1997 on flat revenues.
In February, Caesars obtained approval from the Army Corps of Engineers and expects to begin Caesars Indiana Riverboat operations in September. The Riverboat will be the largest in the country and will be the only competitor in the Louisville market for the foreseeable future. In March, Caesars was awarded a preliminary gaming license in Johannesburg, South Africa and expects to begin operations of a temporary casino in the fourth quarter and in April, Caesars held a partial opening of the new Caesars Club Casino in Manila. The full casino is planned to open in June.
Integration Of Operations Proceeding Rapidly
During the quarter, the Company's new management structure was implemented and includes certain key executives from each of ITT, Westin, Starwood, and Caesars. In April, Richard D. Nanula, formerly EVP and Chief Financial Officer of Disney, was named President and CEO of Starwood Hotels and Resorts Worldwide, Inc. Juergen Bartels, formerly CEO of Westin Hotels, was appointed CEO of the Hotel Group, and Peter Boynton, formerly CEO of Caesars World, Inc., was named Chairman and CEO of the Gaming Group. Dan Weadock, formerly CEO of Sheraton, was appointed Assistant to the Chairman spearheading the integration process.
Operational improvements as a result of the reorganization are now in the implementation phase. Cross selling and marketing programs, including the redemption of frequent stay miles between the company's brands, are proceeding on track and significant progress is being made in the areas of cost synergies including purchasing, insurance, employee benefits, finance, marketing and reservation system and call/sales center functions.
The integration of the two frequent flyer programs is expected to be completed during the fourth quarter. The Company has selected Sheraton's Reservatron IV System for its combined operations and has begun the integration process. In addition, the new consolidated headquarters located in Westchester County, New York will open on May 11, 1998 and all remaining New York City operations will be shut down.
On January 2, 1998 the Company completed the acquisition of Westin Hotels Resorts for a combination of securities, cash and assumed debt with an aggregate value of approximately $1.8 billion.
On January 16, 1998 the Company completed the acquisition of four full-service, luxury properties located in Aspen, Colorado; New York City, New York; Washington, D.C.; and Houston, Texas. The Aspen property has been reflagged a St. Regis and the New York property was reflagged a Westin.
On February 23, 1998 the Company completed the acquisition of ITT for an aggregate value of $14.6 billion including cash, paired shares, and assumed debt. The Company's acquisition pipeline remains full and has now expanded globally and currently more than $215 million of acquisitions are under letters of intent.
In connection with the ITT acquisition, the Company entered into credit facilities with a group of financial institutions representing an aggregate of approximately $5.6 billion. The Company expects to lengthen and stagger debt maturities over the next six months. During the quarter, the Company increased its dividend to 52 cents from 48 cents per share.
Reflecting management belief in the underlying value of the company, in April, the company also repurchased approximately 1 million shares at an aggregate cost of approximately $50 million. The Board has increased the share repurchase program by an additional $85 million.
On February 19, 1998, the Company completed the disposition of ITT World Directories to VNU for a total gross consideration to the Corporation of $2.1 billion.
Upon completion of the ITT transaction, the Company owned approximately 22.5 million shares of Educational Services, Inc. (NYSE: ESI). The Company has filed a registration statement to sell 11.0 million shares in a public offering.
In March, the Company completed the sale of its interest in WBIS+ to Paxson Communications and realized proceeds of approximately $129 million.
In April, the Company exercised its put rights with respect to half of its interest in Madison Square Garden, which interest is expected to generate proceeds of $94 million and on May 1, the company completed the sale of eight hotel properties for $245 million as well as the sale of its Gulfstream V corporate aircraft prior to delivery for $39 million.
The Desert Inn, including 32 acres of adjacent land on the strip in Las Vegas, is currently being marketed for sale.
Renovations And Repositionings
During the first quarter, the Company invested approximately $200 million in capital improvements--approximately 50/50 between gaming and hotels. About 50% of the gaming capital expenditure was invested in the Harrison County River Boat.
The following recently renovated properties realized average gains in REVPAR of more than 40% on a year over year basis for the 120 day period following the completion of their respective renovations:
To date, the Company has converted 11 owned hotels to the Westin, Sheraton and Four Points Hotel brands. The Company expects to convert an additional 14 owned hotels to its proprietary brands during the balance of 1998.
"Overall, I am extremely pleased with the progress we are making to integrate our operations and maximize the value of our extraordinary asset base. With Richard Nanula's appointment we have added significantly to our management strength, and we are poised to add to our already talented enterprise. We are only in the second inning of the internal growth of our company," said Mr. Sternlicht. "Our assets are in the nation's strongest markets. Significant cost efficiencies should surface from cross selling, consolidating our reservations functions, complexing our properties, building our frequent guest programs, consolidating our sales offices and sharing the best practices of our company. In this manner, we expect to close our occupancy gap to our competitors. We expect to drive revenue while reducing our cost of operation, making Starwood the company of choice for owners and franchisees around the world. The expansion of the St. Regis, "W", and Four Points brands around the world, the completion of renovation projects, and the expected contribution from our nascent timeshare operation are all expected to contribute to tremendous year over year EBITDA growth, both domestically and abroad. In gaming, annualized operations in Atlantic City and our expansion into new markets, primarily Harrison County, should provide strong growth into 1999, more than offsetting possible weakness in the Las Vegas market. We are organizing a complete evaluation of our gaming operations to implement as necessary the appropriate business modification to respond to changing market conditions. We have an extraordinarily bright future." Starwood Hotels Resorts Worldwide, Inc. through its ITT Sheraton, Westin and Caesars subsidiaries, is one of the leading hotel and gaming operating companies in the world. Starwood Hotels Resorts is the largest real estate investment trust in the United States. Shares of Starwood Hotels Resorts Worldwide, Inc. are paired and trade together with shares of Starwood Hotels Resorts.
(Note: Statements in this press release which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Starwood Hotels believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Starwood Hotels expectations include completion of pending acquisitions, continued availability of acquisitions, continued availability of debt and equity on favorable terms, legislative proposals to limit expansion of paired-share real estate investment trusts, foreign exchange fluctuations, performance of hotel operations, financial performance, real estate conditions, market valuations of its stock, execution of hotel renovation programs, changes in local or national economic conditions and other risks detailed from time to time in the Starwood Hotels Resorts SEC reports, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K.)