|First Quarter Financial Highlights
("Starwood" or the "Company"), one of the world's largest hotel and leisure companies which operates the Sheraton, Westin, St. Regis, Luxury Collection, W and Caesars brands, today announced financial results for the first quarter ended March 31, 1999.
Pro Forma Comparable Results
For the first quarter of 1999, pro forma comparable income from operations (including Caesars) was approximately $27 million or $0.14 per diluted share on pro forma revenues of $1.2 billion compared to $14 million or $0.04 per diluted share on pro forma revenues of $1.1 billion in the corresponding period in 1998.
For the first quarter of 1999, pro forma comparable income from continuing operations (excluding gaming) was approximately $40 million or $0.20 per diluted share on revenues of approximately $851 million compared to comparable pro forma income from continuing operations of $24 million or $0.09 per diluted share on pro forma revenues of approximately $826 million for the corresponding period in 1998. The pro forma comparable results from continuing operations for the first quarter of 1999 assume the previously announced sale of Caesars for approximately $3 billion in cash and exclude pre-tax gains of $8 million on the sale of certain real estate and investments, a $15 million pre-tax charge relating to the reorganization of the Company to a C-Corporation in January 1999, and a previously announced $936 million deferred tax charge resulting from the reorganization.
These 1999 results further assume the disposition of other non-core businesses, as of the beginning of the quarter, with total proceeds of approximately $670 million of which approximately $400 million has been realized as of April 30, 1999.
The pro forma comparable results from continuing operations 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, assume the sale of Caesars discussed above, exclude pretax gains of $12 million on the sale of certain real estate and investments and assume a 40% effective tax rate (the effective tax rate for continuing operations in the first quarter of 1999). These 1998 results further assume the disposition of other non-core businesses with total proceeds of approximately $3.4 billion of which approximately $3.1 billion has been realized as of April 30, 1999.
"The first quarter of 1999 included several milestones for our company,"
Barry S. Sternlicht, chairman and chief executive officer of Starwood said.
"We completed our corporate reorganization, retired our near term debt
maturities, and with the sale of our stake in ESI and Madison Square Garden
and the pending sale of Caesars, we will have realized over $6 billion
of asset sales proceeds since acquiring ITT. By deleveraging our balance
On an operating front, we are generally pleased with our first quarter performance. In the US our RevPar was adversely impacted by renovations at six large hotels in New England, the nation's strongest RevPar market in the first quarter," Mr. Sternlicht said. "In addition, strength continued in Europe, Asia appears to be entering a recovery period and despite a drop in RevPar in Latin America caused by the currency and economic crisis, EBITDA actually increased slightly. As importantly, the company is making improvements each day in integrating operations, implementing technology enhancements and identifying and implementing purchasing synergies. We believe that some of these initiatives are being reflected in our significantly improved operating margins.
The period of reorganization is behind us," Mr. Sternlicht said. We are focused on our core global lodging business. 1999 will be the year to focus on our brands, training our people and renovating our superior owned real estate, providing additional value for our customer without increasing the cost of our operations," Mr. Sternlicht concluded.
Hotel Group Results
On a same-store-sales basis, revenues for the first quarter of 1999 at the Company's 172 owned and leased hotels, increased 5% to $746 million from $710 million in 1998, EBITDA margins increased to 30.3% from 28.3%, and EBITDA increased 12% to $226 million from $201 million in 1998. The increase in EBITDA reflects a 14% increase in North America and a 23% increase in Europe, offset by weakness in Latin America due to the economic conditions. Excluding 23 hotels under significant renovation, or for which comparable results are not available, EBITDA margins increased from 29.9% in 1998 to 32.3% in 1999 and EBITDA increased 13% to $220 million in 1999 when compared to the same period in 1998. For the quarter, same-store RevPar increased 4.1% to $99.30 from $95.40 in the corresponding period of 1998. The increase in RevPar primarily resulted from an increase in ADR of 3.4% to $145.57 from $140.74, and an increase in occupancy to 68.2% from 67.8% in the corresponding period in 1998.
During the quarter, the Company signed management and franchise agreements for 30 hotels with more than 5,000 rooms, including the 600 room Essex House in New York City. In addition, the Company signed 5 new management and franchise agreements for hotels previously in the Company's portfolio, including retention of the 1,072 room Century Plaza in Los Angeles. Starwood also acquired a 25% interest in the 5-hotel Moriah chain of hotels in Israel and made an investment in the 12-hotel Block chain of hotels in Africa. Also, 22 managed or franchised hotels with approximately 5,800 rooms opened during the quarter. More than 30,000 new rooms are currently in the Company's development pipeline around the world.
Discontinued Operations - Gaming Results
Excluding the Desert Inn in Las Vegas which was held for sale at March 31, 1999, Caesar's recorded revenues of $346 million in the first quarter of 1999, up 20% from the prior year's quarter, and a 25% increase in EBITDA to $84 million this period.
Gain (Loss) on Disposition of Discontinued Operations
On April 27, 1999, the Company entered into a definitive agreement with Park Place Entertainment Corporation to sell the Company's gaming operations (excluding the Desert Inn) for $3 billion in cash, resulting in the recognition of an estimated after-tax loss on disposal of the gaming operations (including the Desert Inn) of $180 million in the first quarter of 1999.
In addition, during the first quarter of 1999, the Company realized approximately $310 million in net proceeds from the completion of the sale of Educational Services, Inc. ("ESI") resulting in an after-tax gain of $173 million.
In April 1999, the Company sold its remaining interest in Madison Square Garden for $87 million in cash. During the first quarter of 1999, the Company realized approximately $25 million from the sale of the International Golf Club in Bolton, MA.
Renovations and New Construction
During the first quarter, the Company invested approximately $112 million in new construction and capital improvements with approximately $82 million spent on hotel assets and approximately $30 million spent on gaming assets.
In the first quarter, approximately 250,000 available room nights, or
nearly 5% of the total available room nights worldwide at owned properties,
were lost due to renovations. Of this number, approximately 150,000 were
in owned properties in the New England region, one of the nations strongest
markets in the first quarter. These included the Sheraton Ferncroft Resort
in Danvers, MA; the Sheraton Tara Hotel in Newton, MA; Sheraton Needham,
MA; Sheraton Tara in Braintree, MA; Sheraton Boston Hotel Towers; Park
Plaza Hotel in Boston.
On March 31, 1999, the Company had total debt of approximately $8.5 billion and cash of approximately $253 million. In February 1999, Starwood completed a $540 million 10-year mortgage financing at a rate of 6.98%. Proceeds of the mortgage financing were used to refinance the asset sale bridge portion of the Company's Senior Credit Facility. Starwood has no significant debt maturing until November 2000, and the weighted average maturity of the Company's debt portfolio exceeds five years.
The Company expects to significantly improve its balance sheet by retiring the increasing rate notes with the proceeds from the Caesars sale. At the end of the first quarter, the Company's debt was approximately 50% fixed and 50% floating. Adjusting for the sale of the Company's gaming operations, the debt portfolio is expected to shift to approximately 70% fixed and 30% floating.
During the quarter, the Company declared a dividend of $0.15 per paired share. The payment reflects Starwood's new dividend policy of $0.60 per share per year, established as part of the conversion from a paired share REIT to a C-Corporation. During the first quarter, the Company repurchased approximately 0.5 million shares for approximately $16 million bringing the total number of shares repurchased to 10.6 million since the second quarter of 1998. At the end of the quarter, Starwood had approximately 198 million shares outstanding (including partnership units and exchangeable preferred shares).
New Corporate Structure
On January 6, 1999, the Company's shareholders approved a reorganization
(the "reorganization"), as a result of which Starwood has become a C-Corporation
and Starwood Hotels and Resorts became a subsidiary of the Company.
As previously announced in connection with the Reorganization, the Company
recorded one-time charges during the first quarter of 1999 of $15 million
for direct costs attributable to the Reorganization and a $936 million
non cash charge to establish a deferred tax liability relating to the difference
between the book and tax basis in the assets of the Trust. The direct
costs are included in miscellaneous expense and the deferred tax charge
is included in income tax expense in the first quarter 1999 statement of
(Note: This release contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are no guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated at the time the forward-looking statements are made, including, without limitation, risks and uncertainties associated with the following: the continued ability of Starwood Hotels and Resorts (the "Trust") to qualify for taxation as a REIT; Starwood's integration of the assets and operations of ITT and Westin; completion, terms and timing of future acquisitions and dispositions, including the pending sale of Caesars World, Inc.; the availability of capital for acquisitions and for renovations; execution of hotel and casino renovation and expansion programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on current terms; competition within the lodging industry and the gaming industry; the cyclicality of the real estate business, the hotel business and the gaming business; foreign exchange fluctuations; general real estate and national and international economic conditions; political, financial and economic conditions and uncertainties in countries in which Starwood owns property or operates; the ability of Starwood, owners of properties it manages or franchises and others with which it does business to address the Year 2000 issue, and the costs associated therewith; the adoption by several European countries of the euro as their national currency; and the other risks and uncertainties set forth in the annual, quarterly and current reports and proxy statements of the Trust and Starwood. Starwood undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.)
|Also See:||Starwood Restructures to a C Corp Due to Recently Enacted Federal Tax Legislation / Jan 1999|
|Starwood Soon to be Manhattan's Dominant Hotel Player with 6,100 Rooms / April 1999|