News for the Hospitality Executive
Starwood Hotels Reports 3rd Qtr Net Income Fell 17%, Net
income of $129 million vs
$155 million in the 3rd Qtr of 2006; Worldwide System-wide REVPAR Up 9.5%
|WHITE PLAINS, N.Y. - October 25, 2007 - Starwood Hotels
& Resorts Worldwide, Inc. (NYSE: HOT) today reported strong third quarter
2007 financial results.
Third Quarter 2007 Highlights
• Excluding special items, EPS from continuing operations was $0.68, unchanged from the third quarter of 2006. Including special items, EPS from continuing operations was $0.61 compared to $0.71 in the third quarter of 2006.Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the third quarter of 2007 of $0.61 compared to $0.71 in the third quarter of 2006. Excluding special items, EPS from continuing operations was $0.68 for the third quarter of 2007, unchanged from the third quarter of 2006. Special items in 2007 net to a charge of $0.07 per share and primarily relate to losses on asset impairments. Special items in 2006 net to a benefit of $0.03 per share primarily due to one-time income tax benefits realized in connection with the sale of a portfolio of hotels offset in part by losses on asset dispositions. Excluding special items, the effective income tax rate in the third quarter of 2007 was 33.0% compared to 21.2% in the same period of 2006 due to non-recurring capital loss benefits generated in 2006 from the disposition of certain qualifying joint venture interests.
Income from continuing operations was $129 million in the third quarter of 2007 compared to $155 million in 2006. Excluding special items, which net to a $14 million charge in 2007 and a $7 million credit in 2006, income from continuing operations was $143 million for the third quarter of 2007 compared to $148 million in 2006.
Net income was $129 million and EPS was $0.61 in the third quarter of 2007 compared to net income of $155 million and EPS of $0.71 in the third quarter of 2006.
Frits van Paasschen, CEO, said, “Starwood reported yet another strong quarter driven by our strong brands, our large presence in the upper upscale and luxury segments, and our international platform, where system-wide REVPAR increased 13.9%. Our pipeline grew to almost 115,000 rooms in the quarter, creating a terrific opportunity for Starwood to continue to grow at above-industry growth rates. Despite the projected 2008 decline in our vacation ownership business, we expect 2008 to be another great year for the Company, as our core hotel business continues to enjoy strong fundamentals. We also repurchased $544 million of our stock in the quarter, a record amount for Starwood.”
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 9.5% compared to the third quarter of 2006, including 15.9% in Latin America, 14.6% in Asia Pacific, 13.5% in Europe, 13.3% in Africa & the Middle East and 6.1% in North America. Worldwide System-wide REVPAR increases for Same-Store Hotels by brand were: Le Méridien 16.0%, St. Regis/Luxury Collection 12.6%, Four Points by Sheraton 10.6%, Sheraton 9.2%, W Hotels 8.6% and Westin 5.9%.
Management fees, franchise fees and other income were $214 million, up $32 million, or 17.6%, from the third quarter of 2006. Management fees grew 13.1% to $112 million and franchise fees grew 25.8% to $39 million. Base management fees increased 7.7% and incentive fees increased 23.5%. Approximately 50% of the Company’s management and franchise fees are generated in markets outside of North America.
During the third quarter of 2007, the Company signed 38 hotel management and franchise contracts representing approximately 9,000 rooms, of which 36 were new builds and 2 were conversions from other brands.
At September 30, 2007, the Company had approximately 480 hotels in the active pipeline representing almost 115,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, approximately 70% are in the upper upscale/luxury segment, half are outside of North America, and 60% represent management contracts.
During the third quarter of 2007, 13 new hotels and resorts (representing approximately 3,500 rooms) entered the system, including the Westin Lombard Yorktown Center (Lombard, Illinois, 500 rooms), Sheraton Zhoushan Hotel (Zhoushan, China, 420 rooms), and the Westin Camporeal Hotel and Residences (Turcifal, Portugal, 311 rooms). Five properties (representing approximately 1,500 rooms) were removed from the system during the quarter. The Company expects to open approximately 75 hotels (representing approximately 20,000 rooms) in 2007 and is targeting signing approximately 200 hotel management and franchise contracts in 2007.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased
8.7%. REVPAR at Starwood branded Same-Store Owned Hotels in North America
increased 6.4%. Internationally, Starwood branded Same-Store Owned Hotel
REVPAR increased 5.9% excluding the impact of foreign exchange, and as
reported, in US dollars, branded Same-Store Owned Hotel REVPAR increased
Revenues at Starwood branded Same-Store Owned Hotels in North America increased 5.8% while costs and expenses increased 6.8% when compared to 2006. Margins at these hotels decreased 65 basis points due to the negative impact of renovations occurring at several of these hotels.
Revenues at owned, leased and consolidated joint venture hotels were $605 million when compared to $594 million in 2006. Revenues and operating income were impacted by the sale or closure of 11 hotels since the beginning of the third quarter of 2006. These hotels had no revenues or expenses in 2007 as compared to $33 million of revenues and $28 million of expenses (before depreciation) in the same quarter of 2006.
Total vacation ownership reported revenues increased 1.2% to $252 million when compared to 2006. Reported revenues are significantly impacted by the timing of the recognition of deferred revenues under percentage of completion accounting for projects under construction. During the third quarter of 2007, the Company was actively selling vacation ownership interests at 16 resorts and is also in the predevelopment phase of new fractional or vacation ownership resorts in Arizona, California, Colorado, Hawaii and Mexico.
Originated contract sales of vacation ownership intervals decreased 1.1% primarily due to lower sales of the Westin Kierland Villas in Scottsdale, Arizona as well as the St. Regis Aspen Residence Club in Aspen, Colorado, both of which sold out in late 2006. The average price per vacation ownership unit sold increased 1.7% to approximately $25,400 while the number of contracts signed decreased 2.3% when compared to 2006.
In the third quarter vacation ownership sales and profits fell below expectations in Hawaii due to a decline in close rates in September. This decline in close rates was primarily caused by limited available inventory in Maui (as the next phase at the Ka’anapali Ocean Resort has been delayed) and could continue into the fourth quarter and next year. As a result, reported results for the vacation ownership business are expected to be lower than the Company’s prior expectations by approximately $30 million for the full year 2007. Sales trends remain strong and unchanged in the East, Orlando and Cancun.
In addition, due to unsettled conditions in the asset-backed securities markets and given the Company’s strong liquidity, the Company has decided to postpone the annual securitization of the notes receivable generated by its vacation ownership business until market conditions improve. As a result, fourth quarter guidance no longer includes the previously anticipated $25 million gain on sale of the Company’s notes receivable.
During the third quarter of 2007, the Company’s residential revenues were $2 million as compared to $6 million in the prior year as our existing residential inventory is substantially sold out. The St. Regis Museum Tower in San Francisco sold out in the first half of 2006 and the St. Regis New York has only a few units remaining in inventory.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses was $116 million compared to $115 million in the third quarter of 2006.
During the third quarter of 2007, the Company entered into purchase and sale agreements for the sale of two wholly-owned hotels and recorded impairment losses totaling $21 million in connection with these sales. These sales, along with the sale of two additional hotels, are expected to be completed in the fourth quarter of 2007 for total cash proceeds of over $50 million. The Company expects to complete the remainder of the previously announced asset sales in early 2008.
Gross capital spending during the quarter included approximately $54 million in renovations of hotel assets including The Phoenician in Scottsdale, AZ, the W Los Angeles in Westwood, CA and the W San Francisco in San Francisco, CA and in construction capital at the new aloft and Element hotels under construction in Lexington, MA and the new aloft hotel in Philadelphia, PA. Investment spending on gross vacation ownership interest (“VOI”) inventory was $111 million, which was offset by cost of sales of $55 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, the Westin Princeville Resort in Kauai, the Westin Lagunamar Resort in Cancun, and the Westin St. John Resort and Villas in the Virgin Islands.
During the third quarter of 2007, the Company repurchased 9.2 million shares at a total cost of approximately $544 million. In the nine months ended September 30, 2007, the Company has repurchased approximately 19.2 million shares at a total cost of approximately $1.224 billion. At September 30, 2007, approximately $156 million remained available under the Company’s previously approved share repurchase authorization. Starwood had approximately 201 million shares outstanding (including partnership units) at September 30, 2007.
At September 30, 2007, the Company had total debt of $3.162 billion and cash and cash equivalents (including $227 million of restricted cash) of $408 million, or net debt of $2.754 billion, compared to net debt of $2.465 billion at the end of the second quarter of 2007. The increase in net debt at September 30, 2007 is primarily due to the share repurchases discussed above.
In September 2007, the Company completed a $400 million senior debt offering. This debt has a fixed interest rate of 6.25% and matures in 2013. The proceeds from this debt offering were used to pay down the Company’s revolving credit facility.
At September 30, 2007, debt was approximately 46% fixed rate and 54% floating rate and its weighted average maturity was 4.5 years with a weighted average interest rate of 6.83%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $2.196 billion. Availability under domestic and international revolving credit facilities, not including cash and cash equivalents, was $1.788 billion.
Results for the Nine Months Ended September 30, 2007
The Company’s guidance for 2007 assumes the following changes since the last time we provided estimates:
• The Company has lowered its expectations for vacation ownership operating
income by $25 million in the fourth quarter.
For the three months ending December 31, 2007:
-- REVPAR growth at branded
Same-store Owned Hotels in North
-- Growth from management
and franchise revenues of 13% to
-- A decrease in operating
income from our vacation ownership
For the full year 2007:
-- REVPAR growth at branded
Same-Store Owned Hotels in North
-- Growth from management and franchise revenues of 18% to 20%
-- Operating income from
our vacation ownership and
Preliminary guidance for the full year 2008:
• The Company expects 2008 Adjusted EBITDA to be between $1.300 billion and $1.340 billion. This represents strong growth in the Company’s core hotel business, offset by the decline in expected results at the Company’s Vacation Ownership business. The Company expects 2008 EPS to be between $2.47 and $2.60.
-- REVPAR growth at Same-Store
Company Operated Hotels
-- REVPAR growth at branded
Same-Store Owned Hotels worldwide
-- Growth from management and franchise revenues of 13% to 15%
-- Operating income from
our vacation ownership and
Starwood Hotels & Resorts Worldwide, Inc.
|Also See:||Starwood Maintains Consumer-Brand Focus, Names Frits van Paasschen, Former CEO of Coors Brewing Company, Chief Executive Officer/ September 2007|