WHITE PLAINS, New York—Fresh off a month-long sojourn in China, the management team of Starwood Hotels & Resorts Worldwide still had their sites focused overseas while reporting the company’s second-quarter earnings from their home base in White Plains, New York.
“Our time there has left us as bullish as ever about our long-term growth prospects in China,” said Frits van Paasschen, the company’s CEO, amid an overall update on strong worldwide performance numbers from the hotel owner, operator and franchisor.
The Asia market saw a “modest” 7.3% increase in revenue per available room for the quarter, which is on top of a gain of 28% during the same period last year.
Worldwide RevPAR for Starwood-branded same-store owned hotels increased 18.5% (12.5% in constant dollars) compared to 2010. RevPAR for Starwood-branded same-store owned hotels in North America increased 10.8% (8.7% in constant dollars).
| Region | Reported | Constant Dollars |
| North America | 9.5% | 8.7% |
| Europe | 24.8% | 12.2% |
| Asia/Pacific | 14.4% | 7.3% |
| Africa and the Middle East | (7.1%) | (7.2%) |
| Latin America | 17.1% | 17.1% |
| Worldwide same-store hotels | 18.5% | 12.5% |
The only region to report a notable decline was Africa and the Middle East, which were plagued by political instability and unrest.
“Reading headlines, it’s easy to feel skittish about the near term. There are many factors that could upend this recovery,” van Paasschen said. “… But drivers of our business paint a more robust picture.”
The company continues to see growth in demand, interest from developers and investors, and an uptick in activity among its key customers, Starwood’s chief said.
Group pace for 2011 is up, van Paasschen said. Newly booked business for 2012 is up 9%, and beyond 2012 that number is 12%.
Other highlights include:
- Excluding special items, earnings per share from continuing operations was 50 cents, an increase of 43% compared to 2010. Including special items, EPS from continuing operations was 77 cents;
- adjusted earnings before interest, taxes, deprivation and amortization was US$262 million;
- during the quarter, the company completed the sales of two wholly-owned hotels and one consolidated joint venture hotel for cash proceeds of approximately US$281 million and the assumption of approximately US$57 million of debt by the buyer;
- during the quarter, the company signed 22 hotel management and franchise contracts representing approximately 5,900 rooms and opened 13 hotels and resorts with approximately 2,900 rooms; and
- net income was US$131 million and 68 cents per share in the second quarter of 2011 compared to US$114 million and 61 cents per share in the second quarter of 2010.
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Starwood in China
While van Paasschen did not anticipate all the attention his trip to China would garner, he admitted he was not surprised upon reflection. The China market is a “huge phenomenon,” he said.
It’s also Starwood’s No. 1 growth driver.
“Our Chinese business is on track to triple within five years,” said Vasant M. Prabhu, vice chairman and CFO.
The company’s Sheraton brand will double its China presence in the next three years, while Four Points by Sheraton accounts for nearly a quarter of the company’s development pipeline in the country. There are also nine St. Regis hotels in the pipeline, and a handful of other brands as well.
“This decade represented a once in a lifetime opportunity not just to grow, but to shape the market,” van Paasschen said.
The company has invested in its infrastructure and has the foundation to triple its existing number of associates to 90,000 within the next five years, he said.
Starwood also is looking to capitalize on the growth of outbound travelers from China. There were 50 million such trips during 2010, a number that has grown five-fold since 2000, van Paasschen said.
Earlier this month, Starwood launched its Personalized Traveler program, which aims to bring the familiar comforts of home to Chinese travelers abroad.
“The world is changing like never before, and the way I see it, it’s changing in our favor,” van Paasschen said.
Outlook
Despite the volatile state of the global economy, Starwood maintained the same outlook it issued at the start of the year.
“Our outlook assumes the normal cyclical recovery we have been experiencing in lodging will continue,” Prabhu said.
Adjusted EBITDA is expected to be approximately US$975 million to US$1 billion, assuming the following factors:
- RevPAR increases at same-store company-operated hotels worldwide of 7% to 9% in constant dollars (approximately 300 basis points higher in dollars at current exchange rates);
- RevPAR increases at branded same-store owned hotels worldwide of 8% to 10% in constant dollars (approximately 400 basis points higher in dollars at current exchange rates);
- asset sales completed to date reduce EBITDA for the year by approximately US$20 million;
- margin increases at branded same-store owned hotels worldwide of 150 to 200 basis points;
- management fees, franchise fees and other income increase of approximately 11% to 13% and were negatively impacted by approximately 200 basis points by Japan and North Africa;
- earnings from vacation ownership and residential business of approximately US$130 million to US$140 million; and
- selling, general and administrative expenses increase 4% to 5%.