Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported first quarter 2011 financial results.
Excluding special items, EPS from continuing operations was $0.30. Including special items, EPS from continuing operations was $0.15.
Adjusted EBITDA was $208 million.
Excluding special items, income from continuing operations was $58 million. Including special items, income from continuing operations was $29 million.
Worldwide System-wide REVPAR for Same-Store Hotels increased 10.4% (9.1% in constant dollars) compared to 2010. System-wide REVPAR for Same-Store Hotels in North America increased 11.1% (10.4% in constant dollars).
Management fees, franchise fees and other income increased 15.7% compared to 2010.
Worldwide Same-Store company-operated gross operating profit margins increased approximately 90 basis points compared to 2010. Gross operating profits were negatively impacted by events in the Middle East, North Africa and Japan.
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 11.9% (10.2% in constant dollars) compared to 2010. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 9.6% (7.9% in constant dollars).
Margins at Starwood branded Same-Store Owned Hotels Worldwide increased approximately 90 basis points compared to 2010. Excluding Latin America, which was impacted by the increasing gap between inflation and currency devaluation, margins increased over 210 basis points.
Earnings from our vacation ownership and residential business increased $10 million compared to 2010.
During the quarter, the Company signed 29 hotel management and franchise contracts representing approximately 8,700 rooms and opened 21 hotels and resorts with approximately 5,200 rooms.
First Quarter 2011 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the first quarter of 2011 of $0.15 per share compared to $0.16 in the first quarter of 2010. Excluding special items, EPS from continuing operations was $0.30 for the first quarter of 2011 compared to $0.13 in the first quarter of 2010. Special items in the first quarter of 2011, which totaled $33 million (pre-tax), primarily relate to a charge associated with the Company’s minority investment in a hotel in Tokyo, Japan following the earthquake in March 2011. Excluding special items, the effective income tax rate in the first quarter of 2011 was 21.0%, compared to 14.5% in the first quarter of 2010.
Income from continuing operations was $29 million in the first quarter of 2011 compared to $30 million in the first quarter of 2010. Excluding special items, income from continuing operations was $58 million in the first quarter of 2011 compared to $24 million in the first quarter of 2010.
Net income was $28 million and $0.14 per share in the first quarter of 2011 compared to $30 million and $0.16 per share in the first quarter of 2010.
Frits van Paasschen, CEO said, “We were able to exceed expectations despite turmoil in North Africa and the Middle East and the devastating earthquake in Japan. This is thanks to our laser-focus on growing faster than the market and flowing this outperformance down to the bottom-line.”
“The outlook for the rest of the year looks promising as we view the events of the past few months as not having derailed the overall global economic recovery. For example, our group and transient bookings remain robust. As such, we remain cautiously confident for 2011 and are bullish about our long-term prospects.”
First Quarter 2011 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 10.4% (9.1% in constant dollars) compared to the first quarter of 2010. International System-wide REVPAR for Same-Store Hotels increased 9.5% (7.5% in constant dollars).
Worldwide Same-Store company-operated gross operating profit margins increased approximately 90 basis points in the first quarter. International gross operating profit margins for Same-Store company-operated properties were flat, negatively impacted by the political unrest in the Middle East and North Africa, as well as the earthquake in Japan. North American Same-Store company-operated gross operating profit margins increased approximately 200 basis points, driven by REVPAR increases and cost controls.
Management fees, franchise fees and other income were $177 million, up $24 million, or 15.7% from the first quarter of 2010. Management fees increased 11.5% to $97 million and franchise fees increased 22.9% to $43 million.
During the first quarter of 2011, the Company signed 29 hotel management and franchise contracts, representing approximately 8,700 rooms, of which 19 are new builds and 10 are conversions from other brands. At March 31, 2011, the Company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.
During the first quarter of 2011, 21 new hotels and resorts (representing approximately 5,200 rooms) entered the system, including the W London Leicester Square (England, 192 rooms), Sheraton Shanghai Hotel, Hongkou (China, 471 rooms), W Bali (Indonesia, 237 rooms), The Westin Phoenix Downtown (Arizona, 242 rooms), and The Liberty Hotel, a Luxury Collection Hotel (Boston, Massachusetts, 298 rooms). Eleven properties (representing approximately 3,400 rooms) were removed from the system during the quarter.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 11.9% (10.2% in constant dollars) in the first quarter of 2011 when compared to 2010. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 9.6% (7.9% in constant dollars). Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 14.9% (13.3% in constant dollars).
Revenues at Starwood branded Same-Store Owned Hotels in North America increased 6.5% while costs and expenses increased 4.6% when compared to 2010. Margins at these hotels increased approximately 150 basis points.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 8.5% (6.9% in constant dollars) while costs and expenses increased 7.4% (6.3% in constant dollars) when compared to 2010. Margins at these hotels increased approximately 90 basis points and were negatively impacted by approximately 120 basis points due to continued increase in the gap between inflation and currency devaluation at the Company’s Latin America hotels.
Revenues at owned, leased and consolidated joint venture hotels were $410 million, compared to $381 million in 2010. Expenses at owned, leased and consolidated joint venture hotels were $361 million compared to $329 million in 2010. First quarter results were negatively impacted by pre-opening costs at the new leased W London Leicester Square, the effect of the earthquake at the new leased St. Regis Osaka, one renovation and one asset sale.
Vacation Ownership
Total vacation ownership revenues increased 12.2% to $147 million compared to 2010. Originated contract sales of vacation ownership intervals increased 6.5% primarily due to improved sales performance on existing owner channels and increased tour flow from new buyer preview packages. The number of contracts signed increased 7.8% when compared to 2010 and the average price per vacation ownership unit sold decreased 1.4% to approximately $16,500, driven by inventory mix.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 5.3% to $80 million compared to $76 million in 2010.
Capital
Gross capital spending during the quarter included approximately $40 million of maintenance capital and $33 million of development capital. Net investment spending on vacation ownership interest (“VOI”) and residential inventory was $16 million, primarily related to the St. Regis Bal Harbour project.
Balance Sheet
At March 31, 2011, the Company had gross debt of $2.853 billion, excluding $459 million of debt associated with securitized vacation ownership notes receivable. Additionally, the Company had cash and cash equivalents of $732 million (including $57 million of restricted cash), and net debt of $2.121 billion, compared to net debt of $2.060 billion as of December 31, 2010. Net debt at March 31, 2011 including debt and restricted cash ($21 million) associated with securitized vacation ownership notes receivables was $2.559 billion.
At March 31, 2011, debt was approximately 78% fixed rate and 22% floating rate and its weighted average maturity was 4.0 years with a weighted average interest rate of 6.80% excluding the securitized debt. The Company had cash (including current restricted cash) and availability under the domestic and international revolving credit facility of approximately $2.091 billion.
On April 6, 2011, the Company completed the sale of one wholly-owned hotel for cash proceeds of approximately $110 million. This hotel was sold subject to a long-term management contract.
Outlook
For the three months ended June 30, 2011:
Adjusted EBITDA is expected to be approximately $245 million to $255 million, assuming:
REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 200 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).
Management fees, franchise fees and other income increase approximately 10% to 12%, negatively impacted by approximately 200 basis points by Japan and North Africa.
Earnings from our vacation ownership and residential business are flat.
Depreciation and amortization is expected to be approximately $79 million.
Interest expense is expected to be approximately $58 million.
Income from continuing operations is expected to be approximately $82 million to $90 million, reflecting an effective tax rate of approximately 24%.
Assuming all of the above, EPS is expected to be approximately $0.42 to $0.46.
For the Full Year 2011:
Macro-economic and geo-political environments remain uncertain. We believe that several scenarios are possible. With low supply growth in developed markets and high demand growth in emerging markets, rate improvement will be the key driver of 2011 results. Based on trends to date, our outlook assumes a normal lodging recovery in 2011, negatively impacted by Japan, North Africa and Mexico:
Adjusted EBITDA is expected to be approximately $975 million to $1 billion, assuming:
REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 100 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 200 basis points higher in dollars at current exchange rates).
Margin increases at Branded Same-Store Owned Hotels Worldwide of 150 to 200 basis points.
Management fees, franchise fees and other income increase approximately 10% to 12%, negatively impacted by approximately 200 basis points by Japan and North Africa.
Earnings from our vacation ownership and residential business of approximately $130 million to $140 million.
Selling, general and administrative expenses increase 4% to 5%.
Depreciation and amortization is expected to be approximately $320 million.
Interest expense is expected to be approximately $240 million and cash taxes will be approximately $80 million.
Full year effective tax rate is expected to be approximately 25%.
Assuming all of the above, EPS is expected to be approximately $1.60 to $1.70.
Full year capital expenditure (excluding vacation ownership and residential inventory) is expected to be approximately $300 million for maintenance, renovation and technology. In addition, in-flight investment projects and prior commitments for joint ventures and other investments are expected to total approximately $150 million. Vacation ownership (excluding Bal Harbour) is expected to generate approximately $165 million in positive cash flow.
The Company currently expects closings on Bal Harbour residential units to commence in late Q4 2011. The Company’s current outlook does not include any revenue recognition or cash flows associated with these potential closings. The Company does, however, expect there to be revenue recognition and cash flows from closings in Q4 2011 and the Company will provide updates as the year progresses. Bal Harbour capital expenditure for 2011 is expected to be approximately $150 million.
Special Items
The Company’s special items netted to a charge of $33 million ($29 million after-tax) in the first quarter of 2011 compared to a benefit of $1 million ($6 million after-tax) in the same period of 2010.