WHITE PLAINS, NY, October 28, 2010 – Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported third quarter 2010 financial results.
Third Quarter 2010 Highlights
-Excluding special items, EPS from continuing operations was $0.25. Including special items, EPS from continuing operations was a loss of $0.03.
-Adjusted EBITDA was $205 million.
-Excluding special items, income from continuing operations was $47 million. Including special items, the loss from continuing operations was $5 million.
-Worldwide System-wide REVPAR for Same-Store Hotels increased 10.0% (11.1% in constant dollars) compared to the third quarter of 2009. System-wide REVPAR for Same-Store Hotels in North America increased 10.6% (10.0% in constant dollars).
-Management and franchise revenues increased 7.7% compared to 2009.
-Worldwide Same-Store company-operated gross operating profit margins increased approximately 140 basis points.
-Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 10.8% (12.5% in constant dollars) compared to the third quarter of 2009. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 12.5% (11.2% in constant dollars).
-Margins at Starwood branded Same-Store Owned Hotels Worldwide increased 110 basis points.
-Operating income from vacation ownership and residential increased $10 million
compared to 2009.
-During the quarter, the Company signed 20 hotel management and franchise contracts representing approximately 4,500 rooms and opened 17 hotels and resorts with approximately 3,300 rooms.
Third Quarter 2010 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported a loss from continuing operations for the third quarter of 2010 of $0.03 per share compared to EPS of $0.20 in the third quarter of 2009. Excluding special items, EPS from continuing operations was $0.25 for the third quarter of 2010 compared to $0.14 in the third quarter of 2009. Excluding special items, the effective income tax rate in the third quarter of 2010 was 23.0%.
Special items in the third quarter of 2010 included a pretax charge of $55 million ($52 million after tax or $0.28 per share) and were primarily related to the loss on the sale of one hotel. Special items in the third quarter of 2009 included an $11 million after tax benefit or $0.06 per share primarily related to a tax benefit on a hotel sale. The loss from continuing operations was $5 million in the third quarter of 2010 compared to income of $36 million in 2009. Excluding special items, income from continuing operations was $47 million in the third quarter of 2010 compared to $25 million in 2009.
The net loss was $6 million and $0.03 per share in the third quarter of 2010 compared to net income of $40 million and EPS of $0.22 in the third quarter of 2009.
Frits van Paasschen, CEO said, “We were able to beat expectations thanks to our top-line growth initiatives that powered third quarter REVPAR results. Our distinctive and compelling brands are gaining share, and our strong presence in the key global cities positions us well to benefit from the return of the business traveler.”
“New hotel signings are being driven by our emerging markets platform. We expect overall new supply in developed markets to remain well below historic rates of growth, resulting in a multi-year supply/demand imbalance. In North America, supply growth in the Upper Upscale and Luxury segments is expected to fall below 0.5% in 2011, and remain at these low levels for a few years to come. This limited supply will support our ability to recover the rate we gave up in 2009 and 2010. In that context, we are seeing a recovering transaction market as buyers appreciate the great upside ahead for hotel owners.”
Third Quarter 2010 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels increased 10.0% (11.1% in constant dollars) compared to the third quarter of 2009. International System-wide
REVPAR for Same-Store Hotels increased 9.1% (12.5% in constant dollars).
Worldwide Same-Store company-operated gross operating profit margins increased approximately 140 basis points in the third quarter driven by REVPAR increases and cost controls. International gross operating profit margins for Same-Store company-operated properties increased approximately 130 basis points, and North American Same-Store company-operated gross operating profit margins increased approximately 160 basis points.
Management fees, franchise fees and other income were $173 million, up $10 million, or 6.1%, from the third quarter of 2009. Management fees increased 8.0% to $94 million and franchise fees increased 16.2% to $43 million.
During the third quarter of 2010, the Company signed 20 hotel management and franchise contracts, representing approximately 4,500 rooms, of which 15 are new builds and five are conversions from other brands. At September 30, 2010, the Company had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms.
During the third quarter of 2010, 17 new hotels and resorts (representing approximately 3,300 rooms) entered the system, including the W New York Downtown (New York, 217 rooms), the Westin Resort, Costa Navarino (Greece, 123 rooms), Sheraton Zhongshan (China, 350 rooms), Sheraton Udaipur Palace Resort & Spa (India, 228 rooms), and four new Alofts with 521 rooms (Chennai and Bengaluru, India; Brussels, Belgium, and Tulsa, Oklahoma). Three properties (representing approximately 300 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 10.8% (12.5% in constant dollars). REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 12.5% (11.2% in constant dollars). Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 8.3% (14.5% in constant dollars).
Revenues at Starwood branded Same-Store Owned Hotels in North America increased 9.2% (8.0% in constant dollars) while costs and expenses increased 6.0% when compared to 2009. Margins at these hotels increased 250 basis points.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 7.5% (9.1% in constant dollars) while costs and expenses increased 5.9% when compared to 2009. Margins at these hotels increased 110 basis points.
Revenues at owned, leased and consolidated joint venture hotels were $427 million, compared to $388 million in 2009.
Vacation Ownership
Total vacation ownership revenues increased 3.2% to $129 million compared to $125 million in 2009 driven by the impact of ASU 2009-17. Originated contract sales of vacation ownership intervals decreased 4.8% primarily due to lower tour flow and a lower average price. The number of contracts signed decreased 3.6% when compared to 2009 and the average price per vacation ownership unit sold decreased 2.5% to approximately $14,000, driven by price reductions and inventory mix.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 7.1% to $90 million compared to the third quarter of 2009.
Capital
Gross capital spending during the quarter included approximately $28 million of maintenance capital and $24 million of development capital. Investment spending on net vacation ownership interest (“VOI”) and residential inventory was $30 million, primarily related to the St. Regis Bal Harbour project.
Asset Sales
On September 29, 2010, the Company completed the sale of one hotel for gross proceeds of $70 million. This hotel was sold subject to a long-term management contract.
Balance Sheet
At September 30, 2010, the Company had gross debt of $2.860 billion, excluding $532 million of debt associated with securitized vacation ownership notes receivable that are required to be consolidated under ASU 2009-17. Additionally, the Company had cash and cash equivalents of $405 million (including $48 million of restricted cash), or net debt of $2.455 billion, compared to net debt of $2.834 billion as of June 30, 2010. Net debt at September 30, 2010 including debt and restricted cash associated with securitized vacation ownership notes receivables was $2.966 billion.
During the third quarter of 2010, the Company completed the securitization of approximately $300 million of vacation ownership notes receivable. Approximately $93 million of proceeds from this transaction were used to terminate the privately placed securitization completed in June 2009. The net cash proceeds from the securitization were approximately $180 million.
IRS Tax Settlement
In January 2009, the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of the Company’s 1998 disposition of World Directories, Inc. In October 2010, the previously proposed settlement was formally agreed to by both the Company and the IRS through the execution of definitive documents stipulating the terms of the settlement. The executed settlement and decision documents were filed with the US Tax Court and signed by the Court, resulting in a transfer of the case to the IRS for processing the refund. The Company expects to receive a tax refund of over $200 million during the fourth quarter of 2010.
Outlook
For the Full Year 2010:
-Adjusted EBITDA is expected to be approximately $840 million to $845 million, assuming:
-REVPAR increases at Same-Store Company Operated Hotels Worldwide of 8% to 9% in constant dollars (approximately 50 basis points higher in dollars at current exchange rates).
-REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 9% to 10% in constant dollars (approximately 100 basis points higher in dollars at current exchange rates).
-Management and franchise revenues increase approximately 8%.
-Operating income from our vacation ownership and residential business of
approximately $125 million.
-Selling, General and Administrative expenses increase approximately 11%.
-Depreciation and amortization is expected to be approximately $330 million.
-Interest expense is expected to be approximately $256 million and cash taxes are expected to be approximately $75 million.
-Full year effective tax rate is expected to be approximately 19%.
-EPS before special items is expected to be approximately $1.09 to $1.11.
-Full year capital expenditure (excluding vacation ownership and residential inventory) is expected to be approximately $140 million for maintenance, renovation and technology. In addition, in-flight investment projects and prior commitments for joint ventures and other investments is expected to total approximately $140 million. Vacation ownership (excluding Bal Harbour) is expected to generate approximately $225 million in positive cash flow, including proceeds from the securitization completed in the third quarter. Bal Harbour capital expenditure is expected to be approximately $150 million. For the three months ended December 31, 2010:
-Adjusted EBITDA is expected to be approximately $230 million to $235 million, assuming:
-REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 50 basis points lower in dollars at current exchange rates).
-REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 7% to 9% in constant dollars (approximately 50 basis points lower in dollars at current exchange rates).
-Management and franchise revenues increase approximately 4% to 6%.
-Operating income from our vacation ownership and residential business increases approximately $5 million to $10 million.
-Depreciation and amortization is expected to be $82 million.
-Interest expense is expected to be $62 million.
-Income from continuing operations, before special items, is expected to be approximately $69 million to $73 million, reflecting an effective tax rate of approximately 20%.
-EPS before special items is expected to be approximately $0.36 to $0.38.
For the Full Year 2011:
In Developed markets, the macroeconomic environment is uncertain with high unemployment and high public/private debt. While there are concerns about slower, “new” normal demand growth, the lodging supply situation is very favorable. In Emerging markets, macroeconomic growth has been strong, driving high secular growth in both lodging demand and supply. While visibility is improving, booking windows remain shorter than normal. We remain of the view that several scenarios could play out. Based on what we know at this point, our most likely scenario for 2011 assumes the continuation of current trends and a normal, global lodging recovery:
-Adjusted EBITDA is expected to be approximately $950 million to $980 million, assuming:
-REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars.
-REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 7% to 9% in constant dollars.
-Management and franchise revenues increase approximately 9% to 11%.
-Operating income from our vacation ownership and residential business of approximately $125 million.
-Selling, General and Administrative expenses increase 1% to 2%.
- Depreciation and amortization is expected to be approximately $330 million.
-Interest Expense is expected to be approximately $250 million.
-Income from continuing operations is expected to be approximately $278 million to $300 million, reflecting an effective tax rate of approximately 25%.
-EPS is expected to be approximately $1.44 to $1.55.
Special Items
The Company’s special items netted to a charge of $55 million ($52 million after-tax) in the third quarter of 2010 compared to a $25 million charge ($11 million after-tax benefit) in the same period of 2009.