Starwood Reports Second Quarter 2006 Results
WHITE PLAINS, N.Y. | Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT):
WHITE PLAINS, N.Y. | Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT):
Second Quarter 2006 Highlights
- Excluding special items, EPS from continuing operations was $0.74 compared to $0.70 for the second quarter of 2005. Including special items, EPS from continuing operations was $3.01 compared to $0.65 in the second quarter of 2005.
- Worldwide System-wide REVPAR for Same-Store Hotels increased 9.7% compared to the second quarter of 2005. System-wide REVPAR for Same-Store Hotels in North America increased 10.5% when compared to the second quarter of 2005.
- Worldwide REVPAR for Same-Store Owned Hotels increased 11.0% compared to the second quarter of 2005. North America REVPAR for Same-Store Owned Hotels increased 12.8% when compared to the second quarter of 2005.
- Margins at Starwood branded Same-Store Owned Hotels in North America and Worldwide improved approximately 360 and 300 basis points, respectively, when compared to the second quarter of 2005.
- Management and franchise revenues increased 59.3% when compared to 2005, including revenues from the Le Meridien hotels and the hotels sold to Host.
- Excluding residential sales, contract sales at vacation ownership properties increased 31.0% when compared to 2005. However, reported revenues from vacation ownership and residential sales only increased $1 million when compared to 2005 primarily due to the impact of percentage of completion accounting for pre-sales at projects under construction.
- Excluding special items, income from continuing operations was $169 million compared to $156 million in the same period of 2005. Net income, including special items, was $680 million compared to $145 million in the second quarter of 2005.
- Total Company Adjusted EBITDA was $332 million when compared to $391 million in 2005. The year over year reduction is due primarily to the sale of 48 hotels since the second quarter of 2005 and stock option expenses, offset in part by increases in management fees and the Company's share of gains on the sale of several hotels in unconsolidated joint ventures.
- The Company completed the sale of 33 hotels to Host Hotels & Resorts, Inc. ("Host") for approximately $4.1 billion.
- Since January 1, 2006, the Company has returned more than $3.9 billion to shareholders, including $2.8 billion in connection with the Host transaction, approximately $810 million for the repurchase of approximately 13.2 million shares of its stock and $276 million in dividends.
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported EPS from continuing operations for the second quarter of 2006 of $3.01 compared to $0.65 in the second quarter of 2005. Excluding special items, EPS from continuing operations was $0.74 for the second quarter of 2006 compared to $0.70 in the second quarter of 2005. Excluding special items, the effective income tax rate in the second quarter of 2006 was 13.7%. The effective tax rate includes an $11 million benefit following the favorable resolution of certain tax matters related to audits that closed during the quarter. Special items net to a $511 million benefit primarily due to significant one-time income tax benefits realized in connection with the Host transaction.
Income from continuing operations, including the special items discussed above, was $680 million in the second quarter of 2006 compared to $145 million in 2005. Excluding special items, income from continuing operations was $169 million for the second quarter of 2006 compared to $156 million in 2005.
Income from continuing operations for the second quarter of 2006 as compared to 2005 was impacted by four major items:
- Operating income was impacted as a result of the sale of 48 hotels since the second quarter of 2005. These hotels had $47 million of revenues and $36 million of expenses (before depreciation) in 2006 as compared to $371 million of revenues and $250 million of expenses (before depreciation) in the same quarter of 2005. These hotels generated approximately $25 million of management and franchise revenues in the second quarter of 2006.
- The Company implemented SFAS 123(R), "Share Based Payment," on January 1, 2006 which resulted in approximately $10 million of non-cash stock option expense.
- Vacation ownership and residential operating income declined approximately $16 million due to the impact of percentage of completion accounting for pre-sales at projects under construction.
- The Company recorded an $18 million gain representing its share of gains on the sale of several hotels in unconsolidated joint ventures during the second quarter of 2006.
Net income was $680 million and EPS was $3.01 in the second quarter of 2006 compared to net income of $145 million and EPS of $0.65 in the second quarter of 2005.
Steven J. Heyer, CEO, said "I am very pleased with our results this quarter. We beat our expectations for Same Store Owned RevPar growth, delivering 12.8% in North America and 11% Worldwide, with all of our brands delivering solid results. Our flowthrough was truly outstanding. Margin growth of 360 basis points in North America and 300 basis points on a Worldwide basis, once again leading the industry and outperforming our expectations. Revenues in our management and franchise business were also very strong, delivering growth of 59.3% in the quarter. Our SVO pipeline remains full and vacation ownership demand remains strong, with contract sales up 31% in the quarter.
We have good momentum in our business and we're making progress on the objectives we set during our analyst day. All of our brands are moving full steam ahead with their initiatives to deliver branded signature services to our guests. Our Real Estate Group is driving growth in our pipeline, with deal signings up 43% year to date.
I am confident that our recent appointment of Matt Ouimet, President, Hotel Group and the combination of the Real Estate Group with SVO will only enhance our ability to drive future results. As we promised at our Investor Day, we're looking very hard at our owned hotel portfolio. We already have 15 hotels out on the market for sale and we're assessing redevelopment opportunities at several other locations.
Since our window for share repurchase opened in November of 2005, we have bought back more than $1 billion of our stock and returned another $3.1 billion back to shareholders in connection with the Host transaction and dividends paid during the year. We remain committed to successfully growing our business and creating value for our shareholders."
Operating Results
Second Quarter Ended June 30, 2006
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Same-Store Owned Hotels increased 11.0%. REVPAR at Same-Store Owned Hotels in North America increased 12.8%. REVPAR growth was particularly strong at the Company's owned hotels in Boston, Los Angeles, Chicago and Toronto. Internationally, Same-Store Owned Hotel REVPAR increased 8.8% excluding the impact of foreign exchange, and as reported, in US dollars, Same-Store Owned Hotel REVPAR increased 7.4%.
Revenues at Same-Store Owned Hotels in North America increased 12.2% while costs and expenses increased 7.1% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 360 basis points.
Revenues at Same-Store Owned Hotels Worldwide increased 9.8% while costs and expenses increased 5.4% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 300 basis points.
Reported revenues at owned, leased and consolidated joint venture hotels were $674 million when compared to $939 million in 2005. Reported revenues were impacted by the sale of 48 hotels since the second quarter of 2005. These hotels contributed $47 million in revenues in 2006 compared to $371 million in the same quarter of 2005.
Reported operating income from owned, leased and consolidated joint venture hotels was impacted by the sale of 48 hotels since the second quarter of 2005. These hotels had $47 million of revenues and $36 million of expenses (before depreciation) in 2006 as compared to $371 million of revenues and $250 million of expenses (before depreciation) in the same quarter of 2005.
Management and Franchise Revenues
Worldwide System-wide (owned, managed and franchised) REVPAR for Same-Store Hotels increased 9.7% compared to the second quarter of 2005 including 13.6% in Latin America, 12.5% in Africa & the Middle East, 10.5% in North America, 8.6% in Europe and 5.0% in Asia Pacific. The 10.5% increase in System-wide REVPAR for Same-Store Hotels in North America by brand is: St. Regis/Luxury Collection 16.3%, W Hotels 11.6%, Sheraton 10.5% and Westin 10.3%.
Management fees, franchise fees and other income were $174 million, up $55 million, or 46.2%, from the second quarter of 2005. Management fees grew 70.9% to $94 million and franchise fees grew 19.2% to $31 million. The increases are related to the addition of new hotels (including Le Meridien hotels and the hotels sold to Host), and growth in REVPAR of existing hotels under management, offset in part by fees associated with hotels that left the system.
The hotels sold to Host and the Le Meridien hotels contributed $23 million and $16 million, respectively, of management and franchise revenues during the second quarter of 2006. Worldwide Le Meridien hotels that were in operation during both periods had REVPAR growth of 10.7% in the second quarter of 2006 when compared to 2005 with ADR increasing 9.1% and occupancy increasing 100 basis points.
During the second quarter of 2006, the Company signed 32 hotel management and franchise contracts (representing approximately 8,200 rooms: 7 Sheraton, 7 Four Points by Sheraton, 6 Westin, 4 W Hotels, 4 Le Meridien, 2 aloft, 1 St. Regis, and 1 Luxury Collection) including the Westin San Francisco (San Francisco, California, 667 rooms), Westin Aruba Resort & Spa (Palm Beach, Aruba, 478 rooms) and the W Doha (Doha, Qatar, 443 rooms). Of the hotels signed in the quarter, 20 were new builds and 12 were conversions from other brands. The Company's active global development pipeline grew to approximately 300 hotels with more than 80,000 rooms at June 30, 2006, driven by strong interest in its Le Meridien and aloft brands. Roughly half of its pipeline is in international locations. The Company continues to target signing approximately 150 hotel management and franchise contracts in 2006.
During the second quarter of 2006, 14 new hotels and resorts (representing approximately 5,100 rooms) entered the system, including the Westin Boston, Seaport Hotel (Boston, Massachusetts, 790 rooms) and the Sheraton Philadelphia City Center (Philadelphia, Pennsylvania, 757 rooms). Nine properties (representing approximately 1,000 rooms) were removed from the system during the quarter. The Company expects to open more than 50 hotels (representing approximately 14,000 rooms) in 2006.
Vacation Ownership
While contract sales of vacation ownership intervals were up 31.0%, total vacation ownership reported revenues decreased 1.0% to $191 million when compared to 2005 due primarily to the impact of percentage of completion accounting for pre-sales at projects under construction. The average price per vacation ownership unit sold increased approximately 12.7% to $25,413, and the number of contracts signed increased approximately 16.4% when compared to 2005.
While reported revenues declined slightly year over year as discussed above, reported expenses increased primarily as a result of the accelerated recognition of sales and marketing expenses in accordance with the new timeshare accounting rules which were implemented effective January 1, 2006.
During the second quarter of 2006, the Company was actively selling vacation ownership interests at 15 resorts compared to 11 resorts in the second quarter 2005. The Company acquired approximately 30 acres in Palm Desert, California near its Westin Mission Hills Resort and plans to build a Westin-branded vacation ownership resort. In addition, the Company purchased land in Aruba where it plans to build a 154 unit Westin-branded vacation ownership resort adjacent to a hotel that joined Starwood's system in the second quarter and will be converted to the Westin Aruba Resort & Spa. The Company expects to break ground and begin sales on both these projects in early 2007. Starwood Vacation Ownership is also in the predevelopment phase of several other new vacation ownership resorts.
Residential
The Company recognized residential revenues of approximately $43 million from sales at the St. Regis in New York and the St. Regis Museum Tower in San Francisco. During the second quarter, the Company sold the remaining two condominiums in San Francisco, and to date the Company has recognized approximately $248 million in revenues from the sale of the project's 102 condominiums. Also during the quarter, the Company entered into contracts to sell 7 condominiums at the St. Regis in New York.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses increased 28.7% to $121 million compared to the second quarter of 2005. Approximately $9 million of the increase is related to stock based compensation, including approximately $8 million of stock option expense. The increase is also due to higher costs of sales and other expenses at the Company's Bliss Spa business driven by its growth as well as additional overhead associated with the Le Meridien acquisition.
Asset Sales
During the second quarter of 2006, the Company completed the sale of 33 hotels to Host for total consideration of approximately $4.1 billion (including cash, Host stock and the assumption of debt).
In addition to the portfolio of hotels sold to Host, during the second quarter of 2006, the Company sold one wholly-owned hotel for cash proceeds of approximately $56 million. On May 23, 2006 the Company announced its intention to sell $500 million to $1 billion of assets over a 12-18 month period. It is anticipated that three hotels will be sold in the third quarter of 2006 for cash proceeds of approximately $90 million.
Capital
Gross capital spending during the quarter included approximately $69 million in renovations of hotel assets including construction capital at the Sheraton Centre Toronto Hotel in Toronto, Canada and the Westin Resort & Spa, Cancun in Cancun, Mexico. Investment spending on gross vacation ownership interest ("VOI") inventory was $102 million, which was offset by cost of sales of $46 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, Hawaii, the Westin Aruba Resort & Spa in Palm Beach, Aruba, the Westin Princeville Resort in Kauai, Hawaii and the Westin Lagunamar Resort in Cancun, Mexico.
Share Repurchase
During the second quarter of 2006, the Company repurchased approximately 5.1 million shares at a total cost of approximately $305 million. From July 1, 2006 through July 26, 2006, the Company repurchased approximately 1.0 million shares at a total cost of approximately $58 million. Year to date through July 26, 2006, the Company repurchased approximately 13.2 million shares at a total cost of approximately $810 million. At July 26, 2006, approximately $833 million remained available under the Company's share repurchase authorization. Starwood had approximately 219 million shares outstanding (including partnership units) at June 30, 2006.
Dividend
The Company's former REIT subsidiary declared a second quarter dividend of $0.21 per share, which was paid on April 7, 2006. It is currently expected that, subject to the approval of the Board of Directors, the remaining 2006 dividend of $0.42 per share will be declared by the Company in December 2006 to be paid in January 2007, as set forth in the dividend policy that was adopted by the Board of Directors.
Balance Sheet
At June 30, 2006, the Company had total debt of $2.820 billion and cash and cash equivalents (including $329 million of restricted cash) of $635 million, or net debt of $2.185 billion, compared to net debt of $3.171 billion at the end of the first quarter of 2006.
At June 30, 2006, debt was approximately 62% fixed rate and 38% floating rate and its weighted average maturity was 4.8 years with a weighted average interest rate of 6.86%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $1.823 billion.
During the second quarter of 2006, the Company redeemed its convertible bonds. The Company settled the $360 million of principal in cash, and it settled the conversion spread by issuing Company shares. Also during the second quarter of 2006, the Company redeemed $150 million of 7.75% debentures issued by its former subsidiary, Sheraton Holding Corporation.
Results for the Six Months Ended June 30, 2006
EPS from continuing operations increased to $3.34 compared to $1.01 in 2005. Excluding special items, EPS from continuing operations was $1.15 compared to $1.05 in 2005. Excluding special items, income from continuing operations was $260 million compared to $233 million in 2005. Net income was $685 million and EPS was $3.02 compared to $224 million and $1.01, respectively, in 2005. Total Company Adjusted EBITDA, which was significantly impacted by the sale of 50 hotels since the beginning of 2005, was $598 million compared to $679 million in 2005.
Outlook
The Company's guidance for 2006 assumes the following changes since the last time we provided estimates:
- The impact of three hotel sales which are expected to close in the third quarter and the sale of 10 hotels in joint ventures that we hold minority interest in, offset by the retention of two hotels in Fiji that were previously expected to be sold to Host.
- The transfer of $17 million of income from condominium sales from 2006 into 2007.
- A reduction in business interruption insurance of $5 million in the third quarter of 2006 that was collected in the second quarter of 2006.
For the three months ending September 30, 2006:
- Adjusted EBITDA would be expected to be approximately $300 million assuming:
-- REVPAR at Same-store Owned Hotels in North America
increases approximately 9% -11% versus the same period in
2005.
-- North America Same-Store Owned Hotel EBITDA growth of
13%-15% with owned hotel margin improvement of
approximately 150 - 200 basis points.
-- Growth from management and franchise revenues of
approximately 50% to 55% including revenues earned from
the hotels sold to Host, and 25% to 30%, excluding the
hotels sold to Host.
-- Operating income from our vacation ownership and
residential business in line with the third quarter of
2005, due to timing of residential sales.
Income from continuing operations, excluding special items, would be expected to be approximately $109 million at an effective tax rate of approximately 35%.
EPS would be expected to be approximately $0.49
-- REVPAR at Same-Store Owned Hotels in North America
increases approximately 11% versus 2005.
-- North America Same-Store Owned Hotel EBITDA growth of 19%
- 20% with owned hotel margin improvement of approximately
200 - 250 basis points.
-- Growth from management and franchise revenues of over 50%
including revenues from the hotels sold to Host and
approximately 25 - 30%, excluding revenues from the hotels
sold to Host.
-- An increase in operating income from our vacation
ownership and residential business of approximately $10
million to $15 million (including gains on sales of
vacation ownership notes receivable of $10 million to $15
million in the fourth quarter of 2006).
Full year income from continuing operations, excluding special items, would be expected to be approximately $531 million at an effective tax rate of approximately 26%.
-- Full year EPS would be expected to be approximately $2.37.
-- Full year capital expenditures (excluding timeshare inventory) would be approximately $500 million, including $200 million for maintenance, renovation and technology and $300 million for other growth initiatives. Additionally, net capital expenditures for timeshare inventory would be approximately $175 million.
-- Full year cash interest expense would be approximately $210 million and cash taxes of approximately $150 million.
The Company's guidance excludes the first and second quarter special items discussed below as well as:
-- Transition costs of approximately $6 million for the remainder of the year associated with the Le Meridien transaction which closed in 2005.
Special Items
The Company recorded net credits of $511 million (after-tax) for special items in the second quarter of 2006 compared to $11 million of net charges (after-tax) in the same period of 2005.
Special items in the second quarter of 2006 primarily relate to significant one-time income tax benefits realized in connection with the Host transaction.
The following represents a reconciliation of income from continuing operations before special items to income from continuing operations after special items (in millions, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2006 2005 2006 2005
-------- -------- ------- --------
Income from continuing operations
$169 $156 before special items $260 $233
-------- -------- ------- --------
$0.74 $0.70 EPS before special items $1.15 $1.05
-------- -------- ------- --------
Special Items
Restructuring and other special
(3) -- charges, net (a) (12) --
-- -- Debt defeasance costs (b) (37) --
(7) -- Debt extinguishment costs (c) (7) --
Gain (loss) on asset dispositions
(6) (17) and impairments, net (d) 19 (16)
-------- -------- ------- --------
(16) (17)Total special items - pre-tax (37) (16)
Income tax benefit for special items
8 6 (e) 16 5
Income tax benefits related to the
496 -- transaction with Host (f) 496 --
Reserves and credits associated with
23 -- tax matters (g) 22 2
-------- -------- ------- --------
511 (11)Total special items - after-tax 497 (9)
-------- -------- ------- --------
$680 $145 Income from continuing operations $757 $224
-------- -------- ------- --------
$3.01 $0.65 EPS including special items $3.34 $1.01
======== ======== ======= ========
(a) Restructuring and other special charges, net primarily related to
transition costs associated with the Le Meridien transaction.
(b) During the three months ended March 31, 2006, the Company
completed two transactions whereby it was released from certain
debt obligations that allowed Starwood to sell certain hotels that
previously served as collateral for such debt. The Company
incurred expenses totaling $37 million in connection with the
early extinguishment of these debt obligations. These expenses are
reflected in interest expense in the Company's consolidated
statement of income.
(c) During the three months ended June 30, 2006, the Company incurred
costs of approximately $7 million related to the early
extinguishment of $150 million of debentures issued by its former
subsidiary, Sheraton Holding Corporation. These expenses are
reflected in interest expense in the Company's consolidated
statement of income.
(d) For the three months ended June 30, 2006, primarily reflects
impairment charges totaling $17 million related to a hotel which
is expected to be sold in the third quarter of 2006 and to the
Sheraton hotel in Cancun, Mexico that was damaged by Hurricane
Wilma in 2005 and will now be completely demolished in order to
build additional vacation ownership units, offset in part by a $6
million gain as a result of insurance proceeds received by the
Westin Cancun as reimbursement for property damage caused by the
same storm and a $3 million gain on the sale of a wholly-owned
hotel. The gain for the six months ended June 30, 2006 also
includes net gains totaling $30 million recorded on the sale of
five hotels in the first quarter of 2006 partially offset by an
adjustment to reduce the gain on the sale of a hotel in 2004 as
certain contingencies associated with that sale became probable in
the quarter.
(e) Represents taxes on special items at the Company's incremental tax
rate.
(f) Primarily relates to a deferred tax asset recognized on the
deferred gain and other tax benefits realized in connection with
the Host sale.
(g) Income tax benefit in the three and six months ended June 30, 2006
primarily relates to the reversal of tax reserves no longer deemed
necessary as the related contingencies have been resolved. Income
tax benefit in the six months ended June 30, 2005 reflects a state
tax refund related to tax years prior to the 1995 split-up of ITT
Corporation.
The Company has included the above supplemental information concerning special items to assist investors in analyzing Starwood's financial position and results of operations. The Company has chosen to provide this information to investors to enable them to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of core on-going operations.
Starwood will be conducting a conference call to discuss the second quarter financial results at 10:30 a.m. (EST) today. The conference call will be available through simultaneous webcast in the Investor Relations/Press Releases section of the Company's website at http://www.starwoodhotels.com. A replay of the conference call will also be available from 12:30 p.m. (EST) today through Thursday, August 3 at 12:00 midnight (EST) on both the Company's website and via telephone replay at (719) 457-0820 (access code 4870671).
Definitions
All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations. All references to "net capital expenditures" mean gross capital expenditures for timeshare and fractional inventory net of cost of sales. EBITDA represents net income before interest expense, taxes, depreciation and amortization. The Company believes that EBITDA is a useful measure of the Company's operating performance due to the significance of the Company's long-lived assets and level of indebtedness. EBITDA is a commonly used measure of performance in its industry which, when considered with GAAP measures, the Company believes gives a more complete understanding of the Company's operating performance. It also facilitates comparisons between the Company and its competitors. The Company's management has historically adjusted EBITDA (i.e., "Adjusted EBITDA") when evaluating operating performance for the total Company as well as for individual properties or groups of properties because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items, such as revenues and costs and expenses from hotels sold, restructuring and other special charges and gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. The Company's management also uses Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. Due to guidance from the Securities and Exchange Commission, the Company now does not reflect such items when calculating EBITDA; however, the Company continues to adjust for these special items and refers to this measure as Adjusted EBITDA. The Company has historically reported this measure to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and provides a means to evaluate the results of its core on-going operations. EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and such metrics should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company's calculation of EBITDA and Adjusted EBITDA may be different from the calculations used by other companies and, therefore, comparability may be limited.
All references to Same-Store Owned Hotels reflect the Company's owned, leased and consolidated joint venture hotels, excluding hotels sold to date, undergoing significant repositionings or for which comparable results are not available (i.e., hotels not owned during the entire periods presented or closed due to seasonality or hurricane damage). REVPAR is defined as revenue per available room. ADR is defined as average daily rate.
All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology.
All references to management and franchise revenues represent base and incentive fees, franchise fees and termination fees offset by payments by Starwood under performance and other guarantees.
Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with approximately 850 properties in more than 95 countries and 145,000 employees at its owned and managed properties. Starwood(R) Hotels is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis(R), The Luxury Collection(R), Sheraton(R), Westin(R), Four Points(R) by Sheraton, W(R), Le Meridien(R) and the recently announced aloft(SM). Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high quality vacation interval ownership resorts. For more information, please visit www.starwoodhotels.com.
Note: This press release contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results, performance and achievements may be affected by general economic conditions including the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations, cyclicality of the real estate and the hotel and vacation ownership businesses, operating risks associated with the hotel and vacation ownership businesses, relationships with associates and labor unions, customers and property owners, the impact of the internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in U.S. and foreign tax laws and their interpretation), travelers' fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions, and other risks and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Future vacation ownership units indicated in this press release include planned units on land owned by the Company or by joint ventures in which the Company has an interest that have received all major governmental land use approvals for the development of vacation ownership resorts. There can be no assurance that such units will in fact be developed and, if developed, the time period of such development (which may be more than several years in the future). Some of the projects may require additional third-party approvals or permits for development and build out and may also be subject to legal challenges as well as a commitment of capital by the Company. The actual number of units to be constructed may be significantly lower than the number of future units indicated. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------------
% %
2006 2005 Variance 2006 2005 Variance
------ ------ -------- ------- ------- ---------
Revenues
Owned, leased and
consolidated joint
$674 $939 (28.2) venture hotels $1,496 $1,752 (14.6)
Vacation ownership
and residential
234 233 0.4 sales and services 428 464 (7.8)
Management fees,
franchise fees and
174 119 46.2 other income 306 223 37.2
Other revenues from
managed and
franchised
423 268 57.8 properties (a) 716 526 36.1
------ ------ -------- ------- ------- ---------
1,505 1,559 (3.5) 2,946 2,965 (0.6)
Costs and Expenses
Owned, leased and
consolidated joint
492 675 27.1 venture hotels 1,132 1,316 14.0
Vacation ownership
184 167 (10.2) and residential 349 334 (4.5)
Selling, general,
administrative and
121 94 (28.7) other 227 176 (29.0)
Restructuring and
other special
3 -- n/m charges, net 12 -- n/m
72 101 28.7 Depreciation 140 206 32.0
5 4 (25.0) Amortization 10 9 (11.1)
Other expenses from
managed and
franchised
423 268 (57.8) properties (a) 716 526 (36.1)
------ ------ -------- ------- ------- ---------
1,300 1,309 0.7 2,586 2,567 (0.7)
205 250 (18.0) Operating income 360 398 (9.5)
Equity earnings and
gains and losses
from unconsolidated
32 18 77.8 ventures, net 38 31 22.6
Interest expense, net
of interest income
(50) (60) 16.7 of $3, $3, $9 and $5 (147) (122) (20.5)
(Loss) gain on asset
dispositions and
(6) (17) 64.7 impairments, net 19 (16) n/m
------ ------ -------- ------- ------- ---------
Income from
continuing
operations before
taxes and minority
181 191 (5.2) equity 270 291 (7.2)
Income tax benefit
501 (47) n/m (expense) 487 (68) n/m
Minority equity in
(2) 1 n/m net (income) loss -- 1 (100.0)
------ ------ -------- ------- ------- ---------
Income from
continuing
680 145 n/m operations 757 224 n/m
Cumulative effect of
-- -- -- accounting change (72) -- n/m
------ ------ -------- ------- ------- ---------
$680 $145 n/m Net income $685 $224 n/m
====== ====== ======== ======= ======= =========
Earnings (Loss) Per
Share - Basic
$3.16 $0.67 n/m Continuing operations $3.51 $1.04 n/m
Cumulative effect of
-- -- -- accounting change (0.33) -- n/m
------ ------ -------- ------- ------- ---------
$3.16 $0.67 n/m Net income $3.18 $1.04 n/m
====== ====== ======== ======= ======= =========
Earnings (Loss) Per
Share - Diluted
$3.01 $0.65 n/m Continuing operations $3.34 $1.01 n/m
Cumulative effect of
-- -- -- accounting change (0.32) -- n/m
------ ------ -------- ------- ------- ---------
$3.01 $0.65 n/m Net income $3.02 $1.01 n/m
====== ====== ======== ======= ======= =========
Weighted average
215 216 number of Shares 215 214
====== ====== ======= =======
Weighted average
number of Shares
226 223 assuming dilution 227 222
====== ====== ======= =======
(a) The Company includes in revenues the reimbursement of costs
incurred on behalf of managed hotel property owners and
franchisees with no added margin and includes in costs and
expenses these reimbursed costs. These costs relate primarily to
payroll costs at managed properties where the Company is the
employer.
n/m = not meaningful
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
June 30, December 31,
2006 2005
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $306 $897
Restricted cash 320 295
Accounts receivable, net of allowance for
doubtful accounts of $56 and $50 637 642
Inventories 407 280
Prepaid expenses and other 197 169
------------ ------------
Total current assets 1,867 2,283
Investments 411 403
Plant, property and equipment, net 4,014 4,169
Assets held for sale (a) 5 2,882
Goodwill and intangible assets, net 2,337 2,315
Deferred tax assets 328 40
Other assets (b) 410 402
------------ ------------
$9,372 $12,494
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current
maturities of long-term debt (c) $742 $1,219
Accounts payable 144 156
Accrued expenses 887 1,049
Accrued salaries, wages and benefits 316 297
Accrued taxes and other 202 158
------------ ------------
Total current liabilities 2,291 2,879
Long-term debt (c) 2,078 2,849
Long-term debt held for sale (d) -- 77
Deferred tax liabilities 52 602
Other liabilities 1,972 851
------------ ------------
6,393 7,258
Minority interest 25 25
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares of
the Trust; $0.01 par value; authorized
30,000,000 shares; outstanding 0 and
562,222 shares at June 30, 2006 and
December 31, 2005, respectively -- --
Class B exchangeable preferred shares of
the Trust; $0.01 par value; authorized
15,000,000 shares; outstanding 0 and
24,627 shares at June 30, 2006 and
December 31, 2005, respectively -- --
Corporation common stock; $0.01 par
value; authorized 1,050,000,000 shares;
outstanding 218,651,779 and 217,218,781
shares at June 30, 2006 and December 31,
2005, respectively 2 2
Trust Class B shares of beneficial
interest; $0.01 par value; authorized
1,000,000,000 shares; outstanding 0 and
217,218,781 shares at June 30, 2006 and
December 31, 2005, respectively -- 2
Additional paid-in capital 2,521 5,412
Deferred compensation -- (53)
Accumulated other comprehensive loss (249) (322)
Retained earnings 680 170
------------ ------------
Total stockholders' equity 2,954 5,211
------------ ------------
$9,372 $12,494
============ ============
(a) At June 30, 2006, includes 1 hotel expected to be sold in the
third quarter of 2006. At December 31, 2005, includes 33 hotels
that were sold in the second quarter of 2006 in connection with
the definitive agreement signed on November 14, 2005 with Host
Hotels & Resorts, Inc. and 3 hotels that had signed definitive
agreements at December 31, 2005 and were sold in the first quarter
of 2006.
(b) Includes restricted cash of $9 million and $12 million at June 30,
2006 and December 31, 2005, respectively.
(c) Excludes Starwood's share of unconsolidated joint venture debt
aggregating approximately $449 million and $469 million at June
30, 2006 and December 31, 2005, respectively.
(d) Represents the debt that was assumed by Host in connection with
the definitive agreement signed on November 14, 2005.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Historical Data
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
% %
2006 2005 Variance 2006 2005 Variance
----- ----- -------- ----- ----- ---------
Reconciliation of Net
Income to EBITDA and
Adjusted EBITDA
$680 $145 n/m Net income $685 $224 n/m
58 68 (14.7) Interest expense(a) 166 137 21.2
Income tax (benefit)
(501) 47 n/m expense (487) 68 n/m
80 108 (25.9) Depreciation(b) 156 222 (29.7)
6 6 -- Amortization (c) 13 12 8.3
----- ----- -------- ----- ----- ---------
323 374 (13.6) EBITDA 533 663 (19.6)
Loss (gain) on asset
dispositions and
6 17 (64.7) impairments, net (19) 16 n/m
Restructuring and other
3 -- n/m special charges, net 12 -- n/m
Cumulative effect of
-- -- -- accounting change 72 -- n/m
----- ----- -------- ----- ----- ---------
$332 $391 (15.1) Adjusted EBITDA $598 $679 (11.9)
===== ===== ======== ===== ===== =========
(a) Includes $5 million and $5 million of interest expense related to
unconsolidated joint ventures for the three months ended June 30,
2006 and 2005, respectively, and $10 million and $10 million for
the six months ended June 30, 2006 and 2005, respectively.
(b) Includes $8 million and $7 million of Starwood's share of
depreciation expense of unconsolidated joint ventures for the
three months ended June 30, 2006 and 2005, respectively, and $16
million and $16 million for the six months ended June 30, 2006 and
2005, respectively.
(c) Includes $1 million and $2 million of Starwood's share of
amortization expense of unconsolidated joint ventures for the
three months ended June 30, 2006 and 2005, respectively, and $3
million and $3 million for the six months ended June 30, 2006 and
2005, respectively.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Future Performance
(In millions)
Three Months Ended Year Ended
September 30, 2006 December 31, 2006
------------------ -----------------
$106 Net income $952
46 Interest expense 256
60 Income tax expense (342)
84 Depreciation and amortization 338
----------------- -----------------
296 EBITDA 1,204
Gain on asset disposition and
-- impairments, net (19)
Restructuring and other special
4 charges, net 18
Cumulative effect of accounting
-- change 72
----------------- -----------------
$300 Adjusted EBITDA $1,275
================= =================
Three Months Ended Year Ended
September 30, 2006 December 31, 2006
------------------ -----------------
$106 Income from continuing operations 1,024
----------------- -----------------
$0.48 EPS. $4.56
----------------- -----------------
Special Items
Restructuring and other special
4 charges, net 18
-- Debt defeasance costs 37
-- Debt extinguishment costs 7
Gain on asset dispositions and
-- impairments, net (19)
----------------- -----------------
4 Total special items - pre-tax 43
Income tax benefit on special
(1) items. (18)
Income tax benefit related to the
-- transaction with Host (496)
Reserves and credits associated
-- with tax matters (22)
----------------- -----------------
3 Total special items - after-tax (493)
----------------- -----------------
Income from continuing operations
$109 excluding special items $531
----------------- -----------------
$0.49 EPS excluding special items $2.37
================= =================
Three Months Ended Year Ended
September 30, 2005 December 31, 2005
------------------ -----------------
$39 Net income $422
70 Interest expense 283
106 Income tax expense 218
108 Depreciation 423
6 Amortization 26
----------------- -----------------
329 EBITDA 1,372
Loss on asset dispositions and
16 impairments, net 30
2 Discontinued operations 2
Restructuring and other special
-- charges, net 13
----------------- -----------------
$347 Adjusted EBITDA $1,417
================= =================
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations - Future Performance (continued)
(in millions)
Reconciliation from Previous Full Year Guidance to
Current Full Year Guidance
Previous full year 2006 EBITDA guidance (1) $1,260
Second Quarter Impact
Add: Q2 performance above prior guidance 37
Add: Operating income from Fiji hotels retained 5
Less: Operating income from additional hotels sold and
earnings from unconsolidated JV hotels sold (5)
Less: Business interruption insurance proceeds accelerated
into Q2 from Q3 (5)
------------
32
Less: Residential operating income shifted from 2006 to
2007 (17)
------------
Current full year 2006 EBITDA guidance $1,275
============
Previous full year EPS guidance (1) $2.28
Add: EPS associated with the net Q2 outperformance 0.09
Add: Tax benefit received in Q2 0.05
Less: Impact of residential shift (0.05)
------------
Current full year 2006 EPS guidance $2.37
============
(1) See Starwood's first quarter 2006 earnings release for the
non-GAAP to GAAP reconciliation of the previous EPS and EBITDA
guidance.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Non-GAAP to GAAP Reconciliations -
Same Store Owned Hotel Revenue and Expenses
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
Same-Store Owned
% Hotels (1) %
2006 2005 Variance Worldwide 2006 2005 Variance
----- ----- --------- ------- ------- ---------
Revenue
Same-Store Owned
$534 $487 9.8 Hotels $986 $904 9.0
Hotels Sold or
Closed in 2006 and
47 371 (87.3) 2005 (50 hotels) 322 673 (52.2)
Hotels Without
Comparable Results
92 80 15.0 (12 hotels) 187 174 7.5
Other ancillary
1 1 -- hotel operations 1 1 --
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$674 $939 (28.2) Revenue $1,496 $1,752 (14.6)
===== ===== ========= ======= ======= =========
Costs and Expenses
Same-Store Owned
$383 $363 (5.4) Hotels $743 $704 (5.6)
Hotels Sold or
Closed in 2006 and
36 250 85.6 2005 (50 hotels) 245 486 49.6
Hotels Without
Comparable Results
72 60 (20.0) (12 hotels) 142 124 (14.5)
Other ancillary
1 2 50.0 hotel operations 2 2 --
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$492 $675 27.1 Costs and Expenses $1,132 $1,316 14.0
===== ===== ========= ======= ======= =========
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
Same-Store Owned
% Hotels %
2006 2005 Variance North America 2006 2005 Variance
----- ----- --------- ------- ------- ---------
Revenue
Same-Store Owned
$353 $315 12.2 Hotels $660 $590 11.9
Hotels Sold or
Closed in 2006 and
27 300 (91.0) 2005 (40 hotels) 254 545 (53.4)
Hotels Without
Comparable Results
78 63 23.8 (8 hotels) 164 137 19.7
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$458 $678 (32.4) Revenue $1,078 $1,272 (15.3)
===== ===== ========= ======= ======= =========
Costs and Expenses
Same-Store Owned
$250 $233 (7.1) Hotels $490 $456 (7.6)
Hotels Sold or
Closed in 2006 and
23 205 88.8 2005 (40 hotels) 195 396 50.8
Hotels Without
Comparable Results
63 49 (28.6) (8 hotels) 126 100 (26.0)
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$336 $487 31.0 Costs and Expenses $811 $952 14.8
===== ===== ========= ======= ======= =========
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
Same-Store Owned
% Hotels %
2006 2005 Variance International 2006 2005 Variance
----- ----- --------- ------- ------- ---------
Revenue
Same-Store Owned
$181 $172 5.3 Hotels $326 $314 3.6
Hotels Sold or
Closed in 2006
and 2005 (10
20 71 (71.8) hotels) 68 128 (46.9)
Hotels Without
Comparable
Results (4
14 17 (17.6) hotels) 23 37 (37.8)
Other ancillary
1 1 -- hotel operations 1 1 --
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$216 $261 (17.2) Revenue $418 $480 (12.9)
===== ===== ========= ======= ======= =========
Costs and Expenses
Same-Store Owned
$133 $130 (2.5) Hotels $253 $248 (1.9)
Hotels Sold or
Closed in 2006
and 2005 (10
13 45 71.1 hotels) 50 90 44.4
Hotels Without
Comparable
Results (4
9 11 18.2 hotels) 16 24 33.3
Other ancillary
1 2 50.0 hotel operations 2 2 --
----- ----- --------- ------- ------- ---------
Total Owned, Leased
and Consolidated
Joint Venture Hotels
$156 $188 17.0 Costs and Expenses $321 $364 11.8
===== ===== ========= ======= ======= =========
(1) Same-Store Owned Hotel Results exclude 50 hotels sold or closed in
2006 and 2005 and 12 hotels without comparable results.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Owned Hotel Results - Same Store (1)
For the Three Months Ended June 30, 2006
UNAUDITED
WORLDWIDE NORTH AMERICA
----------------------- -----------------------
2006 2005 Var. 2006 2005 Var.
-------- -------- ----- -------- -------- -----
79 Hotels 48 Hotels
----------------------- -----------------------
TOTAL HOTELS
REVPAR ($) 140.76 126.86 11.0% 139.32 123.53 12.8%
ADR ($) 191.90 176.55 8.7% 182.51 165.49 10.3%
OCCUPANCY (%) 73.3% 71.9% 1.4 76.3% 74.6% 1.7
Total REVENUE 534,217 486,696 9.8% 353,417 314,975 12.2%
Total EXPENSES 382,747 363,024 5.4% 249,851 233,367 7.1%
70 Hotels 39 Hotels
----------------------- -----------------------
BRANDED HOTELS
REVPAR ($) 143.86 129.69 10.9% 143.89 127.40 12.9%
ADR ($) 195.85 179.86 8.9% 186.99 168.82 10.8%
OCCUPANCY (%) 73.5% 72.1% 1.4 77.0% 75.5% 1.5
Total REVENUE 497,165 451,431 10.1% 316,365 279,710 13.1%
Total EXPENSES 355,039 336,101 5.6% 222,143 206,444 7.6%
INTERNATIONAL
------------------------
2006 2005 Var.
-------- -------- ----
31 Hotels
------------------------
TOTAL HOTELS
REVPAR ($) 143.82 133.90 7.4%
ADR ($) 214.59 203.05 5.7%
OCCUPANCY (%) 67.0% 65.9% 1.1
Total REVENUE 180,800 171,721 5.3%
Total EXPENSES 132,896 129,657 2.5%
31 Hotels
------------------------
BRANDED HOTELS
REVPAR ($) 143.82 133.90 7.4%
ADR ($) 214.59 203.05 5.7%
OCCUPANCY (%) 67.0% 65.9% 1.1
Total REVENUE 180,800 171,721 5.3%
Total EXPENSES 132,896 129,657 2.5%
(1) Hotel Results exclude 48 hotels sold and 12 hotels without
comparable results during 2005 & 2006
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Worldwide Hotel Results - Same Store
For the Three Months Ended June 30, 2006
UNAUDITED
System Wide (1) - System Wide (1) -
North America International
--------------------- ---------------------
2006 2005 Var. 2006 2005 Var.
------- ------- ----- ------- ------- -----
TOTAL HOTELS
REVPAR ($) 116.45 105.35 10.5% 108.39 100.10 8.3%
ADR ($) 155.01 142.15 9.0% 161.75 150.23 7.7%
OCCUPANCY (%) 75.1% 74.1% 1.0 67.0% 66.6% 0.4
SHERATON
REVPAR ($) 106.90 96.7