Starwood Reports Third Quarter 2006 Results

WHITE PLAINS, NY |Starwood Hotels & Resorts Worldwide, Inc.:

Third Quarter 2006 Highlights

• Excluding special items, EPS from continuing operations was $0.68 compared to $0.58 for the third quarter of 2005. Including special items, EPS from continuing operations was $0.71 compared to $0.18 in the third quarter of 2005.
• Worldwide System-wide REVPAR for Same-Store Hotels increased 9.2% compared to the third quarter of 2005. System-wide REVPAR for Same-Store Hotels in North America increased 7.5% when compared to the third quarter of 2005.
• Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 11.7% compared to the third quarter of 2005. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 10.6% when compared to the third quarter of 2005.
• Margins at Starwood branded Same-Store Owned Hotels in North America and Worldwide improved approximately 190 and 110 basis points, respectively, when compared to the third quarter of 2005.
• Management and franchise revenues increased 71.4% when compared to 2005, including revenues from the Le Méridien hotels and the hotels sold to Host.
• The Company signed 33 hotel management and franchise contracts (representing
• approximately 7,400 rooms). Through the first nine months of 2006, the Company
• signed 94 hotel management and franchise contracts (representing approximately
• 23,800 rooms).
• Excluding residential sales, contract sales at vacation ownership properties increased 13.5% when compared to 2005. Reported revenues from vacation ownership and residential sales increased $22 million when compared to 2005. Strong increases in revenues from vacation ownership sales were partially offset by a decline in residential sales.
• Excluding special items, income from continuing operations was $148 million compared to $131 million in the same period of 2005. Net income, including special items, was $155 million compared to $39 million in the third quarter of 2005.
• Total Company Adjusted EBITDA was $328 million when compared to $347 million in 2005. The year over year reduction is due to the sale of 51 hotels since the beginning of the third quarter of 2005 and stock based compensation expense, offset in part by increases in management and franchise revenues.
• During the third quarter, the Company repurchased approximately 9 million shares at a cost of $477 million. Through the first nine months of 2006, the Company repurchased 21.1 million shares at a cost of $1.229 billion.

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the third quarter of 2006 of $0.71 compared to $0.18 in the third quarter of 2005. Excluding special items, EPS from continuing operations was $0.68 for the third quarter of 2006 compared to $0.58 in the third quarter of 2005. Excluding special items, the effective income tax rate in the third quarter of 2006 was 21.2%. The effective tax rate includes benefits realized in connection with the sales of several hotels in unconsolidated joint ventures.

Income from continuing operations was $155 million in the third quarter of 2006 compared to $40 million in 2005. Excluding special items, which net to a $7 million benefit in 2006, income from continuing operations was $148 million for the third quarter of 2006 compared to $131 million in 2005.

Income from continuing operations for the third quarter of 2006 as compared to 2005 was impacted by four major items:

• Operating income was impacted as a result of the sale of 51 hotels since the beginning of the third quarter of 2005. These hotels had $14 million of revenues and $11 million of expenses (before depreciation) in 2006 as compared to $344 million of revenues and $247 million of expenses (before depreciation) in the same quarter of 2005. These hotels generated approximately $29 million of management and franchise revenues in the third quarter of 2006.
• The Company implemented SFAS 123(R), “Share Based Payment,” on January 1, 2006 which resulted in approximately $12 million of non-cash stock option expense.
• Vacation ownership and residential operating income increased by approximately $8
• million. Vacation ownership operating income increased $23 million while residential income declined by $15 million.
• The Company recorded interest income of $13 million as a result of the collection, in
• full, of a mezzanine note, together with interest which had been reserved.

Net income was $155 million and EPS was $0.71 in the third quarter of 2006 compared to net income of $39 million and EPS of $0.17 in the third quarter of 2005.

Steven J. Heyer, CEO, said, “I am extremely pleased with our results for the third quarter. All of our business units are performing on all cylinders and we expect this strength to continue into 2007 and beyond.

Systemwide REVPAR increased 9.2% in the quarter, with strength across all our brands. At our owned hotels, North America branded REVPAR was up an industry-leading 10.6% and margins improved 190 basis points as strong ADR growth coupled with productivity improvements drove strong flowthrough. Our fee business continues its impressive growth, with managed and franchise revenues up 71.4%. Even after adjusting for the Host and Le Méridien transactions, we delivered 24.2% growth. Our vacation ownership business also exceeded our guidance as contract sales were up 13.5%, and reported revenues increased 43.1%.

Just as our brand initiatives resonate with the consumer, they are resonating with developers around the world, helping drive our pipeline growth as they increasingly turn to Starwood’s brands for their hotel projects. We have signed 94 hotel deals, and opened 41 hotels year-to-date. We are on track to exceed our target for 50 hotel openings in 2006.

During the third quarter, we bought back 9 million shares of our stock, and since announcing the Host transaction last November, we have bought back $1.5 billion in stock. This is in addition to the $2.8 billion we returned through the Host transaction earlier this year and $276 million in dividends. With our impressive free cash flow generation and balance sheet strength, we have significant capacity to continue returning value to shareholders through our dividend policy and share buybacks while continuing to invest in the growth of our business.

We are optimistic that we will turn in another year of strong growth in 2007: Supply growth remains below its long-term trendline and the demand outlook is favorable, our business fundamentals remain very strong, and we expect these trends to continue.”

Related Document