Starwood Reports First Quarter 2013 Results

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Starwood Reports First Quarter 2013 Results

STAMFORD, Conn.--(BUSINESS WIRE)-- Starwood Hotels & Resorts Worldwide, Inc. (NYS: HOT) today reported first quarter 2013 financial results.


First Quarter 2013 Highlights

  • Excluding special items, EPS from continuing operations was $0.76. Including special items, EPS from continuing operations was $0.73.
  • Adjusted EBITDA was $315 million, which included $58 million of EBITDA from the St. Regis Bal Harbour residential project.
  • Excluding special items, income from continuing operations was $148 million. Including special items, income from continuing operations was $143 million.
  • Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.0% in constant dollars (4.6% in actual dollars) compared to 2012. Systemwide REVPAR for Same-Store Hotels in North America increased 6.2% in constant dollars (6.2% in actual dollars).
  • Management fees, franchise fees and other income increased 8.0% compared to 2012.
  • Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 52 basis points compared to 2012.
  • Worldwide REVPAR for Starwood Same-Store Owned Hotels increased 3.4% in constant dollars (3.1% in actual dollars) compared to 2012.
  • Margins at Starwood Same-Store Owned Hotels Worldwide remained flat compared to 2012.
  • Earnings from Starwood's vacation ownership and residential business decreased approximately $11 million compared to 2012, due to lower revenues at the St. Regis Bal Harbour residential project that is nearing completion.
  • During the quarter, the Company signed 26 hotel management and franchise contracts, representing approximately 6,200 rooms, and opened 18 hotels and resorts with approximately 4,000 rooms.

First Quarter 2013 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported EPS from continuing operations for the first quarter of 2013 of $0.73 compared to $0.65 in the first quarter of 2012. Excluding special items, EPS from continuing operations was $0.76 for the first quarter of 2013 compared to $0.63 in the first quarter of 2012. Special items in the first quarter of 2013, which totaled a charge of $5 million (after-tax), included a loss of $8 million (pre-tax), primarily related to the sale of three wholly-owned hotels. Special items in the first quarter of 2012, which totaled a benefit of $5 million (after-tax), included an $11 million (pre-tax) reduction of a legal reserve, partially offset by a $7 million (pre-tax) loss on the sale of one wholly-owned hotel. Excluding special items, the effective income tax rate in the first quarter of 2013 was 31.3% compared to 29.8% in the first quarter of 2012.

Income from continuing operations was $143 million in the first quarter of 2013, compared to $129 million in the first quarter of 2012. Excluding special items, income from continuing operations was $148 million in the first quarter of 2013 compared to $124 million in the first quarter of 2012.

Net income was $213 million and $1.09 per share in the first quarter of 2013, compared to $128 million and $0.65 per share in the first quarter of 2012. The net income in the first quarter of 2013 included a tax benefit of $70 million, in discontinued operations, as a result of the reversal of a reserve associated with an uncertain tax position related to a previous disposition. The applicable statute of limitation for this tax position lapsed during the first quarter of 2013.

Frits van Paasschen, CEO, said, "We had a solid first quarter across all lines of our business. Our management and franchise fees grew strongly, and despite our sale of 11 hotels, earnings at our owned portfolio exceeded last year's levels, driven by great performance at our North American properties. We grew REVPAR Index as we captured more than our fair share of global growth. And at Bal Harbour, we've now sold and closed on approximately 86% of the residences. Overall, the global lodging recovery continues along the trend lines we've been seeing. Tight supply is driving higher room rates in North America, and our footprint continues to expand in the growing economies. We are seeing more interest among real estate buyers for both vacation ownership and our owned hotels."

"We spent a month in Dubai as part of a temporary office relocation to work closely with our teams in that region. Dubai is a perfect example of how growth in lodging demand is being fueled by the rising wealth around the world, the creation of new cities in fast growing economies, and the expanding reach of global businesses."

First Quarter 2013 Operating Results

Management and Franchise Revenues

Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.0% in constant dollars (4.6% in actual dollars) compared to the first quarter of 2012. International Systemwide REVPAR for Same-Store Hotels increased 3.4% in constant dollars (increased 2.6% in actual dollars).

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:

 
    REVPAR
Region

Constant

Dollars

  

Actual

Dollars

Americas:
North America6.2%6.2%
Latin America0.3%0.3%
Asia Pacific:
Greater China5.4%6.4%
Rest of Asia5.5%1.7%
Europe, Africa & Middle East:
Europe(1.3)%(0.4)%
Africa & Middle East7.3%6.0%
 

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:

 
REVPAR

Brand

Constant

Dollars

Actual

Dollars

St. Regis/Luxury Collection11.1%10.4%
W Hotels7.9%7.9%
Westin3.6%3.1%
Sheraton3.8%3.2%
Le Méridien2.0%2.3%
Four Points by Sheraton6.9%6.7%
Aloft7.7%7.7%
 

Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 52 basis points compared to 2012. International gross operating profit margins for Same-Store Company-Operated properties increased 12 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 110 basis points, driven by REVPAR increases and cost controls.

Management fees, franchise fees and other income were $217 million, up $16 million, or 8.0% compared to the first quarter of 2012. Management fees increased 7.8% to $124 million and franchise fees increased 6.7% to $48 million.

Development

During the first quarter of 2013, the Company signed 26 hotel management and franchise contracts, representing approximately 6,200 rooms, of which 20 are new builds and 6 are conversions from other brands. At March 31, 2013, the Company had approximately 400 hotels in the active pipeline representing approximately 100,000 rooms.

During the first quarter of 2013, 18 new hotels and resorts (representing approximately 4,000 rooms) entered the system, including Le Méridien Dallas, The Stoneleigh (Dallas, 170 rooms), The Westin Birmingham (Birmingham, 294 rooms), The Westin Panama (Panama City, 218 rooms), Sheraton Dubai Mall of Emirates Hotel (Dubai, 481 rooms), Aloft Kuala Lumpur Sentral (Kuala Lumpur, 482 rooms), and W Guangzhou (Guangdong, 317 rooms). During the quarter, five properties (representing approximately 900 rooms) were removed from the system.

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 3.4% in constant dollars (3.1% in actual dollars) when compared to 2012. Excluding owned hotels in Argentina, REVPAR at Worldwide Owned Hotels increased 5.3% in constant dollars (4.9% in actual dollars). REVPAR at Starwood Same-Store Owned Hotels in North America increased 6.3% in constant dollars (6.1% actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 0.9% in constant dollars (0.4% in actual dollars). Excluding owned hotels in Argentina, internationally, REVPAR at owned hotels increased 4.2% in constant dollars (3.7% in actual dollars). REVPAR at owned hotels in Argentina decreased approximately 27% in constant dollars driven by economic instability in the country.

Revenues at Starwood Same-Store Owned Hotels Worldwide increased 2.0% in constant dollars (increased 1.6% in actual dollars) while costs and expenses increased 1.9% in constant dollars (1.5% in actual dollars) when compared to 2012. Margins at these hotels remained flat compared to 2012. Excluding owned hotels in Argentina, margins increased by approximately 100 basis points.

Revenues at Starwood Same-Store Owned Hotels in North America increased 4.5% in constant dollars (4.3% in actual dollars) while costs and expenses increased 2.8% in constant dollars (2.7% in actual dollars) when compared to 2012. Margins at these hotels increased approximately 130 basis points.

Internationally, revenues at Starwood Same-Store Owned Hotels decreased 0.3% in constant dollars (decreased 0.9% in actual dollars) while costs and expenses increased 1.1% in constant dollars (0.5% in actual dollars) when compared to 2012. Margins at these hotels decreased approximately 120 basis points. Excluding owned hotels in Argentina, margins increased by approximately 70 basis points.

Revenues at owned, leased and consolidated joint venture hotels were $379 million, compared to $402 million in 2012. Expenses at owned, leased and consolidated joint venture hotels were $320 million compared to $349 million in 2012. First quarter results were negatively impacted by asset sales since the first quarter of 2012.

Vacation Ownership

Total vacation ownership revenues increased 16.4% to $177 million in the first quarter of 2013 when compared to 2012 primarily due to increased revenues from resort operations, the transfer of the Westin St. John from owned hotel revenues to vacation ownership revenues, and a favorable adjustment to loan loss reserves. Originated contract sales of vacation ownership intervals and the number of contracts signed were flat compared to 2012. The average price per vacation ownership unit sold increased 0.5% to approximately $16,200, driven by inventory mix.

Residential

During the first quarter of 2013, the Company's residential revenues were $132 million compared to $362 million in 2012. The Company realized residential revenues from Bal Harbour of $129 million and generated EBITDA of $58 million, compared to revenues of $356 million and EBITDA of $78 million in the same period of 2012. During the first quarter of 2013, the Company closed sales of 38 units at Bal Harbour and realized incremental cash proceeds of $127 million associated with these units. From project inception through March 31, 2013, the Company has closed contracts on approximately 86% of the total residential units available at Bal Harbour and realized residential revenue of $939 million and EBITDA of $219 million.

Selling, General, Administrative and Other

During the first quarter of 2013, selling, general, administrative and other expenses decreased 6.3% to $90 million compared to $96 million in 2012 primarily due to organizational changes in the second half of 2012 and non-recurring professional expenses recorded in the prior year. The Company continues to target a 3-5% increase for the full year.

During the first quarter of 2013, the Company completed certain changes to its organizational structures in the Americas division. The Company recorded an expense for severance costs of approximately $4 million associated with these changes.

Capital

Gross capital spending during the quarter included approximately $17 million of maintenance capital and $81 million of development capital.

Asset Sales

During the first quarter of 2013, the Company completed the sales of three hotels; the Aloft and Element hotels in Lexington, Massachusetts and the W New Orleans - French Quarter for cash proceeds of approximately $61 million. These hotels were sold subject to either long-term management or franchise contracts. The Company recorded a loss of $8 million associated with these sales. In addition, following the end of the first quarter the Company completed the sale of the W New Orleans for cash proceeds of approximately $65 million.

Share Repurchase

In the first quarter of 2013 and through April 5, 2013, the Company repurchased nearly 1 million shares at a total cost of approximately $56 million and a weighted average price of $59.35 per share. As of April 5, 2013, approximately $624 million remained available under the Company's share repurchase authorization.

Balance Sheet

At March 31, 2013, the Company had gross debt of $1.275 billion, cash and cash equivalents of $529 million (including $142 million of restricted cash) and net debt of $746 million, compared to net debt of $847 million as of December 31, 2012, in each case excluding debt and restricted cash associated with securitized vacation ownership notes receivable. Net debt at March 31, 2013, including $472 million of debt and $20 million of restricted cash associated with securitized vacation ownership notes receivable, was $1.198 billion.

Outlook

For the Full Year 2013:

Including Bal Harbour, which is expected to contribute approximately $90 million of EBITDA, adjusted EBITDA is expected to be approximately $1.210 billion to $1.235 billion (based on the assumptions below).

  • Excluding Bal Harbour, adjusted EBITDA is expected to be approximately $1.120 billion to $1.145 billion, assuming:
    • REVPAR increases at Same-Store Company-Operated Hotels Worldwide of 5% to 7% in constant and actual dollars.
    • REVPAR increases at Same-Store Owned Hotels Worldwide of 4% to 6% in constant and actual dollars.
    • Margins at Same-Store Owned Hotels Worldwide increase 75 to 125 basis points.
    • Management fees, franchise fees and other income increase approximately 9% to 11%.
    • Earnings from the Company's vacation ownership and residential business of approximately $160 million to $165 million.
    • Selling, general and administrative expenses increase approximately 3% to 5%.
  • Full year owned earnings are negatively impacted by approximately $8 million due to assets sold year to date in 2013.
  • Depreciation and amortization is expected to be approximately $300 million.
  • Interest expense is expected to be approximately $125 million.
  • Full year effective tax rate is expected to be approximately 32%, and cash taxes are expected to be approximately $115 million.
  • Including Bal Harbour, EPS before special items is expected to be approximately $2.75 to $2.83 (based on the assumptions above).
  • Full year capital expenditures (excluding vacation ownership and residential inventory) are expected to be approximately $200 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 $350 million.
  • Vacation ownership (excluding Bal Harbour) is expected to generate approximately $175 million in positive cash flow. Bal Harbour is expected to generate at least $150 million in net cash flow.

For the three months ended June 30, 2013:

  • Including Bal Harbour, which is expected to contribute approximately $20 million of EBITDA, adjusted EBITDA is expected to be approximately $305 million to $315 million (based on the assumptions below).
  • Excluding Bal Harbour, adjusted EBITDA is expected to be approximately $285 million to $295 million, assuming:
    • REVPAR increases at Same-Store Company-Operated Hotels Worldwide of 5% to 7% in constant dollars (approximately 50 basis points lower in actual dollars at current exchange rates).
    • REVPAR increases at Same-Store Company-Owned Hotels Worldwide of 4% to 6% in constant dollars (approximately 50 basis points lower in actual dollars at current exchange rates).
    • Management fees, franchise fees and other income increase approximately 8% to 10%.
    • Earnings from the Company's vacation ownership and residential business are flat to up approximately $5 million year over year.
  • Depreciation and amortization is expected to be approximately $75 million.
  • Interest expense is expected to be approximately $30 million.
  • Including Bal Harbour, income from continuing operations is expected to be approximately $136 million to $143 million, reflecting an effective tax rate of approximately 32% (based on the assumptions above).
  • Including Bal Harbour, EPS is expected to be approximately $0.70 to $0.73 (based on the assumptions above).

Special Items

The Company's special itemsnetted to a charge of $8 million ($5 million after-tax) in the first quarter of 2013 compared to a benefit of $4 million (a $5 million benefit after-tax) in the same period of 2012.

The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):

 
    

Three Months Ended

March 31,

2013   2012
 
Income from continuing operations before special items$148 $124 
EPS before special items$0.76 $0.63 
Special Items
Restructuring and other special (charges) credits, net (a)111
Gain (loss) on asset dispositions and impairments, net (b) (9) (7)
Total special items - pre-tax(8)4
Income tax benefit (expense) for special items (c) 3  1 
Total special items - after-tax (5) 5 
 
Income from continuing operations$143 $129 
EPS including special items$0.73 $0.65 
 
a) During the three months ended March 31, 2012, the Company recorded a favorable adjustment of $11 million to reverse a portion of a litigation reserve established in 2011.
 
b)During the three months ended March 31, 2013, the net loss primarily relates to the sale of three wholly-owned hotels. During the three months ended March 31, 2012, the net loss primarily relates to the sale of one wholly-owned hotel.
 
c)During the three months ended March 31, 2013, the benefit primarily relates to a tax benefit on the special items at the statutory tax rate. The three months ended March 31, 2012 includes the recognition of a deferred tax adjustment associated with a previous transaction.
 

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 ongoing operations.

Starwood will be conducting a conference call to discuss the first quarter financial results at 10:30 a.m. Eastern Time today, available via webcast on the Company's website at http://www.starwoodhotels.com/corporate/about/investor/earnings.html. A webcast replay will be available at 1:30 p.m. Eastern Time on Tuesday, April 30 and will run for one year. Alternatively, participants may call into (866) 921-0636 with conference ID 27331153; please dial in fifteen minutes early to ensure a timely start. A call replay will be available from 1:30 p.m. Eastern Time on Tuesday, April 30 through Tuesday, May 7, 2013 and can be accessed by dialing (855) 859-2056 with conference ID 27331153.

Definitions

All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations attributable to Starwood's common stockholders. All references to continuing operations, discontinued operations and net income reflect amounts attributable to Starwood's common stockholders (i.e., excluding amounts attributable to noncontrolling interests). 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 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 restructuring, goodwill impairment 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. 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 ongoing 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 condo hotels, hotels sold to date and hotels 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 natural disasters). References to Company-Operated Hotel metrics (e.g., REVPAR) reflect metrics for the Company's owned, leased and managed hotels. References to Systemwide metrics (e.g., REVPAR) reflect metrics for the Company's owned, managed and franchised hotels. REVPAR is defined as revenue per available room. ADR is defined as average daily rate.

All references to revenues in constant dollars represent revenues, excluding the impact of the movement of foreign exchange rates. The Company calculates revenues in constant dollars by calculating revenues for the current year using the prior year's exchange rates. The Company uses this revenue measure to better understand the underlying results and trends of the business, excluding the impact of movements in foreign exchange rates.

All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology. All references to earnings from vacation ownership and residential represents operating income before depreciation expense. All references to management and franchise revenues represent base and incentive fees, franchise fees, amortization of deferred gains resulting from the sales of hotels subject to long-term management contracts and termination fees.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with 1,146 properties in nearly 100 countries and 171,000 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences with the following internationally renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® by Sheraton, Aloft®, and Element®. The Company boasts one of the industry's leading loyalty programs, Starwood Preferred Guest (SPG), allowing members to earn and redeem points for room stays, room upgrades and flights, with no blackout dates. Starwood also owns Starwood Vacation Ownership, Inc., a premier provider of world-class vacation experiences through villa-style resorts and privileged access to Starwood brands. For more information, including reconciliations of non-GAAP financial measures to GAAP financial measures, please visit www.starwoodhotels.com or contact Investor Relations at (203) 351-3500.

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, natural disasters, business and financing conditions (including the condition of credit markets in the U.S. and internationally), foreign exchange fluctuations, cyclicality of the real estate (including residential) and the hotel and vacation ownership businesses, operating risks associated with the hotel, vacation ownership and residential 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 the introduction of new brand concepts 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 also 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. There can also be no assurance that agreements will be entered into for the hotels in the Company's pipeline and, if entered into, the timing of any agreement and the opening of the related hotel. Although we believe the expectations reflected in 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

March 31,

2013  2012  

%

Variance

Revenues
Owned, leased and consolidated joint venture hotels$379$402(5.7)
Vacation ownership and residential sales and services309514(39.9)
Management fees, franchise fees and other income2172018.0
Other revenues from managed and franchised properties (a) 634  598 6.0 
1,5391,715(10.3)
Costs and Expenses
Owned, leased and consolidated joint venture hotels3203498.3
Vacation ownership and residential19939349.4
Selling, general, administrative and other90966.3
Restructuring and other special charges (credits), net(1)(11)90.9
Depreciation5857(1.8)
Amortization76(16.7)
 
Other expenses from managed and franchised properties (a) 634  598 (6.0)
1,3071,48812.2
Operating income2322272.2

Equity (losses) earnings and gains (losses) from unconsolidated

   ventures, net

910(10.0)
Interest expense, net of interest income of $1 and $0(26)(49)46.9
Gain(loss) on asset dispositions and impairments, net (9) (7)(28.6)

Income from continuing operations before taxes and

   noncontrolling interests

20618113.8
Income tax benefit (expense) (64) (52)(23.1)
Income from continuing operations
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