Starwood Hotels & Resorts Worldwide, Inc. reported EPS from continuing operations for the second quarter of 2005 of $0.65…
Starwood Hotels & Resorts Worldwide, Inc. reported EPS from continuing operations for the second quarter of 2005 of $0.65 compared to $0.56 in the second quarter of 2004. Excluding special items of $11 million (after-tax) in the 2005 period related to the partial demolition of the Sheraton in Cancun, Mexico where we will build vacation ownership units, EPS from continuing operations was $0.70 for the second quarter of 2005 compared to $0.50 in the second quarter of 2004. Income from continuing operations was $145 million in the second quarter of 2005 compared to $120 million in 2004. Excluding special items, income from continuing operations was $156 million for the second quarter of 2005 compared to $107 million in 2004. Net income (after discontinued operations) was $145 million and EPS was $0.65 in the second quarter of 2005 compared to $154 million and EPS of $0.72 in the second quarter of 2004. The effective tax rate for the second quarter of 2005 was 24.7%.
Second Quarter 2005 Highlights:
- EPS from continuing operations for the second quarter of 2005 was $0.65, including an after-tax charge of $11 million relating to the demolition of a portion of the Sheraton in Cancun, Mexico where we will build vacation ownership units, compared to $0.56 in second quarter of 2004. Excluding special items, EPS from continuing operations was $0.70 for the second quarter of 2005 compared to $0.50 for the second quarter of 2004.
- REVPAR at Same-Store Owned Hotels in North America and worldwide increased 12.7% and 12.3%, respectively, when compared to the second quarter of 2004. ADR increased 9.0% and 7.5% in North America and worldwide, respectively. * Margins at Same-Store Owned Hotels in North America improved approximately 230 basis points when compared to the second quarter of 2004.
- Globally, REVPAR for Same-Store Owned Hotels grew for W Hotels (17.2%), followed by Westin (13.0%), St. Regis/Luxury Collection (11.7%), and Sheraton (11.0%), with each of these brands experiencing both ADR and occupancy gains.
- Third-party management and franchise fees in the quarter increased 21.3% when compared to 2004.
- Vacation ownership and residential revenues, which exclude gains on sales of notes receivable, increased 66.4%. Excluding the fractional sales at the St. Regis Aspen and residential sales at the St. Regis in San Francisco, contract sales at vacation ownership properties were up 15.1% when compared to 2004.
- Net income for the second quarter of 2005 was $145 million, including the after-tax charge of $11 million relating to the demolition of a portion of the Sheraton in Cancun, Mexico referred to above, compared to $154 million in the second quarter of 2004. Excluding special items, income from continuing operations was $156 million compared to $107 million in 2004. Total Company Adjusted EBITDA increased 26.1% to $391 million when compared to $310 million in 2004.
- According to Smith Travel Research system-wide market share in North America increased 90 basis points when compared to 2004.
Steven J. Heyer, CEO, said: Our results this quarter were outstanding and we are pleased to be raising our guidance for the remainder of the year. For the eleventh quarter in a row we`ve gained market share. I am thrilled with the progress we are making on our brand-building efforts and service innovation, which I believe will continue to keep us ahead of our competition and will accelerate our market share growth. The marketing and service programs we have and are developing will help us secure an emotional connection with our guests and cement our position as brand leader in the upper upscale and luxury segments.
Our global development pipeline remains stronger than ever and new brand launches like Project XYZ should capture the lion`s share of new select serve opportunities. The strength of our brands should also enable Starwood to capture share of wallet both inside and outside of the four walls of the hotel. Already, the Westin Heavenly Bed ensemble available at Nordstrom`s, the Bliss catalogue business and the W Stores are adding to our top and bottom lines.
During the quarter we announced several additional asset sales including the legendary Hotel Danieli in Venice, moving us in line to achieve our goal of $500 million in asset sales. We continue to evaluate our current portfolio of owned assets with a focus on harvesting previously unrecognized assets either through additional asset sales or redevelopment opportunities.
Business continues to be robust and supply remains constrained. Our team is excited about the work we are doing and the direction we are heading.
Operating Results: Second Quarter Ended June 30, 2005
Cash flow from operations was $171 million compared to $119 million in 2004. Total Company Adjusted EBITDA was $391 million compared to $310 million in 2004.
Owned, Leased and Consolidated Joint Venture Hotels
REVPAR for Same-Store Owned Hotels in North America and worldwide increased 12.7% and 12.3%, respectively, when compared to 2004. REVPAR at Same-Store Owned Hotels in North America increased 17.2% at W, 14.2% at both St. Regis/Luxury Collection and Westin, and 9.9% at Sheraton. REVPAR growth was particularly strong at the Company`s owned hotels in New York, Chicago, Ft. Lauderdale, Denver, Los Angeles, Maui, Toronto, San Diego, Atlanta and Washington D.C. Revenue from transient travel was up 14.9% in North America when compared to 2004. Internationally, Same-Store Owned Hotel REVPAR increased 11.4%, with Latin America up 19.5% (REVPAR in owned hotels in Argentina, Brazil, Peru and resort areas in Mexico was particularly strong), Asia Pacific up 11.9%, and Europe up 9.8%. Excluding the favorable effects of foreign exchange, REVPAR increased 7.0% internationally.
Total revenues at Same-Store Owned Hotels worldwide increased 9.7%, to $929 million when compared to $847 million in 2004 while costs and expenses at the hotels increased 6.9% to $664 million in 2005 compared to $621 million in 2004. Total revenues at Same-Store Owned Hotels in North America increased 9.3% to $674 million in 2005 when compared to $617 million in 2004 while costs and expenses at these hotels increased 5.9% to $481 million when compared to $454 million in 2004.
System-wide REVPAR; Management/Franchise Fees
System-wide (owned, managed and franchised) REVPAR for Same-Store Hotels in North America increased 11.8%; W Hotels 17.6%, Sheraton 12.0%, Westin and Four Points by Sheraton 11.7% each, and St. Regis/Luxury Collection 4.2%. For the eleventh quarter in a row, total Company market share in North America increased for the Company`s owned and managed hotels as well as for system-wide hotels. Total third-party management and franchise fees were $91 million, up $16 million, or 21.3%, from last year.
Distribution
Starwood`s central distribution systems gross bookings increased approximately 10% when compared to 2004. Gross online bookings through proprietary branded websites increased 30% as compared to 2004, with gross dollar bookings from the proprietary branded sites increasing 45%. Gross online dollar bookings represented approximately 12% of the overall gross dollar bookings, with 74% of that coming from our proprietary branded websites, as compared to 10% of overall gross dollar bookings, with 72% of that from proprietary branded websites in 2004.
Vacation Ownership and Residential
Vacation ownership and residential revenue, which excludes gains on sales of notes receivable (there were no sales of notes receivable in the second quarter of 2005), was up $93 million, or 66.4% to $233 million when compared to 2004 primarily due to residential sales at the St. Regis Museum Tower in San Francisco and vacation ownership sales at our resorts in Maui, Orlando and Scottsdale. Contract sales, excluding fractional sales at the St. Regis Aspen and residential sales at the St. Regis in San Francisco, were up 15.1% when compared to 2004. The average price per timeshare unit sold increased approximately 12.0% to $22,480, and the number of contracts signed increased approximately 2.7% when compared to 2004.
In December 2004, the Company completed the conversion of 98 guest rooms at the St. Regis in Aspen, Colorado into 25 fractional units, which are being sold in four week intervals, and 20 new hotel rooms. In the second quarter of 2005, the Company recognized revenues of $4 million related to this project. Also, in the second quarter of 2005, the Company continued selling condominiums at the St. Regis Museum Tower which is under construction in San Francisco, and recognized revenues of approximately $40 million.
In addition to its robust pipeline of existing vacation ownership inventory, the Company continues to evaluate its existing owned real estate for potential conversion to vacation ownership, fractional, or residential projects. For example, as discussed earlier, the Company has partially demolished the Sheraton in Cancun, Mexico where it will build a timeshare development that is expected to have up to 73 units upon completion. The Company is also working with its business partners to develop similar conversion opportunities at managed hotels.
Currently, the Company is working on new phases at the Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii, the Westin Kierland Villas in Scottsdale, Arizona, the Sheraton Broadway Plantation in Myrtle Beach, South Carolina, the Harborside Resort at Atlantis, Nassau, Bahamas, and the Sheraton Vistana Villages in Orlando, Florida.
In addition to the expansion at the existing properties above, Starwood Vacation Ownership is in the predevelopment phase of several new vacation ownership resorts including one in Princeville on the island of Kauai, Hawaii. The Company is also working on its second St. Regis-branded fractional resort in Punta Mita, Mexico.
As discussed earlier, the Company did not sell any notes receivable and thereby did not recognize any gains during the second quarter of 2005 compared to gains of $8 million in the same period of 2004.
Brand Development/Unit Growth
During the second quarter, the Company signed 26 full service hotel management and franchise contracts (representing approximately 6,200 rooms) including the Westin Orlando Convention Center (Orlando, Florida, 492 rooms), Westin North Shore (Wheeling, Illinois, 440 rooms), Sheraton Urumqi (Urumqi, China, 410 rooms) and Westin Guangzhou (Guangzhou, China, 400 rooms) and opened nine new hotels and resorts, including the Sheraton Los Angeles Downtown Hotel (Los Angeles, California, 485 rooms) and Sheraton Miami Mart Hotel (Miami, Florida, 332 rooms).
Nine properties (representing approximately 2,600 rooms) were removed from the system during the quarter (5 Four Points and 4 Sheratons). Including openings during the first six months of 2005, the Company expects to open approximately 50 new full-service hotels and resorts (approximately 10,000 rooms) around the world in 2005. The Company had approximately 190 full service hotels and approximately 48,000 rooms in its active global development pipeline at June 30, 2005, with roughly half of that number in international locations.
In July 2005, the company opened a new Bliss spa at the W San Francisco hotel. Later in 2005 and in 2006, the Company plans to open 3 new Bliss spas in W hotels in Dallas, Los Angeles and Chicago and 2 new Remede Spas in St. Regis hotels in San Francisco and New York with several others in various planning stages.
Results for the Six Months Ended June 30, 2005:
EPS from continuing operations was $1.01 compared to $0.72 in 2004. Excluding special items, EPS from continuing operations was $1.05 compared to $0.66 in 2004. Income from continuing operations was $224 million compared to $153 million in 2004. Excluding special items, income from continuing operations was $233 million compared to $140 million in 2004. Net income (after discontinued operations) was $224 million and EPS was $1.01 compared to $188 million and $0.88, respectively, in 2004.
Cash flow from operations was $230 million compared to $182 million in 2004. Total Company Adjusted EBITDA was $679 million compared to $532 million in 2004.
Capital:
Gross capital spending during the quarter included approximately $68 million in renovations of hotel assets including construction capital at the Sheraton Hotel and Towers in New York, New York, the St. Regis in New York, New York, the Sheraton Centre Toronto Hotel in Toronto, Canada, and the Boston Park Plaza in Boston, Massachusetts. Investment spending on gross VOI inventory was $40 million, which was more than offset by cost of sales of $46 million during the quarter. The inventory spend included VOI construction at the Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii, the Sheraton Vistana Villages in Orlando, Florida, and the Westin Kierland Villas in Scottsdale, Arizona and construction of fractional units at the St. Regis in Aspen, Colorado. Additionally during the quarter, further investment spending of $27 million included the ongoing development of the St. Regis Museum Tower in San Francisco which will consist of 260 hotel rooms and 102 condominium units. To date, the Company has invested $275 million in the St. Regis Museum Tower project, which is expected to open in late 2005. The Company expects to realize gross proceeds of approximately $240 million from the sale of the project`s condominiums and has recognized approximately $99 million in revenues to date.
Balance Sheet:
At June 30, 2005, the Company had total debt of $4.359 billion and cash and cash equivalents (including $518 million of restricted cash) of $899 million, or net debt of $3.460 billion, compared to net debt of $3.669 billion at the end of the first quarter of 2005. In addition, the Company continues to have an approximate $200 million investment in the senior debt of Le Meridien hotels.
At June 30, 2005, debt was approximately 77% fixed rate and 23% floating rate and its weighted average maturity was 4.6 years with a weighted average interest rate of 6.03%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $1.892 billion.
Outlook:
All comments in the following paragraphs and certain comments in this release above are deemed to be forward-looking statements. These statements reflect expectations of the Company`s performance given its current base of assets and its current understanding of external economic and geo-political environments. Actual results may differ materially.
For the three months ended September 30, 2005, if REVPAR at Same-Store Owned Hotels in North America increases approximately 10% -12% versus the same period in 2004:
- Adjusted EBITDA would be expected to be approximately $342 million, an increase of 17.5% when compared to $291 million in the same period of 2004.
- Net income would be expected to be approximately $114 million, an increase of 34.1% when compared to income from continuing operations before special items in the third quarter of 2004.
- EPS would be expected to be $0.51, an increase of 27.5% when compared to EPS from continuing operations before special items in the third quarter of 2004.
For the full year 2005, if REVPAR at Same-Store Owned Hotels in North America increases approximately 10% – 12% versus the full year 2004:
- Full year revenues, including other revenues from managed and franchised properties, would be expected to be approximately $5.950 billion.
- Full year Adjusted EBITDA would be expected to increase approximately 21.3% to approximately $1.395 billion, when compared to 2004 Adjusted EBITDA of $1.150 billion.
- Full year net income before special items would be expected to be approximately $484 million at approximately a 25% effective tax rate, which assumes an annual dividend of $0.84 per Share (payable in January 2006), when compared to 2004 income from continuing operations before special items of approximately $348 million at a 13.9% effective tax rate.
- Full year EPS before special items would be expected to increase approximately 34.6% to $2.18 when compared to 2004 EPS from continuing operations before special items of $1.62.
- Full year capital expenditures (excluding timeshare inventory) would be approximately $600 million, including $300 million for maintenance, renovation and technology, approximately $100 million for the completion of the St. Regis San Francisco multi-use project under construction, and $200 million for other growth initiatives. Additionally, net capital expenditures for timeshare inventory would be approximately $100 million.
- For the full year the Company expects cash interest expense of approximately $281 million and cash taxes of approximately $50 million.
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