Starwood Hotels & Resorts Worldwide, Inc. today reported second quarter 2012 financial results.
Second Quarter 2012 Highlights
Excluding special items, EPS from continuing operations was $0.70, including income from the St.
Regis Bal Harbour residential project. Including special items, EPS from continuing operations was
$0.66.
Adjusted EBITDA was $323 million, which included $35 million of EBITDA from the St. Regis Bal
Harbour residential project, up 23.3% compared to 2011.
Excluding special items, income from continuing operations was $138 million, including income
from the St. Regis Bal Harbour residential project. Including special items, income from continuing
operations was $129 million.
Worldwide Systemwide REVPAR for Same-Store Hotels increased 6.9% in constant dollars (4.2%
in actual dollars) compared to 2011. Systemwide REVPAR for Same-Store Hotels in North
America increased 7.3% in constant dollars (6.8% in actual dollars).
Management fees, franchise fees and other income increased 10.4% compared to 2011.
Worldwide Same-Store Company-Operated gross operating profit margins increased
approximately 150 basis points compared to 2011.
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 3.1% in constant
dollars (decreased 0.4% in actual dollars) compared to 2011.
Margins at Starwood branded Same-Store Owned Hotels Worldwide increased approximately 140
basis points compared to 2011.
Earnings from Starwood’s vacation ownership and residential business increased approximately
$41 million compared to 2011, including $35 million of earnings from the St. Regis Bal Harbour
residential project.
During the quarter, the Company signed 34 hotel management and franchise contracts,
representing approximately 8,300 rooms, and opened 14 hotels and resorts with approximately
2,700 rooms.
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Second Quarter 2012 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the second quarter of 2012 of $0.66 compared to $0.77 in the second quarter of 2011. Excluding special items, EPS from continuing operations was $0.70 for the second quarter of 2012, including income from The St. Regis Bal Harbour Resort residential project (“Bal Harbour”), compared to $0.50 in the second quarter of 2011. Special items in the second quarter of 2012, which totaled a charge of $9 million (after-tax), primarily related to costs associated with the early extinguishment of debt. Special items in the second quarter of 2011, which totaled a benefit of $53 million (after-tax), primarily related to a tax benefit associated with the sale of two wholly-owned hotels.
Excluding special items, the effective income tax rate in the second quarter of 2012 was 31.5%, including the tax effects associated with income from Bal Harbour, compared to 25.4% in the second quarter of 2011.
Income from continuing operations was $129 million in the second quarter of 2012, compared to $150 million in the second quarter of 2011. Excluding special items, income from continuing operations was $138 million in the second quarter of 2012, including income from Bal Harbour, compared to $97 million in the second quarter of 2011.
Net income was $122 million and $0.62 per share in the second quarter of 2012, compared to $131
million and $0.68 per share in the second quarter of 2011.
Frits van Paasschen, CEO, said, “We kept up our momentum in the second quarter, despite a choppy global economy. Our REVPAR grew 6.9%, with occupancy over a healthy 71%. Despite the uncertain global environment, we expect the trends we saw in our business for the past quarter to continue through the second half of the year.”
“Our approach to an uncertain global marketplace is to be both smart and bold. What we mean by ‘smart’ is having a business model, balance sheet, and cost structure that can weather economic turbulence. At the same time, we are being bold in our efforts to grow our footprint in the right way, and to invest in building guest loyalty to gain more than our fair share of business.”
Six Months Ended June 30, 2012 Earnings Summary
Income from continuing operations was $258 million in the six months ended June 30, 2012 compared to $179 million in the same period in 2011. Excluding special items, income from continuing operations was $262 million in the six months ended June 30, 2012, including income from Bal Harbour, compared to $155 million in the same period in 2011.
Net income was $250 million and $1.27 per share in the six months ended June 30, 2012 compared to
$159 million and $0.82 per share in the same period in 2011.
Adjusted EBITDA was $620 million in the six months ended June 30, 2012 compared to $470 million in the same period in 2011.
Second Quarter 2012 Operating Results
Management and Franchise Revenues Worldwide Systemwide REVPAR for Same-Store Hotels increased 6.9% in constant dollars (4.2% in actual dollars) compared to the second quarter of 2011. International Systemwide REVPAR for Same- Store Hotels increased 6.3% in constant dollars (0.9% in actual dollars). Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:
REVPAR
Region
Constant
Dollars
Actual
Dollars
North America 7.3% 6.8%
Europe 2.3% (8.0)%
Asia Pacific 9.3% 7.2%
Africa and the Middle East 11.2% 8.5%
Latin America 6.1% 6.1%
Increases in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:
REVPAR
Brand
Constant
Dollars
Actual
Dollars
St. Regis/Luxury Collection 4.5% (0.5)%
W Hotels 8.8% 7.3%
Westin 7.5% 5.2%
Sheraton 6.3% 4.4%
Le Méridien 6.9% 0.8%
Four Points by Sheraton 7.0% 5.3%
Aloft 9.7% 8.7%
Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 150 basis points compared to 2011. International gross operating profit margins for Same-Store Company Operated properties increased 160 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 150 basis points, driven by REVPAR increases and cost controls.
Management fees, franchise fees and other income were $222 million, up $21 million, or 10.4% compared to the second quarter of 2011. Management fees increased 13.5% to $126 million and franchise fees increased 6.1% to $52 million. Year-over-year base management fee and franchise fee comparisons were impacted by the conversion of some franchise agreements to management contracts in Germany.
Development
During the second quarter of 2012, the Company signed 34 hotel management and franchise contracts, representing approximately 8,300 rooms, of which 30 are new builds and four are conversions from other brands. At June 30, 2012, the Company had approximately 365 hotels in the active pipeline representing approximately 95,000 rooms. During the second quarter of 2012, 14 new hotels and resorts (representing approximately 2,700 rooms) entered the system, including The St. Regis Doha (Qatar, 336 rooms), The Westin Xiamen (China, 304 rooms), The Sheraton Madrid Mirasierra Hotel & Spa (Spain, 182 rooms), Four Points by Sheraton Perth (Australia, 277 rooms), and Aloft, Ontario (Canada, 131 rooms). Five properties (representing approximately 1,000 rooms) were removed from the system during the quarter. Owned, Leased and Consolidated Joint Venture Hotels Worldwide REVPAR at Starwood branded Same-Store Owned Hotels increased 3.1% in constant dollars (decreased 0.4% in actual dollars) when compared to 2011. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 1.1% in constant dollars (decreased 0.1% actual dollars). Excluding Canada, REVPAR at Starwood branded Same-Store Owned Hotels in North America increased approximately 4%. REVPAR at Canadian owned hotels decreased 6.5% in constant dollars as group business continues to be negatively impacted by the strong Canadian dollar. Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 5.3% in constant dollars (decreased 0.8% in actual dollars).
Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 2.0% in constant dollars (decreased 1.4% in actual dollars) while costs and expenses decreased 0.1% in constant dollars (3.3% in actual dollars) when compared to 2011. Margins at these hotels increased approximately 140 basis points. Revenues at Starwood branded Same-Store Owned Hotels in North America decreased 0.7% while costs and expenses decreased 1.7% when compared to 2011. Margins at these hotels increased approximately 70 basis points. Internationally, revenues at Starwood branded Same-Store Owned Hotels increased 3.6% in constant dollars (decreased 2.2% in actual dollars) while costs and expenses increased 0.5% in constant dollars (decreased 5.1% in actual dollars) when compared to 2011. Margins at these hotels increased approximately 220 basis points.
Revenues at owned, leased and consolidated joint venture hotels were $453 million, compared to $478 million in 2011. Expenses at owned, leased and consolidated joint venture hotels were $360 million compared to $381 million in 2011. Second quarter results were negatively impacted by five asset sales that took place since the second quarter of 2011.
Vacation Ownership
Total vacation ownership revenues increased 2.8% to $148 million in the second quarter of 2012 when compared to 2011, primarily due to the timing and recognition of deferred revenues and favorable trends with respect to default rates on notes receivable. Originated contract sales of vacation ownership intervals and numbers of contracts decreased 5.0% and 1.8%, respectively, primarily due to lower closing efficiency partially offset by increased tour flow. The average price per vacation ownership unit sold decreased 2.6% to approximately $14,400, driven by inventory mix.
Residential
The Company’s residential revenues were $168 million compared to $2 million in 2011. The Company realized residential revenues from Bal Harbour during the second quarter of 2012 of $167 million and generated EBITDA of $35 million. During the second quarter of 2012, the Company closed sales of 45 units and realized incremental cash proceeds of $148 million associated with these units. From project inception through June 30, 2012, the Company has closed contracts on approximately 60% of the total residential units
.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses decreased 2.3% to $86 million compared to $88 million in 2011, primarily due to changes in foreign exchange rates. The Company continues to target a 4% to 5% increase for the full year.
Capital
Gross capital spending during the quarter included approximately $22 million of maintenance capital and $70 million of development capital.
Share Repurchase
In the second quarter of 2012 and through July 25, the Company repurchased 2.84 million shares at a total cost of approximately $140.0 million. As of July 25, 2012, approximately $110.0 million remained available under the Company’s share repurchase authorization.
Balance Sheet
At June 30, 2012, the Company had gross debt of $1.652 billion, excluding $449 million of debt associated with securitized vacation ownership notes receivable. Additionally, the Company had cash and cash equivalents of $410 million (including $140 million of restricted cash), and net debt of $1.242 billion, compared to net debt of $1.383 billion as of March 31, 2012. Net debt at June 30, 2012, including debt and restricted cash ($18 million) associated with securitized vacation ownership notes receivables was $1.673 billion.
At June 30, 2012, debt was approximately 88% fixed rate and 12% floating rate and its weighted average maturity was 4.4 years with a weighted average interest rate of 7.05%, excluding the securitized debt. The Company had cash (including current restricted cash) and availability under the domestic and international revolving credit facility of approximately $1.912 billion.
During the second quarter of 2012, the Company redeemed all $495 million of its 6.25% Senior Notes due February 2013. Redemption premiums and other costs associated with the redemption were approximately $15 million. Additionally, the Company prepaid a loan secured by one owned hotel of approximately $52 million.
Outlook
For the Full Year 2012:
Including Bal Harbour, which is expected to contribute at least $120 million of EBITDA, adjusted EBITDA is expected to be approximately $1.190 billion to $1.210 billion.
Excluding Bal Harbour, adjusted EBITDA is expected to be approximately $1.070 billion to $1.090
billion, assuming:
▫ REVPAR increases at Same-Store Company-Operated Hotels Worldwide of 6% to 8% in
constant dollars (approximately 300 basis points lower in dollars at current exchange
rates).
▫ REVPAR increases at branded Same-Store Owned Hotels Worldwide of 4% to 5% in
constant dollars (approximately 300 basis points lower in dollars at current exchange
rates).
▫ Margins at branded Same-Store Owned Hotels Worldwide increase 100 to 150 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 $150 million to $155 million.
▫ Selling, general and administrative expenses increase 4% to 5%.
Full year outlook is negatively impacted by exchange rate shifts and weaker Owned hotel trends
in Canada and Argentina
Depreciation and amortization is expected to be approximately $285 million.
Interest expense is expected to be approximately $192 million, excluding the $15 million of
redemption premiums and other costs associated with the Senior Notes redemption in the second
quarter of 2012.
Including Bal Harbour, full year effective tax rate is expected to be approximately 31%, and cash
taxes are expected to be approximately $100 million.
Including Bal Harbour, EPS before special items is expected to be approximately $2.49 to $2.56.
Full year capital expenditures (excluding vacation ownership and residential inventory) is
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 $375 million.
Vacation ownership (excluding Bal Harbour) is expected to generate approximately $150 million
in positive cash flow. Bal Harbour is expected to generate at least $350 million in net cash flow.
For the three months ended September 30, 2012:
Including Bal Harbour, which is expected to contribute at least $5 million of EBITDA, adjusted
EBITDA is expected to be approximately $260 million to $270 million.
Excluding Bal Harbour, adjusted EBITDA is expected to be approximately $255 million to $265
million, assuming:
▫ REVPAR increases at Same-Store Company-Operated Hotels Worldwide of 6% to 8% in
constant dollars (approximately 500 basis points lower in dollars at current exchange
rates).
▫ REVPAR increases at branded Same-Store Company Owned Hotels Worldwide of 4% to
5% in constant dollars (approximately 500 basis points lower in dollars at current
exchange rates).
▫ Management fees, franchise fees and other income increase approximately 9% to 11%.
▫ Earnings from the Company’s vacation ownership and residential business are flat to up
$5 million year over year.
Third quarter outlook is negatively impacted by approximately $5 million due to exchange rate
shifts and weaker Owned hotel trends in Canada and Argentina.
Depreciation and amortization is expected to be approximately $71 million.
Interest expense is expected to be approximately $45 million.
Including Bal Harbour, income from continuing operations is expected to be approximately $99 million to $106 million, reflecting an effective tax rate of approximately 31%.
Including Bal Harbour, EPS is expected to be approximately $0.50 to $0.54.
