Starwood Announces Record Second Quarter Results 1999; Pro Forma Comparable Diluted EPS from Continuing Operations Increased
48% to 43 Cents
Second Quarter Financial Highlights
- Pro forma comparable diluted EPS from continuing operations increased 48% to $0.43
- Pro forma comparable total company EBITDA increased 7%
- EBITDA increased 6% for 152 comparable owned hotels worldwide; 13% in Europe and 5% in North America
- REVPAR for 152 comparable owned hotels increased 2.7% worldwide, including a 6.1% increase in Europe (9.9% excluding
foreign exchange) and a 2.8% increase in North America
- 31 managed or franchised hotels with 5,400 rooms opened during the quarter
Press Release: Starwood Hotels & Resorts Worldwide, Inc.
August 6, 1999
WHITE PLAINS, NY-- Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT), one of the world's largest hotel
and leisure companies which through its subsidiaries operates the Sheraton, Westin, St. Regis/Luxury Collection,
Four Points, W and Caesars brands, yesterday announced record financial results for the second quarter ended June
30, 1999.
Pro Forma Comparable Results
Second Quarter Ended June 30, 1999
For the second quarter of 1999, pro forma comparable income from continuing operations was $85 million or $0.43
per diluted share on revenues of $968 million compared to $64 million or $0.29 per diluted share on revenues of
$945 million in the corresponding period in 1998. (See the attached unaudited consolidated statements of operations
for the three months ended June 30, 1999 and 1998 and the notes thereto for the basis of the pro forma comparable
results.)
Six Months Ended June 30, 1999
For the six months ended June 30, 1999, pro forma comparable income from continuing operations was approximately
$125 million or $0.64 per diluted share on revenues of approximately $1.82 billion compared to pro forma comparable
income from continuing operations of $88 million or $0.38 per diluted share on pro forma comparable revenues of
approximately $1.77 billion for the corresponding period in 1998. (See the attached unaudited consolidated statements
of operations for the six months ended June 30, 1999 and 1998 and the notes thereto for the basis of the pro forma
comparable results.)
Hotel Group Results
Revenues for the second quarter of 1999 at the Company's 171 owned and leased hotels increased 4% to $831 million
from $799 million in 1998 and EBITDA increased 2% to $277 million from $271 million in 1998. Excluding 19 hotels
under significant renovation, or for which comparable results are not available (``Comparable Owned Hotels''),
EBITDA at 152 owned and leased hotels worldwide increased 6% in the second quarter of 1999 to $259 million when
compared to the same period in 1998 and EBITDA margins increased to 34.8% from 34.2%. EBITDA at 105 Comparable
Owned Hotels in North America increased 5% to $182 million in the second quarter of 1999 when compared to the same
period in 1998. EBITDA at 29 Comparable Owned Hotels in Europe increased 13% to $41 million in the second quarter
of 1999 when compared to the same period of 1998 despite the unfavorable effect of foreign exchange rates resulting
primarily from the lower value of the Euro.
For the second quarter of 1999, Comparable Owned Hotels' REVPAR increased 2.7% to $108.90 from $106.04 in the corresponding
period of 1998. The increase in REVPAR primarily resulted from an increase in ADR of 2.5% to $148.35 from $144.72,
and an increase in occupancy to 73.4% from 73.3% in the corresponding period in 1998. These results exclude the
W Hotel New York, which fully opened in the second quarter of 1999 after a significant renovation.
During the second quarter, the Company signed management and franchise agreements for 15 hotels with 5,300 rooms,
bringing the year-to-date total to 45 hotels with 10,500 rooms. During the quarter, 31 managed or franchised hotels
with 5,400 rooms opened.
``Though we experienced a slowing in RevPar growth and in our margin expansion in the quarter, we believe that
the results are not indicative of the underlying growth and potential for Starwood,'' said Barry S. Sternlicht,
chairman and chief executive of Starwood. ``The results were impacted by unfavorable foreign exchange rates, our
aggressive renovation program and our investments in the future. First, though our extraordinary collection of
European assets continued strong RevPar growth in local currency terms, with RevPar increasing 10%, European RevPar,
when translated into dollars, increased just 6%. Since the end of the quarter, the Euro has strengthened against
the dollar.
Second, our assets under renovation are not included in our Comparable Owned Hotel RevPar. Few companies have so
many assets that are or will undergo substantial renovations and repositioning. These represent unique potential
for growth. The W New York, for example, which is excluded from RevPar statistics, has experienced a 260% increase
in RevPar in the quarter and we expect a more than tripling in EBITDA this year compared to the period as the Doral
Inn. We have more than a dozen W hotels planned for our owned independent hotels, 6 of which will be completed
by the end of the first quarter 2000.
During the second quarter, results in the New England market were particularly impacted by renovations. Such renovations
make quarterly numbers difficult and impact overall, not same store, EBITDA margins,`` Mr. Sternlicht continued.
``Third, we are investing for our future. Since the launch of our Starwood Preferred Guest(TM) (SPG) frequency
program in February, we have enrolled more than 1.4 million members worldwide. This has created a short-term expense
to our owned hotels but we remain confident this investment will translate into longer-term increases in occupancy
and enhance Starwood brand loyalty,'' Mr. Sternlicht said.
``Going forward, we have a number of exciting innovations and initiatives in the works which we believe will contribute
to our results. Based on the completion of extensive market research, we have now clearly delineated our two most
important brands, Westin and Sheraton. Each will, in the very near future, launch new advertising campaigns, important
product innovations and public relations initiatives coordinated with their renovation programs. Our E-Commerce
initiatives are exciting and our purchasing initiatives are also underway, and both should begin to have an impact
later this year. Our pipeline of management contracts continues to build momentum on a global basis. All of our
brands are performing well and even our newest brand, W Hotels has received tremendous PR support but most importantly
performance, is exceeding our expectations. We expect to sign our first three W Hotel management agreements and
await the opening of the W Seattle in September, our last wholly owned new build on our balance sheet.
``In the quarter, we positioned the company for growth. With the pending sale of Caesars and the Desert Inn, as
well as the sale of the Westin Central Park South, we will pay down our debt by approximately $3.3 billion. This
will dramatically improve our balance sheet and create capacity to expand our core business. We have targeted and
expect to complete additional asset sales. Proceeds from additional asset sales will be used to finance growth,
reduce debt and to opportunistically repurchase our stock under our current board authorization as our stock continues
to trade at levels which we do not feel represent the value of the assets of our company.''
``To further accelerate growth, in the quarter we also announced the acquisition of Vistana, Inc., one of the premier
interval ownership companies in the world, completing a very important missing link in our company's capabilities.
Potential timeshare additions at our owned properties include the Phoenician, the Sheraton Key West, the Westin
Mission Hills, the St. Regis Aspen, the Sheraton Harbour Island, the Westin Maui, the Sheraton Bal Harbour and
the Desert Inn. We are very excited to be partnered with Vistana,'' Mr. Sternlicht concluded.
Renovations and New Construction
During the second quarter, the Company invested approximately $115 million in new construction and capital improvements
on hotel assets.
In the second quarter, approximately 137,000 available room nights, or nearly 3.5% of the total available room
nights at North America owned properties, were lost due to renovations. Of this number, approximately 100,000 were
in owned properties in the New England region. These included the Sheraton Ferncroft Resort in Danvers, MA; the
Sheraton Newton, MA; Sheraton Needham, MA; Sheraton Tara in Braintree, MA; Sheraton Framingham, MA; Sheraton Nashua,
NH; Sheraton Stamford, CT; Sheraton Boston Hotel & Towers; Park Plaza Hotel in Boston.
Major renovations continued in the quarter at the Grand Hotel in Rome (which will be closed for most of 1999),
the 1,068 room Westin Peachtree Plaza in Atlanta and six other Westin properties, as well as the 232 room Houston
St. Regis. The Company completed on time and on budget, its $67 million lobby renovation and meeting space expansion
at the 1,180 room Sheraton Boston, the largest hotel in New England, which completely reopened on July 1, 1999.
In May, the Company opened the 423-room W San Francisco which was completed on time and on budget. In June, its
first full month of operation, this property achieved 71% occupancy with an average rate of $203.
Financing
On June 30, 1999, the Company had pro forma total debt of approximately $5.2 billion (assuming the sales of Caesars
and the Desert Inn) and cash of approximately $169 million versus $180 million at the end of the prior quarter.
Starwood has no significant debt maturing until November 2000, and the weighted average maturity of the Company's
debt portfolio exceeds five years.
The Company expects to significantly improve its balance sheet by retiring the increasing rate notes with the proceeds
from the sales of Caesars and the Desert Inn. At the end of the second quarter, the Company's debt was approximately
50% fixed and 50% floating. Adjusting for the sale of the Company's gaming operations, the debt portfolio is expected
to shift to approximately 70% fixed and 30% floating.
During the second quarter, the Company declared a dividend of $0.15 per share. The payment reflects Starwood's
new dividend policy of $0.60 per share per year, established as part of the reorganization of the Company to a
C-Corporation in January 1999. At the end of the quarter, Starwood had approximately 195 million shares outstanding
(including partnership units and exchangeable preferred shares).
Starwood is one of the world's largest hotel companies which, through its subsidiaries, operates the Sheraton,
Westin, St. Regis/Luxury Collection and W brands. Starwood's portfolio of owned, managed and franchised hotels
include approximately 700 hotels in 72 countries with approximately 215,000 rooms. Additional information, including
more detailed financial information, is available at the Company's website at http://www.starwoodhotels.com.
(Note: This release contains certain statements that may be deemed ``forward-looking statements' within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are no guarantees of future performance and involve risks and uncertainties that could cause actual
results to differ materially from historical results or those anticipated at the time the forward-looking statements
are made, including, without limitation, risks and uncertainties associated with the following: the continued ability
of Starwood Hotels and Resorts (the ''Trust``) to qualify for taxation as a REIT; Starwood's integration of the
assets and operations of ITT and Westin; completion, terms and timing of future acquisitions and dispositions,
including the pending sale of gaming operations and the pending acquisition of Vistana, Inc.; the availability
of capital for acquisitions and for renovations; execution of hotel and casino renovation and expansion programs;
the ability to maintain existing management, franchise or representation agreements and to obtain new agreements
on favorable terms; competition within the lodging industry and the gaming industry, the cyclicality of the real
estate business, the hotel business and the gaming business; foreign exchange fluctuations; general real estate
and national and international economic conditions; political, financial and economic conditions and uncertainties
in countries in which Starwood owns property or operates; the ability of Starwood, owners of properties it manages
or franchises and others with which it does business to address the Year 2000 issue, and the costs associated therewith;
the adoption by several European countries of the euro as their national currency; and the other risks and uncertainties
set forth in the annual, quarterly and current reports and proxy statements of the Trust and Starwood. Starwood
undertakes 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 OPERATIONS
(In millions, except per Share data)
Pro Forma
Historical(a) Comparable(a)
Three Months Three Months
Ended June 30, Ended June 30,
1999 1998 1999(b) 1998(c)
REVENUES
Owned, leased and consolidated
$871 $848 joint venture hotels $871 $848
66 62 Management and franchise fees 66 62
Unconsolidated joint ventures
31 35 and other 31 35
968 945 968 945
COSTS AND EXPENSES
Owned, leased and consolidated
581 567 joint venture hotels 581 567
38 59 Selling, general and administrative 38 54
Restructuring and other
(41) -- special credits -- --
117 131 Depreciation and amortization 117 133
695 757 736 754
273 188 232 191
Interest expense, net of
(119) (111) interest income (91) (71)
Gain on sales of real estate
22 39 and investments -- --
176 116 141 120
(29) (26) Income tax expense (51) (48)
(5) (8) Minority equity in net income (5) (8)
142 82 Income from continuing operations 85 64
Discontinued operations:
Net loss from operations, net of
-- (9) tax benefits and minority of $1 -- --
Net gain on dispositions,
-- 163 net of taxes of $90 -- --
$142 $236 Net income $85 $64
EARNINGS PER SHARE -- BASIC
$0.76 $0.38 Continuing operations $0.45 $0.30
-- 0.77 Discontinued operations -- --
$0.76 $1.15 Net income $0.45 $0.30
EARNINGS PER SHARE -- DILUTED
$0.73 $0.38 Continuing operations $0.43 $0.29
-- 0.72 Discontinued operations -- --
$0.73 $1.10 Net income $0.43 $0.29
187 201 Weighted average number of Shares 187 201
Weighted average number of Shares
196 213 assuming dilution 196 205
(a) During the quarters ended June 30, 1999 and 1998, the gaming segment
has been presented as a discontinued operation as a result of the
Company's announced plan to dispose of Caesars and the Desert Inn.
(b) Represents the pro forma comparable results of Starwood assuming the
dispositions of the gaming segment and other non-core businesses had
occurred at the beginning of the period and the exclusion of the
following unusual items:(i) restructuring and other special credits
of $50 million attributable to the reversal of certain restructuring
charges as a result of the resolution of certain employment related
contingencies, net of restructuring and other special charges of
$9 million primarily related to the rationalization of one of the
Company's technical centers and a tax benefit of $37 million
attributable to the resolution of certain employment related
contingencies discussed above, and (ii) gains (net of losses) on
disposal of real estate and investments totaling $22 million.
(c) Represents the pro forma comparable results of Starwood assuming the
dispositions of the gaming segment and other non-core businesses had
occurred at the beginning of the period, purchase price adjustments
related to the acquisition of Westin and the ITT Merger, tax rate of
40% (the effective tax rate after giving effect to the reorganization
of the Company to a C-Corporation in January 1999 (the
"Reorganization")) and the exclusion of the following unusual item:
gains on disposal of real estate and investments totaling $39 million.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per Share data)
Pro Forma
Historical(a) Comparable(a)
Six Months Six Months
Ended June 30, Ended June 30,
1999 1998(b) 1999(c) 1998(d)
REVENUES
Owned, leased and consolidated
$1,641 $1,354 joint venture hotels $1,641 $1,595
125 108 Management and franchise fees 125 114
Unconsolidated joint ventures
53 48 and other 53 62
1,819 1,510 1,819 1,771
COSTS AND EXPENSES
Owned, leased and consolidated
1,122 925 joint venture hotels 1,122 1,101
86 101 Selling, general and administrative 79 103
(41) -- Restructuring and other special credits -- --
236 204 Depreciation and amortization 236 260
1,403 1,230 1,437 1,464
416 280 382 307
Interest expense, net of
(239) (164) interest income (176) (150)
Gain on sales of real estate
30 51 and investments -- --
(15) -- Miscellaneous expense -- --
192 167 206 157
(971) (36) Income tax expense (77) (63)
(4) (7) Minority equity in net income (4) (6)
(783) 124 Income (loss) from continuing operations 125 88
Discontinued operations:
Net loss from operations, net of
-- (32) tax benefits and minority of $8 -- --
(7) 1,140 Net gain (loss) on dispositions, net
of taxes and minority of $121 and $604 -- --
$(790) $1,232 Net income (loss) $125 $88
EARNINGS PER SHARE -- BASIC
$(4.21) $0.59 Continuing operations $0.66 $0.39
(0.04) 5.74 Discontinued operations -- --
$(4.25) $6.33 Net income (loss) $0.66 $0.39
EARNINGS PER SHARE -- DILUTED
$(4.21) $0.58 Continuing operations $0.64 $0.38
(0.04) 5.64 Discontinued operations -- --
$(4.25) $6.22 Net income (loss) $0.64 $0.38
186 193 Weighted average number of Shares 186 200
Weighted average number of Shares
186 196 assuming dilution 196 203
(a) During the six months ended June 30, 1999 and 1998, the gaming
segment has been presented as a discontinued operation as a result of
the Company's announced plan to dispose of Caesars and the Desert Inn.
(b) Represents results of ITT for the six months ended June 30, 1998 and
the results of Starwood (inclusive of Westin) for the period from the
closing of the ITT Merger (February 23, 1998) through June 30, 1998.
(c) Represents the pro forma comparable results of Starwood assuming the
dispositions of the gaming segment and other non-core businesses had
occurred at the beginning of the period, certain benefit savings of
$7 million and the exclusion of the following unusual items:(i) a $15
million charge to miscellaneous expense and a $936 million deferred
tax charge related to the Reorganization; (ii) restructuring and other
special credits of $50 million attributable to the reversal of certain
restructuring charges as a result of the resolution of certain
employment related contingencies, net of restructuring and other
special charges of $9 million primarily related to the rationalization
of one of the Company's technical centers and a tax benefit of
$37 million attributable to the resolution of certain employment
related contingencies discussed above; and (iii) gains (net of losses)
on disposal of real estate and investments totaling $30 million.
(d) Represents the pro forma comparable results of Starwood as if the ITT
Merger, the acquisition of Westin, the dispositions of the gaming
segment and other non-core businesses had occurred at the beginning of
the period, tax rate of 40% (the effective tax rate after giving
effect to the Reorganization) and the exclusion of the following
unusual item: gains (net of losses) on disposal of real estate and
investments totaling $51 million.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Unaudited Balance Sheet Information
(In millions)
June 30, 1999
Historical(a) Pro Forma(b)
Total assets $13,088 $12,205
Total debt $6,134 $5,168
Shares outstanding 195 195
(a) Total assets include the net assets of the discontinued gaming
segment of $883 million. Total debt excludes $2.3 billion of debt
directly attributable to or allocated to the discontinued gaming
segment based on generally accepted accounting principles.
(b) Total assets exclude the net assets of the discontinued gaming
segment of $883 million. Total debt excludes $3.3 billion of debt
directly attributable to or allocated to the discontinued gaming
segment based on net proceeds to be received in connection with the
sale of the gaming operations.