Starwood Reports Fourth Quarter and Full Year 2005 Results
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Starwood Reports Fourth Quarter and Full Year 2005 Results
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2006-02-02
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Fourth Quarter 2005 Highlights
EPS from continuing operations for the fourth quarter of 2005 increased 37% to
$0.70, compared to $0.51 in the fourth quarter of 2004. Excluding special items,
EPS from continuing operations increased 25% to $0.71 for the fourth quarter of
2005 compared to $0.57 for the fourth quarter of 2004.
REVPAR at Same-Store Owned Hotels in North America and worldwide increased
12.2% and 9.4%, respectively, when compared to the fourth quarter of 2004. ADR
increased 9.5% and 7.0% in North America and worldwide, respectively.
Margins at Starwood branded Same-Store Owned Hotels in North America
improved approximately 140 basis points when compared to the fourth quarter of
2004, despite the negative impact of a significant 30% increase in energy costs in
North America.
Globally, REVPAR for Same-Store Owned Hotels grew for W Hotels (18.9%),
followed by Westin (8.4%), Sheraton (8.2%), and St. Regis/Luxury Collection
(5.2%), with each of these brands experiencing both ADR and occupancy gains.
Third-party management and franchise fees, including fees from the Le Méridien
hotels from the acquisition date of November 24, 2005, increased 30.2% in the
quarter when compared to 2004.
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 17.8% when compared to 2004. However, reported revenues from vacation
ownership and residential sales decreased $5 million in the quarter when
compared to 2004 primarily due to percentage of completion accounting for presales
at new timeshare projects.
Net income for the fourth quarter of 2005 increased 59% to $159 million,
compared to net income of $100 million in the fourth quarter of 2004. Excluding
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special items, income from continuing operations increased 32% to $162 million in
the fourth quarter of 2005 compared to $123 million in the same period of 2004.
Total Company Adjusted EBITDA increased 19.6% to $391 million when
compared to $327 million in 2004.
For the thirteenth quarter in a row, total Company market share in North America
increased for the Company’s owned and managed hotels as well as for systemwide
hotels. According to Smith Travel Research, system-wide market share in
North America increased approximately 100 basis points for the full year 2005
when compared to 2004.
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today
reported EPS from continuing operations for the fourth quarter of 2005 of $0.70
compared to $0.51 in the fourth quarter of 2004. Excluding special items which net to a
negative $3 million and primarily relate to severance related costs associated with the
corporate restructuring in the quarter, net gains realized on the sale of several hotels
partially offset by a hotel impairment charge and additional tax expense arising from the
deposit with the IRS of funds for taxes claimed as a result of the 1998 disposition of ITT
World Directories, EPS from continuing operations was $0.71 for the fourth quarter of
2005 compared to $0.57 in the fourth quarter of 2004. Income from continuing
operations was $159 million in the fourth quarter of 2005 compared to $111 million in
2004. Excluding special items, income from continuing operations was $162 million for
the fourth quarter of 2005 compared to $123 million in 2004. In connection with the
announced sale of 38 hotels to Host Marriott Corporation, the Company’s EPS in the
fourth quarter was positively impacted by approximately $17 million or $0.05 per share
associated with the cessation of depreciation of these assets held for sale. The
Company’s results continued to be negatively impacted by lost business in New Orleans,
Cancun and Miami as a result of damage at its owned hotels from Hurricanes Katrina and
Wilma. Although the Company has recorded expenses for its insurance deductibles
associated with these storms, in accordance with accounting rules, it has not recorded
any of its expected recoveries under its existing business interruption insurance policies.
Net income (after discontinued operations) was $159 million and EPS was $0.70 in the
fourth quarter of 2005 compared to $100 million and EPS of $0.46 in the fourth quarter of
2004. The effective tax rate for the fourth quarter of 2005 was 21.4%.
Steven J. Heyer, CEO, said “I am very pleased with our results this quarter. We beat our
top and bottom line expectations and for thirteen quarters in a row our market share has
increased. We are moving full speed ahead with all of our strategic initiatives and with
the brand building initiatives rolling out across our system, we expect our momentum to
continue.
During the quarter we made significant progress toward reducing our investment in
owned real estate, while maintaining long-term, attractive management agreements with
an outstanding partner. I couldn’t be more pleased with the results of this transaction and
the future opportunities it creates for us. And, as we said when we announced the deal, it
re-opened our window for share repurchases. Since our window opened, we have
repurchased $373 million in stock, and we plan to be buyers of our stock throughout
2006.
We closed on the purchase of the Le Méridien brand, adding another upper upscale
brand and 122 hotels to our system. The brand is very strong, and we are pleased with
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the quality of the hotel management teams in place. After these two transactions, our
earnings become more balanced between hotel ownership and fee income. We expect
to aggressively drive both businesses.
Entering into 2006, we have significant opportunities ahead of us. We will continue to
work on unlocking the value in our owned real estate. Our core lodging business remains
strong and supply continues to be constrained. Our pipeline continues to grow,
outpacing our fair share, and we’ve added resources to aggressively pursue the
opportunity. We are focused on our key initiatives and expect 2006 to be another great
year at Starwood with our core business, on a comparable basis, growing approximately
15%.”
Operating Results
Fourth Quarter Ended December 31, 2005
Cash flow used for operations was $54 million compared to cash flow from operations of
$201 million in 2004. The decrease in cash flows from operations was primarily due to
the payment, in October 2005, of the deposit with the IRS associated with the 1998
disposition of ITT World Directories. Total Company Adjusted EBITDA was $391 million
compared to $327 million in 2004.
Owned, Leased and Consolidated Joint Venture Hotels
REVPAR for Same-Store Owned Hotels in North America and worldwide increased
12.2% and 9.4%, respectively, when compared to 2004. REVPAR at Same-Store Owned
Hotels in North America increased 18.9% at W, 11.7% at Sheraton, 10.5% at Westin, and
10.3% at St. Regis/Luxury Collection. REVPAR growth was particularly strong at the
Company’s owned hotels in New York, Atlanta, Houston, Chicago, and the Hawaiian
Islands. Revenue from transient travel was up 16.6% in North America when compared
to 2004. Internationally, Same-Store Owned Hotel REVPAR increased 10% after
adjusting for the impact of foreign exchange. As reported, in US dollars, Same-Store
Owned Hotel REVPAR increased 1.5%, with Latin America up 9.2% (REVPAR in owned
hotels in Argentina, Brazil, Peru and resort areas in Mexico was particularly strong,
excluding two hotels in Cancun which were closed due to damage from Hurricane
Wilma), Europe up 1.6%, and Asia Pacific down 8.5% due to the fact that one of the four
owned hotels in this region was under significant renovation during the quarter.
Total revenues at Same-Store Owned Hotels worldwide increased 6.6% to $843 million
when compared to $791 million in 2004 while costs and expenses at the hotels increased
5.7% to $620 million in 2005 compared to $587 million in 2004. Total revenues at Same-
Store Owned Hotels in North America increased 9.2% to $626 million in 2005 when
compared to $573 million in 2004 while costs and expenses at these hotels increased
7.3% to $453 million when compared to $422 million in 2004. The increase in costs and
expenses is primarily due to an increase in occupancy and a significant 30% increase in
energy costs in North America.
System-wide REVPAR; Management/Franchise Fees
System-wide (owned, managed and franchised) REVPAR for Same-Store Hotels in North
America, excluding Le Méridien hotels, increased 10.8%; W Hotels 17.9%, Sheraton
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11.3%, Westin 9.8%, Four Points by Sheraton 9.3%, and St. Regis/Luxury Collection
6.9%. For the thirteenth 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. According to Smith Travel Research, system-wide market share in North America
increased approximately 100 basis points for the full year 2005 when compared to 2004.
Total third-party management and franchise fees, including fees from the Le Méridien
hotels from the acquisition date of November 24, 2005, were $104 million in the quarter,
up $24 million, or 30.2%, from last year.
Vacation Ownership and Residential
Vacation ownership and residential revenue, which excludes gains on sales of notes
receivable, decreased $5 million, or 2.5% to $192 million when compared to 2004. This
decrease was primarily due to a larger portion of vacation ownership sales coming from
pre-sales at new phases under construction at the Westin Ka’anapali Ocean Resort Villas
in Maui, Hawaii and the Westin Kierland Villas in Scottsdale, Arizona which are
recognized based on percentage of completion in accordance with US GAAP. Contract
sales, excluding fractional sales at the St. Regis Aspen and residential sales at the St.
Regis in San Francisco, were up 17.8% when compared to 2004. The average price per
timeshare unit sold increased approximately 11.8% to $22,868, and the number of
contracts signed increased approximately 5.3% when compared to 2004.
Residential sales continued in the fourth quarter at the St. Regis Museum Tower in San
Francisco. The Company recognized revenues of approximately $42 million, an increase
of $27 million compared to 2004. The St. Regis Museum Tower hotel and condominiums
opened in November 2005.
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, the Company is converting
four floors of the St. Regis hotel in New York into fractional units and residences and 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 of the first phase.
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, 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 a third St. Regis-branded fractional resort in Punta Mita, Mexico.
During the fourth quarter of 2005, the Company sold approximately $221 million of
vacation ownership notes receivable and recognized gains of $25 million as compared to
gains of $3 million in the same period of 2004.
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Results for the Twelve Months Ended December 31, 2005
EPS from continuing operations increased 9% to $1.88 compared to $1.72 in 2004.
Excluding special items, EPS from continuing operations increased 44% to $2.34
compared to $1.62 in 2004. Income from continuing operations was $423 million
compared to $369 million in 2004. Excluding special items, income from continuing
operations increased 51% to $526 million compared to $348 million in 2004. Net income
(after discontinued operations) was $422 million and EPS was $1.88 compared to $395
million and $1.84, respectively, in 2004.
Cash flow from operations was $764 million compared to $578 million in 2004. Total
Company Adjusted EBITDA was $1.417 billion compared to $1.150 billion in 2004.
Brand Development/Unit Growth
During the fourth quarter, the Company signed 42 hotel management and franchise
contracts (representing approximately 15,000 rooms) including the W Las Vegas (Las
Vegas, Nevada, 4,000 rooms), Westin Orlando Convention Center (Orlando, Florida, 603
rooms), and W Pudong (Shanghai, China, 400 rooms). In addition to the 122 Le Méridien
hotels (representing approximately 31,700 rooms) that are currently in the system
following the Company’s acquisition of the brand in November 2005, nine new hotels and
resorts (representing approximately 2,200 rooms) entered the system, including the
Westin Paris (Paris, France, 438 rooms) and the Sheraton Haikou (Haikou, China, 341
rooms). Thirteen properties (representing approximately 3,500 rooms) were removed
from the system during the quarter (4 Sheratons, 4 Four Points, 3 Westins and 2
unbranded). The Company expects to open more than 50 hotels (representing
approximately 14,000 rooms) in 2006. The Company had approximately 220 hotels and
approximately 65,000 rooms in its active global development pipeline at December 31,
2005, with roughly half of that number in international locations.
In November 2005, the Company opened its third Remede Spa in the St. Regis hotel in
San Francisco. The Company also had six Bliss spas at the end of 2005. In 2006, the
Company plans to open 2 new Bliss spas in W hotels in Dallas and Los Angeles, with
several other Bliss and Remede Spas in various planning stages.
Distribution
Starwood’s central distribution systems gross bookings during the fourth quarter of 2005
increased approximately 10.1% when compared to 2004. Gross online bookings through
proprietary branded websites increased 31.2% as compared to 2004, with gross dollar
bookings from the proprietary branded sites increasing 38.3%. Gross online dollar
bookings represented approximately 12.2% of the overall gross dollar bookings, with
78.6% of that coming from our proprietary branded websites, as compared to 10.4% of
overall gross dollar bookings, with 74.6% of that from proprietary branded websites in
2004.
The above distribution figures do not include the Le Méridien hotels. The Company
expects to integrate these hotels into the starwoodhotels.com and related websites by the
end of the first quarter of 2006.
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Capital
Gross capital spending during the quarter included approximately $99 million in
renovations of hotel assets including construction capital at the Sheraton Hotel & Towers
in New York, New York, the Sheraton Hotel & Marina in San Diego, California, and the
Sheraton Royal Denarau Resort in Nadi, Fiji. Investment spending on gross VOI
inventory was $36 million, which was offset by cost of sales of $35 million tied to VOI
sales 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. Additionally
during the quarter, further investment spending of $241 million included the purchase of
the Le Méridien brand and the related management and franchise business, which was
substantially offset by the return of the Company’s previous investment in the outstanding
senior debt of Le Méridien, as well as the development of the St. Regis Museum Tower in
San Francisco which consists of 260 hotel rooms and 102 condominium units and which
as discussed earlier, opened in November 2005. Construction of this project is
substantially complete, and through December 31, 2005, the Company has invested
$318 million in the project. The Company expects to realize gross proceeds of
approximately $245 million from the sale of the project’s condominiums and has
recognized approximately $198 million in revenues through the end of 2005.
Share Repurchase
For the quarter ended December 31, 2005, the Company repurchased approximately 4
million shares at a total cost of approximately $253 million. At December 31, 2005,
approximately $1.043 billion remained available under the Company’s Board authorized
share repurchase program. At December 31, 2005, Starwood had approximately 219
million shares outstanding (including partnership units and exchangeable preferred
shares).
From January 1, 2006 through February 1, 2006, the Company repurchased an
additional 1.9 million shares at a total cost of approximately $120 million.
Dividend
Starwood Hotels & Resorts (the “Trust”) declared its annual dividend for 2005 of $0.84
per share, which was paid on January 20, 2006 to shareholders of record on December
31, 2005.
The Trust expects to declare a dividend for the first quarter of 2006 of approximately
$0.21 per Share to shareholders of record as of a date in the latter part of February 2006
to be paid in early March 2006. The dividend declaration and the amount are subject to
approval of the Trust’s Board of Trustees.
Balance Sheet
At December 31, 2005, the Company had total debt (including debt classified as held for
sale) of $4.145 billion and cash and cash equivalents (including $307 million of restricted
cash) of $1.204 billion, or net debt of $2.941 billion, compared to net debt of $3.136
billion at the end of the third quarter of 2005.
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At December 31, 2005, debt was approximately 69% fixed rate and 31% floating rate and
its weighted average maturity was 4.4 years with a weighted average interest rate of
6.27%. The Company had cash (including total restricted cash) and availability under
domestic and international revolving credit facilities of approximately $2.147 billion.
Asset Sales
In 2005, in addition to the sale of three hotels in joint ventures that we hold minority
interest in, the Company sold ten wholly-owned hotels for cash proceeds of
approximately $510 million. Additionally, in January 2006 the Company completed the
sale of four hotels for proceeds of $234 million in cash. As previously announced, the
Company entered into a definitive agreement with Host Marriott Corporation to sell 38
hotels for cash, assumption of debt and stock. As part of the agreement, the Company
will manage the hotels for up to 40 years.
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.
The Company’s guidance for 2006 assumes:
The close of the previously announced transaction with Host Marriott Corporation
at the end of the first quarter.
Stock option expense of approximately $45 million or $0.13 per share.
Since we last provided forward looking estimates, four additional asset sales which
have closed in 2006 and three hotels expected to be sold in the first quarter of
2006 which contributed approximately $122 million in revenues and $87 million in
expenses in 2005.
For the full year 2006, assuming REVPAR at Same-Store Owned Hotels in North
America increases approximately 8% – 10% versus 2005:
Full year Adjusted EBITDA would be expected to be approximately $1.210 billion
assuming:
Worldwide Same-Store Owned Hotel EBITDA growth of 15% to 17%.
Worldwide Same-Store Owned Hotel margin improvement of approximately
150 - 200 basis points.
Growth from management and franchise fees of approximately 18% to 20%.
Growth from our timeshare and residential business of approximately 20% to
25% (excluding gains on sales of receivables).
Full year income from continuing operations, excluding special items, would be
expected to be approximately $475 million at an effective tax rate of approximately
33%. This assumes a 20% tax rate in the first quarter and a 35% tax rate for the
remainder of the year.
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Full year EPS would be expected to be approximately $2.14.
Full year capital expenditures (excluding timeshare inventory) would be
approximately $475 million, including $175 million for maintenance, renovation and
technology and $300 million for other growth initiatives. Additionally, net capital
expenditures for timeshare inventory would be approximately $175 million.
For the full year the Company expects cash interest expense of approximately
$175 million and cash taxes of approximately $150 million.
For the three months ended March 31, 2006, if REVPAR at Same-Store Owned Hotels in
North America increases approximately 10% - 12% versus the same period in 2005:
Adjusted EBITDA would be expected to be approximately $238 million assuming:
Worldwide Same-Store Owned Hotel EBITDA growth of 15% to 17%.
Worldwide Same-Store Owned Hotel margin improvement of approximately
150 - 200 basis points.
Growth from management and franchise fees of approximately 18% to 20%.
A decline in operating income from our timeshare and residential business of
$40 million to $45 million due to percentage of completion accounting for presales
at new timeshare projects.
Income from continuing operations, excluding special items, would be expected to
be approximately $74 million at an effective tax rate of approximately 20%.
EPS would be expected to be approximately $0.33.
The Company’s guidance excludes:
The impact of the adoption of SFAS No. 152, “Accounting for Real Estate Time-
Sharing Transactions,” which is expected to result in a one time pre-tax charge of
approximately $100 million to $120 million in the first quarter of 2006.
Transition costs associated with the Le Méridien transaction which closed in 2005
of approximately $15 million in the first quarter and $30 million in the full year.
A one time income tax benefit and certain one-time financing costs which will be
recorded when the transaction with Host Marriott Corporation closes.
Special Items
The Company recorded net charges of $3 million (after-tax) for special items in the fourth
quarter of 2005 compared to $12 million of net charges (after-tax) in the same period of
2004.
Special items in the fourth quarter of 2005 primarily relate to severance related costs
associated with the corporate restructuring in the fourth quarter of 2005, net gains
realized on the sale of several hotels partially offset by a hotel impairment charge and
additional tax expense arising from the deposit with the IRS of funds for taxes claimed as
a result of the 1998 disposition of ITT World Directories.
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The following represents a reconciliation of income from continuing operations before
special items to income from continuing operations after special items (in millions, except
per share data):
Three Months Ended
December 31,
Year Ended
December 31,
2005 2004 2005 2004
$ 162 $ 123 Income from continuing operations before special items ............. $ 526 $ 348
$ 0.71 $ 0.57 EPS before special items ............................................................. $ 2.34 $ 1.62
Special Items
(13) — Restructuring and other special (charges) credits, net (a) (13) 37
— ― Adjustment to costs associated with construction remediation (b). — 4
2 (25) Gain (loss) on asset dispositions and impairments, net (c) .......... (30) (33)
(11) (25) Total special items – pre-tax ........................................................ (43) 8
5 10 Income tax benefit (expense) for special items (d) ........................ 16 (2)
— ― Tax expense on repatriation of foreign earnings (e)....................... (47) ―
3 3 Reserves and credits associated with tax matters (f) .................... (29) 15
(3) (12) Total special items – after-tax....................................................... (103) 21
$ 159 $ 111 Income from continuing operations .............................................. $ 423 $ 369
$ 0.70 $ 0.51 EPS including special items ......................................................... $ 1.88 $ 1.72
(a) During 2005, the Company recorded $13 million in restructuring and other special (charges) credits, net
primarily related to severance costs in connection with the Company’s restructuring as a result of its planned
disposition of significant real estate assets and transition costs associated with the Le Méridien transaction.
During the year ended December 31, 2004, the Company reversed a $37 million reserve previously recorded
through restructuring and other special credits due to a favorable judgment in a litigation matter.
(b) Represents adjustments to the Company’s share of costs for construction remediation efforts at a property
owned by a vacation ownership unconsolidated joint venture that were previously recorded in 2002.
(c) For the three months ended December 31, 2005, primarily reflects the gains recorded on the sale of three
hotels offset by the impairment of a hotel. For the year ended December 31, 2005, the balance also includes
the losses recorded on the sale of two hotels and impairment charges associated with the Sheraton hotel in
Cancun, Mexico that is being partially demolished in order to build vacation ownership units. Loss of $25
million and $33 million for the three and twelve months ended December 31, 2004, respectively, reflects the
loss on the sale or impairment of hotels and investments offset, in part, by the gain on the sale of one hotel.
(d) Represents taxes on special items at the Company’s incremental tax rate.
(e) Represents tax expense associated with the adoption of a plan to repatriate foreign earnings in accordance
with the American Jobs Creation Act of 2004.
(f) During the three months and year ended December 31, 2005, the Company recorded a tax charge of
approximately $12 million and $52 million, respectively, to increase its tax reserves relating to the Company’s
1998 disposition of World Directories as a result of a United States Tax Court decision against another
taxpayer and the deposit of these funds with the IRS. The three and twelve months ended December 31,
2005 also include a net tax credit of approximately $15 million related to the deferred gain on the sale of the
Hotel Danieli in Venice, Italy. The year ended December 31, 2005 also includes tax refunds of $8 million
related to tax years prior to the 1995 split-up of ITT Corporation. Tax benefits in the three and twelve months
ended December 31, 2004 reflect the favorable results of certain changes to the Federal tax rules, the
resolution of various tax matters that were successfully settled during these periods, and the reversal of tax
reserves no longer deemed necessary.
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 on-going operations.
Starwood will be conducting a conference call to discuss the fourth quarter financial
results at 10:30 a.m. (EST) today. The conference call will be available through
simultaneous webcast in the Investor Relations/Press Releases section of the
Company’s website at www.starwoodhotels.com. A replay of the conference call will also
be available from 12:30 p.m. (EST) today through Thursday, February 9 at 12:00
midnight (EST) on both the Company’s website and via telephone replay at (719) 457-
0820 (access code 3824292).
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