Starwood Reports 2nd Quarter 2009 Results
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Starwood Reports 2nd Quarter 2009 Results
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-07-23
Starwood Hotels & Resorts Worldwide, Inc. (NYSE:
HOT) today reported second quarter 2009 financial results.
Second Quarter 2009 Highlights
Excluding special items, EPS from continuing operations was $0.22. Including
special items, EPS from continuing operations was $0.72.
Adjusted EBITDA was $200 million.
Excluding special items, income from continuing operations was $41 million.
Including special items, income from continuing operations was $131 million.
Special items totaled a benefit of $90 million ($0.50 per share) primarily related to a
$120 million benefit for a tax incentive program in Italy, partially offset by net
impairment charges of $26 million.
Worldwide System-wide REVPAR for Same-Store Hotels decreased 27.7% (down
23.6% in constant dollars) compared to the second quarter of 2008. System-wide
REVPAR for Same-Store Hotels in North America decreased 25.4% (down 24.2% in
constant dollars).
Management and franchise revenues decreased 18.0% compared to 2008.
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels decreased
35.5% (down 30.5% in constant dollars) compared to the second quarter of 2008.
REVPAR for Starwood branded Same-Store Owned Hotels in North America
decreased 34.4% (down 32.5% in constant dollars).
Operating income from vacation ownership declined $7 million compared to 2008.
The Company signed 20 hotel management and franchise contracts in the quarter
representing approximately 4,300 rooms.
The Company entered into various transactions during the second quarter that
resulted in cash proceeds of nearly $1 billion. These cash proceeds have been
used to pay down the Company’s revolver and prepay debt that would have
matured in 2009 and 2010.
Second Quarter 2009 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported
EPS from continuing operations for the second quarter of 2009 of $0.72 per share
compared to $0.56 in the second quarter of 2008. Excluding special items, which net to a
benefit of $90 million in 2009 and zero in 2008, EPS from continuing operations was $0.22
for the second quarter of 2009 compared to $0.56 in the second quarter of 2008.
Excluding special items, the effective income tax rate in the second quarter of 2009 was
26.5% compared to 28.3% in the same period of 2008.
Special items in the second quarter of 2009 totaled $90 million of net benefits ($0.50 per
Share) primarily related to a $120 million deferred tax benefit partially offset by impairment
charges of $26 million and restructuring charges of $4 million.
Income from continuing operations was $131 million in the second quarter of 2009
compared to $107 million in 2008. Excluding special items, income from continuing
operations was $41 million in the second quarter of 2009 compared to $107 million in
2008.
Net income was $134 million and EPS was $0.74 in the second quarter of 2009 compared
to $105 million and EPS of $0.56 in the second quarter of 2008.
Frits van Paasschen, CEO said, “Despite an estimated $10 million impact from H1N1
during the quarter, we were able to beat expectations based on our continued focus on
managing costs and driving revenue. Economic times like these afford us the opportunity
to realign the organization around a sustainably lower cost base while continuing to invest
in our brands and global growth opportunities. So while the current environment remains
extremely challenging, we are committed to our long-term growth strategy and by the end
of 2009, 60% of our 1,000 hotels will have been opened or renovated during the past three
years. We also executed on several transactions during the quarter that in the aggregate
allowed us to raise nearly one billion dollars, further strengthening our already strong
balance sheet.”
Second Quarter 2009 Operating Results
Management and Franchise Revenues
Worldwide System-wide REVPAR for Same-Store Hotels decreased 27.7% (down 23.6%
in constant dollars) compared to the second quarter of 2008. International System-wide
REVPAR for Same-Store Hotels decreased 30.6% (down 22.8% in constant dollars).
Worldwide System-wide REVPAR decreases by region were: 19.9% in Africa and the
Middle East, 25.4% in North America, 30.1% in Asia Pacific, 34.4% in Europe and 36.4% in
Latin America. Worldwide System-wide REVPAR decreases by brand were: Four Points
by Sheraton 25.2%, Westin 25.6%, Sheraton 26.7%, W Hotels 30.5%, Le Méridien 31.3%,
and St. Regis/Luxury Collection 35.1%.
Worldwide comparable company-operated gross operating profit margins declined
approximately 530 basis points in the second quarter driven by REVPAR declines partially
offset by continued cost-cutting efforts at the property level. International gross operating
profit margins for comparable company-operated properties declined approximately 400 basis points, and North American comparable company-operated gross operating profit
margins declined approximately 680 basis points.
Management fees, franchise fees and other income were $187 million, down $31 million, or
14.2%, from the second quarter of 2008. Management fees decreased 25.2% to $86
million and franchise fees decreased 22.7% to $34 million. The Company continued to
work closely with its owner/partners to aggressively reduce costs, helping to minimize
impact from the weak REVPAR environment.
During the second quarter of 2009, the Company signed 20 hotel management and
franchise contracts representing approximately 4,300 rooms of which 17 are new builds
and three are conversions from other brands. At June 30, 2009, the Company had over
375 hotels in the active pipeline representing over 90,000 rooms.
During the second quarter of 2009, 16 new hotels and resorts (representing approximately
3,200 rooms) entered the system, including the Le Méridien Dallas North (Dallas, TX, 258
rooms), W Fort Lauderdale Hotel and Residences (Fort Lauderdale, FL, 517 rooms), Le
Westin Montreal (Montreal, Canada, 454 rooms) and four Aloft hotels in the United States.
Ten properties (representing approximately 3,000 rooms) were removed from the system
during the quarter.
Owned, Leased and Consolidated Joint Venture Hotels
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels decreased 35.5%
(down 30.5% in constant dollars). REVPAR at Starwood branded Same-Store Owned
Hotels in North America decreased 34.4% (down 32.5% in constant dollars).
Internationally, Starwood branded Same-Store Owned Hotel REVPAR decreased 37.0%
(down 27.5% in constant dollars).
The Company’s continued rigorous cost cutting programs helped mitigate the impact of
sharp revenue declines during the quarter.
Revenues at Starwood branded Same-Store Owned Hotels in North America decreased
32.6% (down 30.6% in constant dollars) while costs and expenses decreased 20.1% when
compared to 2008.
Revenues at Starwood branded Same-Store Owned Hotels Worldwide decreased 34.4%
(down 29.5% in constant dollars) while costs and expenses decreased 23.5% when
compared to 2008.
Revenues at owned, leased and consolidated joint venture hotels were $394 million when
compared to $620 million in 2008.
Vacation Ownership
Total vacation ownership reported revenues decreased 35.4% to $124 million when
compared to 2008. Originated contract sales of vacation ownership intervals decreased
47.2% primarily due to an overall decline in demand due to the current economic climate.
The average price per vacation ownership unit sold decreased 24.3% to approximately
$16,000, driven by a higher sales mix of lower-priced inventory, including a higher
percentage of lower-priced biennial inventory. The number of contracts signed decreased
29.9% when compared to 2008.
Selling, General, Administrative and Other
Selling, general, administrative and other expenses decreased 30.4% to $96 million
compared to the second quarter of 2008. The decrease was primarily due to the
Company's focus on reducing its cost structure. A majority of the Company’s cost
containment initiatives have been completed and implemented during previous quarters,
including identifying reductions across the corporate departments and divisional
headquarters, for which the benefits are now being realized. These actions are expected
to yield an annual run rate savings of approximately $100 million.
Asset Sales
During the second quarter of 2009, the Company sold one wholly-owned hotel for cash
proceeds of approximately $4 million. The Company recorded a $3 million loss on the
sale.
Capital
Gross capital spending during the quarter included approximately $38 million of
maintenance capital and $21 million of development capital. Investment spending on
gross vacation ownership interest (“VOI”) and residential inventory was $31 million,
primarily in Bal Harbour, Orlando, Rancho Mirage, and Cancun. The run rate of capital
spending on development and investment capital will decline throughout the year as inflight
projects are completed.
Balance Sheet
At June 30, 2009, the Company had total debt of $3.752 billion and cash and cash
equivalents of $126 million (including $47 million of restricted cash), or net debt of $3.626
billion, compared to net debt of $3.794 billion and $3.517 billion as of March 31, 2009 and
December 31, 2008, respectively.
At June 30, 2009, debt was approximately 68% fixed rate and 32% floating rate and its
weighted average maturity was 4.2 years with a weighted average interest rate of 6.16%.
The Company had cash (including current restricted cash) and availability under the
domestic and international revolving credit facility of approximately $1.686 billion.
On April 27, 2009, the Company entered into an amendment to its bank revolver due
February 10, 2011 and bank term loans due June 29, 2009, June 29, 2010 and February
10, 2011. The amendment increased the leverage ratio from 4.5x to 5.5x (as defined in the
agreements) in return for fees, higher interest rates and some additional modifications to
the covenants. In addition, the Company pre-paid the $500 million bank term loan due
June 29, 2009 by simultaneously drawing down on its revolver.
During the second quarter, the Company entered into various transactions that resulted in
cash proceeds of nearly $1 billion as outlined below:
On May 7, 2009, the Company completed a public offering of $500 million of 7.875%
Senior Notes due 2014. The net proceeds were used to pay down the outstanding
borrowings under its revolver and for general corporate purposes.
On June 5, 2009, the Company sold approximately $181 million of vacation ownership
notes receivable realizing cash proceeds of $125 million. The Company recorded a loss
on the sale of these receivables of $1.5 million.
The Company and American Express (NYSE: AXP) extended their Co-brand Credit Card
partnership. The multi-year extension allows continued expansion of the program with
positive benefits to both companies. Starwood and American Express have offered a
portfolio of card products since 2001, and the Co-brand credit card has been named the
best affinity credit card in the Americas at the Freddie Awards for three years running. On
July 1, 2009, as part of the broad-based agreement, the Company received $250 million in
cash from American Express and used these proceeds to pre-pay a portion of the 2010
bank term loan.
On July 7, 2009, the Company also announced the sale of the W San Francisco for $90
million. The sale, which is subject to customary closing conditions, is expected to close on
July 30, 2009.
As of July 22, 2009, before giving effect to the proceeds from the sale of the W San
Francisco, the Company’s total debt stands at $3.545 billion with no outstanding maturities
in 2009 and $100 million outstanding under the 2010 bank term loan.
In addition to the actions described above, in January 2009 the Company and the IRS
reached an agreement in principle to settle the litigation pertaining to the tax treatment of
the Company’s 1998 disposition of World Directories, Inc. Under the proposed settlement,
the Company expects to receive a refund of over $200 million as a result of tax payments
previously made. The Company now expects to obtain the refund by the end of 2009.
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