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Starwood Reports First Quarter 2015 Results

May 2, 2015 Financial No Comments Email Email

Starwood Hotels & Resorts Worldwide, Inc. (NYSE:HOT) today reported first quarter 2015 financial results.http://www.miceasiaexhibition.com/

“In the first quarter, our overall results were ahead of our expectations, and with the actions we are taking to improve our performance going forward, we are modestly increasing our guidance range for both Adjusted EBITDA and EPS excluding special items for full year 2015.”

First Quarter 2015 Highlights

  • Excluding special items, EPS from continuing operations was $0.65. Including special items, EPS from continuing operations was $0.58.
  • Adjusted EBITDA was $274 million.
  • Excluding special items, income from continuing operations was $110 million. Including special items, income from continuing operations was $99 million.
  • Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.2% in constant dollars (1.9% in actual dollars) compared to 2014. Systemwide REVPAR for Same-Store Hotels in North America increased 6.8% in constant dollars (5.8% in actual dollars).
  • Management fees, franchise fees and other income decreased 3.2% compared to 2014. Core fees increased 1.6% compared to 2014.
  • Earnings from Starwood’s vacation ownership and residential business increased approximately $4 million compared to 2014.
  • During the quarter, the Company signed 33 hotel management and franchise contracts, representing approximately 6,000 rooms, and opened 20 hotels and resorts with approximately 3,200 rooms.
  • During the quarter, the Company paid a quarterly dividend of $0.375 per share and repurchased 1.6 million shares at a total cost of $123 million and a weighted average price of $78.29 per share.
  • On April 16, 2015, the Company introduced Tribute Portfolio, its tenth brand and second collection of independent hotels.

First Quarter 2015 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the first quarter of 2015 of $0.58 compared to $0.71 in the first quarter of 2014. Excluding special items, EPS from continuing operations was $0.65 for the first quarter of 2015 compared to $0.63 in the first quarter of 2014.

Special items in the first quarter of 2015, which totaled a charge of $11 million (after-tax), included restructuring and other special charges totaling $31 million (pre-tax), partially offset by a pre-tax gain of $18 million primarily related to the sale of a minority partnership interest in a hotel. Special items in the first quarter of 2014 totaled a benefit of $14 million (after-tax). Excluding special items, the effective income tax rate in the first quarter of 2015 was 32.5% compared to 32.2% in the first quarter of 2014.

Income from continuing operations was $99 million in the first quarter of 2015, compared to $136 million in the first quarter of 2014. Excluding special items, income from continuing operations was $110 million in the first quarter of 2015 compared to $122 million in the first quarter of 2014.

Net income was $99 million and $0.58 per share in the first quarter of 2015, compared to $137 million and $0.72 per share in the first quarter of 2014.

Adam Aron, CEO on an interim basis, said, “In the first quarter, our overall results were ahead of our expectations, and with the actions we are taking to improve our performance going forward, we are modestly increasing our guidance range for both Adjusted EBITDA and EPS excluding special items for full year 2015.

“Looking ahead, we are taking meaningful steps to accelerate the pace of our growth. The recent launch of our tenth brand – Tribute Portfolio – is just one of several key initiatives that we will be launching in the near term as we look to expand our footprint and better serve our guests. At the same time, we are actively working to increase our operational efficiency — with a special focus on reducing costs and more smartly deploying our resources — to become a leaner and more competitive partner for our hotel owners.”

First Quarter 2015 Operating Results

Management and Franchise Revenues

Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.2% in constant dollars (1.9% in actual dollars) compared to the first quarter of 2014. International Systemwide REVPAR for Same-Store Hotels increased 3.3% in constant dollars (decreased 2.7% in actual dollars).

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:

REVPAR
Region

Constant
Dollars

Actual
Dollars

Americas:
North America 6.8 % 5.8 %
Latin America 4.7 % 4.7 %
Asia Pacific:
Greater China 0.4 % (1.8 )%
Rest of Asia 5.7 % 0.1 %
Europe, Africa & Middle East:
Europe 5.1 % (10.5 )%
Africa & Middle East 0.8 % (1.8 )%

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:

REVPAR
Brand

Constant
Dollars

Actual
Dollars

St. Regis/Luxury Collection 5.4 % 2.0 %
W Hotels 6.5 % 4.2 %
Westin 7.4 % 4.2 %
Sheraton 3.0 % (0.3 )%
Le Méridien 2.6 % (3.0 )%
Four Points by Sheraton 5.7 % 2.1 %
Aloft 15.2 % 13.8 %

Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 70 basis points compared to 2014. International gross operating profit margins for Same-Store Company-Operated properties increased approximately 50 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 100 basis points.

Management fees, franchise fees and other income were $240 million, down $8 million, or 3.2% compared to the first quarter of 2014. Core fees, which were negatively impacted by foreign exchange rates, increased 1.6% to $191 million. Other management and franchise revenues decreased 15.1% or $8 million, primarily due to a significant termination fee in the prior year associated with the exit of one hotel from the system.

Development

During the first quarter of 2015, the Company signed 33 hotel management and franchise contracts, representing approximately 6,000 rooms, of which 28 are new builds and five are conversions from other brands. At March 31, 2015, the Company had approximately 490 hotels in the active pipeline representing approximately 110,000 rooms.

During the first quarter of 2015, 20 new hotels and resorts (representing approximately 3,200 rooms) entered the system, including Royal Palm South Beach Miami, now a Tribute Portfolio hotel (Florida, 393 rooms), Le Méridien Gurgaon, Delhi NCR (India, 285 rooms), The St. Regis Istanbul (Turkey, 118 rooms), Sheraton McKinney Hotel (Texas, 187 rooms), and Aloft New Orleans Downtown (Louisiana, 188 rooms). During the quarter, six properties (representing approximately 1,300 rooms) were removed from the system.

Owned Hotels

Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 8.4% in constant dollars (2.8% in actual dollars) when compared to 2014. REVPAR at Starwood Same-Store Owned Hotels in North America increased 7.6% in constant dollars (5.0% actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 9.7% in constant dollars (decreased 0.6% in actual dollars).

Revenues at Starwood Same-Store Owned Hotels Worldwide increased 9.0% in constant dollars (3.4% in actual dollars) while costs and expenses increased 8.2% in constant dollars (2.1% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 110 basis points compared to 2014.

Revenues at Starwood Same-Store Owned Hotels in North America increased 8.5% in constant dollars (5.9% in actual dollars) while costs and expenses increased 6.6% in constant dollars (3.9% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 140 basis points compared to 2014.

Internationally, revenues at Starwood Same-Store Owned Hotels increased 10.0% in constant dollars (decreased 0.9% in actual dollars) while costs and expenses increased 10.7% in constant dollars (decreased 0.9% in actual dollars) when compared to 2014. Margins at these hotels remained flat compared to 2014.

Revenues at Owned Hotels, which were negatively impacted by asset sales since the first quarter of 2014, were $316 million, compared to $364 million in 2014. Expenses at Owned Hotels were $262 million compared to $301 million in 2014.

Vacation Ownership

Total vacation ownership revenues increased 17.0% to $186 million in the first quarter of 2015 when compared to 2014 primarily due to the timing of deferred revenues and an increase in revenues from resort operations. Originated contract sales of vacation ownership intervals decreased 1.2% when compared to 2014, due to the average price per vacation ownership unit sold decreasing 2.1% to approximately $16,400, partially offset by a 1.5% increase in the number of contracts signed.

Residential

During the first quarter of 2015, the Company’s residential revenues were $1 million compared to $15 million in the prior year as the St. Regis Bal Harbour residential project sold out in early 2014.

Selling, General, Administrative and Other

During the first quarter of 2015, selling, general, administrative and other expenses (“SG&A”) decreased 4.2% to $91 million compared to $95 million in 2014 primarily due to cost containment efforts, the impact of foreign exchange, and the timing of expenses.

Capital

Gross capital spending during the quarter included approximately $30 million of maintenance capital and $34 million of development capital.

Restructuring and Other Special Charges

During the first quarter of 2015, the Company recorded $8 million in restructuring costs associated with severance and $23 million of other special charges. Other special charges primarily consist of a $7 million severance charge associated with the resignation of the Company’s prior President and Chief Executive Officer, the establishment of a $6 million reserve related to potential liabilities assumed in connection with the 2005 acquisition of Le Méridien, and $6 million of costs associated with the planned spin-off of the Company’s vacation ownership business.

Dividend

On February 9, 2015, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on March 26, 2015. The total dividends paid in the first quarter of 2015 were approximately $64 million.

Share Repurchases

In the first quarter of 2015, the Company repurchased 1.6 million shares at a total cost of approximately $123 million and a weighted average price of $78.29 per share. As of March 31, 2015, approximately $706 million remained under the Company’s share repurchase authorization.

Balance Sheet

At March 31, 2015, the Company had gross debt of $2.5 billion, cash and cash equivalents of $623 million (including $50 million of restricted cash) and net debt of $1.9 billion, compared to net debt of $1.7 billion as of December 31, 2014, in each case excluding debt and restricted cash associated with securitized vacation ownership notes receivable. Net debt at March 31, 2015, including $229 million of debt and $12 million of restricted cash associated with securitized vacation ownership notes receivable, was $2.1 billion.

Outlook

  • The following outlook assumes the planned spin-off of the vacation ownership business occurs on December 31, 2015. Transaction costs related to the planned spin-off are not included in full year SG&A guidance.
  • Shifts in exchange rates since 2014 will negatively impact full year earnings by approximately $45 million ($10 million additional impact since we provided our last outlook) if exchange rates stay at current levels.
  • Shifts in exchange rates since the second quarter of 2014 will negatively impact second quarter 2015 earnings by approximately $15 million if exchange rates stay at current levels.

For the full year 2015:

  • Adjusted EBITDA is expected to be approximately $1.185 billion to $1.210 billion (based on the assumptions below).
  • REVPAR increases at Same-Store Systemwide Hotels Worldwide of 5% to 7% in constant dollars (approximately 450 basis points lower in actual dollars at current exchange rates).
  • REVPAR increases at Same-Store Owned Hotels Worldwide of 4% to 6% in constant dollars (approximately 750 basis points lower in actual dollars at current exchange rates).
  • Margins at Same-Store Owned Hotels Worldwide increase 25 to 75 basis points.
  • Core fees increase approximately 3% to 5%.
  • Management fees, franchise fees and other income are expected to be approximately flat.
  • Earnings from the Company’s vacation ownership and residential business of approximately $150 million to $160 million.
  • SG&A decreases approximately 1% to 3%. Full year SG&A reflects the favorable impact of the implementation of a cost reduction plan that is expected to commence in the second quarter of 2015, foreign exchange, and other operational efficiencies. Run-rate SG&A savings from the cost reduction plan are expected to be approximately $25 million on an annual basis.
  • Significant non-recurring items in 2014 Adjusted EBITDA include $35 million related to five large one-time termination fees received by the Company and $11 million from the St. Regis Bal Harbour residential project, which is sold out.
  • Depreciation and amortization is expected to be approximately $315 million.
  • Interest expense is expected to be approximately $135 million.
  • Full year effective tax rate is expected to be approximately 32%, and cash taxes from operating earnings are expected to be approximately $130 million.
  • EPS before special items is expected to be approximately $2.94 to $3.04 (based on the assumptions above).
  • Cash flow from operations is expected to be approximately $850 million to $950 million (based on the assumptions above). Cash flow from operations includes vacation ownership investment in inventory expected to be approximately $160 million which includes approximately $80 million related to the development of the Westin Nanea Ocean Villas, the third phase of the Westin Ka’anapali Ocean Resort Villas.
  • Full year capital expenditures (excluding vacation ownership inventory) are 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 $200 million.

For the three months ended June 30, 2015:

  • Adjusted EBITDA is expected to be approximately $290 million to $300 million (based on the assumptions below).
  • REVPAR increases at Same-Store Systemwide Hotels Worldwide of 5% to 7% in constant dollars (approximately 525 basis points lower in actual dollars at current exchange rates).
  • REVPAR increases at Same-Store Owned Hotels Worldwide of 4% to 6% in constant dollars (approximately 1000 basis points lower in actual dollars at current exchange rates).
  • Core fees are expected to be approximately flat.
  • Management fees, franchise fees and other income are expected to be approximately flat to down 2%.
  • Earnings from the Company’s vacation ownership and residential business of approximately $40 million to $45 million.
  • EPS is expected to be approximately $0.70 to $0.74 (based on the assumptions above).

Special Items

The Company’s special items netted to a pre-tax charge of $13 million ($11 million charge after-tax) in the first quarter of 2015 compared to a pre-tax charge of $36 million ($14 million benefit after-tax) in the same period of 2014.

The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):

Three Months Ended
March 31,

2015 2014
Income from continuing operations before special items $ 110 $ 122
EPS before special items $ 0.65 $ 0.63
Special Items
Restructuring and other special charges, net (a) (31 )
Gain (loss) on asset dispositions and impairments, net (b) 14 (36 )

Gain on sale of a unconsolidated joint venture hotel (c)

4
Total special items – pre-tax (13 ) (36 )
Income tax expense for special items (d) (2 )

Income tax benefit – other non-recurring items (e)

2 52
Total special items – after-tax (11 ) 14
Income from continuing operations $ 99 $ 136
EPS including special items $ 0.58 $ 0.71
a) During the three months ended March 31, 2015, the net charge relates to $15 million in severance costs, including $7 million associated with the resignation of the Company’s former CEO, the establishment of a $6 million reserve related to potential liabilities assumed in connection with the 2005 acquisition of Le Méridien, and $6 million in costs associated with the planned spin-off of the vacation ownership business.
b) During the three months ended March 31, 2015, the net benefit primarily relates to the sale of a minority partnership interest in a hotel. During the three months ended March 31, 2014, the net loss primarily relates to the impairment of two hotels, one of which was sold subject to a long-term franchise contract and the other of which represents a leased hotel that was converted to a managed hotel. In addition, during the three months ended March 31, 2014, the Company recorded an impairment charge associated with one of its foreign unconsolidated joint ventures.
c)

During the three months ended March 31, 2015, the net benefit relates to a gain recognized on the sale of a hotel by a joint venture in which the Company holds a minority interest. This gain is included in the equity earnings and gains from unconsolidated ventures, net line item in the statement of income.

d) During the three months ended March 31, 2014, the net charge primarily relates to tax charges on the pre-tax special items.
e) During the three months ended March 31, 2015, the net benefit primarily relates to a change in tax reserves. During the three months ended March 31, 2014, the net benefit primarily relates to the settlement of a foreign tax audit.

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 ongoing operations.

Starwood will be conducting a conference call to discuss the first quarter financial results at 1:00 p.m. Eastern Daylight Timetoday, available via webcast on the Company’s website athttp://www.starwoodhotels.com/corporate/about/investor/earnings.html. A webcast replay will be available on the corporate website a few hours after the live event on Wednesday, April 29 and will run for one year. Alternatively, participants may dial into the live call at (866) 921-0636 with conference ID 17589434. Outside the U.S., participants may dial into the live call at (706) 758-8764. Please dial in fifteen minutes early to ensure a timely start. A call replay will be available a few hours after the live event on Wednesday, April 29 and will run for one week; the call replay can be accessed by dialing (855) 859-2056 with conference ID 17589434. Outside the U.S., the call replay can be accessed at (404) 537-3406.

Definitions

All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations attributable to Starwood’s common stockholders. All references to continuing operations, discontinued operations and net income reflect amounts attributable to Starwood’s common stockholders (i.e., excluding amounts attributable to noncontrolling interests). All references to net capital expenditures mean gross capital expenditures for timeshare and fractional inventory net of cost of sales. EBITDA represents net income before interest expense, taxes, depreciation and amortization. The Company believes that EBITDA is a useful measure of the Company’s operating performance due to the significance of the Company’s long-lived assets and level of indebtedness. EBITDA is a commonly used measure of performance in its industry which when considered with GAAP measures, the Company believes gives a more complete understanding of the Company’s operating performance. It also facilitates comparisons between the Company and its competitors. The Company’s management has historically adjusted EBITDA (i.e., “Adjusted EBITDA”) when evaluating operating performance for the Company, as well as for individual properties or groups of properties, because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items, such as restructuring and other special charges (credits) and gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. The Company’s management also uses Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. The Company has historically reported this measure to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and provides a means to evaluate the results of its core ongoing operations. EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and such metrics should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may be different from the calculations used by other companies and, therefore, comparability may be limited.

All references to Owned or Owned Hotels reflect the Company’s owned, leased, and consolidated joint venture hotels. All references to Same-Store Owned Hotels reflect the Company’s owned, leased and consolidated joint venture hotels, excluding condo hotels, hotels sold to date and hotels undergoing significant repositionings or for which comparable results are not available (i.e., hotels not owned during the entire periods presented or closed due to seasonality or natural disasters). References to Company-Operated Hotel metrics (e.g., REVPAR) reflect metrics for the Company’s Owned and managed hotels. References to Systemwide metrics (e.g., REVPAR) reflect metrics for the Company’s Owned, managed and franchised hotels. REVPAR is defined as revenue per available room. ADR is defined as average daily rate.

All references to revenues in constant dollars represent revenues, excluding the impact of the movement of foreign exchange rates. The Company calculates revenues in constant dollars by calculating revenues for the current year using the prior year’s exchange rates. The Company uses this revenue measure to better understand the underlying results and trends of the business, excluding the impact of movements in foreign exchange rates.

All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology. All references to earnings from vacation ownership and residential represents operating income before depreciation expense. All references to management and franchise revenues represent base and incentive fees, franchise fees, amortization of deferred gains resulting from the sales of hotels subject to long-term management contracts and termination fees. All references to core fees represent total management and franchise fees.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 1,200 properties in some 100 countries and over 180,000 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences with the following internationally renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® by Sheraton, Aloft®, element® and the recently introduced Tribute Portfolio™. The Company boasts one of the industry’s leading loyalty programs, Starwood Preferred Guest (SPG®), allowing members to earn and redeem points for room stays, room upgrades and flights, with no blackout dates. Starwood recently announced plans to spin off its vacation ownership business, a premier provider of world-class vacation experiences through villa-style resorts and privileged access to Starwood brands, into a standalone public company by the end of 2015. For more information, including reconciliations of non-GAAP financial measures to GAAP financial measures, please visit www.starwoodhotels.com or contact Investor Relations at (203) 351-3500.

Note: This press release contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results, performance and achievements may be affected by general economic conditions including the impact of war and terrorist activity, natural disasters, business and financing conditions (including the condition of credit markets in the U.S. and internationally), foreign exchange fluctuations, cyclicality of the real estate (including residential) and the hotel and vacation ownership businesses, operating risks associated with the hotel, vacation ownership and residential businesses, relationships with associates and labor unions, customers and property owners, the impact of the internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in U.S. and foreign tax laws and their interpretation), travelers’ fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions and the introduction of new brand concepts and other risks and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. There can be no assurance as to the development of future hotels in the Company’s pipeline or additional vacation ownership units. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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