Starwood Reports Second Quarter 2015 Results

Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 50 basis points compared to 2014. International gross operating profit margins for Same-Store Company-Operated properties increased approximately 20 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 75 basis points.

Management fees, franchise fees and other income, which were negatively impacted by foreign exchange rates, were $256 million, down $4 million, or 1.5% compared to the second quarter of 2014. Core fees decreased 1.0% to $206 million. Other management and franchise revenues decreased 4.2% or $2 million.

Development

During the second quarter of 2015, the Company signed 64 hotel management and franchise contracts, representing approximately 14,400 rooms, of which 49 are new builds and 15 are conversions from other brands. At June 30, 2015, the Company had approximately 500 hotels in the active pipeline representing approximately 112,000 rooms.

During the second quarter of 2015, 21 new hotels and resorts (representing approximately 4,000 rooms) entered the system, including Sheraton Zhanjiang Hotel (China, 440 rooms), Le Méridien Saigon (Vietnam, 350 rooms), Sheraton Barra Rio de Janeiro Hotel (Brazil, 292 rooms), The Westin Jekyll Island (Georgia, 200 rooms), Aloft South Beach (Florida, 237 rooms), and Augustine, a Luxury Collection Hotel, Prague (Czech Republic, 101 rooms). During the quarter, eight properties (representing approximately 1,800 rooms) were removed from the system.

Owned Hotels

Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 6.8% in constant dollars (decreased 2.6% in actual dollars) when compared to 2014. REVPAR at Starwood Same-Store Owned Hotels in North America increased 8.6% in constant dollars (4.8% actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 4.9% in constant dollars (decreased 10.3% in actual dollars).

Revenues at Starwood Same-Store Owned Hotels Worldwide increased 7.3% in constant dollars (decreased 2.0% in actual dollars) while costs and expenses increased 5.6% in constant dollars (decreased 3.0% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 80 basis points compared to 2014.

Revenues at Starwood Same-Store Owned Hotels in North America increased 8.2% in constant dollars (4.4% in actual dollars) while costs and expenses increased 5.8% in constant dollars (2.5% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 150 basis points compared to 2014.

Internationally, revenues at Starwood Same-Store Owned Hotels increased 6.3% in constant dollars (decreased 8.9% in actual dollars) while costs and expenses increased 5.4% in constant dollars (decreased 9.5% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 40 basis points compared to 2014.

Revenues at Owned Hotels, which were negatively impacted by asset sales since the second quarter of 2014, were $356 million, compared to $414 million in 2014. Expenses at Owned Hotels were $265 million compared to $314 million in 2014.

Vacation Ownership

Vacation ownership revenues for the three months ended June 30, 2015 increased 5.6%, to $169 million, compared to the corresponding period in 2014 primarily due to the timing of deferred revenues and an increase in revenues from resort operations. Originated contract sales of vacation ownership intervals remained flat for the three months ended June 30, 2015, compared to the corresponding period in 2014, with a 1.8% increase in the number of contracts signed, offset by a decrease in the average price per vacation ownership unit sold to approximately $14,800.

Residential

During the second quarter of 2015, the Company’s residential revenues were $1 million compared to $11 million in 2014 as the St. Regis Bal Harbour residential project sold out in early 2014.

Selling, General, Administrative and Other

During the second quarter of 2015, selling, general, administrative and other expenses (“SG&A”) decreased 2.9% to $99 million compared to $102 million in 2014, primarily due to an acceleration of the implementation of the Company’s previously announced cost savings initiatives and timing of expenses. The Company now targets a decrease of 2% to 4% for the full year.

Capital

Gross capital spending during the quarter included approximately $37 million of maintenance capital and $38 million of development capital.

Asset Sales

During the second quarter of 2015, the Company completed the sales of The Phoenician, a Luxury Collection Resort, Scottsdale, for gross cash proceeds of $400 million and The Gritti Palace, a Luxury Collection Hotel, Venice, for gross cash proceeds of approximately $117 million, both of which were sold subject to long-term management contracts. Additionally, during the second quarter of 2015, the Company sold the Element Denver Park Meadows for gross cash proceeds of approximately $16 million, subject to a long-term franchise contract. Year to date through June 30, 2015, the Company has received gross cash proceeds from asset sales of approximately $566 million, including approximately $33 million from the sale of minority interests in two hotels.

Restructuring and Other Special Charges

During the second quarter of 2015, the Company recorded $13 million of restructuring charges associated with its previously announced cost savings initiatives and $10 million of other special charges. Other special charges primarily consist of costs associated with the planned spin-off of the Company’s vacation ownership business.

Dividend

On May 28, 2015, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on June 17, 2015. The total dividends paid in the second quarter of 2015 were approximately $64 million.

Share Repurchase

In the second quarter of 2015, the Company repurchased 1.2 million shares at a total cost of approximately $105 million and a weighted average price of $84.24 per share. As of June 30, 2015, approximately $601 million remained available under the Company’s share repurchase authorization. Year to date through June 30, 2015, the Company has repurchased 2.8 million shares at a total cost of $228 million and an average price of $80.91.

Balance Sheet

At June 30, 2015, the Company had gross debt of $2.1 billion, cash and cash equivalents of $769 million (including $34 million of restricted cash) and net debt of $1.4 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 June 30, 2015, including $208 million of debt and $11 million of restricted cash associated with securitized vacation ownership notes receivable, was $1.6 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.

For the full year 2015:

• Adjusted EBITDA is expected to be approximately $1.175 billion to $1.200 billion (based on the assumptions below).
  • REVPAR increases at Same-Store Systemwide Hotels Worldwide of 4% to 6% in constant dollars (approximately 400 basis points lower in actual dollars at current exchange rates).
  • REVPAR increases at Same-Store Owned Hotels Worldwide of 5% to 7% in constant dollars (approximately 650 basis points lower in actual dollars at current exchange rates).
  • Margins at Same-Store Owned Hotels Worldwide increase 50 to 100 basis points.
  • Core fees increase approximately 2% to 4%.
  • 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 $155 million to $165 million.
  • SG&A decreases approximately 2% to 4%.
  • 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.
  • Shifts in exchange rates since 2014 will negatively impact full year earnings by approximately $41 million if exchange rates stay at current levels.
• Depreciation and amortization is expected to be approximately $307 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 $135 million.
• EPS before special items is expected to be approximately $2.93 to $3.03 (based on the assumptions above).
• Cash flow from operations is expected to be approximately $740 million to $840 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 September 30, 2015:

• Adjusted EBITDA is expected to be approximately $285 million to $295 million (based on the assumptions below).
  • REVPAR increases at Same-Store Systemwide Hotels Worldwide of 4% to 6% in constant dollars (approximately 550 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 800 basis points lower in actual dollars at current exchange rates).
  • Core fees increase approximately 1% to 3%.
  • Management fees, franchise fees and other income increase 2% to 4%.
  • Earnings from the Company’s vacation ownership and residential business of approximately $35 million to $40 million.
  • Shifts in exchange rates since the third quarter of 2014 will negatively impact third quarter 2015 earnings by approximately $11 million if exchange rates stay at current levels.
• EPS is expected to be approximately $0.69 to $0.73 (based on the assumptions above).

Special Items

The Company’s special items included a pre-tax charge of $23 million ($7 million charge after-tax) in the second quarter of 2015 compared to a pre-tax and after-tax benefit of $6 million 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):

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 second quarter financial results at 1:00 p.m. Eastern Daylight Time today, available via webcast on the Company’s website at http://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 Thursday, July 30 and will be available for one year. Alternatively, participants may dial into the live call at (866) 921-0636 with conference ID 69941686. 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 Thursday, July 30 and will be available for one week; the call replay can be accessed by dialing (855) 859-2056 with conference ID 69941686. 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 under the 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 also boasts one of the industry’s leading loyalty programs, Starwood Preferred Guest (SPG®). Visit www.starwoodhotels.com for more information and stay connected @starwoodbuzz on Twitter and Instagram and facebook.com/Starwood. 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.

For full spreadsheets, please go to: [http://www.businesswire.com/news/home/20150730005392/en/Starwood-Reports-Quarter-2015-Result#.VbpEkjBVhBd].

SOURCE Starwood Hotels & Resorts Worldwide, Inc.

Contacts:

Stephen Pettibone
Starwood Hotels & Resorts Worldwide, Inc.
Investor Relations
203-351-3500

KC Kavanagh
Starwood Hotels & Resorts Worldwide, Inc.
Media Relations
866-478-2777