STAMFORD, Conn. - October 28, 2014 - (BUSINESS WIRE) - Starwood Hotels & Resorts Worldwide, Inc. (NYSE:HOT) today reported third quarter 2014 financial results.
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the third quarter of 2014 of $0.59 compared to $0.81 in the third quarter of 2013. Excluding special items, EPS from continuing operations was $0.66 for the third quarter of 2014 compared to $0.71 in the third quarter of 2013. Special items in the third quarter of 2014, which totaled a charge of $12 million (after-tax), included a $13 million pre-tax charge for the impairment of a wholly-owned hotel and a $7 million pre-tax charge associated with the termination of a leasehold interest in a hotel which is now franchised. Special items in the third quarter of 2013, which totaled a benefit of $20 million (after tax), primarily related to a favorable adjustment to a legal reserve, tax benefits associated with a non-core asset sale and the reversal of a valuation allowance on deferred tax assets which are now deemed realizable. Excluding special items, the effective income tax rate in the third quarter of 2014 was 34.7% compared to 31.3% in the third quarter of 2013.
Income from continuing operations was $109 million in the third quarter of 2014, compared to $157 million in the third quarter of 2013. Excluding special items, income from continuing operations was $121 million in the third quarter of 2014 compared to $137 million in the third quarter of 2013.
Net income was $109 million and $0.59 per share in the third quarter of 2014, compared to $157 million and $0.81 per share in the third quarter of 2013.
Frits van Paasschen, CEO, said, “We delivered strong results in the third quarter, with both EBITDA and EPS ahead of expectations. Worldwide REVPAR grew by over seven percent in constant dollars. In North America, occupancies reached record levels for the sixth consecutive quarter, and REVPAR was up over nine percent. During the quarter, we made significant progress in reaching our target leverage, having repurchased $857 million in stock. We also issued $650 million in long term debt at very favorable rates.
“Recent volatility in markets outside the U.S. along with a strengthening U.S. dollar are likely to be headwinds in the fourth quarter and into 2015. Despite these headwinds, we remain as bullish as ever about the long-term prospects of our business as rising global wealth, unprecedented growth in travel infrastructure, and a more interconnected business world continue to drive demand for high-end travel.”
Income from continuing operations was $398 million in the nine months ended September 30, 2014 compared to $437 million in the same period in 2013. Excluding special items, income from continuing operations was $390 million in the nine months ended September 30, 2014 compared to $438 million in the same period in 2013.
Net income was $399 million and $2.11 per share in the nine months ended September 30, 2014 compared to $507 million and $2.61 per share in the same period in 2013.
Adjusted EBITDA was $903 million in the nine months ended September 30, 2014 compared to $949 million in the same period in 2013.
Third Quarter 2014 Operating Results
Management and Franchise Revenues
Worldwide Systemwide REVPAR for Same-Store Hotels increased 7.4% in constant dollars (7.5% in actual dollars) compared to the third quarter of 2013. International Systemwide REVPAR for Same-Store Hotels increased 5.4% in constant dollars (5.9% in actual dollars).
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:
|Rest of Asia||0.3%||—|
|Europe, Africa & Middle East:|
|Africa & Middle East||4.7%||4.3%|
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:
|St. Regis/Luxury Collection||8.2%||9.1%|
|Four Points by Sheraton||7.4%||6.9%|
Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 125 basis points compared to 2013. International gross operating profit margins for Same-Store Company-Operated properties increased approximately 100 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 165 basis points.
Management fees, franchise fees and other income were $255 million, up $8 million, or 3.2% compared to the third quarter of 2013. Management fees increased 5.1% to $143 million and franchise fees increased 12.5% to $63 million compared to the third quarter of 2013. Other management and franchise revenue was down 15.9% compared to the third quarter of 2013 primarily due to the inclusion, in 2013, of a significant fee associated with the termination of a management contract.
During the third quarter of 2014, the Company signed 39 hotel management and franchise contracts, representing approximately 7,100 rooms, of which 34 are new builds and five are conversions from other brands. At September 30, 2014, the Company had approximately 470 hotels in the active pipeline representing approximately 105,000 rooms. In addition to its active pipeline, the Company holds a 74% equity stake in Design Hotels AG, a company that represents and markets a distinct selection of over 280 independent hotels with nearly 21,500 rooms globally. Starwood and Design Hotels have recently entered into an agreement that allows greater coordination and cooperation between the companies.
During the third quarter of 2014, 18 new hotels and resorts (representing approximately 3,500 rooms) entered the system, including The Castle Hotel, a Luxury Collection Hotel, Dalian (China, 292 rooms), Aloft Tampa Downtown (Florida, 130 rooms), Le Méridien Bahrain City Centre (Bahrain, 260 rooms), Sheraton New Caledonia Deva Resort & Spa (New Caledonia, 180 rooms), and Element Frankfurt Airport (Germany, 133 rooms). During the quarter, five properties (representing approximately 1,200 rooms) were removed from the system.
Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 7.2% in constant dollars (7.7% in actual dollars) when compared to 2013. REVPAR at Starwood Same-Store Owned Hotels in North America increased 7.5% in constant dollars (6.1% actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 7.0% in constant dollars (9.0% in actual dollars).
Revenues at Starwood Same-Store Owned Hotels Worldwide increased 5.7% in constant dollars (6.3% in actual dollars) while costs and expenses increased 4.2% in constant dollars (4.6% in actual dollars) when compared to 2013. Margins at these hotels increased approximately 120 basis points compared to 2013.
Revenues at Starwood Same-Store Owned Hotels in North America increased 5.9% in constant dollars (4.5% in actual dollars) while costs and expenses increased 4.0% in constant dollars (2.8% in actual dollars) when compared to 2013. Margins at these hotels increased approximately 140 basis points compared to 2013.
Internationally, revenues at Starwood Same-Store Owned Hotels increased 5.6% in constant dollars (7.4% in actual dollars) while costs and expenses increased 4.3% in constant dollars (6.1% in actual dollars) when compared to 2013. Margins at these hotels increased approximately 100 basis points compared to 2013.
Revenues at Owned Hotels were $393 million, compared to $398 million in 2013. Expenses at Owned Hotels were $308 million compared to $318 million in 2013. Revenues in the third quarter of 2014 were negatively impacted by asset sales since the third quarter of 2013.
Vacation ownership revenues were flat at $157 million for the third quarter of 2014, compared to the corresponding period in 2013. Originated contract sales of vacation ownership intervals decreased 2.4% during the third quarter of 2014, compared to the corresponding period in 2013, as the average price per vacation ownership unit sold decreased 2.6% to approximately $13,600, partially offset by a 0.6% increase in the number of contracts signed.
During the third quarter of 2014, the Company’s residential revenues were $2 million compared to $43 million in 2013. The Company realized residential revenues from Bal Harbour of $40 million and earnings of $19 million in the third quarter of 2013 compared to no revenue or earnings in the third quarter of 2014, as the Bal Harbour residential project sold out earlier this year.
Selling, General, Administrative and Other
During the third quarter of 2014, selling, general, administrative and other expenses decreased 4.0% to $96 million compared to $100 million in 2013, primarily due to higher bad debt expense in the prior year and the timing of incentives earned in 2014 in connection with the Company’s relocation of its corporate headquarters to Connecticut in 2012.
Gross capital spending during the quarter included approximately $43 million of maintenance capital and $35 million of development capital.
During the third quarter of 2014, the Company terminated its leasehold interest in the Westin Dublin Hotel in Dublin, Ireland, and converted the hotel to a franchise. On October 20, 2014, the Company completed the sale of the St. Regis Rome, Italy, for gross cash proceeds of approximately €110 million, subject to a long-term management agreement.
In the third quarter of 2014, the Company declared a regular quarterly dividend of $0.35 per share, which was paid on September 26, 2014. In accordance with the Company’s intention to return to shareholders approximately $500 million in cash realized from the completion of the Bal Harbour residential project and sale of the hotel earlier this year, the Company paid a special dividend of $0.65 per share on September 26, 2014 and expects to declare an additional special dividend of $0.65 per share in the fourth quarter of 2014. The total dividends paid in the third quarter of 2014 were approximately $181 million.
In the third quarter of 2014, the Company’s Board of Directors increased its share repurchase authorization by $1.1 billion to approximately $1.5 billion. During the third quarter of 2014, the Company repurchased 10.4 million shares at a total cost of approximately $857 million and an average price of $82.57 per share. As of September 30, 2014, approximately $688 million remained available under the Company’s share repurchase authorization.
During the third quarter of 2014, the Company completed a public offering of $350 million of 3.75% Senior Notes due 2025 and $300 million of 4.50% Senior Notes due 2034. The Company also established a Commercial Paper Program, which gives it the ability to issue up to $1.75 billion of short-term unsecured notes. At September 30, 2014, the Company had borrowings of $106 million outstanding under the program. Finally, during the third quarter of 2014, the Company amended its Revolving Credit Facility, which extends the maturity by two years to 2020.
At September 30, 2014, the Company had gross debt of $2.2 billion, cash and cash equivalents of $506 million (including $52 million of restricted cash) and net debt of $1.7 billion, compared to net debt of $528 million as of December 31, 2013, in each case excluding debt and restricted cash associated with securitized vacation ownership notes receivable. Net debt at September 30, 2014, including $272 million of debt and $12 million of restricted cash associated with securitized vacation ownership notes receivable, was $1.9 billion.
For the full year 2014:
For the three months ended December 31, 2014:
For the Full Year 2015:
The Company’s special items included a pre-tax charge of $23 million ($12 million charge after-tax) in the third quarter of 2014 compared to a pre-tax benefit of $21 million ($20 million benefit after-tax) in the same period of 2013.
The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):
|Three Months Ended
Nine Months Ended
|$||121||$||137||Income from continuing operations before special items||$||390||$||438|
|$||0.66||$||0.71||EPS before special items||$||2.06||$||2.26|
|—||22||Restructuring and other special (charges) credits, net (a)||3||23|
|(22||)||3||Gain (loss) on asset dispositions and impairments, net (b)||(55||)||(5||)|
|—||(4||)||Impairment of unconsolidated joint venture hotel (c)||—||(4||)|
|(1||)||—||Loss on early extinguishment of debt (d)||(1||)||—|
|(23||)||21||Total special items – pre-tax||(53||)||14|
|11||(1||)||Income tax benefit (expense) for special items (e)||61||(15||)|
|(12||)||20||Total special items – after-tax||8||(1||)|
|$||109||$||157||Income from continuing operations||$||398||$||437|
|$||0.59||$||0.81||EPS including special items||$||2.10||$||2.25|
|a)||During the nine months ended September 30, 2014, the net credit relates to the reversal of a reserve associated with a $3 million note receivable from a previous disposition. During the three and nine months ended September 30, 2013, the credit primarily related to a favorable adjustment to a legal reserve.|
|b)||During the three months ended September 30, 2014, the net loss primarily relates to a $13 million impairment charge associated with a wholly-owned hotel and a $7 million charge related to the termination of a leasehold interest in a hotel which is now franchised. During the nine months ended September 30, 2014, the net loss also includes 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 nine months ended September 30, 2014, the Company recorded an impairment charge associated with one of its foreign unconsolidated joint ventures. During the nine months ended September 30, 2013, the net loss primarily included charges related to the sale of three wholly-owned hotels.|
|c)||During the three and nine months ended September 30, 2013, the net loss related to an impairment charge associated with a hotel in which the Company owns a non-controlling joint venture interest.|
|d)||During the three and nine months ended September 30, 2014, the net charge relates to the write-off of certain deferred financing costs associated with amending the Company’s Revolving Credit Facility.|
|e)||During the three months ended September 30, 2014, the net benefit primarily relates to tax benefits on the pre-tax special items and provisions to return adjustments from prior years. During the nine months ended September 30, 2014, the net benefit also includes the recognition of $52 million for settlement of a foreign tax audit, partially offset by tax charges on the pre-tax special items. During the three months ended September 30, 2013, the net charge related to tax expense on the legal reserve adjustment discussed above, substantially offset by a $4 million tax benefit on a non-core asset disposition with a high tax basis and a $3 million deferred tax benefit associated with the reversal of the valuation allowance as the tax asset is now deemed realizable. The nine months ended September 30, 2013 include net tax charges associated with an asset disposition, interest on deferred income associated with vacation ownership sales, tax reserves and the resolution of certain tax positions.|
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 third quarter financial results at 11:30 a.m. Eastern 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 Tuesday, October 28 and will run for one year. Alternatively, participants may dial into the live call at (866) 921-0636 with conference ID 10325720. 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 Tuesday, October 28 and will run for one week; the call replay can be accessed by dialing (855) 859-2056 with conference ID 10325720. Outside the U.S., the call replay can be accessed at (404) 537-3406.
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; REVPAR metrics do not include revenue from Design Hotels AG. 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.
Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 1,200 properties in 100 countries and 181,400 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®, and Element®. 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 also owns Starwood Vacation Ownership, Inc., a premier provider of world-class vacation experiences through villa-style resorts and privileged access to Starwood brands. 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 complete Earnings Release go to: https://starwood.q4web.com/files/doc_financials/quarterly/2014/Q3/2014-3Q-HOT-Earnings-Release-Final.pdf.
SOURCE Starwood Hotels & Resorts Worldwide, Inc.
Starwood Hotels & Resorts Worldwide, Inc.
Starwood Hotels & Resorts Worldwide, Inc.