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Starwood Hotels & Resorts: Starwood Reports Third Quarter 2015 RESULTS

The following excerpt is from the company's SEC filing.

– Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported third quarter 2015 financial results.

Third Quarter 2015 Highlights

Excluding special items, EPS from continuing operations was $0.74. Including special items, EPS from continuing operations was $0.53.

Adjusted EBITDA was $294 million.

Excluding special items, income from continuing operations was $125 million. Including special items, income from continuing operations was $88 million.

Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.4% in constant dolla rs (decreased 0.3% in actual dollars) compared to 2014. Systemwide REVPAR for Same-Store Hotels in North America increased 5.3% in constant dollars (increased 3.6% in actual dollars).

Management fees, franchise fees and other income increased 3.1% compared to 2014. Core fees increased 1.9% compared to 2014.

Earnings from Starwood’s vacation ownership and residential business increased approximately $8 million compared to 2014.

During the quarter, the Company signed 44 hotel management and franchise contracts, representing approximately 8,600 rooms and opened 27 hotels and resorts with approximately 4,800 rooms.

During the quarter, the Company paid a quarterly dividend of $0.375 per share and repurchased 1.3 million shares at a total cost of $100 million and a weighted average price of $76.64 per share.

During the quarter, the Company completed the sale of The Westin Excelsior Rome for gross cash proceeds of $251 million subject to a long-term management agreement.

Today, the Company announced that it had entered into definitive agreements with Interval Leisure Group, Inc. (“Interval”) pursuant to which the Company’s vacation ownership business will be distributed on a pro rata basis to stockholders and immediately after will merge with a wholly-owned subsidiary of Interval. The transaction has a total value to Starwood of approximately $1.5 billion.

Quarter 2015 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the third quarter of 2015 of $0.53 compared to $0.59 in the third quarter of 2014. Excluding special items, EPS from continuing operations was $0.74 for the third quarter of 2015 compared to $0.66 in the third quarter of 2014.

Special items in the third quarter of 2015 consisted primarily of losses on asset dispositions and impairments of $46 million ($34 million after-tax) and restructuring and other special charges of $9 million ($7 million after-tax). Special items in the third quarter of 2014 totaled a charge of $12 million (after-tax). Excluding special items, the effective income tax rate in the third quarter of 2015 was 32.0% compared to 34.7% in the third quarter of 2014.

Income from continuing operations was $88 million in the third quarter of 2015, compared to $109 million in the third quarter of 2014. Excluding special items, income from continuing operations was $125 million in the third quarter of 2015 compared to $121 million in the third quarter of 2014.

Net income was $88 million and $0.53 per share in the third quarter of 2015, compared to $109 million and $0.59 per share in the third quarter of 2014.

Adam Aron, Chief Executive Officer of the Company on an interim basis, said, “As we expected, the results for the completed third quarter were encouraging. Our performance is yet another indication that Starwood has been making progress on the sharply-focused strategy we launched in February 2015 to strengthen our brands, drive operational excellence, and accelerate the pace of our growth. Collectively these efforts have also yielded better growth in our new hotel signings, with rooms up 33% year-to-date through the end of the third quarter. These results on both operations and development give us optimism to have a bullish outlook for 2016 as well as the future of our brands and hotels.”

Nine Months Ended September 30, 2015 Earnings Summary

Income from continuing operations was $323 million in the nine months ended September 30, 2015 compared to $398 million in the same period in 2014. Excluding special items, income from continuing operations was $378 million in the nine months ended September 30, 2015 compared to $390 million in the same period in 2014. The decline in income from continuing operations primarily reflects the impact of the sales of ten hotels since the third quarter of 2014.

Net income was $323 million and $1.90 per share in the nine months ended September 30, 2015 compared to $399 million and $2.11 per share in the same period in 2014.

Adjusted EBITDA was $879 million in the nine months ended September 30, 2015 compared to $903 million in the same period in 2014.

Quarter 2015 Operating Results

Management and Franchise Revenues

Worldwide Systemwide REVPAR for Same-Store Hotels increased 5.4% in constant dollars (decreased 0.3% in actual dollars) compared to the third quarter of 2014. International Systemwide REVPAR for Same-Store Hotels increased 5.5% in constant dollars (decreased 4.9% in actual dollars).

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

Region

Constant

Dollars

Actual

Americas:

Latin America

Asia Pacific:

Greater China

Rest of Asia

Europe, Africa & Middle East:

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

St. Regis/Luxury Collection

W Hotels

Sheraton

Le Méridien

Four Points by Sheraton

Worldwide Same-Store Company-Operated gross operating profit margins increased approximately 30 basis points compared to 2014. International gross operating profit margins for Same-Store Company-Operated properties increased approximately 30 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 25 basis points.

Management fees, franchise fees and other income were $263 million, up $8 million, or 3.1% compared to the third quarter of 2014. Core fees increased 1.9% to $210 million. Other management and franchise revenues increased 19.0% or $8 million.

Development

During the third quarter of 2015, the Company signed 44 hotel management and franchise contracts, representing approximately 8,600 rooms, of which 32 are new builds and 12 are conversions from other brands. At September 30, 2015, the Company had approximately 510 hotels in the active pipeline representing approximately 113,000 rooms.

During the third quarter of 2015, 27 new hotels and resorts (representing approximately 4,800 rooms) entered the system, including The Gwen, a Luxury Collection Hotel, Chicago (Illinois, 300 rooms), St. Regis Mumbai (India, 335 rooms), The Grand Mansion, a Luxury Collection Hotel (China, 158 rooms), The Westin Austin Downtown (Texas, 366 rooms), and Great Northern Hotel, a Tribute Portfolio Hotel, London (England, 91 rooms). During the quarter, five properties (representing approximately 900 rooms) were removed from the system.

Owned Hotels

Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 5.5% in constant dollars (decreased 2.6% in actual dollars) when compared to 2014. REVPAR at Starwood Same-Store Owned Hotels in North America increased 4.7% in constant dollars (increased 1.8% in actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 6.3% in constant dollars (decreased 7.2% in actual dollars).

Revenues at Starwood Same-Store Owned Hotels Worldwide increased 5.2% in constant dollars (decreased 2.8% in actual dollars) while costs and expenses increased 4.2% in constant dollars (decreased 3.1% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 20 basis points compared to 2014.

Revenues at Starwood Same-Store Owned Hotels in North America increased 5.6% in constant dollars (increased 2.9% in actual dollars) while costs and expenses increased 3.8% in constant dollars (increased 1.4% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 120 basis points compared to 2014.

Internationally, revenues at Starwood Same-Store Owned Hotels increased 4.8% in constant dollars (decreased 8.3% in actual dollars) while costs and expenses increased 4.6% in constant dollars (decreased 8.0% in actual dollars) when compared to 2014. Margins at these hotels decreased approximately 30 basis points compared to 2014.

Revenues at Owned Hotels, which were negatively impacted by asset sales since the third quarter of 2014, were $312 million, compared to $393 million in 2014. Expenses at Owned Hotels were $241 million compared to $308 million in 2014.

Vacation Ownership

Vacation ownership revenues for the three months ended September 30, 2015 increased 7.6%, to $169 million, compared to the corresponding period in 2014. Originated contract sales of vacation ownership intervals increased 10.0% for the three months ended September 30, 2015, compared to the corresponding period in 2014, due to a 3.5% increase in the number of contracts signed and a 7.0% increase in the average price per vacation ownership unit sold to approximately $14,600.

Today, the Company announced that it had entered into an agreement with Interval and Vistana Signature Experiences, Inc., its wholly-owned subsidiary (“Vistana”), through a Reverse Morris Trust transaction pursuant to which, subject to the terms and conditions of certain definitive agreements, a wholly-owned subsidiary of Interval will acquire and then merge with and into Vistana. The transaction, which will follow an internal reorganization and spin-off of all of the issued and outstanding Vistana shares by Starwood to Starwood stockholders on a pro rata basis, has a total value to Starwood of approximately $1.5 billion. The transaction is expected to close in the second quarter of 2016, subject to customary closing conditions, including regulatory and Interval shareholder approvals.

Residential

During the third quarter of 2015, the Company’s residential revenues were $4 million compared to $2 million in 2014.

Selling, General, Administrative and Other

During the third quarter of 2015, selling, general, administrative and other expenses (“SG&A”) increased 6.3% to $102 million compared to $96 million in 2014, primarily due to an $11 million reserve for the potential funding of a performance guarantee at two hotels in Greece as a result of the economic crisis in Greece. This charge was partially offset by savings associated with the implementation of the Company’s previously announced cost savings initiatives and timing of expenses. The Company continues to target a decrease of 2% to 4% for the full year based on additional cost saving initiatives.

Capital

Gross capital spending during the quarter included approximately $42 million of maintenance capital and $38 million of development capital.

Asset Sales

During the third quarter of 2015, the Company completed the sale of The Westin Excelsior Rome for gross cash proceeds of $251 million. The sale was completed subject to a long-term management agreement. Year to date through September 30, 2015, the Company has received gross cash proceeds from asset sales of approximately $817 million.

Restructuring and Other Special Charges

During the third quarter of 2015, the Company recorded a $4 million restructuring credit primarily due to an $8 million reversal of a reserve as a result of the favorable resolution of a funding commitment associated with a vacation ownership project. This credit was partially offset by charges related to the Company’s previously announced cost savings initiatives. The Company also recorded $13 million of other special charges primarily consisting of costs associated with the planned spin-off of the Company’s vacation ownership business.

Dividend

On August 12, 2015, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on September 25, 2015 to stockholders of record as of September 11, 2015. The total dividends paid in the third quarter of 2015 were approximately $64 million. Year to date through September 30, 2015, the Company has paid approximately $192 million in total dividends.

Share Repurchase

In the third quarter of 2015, the Company repurchased 1.3 million shares at a total cost of approximately $100 million and a weighted average price of $76.64 per share. As of September 30, 2015, approximately $501 million remained available under the Company’s share repurchase authorization. Year to date through September 30, 2015, the Company has repurchased 4.1 million shares at a total cost of $328 million and an average price of $79.55.

Balance Sheet

At September 30, 2015, the Company had gross debt of $2.2 billion, cash and cash equivalents of $1.1 billion (including $22 million of restricted cash) and net debt of $1.1 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 September 30, 2015, including $188 million of debt and $8 million of restricted cash associated with securitized vacation ownership notes receivable, was $1.3 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

$1.180 billion to $1.195

billion (based on the assumptions below).

REVPAR increases at Same-Store Systemwide Hotels Worldwide of 4% to 5% in constant dollars (approximately 450 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 approximately flat to up 1%.

Management fees, franchise fees and other income are expected to be approximately down 1% to up 1%.

Earnings from the...


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