STAMFORD, Conn.–Starwood Hotels & Resorts Worldwide, Inc. (NYSE:HOT) today reported fourth quarter 2015 financial results.
Fourth Quarter 2015 Highlights
- Excluding special items, EPS from continuing operations was $0.89. Including special items, EPS from continuing operations was $0.98.
- Adjusted EBITDA was $318 million.
- Excluding special items, income from continuing operations was $151 million. Including special items, income from continuing operations was $166 million.
- Worldwide Systemwide REVPAR for Same-Store Hotels increased 2.8% in constant dollars (decreased 1.1% in actual dollars) compared to 2014. Systemwide REVPAR for Same-Store Hotels in North America increased 4.7% in constant dollars (increased 3.3% in actual dollars).
- Management fees, franchise fees and other income decreased 2.0% compared to 2014. Core fees were flat compared to 2014.
- Earnings from Starwood’s vacation ownership and residential business decreased approximately $14 million compared to 2014.
- During the quarter, the Company signed 79 hotel management and franchise contracts, representing approximately 16,800 rooms and opened 37 hotels and resorts with approximately 9,600 rooms.
- During the quarter, the Company paid a quarterly dividend of $0.375 per share and repurchased 0.6 million shares at a total cost of $43 million and a weighted average price of $70.44 per share.
- On October 27, 2015, the Company entered into definitive agreements with Interval Leisure Group, Inc. (“ILG”) 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 ILG, subject to customary closing conditions.
- On November 15, 2015, the Company entered into a definitive merger agreement with Marriott International, Inc. (“Marriott”), pursuant to which the Company agreed to be acquired by Marriott, subject to customary closing conditions, creating the world’s largest hotel company.
Full Year 2015 Highlights
- Excluding special items, EPS from continuing operations was $3.11. Including special items, EPS from continuing operations was $2.88.
- Adjusted EBITDA was $1.197 billion.
- Excluding special items, income from continuing operations was $529 million. Including special items, income from continuing operations was $489 million.
- Worldwide Systemwide REVPAR for Same-Store Hotels increased 4.1% in constant dollars (decreased 0.4% in actual dollars) compared to 2014. Systemwide REVPAR for Same-Store Hotels in North America increased 5.4% in constant dollars (increased 4.1% in actual dollars).
- Management fees, franchise fees and other income decreased 0.9% compared to 2014. Core fees increased 0.6% compared to 2014.
- Earnings from Starwood’s vacation ownership and residential business decreased approximately $4 million compared to 2014.
- During the year, the Company signed 220 hotel management and franchise contracts, representing approximately 45,800 rooms, and opened 105 hotels and resorts with approximately 21,500 rooms.
- During the year, the Company returned approximately $626 million to stockholders through share repurchases and dividends.
- During the year, the Company received gross cash proceeds from asset sales of approximately $822 million.
Fourth Quarter 2015 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the fourth quarter of 2015 of $0.98 compared to $1.40 in the fourth quarter of 2014. Excluding special items, EPS from continuing operations was $0.89 for the year ended quarter of 2015 compared to $0.97 in the fourth quarter of 2014.
Special items in the fourth quarter of 2015 consisted primarily of restructuring and other special charges of $37 million ($22 million after-tax) partially offset by a gain on a property insurance settlement of $36 million (before and after-tax). Special items in the fourth quarter of 2014 totaled a benefit of $74 million (after-tax). Excluding special items, the effective income tax rate in the fourth quarter of 2015 was 29.3% compared to 24.5% in the fourth quarter of 2014.
Income from continuing operations was $166 million in the fourth quarter of 2015, compared to $245 million in the fourth quarter of 2014. Excluding special items, income from continuing operations was $151 million in the fourth quarter of 2015 compared to $171 million in the fourth quarter of 2014. The decline in income from continuing operations primarily reflects the impact of hotel sales in 2014 and 2015.
Net income was $166 million and $0.98 per share in the fourth quarter of 2015, compared to $234 million and $1.33 per share in the fourth quarter of 2014.
Thomas Mangas, Chief Executive Officer of the Company, said, “We had good momentum in our business through the year, with REVPAR index gains in each of our six global regions and a record-breaking year of growth where we signed more new deals and opened more hotels than in any single year in Starwood’s entire history, increasing our net rooms growth to 4.4%. As we prepare for the merger with Marriott, our priorities in 2016 will build on this success – accelerating our growth, developing our talent, innovating across our brands, and delighting our guests to grow our REVPAR faster than the competition and deliver superior returns to our owners. While 2015 was clearly a year of change for Starwood given our announced merger with Marriott, our strategy remains very much intact and on track.”
Year Ended December 31, 2015 Earnings Summary
Income from continuing operations was $489 million for the year ended December 31, 2015 compared to $643 million in 2014. Excluding special items, income from continuing operations was $529 million for the year ended December 31, 2015 compared to $561 million in 2014. The decline in income from continuing operations primarily reflects the impact of hotel sales in 2014 and 2015.
Net income was $489 million and $2.88 per share for the year ended December 31, 2015 compared to $633 million and $3.40 per share in 2014.
Adjusted EBITDA was $1.197 billion for the year ended December 31, 2015 compared to $1.238 billion in 2014.
Fourth Quarter 2015 Operating Results
Management and Franchise Revenues
Worldwide Systemwide REVPAR for Same-Store Hotels increased 2.8% in constant dollars (decreased 1.1% in actual dollars) compared to the fourth quarter of 2014. International Systemwide REVPAR for Same-Store Hotels increased 0.6% in constant dollars (decreased 6.1% in actual dollars).
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:
REVPAR Region
Constant Dollars
Actual Dollars
Americas: North America 4.7 % 3.3 % Latin America (0.5 )% (0.5 )% Asia Pacific: Greater China (2.3 )% (5.3 )% Rest of Asia 5.6 % (4.8 )% Europe, Africa & Middle East: Europe 2.4 % (9.9 )% Africa & Middle East (2.9 )% (6.4 )%
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:
REVPAR Brand
Constant Dollars
Actual Dollars
St. Regis/Luxury Collection 4.9 % 0.6 % W Hotels 0.0 % (2.5 )% Westin 5.2 % 1.3 % Sheraton 1.6 % (2.3 )% Le Méridien (0.9 )% (6.3 )% Four Points by Sheraton 3.4 % (1.0 )% Aloft 7.5 % 5.2 %
Worldwide Same-Store Company-Operated gross operating profit margins decreased approximately 15 basis points compared to 2014. International gross operating profit margins for Same-Store Company-Operated properties decreased approximately 60 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 50 basis points.
Management fees, franchise fees and other income were $288 million, down $6 million, or 2.0% compared to the fourth quarter of 2014. Core fees remained flat at $225 million. Other management and franchise revenues decreased 12.7% or $8 million, primarily due to fees associated with the termination of certain management and franchise contracts in 2014.
Development
During the fourth quarter of 2015, the Company signed 79 hotel management and franchise contracts, representing approximately 16,800 rooms, of which 59 are new builds and 20 are conversions from other brands. At December 31, 2015, the Company had approximately 530 hotels in the active pipeline representing approximately 116,000 rooms.
During the fourth quarter of 2015, 37 new hotels and resorts (representing approximately 9,600 rooms) entered the system, including the SLS Las Vegas, a Tribute Portfolio Resort (Nevada, 1,623 rooms), The St. Regis Macao, Cotai Central (Macau, 400 rooms), The Westin Denver International Airport (Colorado, 519 rooms), Sheraton Zhuhai Hotel (China, 544 rooms), and Aloft Louisville Downtown (Kentucky, 175 rooms). During the quarter, 11 properties (representing approximately 2,300 rooms) were removed from the system.
Owned Hotels
Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 6.3% in constant dollars (increased 0.8% in actual dollars) when compared to 2014. REVPAR at Starwood Same-Store Owned Hotels in North America increased 6.7% in constant dollars (increased 2.7% in actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR increased 5.8% in constant dollars (decreased 1.8% in actual dollars).
Revenues at Starwood Same-Store Owned Hotels Worldwide increased 6.7% in constant dollars (increased 1.0% in actual dollars) while costs and expenses increased 4.6% in constant dollars (decreased 1.2% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 170 basis points compared to 2014.
Revenues at Starwood Same-Store Owned Hotels in North America increased 7.2% in constant dollars (increased 3.0% in actual dollars) while costs and expenses increased 5.6% in constant dollars (increased 1.6% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 110 basis points compared to 2014.
Internationally, revenues at Starwood Same-Store Owned Hotels increased 6.1% in constant dollars (decreased 1.8% in actual dollars) while costs and expenses increased 3.2% in constant dollars (decreased 5.0% in actual dollars) when compared to 2014. Margins at these hotels increased approximately 250 basis points compared to 2014.
Revenues at Owned Hotels, which were negatively impacted by asset sales in 2015, were $309 million, compared to $370 million in 2014. Expenses at Owned Hotels were $237 million compared to $288 million in 2014.
Vacation Ownership and Residential
Vacation ownership and residential revenues for the three months ended December 31, 2015 decreased 7.6%, to $157 million, compared to the corresponding period in 2014 primarily due to the timing of deferred revenues. Originated contract sales of vacation ownership intervals increased 26.3% for the three months ended December 31, 2015, compared to the corresponding period in 2014, primarily driven by the launch of the new Sheraton Flex product as well as sales at the Westin Nanea Ocean Villas. The number of contracts signed increased 10.1%, and the average price per vacation ownership unit sold increased 13.0% to approximately $15,800.
Selling, General, Administrative and Other
During the fourth quarter of 2015, selling, general, administrative and other expenses (“SG&A”) decreased 11.9% to $96 million compared to $109 million in 2014, primarily due to various cost savings initiatives. For the full year 2015, SG&A decreased 3.5% to $388 million compared to $402 million in 2014.
Capital
Gross capital spending during the quarter included approximately $56 million of maintenance capital and $60 million of development capital.
Asset Sales
In 2015, the Company received gross cash proceeds from asset sales of approximately $822 million. On February 15, 2016, the Company completed the sale of the Hotel Imperial, A Luxury Collection Hotel, Vienna, for gross cash proceeds of approximately $79 million, subject to a long-term management agreement.
Restructuring and Other Special Charges
During the fourth quarter of 2015, the Company recorded a $3 million restructuring charge primarily related to the Company’s previously announced cost savings initiatives. The Company also recorded $34 million of other special charges primarily consisting of $10 million in costs associated with the planned ILG transaction as well as $17 million in costs associated with the Company’s review of strategic alternatives, which culminated in Marriott’s proposed acquisition of the Company.
Dividend
On November 5, 2015, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on December 23, 2015 to stockholders of record as of December 9, 2015. The total dividends paid in the fourth quarter of 2015 were approximately $63 million. For the full year 2015, the Company has paid approximately $255 million in total dividends.
Share Repurchase
In the fourth quarter of 2015, the Company repurchased 0.6 million shares at a total cost of approximately $43 million and a weighted average price of $70.44 per share. As of December 31, 2015, approximately $458 million remained available under the Company’s share repurchase authorization. For the full year 2015, the Company has repurchased 4.7 million shares at a total cost of $371 million and an average price of $78.39.
Balance Sheet
At December 31, 2015, the Company had gross debt of $2.2 billion, cash and cash equivalents of $1.1 billion (including $50 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 December 31, 2015, including $172 million of debt and $8 million of restricted cash associated with securitized vacation ownership notes receivable, was $1.3 billion.
ILG Transaction
On October 27, 2015, the Company entered into definitive agreements with ILG, pursuant to which the Company’s vacation ownership business will be distributed on a pro rata basis to its stockholders and immediately after will merge with a wholly-owned subsidiary of ILG. In addition, the Company will transfer five hotels to ILG. When the merger is completed, the Company’s stockholders will own approximately 55% of the outstanding shares of ILG on a fully-diluted basis and the existing stockholders of ILG will own approximately 45% of ILG on a fully-diluted basis. The transactions are expected to qualify as tax-free transactions to the Company’s stockholders and are subject to customary closing conditions, including regulatory and ILG stockholder approvals. The transactions will not require a vote of the Company’s stockholders and, assuming satisfaction of all required conditions, the parties expect the transactions to close in the second quarter of 2016.
Marriott Transaction
On November 15, 2015, the Company entered into a definitive merger agreement with Marriott, pursuant to which the Company agreed to be acquired by Marriott. At closing, the Company’s stockholders will receive 0.92 shares of Marriott common stock and $2.00 in cash for each share of the Company’s common stock. On a pro forma basis, the Company’s stockholders will own approximately 39% of the combined company’s common stock after the completion of the merger. The Company’s stockholders will separately receive consideration from the spin-off of the Company’s vacation ownership business and subsequent merger with ILG. Following the closing, Marriott’s Board of Directors will increase from 11 to 14 members with the expected addition of three members of the Company’s Board of Directors.
The transaction is subject to Marriott and the Company’s stockholder approvals, completion of the Company’s planned disposition of its vacation ownership business, regulatory approvals and the satisfaction of other customary closing conditions. Assuming satisfaction of all required conditions, the parties expect the transaction to close in mid-2016.
Outlook
- The following outlook assumes the planned spin-off of the vacation ownership business and subsequent merger with ILG occurs on April 1, 2016. Transaction costs related to the planned ILG and Marriott transactions are not included in full year SG&A guidance. In 2016, the Company expects to incur transaction costs of approximately $75 million related to the ILG and Marriott transactions.
For the full year 2016:
- Adjusted EBITDA is expected to be approximately $1.085 billion to $1.110 billion (based on the assumptions below).
- REVPAR at Same-Store Systemwide Hotels Worldwide is expected to be up 2% to 4% in constant dollars (approximately 150 basis points lower in actual dollars at current exchange rates).
- REVPAR at Same-Store Owned Hotels Worldwide is expected to be up 1% to 3% in constant dollars (approximately 150 basis points lower in actual dollars at current exchange rates).
- Margins at Same-Store Owned Hotels Worldwide are expected to increase 50 to 100 basis points.
- Core fees are expected to increase approximately 5.5% to 7.5%.
- Management fees, franchise fees and other income are expected to increase approximately 6% to 8%, including approximately $30 million related to nine months of license fees from the vacation ownership business following the expected ILG transaction, offset by an $8 million reduction to deferred gains resulting from gains from a previously sold hotel with a long term management contract being fully amortized.
- Earnings from the Company’s vacation ownership and residential business of approximately $40 million to $45 million, consisting of approximately $35 million of vacation ownership earnings in the first quarter of 2016 and approximately $5 million to $10 million of residential earnings.
- SG&A is expected to be flat to down 2%.
- Shifts in exchange rates since 2015 will negatively impact full year earnings by approximately $17 million if exchange rates stay at current levels.
- Owned earnings are negatively impacted by approximately $38 million due to asset sales completed in 2015, with additional negative impact of approximately $20 million expected due to lost earnings from the five hotels to be transferred to ILG in connection with the ILG transaction.
- Depreciation and amortization is expected to be approximately $280 million.
- Interest expense is expected to be approximately $120 million.
- Full year effective tax rate is expected to be approximately 32.5%, and cash taxes from operating earnings are expected to be approximately $175 million.
- EPS before special items is expected to be approximately $2.74 to $2.84 (based on the assumptions above).
- Cash flow from operations is expected to be approximately $800 million to $900 million (based on the assumptions above). Cash flow from operations includes the expected investment in vacation ownership inventory of $55 million (for the first quarter of 2016 only).
- 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 $100 million.
For the three months ended March 31, 2016:
- Adjusted EBITDA is expected to be approximately $250 million to $260 million (based on the assumptions below).
- REVPAR at Same-Store Systemwide Hotels Worldwide is expected to be flat to up 2% in constant dollars (approximately 250 basis points lower in actual dollars at current exchange rates).
- REVPAR at Same-Store Owned Hotels Worldwide is expected to be up 2% to 4% in constant dollars (approximately 300 basis points lower in actual dollars at current exchange rates).
- Core fees are expected to increase approximately 2% to 4%.
- Management fees, franchise fees and other income are expected to increase approximately 5% to 7%.
- Owned earnings are negatively impacted by approximately $19 million due to asset sales completed in 2015.
- Earnings from the Company’s vacation ownership and residential business are expected to be approximately $35 million to $40 million.
- EPS is expected to be approximately $0.56 to $0.59 (based on the assumptions above).
Special Items
The Company’s special items included a pre-tax charge of $6 million ($15 million benefit after-tax) in the fourth quarter of 2015 compared to a pre-tax benefit of $23 million ($74 million 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 Twelve Months Ended December 31, December 31,
2015
2014
2015
2014
$ 151 $ 171 Income from continuing operations before special items $ 529 $ 561 $ 0.89 $ 0.97 EPS before special items $ 3.11 $ 3.02 Special Items (37 ) 1 Restructuring and other special (charges) credits, net (a) (100 ) 4 31 22 Gain (loss) on asset dispositions and impairments, net (b) (1 ) (33 ) — — Gain on sale of an unconsolidated joint venture hotel (c) 4 — — — Loss on early extinguishment of debt (d) — (1 ) (6 ) 23 Total special items – pre-tax (97 ) (30 ) 16 36 Income tax benefit for special items (e) 44 44 5 15 Income tax benefit – other non-recurring items (f) 13 68 15 74 Total special items – after-tax (40 ) 82 $ 166 $ 245 Income from continuing operations $ 489 $ 643 $ 0.98 $ 1.40 EPS including special items $ 2.88 $ 3.46 a) During the three months ended December 31, 2015, the net charge primarily relates to $17 million in costs associated with the Company’s review of strategic alternatives which culminated in the proposed Marriott transaction, $10 million in costs associated with the planned ILG transaction, $5 million in costs related to the departure of the Company’s Interim CEO, and $2 million in costs associated with the Company’s previously announced cost savings initiatives. During the year ended December 31, 2015, the net charge further includes $26 million in costs associated with the planned ILG transaction, $15 million in severance costs, $15 million in costs associated with the Company’s previously announced cost savings initiatives, a $6 million charge for technology-related costs and expenses that the Company no longer deems recoverable, partially offset by the reversal of an $8 million reserve as a result of the favorable resolution of a funding commitment associated with a vacation ownership project. During the year ended December 31, 2014, the net credit relates to a reversal of a reserve associated with a $3 million note receivable from a previous disposition. b) During the three months ended December 31, 2015, the net credit primarily relates to a $36 million property insurance settlement associated with a hotel damaged by a hurricane, partially offset by the impairment of an owned hotel of $3 million. During the year ended December 31, 2015, the net charge further includes a charge relating to the impairment of an owned hotel of $31 million and a $15 million charge related to an obligation associated with a previous disposition, partially offset by a benefit of approximately $20 million associated with the sale of a minority partnership interest in a hotel. During the three months ended December 31, 2014, the net gain relates to the acceleration of $31 million of deferred gains primarily related to hotels that were converted from management to franchise contracts, a $10 million gain on the sale of our interest in an unconsolidated joint venture hotel, partially offset by a loss of $17 million from the sale of four wholly-owned hotels. The year ended December 31, 2014 also includes a net loss of $39 million from the impairment of three hotels, an impairment charge of $7 million associated with a foreign unconsolidated joint venture, and a $9 million charge related to the termination of a leasehold interest in a hotel which is now franchised. c) During the year ended December 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 year ended December 31, 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 and twelve months ended December 31, 2015 and 2014, the amounts primarily relate to the tax benefit on the pre-tax special items. f) During the three months ended December 31, 2015, the net tax benefit is primarily due to the recognition of the excess tax over book basis difference in a foreign subsidiary. During the year ended December 31, 2015, the net benefit further includes a favorable valuation allowance adjustment.
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.
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