STAMFORD, Conn.–Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported second quarter 2016 financial results.
Second Quarter 2016 Highlights
- Including special items which total a pre-tax loss of $130 million primarily from asset dispositions, EPS from continuing operations was a loss of $0.20. Excluding special items, EPS from continuing operations was $0.71. Net income of $0.08 per share from Vistana Signature Experiences, Inc. (“Vistana”), the Company’s former vacation ownership business, is not included in continuing operations.
- Adjusted EBITDA was $297 million, which includes operating earnings from the Company’s former vacation ownership business of $19 million and $2 million from the hotels transferred to Interval Leisure Group, Inc. (“ILG”) as part of the vacation ownership spin-off transaction, all of which are classified as discontinued operations.
- Including special items, loss from continuing operations was $35 million. Excluding special items, income from continuing operations was $121 million.
- Worldwide Systemwide REVPAR for Same-Store Hotels increased 1.4% in constant dollars (increased 0.7% in actual dollars) compared to 2015. Systemwide REVPAR for Same-Store Hotels in North America increased 3.4% in constant dollars (increased 3.1% in actual dollars).
- Management fees, franchise fees and other income increased 7.1% compared to 2015. Core fees increased 3.9% compared to 2015.
- During the quarter, the Company signed 120 hotel management and franchise contracts, representing approximately 21,400 rooms and opened 20 hotels and resorts with approximately 4,200 rooms.
- During the quarter, the Company paid a quarterly dividend of $0.375 per share.
- During the quarter, the Company completed the sale of The St. Regis Florence and The Westin Excelsior Florence hotels for cash proceeds of approximately $213 million, subject to long-term management agreements.
- On April 8, 2016, at special stockholder meetings, the stockholders of the Company and Marriott International, Inc. (“Marriott”) approved proposals relating to Marriott’s acquisition of the Company.
- On May 11, 2016, the Company completed the spin-off of Vistana, its former vacation ownership business, and merger of Vistana with and into a subsidiary of ILG immediately following the spin-off, through a Reverse Morris Trust transaction.
Second Quarter 2016 Earnings Summary
Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported a loss per share from continuing operations for the second quarter of 2016 of $0.20 compared to EPS of $0.69 in the second quarter of 2015. Excluding special items, EPS from continuing operations was $0.71 for the second quarter of 2016 compared to $0.69 in the second quarter of 2015.
Special items in the second quarter of 2016 consisted primarily of losses on asset dispositions and impairments of $114 million ($145 million after-tax) and restructuring and other special charges of $16 million ($10 million after-tax). Special items in the second quarter of 2015 totaled a benefit of $1 million (after-tax). Excluding special items, the effective income tax rate in the second quarter of 2016 was 33.7% compared to 28.2% in the second quarter of 2015, primarily due to the mix and timing of pretax income.
The loss from continuing operations in the second quarter of 2016 was $35 million, including the $114 million loss on asset dispositions and impairments discussed above, compared to income from continuing operations of $118 million in the second quarter of 2015. Excluding special items, income from continuing operations was $121 million in the second quarter of 2016 compared to $117 million in the second quarter of 2015.
On May 11, 2016 the Company completed the spin-off of Vistana and merger of Vistana with and into a subsidiary of ILG immediately following the spin-off through a Reverse Morris Trust transaction. As a result, the operations of Vistana and the five hotels sold or otherwise conveyed to ILG through the date of the transaction were reclassified to discontinued operations for all periods presented. The loss from discontinued operations was $228 million after tax in the second quarter of 2016 which included a non-cash pre-tax impairment charge of $214 million and $30 million in transaction costs, partially offset by net income from vacation ownership and the five hotels sold or otherwise conveyed to ILG. In the second quarter of 2015, the income from discontinued operations was $18 million which included transaction costs of $11 million.
Net loss was $263 million and $1.56 per share in the second quarter of 2016, compared to income of $136 million and $0.79 per share in the second quarter of 2015.
Thomas Mangas, Chief Executive Officer of the Company, said, “Across virtually every measure that matters to our business, we delivered on or exceeded our goals. Our hotel openings year to date are 15% ahead of last year, and our net rooms growth remains in our target range of 4 to 5%. Developer demand for our brands is strong, and with the record 120 contracts representing 21,400 rooms we signed this quarter, our pipeline increased nearly 12%. We were pleased to deliver core fee growth in line with our expectations, and on an absolute basis, our core fees in the second quarter have never been higher.
“Thanks to strong performance at our owned hotels and lower SG&A, we delivered Adjusted EBITDA well ahead of our expectations. We continued to deliver against our asset light strategy with the sales of two hotels in the quarter, another sale in July, and the completion of the Vistana transaction. All the while, our teams have been hard at work planning the integration of Starwood and Marriott. Our achievements reflect the true spirit and capability of the associates at Starwood. Their dedication and focus on delivering unparalleled service and value to our guests and hotel owners is what makes our brands and hotels great.”
Alan Schnaid, Chief Financial Officer of the Company, said, “Global lodging fundamentals remain strong, however, growth rates in 2016 have been lower than was expected at the beginning of the year. Despite the lower rate of growth, our company continues to perform very well. We continue to outperform the competition, with gains in REVPAR Index in each of our three divisions.
“Looking ahead to the next two quarters, we expect current trends in global lodging to continue. This slower rate of REVPAR growth will contribute to lower fee growth in the second half of 2016 than previously expected. However, we expect that the strong performance of our owned hotels in the first half of the year and our lower SG&A will offset the impact of lower fee growth and partially offset both the loss of earnings from the hotels we sold this year and the impact of foreign exchange.”
Six Months Ended June 30, 2016 Earnings Summary
Income from continuing operations was $38 million in the six months ended June 30, 2016 compared to $193 million in the same period in 2015. Excluding special items, income from continuing operations was $207 million in the six months ended June 30, 2016 compared to $199 million in the same period in 2015.
Loss from discontinued operations was $211 million in the six months ended June 30, 2016 compared to income of $42 million in the same period in 2015.
Net loss was $173 million and $1.02 loss per share in the six months ended June 30, 2016 compared to income of $235 million and $1.37 per share in the same period in 2015.
Adjusted EBITDA was $578 million in the six months ended June 30, 2016 compared to $585 million in the same period in 2015.
Second Quarter 2016 Operating Results
Management and Franchise Revenues
Worldwide Systemwide REVPAR for Same-Store Hotels increased 1.4% in constant dollars (increased 0.7% in actual dollars) compared to the second quarter of 2015. International Systemwide REVPAR for Same-Store Hotels decreased 1.4% in constant dollars (decreased 2.5% in actual dollars).
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:
REVPAR Region
Constant
Dollars
Actual
Dollars
Americas: North America 3.4 % 3.1 % Latin America (5.1 )% (5.1 )% Asia Pacific: Greater China (1.8 )% (5.6 )% Rest of Asia 2.9 % 1.4 % Europe, Africa & Middle East: Europe 1.1 % 2.2 % Africa & Middle East (9.7 )% (11.3 )%
Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:
REVPAR Brand
Constant
Dollars
Actual
Dollars
St. Regis/Luxury Collection (0.5 )% (1.1 )% W Hotels (2.2 )% (3.0 )% Westin 3.2 % 2.8 % Sheraton 1.6 % 0.8 % Le Méridien (0.3 )% (0.9 )% Four Points by Sheraton 2.3 % 1.0 % Aloft 3.6 % 2.6 %
Worldwide Same-Store Company-Operated gross operating profit margins decreased approximately 20 basis points compared to 2015. International gross operating profit margins for Same-Store Company-Operated properties decreased approximately 55 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 15 basis points.
Management fees, franchise fees and other income were $273 million, up $18 million, or 7.1% compared to the second quarter of 2015. Core fees increased 3.9% or $8 million. Other management and franchise revenues increased 15.2% or $7 million, primarily due to license fees from ILG associated with the vacation ownership business since the spin-off date.
Development
During the second quarter of 2016, the Company signed 120 hotel management and franchise contracts, representing approximately 21,400 rooms, of which 101 are new builds and 19 are conversions from other brands. At June 30, 2016, the Company had approximately 640 hotels in the active pipeline representing approximately 132,000 rooms.
During the second quarter of 2016, 20 new hotels and resorts (representing approximately 4,200 rooms) entered the system, including The St. Regis Kuala Lumpur, (Malaysia, 208 rooms), Le Méridien Singapore, Sentosa (Singapore, 191 rooms), W Dubai Al Habtoor City (United Arab Emirates, 423 rooms), Sheraton Grand Hangzhou Binjiang Hotel (China, 301 rooms) and Aloft Guangzhou Tianhe (China, 496 rooms). During the quarter, four properties (representing approximately 1,000 rooms) were removed from the system.
Owned Hotels
Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 4.0% in constant dollars (increased 3.9% in actual dollars) when compared to 2015. REVPAR at Starwood Same-Store Owned Hotels in North America increased 7.2% in constant dollars (increased 5.9% in actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR decreased 0.9% in constant dollars (increased 0.7% in actual dollars).
Revenues at Starwood Same-Store Owned Hotels Worldwide increased 3.4% in constant dollars (increased 3.4% in actual dollars) while costs and expenses increased 1.3% in constant dollars (increased 1.3% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 150 basis points compared to 2015.
Revenues at Starwood Same-Store Owned Hotels in North America increased 6.7% in constant dollars (increased 5.4% in actual dollars) while costs and expenses increased 4.2% in constant dollars (increased 3.1% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 170 basis points compared to 2015.
Internationally, revenues at Starwood Same-Store Owned Hotels decreased 1.6% in constant dollars (increased 0.1% in actual dollars) while costs and expenses decreased 3.3% in constant dollars (decreased 1.5% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 120 basis points compared to 2015.
Revenues at Owned Hotels, which were negatively impacted by asset sales since the second quarter of 2015, were $291 million, compared to $332 million in 2015. Expenses at Owned Hotels were $216 million compared to $248 million in 2015.
Selling, General, Administrative and Other
During the second quarter of 2016, selling, general, administrative and other expenses (“SG&A”) decreased 6.1% to $93 million compared to $99 million in 2015 including the impact of various cost savings initiatives.
Restructuring and Other Special Charges
During the second quarter of 2016, the Company recorded $16 million of other special charges primarily consisting of $15 million in costs associated with the planned Marriott transaction.
Capital
Gross capital spending during the quarter included approximately $25 million of maintenance capital and $19 million of development capital.
Asset Sales
During the second quarter of 2016, the Company completed the sale of The St. Regis Florence and The Westin Excelsior Florence for cash proceeds of approximately $213 million, subject to long-term management agreements. The sales of these last remaining wholly-owned hotels in Italy resulted in a pre-tax gain of $112 million. This pre-tax gain was more than offset by the recognition of a $202 million cumulative foreign currency translation adjustment loss associated with the Company’s historical hotel operations in Italy.
In July 2016, the Company completed the sale of its leasehold interest in the Sheraton Paris Airport Hotel & Conference Centre for approximately $11 million, subject to a long-term management agreement.
Dividend
On May 6, 2016, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on June 3, 2016 to stockholders of record as of May 20, 2016. The total dividends paid in the second quarter of 2016 were approximately $63 million.
Balance Sheet
At June 30, 2016, the Company had gross debt of $2.4 billion, cash and cash equivalents of $1.6 billion (including $19 million of restricted cash) and net debt of $0.8 billion, compared to net debt of $1.1 billion as of December 31, 2015.
ILG Transaction
On May 11, 2016, the Company completed the spin-off of Vistana, its former vacation ownership business, and merger of Vistana with and into a subsidiary of ILG immediately following the spin-off, through a Reverse Morris Trust transaction (the “Transactions”). In connection with the Transactions the Company’s stockholders received approximately 72.4 million of ILG shares valued at $14.385 per share. In addition, ILG paid the Company approximately $123 million in cash, resulting in total stock and cash consideration of approximately $1.2 billion. As a result of the Transactions, the operations of Vistana and the five hotels sold or otherwise conveyed to ILG in connection with the Transactions through the date of completion of the Transactions were reclassified to discontinued operations for all periods presented. The loss from discontinued operations was $228 million after tax in the second quarter of 2016 which included a non-cash pre-tax impairment charge of $214 million and $30 million in transaction costs, partially offset by net income from vacation ownership and the five hotels. In the second quarter of 2015, the income from discontinued operations was $18 million which included transaction costs of $11 million.
Marriott Transaction
On April 8, 2016, the Company and Marriott held special stockholder meetings at which the stockholders of the Company and Marriott approved proposals relating to Marriott’s acquisition of the Company. At closing, the Company’s stockholders will receive 0.80 shares of Marriott common stock and $21.00 in cash for each share of the Company’s common stock. The Marriott transaction is expected to close in the coming weeks and is subject to regulatory approval in China and the satisfaction of other customary closing conditions.
Due to the planned merger with Marriott, the Company will not host a conference call for its second quarter financial results.
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