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Hotel Online Special Report
Starwood Reports Slowing in RevPar Growth and Margin Expansion During 2nd Qtr
Second Quarter Financial Highlights
  • Pro forma comparable diluted EPS from continuing operations increased 48% to $0.43
  • Pro forma comparable total company EBITDA increased 7%
  • EBITDA increased 6% for 152 comparable owned hotels worldwide; 13% in Europe and 5% in North America
  • REVPAR for 152 comparable owned hotels increased 2.7% worldwide, including a 6.1% increase in Europe (9.9% excluding foreign exchange) and a 2.8% increase in North America
  • 31 managed or franchised hotels with 5,400 rooms opened during the quarter

WHITE PLAINS, N.Y., Aug. 5, 1999 - Starwood Hotels Resorts Worldwide, Inc. (NYSE: HOT), one of the world’s largest hotel and leisure companies which through its subsidiaries operates the Sheraton, Westin, St.  Regis/Luxury Collection, Four Points, W and Caesars brands, today announced record financial results for the second quarter ended June 30, 1999.

Pro Forma Comparable Results
Second Quarter Ended June 30, 1999

For the second quarter of 1999, pro forma comparable income from continuing operations was $85 million or $0.43 per diluted share on revenues of $968 million compared to $64 million or $0.29 per diluted share on revenues of $945 million in the corresponding period in 1998. 

Six Months Ended June 30, 1999

For the six months ended June 30, 1999, pro forma comparable income from continuing operations was approximately $125 million or $0.64 per diluted share on revenues of approximately $1.82 billion compared to pro forma comparable income from continuing operations of $88 million or $0.38 per diluted share on pro forma comparable revenues of approximately $1.77 billion for the corresponding period in 1998. 

Hotel Group Results

Revenues for the second quarter of 1999 at the Company’s 171 owned and leased hotels increased 4% to $831 million from $799 million in 1998 and EBITDA increased 2% to $277 million from $271 million in 1998.  Excluding 19 hotels under significant renovation, or for which comparable results are not available (“Comparable Owned Hotels”), EBITDA at 152 owned and leased hotels worldwide increased 6% in the second quarter of 1999 to $259 million when compared to the same period in 1998 and EBITDA margins increased to 34.8% from 34.2%.  EBITDA at 105 Comparable Owned Hotels in North America increased 5% to $182 million in the second quarter of 1999 when compared to the same period in 1998.  EBITDA at 29 Comparable Owned Hotels in Europe increased 13% to $41 million in the second quarter of 1999 when compared to the same period of 1998 despite the unfavorable effect of foreign exchange rates resulting primarily from the lower value of the Euro.

For the second quarter of 1999, Comparable Owned Hotels’ REVPAR increased 2.7% to $108.90 from $106.04 in the corresponding period of 1998. The increase in REVPAR primarily resulted from an increase in ADR of 2.5% to $148.35 from $144.72, and an increase in occupancy to 73.4% from 73.3% in the corresponding period in 1998.  These results exclude the W Hotel New York, which fully opened in the second quarter of 1999 after a significant renovation.

During the second quarter, the Company signed management and franchise agreements for 15 hotels with 5,300 rooms, bringing the year-to-date total to 45 hotels with 10,500 rooms. During the quarter, 31 managed or franchised hotels with 5,400 rooms opened.

“Though we experienced a slowing in RevPar growth and in our margin expansion in the quarter, we believe that the results are not indicative of the underlying growth and potential for Starwood,” said Barry S. Sternlicht, chairman and chief executive of Starwood. “The results were impacted by unfavorable foreign exchange rates, our aggressive renovation program and our investments in the future. First, though our extraordinary collection of European assets continued strong RevPar growth in local currency terms, with RevPar increasing 10%, European RevPar, when translated into dollars, increased just 6%. Since the end of the quarter, the Euro has strengthened against the dollar.

Second, our assets under renovation are not included in our Comparable Owned Hotel RevPar. Few companies have so many assets that are or will undergo substantial renovations and repositioning. These represent unique potential for growth. The W New York, for example, which is excluded from RevPar statistics, has experienced a 260% increase in RevPar in the quarter and we expect a more than tripling in EBITDA this year compared to the period as the Doral Inn. We have more than a dozen W hotels planned for our owned independent hotels, 6 of which will be completed by the end of the first quarter 2000.

During the second quarter, results in the New England market were particularly impacted by renovations. Such renovations make quarterly numbers difficult and impact overall, not same store, EBITDA margins,” Mr. Sternlicht continued.

“Third, we are investing for our future. Since the launch of our Starwood Preferred Guest™ (SPG) frequency program in February, we have enrolled more than 1.4 million members worldwide. This has created a short-term expense to our owned hotels but we remain confident this investment will translate into longer-term increases in occupancy and enhance Starwood brand loyalty,” Mr. Sternlicht said.

“Going forward, we have a number of exciting innovations and initiatives in the works which we believe will contribute to our results. Based on the completion of extensive market research, we have now clearly delineated our two most important brands, Westin and Sheraton. Each will, in the very near future, launch new advertising campaigns, important product innovations and public relations initiatives coordinated with their renovation programs. Our E-Commerce initiatives are exciting and our purchasing initiatives are also underway, and both should begin to have an impact later this year. Our pipeline of management contracts continues to build momentum on a global basis. All of our brands are performing well and even our newest brand, W Hotels has received tremendous PR support but most importantly performance, is exceeding our expectations. We expect to sign our first three W Hotel management agreements and await the opening of the W Seattle in September, our last wholly owned new build on our balance sheet.

“In the quarter, we positioned the company for growth. With the pending sale of Caesars and the Desert Inn, as well as the sale of the Westin Central Park South, we will pay down our debt by approximately $3.3 billion. This will dramatically improve our balance sheet and create capacity to expand our core business. We have targeted and expect to complete additional asset sales. Proceeds from additional asset sales will be used to finance growth, reduce debt and to opportunistically repurchase our stock under our current board authorization as our stock continues to trade at levels which we do not feel represent the value of the assets of our company.” “To further accelerate growth, in the quarter we also announced the acquisition of Vistana, Inc., one of the premier interval ownership companies in the world, completing a very important missing link in our company’s capabilities. Potential timeshare additions at our owned properties include the Phoenician, the Sheraton Key West, the Westin Mission Hills, the St. Regis Aspen, the Sheraton Harbour Island, the Westin Maui, the Sheraton Bal Harbour and the Desert Inn. We are very excited to be partnered with Vistana,” Mr. Sternlicht concluded.

Renovations and New Construction

During the second quarter, the Company invested approximately $115 million in new construction and capital improvements on hotel assets.

In the second quarter, approximately 137,000 available room nights, or nearly 3.5% of the total available room nights at North America owned properties, were lost due to renovations. Of this number, approximately 100,000 were in owned properties in the New England region. These included the Sheraton Ferncroft Resort in Danvers, MA; the Sheraton Newton, MA; Sheraton Needham, MA; Sheraton Tara in Braintree, MA; Sheraton Framingham, MA; Sheraton Nashua, NH; Sheraton Stamford, CT; Sheraton Boston Hotel Towers; Park Plaza Hotel in Boston.
Major renovations continued in the quarter at the Grand Hotel in Rome (which will be closed for most of 1999), the 1,068 room Westin Peachtree Plaza in Atlanta and six other Westin properties, as well as the 232 room Houston St. Regis. The Company completed on time and on budget, its $67 million lobby renovation and meeting space expansion at the 1,180 room Sheraton Boston, the largest hotel in New England, which completely reopened on July 1, 1999.
In May, the Company opened the 423-room W San Francisco which was completed on time and on budget. In June, its first full month of operation, this property achieved 71% occupancy with an average rate of $203.

Financing

On June 30, 1999, the Company had pro forma total debt of approximately $5.2 billion (assuming the sales of Caesars and the Desert Inn) and cash of approximately $169 million versus $180 million at the end of the prior quarter.  Starwood has no significant debt maturing until November 2000, and the weighted average maturity of the Company’s debt portfolio exceeds five years.

The Company expects to significantly improve its balance sheet by retiring the increasing rate notes with the proceeds from the sales of Caesars and the Desert Inn. At the end of the second quarter, the Company’s debt was approximately 50% fixed and 50% floating. Adjusting for the sale of the Company’s gaming operations, the debt portfolio is expected to shift to approximately 70% fixed and 30% floating.  During the second quarter, the Company declared a dividend of $0.15 per share. The payment reflects Starwood’s new dividend policy of $0.60 per share per year, established as part of the reorganization of the Company to a C-Corporation in January 1999. At the end of the quarter, Starwood had approximately 195 million shares outstanding (including partnership units and exchangeable preferred shares).  Starwood is one of the world’s largest hotel companies which, through its subsidiaries, operates the Sheraton, Westin, St. Regis/Luxury Collection and W brands. Starwood’s portfolio of owned, managed and franchised hotels include approximately 700 hotels in 72 countries with approximately 215,000 rooms. Additional information, including more detailed financial information, is available at the Company’s website at http://www.starwoodhotels.com.

(Note: This release contains certain statements that may be deemed “forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements are no guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated at the time the forward-looking statements are made, including, without limitation, risks and uncertainties associated with the following: the continued ability of Starwood Hotels and Resorts (the “Trust”) to qualify for taxation as a REIT; Starwood’s integration of the assets and operations of ITT and Westin; completion, terms and timing of future acquisitions and dispositions, including the pending sale of gaming operations and the pending acquisition of Vistana, Inc.; the availability of capital for acquisitions and for renovations; execution of hotel and casino renovation and expansion programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on favorable terms; competition within the lodging industry and the gaming industry, the cyclicality of the real estate business, the hotel business and the gaming business; foreign exchange fluctuations; general real estate and national and international economic conditions; political, financial and economic conditions and uncertainties in countries in which Starwood owns property or operates; the ability of Starwood, owners of properties it manages or franchises and others with which it does business to address the Year 2000 issue, and the costs associated therewith; the adoption by several European countries of the euro as their national currency; and the other risks and uncertainties set forth in the annual, quarterly and current reports and proxy statements of the Trust and Starwood. Starwood undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.)

Second Quarter Financial Highlights
  • Pro forma comparable diluted EPS from continuing operations increased 48% to $0.43
  • Pro forma comparable total company EBITDA increased 7%
  • EBITDA increased 6% for 152 comparable owned hotels worldwide; 13% in Europe and 5% in North America
  • REVPAR for 152 comparable owned hotels increased 2.7% worldwide, including a 6.1% increase in Europe (9.9% excluding foreign exchange) and a 2.8% increase in North America
  • 31 managed or franchised hotels with 5,400 rooms opened during the quarter
Contact:
Jim Gallagher, Media
914-640-8194
or Dan Gibson
Investors, 914-640-8175
both of Starwood
Also See: Ted Darnall Named President of North American Hotel Operations at Starwood / July 1999 
Starwood Sells Caesars World, Inc to Park Place Entertainment for $3.0 Billion / April 1999