Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) (“Starwood” or the “Company”) today reported results for the first quarter of 2002.
- EPS, excluding special items, was $0.08 compared to $0.30 in 2001. Including special items, EPS was $0.16 compared to $0.30 in 2001 - Total revenues, excluding other revenues from managed and franchised properties, decreased 11.8%. Revenue per available room (“REVPAR”) for Same-Store Owned Hotels decreased 15.3% in North America and 16.2% worldwide when compared to 2001 - Total Company EBITDA was $228 million compared to $335 million in 2001. EBITDA at Comparable Owned Hotels worldwide decreased 29.8% to $190 million. EBITDA at Comparable Owned Hotels in North America decreased 29.0% to $152 million - Total Company EBITDA margin was approximately 25.5%. EBITDA margin at Comparable Owned Hotels in North America was 27.3%, up 270 basis points from the fourth quarter of 2001.
Excluding net benefits for special items of $23 million in 2002 and net benefits of $1 million in 2001, EPS was $0.08 compared to EPS of $0.30 in the corresponding period of 2001. Including these special items, EPS was $0.16 compared to EPS of $0.30 in 2001. Total revenues were down 11.8% to $894 million compared to the same period of 2001. Operating income, excluding special items, was $101 million compared to $192 million in the same period of 2001 and net income, excluding special items, was $17 million compared to $61 million in the same period of 2001. Though in line with the Company`s expectations, results were adversely impacted by the weakened worldwide economic environment and the shift of the negative impact of the Passover/Easter holiday from the second quarter in 2001 to the first quarter in 2002. However, operating results were significantly improved when compared to the fourth quarter of 2001 as a result of an improving demand environment, a continued focus on cost control and a significant increase in vacation ownership interest (“VOI”) results. Depreciation expense increased when compared to the first quarter of 2001 due to the continued renovation program and the repositioning and acquisition of certain hotels. Results further benefited from reduced interest expense resulting from a reduction in interest rates and the completion of financing transactions in the past year and a $16.0 million after-tax reduction in goodwill amortization as a result of a new accounting rule pertaining to goodwill and intangible assets.
Barry S. Sternlicht, Chairman and CEO said, “We were generally pleased with our first quarter performance. More importantly, trends are encouraging as REVPAR improved sequentially nearly every week up to the Passover/Easter holiday period and into April. Combined with tight cost controls, we now expect to exceed our earlier forecasts and feel comfortable raising our annual estimates. The important New York City market is recovering well and Europe and Asia appear likely to exceed our original expectations. Conditions remain challenging in South America. Our owned portfolio is concentrated in the larger urban markets which have been disproportionately impacted by the air travel situation and the continued slowdown in business and international travel. We are, however, very encouraged by the declining trends in new construction and perhaps the discipline for new supply that new investor scrutiny of off-balance-sheet financing will bring. Our brand momentum is strong, our guest satisfaction scores are increasing across all brands, our management and franchise business is expanding under difficult conditions and without much balance sheet support, particularly in the Asian markets where we have secured valuable contracts, the St. Regis` team is seasoning and we are very pleased with terrific results from our interval ownership projects. In the quarter, we also launched a new Westin advertising campaign and recently announced the launch of our latest initiatives behind Sheraton.”
Concluding, Mr. Sternlicht said, “We are pleased to have completed the $1.5 billion senior notes offering and expect to complete a new bank facility in the coming months to refinance all remaining near-term maturities. We are actively working with potential buyers of CIGA assets and would expect to enter binding agreements in the next few months subject to tax and other structuring issues.”
At the Company`s Comparable Owned Hotels worldwide, revenues decreased approximately $136 million to $719 million from $855 million in 2001 and EBITDA decreased 29.8% to $190 million from $271 million in 2001. EBITDA at the Company`s Comparable Owned Hotels in North America decreased 29.0% to $152 million when compared to the same period of 2001. EBITDA at the Company`s Comparable Owned Hotels internationally decreased 32.6% to approximately $38 million when compared to the same period of 2001 (a 26.7% decrease excluding the unfavorable effects of foreign exchange). The decline in operating results at Comparable Owned Hotels in North America when compared to 2001 reflect the impact of lower REVPAR primarily attributable to the weakened global economies.
REVPAR at Same-Store Owned Hotels worldwide decreased 16.2% when compared to the same period of 2001 as a result of a decline in occupancy rates of 580 basis points to 60.9% and a decline in average daily rate (“ADR”) of 8.3% from the prior year. REVPAR at Same-Store Owned Hotels in North America decreased 15.3% to $93.94 when compared to the same period of 2001 as a result of a decrease in occupancy rates to 61.6% from 67.1% in the prior year, while ADR decreased 7.8% to $152.43. Internationally, Same-Store Owned Hotel REVPAR decreased 19.5%.
EBITDA margins at Comparable Owned Hotels worldwide decreased to 26.5% when compared to 31.7% in the same period of 2001. In North America, EBITDA margins at Comparable Owned Hotels decreased to 27.3% when compared to 32.5% in the same period of 2001 but increased 270 basis points when compared to 24.6% in the fourth quarter of 2001. Internationally, EBITDA margins at Comparable Owned Hotels decreased to 23.8% when compared to 29.1% in the same period of 2001 but increased 170 basis points when compared to 22.1% in the fourth quarter of 2001.
During the first quarter of 2002, the Company added nine management and franchise contracts representing approximately 2,500 rooms, including the Sheraton Krabi Beach Resort (246 rooms) in Krabi, Thailand; the Westin Miyako Kyoto (516 rooms) in Kyoto, Japan; and the Four Points Seoul (269 rooms) in Seoul, Korea. Through the end of 2003, the Company`s backlog of quality hotels and resorts around the world includes 47 new destinations with more than 14,000 rooms.
Starwood Vacation Ownership, Inc. (“SVO”) currently has 15 interval ownership resorts in its portfolio. SVO is selling VOI inventory at ten resorts and engaged in pre-opening sales at two others currently under construction (Westin Mission Hills Resort Villas in Rancho Mirage, California and Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii). Sales in the first quarter were particularly strong at the Maui and Mission Hills resorts. SVO will begin construction of its fourth Westin-branded interval ownership resort later this year featuring 158 villas located adjacent to the Westin Kierland Resort & Spa in Scottsdale, Arizona. The resort is scheduled to open in late 2002. The Company did not sell any notes receivable originated by the vacation ownership operations in the first quarter of 2002.
The Company continues to review its portfolio for disposition candidates. In January, the Company announced that it had initiated the formal sale process for the CIGA portfolio of 25 luxury hotels, land, golf courses and marinas. The Company has reviewed indications of interest, is working toward binding agreements, and expects to enter into contracts for sale in the next few months.
During the first quarter of 2002, the Company invested approximately $58 million in capital assets, including completion of the W Times Square, the guest room and lobby renovation at the Westin Excelsior in Rome (316 rooms) and VOI construction at Westin Mission Hills Resort Villas in Rancho Mirage, California and Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii as well as the ongoing development of the St. Regis Museum Tower in San Francisco (269 rooms and 102 condominiums) scheduled for completion in 2004. Work also continues on the new Sheraton prototype. The Company spent an additional $14 million on other hotel investments including completion of the buyout of its minority partners at the W Los Angeles and minority investments in a number of new hotel projects including the W Mexico City (228 rooms) and the W San Diego (261 rooms).
On March 31, 2002, the Company had total debt of $5.566 billion and cash and cash equivalents of $174 million. At the end of the first quarter of 2002, after giving effect to the Senior Notes Offering and related termination of certain floating interest rate swaps and new fixed interest rate swaps described below, the Company`s debt was approximately 56% fixed rate and 44% floating rate and its weighted average maturity was 6.1 years. As of March 31, 2002, the Company had cash and availability under its domestic and international revolving credit facilities of approximately $731 million and the Company`s debt had a weighted average interest rate of 5.26% (5.47% after giving effect to the Senior Notes Offering).
In December 2001, the Company entered into an 18-month 450 million Euro loan with an interest rate of Euribor plus 195 basis points. The proceeds of the Euro loan were drawn down in two tranches; the first 270 million Euros was drawn down in December and used to repay the previously outstanding 270 million Euro facility and the remaining 180 million Euros was drawn down in January 2002 and the proceeds were used to pay down a portion of the Company`s domestic revolving credit facility. In April 2002, the Company sold $1.5 billion of senior notes in two tranches—$700 million principal amount of 7-3/8% senior notes due 2007 and $800 million principal amount of 7-7/8% senior notes due 2012 (the “Senior Notes Offering”). The Company used the proceeds to repay all of its senior secured notes facility and a portion of its senior credit facility. The Company expects to refinance the senior credit facility over the coming months. In connection with the repayment of debt with the senior notes offering proceeds and the anticipated refinancing of the remaining senior credit facility, the Company expects to incur approximately $30 million of one-time charges in the second quarter. These charges relate to the write-off of deferred financing costs, termination fees for the early extinguishment of debt, and terminated interest rate swaps associated with the repaid debt. At March 31, 2002, Starwood had approximately 202 million shares outstanding (including partnership units and exchangeable preferred shares).