Starwood Hotels & Resorts (the ``Trust``) and Starwood Hotels & Resorts Worldwide, Inc. (the Corporation) (together ``Starwood`` or the ``Company``) (NYSE: HOT), the world`s largest hotel and gaming company which operates the Sheraton, Westin, St. Regis, Luxury Collection, Ciga and Caesars brands, today announced record combined financial results for the second quarter ended June 30, 1998.
Pro Forma Results:
For the second quarter of 1998, combined pro forma FFO was approximately $259 million or $1.21 per diluted paired share on combined pro forma revenues of $2.3 billion compared to combined FFO of approximately $52 million or $0.86 per diluted paired share on combined revenues of approximately $244 million for the corresponding period in 1997 as reported on an actual basis by Starwood. The pro forma results for the second quarter of 1998 reflect the February 23, 1998 merger (the ``ITT Merger``) of the Company with ITT Corporation (``ITT``) as if the ITT Merger had occurred on January 1, 1998 and assumes the sale of a number of previously announced non-core businesses with total gross proceeds of approximately $3.4 billion, of which approximately $2.7 billion has been realized.
For the first half of 1998, combined pro forma FFO was $405 million, or $1.91 per diluted paired share on revenues of $4.4 billion, an increase of 30% over combined pro forma FFO of $1.47 per paired share for the first six months of 1997 as actually reported by Starwood.
Hotel Group Results:
On a same-store-sales basis, results for the second quarter of 1998 at the Company`s owned and leased hotels worldwide with comparable results, reflect an increase in revenues of 7% to $751 million from $700 million in 1997, an increase in EBITDA margins to 34.3% from 31.0%, and an increase in EBITDA of 19% to $257 million from $217 million in 1997. For the quarter, REVPAR for these owned hotels increased 9.2% to $107. The increase in REVPAR was due to the increase in ADR of 7.8% to $144 and a 1 point increase in occupancy to 74%.
Pro forma EBITDA contribution from managed and franchised hotels and other hotel income increased to $73 million for the second quarter from $43 million in the prior period primarily due to increased management, franchise and other fees and reduced operating costs.
``Starwood is a unique company uniquely positioned at this point in the cycle,`` said Barry Sternlicht, Chairman & CEO of Starwood Hotels & Resorts. ``Our businesses performed very well during the quarter. Our substantial REVPAR growth is a tribute to the upscale, urban and geographic distribution of our owned hotel asset base, and the global nature of our income stream. Indeed, approximately 2/3 of all hotel related EBITDA is generated domestically and the balance internationally. With the U.S. continuing to excel, our significant strength in Europe and Latin America, where same store EBITDA grew 30% and 33% respectively in the quarter, offset weakness in Asia. Domestically, our 60 owned hotels in New England, MidAtlantic and Pacific regions, markets with particularly high barriers to entry, generate about 60% of our domestic lodging EBITDA,`` he continued. ``Margin expansion and REVPAR growth, achieved without the full benefit of three hotels in New York and one in Boston, perhaps the nation`s two strongest markets, offset the disruptions caused by 11 flag changes, and a 7% point lower hold year over year in Baccarat. In addition, the Company`s interest in Ciga has appreciated approximately $400 million since the beginning of the year and our interest in ESI has risen more than $80 million since our secondary offering in May,`` Mr. Sternlicht said.
``While we have made tremendous progress on the integration of Sheraton, Westin and Caesars into our company, there is still much work to be done,`` said Richard Nanula, president and chief executive. ``We expect to achieve additional benefits from the mergers during the second half of the year and beyond. We are only just beginning to work as a unified force and are more convinced than ever that the benefits of cross-selling, improved marketing and the implementation of numerous efficiency measures will produce significant benefits. Our hotel capital expenditures program will soon accelerate to properly position our assets and ensure market leading REVPAR growth into the near future.``
As of June 30, 1998 the Company`s portfolio of owned, managed and franchised hotels totaled approximately 650 hotels in 70 countries with over 210,000 rooms. During the quarter, the Company signed 19 new third party management and franchise agreements for its various brands bringing the total for the first half to 49 with 20 additional agreements expected in the third quarter. Moreover, management contracts were previously executed relating to an additional 6 full service Westins which are currently under construction and expected to be opened by the end of 1999.