WHITE PLAINS, N.Y.—(BUSINESS WIRE)—July 24, 2003—Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) (“Starwood” or the “Company”) today reported EPS from continuing operations of $0.42, compared to $0.37 in 2002, an increase of 13.5%.
Excluding special items, EPS from continuing operations was $0.28 in 2003 compared to $0.41 in 2002. Income from continuing operations was $87 million in 2003 compared to $76 million in 2002, an increase of 14.5%. Excluding special items, income from continuing operations was $57 million in 2003 compared to $85 million in 2002. Net income was $290 million and EPS was $1.41 compared to net income of $180 million and EPS of $0.87 in 2002.
Barry S. Sternlicht, Chairman and CEO said, “Though our expectations were quite modest given the situation in Iraq, SARS, and the global slowdown, we are pleased with our performance in the quarter and encouraged with the monthly revenue progression, particularly the strength of transient business in June, and positive recoveries in Asia and Latin America. This strength has continued into July as both web booking trends and call centers remain relatively strong. In the quarter, Westin and W Hotels performed exceedingly well and overall, the Company`s market share rose for the third consecutive quarter. Our global development pipeline is robust, and we were particularly pleased to announce our 21st and 22nd W hotels which are our first hotels and residence projects. Further, Starwood Vacation Ownership had an excellent quarter driven by the Westin branded timeshare products.”
Concluding, Mr. Sternlicht said, “The highlight of our quarter and the first six months of 2003 must be the dramatic strengthening of our balance sheet, as more than $950 million of asset sales have closed. Through asset sales and disciplined capital spending, we expect our net debt to decrease to $4.1 billion by year end from nearly $5.2 billion at year end 2002. Today, we have more than $1.3 billion of capacity on our credit facilities to take advantage of attractive opportunities as they may arise. We are cautiously optimistic that business will improve as we move into the fall and 2004.”
Cash flow from operations was $85 million compared to $253 million in 2002. Total Company Adjusted EBITDA was $247 million, compared to $315 million in 2002 reflecting lower lodging demand as a result of SARS (particularly in Toronto where the Company owns two Sheraton hotels with 1,850 rooms), the war in Iraq, and the timing of the Easter/Passover holidays. Total management and franchise fees were $57 million, even with last year while timeshare results were essentially flat despite the reduced amount of timeshare notes receivable sales. The timeshare note sale gain was $4 million versus $9 million in the year ago quarter.
REVPAR for Same-Store Owned Hotels worldwide and in the U.S. decreased 4.3% and 4.0% respectively, when compared to 2002. REVPAR at Same-Store Owned Hotels in North America, declined 11.7% in April, 3.5% in May and 1.3% in June. Excluding the two owned Sheraton hotels in Toronto, REVPAR at Same-Store Owned Sheraton Hotels in North America declined 4.7%. For the third quarter in a row, total Company market share in North America increased for the Company`s owned and managed hotels as well as system-wide hotels. Internationally, Same-Store Owned Hotel REVPAR decreased 0.5%, with Europe up 1.9% and Asia Pacific up 4.1%, offset by declines in Latin America of 10.5%. Excluding the favorable effects of foreign exchange, REVPAR declined 15.2% internationally.
Revenues from the vacation ownership business increased 13.1% to $111 million as contract sales were up 14.2% reflecting strong demand at our resorts in Maui and Mission Hills. The average price per timeshare unit sold increased 16.6% to $18,007.
During the second quarter, the Company signed nine hotel management and franchise contracts (approximately 4,300 rooms) and opened eight new hotels and resorts including: the Westin Charlotte (Charlotte, North Carolina, 700 rooms), the Sheraton Sonar Bangla (Calcutta, India, 239 rooms), and the Hotel Opera (Zagreb, Croatia, 405 rooms). Nine new hotel openings scheduled for the third quarter of 2003 include: Sheraton Jiuzhaigou Hotel (Jiuzhaigou Scenic Area, China, 492 rooms), the Sheraton Porto (Porto, Portugal, 273 rooms), the Westin Casuarina Hotel, (Las Vegas, Nevada, 795 rooms), the Westin Warsaw (Warsaw, Poland, 361 rooms) and the W Mexico City (Mexico City, Mexico, 237 rooms). Including these properties, through the end of 2003, the Company expects to open 26 new full service hotels and resorts (approximately 7,000 rooms) around the world. Additionally, the development pipeline includes more than a dozen W Hotel projects (3,900 rooms), including the two hotel and residence projects in Dallas and Fort Lauderdale announced earlier this week, and 20 Sheratons and 15 Westins based on our new flexible prototype design (6,100 rooms). During the quarter, the Company announced a joint venture to run the re-themed Aladdin Resort in Las Vegas as a new Planet Hollywood Hotel, a Sheraton Hotel (2,567 rooms) and the future development of up to 600 Westin Vacation Resort timeshare units at the property. The Company will not be the operator of the casino.
During the quarter and continuing into early July, the Company realized $955 million in gross cash proceeds from asset sales, including the sale of the Hotel Principe di Savoia in Milan, Italy (“Principe”) for gross cash proceeds of approximately $315 million, and four hotels and a 51% interest in undeveloped land in Costa Smeralda, Italy, (“Sardinia Assets”) for gross cash proceeds of approximately $340 million in June 2003 (in each case, based on exchange rates at the time of the closing). A pre-tax gain of approximately $193 million was recorded on the sale of the Principe. A pre-tax gain of approximately $9 million was recorded on the sale of the undeveloped land in Sardinia and a pre-tax gain of approximately $82 million was deferred in connection with the sale of the Sardinia hotels due to the Company`s continuing involvement with these assets through long-term management contracts. The Company paid off a 450 million Euro loan with a portion of the proceeds from these Italian asset sales. The operating results of the Principe, together with interest expense related to debt that was retired with the Principe sale proceeds, is classified as discontinued operations in the attached 2003 and 2002 financial statements. In the latter part of June and early part of July, the Company sold 13 non-strategic domestic hotels, the majority of which are subject to franchise agreements, for gross cash proceeds of approximately $300 million. The Company continues to work toward the sale of 5 additional non-core domestic hotels and expects to close these sales later in 2003. These additional sales would bring total proceeds from asset sales in 2003 to approximately $1.1 billion. The Company incurred a $170 million (pre-tax) charge in the first quarter of 2003 and an additional $4 million (pre-tax) charge in the second quarter of 2003 to reflect the actual and expected sales price of these non-core domestic hotels.
Investment spending during the quarter included approximately $36 million in hotel assets; $32 million in VOI capital assets (primarily inventory build), including VOI construction at Westin Mission Hills Resort Villas in Rancho Mirage, California, Sheraton`s Mountain Vista in Avon, Colorado and Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii; and $24 million in other development/corporate capital, including the ongoing development of the St. Regis Museum Tower in San Francisco (269 rooms and 102 condominium units). To date, the Company has invested $115 million in the St. Regis Museum Tower Project, a mixed-use project, which is expected to open in late 2005 or in early 2006. The Company expects to realize gross proceeds of $180 - $200 million from the sale of the project`s condominiums.
At June 30, 2003, the Company had total debt of $5.053 billion and cash and cash equivalents (including restricted cash) of $482 million, or net debt of $4.571 billion, compared to net debt of $5.201 billion at the end of the first quarter of 2003. The net debt amount at June 30 excludes $300 million of gross proceeds from the sales of the domestic hotels completed in early July.
At June 30, 2003, debt was approximately 66% fixed rate and 34% floating rate and its weighted average maturity was 6.2 years with a weighted average interest rate of 5.44%. The Company had cash (including restricted cash) and availability under our domestic and international revolving credit facilities of approximately $1.264 billion.
In May 2003, the Company sold $360 million of convertible bonds paying interest at 3.5% with a conversion price of $50.00 and a maturity date of May 2023. The proceeds were used to pay down debt and for general corporate purposes. Holders may first present their notes to the Company for repurchase in May of 2006.
Further details at www.starwood.com