Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the fourth quarter of 2003 of $0.42 compared to $0.44 in 2002. Excluding special items, EPS from continuing operations was $0.42 for the fourth quarter of 2003 compared to $0.24 in 2002. Income from continuing operations was $88 million in 2003 compared to $89 million in 2002. Excluding special items, income from continuing operations was $87 million for the fourth quarter of 2003 compared to $48 million in 2002. Net income (including discontinued operations) was $87 million and EPS was $0.42 in 2003 compared to net income of $91 million and EPS of $0.45 in 2002. Fourth quarter results reflect a 2.8% tax benefit as compared to a 5.0% tax benefit forecast at the end of the third quarter of 2003.
EPS from continuing operations for the full year ended December 31, 2003 was $0.51 compared to $1.22 in 2002. Excluding special items, EPS from continuing operations was $0.86 in 2003 compared to $1.00 in 2002. Income from continuing operations was $105 million in 2003 compared to $251 million in 2002. Excluding special items, income from continuing operations was $176 million in 2003 compared to $206 million in 2002. Net income (including discontinued operations) was $309 million and EPS was $1.50 in 2003 compared to net income of $355 million and EPS of $1.73 in 2002. The full year 2003 results reflect a 3.9% tax benefit as compared to a 14.2% tax expense for the full year 2002.
Barry S. Sternlicht, Chairman and CEO said, “The positive trends we saw emerge in September continued through the fourth quarter as the weakness in group business was more than offset by continued strength in business transient, powered by significant market share gains in nearly every brand in our system. These trends, combined with very strong results in our timeshare operations and in our management and franchise fees, are encouraging and we are generally pleased with our performance. While we carefully pruned major capital investments the past two years in the face of the recession, war and SARS, our relative performance and growth into 2004 is, we believe, attributable to investments in our product innovations, like our suite of Heavenly products for Westin, the Sheraton Sweet Sleeper and Service Promise, our aggressive PR campaigns (such as Starwood Love That Dog), critical technology investments in CRM, database management, call center technology, and sales, in other operational areas, and to our very committed team. These initiatives have won share and increased guest satisfaction and loyalty. Indeed, without the major unanticipated increases in workers compensation, our performance and margin growth in the fourth quarter would have been much better.”
“Moving into 2004, we anticipate a full slate of new innovations both on the technology and product side, as well as core investments in productivity enhancements at the functional level which will drive significant increases in profitability in `04 and `05. The W brand will build upon its superior performance with the introduction of Bliss Spas while our new product line extensions for St. Regis into fractional and residential markets will add new avenues of growth globally.”
Concluding, Mr. Sternlicht said, “It is indeed remarkable that given the long war and SARS impact on our global enterprise, that revenue for the year was actually up (excluding asset sales). The combination of this factor, the momentum apparent in our brand strength, the benefit of the strategic investments we have made the last several years including our recent investment in Meridien Hotels, Bliss Spas and our sales pace in Starwood Vacation Ownership, allow us to increase 2004 expectations for earnings and cash flow significantly. Our global pipeline has perhaps never been deeper or of higher quality. We are in a position to more actively manage our asset base to significantly increase our return on invested capital.”
Cash flow from operations in the fourth quarter of 2003 was $245 million compared to $145 million in 2002. Total Company Adjusted EBITDA in the fourth quarter of 2003 was $271 million compared to $266 million in 2002. EBITDA in 2002 included approximately $11 million from assets sold during the first three quarters of 2003. Total management and franchise fees in the fourth quarter were $73 million, up $7.7 million, or 12%, from last year and vacation ownership revenue, which exclude gains on sales of notes receivables, was up $19.9 million in the fourth quarter of 2003 when compared to 2002.
REVPAR for Same-Store Owned Hotels worldwide and in North America increased 6.6% and 4.7%, respectively, when compared to 2002. Transient travel was up more than 11% in North America when compared to 2002, more than offsetting weakness in group travel. For the fifth 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 (owned, managed and franchised) hotels. REVPAR at Same-Store Owned Hotels in North America increased 9.9% at W, 5.4% at Sheraton, 4.8% at St. Regis/Luxury Collection, and 3.2% at Westin. REVPAR was particularly strong at the Company`s owned hotels in New York, San Diego, Toronto, Washington D.C., Maui, Philadelphia and Chicago. REVPAR was weaker at owned hotels in San Francisco, Seattle and Boston. Internationally, Same-Store Owned Hotel REVPAR increased 12.6%, with Europe up 8.8%, Asia Pacific up 53.9%, and Latin America up 5.6%. Excluding the favorable effects of foreign exchange, REVPAR decreased 2.7% internationally.
Systemwide branded REVPAR for Same-Store Hotels in North America increased 3.4%: W Hotels +9.6%, St. Regis/Luxury Collection +6.3%, Westin +4.2%, Sheraton +2.1%, and Four Points by Sheraton +1.9%.
Cash flow from operations for the year ended 2003 was $771 million compared to $706 million in the year ended 2002. Total Company Adjusted EBITDA for the year ended 2003 was $938 million compared to $1.078 billion in 2002. Total management and franchise fees were $250 million for the year ended December 31, 2003, up $18.3 million from last year. Vacation ownership revenues, which exclude gains on sales of notes receivables, were up $85.4 million in 2003 when compared to 2002. REVPAR for Same-Store Owned Hotels worldwide increased 1.3% for 2003 when compared to 2002. REVPAR for Same-Store Owned Hotels in North America was flat in 2003 when compared to 2002.
Revenues from the vacation ownership business increased 21.5% to $112.0 million in the fourth quarter of 2003 when compared to 2002 as contract sales were up 37.6% reflecting strong demand at our resorts in Maui, Scottsdale and Orlando. The average price per timeshare unit sold increased approximately 21.2% to $19,683, and the number of contracts sold increased approximately 13.5% in the fourth quarter of 2003 when compared to 2002. During the fourth quarter of 2003, the Company sold $60 million of vacation ownership notes receivables recognizing gains of $9 million as compared to gains of $3 million in the same period of 2002 (for the year ended December 31, 2003, gains on vacation ownership notes receivables were approximately $15 million, comparable with the prior year). During the quarter, the Company held the grand opening of the Westin Ka`anapali vacation ownership resort. The first phase of the resort (103 units) was sold out prior to opening. Also during the quarter, the Company announced a brand extension and fractional product with the St. Regis Aspen Residence Club (25 units).
During the fourth quarter, the Company signed 25 hotel management and franchise contracts (representing approximately 5,800 rooms), including the St. Regis Resort and Residences in Anguilla, and the St. Regis in Singapore (400 rooms), and opened seven new hotels and resorts including: the Sheraton Porto (Porto, Portugal, 269 rooms), and the W Mexico City (Mexico City, Mexico, 237 rooms). The Company expects to open 25 new full service hotels and resorts (approximately 8,200 rooms) around the world in 2004. The Company had approximately 115 hotels and approximately 34,000 rooms in its active global development pipeline at December 31, 2003 with roughly one half of that number in international locations.
As part of its disposition strategy for non-core domestic hotels, the Company completed the sale of the Sheraton North Charleston in October 2003. The Company incurred a $178 million (pre-tax) charge in the first three quarters of 2003 related to an impairment charge on 18 non-core domestic hotels that were held for sale, 16 of which have been sold. During the fourth quarter of 2003, an additional $3 million (pre-tax) charge was incurred, related to post-closing adjustments to the sales price of 16 non-core domestic hotels. The remaining 2 hotels not sold are not being marketed for sale at this time. The Company realized approximately $1.1 billion in cash proceeds in 2003 from the sale of these 16 hotels with 4,754 rooms, and the sales in the second quarter of 2003 of the Hotel Principe di Savoia in Milan, Italy (404 rooms) and four hotels (382 rooms) and a 51% interest in undeveloped land in Costa Smeralda, Italy.
Gross capital spending during the quarter included approximately $75 million in hotel assets including $6 million for the renovation of the Company`s flagship Sheraton Hotel and Towers in New York; $35 million in VOI capital assets (primarily inventory build), including VOI construction at Westin Ka`anapali Ocean Resort Villas in Maui, Hawaii; Westin Mission Hills Resort Villas in Rancho Mirage, California and Westin Kierland Villas in Scottsdale, Arizona; and $60 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 $146 million in the St. Regis Museum Tower Project, a mixed-use project, which is expected to open in mid-2005. The Company expects to realize gross proceeds of approximately $200 million from the sale of the project`s condominiums. The Company expects to begin taking reservations for these condominiums in the second quarter of 2004.
In addition, during the fourth quarter of 2003, the Company funded its approximate $200 million share of an acquisition of the outstanding senior debt of the Le Meridien Hotels and Resorts group through a high yield junior participation agreement with a subsidiary of Lehman Brothers Holdings Inc. (“Lehman”). The total senior debt of Le Meridien was approximately $1.3 billion and was acquired by Lehman and Starwood at a discount. The Le Meridien portfolio includes more than 120 upscale hotels and resorts with significant concentration in major European cities and resort destinations. As part of this funding, Lehman and Starwood entered into an exclusive agreement to negotiate the recapitalization of Le Meridien in the coming months.
For the quarter ended December 31, 2003, the Company repurchased 818,700 shares at a total cost of approximately $27.5 million. At December 31, 2003, approximately $606 million remained available under the Company`s Board authorized share repurchase program. At December 31, 2003, Starwood had approximately 204 million shares outstanding (including partnership units and exchangeable preferred shares).