Exhibit 99.1

 

 

STARWOOD REPORTS SECOND QUARTER

2016 RESULTS

STAMFORD, Conn. (July 26, 2016) – Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported second quarter 2016 financial results.

Second Quarter 2016 Highlights

 

---

Second Quarter 2016 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported a loss per share from continuing operations for the second quarter of 2016 of $0.20 compared to EPS of $0.69 in the second quarter of 2015. Excluding special items, EPS from continuing operations was $0.71 for the second quarter of 2016 compared to $0.69 in the second quarter of 2015.

Special items in the second quarter of 2016 consisted primarily of losses on asset dispositions and impairments of $114 million ($145 million after-tax) and restructuring and other special charges of $16 million ($10 million after-tax). Special items in the second quarter of 2015 totaled a benefit of $1 million (after-tax). Excluding special items, the effective income tax rate in the second quarter of 2016 was 33.7% compared to 28.2% in the second quarter of 2015, primarily due to the mix and timing of pretax income.

The loss from continuing operations in the second quarter of 2016 was $35 million, including the $114 million loss on asset dispositions and impairments discussed above, compared to income from continuing operations of $118 million in the second quarter of 2015. Excluding special items, income from continuing operations was $121 million in the second quarter of 2016 compared to $117 million in the second quarter of 2015.

On May 11, 2016 the Company completed the spin-off of Vistana and merger of Vistana with and into a subsidiary of ILG immediately following the spin-off through a Reverse Morris Trust transaction.  As a result, the operations of Vistana and the five hotels sold or otherwise conveyed to ILG through the date of the transaction were reclassified to discontinued operations for all periods presented. The loss from discontinued operations was $228 million after tax in the second quarter of 2016 which included a non-cash pre-tax impairment charge of $214 million and $30 million in transaction costs, partially offset by net income from vacation ownership and the five hotels sold or otherwise conveyed to ILG.  In the second quarter of 2015, the income from discontinued operations was $18 million which included transaction costs of $11 million.

Net loss was $263 million and $1.56 per share in the second quarter of 2016, compared to income of $136 million and $0.79 per share in the second quarter of 2015.

Thomas Mangas, Chief Executive Officer of the Company, said, “Across virtually every measure that matters to our business, we delivered on or exceeded our goals.  Our hotel openings year to date are 15% ahead of last year, and our net rooms growth remains in our target range of 4 to 5%.  Developer demand for our brands is strong, and with the record 120 contracts representing 21,400 rooms we signed this quarter, our pipeline increased nearly 12%.  We were pleased to deliver core fee growth in line with our expectations, and on an absolute basis, our core fees in the second quarter have never been higher.

“Thanks to strong performance at our owned hotels and lower SG&A, we delivered Adjusted EBITDA well ahead of our expectations.  We continued to deliver against our asset light strategy with the sales of two hotels in the quarter, another sale in July, and the completion of the Vistana transaction.  All the while, our teams have been hard at work planning the integration of Starwood and Marriott.  Our achievements reflect the true spirit and capability of the associates at Starwood.   Their dedication and focus on delivering unparalleled service and value to our guests and hotel owners is what makes our brands and hotels great.”

Alan Schnaid, Chief Financial Officer of the Company, said, “Global lodging fundamentals remain strong, however, growth rates in 2016 have been lower than was expected at the beginning of the year.  Despite the lower rate of growth, our company continues to perform very well.  We continue to outperform the competition, with gains in REVPAR Index in each of our three divisions.

“Looking ahead to the next two quarters, we expect current trends in global lodging to continue.  This slower rate of REVPAR growth will contribute to lower fee growth in the second half of 2016 than previously expected.   However, we expect that the strong performance of our owned hotels in the first half of the year and our lower SG&A will offset the impact of lower fee growth and partially offset both the loss of earnings from the hotels we sold this year and the impact of foreign exchange.”

 

 

2

---

 

Six Months Ended June 30, 2016 Earnings Summary

Income from continuing operations was $38 million in the six months ended June 30, 2016 compared to $193 million in the same period in 2015.  Excluding special items, income from continuing operations was $207 million in the six months ended June 30, 2016 compared to $199 million in the same period in 2015.

Loss from discontinued operations was $211 million in the six months ended June 30, 2016 compared to income of $42 million in the same period in 2015.

Net loss was $173 million and $1.02 loss per share in the six months ended June 30, 2016 compared to income of $235 million and $1.37 per share in the same period in 2015.

Adjusted EBITDA was $578 million in the six months ended June 30, 2016 compared to $585 million in the same period in 2015.

3

---

Second Quarter 2016 Operating Results

Management and Franchise Revenues

Worldwide Systemwide REVPAR for Same-Store Hotels increased 1.4% in constant dollars (increased 0.7% in actual dollars) compared to the second quarter of 2015. International Systemwide REVPAR for Same-Store Hotels decreased 1.4% in constant dollars (decreased 2.5% in actual dollars).

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by region:

 

 

Changes in REVPAR for Worldwide Systemwide Same-Store Hotels by brand:

 

Worldwide Same-Store Company-Operated gross operating profit margins decreased approximately 20 basis points compared to 2015. International gross operating profit margins for Same-Store Company-Operated properties decreased approximately 55 basis points. North American Same-Store Company-Operated gross operating profit margins increased approximately 15 basis points.

Management fees, franchise fees and other income were $273 million, up $18 million, or 7.1% compared to the second quarter of 2015. Core fees increased 3.9% or $8 million. Other management and franchise revenues increased 15.2% or $7 million, primarily due to license fees from ILG associated with the vacation ownership business since the spin-off date.

Development

During the second quarter of 2016, the Company signed 120 hotel management and franchise contracts, representing approximately 21,400 rooms, of which 101 are new builds and 19 are conversions from other brands. At June 30, 2016, the Company had approximately 640 hotels in the active pipeline representing approximately 132,000 rooms.

During the second quarter of 2016, 20 new hotels and resorts (representing approximately 4,200 rooms) entered the system, including The St. Regis Kuala Lumpur, (Malaysia, 208 rooms), Le Méridien Singapore, Sentosa (Singapore, 191 rooms), W Dubai Al Habtoor City (United Arab Emirates, 423 rooms), Sheraton Grand Hangzhou Binjiang Hotel (China, 301 rooms) and Aloft Guangzhou Tianhe (China, 496 rooms). During the quarter, four properties (representing approximately 1,000 rooms) were removed from the system.

4

---

Owned Hotels

Worldwide REVPAR at Starwood Same-Store Owned Hotels increased 4.0% in constant dollars (increased 3.9% in actual dollars) when compared to 2015. REVPAR at Starwood Same-Store Owned Hotels in North America increased 7.2% in constant dollars (increased 5.9% in actual dollars). Internationally, Starwood Same-Store Owned Hotel REVPAR decreased 0.9% in constant dollars (increased 0.7% in actual dollars).

Revenues at Starwood Same-Store Owned Hotels Worldwide increased 3.4% in constant dollars (increased 3.4% in actual dollars) while costs and expenses increased 1.3% in constant dollars (increased 1.3% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 150 basis points compared to 2015.

Revenues at Starwood Same-Store Owned Hotels in North America increased 6.7% in constant dollars (increased 5.4% in actual dollars) while costs and expenses increased 4.2% in constant dollars (increased 3.1% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 170 basis points compared to 2015.

Internationally, revenues at Starwood Same-Store Owned Hotels decreased 1.6% in constant dollars (increased 0.1% in actual dollars) while costs and expenses decreased 3.3% in constant dollars (decreased 1.5% in actual dollars) when compared to 2015. Margins at these hotels increased approximately 120 basis points compared to 2015.

Revenues at Owned Hotels, which were negatively impacted by asset sales since the second quarter of 2015, were $291 million, compared to $332 million in 2015. Expenses at Owned Hotels were $216 million compared to $248 million in 2015.

Selling, General, Administrative and Other

During the second quarter of 2016, selling, general, administrative and other expenses (“SG&A”) decreased 6.1% to $93 million compared to $99 million in 2015 including the impact of various cost savings initiatives.

Restructuring and Other Special Charges

During the second quarter of 2016, the Company recorded $16 million of other special charges primarily consisting of $15 million in costs associated with the planned Marriott transaction.

Capital

Gross capital spending during the quarter included approximately $25 million of maintenance capital and $19 million of development capital.

Asset Sales

During the second quarter of 2016, the Company completed the sale of The St. Regis Florence and The Westin Excelsior Florence for cash proceeds of approximately $213 million, subject to long-term management agreements. The sales of these last remaining wholly-owned hotels in Italy resulted in a pre-tax gain of $112 million. This pre-tax gain was more than offset by the recognition of a $202 million cumulative foreign currency translation adjustment loss associated with the Company’s historical hotel operations in Italy.

In July 2016, the Company completed the sale of its leasehold interest in the Sheraton Paris Airport Hotel & Conference Centre for approximately $11 million, subject to a long-term management agreement.

Dividend

On May 6, 2016, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on June 3, 2016 to stockholders of record as of May 20, 2016. The total dividends paid in the second quarter of 2016 were approximately $63 million.

5

---

Balance Sheet

At June 30, 2016, the Company had gross debt of $2.4 billion, cash and cash equivalents of $1.6 billion (including $19 million of restricted cash) and net debt of $0.8 billion, compared to net debt of $1.1 billion as of December 31, 2015.

ILG Transaction

On May 11, 2016, the Company completed the spin-off of Vistana, its former vacation ownership business, and merger of Vistana with and into a subsidiary of ILG immediately following the spin-off, through a Reverse Morris Trust transaction (the “Transactions”). In connection with the Transactions the Company’s stockholders received approximately 72.4 million of ILG shares valued at $14.385 per share.  In addition, ILG paid the Company approximately $123 million in cash, resulting in total stock and cash consideration of approximately $1.2 billion. As a result of the Transactions, the operations of Vistana and the five hotels sold or otherwise conveyed to ILG in connection with the Transactions through the date of completion of the Transactions were reclassified to discontinued operations for all periods presented. The loss from discontinued operations was $228 million after tax in the second quarter of 2016 which included a non-cash pre-tax impairment charge of $214 million and $30 million in transaction costs, partially offset by net income from vacation ownership and the five hotels.  In the second quarter of 2015, the income from discontinued operations was $18 million which included transaction costs of $11 million.

Marriott Transaction

On April 8, 2016, the Company and Marriott held special stockholder meetings at which the stockholders of the Company and Marriott approved proposals relating to Marriott’s acquisition of the Company. At closing, the Company’s stockholders will receive 0.80 shares of Marriott common stock and $21.00 in cash for each share of the Company’s common stock. The Marriott transaction is expected to close in the coming weeks and is subject to regulatory approval in China and the satisfaction of other customary closing conditions.

6

---

Outlook

 

For the three months ended September 30, 2016:

 

For the three months ended December 31, 2016:

 

 

7

---

Special Items

The Company’s special items included a pre-tax charge of $130 million ($156 million after-tax) in the second quarter of 2016 compared to a pre-tax charge of $12 million (a gain of $1 million after-tax) in the same period of 2015.

The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):

 

 

 

The Company has included the above supplemental information concerning special items to assist investors in analyzing Starwood’s financial position and results of operations. The Company has chosen to provide this information to investors to enable them to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of core ongoing operations.

8

---

Due to the planned merger with Marriott, the Company will not host a conference call for its second quarter financial results.

Definitions

All references to EPS, unless otherwise noted, reflect earnings (losses) per diluted share from continuing operations attributable to Starwood’s common stockholders. All references to continuing operations, discontinued operations and net income reflect amounts attributable to Starwood’s common stockholders (i.e., excluding amounts attributable to noncontrolling interests). EBITDA represents net income before interest expense, taxes, depreciation and amortization. The Company believes that EBITDA is a useful measure of the Company’s operating performance due to the significance of the Company’s long-lived assets and level of indebtedness. EBITDA is a commonly used measure of performance in its industry which, when considered with GAAP measures, the Company believes gives a more complete understanding of the Company’s operating performance. It also facilitates comparisons between the Company and its competitors. The Company’s management has historically adjusted EBITDA (i.e., “Adjusted EBITDA”) when evaluating operating performance for the Company, as well as for individual properties or groups of properties, because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items, such as restructuring and other special charges (credits) and gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. The Company’s management also uses Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. The Company has historically reported this measure to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and provides a means to evaluate the results of its core ongoing operations. EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and such metrics should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may be different from the calculations used by other companies and, therefore, comparability may be limited.

All references to Owned or Owned Hotels reflect the Company’s owned, leased, and consolidated joint venture hotels. All references to Same-Store Owned Hotels reflect the Company’s owned, leased and consolidated joint venture hotels, excluding condo hotels, hotels sold to date and hotels undergoing significant repositionings or for which comparable results are not available (i.e., hotels not owned during the entire periods presented or closed due to seasonality or natural disasters). References to Company-Operated Hotel metrics (e.g., REVPAR) reflect metrics for the Company’s Owned and managed hotels. References to Systemwide metrics (e.g., REVPAR) reflect metrics for the Company’s Owned, managed and franchised hotels. REVPAR is defined as revenue per available room. ADR is defined as average daily rate.

All references to revenues in constant dollars represent revenues excluding the impact of the movement of foreign exchange rates. The Company calculates revenues in constant dollars by calculating revenues for the current year using the prior year’s exchange rates. The Company uses this revenue measure to better understand the underlying results and trends of the business, excluding the impact of movements in foreign exchange rates.

All references to earnings from the vacation ownership business and earnings from hotels represent operating income before depreciation expense. All references to management and franchise revenues represent base and incentive fees, franchise fees, amortization of deferred gains resulting from the sales of hotels subject to long-term management contracts, license fees associated with vacation ownership and termination fees. All references to core fees represent total management and franchise fees.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 1,300 properties in some 100 countries and approximately 188,000 employees at its owned and managed properties. Starwood is a fully integrated owner, operator and franchisor of hotels, resorts and residences under the renowned brands: St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Tribute Portfolio™, Four Points® by Sheraton, Aloft®, and Element®, along with an expanded partnership with Design Hotels™. The Company also boasts one of the industry’s leading loyalty programs, Starwood Preferred Guest (SPG®). Visit www.starwoodhotels.com for more information and stay connected @starwoodbuzz on Twitter and Instagram and facebook.com/Starwood. For more information, including reconciliations of non-GAAP financial measures to GAAP financial measures, please visit www.starwoodhotels.com or contact Investor Relations at (203) 351-3500.

9

---

Cautionary Statement Regarding Forward Looking Statements

This communication includes “forward-looking” statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (“SEC”) in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding Starwood’s and Marriot’s expectations, beliefs, hopes, intentions or strategies regarding the future. Among other things, these forward-looking statements may include statements regarding the proposed combination of Starwood and Marriott; our beliefs relating to value creation as a result of a potential combination with Marriott; the expected timetable for completing the transactions; benefits and synergies of the transactions; future opportunities for the combined company; and any other statements regarding Starwood’s and Marriott’s future beliefs, expectations, plans, intentions, financial condition or performance. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, our relationships with associates and labor unions, our ability to consummate potential acquisitions or dispositions or realize the anticipated benefits of such transactions, and those disclosed as risks in other reports filed by us with the SEC, including those described in Part I of our most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K as well as on Marriott’s most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K and those discussed in the joint proxy statement/prospectus included in the registration statement on Form S-4 (Reg. No. 333-208684) filed by Marriott with the SEC on December 22, 2015 and the amendments thereto. Other risks and uncertainties include the timing and likelihood of completion of the proposed transactions between Starwood and Marriott, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed transactions that could reduce anticipated benefits or cause the parties to abandon the transactions; the possibility that the expected synergies and value creation from the proposed transactions will not be realized or will not be realized within the expected time period; the risk that the businesses of Starwood and Marriott will not be integrated successfully; disruption from the proposed transactions making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the proposed transactions do not close, including due to the failure to satisfy the closing conditions; as well as more specific risks and uncertainties. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management's opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

10

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Unaudited Consolidated Statements of Operations

(In millions, except per share data)

 

 

11

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Unaudited Consolidated Balance Sheets

(In millions, except share data)

 

 

12

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Non-GAAP to GAAP Reconciliations – Historical Data

(In millions)

 

 

 

13

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Non-GAAP to GAAP Reconciliations – Same-Store Owned Hotels Worldwide

(In millions)

 

 

Non-GAAP to GAAP Reconciliations – Same-Store Owned Hotels North America

(In millions)

 

 

Non-GAAP to GAAP Reconciliations – Same-Store Owned Hotels International

(In millions)

 

 

14

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Non-GAAP to GAAP Reconciliations – Future Performance

(In millions, except per share data)

 

 

15

---

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Non-GAAP to GAAP Reconciliations – Same Store Owned Hotel Revenue and Expenses

(In millions)

 

 

16

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Systemwide⁽¹⁾ Statistics - Same Store

For the Three Months Ended June 30,

UNAUDITED

 

17

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Worldwide Hotel Results - Same Store

For the Three Months Ended June 30,

UNAUDITED

 

18

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Owned Hotel Results - Same Store

For the Three Months Ended June 30,

UNAUDITED

 

*Revenues and Expenses above are represented in '000s

19

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Management Fees, Franchise Fees and Other Income

For the Three Months Ended June 30,

UNAUDITED ($ millions)

 

 

 

20

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Systemwide⁽¹⁾ Statistics - Same Store

For the Six Months Ended June 30,

UNAUDITED

 

 

 

21

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Worldwide Hotel Results - Same Store

For the Six Months Ended June 30,

UNAUDITED

 

 

22

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Owned Hotel Results - Same Store

For the Six Months Ended June 30,

UNAUDITED

 

 

 

*Revenues and Expenses above are represented in '000s

 

23

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Management Fees, Franchise Fees and Other Income

For the Six Months Ended June 30,

UNAUDITED ($ millions)

 

 

 

 

 

 

 

24

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Owned Hotels without Comparable Results and Other Selected Items

As of June 30, 2016

UNAUDITED ($ millions)

 

 

 

25

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Capital Expenditures

For the Three and Six Months Ended June 30, 2016

UNAUDITED ($ millions)

 

 

 

 

 

 

26

---

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Divisional Hotel Inventory Summary by Ownership by Brand

As of June 30, 2016

 

 

 

27