WHITE PLAINS, N.Y., July 29, 1998 - 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.
Gaming Results
The Gaming group recorded revenues of $296 million in the second quarter
of 1998, up 10% from the prior year's quarter, and a 14% increase in EBITDA
to $80 million for the period, reflecting improved results in Las Vegas
and Atlantic City.
Gaming accounts for approximately 25% of the Company's total pro forma
EBITDA from ongoing operations in 1998 with about 8% of Company EBITDA
derived from each of Caesars Palace Las Vegas and Caesars Atlantic City.
EBITDA at Caesars Atlantic City was $39 million in the second quarter of
1998 up 30% over the same period in 1997. The impact of an additional
620 rooms resulted in gains in all revenue categories bringing total revenues
up 15% to $113 million in the second quarter of 1998 when compared to $98
million in the second quarter of 1997. The 30,000 square foot casino expansion
and replacement of slot inventory was completed in early June and a Grand
Opening was held on June 27. Caesars Atlantic City now boasts 3,600 slots
and 125 tables contained in 117,000 square feet of casino space versus
previous inventory of 2,300 slots and 100 tables and 82,000 square feet
of casino space in the second quarter of 1997.
At Caesars Palace, an additional 1,130 rooms and 110,000 square feet
of meeting space were in service in the second quarter of 1998 versus the
same quarter in 1997. The new rooms, which have significantly improved
the asset's competitive position, were immediately absorbed and REVPAR
increased 16%. An increase in the number of slots and increased traffic
resulted in a 19% increase in slot win. Baccarat volume decreased 14% and
table game volume excluding baccarat increased 12% resulting in a 7% increase
in table win. EBITDA at Caesars Palace increased by approximately 8% to
$29 million for the second quarter of 1998.
"We are very pleased with the results of our Gaming Group which overcame
a decline in baccarat play from the Asian markets, to post strong results,"
said Richard Nanula. "The reception to our significant expansions of both
Caesars Palace and Caesars Atlantic City has been excellent." "We are evaluating
promising new business opportunities to continue to expand the Caesars
brand around the world."
The Company's other Gaming facilities at Caesars Tahoe, Caesars Windsor,
the Sheraton Halifax, Sheraton Sydney, and Sheraton Tunica reported an
increase in EBITDA of approximately 20% to $17 million on $61 million of
revenues in the second quarter of 1998 when compared to the second quarter
of 1997. In February, Caesars obtained approval from the Army Corps of
Engineers and expects to begin Caesars Indiana Riverboat operations in
November. With 90,000 square feet of casino space, the Riverboat will be
the largest in the country and is expected to be the only competitor in
the Louisville market for the foreseeable future. In March, Caesars was
awarded a preliminary gaming license in Johannesburg, South Africa and
expects to begin operations of a temporary casino in the fourth quarter.
During the second quarter, Caesars held the opening of the new Caesars
Club Casino in Manila.
Integration Of Operations
Proceeding As Planned
During the quarter, the Company continued to implement its new management
structure which includes certain key executives from each of ITT, Westin,
Starwood, and Caesars.
As a result of the reorganization, operational improvements are now
in the implementation phase. Cross selling and marketing programs, including
the redemption of frequent stay points between all of the company's brands,
are proceeding on track and significant progress is being made in the areas
of cost efficiencies including insurance and employee benefits, among others.
The integration of the two frequent guest programs is expected to be
completed during the first quarter of 1999. The Company has selected Sheraton's
Reservatron IV System for its combined operations and is well along the
way and will be completed during the first quarter. In addition, the new
consolidated headquarters located in Westchester County, New York is now
fully operational and all remaining New York City operations have been
shut down. In addition, the Company has significantly consolidated space
in its Seattle, Atlanta and Boston locations, eliminating the redundancies
across the 3 Companies.
Acquisitions and Dispositions
The Company continues to analyze numerous acquisition opportunities
particularly single assets and small portfolios primarily in offshore markets.
The Company also believes there are attractive acquisition opportunities
in Asia.
On May 13, 1998 the Company completed the acquisition of the 242 room
Danbury, Connecticut Hilton for $20 million. In addition, the company signed
19 new management/franchise agreements bringing the total to 48 for the
first half of 1998. The Company has agreed to acquire a domestic, managed
resort hotel for $135 million with closing expected soon.
On June 10 the company completed the public offering of 13.05 million
shares of ITT Educational Services, Inc. ("ESI") for gross proceeds of
approximately $315 million reducing Starwood's ownership in ESI to 9.5
million shares or 35%, currently valued at approximately $300 million.
In April, the Company exercised its put options with respect to half
of its interest in Madison Square Garden, which generated proceeds of $94
million and as previously announced on May 1, the Company completed the
sale of eight hotel properties for $245 million as well as the sale of
its Gulfstream V corporate aircraft for $39 million. In addition, during
the quarter the Company sold the Bay Valley Hotel and Resort in Bay City,
Michigan for approximately $5 million and its remaining interest in the
King 8 Hotel and Casino in Las Vegas, Nevada for $3 million.
The Desert Inn, including 32 acres of adjacent land on the strip in
Las Vegas, continues to be marketed for sale.
Financing
Total debt for the Company on June 30 was approximately $8.1 billion.
The company plans to refinance its $2.5 billion Increasing Rate Notes with
fixed rate debt in the near future and during the quarter the company entered
into forward swap agreements to fix the rate relating to $1.5 billion of
this debt.
During the quarter, the Company declared a regular dividend of 52 cents
per paired share. In the second quarter, the Company also repurchased approximately
2 million paired shares at an aggregate cost of approximately $100 million.
Renovations And Repositionings
During the second quarter, the Company invested approximately $200 million
in capital improvements, split equally between gaming and hotels bringing
the total for the first 6 months of 1998 to approximately $400 million.
Approximately one quarter of the gaming capital expenditure was invested
in the Harrison County River Boat.
In addition to the ongoing construction of its 426-room Seattle "W"
property, the 423-room San Francisco "W" property, and the expansion of
the Midland Hotel In Chicago. During the quarter, renovations were completed
on the Plaza Hotel and Conference Center in Tucson, AZ; the Four Points
Hotel Philadelphia Airport; and the 400 room South Tower of the Sheraton
Boston Hotel and Towers and ongoing construction on the 720-room Doral
Inn to be renamed the W New York. The Company is working on major renovations
on the following properties:
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Doral Court (199 rooms),
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Doral Tuscany (121 rooms), in New York,
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Marque of Atlanta,
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the Sheraton Stamford (480 rooms) in Connecticut,
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the Sheraton Manhattan (650 rooms) in New York
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and Phase II of the Sheraton Boston Hotel and Towers (781 rooms).
During the Second Quarter, the Company has converted another 11 owned hotels
to the Westin, Sheraton and Four Points Hotel brands bringing the total
for the first half of 1998 to 22.
"While we obviously have numerous challenges ahead of us, integrating
our assets and positioning our global brands, these challenges reflect
long term opportunities not reflected in current earnings. Indeed, we have
made significant investments in a number of projects opening later this
year or in 1999 which include the Harrison County Riverboat, our three
'W's' in New York totaling more than 1,000 rooms, our two 400 room plus
new builds, the Manila and South African gaming projects and our employee
benefit, insurance, purchasing and other savings which, when implemented
as planned, should result in well in excess of $125 million in year over
year
EBITDA growth before any general REVPAR improvement in our assets.
We are also excited about the future of our timeshare business and have
available sites at the Phoenician, Bal Harbor, Harbour Island, Mission
Hills and other resort assets, domestically and internationally," Mr. Sternlicht
said.
"Starwood is a unique company with incomparable assets and growth prospects
on a global basis. We are building our team for the future focusing on
the long term and our extraordinary internal growth prospects, growth we
expect to come from both the top line, as we cross-sell and focus marketing
efforts and build our frequent stay program, and the bottom line as we
drive operating costs lower taking advantage of our purchasing scale, best
practices and our ability to cluster operate our urban luxury properties,"
Mr. Sternlicht continued. "We own great brands and have great assets,
in some of the best places in the world, and in some of the strongest markets,
and we have assembled an outstanding management team to run them. The power
of our brands will become even more evident as we complete the integration
process," Mr. Sternlicht concluded. Starwood Hotels Resorts Worldwide,
Inc. through its ITT Sheraton, Westin and Caesars subsidiaries, is one
of the leading hotel and gaming operating companies in the world. Starwood
Hotels Resorts is the largest real estate investment trust in the United
States. Shares of Starwood Hotels Resorts Worldwide, Inc. are paired and
trade together with shares of Starwood Hotels Resorts.
(Note: Statements in this press release which are not
historical may be deemed forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although Starwood
Hotels believes the expectations reflected in any forward-looking statements
are based on reasonable assumptions, it can give no assurance that its
expectations will be attained. Factors that could cause actual results
to differ materially from Starwood Hotels expectations include completion
of pending acquisitions, continued availability of acquisitions, continued
availability of debt and equity on favorable terms, legislative proposals
to limit expansion of paired- share real estate investment trusts, foreign
exchange fluctuations, performance of hotel operations, financial performance,
real estate conditions, market valuations of its stock, execution of hotel
renovation programs, changes in local or national economic conditions and
other risks detailed from time to time in the Company's SEC reports, including
quarterly reports on Form 10-Q, current reports on Form 8-K and annual
reports on Form 10-K.)
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