Only weeks ahead of finalizing its merger with Marriott International, Starwood Hotels & Resorts Worldwide posted a loss of $263 million in the second quarter, compared to a profit of $136 million at the same time last year. And while some of the deficit was attributed to foreign-exchange effects on its historical hotel operations in Italy, after selling two properties there, words from the company's CFO did not augur a rosy picture for the overall state of the global hotel industry.
“Global lodging fundamentals remain strong, however, growth rates in 2016 have been lower than was expected at the beginning of the year,” Starwood CFO Alan Schnaid said in a statement. “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.”
Still, Starwood's CEO Thomas Mangas remained undaunted. “Across virtually every measure that matters to our business, we delivered on or exceeded our goals,” he said. “Our hotel openings year-to-date are 15 percent ahead of last year, and our net rooms growth remains in our target range of 4 to 5 percent. 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 percent. 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."
For the first half of the year, income from continuing operations was $38 million compared to $193 million for the first half of 2015. Excluding special items, income from continuing operations was $207 million compared to $199 million in the same period in 2015. Loss from discontinued operations was $211 million compared to last year’s H1 income of $42 million, and net loss was $173 million and $1.02 loss per share compared to income of $235 million and $1.37 per share in the same period in 2015. Adjusted EBITDA for the first half of 2016 was $578 million compared to $585 million last year.
In June, Starwood closed on the sale of The St. Regis Florence and The Westin Excelsior Florence for roughly $213 million, "resulting in a pretax gain of $112 million." The company said this was offset, however, "by the recognition of a $202 million cumulative foreign-currency translation adjustment loss associated with its historical hotel operations in Italy."
- In May, Starwood completed the spin-off of Vistana and completed the merger of the former vacation ownership business into a subsidiary of ILG immediately afterwards, 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.
- During the second quarter of 2016, Starwood 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. As of the end of June, the company had approximately 640 hotels in the active pipeline representing approximately 132,000 rooms.
- During the quarter, Starwood completed the sale of The St. Regis Florence and The Westin Excelsior Florence hotels for cash proceeds of approximately $213 million, subject to long-term management agreements.
- 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.
- 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.
- Including special items which total a pre-tax loss of $130 million primarily from asset dispositions, EPS from continuing operations was a loss of $0.20. Excluding special items, EPS from continuing operations was $0.71. Net income of $0.08 per share from Vistana Signature Experiences, Starwood’s former vacation ownership business, is not included in continuing operations.
- Adjusted EBITDA was $297 million, which includes operating earnings from Starwood’s former vacation ownership business of $19 million and $2 million from the hotels transferred to Interval Leisure Group, Inc. as part of the vacation ownership spin-off transaction, all of which are classified as discontinued operations.
- Including special items, loss from continuing operations was $35 million. Excluding special items, income from continuing operations was $121 million.
- Worldwide Systemwide RevPAR for Same-Store Hotels increased 1.4 percent in constant dollars (increased 0.7 percent in actual dollars) compared to 2015. Systemwide RevPAR for Same-Store Hotels in North America increased 3.4 percent in constant dollars (increased 3.1 percent in actual dollars).
- Management fees, franchise fees and other income increased 7.1 percent compared to 2015. Core fees increased 3.9 percent compared to 2015.