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Starwood Tops, Raises Dividend

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Starwood Hotels & Resorts Worldwide Inc. reported third-quarter 2012 adjusted earnings from continuing operations of 58 cents, breezing past the Zacks Consensus Estimate of 53 cents, but fell shy of the year-ago level of 60 cents.

On GAAP basis, earnings from continuing operations were 75 cents compared to 85 cents in the prior-year quarter.

Revenues grew 6.0% year over year to $1,455.0 million in the quarter, with revenue per available room (RevPAR) witnessing strong growth as occupancy ascended at all regions. Revenue also outperformed the Zacks Consensus Estimate of $1,448.0 million.

Management and Franchise Revenues

System-wide RevPAR for same-store hotels inched up 1.3% (4.7% in constant dollars) year over year all over the world. International system-wide RevPAR for same-store hotels increased 3.0% (3.9% in constant dollars). Management fees, franchise fees and other income climbed up 8.4% year over year to $219.0 million in the quarter under review.

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide RevPAR for Starwood branded same-store owned hotels fell 2.2% (up 2.3% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America dipped 0.5% (nudged up 0.6% in constant dollars).

Internationally, Starwood branded same-store owned hotel RevPAR slipped 3.7% (up 3.8% in constant dollars). Revenue from this segment in the quarter dropped 3.6% year over year to $425.0 million following the sale of four assets.

Vacation Ownership and Residential Sales and Services

Total vacation ownership revenue was up 2.2% to $141 million. Originated contract sales of vacation ownership intervals dropped 1.2%. Total revenue from vacation ownership and residential sales and services surged 48.6% to $208.0 million in the quarter.

Update on Hotel Rooms

During the quarter under review, Starwood signed 25 hotel management and franchise contracts for approximately 4,800 rooms. These consist of 7 conversion projects and 18 new constructions. The company also opened 20 new properties. Four properties (approximately 800 rooms) exited the system during the quarter. At quarter end, the company’s pipeline included over 370 hotels, representing almost 95,000 rooms.


At quarter end, Starwood had cash and cash equivalents of $795.0 million (including $144 million of restricted cash), while its long-term debt was $1,653.0 million.

Shareholder Value Enhanced

In the third quarter of 2012, the company bought back 1.6 million shares for about $78.7 million. This leaves the current share repurchase authorization at $360.0 million as of September 30, 2012.

The hotelier also raised its annual cash dividend by 150% from the prior year to $1.25 per share.


For fourth-quarter 2012, earnings are expected to be approximately 64 cents to 66 cents per share (including Bal Harbor project). The company anticipates RevPAR growth of 4% to 6% in constant dollars at same-store company-operated hotels worldwide, while growth will likely be 3% to 4% at branded same-store company owned hotels worldwide.

For full-year 2012, the company raised its adjusted earnings guidance to the range of $2.55–$2.57 (previously $2.49–$2.56) per share.

RevPAR growth is expected between 5% and 6% in constant dollars for same-store company-operated hotels worldwide. RevPAR increases at branded same-store company-owned hotels worldwide are expected between 3% and 4% in constant dollars.

Our Take

Starwood is poised to benefit from the reviving economy and consequent increase in demand for hotels. Moreover, the raised earnings outlook for 2012 and increased annual dividend reflects the company’s sound business model. Additionally, the hotelier’s sturdy expansion plan as compared to many of its peers, significant international exposure, portfolio reformation and continuous enhancement of shareholders’ value augurs well for the company. However, we remain cautious on the stock based on sluggish RevPAR growth in Europe coupled with stiff competition.

Starwood, which competes with Marriott International Inc. (MAR - Free Report) , currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

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