Starwood profit down for Q2 but up for H1

Starwood Hotels & Resorts Worldwide saw its net income decrease year-on-year in the second quarter of 2012 but increase for the first half of the year.

Starwood, based in Stamford, Connecticut, saw net income fall to US$122 million in the second quarter of 2012, compared to US$131 million in the second quarter of 2011. This comes after Starwood quadrupled its net income year-on-year in the first quarter of 2012. However, worldwide systemwide REVPAR for same-store hotels increased 6.9% in constant dollars (4.2% in actual dollars) compared to the second quarter of 2011 and net income was US$250 million during the first six months of 2012 compared to US$159 million in the same period in 2011.

“We kept up our momentum in the second quarter, despite a choppy global economy. Our REVPAR grew 6.9%, with occupancy over a healthy 71%. Despite the uncertain global environment, we expect the trends we saw in our business for the past quarter to continue through the second half of the year,” said Frits van Paasschen, Starwood Hotels & Resorts Worldwide CEO. “Our approach to an uncertain global marketplace is to be both smart and bold. What we mean by ‘smart’ is having a business model, balance sheet, and cost structure that can weather economic turbulence. At the same time, we are being bold in our efforts to grow our footprint in the right way, and to invest in building guest loyalty to gain more than our fair share of business.”

Management fees, franchise fees and other income were US$222 million, up US$21 million, or 10.4% compared to the second quarter of 2011. Management fees increased 13.5% to US$126 million and franchise fees increased 6.1% to US$52 million. Year-over-year base management fee and franchise fee comparisons were impacted by the conversion of some franchise agreements to management contracts in Germany.

Europe remained the only region to see a RevPAR decrease in the second quarter in actual dollars, falling 8% year-on-year, while Africa and the Middle East RevPAR increased 8.5%, Asia Pacific increased 7.2%, North America increased 6.8% and Latin America increased 6.1%. Each Starwood brand saw RevPAR increased in actual dollars in the second quarter with the exception of St. Regis and Luxury Collection, which saw RevPAR dip 0.5%. Aloft saw a 8.7% RevPAR increase and W Hotels increased 7.3%.

Starwood said originated contract sales of vacation ownership intervals and numbers of contracts decreased 5% and 1.8%, respectively, primarily due to lower closing efficiency partially offset by increased tour flow.

“Owned hotel results were weak (-US$0.04 EPS vs. our model) with muted 3.1% constant currency RevPAR growth in 2Q12 (vs. 4% to 6% guidance). Europe remains sluggish but steady with RevPAR growing 2.3%. On the positive side, Adjusted EBITDA ex-Bal Harbour came in ahead of expectations and 2012 guidance is largely intact,” David Loeb, an analyst with Robert W. Baird & Co., wrote in a note to investors. “Going into the quarter, we believed key risks would be Starwood’s exposure to and outlook on Europe.”

Starwood’s projected RevPAR increases at operated hotels for 2012 at 6% to 8% in constant dollars remains unchanged from its first quarter outlook.