Starwood Hotels Earnings Drop as Demand in Europe Weakens

Starwood Hotels & Resorts Worldwide Inc., owner of the luxury St. Regis and W brands, said second-quarter earnings fell after demand in Europe remained weak and an income-tax expense wiped out revenue gains.

Net income decreased to $122 million, or 62 cents a share, from $131 million, or 68 cents, a year earlier, the Stamford, Connecticut-based company said in a statement today. Revenue climbed 13 percent to $1.61 billion. Analysts expected earnings of 62 cents, the average of 14 estimates in a Bloomberg survey.

A drop in demand in Europe because of financial-market turmoil and the sovereign-debt crisis has weighed on Starwood, which has 12 percent of its rooms on the continent. Europe was the only among the company’s five regions where revenue per available room, a measure of occupancies and rates, fell in the second quarter.

“Europe remains sluggish,” David Loeb, a Robert W. Baird & Co. analyst in Milwaukee, wrote in a note to investors today after Starwood announced earnings. “Going into the quarter, we believed key risks would be Starwood’s exposure to and outlook on Europe.”

Revenue per available room, or revpar, for hotels owned or leased for at least a year fell 8 percent in Europe, including currency impacts. The euro has declined 16 percent against the dollar in the past 12 months.

In constant dollars, revpar on the continent gained 2.3 percent. Same-store occupancies in Europe dropped to 69.7 percent from 70.5 percent.

Starwood booked an income-tax expense of $56 million, compared with a credit of $16 million a year earlier.

Asset Sales

Revpar increased 6.9 percent, excluding currency impacts, for hotels worldwide open at least a year. It rose 7.3 percent in constant dollars in North America and 9.3 percent in the Asia Pacific region.

Starwood expects revpar at hotels it operates globally to increase 6 percent to 8 percent this year in constant dollars. The company is continuing to seek buyers for hotels in its portfolio as it focuses on managing properties rather than owning them, Chief Executive Officer Frits van Paasschen said during a conference call with investors today. He said he expects to complete several sales by the end of the year.

“Compared to three to six months ago, we have more hotels on the market and have more discussions,” van Paasschen said. “We think that shows a great confidence and better financing conditions among buyers.”

The hotelier climbed 6.4 percent to $52.71 at the close of New York trading. The increase was the largest since Oct. 10.

Miami Beach

At the St. Regis Bal Harbour in Miami Beach, Florida, where Starwood started selling vacation units at the end of last year, more than 60 percent of inventory has been purchased, Chief Financial Officer Vasant Prabhu said during the call. The sale of the remaining units is scheduled for completion by early 2014, he said. The resort opened in January.

Marriott International Inc., the largest publicly traded U.S. hotel chain, fell the most in almost 11 months on July 12 after cutting its forecast for hotels outside the U.S. on weakening demand in Asia and the Middle East.

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