Starwood Reports Third Quarter 2006 Results.

WHITE PLAINS, N.Y. -- Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT):

Third Quarter 2006 Highlights

* Excluding special items, EPS from continuing operations was $0.68 compared to $0.58 for the third quarter of 2005. Including special items, EPS from continuing operations was $0.71 compared to $0.18 in the third quarter of 2005.

* Worldwide System-wide REVPAR for Same-Store Hotels increased 9.2% compared to the third quarter of 2005. System-wide REVPAR for Same-Store Hotels in North America increased 7.5% when compared to the third quarter of 2005.

* Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 11.7% compared to the third quarter of 2005. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 10.6% when compared to the third quarter of 2005.

* Margins at Starwood branded Same-Store Owned Hotels in North America and Worldwide improved approximately 190 and 110 basis points, respectively, when compared to the third quarter of 2005.

* Management and franchise revenues increased 71.4% when compared to 2005, including revenues from the Le ME[umlaut]ridien hotels and the hotels sold to Host.

* The Company signed 33 hotel management and franchise contracts (representing approximately 7,400 rooms). Through the first nine months of 2006, the Company signed 94 hotel management and franchise contracts (representing approximately 23,800 rooms).

* Excluding residential sales, contract sales at vacation ownership properties increased 13.5% when compared to 2005. Reported revenues from vacation ownership and residential sales increased $22 million when compared to 2005. Strong increases in revenues from vacation ownership sales were partially offset by a decline in residential sales.

* Excluding special items, income from continuing operations was $148 million compared to $131 million in the same period of 2005. Net income, including special items, was $155 million compared to $39 million in the third quarter of 2005.

* Total Company Adjusted EBITDA was $328 million when compared to $347 million in 2005. The year over year reduction is due to the sale of 51 hotels since the beginning of the third quarter of 2005 and stock based compensation expense, offset in part by increases in management and franchise revenues.

* During the third quarter, the Company repurchased approximately 9 million shares at a cost of $477 million. Through the first nine months of 2006, the Company repurchased 21.1 million shares at a cost of $1.229 billion.

Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported EPS from continuing operations for the third quarter of 2006 of $0.71 compared to $0.18 in the third quarter of 2005. Excluding special items, EPS from continuing operations was $0.68 for the third quarter of 2006 compared to $0.58 in the third quarter of 2005. Excluding special items, the effective income tax rate in the third quarter of 2006 was 21.2%. The effective tax rate includes benefits realized in connection with the sales of several hotels in unconsolidated joint ventures.

Income from continuing operations was $155 million in the third quarter of 2006 compared to $40 million in 2005. Excluding special items, which net to a $7 million benefit in 2006, income from continuing operations was $148 million for the third quarter of 2006 compared to $131 million in 2005.

Income from continuing operations for the third quarter of 2006 as compared to 2005 was impacted by four major items:

* Operating income was impacted as a result of the sale of 51 hotels since the beginning of the third quarter of 2005. These hotels had $14 million of revenues and $11 million of expenses (before depreciation) in 2006 as compared to $344 million of revenues and $247 million of expenses (before depreciation) in the same quarter of 2005. These hotels generated approximately $29 million of management and franchise revenues in the third quarter of 2006.

* The Company implemented SFAS 123(R), "Share Based Payment," on January 1, 2006 which resulted in approximately $12 million of non-cash stock option expense.

* Vacation ownership and residential operating income increased by approximately $8 million. Vacation ownership operating income increased $23 million while residential income declined by $15 million.

* The Company recorded interest income of $13 million as a result of the collection, in full, of a mezzanine note, together with interest which had been reserved.

Net income was $155 million and EPS was $0.71 in the third quarter of 2006 compared to net income of $39 million and EPS of $0.17 in the third quarter of 2005.

Steven J. Heyer, CEO, said, "I am extremely pleased with our results for the third quarter. All of our business units are performing on all cylinders and we expect this strength to continue into 2007 and beyond.

Systemwide REVPAR increased 9.2% in the quarter, with strength across all our brands. At our owned hotels, North America branded REVPAR was up an industry-leading 10.6% and margins improved 190 basis points as strong ADR growth coupled with productivity improvements drove strong flowthrough. Our fee business continues its impressive growth, with managed and franchise revenues up 71.4%. Even after adjusting for the Host and Le ME[umlaut]ridien transactions, we delivered 24.2% growth. Our vacation ownership business also exceeded our guidance as contract sales were up 13.5%, and reported revenues increased 43.1%.

Just as our brand initiatives resonate with the consumer, they are resonating with developers around the world, helping drive our pipeline growth as they increasingly turn to Starwood's brands for their hotel projects. We have signed 94 hotel deals, and opened 41 hotels year-to-date. We are on track to exceed our target for 50 hotel openings in 2006.

During the third quarter, we bought back 9 million shares of our stock, and since announcing the Host transaction last November, we have bought back $1.5 billion in stock. This is in addition to the $2.8 billion we returned through the Host transaction earlier this year and $276 million in dividends. With our impressive free cash flow generation and balance sheet strength, we have significant capacity to continue returning value to shareholders through our dividend policy and share buybacks while continuing to invest in the growth of our business.

We are optimistic that we will turn in another year of strong growth in 2007: Supply growth remains below its long-term trendline and the demand outlook is favorable, our business fundamentals remain very strong, and we expect these trends to continue."

Operating Results

Third Quarter Ended September 30, 2006

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 11.7%. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 10.6%. REVPAR growth was particularly strong at the Company's owned hotels in Toronto, Chicago, Atlanta, and Philadelphia. Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 10.2% excluding the impact of foreign exchange, and as reported, in US dollars, branded Same-Store Owned Hotel REVPAR increased 13.6%.

Revenues at Starwood branded Same-Store Owned Hotels in North America increased 9.4% while costs and expenses increased 6.6% when compared to 2005. Margins at Starwood branded Same-Store Owned Hotels increased 190 basis points.

Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 9.4% while costs and expenses increased 7.7% when compared to 2005. Margins at Starwood branded Same-Store Owned Hotels increased 110 basis points.

Reported revenues at owned, leased and consolidated joint venture hotels were $594 million when compared to $871 million in 2005. Reported revenues and operating income were impacted by the sale of 51 hotels since the beginning of the third quarter of 2005. These hotels had $14 million of revenues and $11 million of expenses (before depreciation) in 2006 as compared to $344 million of revenues and $247 million of expenses (before depreciation) in the same quarter of 2005.

Management and Franchise Revenues

Worldwide System-wide (owned, managed and franchised) REVPAR for Same-Store Hotels increased 9.2% compared to the third quarter of 2005 including 16.8% in Europe, 10.5% in Africa & the Middle East, 8.6% in Latin America, 7.5% in North America, and 6.1% in Asia Pacific. The 7.5% increase in System-wide REVPAR for Same-Store Hotels in North America by brand was: St. Regis/Luxury Collection 12.8%, W Hotels 11.2%, Westin 8.5% and Sheraton 6.8%.

Management fees, franchise fees and other income were $182 million, up $56 million, or 44.4%, from the third quarter of 2005. Management fees grew 67.8% to $99 million and franchise fees grew 24.0% to $31 million. The increases are related to the addition of new hotels (including Le ME[umlaut]ridien hotels and the hotels sold to third parties, including Host Hotels & Resorts, Inc. ("Host")), and growth in REVPAR of existing hotels under management, offset in part by fees associated with hotels that left the system.

The hotels sold to Host and the Le ME[umlaut]ridien hotels contributed $27 million and $16 million, respectively, of management and franchise revenues during the third quarter of 2006. Worldwide Le ME[umlaut]ridien hotels that were in operation during both periods had REVPAR growth of 13.2% in the third quarter of 2006 when compared to 2005 with ADR increasing 13.1% and occupancy increasing 10 basis points.

During the third quarter of 2006, the Company signed 33 hotel management and franchise contracts (representing approximately 7,400 rooms: 10 Sheraton, 7 Westin, 6 aloft, 4 Four Points by Sheraton, 3 Le ME[umlaut]ridien, 2 W Hotels, and 1 Luxury Collection). Of the hotels signed in the quarter, 28 were new builds and 5 were conversions from other brands. Through the first nine months of 2006, the Company signed 94 hotel management and franchise contracts (representing approximately 23,800 rooms). The Company's active global development pipeline grew to approximately 330 hotels with almost 90,000 rooms at September 30, 2006, driven by strong interest in all Starwood brands. Approximately half of its pipeline is in international locations.

During the third quarter of 2006, 18 new hotels and resorts (representing approximately 3,700 rooms) entered the system, including the Le Royal Meridien Shanghai (Shanghai, China, 600 rooms), the Sheraton Orlando North (Orlando, Florida, 394 rooms) and the W Maldives (Male, Maldives, 78 rooms). Eight properties (representing approximately 2,300 rooms) were removed from the system during the quarter. The Company expects to open more than 50 hotels (representing approximately 14,000 rooms) in 2006.

Vacation Ownership

While contract sales of vacation ownership intervals were up 13.5%, total vacation ownership reported revenues increased 43.1% to $249 million when compared to 2005 due primarily to the timing of the recognition of deferred revenues under percentage of completion accounting for pre-sales at projects under construction. The average price per vacation ownership unit sold increased 8.8% to approximately $25,000, and the number of contracts signed increased 4.4% when compared to 2005.

During the third quarter of 2006, the Company was actively selling vacation ownership interests at 15 resorts. Starwood Vacation Ownership is also in the predevelopment phase of several other new vacation ownership resorts in Hawaii, California, Mexico, and Aruba.

Residential

During the third quarter of 2006, the Company recognized residential revenues of approximately $6.0 million primarily from sales at the St. Regis in New York. To date, the Company has recognized approximately $34.1 million in revenues from the sale of condominiums at the St. Regis in New York. In the third quarter of 2005, the Company recognized residential revenues of $59 million primarily associated with sales at the St. Regis Museum Tower in San Francisco.

Selling, General, Administrative and Other

Selling, general, administrative and other expenses increased 17.3% to $115 million compared to the third quarter of 2005. The increase primarily relates to stock based compensation, including approximately $10 million of stock option expense.

Asset Sales

During the third quarter of 2006, the Company sold two wholly-owned hotels for cash proceeds of approximately $86 million. It is anticipated that two hotels will be sold in the fourth quarter of 2006 for cash proceeds of approximately $30 million.

Capital

Gross capital spending during the quarter included approximately $47 million in renovations of hotel assets including construction capital at the Sheraton Centre Toronto Hotel, the Westin Resort & Spa, Cancun, and the Sheraton Kauai Resort. Investment spending on gross vacation ownership interest ("VOI") inventory was $88 million, which was offset by cost of sales of $64 million associated with VOI sales during the quarter. The inventory spend included VOI construction at the Westin Ka'anapali Ocean Resort Villas North in Maui, the Westin Princeville Resort in Kauai, the Desert Willow Villas in Palm Desert, and the Westin Lagunamar Resort in Cancun.

Share Repurchase

During the third quarter of 2006, the Company repurchased approximately 9 million shares at a total cost of approximately $477 million. Since January 1, 2006, the Company has returned more than $4.3 billion to shareholders, including $2.8 billion in connection with the sale of 33 hotels to Host Hotels & Resorts, Inc., approximately $1.229 billion for the repurchase of approximately 21.1 million shares of its stock and $276 million in dividends. At September 30, 2006, approximately $414 million remained available under the Company's share repurchase authorization. Starwood had approximately 212 million shares outstanding (including partnership units) at September 30, 2006.

Dividend

The Company's former REIT subsidiary paid dividends of $0.21 per share for each of the first and second quarters of 2006. It is currently expected that, subject to the approval of the Board of Directors, the remaining 2006 dividend of $0.42 per share will be declared by the Company in December 2006 to be paid in January 2007, as set forth in the dividend policy that was adopted by the Board of Directors.

Balance Sheet

At September 30, 2006, the Company had total debt of $3.074 billion and cash and cash equivalents (including $322 million of restricted cash) of $637 million, or net debt of $2.437 billion, compared to net debt of $2.185 billion at the end of the second quarter of 2006.

At September 30, 2006, debt was approximately 58% fixed rate and 42% floating rate and its weighted average maturity was 4.6 years with a weighted average interest rate of 6.76%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $1.583 billion.

Results for the Nine Months Ended September 30, 2006

EPS from continuing operations increased to $4.06 compared to $1.18 in 2005. Excluding special items, EPS from continuing operations was $1.82 compared to $1.63 in 2005. Excluding special items, income from continuing operations was $408 million compared to $364 million in 2005. Net income was $840 million and EPS was $3.74 compared to $263 million and $1.18, respectively, in 2005. Total Company Adjusted EBITDA, which was significantly impacted by the sale of 54 hotels since the beginning of 2005, was $926 million compared to $1.026 billion in 2005.

Outlook

The Company's guidance for 2006 assumes the following change since the last time we provided estimates:

* The impact of two hotel sales which are expected to close in the fourth quarter.

For the three months ending December 31, 2006:

* Adjusted EBITDA would be expected to be approximately $374 million assuming:

        -- REVPAR at Same-store Owned Hotels in North America
           increases approximately 7%-9% versus the same period in
           2005 due to renovations at the Westin Maui and Hurricane
           Katrina related impact at owned hotels in Atlanta and
           Houston. Excluding these hotels, the fourth quarter assumed
           growth trends would be 9%-11%.

        -- North America Same-Store Owned Hotel EBITDA growth of
           11%-13% with owned hotel margin improvement of
           approximately 150-200 basis points.

        -- Growth from management and franchise revenues of
           approximately 45% to 50% including revenues earned from the
           hotels sold to Host, and 20% to 25%, excluding the hotels
           sold to Host.

        -- An increase in operating income from our vacation ownership
           and residential business of $55-$60 million (including
           gains on sale of vacation ownership notes receivable of
           $10-$15 million).

* Income from continuing operations, excluding special items, would be expected to be approximately $158 million reflecting an effective tax rate of approximately 33%.

* EPS would be expected to be approximately $0.73.

For the full year 2006:

* Adjusted EBITDA would be expected to be approximately $1.300 billion assuming:

        -- REVPAR at Same-Store Owned Hotels in North America
           increases approximately 11% versus 2005.

        -- North America Same-Store Owned Hotel EBITDA growth of
           approximately 19% with owned hotel margin improvement of
           approximately 200-250 basis points.

        -- Growth from management and franchise revenues of over
           50%-55% including revenues from the hotels sold to Host and
           approximately 30%-35%, excluding revenues from the hotels
           sold to Host.

        -- An increase in operating income from our vacation ownership
           and residential business of approximately $10 million to
           $15 million (including gains on sales of vacation ownership
           notes receivable of $10 million to $15 million in the
           fourth quarter of 2006).

* Full year income from continuing operations, excluding special items, would be expected to be approximately $565 million reflecting an effective tax rate of approximately 23%.

* Full year EPS would be expected to be approximately $2.55.

* Full year capital expenditures (excluding timeshare inventory) would be approximately $500 million, including $200 million for maintenance, renovation and technology and $300 million for other growth initiatives. Additionally, net capital expenditures for timeshare inventory would be approximately $175 million.

* Full year cash interest expense would be approximately $210 million and cash taxes of approximately $150 million.

For the full year 2007:

The Company expects 2007 Adjusted EBITDA to be between $1.355 billion and $1.375 billion. This represents 13%-15% growth on a comparable basis over 2006 (see reconciliation below). The Company expects 2007 EPS to be between $2.40 and $2.46. This represents 20%-23% growth on a comparable basis over 2006. This is consistent with the Company's growth plans and 3 year outlook discussed at its investor day meetings earlier this year.

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The EPS outlook is based on 2007 depreciation and amortization expense of approximately $340 million, interest expense of approximately $215 million, a tax rate of 35% and fully diluted shares outstanding of approximately 217 million.

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Special Items

The Company recorded net credits of $7 million (after-tax) for special items in the third quarter of 2006 compared to $91 million of net charges (after-tax) in the same period of 2005.

Special items in the third quarter of 2006 primarily relate to losses on asset dispositions and additional one-time income tax benefits realized in connection with the Host transaction.

The following represents a reconciliation of income from continuing operations before special items to income from continuing operations after special items (in millions, except per share data):

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The Company has included the above supplemental information concerning special items to assist investors in analyzing Starwood's financial position and results of operations. The Company has chosen to provide this information to investors to enable them to perform meaningful comparisons of past, present and future operating results and as a means to emphasize the results of core on-going operations.

Starwood will be conducting a conference call to discuss the third quarter financial results at 10:30 a.m. (EST) today. The conference call will be available through simultaneous webcast in the Investor Relations/Press Releases section of the Company's website at http://www.starwoodhotels.com. A replay of the conference call will also be available from 12:30 p.m. (EST) today through Thursday, October 26 at 12:00 midnight (EST) on both the Company's website and via telephone replay at [phone] (access code 4870671).

Definitions

All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations. All references to "net capital expenditures" mean gross capital expenditures for timeshare and fractional inventory net of cost of sales. EBITDA represents net income before interest expense, taxes, depreciation and amortization. The Company believes that EBITDA is a useful measure of the Company's operating performance due to the significance of the Company's long-lived assets and level of indebtedness. EBITDA is a commonly used measure of performance in its industry which, when considered with GAAP measures, the Company believes gives a more complete understanding of the Company's operating performance. It also facilitates comparisons between the Company and its competitors. The Company's management has historically adjusted EBITDA (i.e., "Adjusted EBITDA") when evaluating operating performance for the total Company as well as for individual properties or groups of properties because the Company believes that the inclusion or exclusion of certain recurring and non-recurring items, such as revenues and costs and expenses from hotels sold, restructuring and other special charges and gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. The Company's management also uses Adjusted EBITDA as a measure in determining the value of acquisitions and dispositions and it is used in the annual budget process. Due to guidance from the Securities and Exchange Commission, the Company now does not reflect such items when calculating EBITDA; however, the Company continues to adjust for these special items and refers to this measure as Adjusted EBITDA. The Company has historically reported this measure to its investors and believes that the continued inclusion of Adjusted EBITDA provides consistency in its financial reporting and enables investors to perform more meaningful comparisons of past, present and future operating results and provides a means to evaluate the results of its core on-going operations. EBITDA and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and such metrics should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company's calculation of EBITDA and Adjusted EBITDA may be different from the calculations used by other companies and, therefore, comparability may be limited.

All references to Same-Store Owned Hotels reflect the Company's owned, leased and consolidated joint venture hotels, excluding hotels sold to date, undergoing significant repositionings or for which comparable results are not available (i.e., hotels not owned during the entire periods presented or closed due to seasonality or hurricane damage). REVPAR is defined as revenue per available room. ADR is defined as average daily rate.

All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology.

All references to management and franchise revenues represent base and incentive fees, franchise fees, amortization of deferred gains resulting from the sales of hotels subject to long-term management contracts and termination fees offset by payments by Starwood under performance and other guarantees.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with approximately 850 properties in more than 95 countries and 145,000 employees at its owned and managed properties. Starwood[R] Hotels is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis[R], The Luxury Collection[R], Sheraton[R], Westin[R], Four Points[R] by Sheraton, W[R], Le ME[umlaut]ridien[R] and the recently announced aloft(SM) and Element(SM). Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high quality vacation interval ownership resorts. For more information, please visit www.starwoodhotels.com.

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Note: This press release contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results, performance and achievements may be affected by general economic conditions including the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations, cyclicality of the real estate and the hotel and vacation ownership businesses, operating risks associated with the hotel and vacation ownership businesses, relationships with associates and labor unions, customers and property owners, the impact of the internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in U.S. and foreign tax laws and their interpretation), travelers'fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions, and other risks and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Future vacation ownership units indicated in this press release include planned units on land owned by the Company or by joint ventures in which the Company has an interest that have received all major governmental land use approvals for the development of vacation ownership resorts. There can be no assurance that such units will in fact be developed and, if developed, the time period of such development (which may be more than several years in the future). Some of the projects may require additional third-party approvals or permits for development and build out and may also be subject to legal challenges as well as a commitment of capital by the Company. The actual number of units to be constructed may be significantly lower than the number of future units indicated. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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