Starwood Reports 4th Qtr Net Income

$79 million, Down 46%; RevPAR Decreased 19.6% at Owned Hotels

. January 29, 2009

WHITE PLAINS, NY, January 29, 2009 - Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported fourth quarter 2008 financial results.

Fourth Quarter 2008 Highlights

Excluding special items, EPS from continuing operations was $0.49. Including special items, EPS from continuing operations was a loss of $0.25.
Total Company Adjusted EBITDA was $273 million.
Excluding special items, income from continuing operations was $88 million. Including special items, the loss from continuing operations was $45 million.
Special items totaled $133 million of net charges ($0.74 per share) primarily related to $30 million of severance costs, $79 million of impairment charges from discontinued vacation ownership projects and $86 million of impairment charges primarily at five owned hotels in North America.
Worldwide System-wide REVPAR for Same-Store Hotels decreased 12.1% (9.1% in constant dollars) compared to the fourth quarter of 2007. System-wide REVPAR for Same-Store Hotels in North America decreased 13.2% (11.7% in constant dollars).
Management and franchise revenues decreased 4.7% compared to 2007.
Worldwide REVPAR for Starwood branded Same-Store Owned Hotels decreased 19.6% (15.4% in constant dollars) compared to the fourth quarter of 2007. REVPAR for Starwood branded Same-Store Owned Hotels in North America decreased 18.6% (16.3% in constant dollars).
Margins at Starwood branded Same-Store Owned Hotels Worldwide and in North America decreased 479 and 596 basis points, respectively, compared to the fourth quarter of 2007.
Revenues from vacation ownership and residential sales decreased 48.7% compared to 2007.
The Company signed 31 hotel management and franchise contracts in the quarter representing approximately 6,100 rooms. For the full year, the Company signed 147 hotel contracts representing approximately 35,700 rooms.

Fourth Quarter 2008 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported a loss from continuing operations for the fourth quarter of 2008 of $0.25 per share compared to EPS of $0.74 in the fourth quarter of 2007. Excluding special items, which net to a charge of $133 million in 2008 and $11 million in 2007, EPS from continuing operations was $0.49 for the fourth quarter of 2008 compared to $0.79 in the fourth quarter of 2007. Excluding special items, the effective income tax rate in the fourth quarter of 2008 was 27.5% compared to 28.5% in the same period of 2007.

Special items in the fourth quarter of 2008 totaled $133 million of net charges ($0.74 per share) primarily related to $30 million of severance costs, $79 million of impairment charges from discontinued vacation ownership projects, and $86 million of impairment charges primarily at five owned hotels in North America.

The loss from continuing operations was $45 million in the fourth quarter of 2008 compared to income of $146 million in 2007. Excluding special items, income from continuing operations was $88 million for the fourth quarter of 2008 compared to $157 million in 2007.

Net income was $79 million and EPS was $0.43 in the fourth quarter of 2008 compared to $146 million and EPS of $0.74 in the fourth quarter of 2007. The 2008 results include a gain of $124 million (net of taxes) in discontinued operations, resulting from the sale of three hotels which were sold unencumbered by management or franchise agreements.

Frits van Paasschen, CEO said, "In the past year, we have made significant progress in reducing our costs, which enabled us to deliver better than expected quarterly results despite worse than expected REVPAR. Cost reductions completed so far should yield a $100 million reduction in our SG&A on a run-rate basis. Our extensive cost cutting efforts at the property level will help offset some of the margin erosion that results from declining REVPAR. We also scaled back our capital spending in all areas for 2009. While the outlook for 2009 remains challenging, we are prepared for the worst and confident that we will emerge from this downturn stronger than ever. We have experienced operating teams in the field, some of the strongest brands in the lodging industry, and a pipeline that will drive our global fee growth."

Fourth Quarter 2008 Operating Results

Management and Franchise Revenues

Worldwide System-wide REVPAR for Same-Store Hotels decreased 12.1% (9.1%using constant dollars) compared to the fourth quarter of 2007. International System-wide REVPAR for Same-Store Hotels decreased 10.8% (6.1% using constant dollars). Worldwide System-wide REVPAR increased 8.6% in Africa and the Middle East. Worldwide System-wide REVPAR decreases for the other regions were: 3.3% in Latin America, 13.2% in North America, 14.4% in Asia Pacific, and 17.8% in Europe. Worldwide System-wide REVPAR decreases by brand were: Sheraton 9.6%, Westin 11.4%, Le M'eridien 11.5%, Four Points by Sheraton 11.5%, W Hotels 21.1%, and St. Regis/Luxury Collection 23.3%.

Management fees, franchise fees and other income were $215 million, down $20 million, or 8.5%, from the fourth quarter of 2007. Management fees decreased 5.6% to $119 million and franchise fees decreased 12.2% to $36 million.

Approximately 57% of the Company's management and franchise fees are generated in markets outside the United States.

During the fourth quarter of 2008, the Company signed 31 hotel management and franchise contracts representing approximately 6,100 rooms of which 27 are new builds and four are conversions from other brands. At December 31, 2008, the Company had over 425 hotels in the active pipeline representing approximately 100,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, 64% are in the upper upscale and luxury segments and 62% are in international locations.

During the fourth quarter of 2008, 21 new hotels and resorts (representing approximately 4,200 rooms) entered the system, including the Westin Book Cadillac (Detroit, MI, 453 rooms), St. Regis Punta Mita (Nayarit, Mexico, 120 rooms), Aloft Beijing (Beijing, China, 186 rooms), and the Le M'eridien Bangkok (Bangkok, Thailand, 282 rooms). Fifteen properties (representing approximately 2,700 rooms) were removed from the system during the quarter.

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR for Starwood branded Same-Store Owned Hotels decreased 19.6%. REVPAR at Starwood branded Same-Store Owned Hotels in North America decreased 18.6%. Internationally, Starwood branded Same-Store Owned Hotel REVPAR decreased 21.3% (down 9.1% using constant dollars).

Revenues at Starwood branded Same-Store Owned Hotels in North America decreased 17.4% while costs and expenses decreased 10.3% when compared to 2007. Margins at these hotels decreased 596 basis points.

Revenues at Starwood branded Same-Store Owned Hotels Worldwide decreased 18.6% (down 16.3% in constant dollars) while costs and expenses decreased 13.1% when compared to 2007. Margins at these hotels decreased 479 basis points.

Approximately 47% of Starwood's Owned Hotel earnings (before depreciation) are generated from outside the United States.

Revenues at owned, leased and consolidated joint venture hotels were $504 million when compared to $631 million in 2007.

Vacation Ownership

Total vacation ownership reported revenues decreased 48.3% to $134 million when compared to 2007. Originated contract sales of vacation ownership intervals decreased 43.2% primarily due to an overall decline in demand and the sellout of the Company's Westin Ka'anapali Ocean Resort North in Maui. The average price per vacation ownership unit sold decreased 31.1% to approximately $17,000, driven by a higher sales mix of lower-priced inventory, including a higher percentage of lower-priced biennial inventory in Hawaii. The number of contracts signed decreased 17.2% when compared to 2007.

The Company did not sell any vacation ownership receivables during the fourth quarter. Although conditions remain uncertain in the asset backed securities market, the Company is exploring a variety of avenues to sell vacation ownership receivables. However, given unpredictable market conditions, the Company does not expect any gains from securitizations in 2009.

As a result of the current economic climate and business conditions, the Company has undertaken a comprehensive review of its vacation ownership business. The Company has significantly scaled back its overhead to match reduced revenue expectations. This included closing five sales centers and terminating over 500 employees during the fourth quarter. In 2008 and early 2009, the Company closed nine sales centers and three call centers and terminated approximately 900 employees. Additionally, the Company has reset capital plans for this business. No new projects are being initiated and the Company has decided to discontinue further development of some projects that were in their early stages. As a result, development costs and land values at certain projects have been written down to their fair value, resulting in an impairment charge during the fourth quarter of 2008 of approximately $72 million.

Residential

Residential fees in the fourth quarter of 2008 totaled $2 million compared to $6 million in the same period in 2007.

Selling, General, Administrative and Other

Selling, general, administrative and other expenses decreased 35.6% to $96 million compared to the fourth quarter of 2007. The decrease was primarily due to the Company's continued focus on reducing its cost structure.

In the fourth quarter, the Company completed the second phase of its overhead cost reduction program, making significant reductions across several corporate departments and divisional headquarters. These actions have resulted in expected run rate savings of approximately $100 million. The Company anticipates completing the review of other functional areas, and implementing reductions in those areas, by the end of the first quarter of 2009.

Restructuring Charges and Other Special Charges, Net

During the fourth quarter of 2008, the Company recorded a $109 million charge, including approximately $30 million of severance and related charges associated with its ongoing initiative of rationalizing its cost structure in light of the current economic climate and the decline in activity in its business units. The charge also included impairment charges of approximately $79 million primarily related to the Company's decision to not develop certain vacation ownership projects.

Loss on Asset Dispositions and Impairments, Net

During the fourth quarter of 2008, the Company recorded impairment charges of $64 million related to five owned hotels in which the carrying values exceeded their estimated fair values. In addition, the Company recorded a $22 million impairment charge to write down its economic retained interests in securitized vacation ownership notes receivable based on a change to the expected future cash flows as a result of the current economic climate.

Asset Sales

During the fourth quarter of 2008, the Company sold three hotels in Venice, Italy for net cash proceeds of $206 million. These hotels were sold unencumbered by any management or franchise agreement and the Company recorded a gain on the sale of these hotels of $124 million (net of taxes) in discontinued operations. Additionally, during the fourth quarter of 2008, the Company sold the Westin Turnberry for net cash proceeds of $99 million. This sale was subject to a long-term management agreement and the Company recorded a deferred gain of $27 million in connection with the sale.

Capital

Gross capital spending during the quarter included approximately $89 million in renovations of hotel assets, including construction capital, at the Sheraton Steamboat Resort, Sheraton Buenos Aires, W Times Square and Phoenician Resort. Investment spending on gross vacation ownership interest ("VOI") and residential inventory was $98 million, primarily in Bal Harbour, Maui, Orlando and Cancun.

Share Repurchase

During the fourth quarter of 2008, the Company did not repurchase any shares. In the twelve months ended December 31, 2008, the Company repurchased approximately 13.6 million shares at a total cost of approximately $593 million. The Company had approximately 183 million shares outstanding (including partnership units) at December 31, 2008.

Dividend

In November, 2008, the Company's Board of Directors declared its annual dividend of $0.90 per share. The dividend was paid by the Company on January 9, 2009 to holders of record on December 31, 2008.

IRS Tax Settlement

In January 2009, the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of the Company's 1998 disposition of World Directories, Inc. Under the proposed settlement, the Company expects to receive a refund of over $200 million as a result of tax payments previously made. The Company expects to finalize the details of the agreement and obtain the refund during the summer of 2009.

Balance Sheet

At December 31, 2008, the Company had total debt of $4.008 billion and cash and cash equivalents of $491 million (including $102 million of restricted cash), or net debt of $3.517 billion, compared to net debt of $3.240 billion at the end of 2007.

At December 31, 2008, debt was approximately 59% fixed rate and 41% floating rate and its weighted average maturity was 3.9 years with a weighted average interest rate of 5.24%. The Company had cash (including total restricted cash) and availability under the domestic and international revolving credit facility of approximately $2.070 billion.

Results for the Twelve Months Ended December 31, 2008

EPS from continuing operations decreased to $1.37 compared to $2.57 in 2007. Excluding special items, EPS from continuing operations was $2.19 compared to $2.76 in 2007. Excluding special items, income from continuing operations was $406 million compared to $582 million in 2007. Net income was $329 million and EPS was $1.77 compared to $542 million and $2.57, respectively, in 2007. Total Company Adjusted EBITDA, which was impacted by the sale or closure of 19 hotels since the beginning of 2007, was $1.157 billion compared to $1.356 billion in 2007.

Outlook

For the full year 2009:

At the current time, given significant uncertainty in the global economy, it is very difficult to provide any definitive guidance looking out four quarters. What the Company can provide are some broad parameters being used for 2009 planning purposes. In the hotel business, the Company is planning on a significant decline in Worldwide REVPAR. The Company also anticipates another difficult year in the vacation ownership business with declines in originated sales. As previously discussed, the Company's extensive cost reduction activities at the hotel level, in the vacation ownership business and in corporate overhead have offset some of the impact of declining revenues. The Company is also significantly scaling back capital expenditures for owned hotels and the vacation ownership business.

Assuming REVPAR at Same-Store Company Operated Hotels Worldwide REVPAR declines 12% and REVPAR at Branded Same-Store Owned Hotels declines 15% at today's exchange rates:

---|- Adjusted EBITDA would be approximately $875 million.

---|-- EPS before special items would be approximately $1.10.

---|-- Same-Store Branded Owned Hotel EBITDA will decline approximately 35% versus 2008.

---|-- Management and Franchise revenues will decline approximately 10%.

---|-- Operating income from our vacation ownership and residential business will be down approximately $50 million.

---|-- Selling, General and Administrative expenses will decline approximately $50 million.

---|-- Income from continuing operations, before special items, is expected to be approximately $200 million, reflecting an effective tax rate of approximately 31%.

Full year capital expenditures (excluding vacation ownership and residential inventory) would be approximately $150 million for maintenance, renovation and technology. In addition, in flight investment projects, including Bal Harbour, and prior commitments for joint ventures and other investments will total approximately $175 million.
Full year depreciation and amortization would be approximately $355 million.
Full year interest expense would be approximately $232 million and cash taxes of approximately $100 million.
Vacation ownership and Residential, excluding the Bal Harbour project, is expected to generate approximately $25 million in positive cash flow, not inclusive of any sales of timeshare receivables.
The Company expects to open 80 to 100 hotels in 2009 (representing approximately 20,000 rooms).

For the three months ended March 31, 2009:

Adjusted EBITDA is expected to be $145 million to $160 million assuming:

---|-- REVPAR decline at Same-Store Company Operated Hotels Worldwide of 17% to 19% (14% to 16% in constant dollars).

---|-- REVPAR decline at Branded Same-Store Owned Hotels in North America of 27% to 30%.

---|-- Management and franchise revenues will be down approximately 15%.

---|-- Operating income from our vacation ownership and residential businesses will be down $10 million to $15 million.

Income from continuing operations, before special items, is expected to be approximately $3 million to $13 million, reflecting an effective tax rate of approximately 31%.
EPS before special items is expected to be approximately $0.02 to $0.07..

Special Items

The Company's special items netted to a charge of $133 million (after tax) in the fourth quarter of 2008 compared to a charge of $11 million (after-tax) in the same period of 2007.

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