Starwood 2nd Qtr Net Income Soars

One-time Gains on the Sale of 33 Hotels to Host Hotels Hotel Operating Statistics

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. October 14, 2008

WHITE PLAINS, NY, July 27, 2006. Starwood Hotels & Resorts Worldwide, Inc. Second Quarter 2006 Highlights

Excluding special items, EPS from continuing operations was $0.74 compared to $0.70 for the second quarter of 2005. Including special items, EPS from continuing operations was $3.01 compared to $0.65 in the second quarter of 2005. Worldwide System-wide REVPAR for Same-Store Hotels increased 9.7% compared to the second quarter of 2005. System-wide REVPAR for Same-Store Hotels in North America increased 10.5% when compared to the second quarter of 2005. Worldwide REVPAR for Same-Store Owned Hotels increased 11.0% compared to the second quarter of 2005. North America REVPAR for Same-Store Owned Hotels increased 12.8% when compared to the second quarter of 2005. Margins at Starwood branded Same-Store Owned Hotels in North America and Worldwide improved approximately 360 and 300 basis points, respectively, when compared to the second quarter of 2005.

Management and franchise revenues increased 59.3% when compared to 2005, including revenues from the Le Meridien hotels and the hotels sold to Host. Excluding residential sales, contract sales at vacation ownership properties increased 31.0% when compared to 2005. However, reported revenues from vacation ownership and residential sales only increased $1 million when compared to 2005 primarily due to the impact of percentage of completion accounting for pre-sales at projects under construction.

Excluding special items, income from continuing operations was $169 million compared to $156 million in the same period of 2005. Net income, including special items, was $680 million compared to $145 million in the second quarter of 2005.

Total Company Adjusted EBITDA was $332 million when compared to $391 million in 2005. The year over year reduction is due primarily to the sale of 48 hotels since the second quarter of 2005 and stock option expenses, offset in part by increases in management fees and the Company's share of gains on the sale of several hotels in unconsolidated joint ventures.

The Company completed the sale of 33 hotels to Host Hotels & Resorts, Inc. ("Host") for approximately $4.1 billion. Since January 1, 2006, the Company has returned more than $3.9 billion to shareholders, including $2.8 billion in connection with the Host transaction, approximately $810 million for the repurchase of approximately 13.2 million shares of its stock and $276 million in dividends.

Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") today reported EPS from continuing operations for the second quarter of 2006 of $3.01 compared to $0.65 in the second quarter of 2005. Excluding special items, EPS from continuing operations was $0.74 for the second quarter of 2006 compared to $0.70 in the second quarter of 2005. Excluding special items, the effective income tax rate in the second quarter of 2006 was 13.7%. The effective tax rate includes an $11 million benefit following the favorable resolution of certain tax matters related to audits that closed during the quarter. Special items net to a $511 million benefit primarily due to significant one-time income tax benefits realized in connection with the Host transaction. Income from continuing operations, including the special items discussed above, was $680 million in the second quarter of 2006 compared to $145 million in 2005. Excluding special items, income from continuing operations was $169 million for the second quarter of 2006 compared to $156 million in 2005.

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

-Operating income was impacted as a result of the sale of 48 hotels since the second quarter of 2005. These hotels had $47 million of revenues and $36 million of expenses (before depreciation) in 2006 as compared to $371 million of revenues and $250 million of expenses (before depreciation) in the same quarter of 2005. These hotels generated approximately $25 million of management and franchise revenues in the second quarter of 2006.

--The Company implemented SFAS 123(R), "Share Based Payment," on January 1, 2006 which resulted in approximately $10 million of non-cash stock option expense.

Vacation ownership and residential operating income declined approximately $16 million due to the impact of percentage of completion accounting for pre-sales at projects under construction.

--The Company recorded an $18 million gain representing its share of gains on the sale of several hotels in unconsolidated joint ventures during the second quarter of 2006.

--Net income was $680 million and EPS was $3.01 in the second quarter of 2006 compared to net income of $145 million and EPS of $0.65 in the second quarter of 2005.

--Steven J. Heyer, CEO, said "I am very pleased with our results this quarter. We beat our expectations for Same Store Owned RevPar growth, delivering 12.8% in North America and 11% Worldwide, with all of our brands delivering solid results. Our flowthrough was truly outstanding. Margin growth of 360 basis points in North America and 300 basis points on a Worldwide basis, once again leading the industry and outperforming our expectations. Revenues in our management and franchise business were also very strong, delivering growth of 59.3% in the quarter. Our SVO pipeline remains full and vacation ownership demand remains strong, with contract sales up 31% in the quarter.

We have good momentum in our business and we're making progress on the objectives we set during our analyst day. All of our brands are moving full steam ahead with their initiatives to deliver branded signature services to our guests. Our Real Estate Group is driving growth in our pipeline, with deal signings up 43% year to date.

I am confident that our recent appointment of Matt Ouimet, President, Hotel Group and the combination of the Real Estate Group with SVO will only enhance our ability to drive future results. As we promised at our Investor Day, we're looking very hard at our owned hotel portfolio. We already have 15 hotels out on the market for sale and we're assessing redevelopment opportunities at several other locations.

Since our window for share repurchase opened in November of 2005, we have bought back more than $1 billion of our stock and returned another $3.1 billion back to shareholders in connection with the Host transaction and dividends paid during the year. We remain committed to successfully growing our business and creating value for our shareholders."

Operating Results Second Quarter Ended June 30, 2006

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR for Same-Store Owned Hotels increased 11.0%. REVPAR at Same-Store Owned Hotels in North America increased 12.8%. REVPAR growth was particularly strong at the Company's owned hotels in Boston, Los Angeles, Chicago and Toronto. Internationally, Same-Store Owned Hotel REVPAR increased 8.8% excluding the impact of foreign exchange, and as reported, in US dollars, Same-Store Owned Hotel REVPAR increased 7.4%.

Revenues at Same-Store Owned Hotels in North America increased 12.2% while costs and expenses increased 7.1% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 360 basis points.

Revenues at Same-Store Owned Hotels Worldwide increased 9.8% while costs and expenses increased 5.4% when compared to 2005. Margins at Starwood branded Same-Store Hotels increased 300 basis points.

Reported revenues at owned, leased and consolidated joint venture hotels were $674 million when compared to $939 million in 2005. Reported revenues were impacted by the sale of 48 hotels since the second quarter of 2005. These hotels contributed $47 million in revenues in 2006 compared to $371 million in the same quarter of 2005.

Reported operating income from owned, leased and consolidated joint venture hotels was impacted by the sale of 48 hotels since the second quarter of 2005. These hotels had $47 million of revenues and $36 million of expenses (before depreciation) in 2006 as compared to $371 million of revenues and $250 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 9.7% compared to the second quarter of 2005 including 13.6% in Latin America, 12.5% in Africa & the Middle East, 10.5% in North America, 8.6% in Europe and 5.0% in Asia Pacific. The 10.5% increase in System-wide REVPAR for Same-Store Hotels in North America by brand is: St. Regis/Luxury Collection 16.3%, W Hotels 11.6%, Sheraton 10.5% and Westin 10.3%.

Management fees, franchise fees and other income were $174 million, up $55 million, or 46.2%, from the second quarter of 2005. Management fees grew 70.9% to $94 million and franchise fees grew 19.2% to $31 million. The increases are related to the addition of new hotels (including Le Meridien hotels and the hotels sold to 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 Meridien hotels contributed $23 million and $16 million, respectively, of management and franchise revenues during the second quarter of 2006. Worldwide Le Meridien hotels that were in operation during both periods had REVPAR growth of 10.7% in the second quarter of 2006 when compared to 2005 with ADR increasing 9.1% and occupancy increasing 100 basis points.

During the second quarter of 2006, the Company signed 32 hotel management and franchise contracts (representing approximately 8,200 rooms: 7 Sheraton, 7 Four Points by Sheraton, 6 Westin, 4 W Hotels, 4 Le Meridien, 2 aloft, 1 St. Regis, and 1 Luxury Collection) including the Westin San Francisco (San Francisco, California, 667 rooms), Westin Aruba Resort & Spa (Palm Beach, Aruba, 478 rooms) and the W Doha (Doha, Qatar, 443 rooms). Of the hotels signed in the quarter, 20 were new builds and 12 were conversions from other brands. The Company's active global development pipeline grew to approximately 300 hotels with more than 80,000 rooms at June 30, 2006, driven by strong interest in its Le Meridien and aloft brands. Roughly half of its pipeline is in international locations. The Company continues to target signing approximately 150 hotel management and franchise contracts in 2006.

During the second quarter of 2006, 14 new hotels and resorts (representing approximately 5,100 rooms) entered the system, including the Westin Boston, Seaport Hotel (Boston, Massachusetts, 790 rooms) and the Sheraton Philadelphia City Center (Philadelphia, Pennsylvania, 757 rooms). Nine properties (representing approximately 1,000 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 31.0%, total vacation ownership reported revenues decreased 1.0% to $191 million when compared to 2005 due primarily to the impact of percentage of completion accounting for pre-sales at projects under construction. The average price per vacation ownership unit sold increased approximately 12.7% to $25,413, and the number of contracts signed increased approximately 16.4% when compared to 2005.

While reported revenues declined slightly year over year as discussed above, reported expenses increased primarily as a result of the accelerated recognition of sales and marketing expenses in accordance with the new timeshare accounting rules which were implemented effective January 1, 2006.

During the second quarter of 2006, the Company was actively selling vacation ownership interests at 15 resorts compared to 11 resorts in the second quarter 2005. The Company acquired approximately 30 acres in Palm Desert, California near its Westin Mission Hills Resort and plans to build a Westin-branded vacation ownership resort. In addition, the Company purchased land in Aruba where it plans to build a 154 unit Westin-branded vacation ownership resort adjacent to a hotel that joined Starwood's system in the second quarter and will be converted to the Westin Aruba Resort & Spa. The Company expects to break ground and begin sales on both these projects in early 2007. Starwood Vacation Ownership is also in the predevelopment phase of several other new vacation ownership resorts.

Residential

The Company recognized residential revenues of approximately $43 million from sales at the St. Regis in New York and the St. Regis Museum Tower in San Francisco. During the second quarter, the Company sold the remaining two condominiums in San Francisco, and to date the Company has recognized approximately $248 million in revenues from the sale of the project's 102 condominiums. Also during the quarter, the Company entered into contracts to sell 7 condominiums at the St. Regis in New York.

Selling, General, Administrative and Other

Selling, general, administrative and other expenses increased 28.7% to $121 million compared to the second quarter of 2005. Approximately $9 million of the increase is related to stock based compensation, including approximately $8 million of stock option expense. The increase is also due to higher costs of sales and other expenses at the Company's Bliss Spa business driven by its growth as well as additional overhead associated with the Le Meridien acquisition.

Asset Sales

During the second quarter of 2006, the Company completed the sale of 33 hotels to Host for total consideration of approximately $4.1 billion (including cash, Host stock and the assumption of debt).

In addition to the portfolio of hotels sold to Host, during the second quarter of 2006, the Company sold one wholly-owned hotel for cash proceeds of approximately $56 million. On May 23, 2006 the Company announced its intention to sell $500 million to $1 billion of assets over a 12-18 month period. It is anticipated that three hotels will be sold in the third quarter of 2006 for cash proceeds of approximately $90 million.

Capital

Gross capital spending during the quarter included approximately $69 million in renovations of hotel assets including construction capital at the Sheraton Centre Toronto Hotel in Toronto, Canada and the Westin Resort & Spa, Cancun in Cancun, Mexico. Investment spending on gross vacation ownership interest ("VOI") inventory was $102 million, which was offset by cost of sales of $46 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, Hawaii, the Westin Aruba Resort & Spa in Palm Beach, Aruba, the Westin Princeville Resort in Kauai, Hawaii and the Westin Lagunamar Resort in Cancun, Mexico.

Share Repurchase

During the second quarter of 2006, the Company repurchased approximately 5.1 million shares at a total cost of approximately $305 million. From July 1, 2006 through July 26, 2006, the Company repurchased approximately 1.0 million shares at a total cost of approximately $58 million. Year to date through July 26, 2006, the Company repurchased approximately 13.2 million shares at a total cost of approximately $810 million. At July 26, 2006, approximately $833 million remained available under the Company's share repurchase authorization. Starwood had approximately 219 million shares outstanding (including partnership units) at June 30, 2006.

Dividend

The Company's former REIT subsidiary declared a second quarter dividend of $0.21 per share, which was paid on April 7, 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 June 30, 2006, the Company had total debt of $2.820 billion and cash and cash equivalents (including $329 million of restricted cash) of $635 million, or net debt of $2.185 billion, compared to net debt of $3.171 billion at the end of the first quarter of 2006.

At June 30, 2006, debt was approximately 62% fixed rate and 38% floating rate and its weighted average maturity was 4.8 years with a weighted average interest rate of 6.86%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $1.823 billion.

During the second quarter of 2006, the Company redeemed its convertible bonds. The Company settled the $360 million of principal in cash, and it settled the conversion spread by issuing Company shares. Also during the second quarter of 2006, the Company redeemed $150 million of 7.75% debentures issued by its former subsidiary, Sheraton Holding Corporation.

Results for the Six Months Ended June 30, 2006

EPS from continuing operations increased to $3.34 compared to $1.01 in 2005. Excluding special items, EPS from continuing operations was $1.15 compared to $1.05 in 2005. Excluding special items, income from continuing operations was $260 million compared to $233 million in 2005. Net income was $685 million and EPS was $3.02 compared to $224 million and $1.01, respectively, in 2005. Total Company Adjusted EBITDA, which was significantly impacted by the sale of 50 hotels since the beginning of 2005, was $598 million compared to $679 million in 2005.

Outlook

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

-- The impact of three hotel sales which are expected to close in the third quarter and the sale of 10 hotels in joint ventures that we hold minority interest in, offset by the retention of two hotels in Fiji that were previously expected to be sold to Host.

-- The transfer of $17 million of income from condominium sales from 2006 into 2007.

-- A reduction in business interruption insurance of $5 million in the third quarter of 2006 that was collected in the second quarter of 2006. For the three months ending September 30, 2006:

-- Adjusted EBITDA would be expected to be approximately $300 million assuming:

-- REVPAR at Same-store Owned Hotels in North Americaincreases approximately 9% -11% versus the same period in 2005.

-- North America Same-Store Owned Hotel EBITDA growth of13%-15% with owned hotel margin improvement of approximately 150 - 200 basis points.

-- Growth from management and franchise revenues of approximately 50% to 55% including revenues earned from the hotels sold to Host, and 25% to 30%, excluding the hotels sold to Host.

-- Operating income from our vacation ownership andresidential business in line with the third quarter of2005, due to timing of residential sales.

-- Income from continuing operations, excluding special items, would be expected to be approximately $109 million at an effective tax rate of approximately 35%.

-- EPS would be expected to be approximately $0.49.

For the full year 2006:

-- Adjusted EBITDA would be expected to be approximately $1.275 billion assuming:

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

-- North America Same-Store Owned Hotel EBITDA growth of 19% - 20% with owned hotel margin improvement of approximately 200 - 250 basis points.-- Growth from management and franchise revenues of over 50% including revenues from the hotels sold to Host and approximately 25 - 30%, excluding revenues from the hotelssold 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 $531 million at an effective tax rate of approximately 26%.

-- Full year EPS would be expected to be approximately $2.37.

-- 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.

The Company's guidance excludes the first and second quarter special items discussed below as well as:

-- Transition costs of approximately $6 million for the remainder of the year associated with the Le Meridien transaction which closed in 2005.