Starwood Reports Third Quarter 2006 Results

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 Méridien 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 Méridien 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 Méridien 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 Méridien hotels contributed $27 million and $16 million, respectively, of management and franchise revenues during the third quarter of 2006. Worldwide Le Méridien 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 Méridien, 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. 3 Year Outlook 2007 Guidance North America Same-Store Owned Hotels REVPAR growth 7-9% 7-9% North America Same-Store Owned Hotels margin improvement 300-400 bps by 2009 100-150 bps North America Same-Store Owned Hotels EBITDA growth 12-14% 12-14% Management and franchise revenue growth 13-15% 13-15% SVO growth 18-20% (’06-’09) 25-30% (’07) 25-30% Residential Not Provided(1) Down $10-15M Adjusted EBITDA growth 13-15% 13-15% EPS growth 20-23% 20-23% (1) No three year guidance was provided for the residential business at the Company’s investor day meetings. 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. Reconciliation to reflect the sale or closure of assets assuming the closing occurred on January 1, 2006    (in millions)   2006 Adjusted EBITDA guidance (1) $ 1,300  Adjustments to estimate the full year impact of 44 owned hotels sold or expected to be sold during 2006 Less: Revenues from hotels sold or expected to sell in 2006 (375) Add: Expenses from hotels sold or expected to sell in 2006 291  Add: Expected fees from hotels sold encumbered by management or franchise contracts as if managed or franchised from January 1, 2006 17  Add: Expected amortization of gains from hotels sold, subject to long-term management contracts, as if the transactions closed on January 1, 2006 13  Adjustments to estimate the JV hotels sold as if the transactions closed on January 1, 2006 Less: Earnings in 2006 from unconsolidated JV hotels sold (32) Adjustments for two hotels which have closed or are expected to close for redevelopment Less: Revenues from hotels expected to close for redevelopment (57) Add: Expenses from hotels expected to close for redevelopment 45  Estimated 2006 Adjusted EBITDA to reflect the full-year effect of assets sold or closed $ 1,202    (1)  See page 14 for the non-GAAP to GAAP reconciliation of EBITDA guidance. 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): Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    $ 148  $ 131  Income from continuing operations before special items $ 408  $ 364  $ 0.68  $ 0.58  EPS before special items $ 1.82  $ 1.63    Special Items 1  —  Restructuring and other special credits (charges), net (a) (11) —  —  —  Debt defeasance costs (b) (37) —  —  —  Debt extinguishment costs (c) (7) —  (18) (16) (Loss) gain on asset dispositions and impairments, net (d) 1  (32) (17) (16) Total special items – pre-tax (54) (32) 5  6  Income tax benefit for special items (e) 21  11  18  —  Income tax benefits related to the transaction with Host (f) 514  —  —  (47) Tax expense and repatriation of foreign earnings —  (47) 1  (34) Reserves and credits associated with tax matters (g) 23  (32) 7  (91) Total special items – after-tax 504  (100)   $ 155  $ 40  Income from continuing operations $ 912  $ 264  $ 0.71  $ 0.18  EPS including special items $ 4.06  $ 1.18    (a)  Restructuring and other special credits (charges), net primarily      related to transition costs associated with the Le Meridien      transaction.     (b)  During the three months ended March 31, 2006, the Company      completed two transactions whereby it was released from certain      debt obligations that allowed Starwood to sell certain hotels      that previously served as collateral for such debt.  The Company      incurred expenses totaling $37 million in connection with the      early extinguishment of these debt obligations.  These expenses      are reflected in interest expense in the Company's consolidated      statement of income.   (c)  During the three months ended June 30, 2006, the Company incurred      costs of approximately $7 million related to the early      extinguishment of $150 million of debentures issued by its former      subsidiary, Sheraton Holding Corporation.  These expenses are      reflected in interest expense in the Company's consolidated      statement of income.   (d)  For the three months ended September 30, 2006, primarily reflects      $36 million in losses recognized in connection with the sale of      the Sheraton Colony Square and the Sheraton Colonial, offset by a      $13 million gain on the sale of Starwood's interest in the joint      venture that owns the Westin La Cantera and a $6 million gain as      a result of insurance proceeds received for the Sheraton Cancun      as reimbursement for property damage from Hurricane Wilma.   (e)  Represents taxes on special items at the Company's incremental      tax rate.   (f)  Primarily relates to a deferred tax asset recognized on the      deferred gain and other one-time tax benefits realized in      connection with the Host sale.   (g)  Income tax benefit in the nine months ended September 30, 2006      primarily relates to the reversal of tax reserves no longer      deemed necessary as the related contingencies have been resolved.      Income tax expense in the three and nine months ended September      30, 2005 is due to increases in tax reserves related to the      Company's 1998 disposition of the World Directories business,      offset by tax refunds related to the 1995 split-up of ITT      Corporation. 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 (719) 457-0820 (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® Hotels is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis®, The Luxury Collection®, Sheraton®, Westin®, Four Points® by Sheraton, W®, Le Méridien® 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. ** Please contact Starwood's new, toll-free media hotline at (866) 4-STAR-PR (866-478-2777) for photography or additional information.** 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. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per Share data)   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  % Variance 2006  2005  % Variance Revenues $ 594  $ 871  (31.8) Owned, leased and consolidated joint venture hotels $ 2,090  $ 2,623  (20.3) 255  233  9.4  Vacation ownership and residential sales and services 683  697  (2.0) 182  126  44.4  Management fees, franchise fees and other income 488  349  39.8  430  266  61.7  Other revenues from managed and franchised properties (a) 1,146  792  44.7  1,461  1,496  (2.3) 4,407  4,461  (1.2) Costs and Expenses 443  646  31.4  Owned, leased and consolidated joint venture hotels 1,575  1,962  19.7  183  169  (8.3) Vacation ownership and residential 532  503  (5.8) 115  98  (17.3) Selling, general, administrative and other 342  274  (24.8) (1) —  100.0  Restructuring and other special (credits) charges, net 11  —  (100.0) 70  99  29.3  Depreciation 210  305  31.1  11  4  (175.0) Amortization 21  13  (61.5) 430  266  (61.7) Other expenses from managed and franchised properties (a) 1,146  792  (44.7) 1,251  1,282  2.4  3,837  3,849  (0.3) 210  214  (1.9) Operating income 570  612  (6.9) 8  9  (11.1) Equity earnings and gains and losses from unconsolidated ventures, net 46  40  15.0  (28) (59) 52.5  Interest expense, net of interest income of $17, $6, $26 and $11 (175) (181) 3.3  (18) (16) (12.5) (Loss) gain on asset dispositions and impairments, net 1  (32) 103.1  172  148  16.2  Income from continuing operations before taxes and minority equity 442  439  0.7  (17) (107) n/m  Income tax (expense) benefit 470  (175) n/m  —  (1) n/m  Minority equity in net income —  —  —  155  40  n/m  Income from continuing operations 912  264  n/m  Discontinued Operations: —  (1) n/m  Loss from operations —  (1) n/m  —  —  —  Cumulative effect of accounting change ( (72) —  n/m  $ 155  $ 39  n/m  Net income $ 840  $ 263  n/m  Earnings (Loss) Per Share – Basic $ 0.73  $ 0.19  n/m  Continuing operations $ 4.26  $ 1.22  n/m  —  (0.01) n/m  Discontinued operations —  —  —  —  —  —  Cumulative effect of accounting change (0.33) —  —  $ 0.73  $ 0.18  n/m  Net income $ 3.93  $ 1.22  n/m  Earnings (Loss) Per Share – Diluted $ 0.71  $ 0.18  n/m  Continuing operations $ 4.06  $ 1.18  n/m  —  (0.01) n/m  Discontinued operations —  —  —  —  —  —  Cumulative effect of accounting change (0.32) —  —  $ 0.71  $ 0.17  n/m  Net income $ 3.74  $ 1.18  n/m    212  218  Weighted average number of Shares 214  216  220  226  Weighted average number of Shares assuming dilution 224  223    (a)  The Company includes in revenues the reimbursement of costs      incurred on behalf of managed hotel property owners and      franchisees with no added margin and includes in costs and      expenses these reimbursed costs.  These costs relate primarily to      payroll costs at managed properties where the Company is the      employer. n/m = not meaningful STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS (in millions, except share data)   September 30, 2006 December 31, 2005 (unaudited) Assets Current assets: Cash and cash equivalents $ 315  $ 897  Restricted cash 312  295  Accounts receivable, net of allowance for doubtful accounts of $46 and $50 644  642  Inventories 516  280  Prepaid expenses and other 179  169  Total current assets 1,966  2,283  Investments 415  403  Plant, property and equipment, net 3,816  4,169  Assets held for sale (a) 23  2,882  Goodwill and intangible assets, net 2,331  2,315  Deferred tax assets 375  40  Other assets (b) 440  402  $ 9,366  $ 12,494  Liabilities and Stockholders’ Equity Current liabilities: Short-term borrowings and current maturities of long-term debt (c) $ 729  $ 1,219  Accounts payable 151  156  Accrued expenses 339  1,049  Accrued salaries, wages and benefits 904  297  Accrued taxes and other 72  158  Total current liabilities 2,195  2,879  Long-term debt (c) 2,345  2,849  Long-term debt held for sale (d) —  77  Deferred tax liabilities 65  602  Other liabilities 1,986  851  6,591  7,258  Minority interest 25  25  Commitments and contingencies Stockholders’ equity: Class A exchangeable preferred shares of the Trust; $0.01 par value; authorized 30,000,000 shares; outstanding 0 and 562,222 shares at September 30, 2006 and December 31, 2005, respectively —  —  Class B exchangeable preferred shares of the Trust; $0.01 par value; authorized 15,000,000 shares; outstanding 0 and 24,627 shares at September 30, 2006 and December 31, 2005, respectively —  —  Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares; outstanding 211,798,871 and 217,218,781 shares at September 30, 2006 and December 31, 2005, respectively 2  2  Trust Class B shares of beneficial interest; $0.01 par value; authorized 1,000,000,000 shares; outstanding 0 and 217,218,781 shares at September 30, 2006 and December 31, 2005, respectively —  2  Additional paid-in capital 2,162  5,412  Deferred compensation —  (53) Accumulated other comprehensive loss (249) (322) Retained earnings 835  170  Total stockholders’ equity 2,750    5,211  $ 9,366    $ 12,494    (a)  At September 30, 2006, includes 2 hotels expected to be sold in      the fourth quarter of 2006.  At December 31, 2005, includes 33      hotels that were sold in the second quarter of 2006 in connection      with the definitive agreement signed on November 14, 2005 with      Host Hotels & Resorts, Inc. and 3 hotels that had signed      definitive agreements at December 31, 2005 and were sold in the      first quarter of 2006.   (b)  Includes restricted cash of $10 million and $12 million at      September 30, 2006 and December 31, 2005, respectively.   (c)  Excludes Starwood’s share of unconsolidated joint venture debt      aggregating approximately $390 million and $469 million at      September 30, 2006 and December 31, 2005, respectively.   (d)  Represents the debt that was assumed by Host in connection with      the definitive agreement signed on November 14, 2005. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Non-GAAP to GAAP Reconciliations – Historical Data (in millions)   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  % Variance 2006  2005  % Variance   Reconciliation of Net Income to EBITDA and Adjusted EBITDA $ 155  $ 39  n/m  Net income $ 840  $ 263  n/m  50  70  (28.6) Interest expense(a) 216  207  4.3  17  107  n/m  Income tax (benefit) expense (470) 175  n/m  77  108  (28.7) Depreciation(b) 233  330  (29.4) 12  6  100.0  Amortization (c) 25  18  38.9  311  330  (5.8) EBITDA 844  993  (15.0) 18  16  12.5  Loss (gain) on asset dispositions and impairments, net (1) 32  (103.1) (1) —  n/m  Restructuring and other special charges, net 11  —  n/m  —  1  n/m  Discontinued operations —  1  n/m  —  —  —  Cumulative effect of accounting change 72  —  n/m  $ 328  $ 347  (5.5) Adjusted EBITDA $ 926  $ 1,026  (9.7)   (a) Includes $5 million and $5 million of interest expense related to     unconsolidated joint ventures for the three months ended September     30, 2006 and 2005, respectively, and $15 million and $15 million     for the nine months ended September 30, 2006 and 2005,     respectively.     (b) Includes $7 million and $9 million of Starwood’s share of     depreciation expense of unconsolidated joint ventures for the     three months ended September 30, 2006 and 2005, respectively, and     $23 million and $25 million for the nine months ended September     30, 2006 and 2005, respectively.     (c) Includes $1 million and $2 million of Starwood’s share of     amortization expense of unconsolidated joint ventures for the     three months ended September 30, 2006 and 2005, respectively, and     $4 million and $5 million for the nine months ended September 30,     2006 and 2005, respectively. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Non-GAAP to GAAP Reconciliations – Future Performance (In millions)   Three Months Ended December 31, 2006 Year Ended December 31, 2006   $ 158  Net income $ 994  52  Interest expense 266  76  Income tax expense (388) 88  Depreciation and amortization 346  374  EBITDA 1,218  —  Gain on asset disposition and impairments, net (1) —  Restructuring and other special charges, net 11  —  Cumulative effect of accounting change 72  $ 374  Adjusted EBITDA $ 1,300  Three Months Ended December 31, 2006 Year Ended December 31, 2006   $ 158  Income from continuing operations 1,066  $ 0.73  EPS $ 4.81    Special Items —  Restructuring and other special charges, net 11  —  Debt defeasance costs 37  —  Debt extinguishment costs 7  —  Gain on asset dispositions and impairments, net (1) —  Total special items – pre-tax 54  —  Income tax benefit on special items (18) --  Income tax benefit related to the transaction with Host (514) —  Reserves and credits associated with tax matters (23) —  Total special items – after-tax (501)   $ 158  Income from continuing operations excluding special items $ 565  $ 0.73  EPS excluding special items $ 2.55  Three Months Ended December 31, 2005 Year Ended December 31, 2005   $ 159  Net income $ 422  76  Interest expense 283  44  Income tax expense 218  93  Depreciation 423  8  Amortization 26  380  EBITDA 1,372  (2) Loss on asset dispositions and impairments, net 30  —  Discontinued operations 2  13  Restructuring and other special charges, net 13  $ 391  Adjusted EBITDA $ 1,417      Year Ended December 31, 2007 Low High Net income $ 520  $ 533  Interest expense 215  215  Income tax expense 280  287    Depreciation and amortization 340  340  EBITDA $ 1,355  $ 1,375      STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Non-GAAP to GAAP Reconciliations – Same Store Owned Hotel Revenue and Expenses (In millions)   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  % Variance Same-Store Owned Hotels (1) Worldwide 2006  2005  % Variance   Revenue $ 500  $ 462  8.1  Same-Store Owned Hotels $ 1,434  $ 1,321  8.5  14  344  (95.9) Hotels Sold or Closed in 2006 and 2005 (54 hotels) 376  1,058  (64.5) 75  60  25.4  Hotels Without Comparable Results (12 hotels) 274  238  14.8  5  5  7.3  Other ancillary hotel operations 6  6  7.2  $ 594  $ 871  (31.8) Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 2,090  $ 2,623  (20.3)   Costs and Expenses $ 366  $ 343  6.8  Same-Store Owned Hotels $ 1,069  $ 1,008  6.0  11  247  95.5  Hotels Sold or Closed in 2006 and 2005 (54 hotels) 288  765  62.4  64  55  n/a  Hotels Without Comparable Results (12 hotels) 215  185  (16.3) 2  1  (24.5) Other ancillary hotel operations 3  4  (2.9) $ 443  $ 646  31.4  Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 1,575  $ 1,962  19.7      Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  % Variance Same-Store Owned Hotels North America 2006  2005  % Variance   Revenue $ 321  $ 299  7.3  Same-Store Owned Hotels $ 936  $ 850  10.1  13  287  (95.6) Hotels Sold or Closed in 2006 and 2005 (43 hotels) 304  863  (64.8) 59  43  36.5  Hotels Without Comparable Results (8 hotels) 232  188  23.3  $ 393  $ 629  (37.5) Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 1,472  $ 1,901  (22.6)   Costs and Expenses $ 236  $ 224  5.4  Same-Store Owned Hotels $ 691  $ 647  6.8  11  207  (94.7) Hotels Sold or Closed in 2006 and 2005 (43 hotels) 237  629  (62.5) 53  43  21.5  Hotels Without Comparable Results (8 hotels) 183  149  23.2  $ 300  $ 474  36.9  Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 1,111  $ 1,425  22.1    Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  % Variance Same-Store Owned Hotels International 2006  2005  % Variance   Revenue $ 179  $ 163  9.5  Same-Store Owned Hotels $ 498  $ 471  5.8  1  57  (97.3) Hotels Sold or Closed in 2006 and 2005 (11 hotels) 72  195  (62.9) 16  17  (3.7) Hotels Without Comparable Results (4 hotels) 42  50  (16.9) 5  5  7.3  Other ancillary hotel operations 6  6  7.2  $ 201  $ 242  (16.8) Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 618  $ 722  (14.3)   Costs and Expenses $ 130  $ 119  9.6  Same-Store Owned Hotels $ 378  $ 361  4.5  —  40  (99.7) Hotels Sold or Closed in 2006 and 2005 (11 hotels) 51  136  (62.2) 11  12  (6.8) Hotels Without Comparable Results (4 hotels) 32  36  (12.4) 2  1  24.5  Other ancillary hotel operations 3  4  2.9  $ 143  $ 172  16.5  Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 464  $ 537  13.5    (1) Same-Store Owned Hotel Results exclude 54 hotels sold or closed in     2006 and 2005 and 12 hotels without comparable results; Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Three Months Ended September 30, 2006 UNAUDITED   System Wide (1) - Worldwide System Wide (1) - North America System Wide (1) - International 2006  2005  Var. 2006  2005  Var. 2006  2005  Var.     TOTAL HOTELS REVPAR ($) 112.54  103.07  9.2% 112.40  104.55  7.5% 112.78  100.62  12.1% ADR ($) 155.31  142.43  9.0% 149.66  139.30  7.4% 165.66  148.17  11.8% OCCUPANCY (%) 72.5% 72.4% 0.1  75.1% 75.1% 0.0  68.1% 67.9% 0.2      SHERATON REVPAR ($) 99.73  91.79  8.7% 105.61  98.91  6.8% 92.92  83.56  11.2% ADR ($) 140.27  128.41  9.2% 141.27  131.48  7.4% 138.97  124.45  11.7% OCCUPANCY (%) 71.1% 71.5% -0.4  74.8% 75.2% -0.4  66.9% 67.1% -0.2      WESTIN REVPAR ($) 124.37  114.60  8.5% 120.50  111.11  8.5% 136.89  125.82  8.8% ADR ($) 169.82  157.24  8.0% 163.28  151.60  7.7% 191.62  175.84  9.0% OCCUPANCY (%) 73.2% 72.9% 0.3  73.8% 73.3% 0.5  71.4% 71.6% -0.2      ST. REGIS/LUXURY COLLECTION REVPAR ($) 277.27  235.77  17.6% 186.94  165.79  12.8% 337.57  283.32  19.1% ADR ($) 385.41  346.40  11.3% 261.99  244.91  7.0% 466.69  414.75  12.5% OCCUPANCY (%) 71.9% 68.1% 3.8  71.4% 67.7% 3.7  72.3% 68.3% 4.0      W REVPAR ($) 216.80  195.57  10.9% 225.80  203.10  11.2% 130.84  123.73  5.7% ADR ($) 272.15  248.38  9.6% 274.28  250.28  9.6% 241.20  221.93  8.7% OCCUPANCY (%) 79.7% 78.7% 1.0  82.3% 81.1% 1.2  54.2% 55.8% -1.6      FOUR POINTS REVPAR ($) 73.19  67.02  9.2% 73.19  67.64  8.2% 73.19  65.07  12.5% ADR ($) 99.26  92.54  7.3% 98.49  92.14  6.9% 101.72  93.87  8.4% OCCUPANCY (%) 73.7% 72.4% 1.3  74.3% 73.4% 0.9  71.9% 69.3% 2.6      OTHER REVPAR ($) 109.81  111.72  -1.7% 109.81  111.72  -1.7% ADR ($) 126.30  125.28  0.8% 126.30  125.28  0.8% OCCUPANCY (%) 86.9% 89.2% -2.3  86.9% 89.2% -2.3        (1) Includes same store owned, leased, managed, and franchised hotels Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Three Months Ended September 30, 2006 UNAUDITED   System Wide (1) Company Operated (2) 2006  2005  Var. 2006  2005  Var.     TOTAL WORLDWIDE REVPAR ($) 112.54  103.07  9.2% 126.26  115.61  9.2% ADR ($) 155.31  142.43  9.0% 171.73  156.90  9.5% OCCUPANCY (%) 72.5% 72.4% 0.1  73.5% 73.7% -0.2      NORTH AMERICA REVPAR ($) 112.40  104.55  7.5% 132.53  122.93  7.8% ADR ($) 149.66  139.30  7.4% 171.55  159.13  7.8% OCCUPANCY (%) 75.1% 75.1% 0.0  77.3% 77.3% 0.0      EUROPE REVPAR ($) 157.54  134.87  16.8% 180.76  155.22  16.5% ADR ($) 221.82  197.27  12.4% 250.18  224.06  11.7% OCCUPANCY (%) 71.0% 68.4% 2.6  72.3% 69.3% 3.0      AFRICA & MIDDLE EAST REVPAR ($) 85.45  77.33  10.5% 86.87  79.18  9.7% ADR ($) 129.77  114.80  13.0% 131.34  114.93  14.3% OCCUPANCY (%) 65.8% 67.4% -1.6  66.1% 68.9% -2.8      ASIA PACIFIC REVPAR ($) 97.29  91.73  6.1% 96.89  91.74  5.6% ADR ($) 140.48  129.49  8.5% 136.54  126.60  7.9% OCCUPANCY (%) 69.3% 70.8% -1.5  71.0% 72.5% -1.5      LATIN AMERICA REVPAR ($) 63.47  58.47  8.6% 67.36  63.78  5.6% ADR ($) 108.15  99.66  8.5% 120.41  110.17  9.3% OCCUPANCY (%) 58.7% 58.7% 0.0  55.9% 57.9% -2.0        (1) Includes same store owned, leased, managed, and franchised hotels (2) Includes same store owned, leased, and managed hotels Starwood Hotels & Resorts Worldwide, Inc. Owned Hotel Results - Same Store (1) For the Three Months Ended September 30, 2006 UNAUDITED     WORLDWIDE NORTH AMERICA INTERNATIONAL 2006  2005  Var. 2006  2005  Var. 2006  2005  Var.   76 Hotels 46 Hotels 30 Hotels TOTAL HOTELS REVPAR ($) 142.08  128.52  10.6% 140.50  128.85  9.0% 145.31  127.86  13.6% ADR ($) 190.53  175.81  8.4% 178.87  166.54  7.4% 218.45  198.29  10.2% OCCUPANCY (%) 74.6% 73.1% 1.5  78.5% 77.4% 1.1  66.5% 64.5% 2.0    Total REVENUE 499,899  462,517  8.1% 321,437  299,482  7.3% 178,462  163,035  9.5% Total EXPENSES 366,476  343,069  6.8% 235,783  223,789  5.4% 130,693  119,280  9.6%         67 Hotels 37 Hotels 30 Hotels BRANDED HOTELS REVPAR ($) 144.66  129.49  11.7% 144.28  130.43  10.6% 145.31  127.86  13.6% ADR ($) 194.49  178.88  8.7% 182.91  169.53  7.9% 218.45  198.29  10.2% OCCUPANCY (%) 74.4% 72.4% 2.0  78.9% 76.9% 2.0  66.5% 64.5% 2.0    Total REVENUE 462,066  422,356  9.4% 283,604  259,321  9.4% 178,462  163,035  9.5% Total EXPENSES 338,458  314,141  7.7% 207,765  194,861  6.6% 130,693  119,280  9.6%       (1) Hotel Results exclude 51 hotels sold and 11 hotels without comparable results during 2005 & 2006 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Management Fees, Franchise Fees and Other Income For the Three Months Ended September 30, 2006 UNAUDITED ($ millions)       Worldwide 2006  2005  Variance % Variance   Management Fees: Base Fees 65  37  28  75.7% Incentive Fees 34  22  12  54.5% Total Management Fees 99  59  40  67.8%   Franchise Fees 31  25  6  24.0%   Total Management & Franchise Fees 130  84  46  54.8%   Other Management & Franchise Revenues (1) 26  7  19  271.4%   Total Management & Franchise Revenues 156  91  65  71.4%   Other (2) 26  35  (9) (25.7)%   Management Fees, Franchise Fees and Other Income 182  126  56  44.4%     (1) Other Management & Franchise Fees primarily includes the amortization of deferred gains of approximately $19 million in 2006 and $3 million in 2005 resulting from the sales of hotels subject to long-term management contracts and termination fees.     (2) Other primarily includes revenues from Bliss and other miscellaneous revenue. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership & Residential Revenues and Expenses For the Three Months Ended September 30, 2006 UNAUDITED ($ millions)       2006  2005  % Variance   Originated Sales Revenues (1) -- Vacation Ownership Sales 185  163  13.5% Other Sales and Services Revenues (2) 34  28  21.4% Deferred Revenues -- Percentage of Completion 20  (23) n/m  Deferred Revenues -- Other (3) 10  6  n/m  Vacation Ownership Sales and Services Revenues 249  174  43.1% Residential Sales and Services Revenues 6  59  (89.8%) Total Vacation Ownership & Residential Sales and Services Revenues 255  233  9.4%   Originated Sales Expenses (4) -- Vacation Ownership Sales 113  107  (5.6%) Other Expenses (5) 39  29  (34.5%) Deferred Expenses -- Percentage of Completion 14  (13) n/m  Deferred Expenses -- Other 12  3  (33.3%) Vacation Ownership Expenses 178  126  (41.3%) Residential Expenses 5  43  88.4% Total Vacation Ownership & Residential Expenses 183  169  (8.3%)     (1) Timeshare sales revenue originated at each sales location before deferrals of revenue for U.S. GAAP reporting purposes (2) Includes resort income, interest income, gain on sale of notes receivable, and miscellaneous other revenues (3) Includes deferral of revenue for contracts still in rescission period, contracts that do not yet meet the requirements of SFAS No. 66 or SFAS No. 152 and, in 2006, provision for loan loss (4) Timeshare cost of sales and sales & marketing expenses before deferrals of sales expenses for U.S. GAAP reporting purposes (5) Includes resort, general and administrative, and other miscellaneous expenses   Note: Deferred revenue is calculated based on the Percentage of Completion ("POC") of the project. Deferred expenses, also based on POC, include product costs and direct sales and marketing costs only. Indirect sales and marketing costs are no longer deferred per SFAS 152 as of January 1, 2006.   Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Nine Months Ended September 30, 2006 UNAUDITED   System Wide (1) - Worldwide System Wide (1) - North America System Wide (1) - International 2006  2005  Var. 2006  2005  Var. 2006  2005  Var.     TOTAL HOTELS REVPAR ($) 109.33  99.84  9.5% 111.42  101.63  9.6% 105.85  96.87  9.3% ADR ($) 154.87  143.21  8.1% 152.71  141.08  8.2% 158.82  147.09  8.0% OCCUPANCY (%) 70.6% 69.7% 0.9  73.0% 72.0% 1.0  66.6% 65.9% 0.7      SHERATON REVPAR ($) 97.49  89.12  9.4% 102.13  93.62  9.1% 92.10  83.89  9.8% ADR ($) 140.52  129.02  8.9% 141.54  130.20  8.7% 139.24  127.52  9.2% OCCUPANCY (%) 69.4% 69.1% 0.3  72.2% 71.9% 0.3  66.1% 65.8% 0.3      WESTIN REVPAR ($) 126.39  115.98  9.0% 125.57  113.90  10.2% 129.07  122.75  5.1% ADR ($) 175.35  163.36  7.3% 171.45  158.05  8.5% 188.91  181.72  4.0% OCCUPANCY (%) 72.1% 71.0% 1.1  73.2% 72.1% 1.1  68.3% 67.6% 0.7      ST. REGIS/LUXURY COLLECTION REVPAR ($) 237.68  211.21  12.5% 208.71  183.47  13.8% 255.51  229.22  11.5% ADR ($) 343.41  321.14  6.9% 284.38  265.38  7.2% 383.44  360.48  6.4% OCCUPANCY (%) 69.2% 65.8% 3.4  73.4% 69.1% 4.3  66.6% 63.6% 3.0      W REVPAR ($) 205.34  181.86  12.9% 213.38  189.76  12.4% 128.56  106.47  20.7% ADR ($) 270.01  246.16  9.7% 272.22  247.85  9.8% 239.28  220.63  8.5% OCCUPANCY (%) 76.0% 73.9% 2.1  78.4% 76.6% 1.8  53.7% 48.3% 5.4      FOUR POINTS REVPAR ($) 68.28  61.93  10.3% 66.97  60.69  10.3% 72.27  65.73  9.9% ADR ($) 97.41  90.59  7.5% 95.47  88.07  8.4% 103.35  98.62  4.8% OCCUPANCY (%) 70.1% 68.4% 1.7  70.1% 68.9% 1.2  69.9% 66.7% 3.2      OTHER REVPAR ($) 110.31  106.45  3.6% 110.31  106.45  3.6% ADR ($) 131.00  131.47  -0.4% 131.00  131.47  -0.4% OCCUPANCY (%) 84.2% 81.0% 3.2  84.2% 81.0% 3.2        (1) Includes same store owned, leased, managed, and franchised hotels Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Nine Months Ended September 30, 2006 UNAUDITED   System Wide (1) Company Operated (2) 2006  2005  Var. 2006  2005  Var.     TOTAL WORLDWIDE REVPAR ($) 109.33  99.84  9.5% 122.39  111.74  9.5% ADR ($) 154.87  143.21  8.1% 171.15  157.83  8.4% OCCUPANCY (%) 70.6% 69.7% 0.9  71.5% 70.8% 0.7      NORTH AMERICA REVPAR ($) 111.42  101.63  9.6% 131.38  119.56  9.9% ADR ($) 152.71  141.08  8.2% 175.15  161.80  8.3% OCCUPANCY (%) 73.0% 72.0% 1.0  75.0% 73.9% 1.1      EUROPE REVPAR ($) 133.48  122.11  9.3% 151.89  138.66  9.5% ADR ($) 198.21  187.77  5.6% 220.83  210.54  4.9% OCCUPANCY (%) 67.3% 65.0% 2.3  68.8% 65.9% 2.9      AFRICA & MIDDLE EAST REVPAR ($) 92.33  83.14  11.1% 93.31  84.02  11.1% ADR ($) 136.46  121.69  12.1% 140.48  121.14  16.0% OCCUPANCY (%) 67.7% 68.3% -0.6  66.4% 69.4% -3.0      ASIA PACIFIC REVPAR ($) 95.34  89.59  6.4% 93.02  88.49  5.1% ADR ($) 143.36  133.67  7.2% 139.07  131.39  5.8% OCCUPANCY (%) 66.5% 67.0% -0.5  66.9% 67.4% -0.5      LATIN AMERICA REVPAR ($) 75.36  64.86  16.2% 83.40  72.29  15.4% ADR ($) 118.11  105.03  12.5% 133.15  115.73  15.1% OCCUPANCY (%) 63.8% 61.8% 2.0  62.6% 62.5% 0.1        (1) Includes same store owned, leased, managed, and franchised hotels (2) Includes same store owned, leased, and managed hotels Starwood Hotels & Resorts Worldwide, Inc. Owned Hotel Results - Same Store (1) For the Nine Months Ended September 30, 2006 UNAUDITED     WORLDWIDE NORTH AMERICA INTERNATIONAL 2006  2005  Var. 2006  2005  Var. 2006  2005  Var.   75 Hotels 45 Hotels 30 Hotels TOTAL HOTELS REVPAR ($) 134.65  122.48  9.9% 134.01  120.62  11.1% 135.95  126.25  7.7% ADR ($) 188.27  174.10  8.1% 181.28  165.62  9.5% 204.01  193.32  5.5% OCCUPANCY (%) 71.5% 70.3% 1.2  73.9% 72.8% 1.1  66.6% 65.3% 1.3    Total REVENUE 1,433,521  1,320,629  8.5% 935,787  850,001  10.1% 497,734  470,628  5.8% Total EXPENSES 1,068,727  1,008,270  6.0% 690,532  646,526  6.8% 378,195  361,744  4.5%         66 Hotels 36 Hotels 30 Hotels BRANDED HOTELS REVPAR ($) 138.09  125.33  10.2% 139.32  124.81  11.6% 135.95  126.25  7.7% ADR ($) 192.29  177.29  8.5% 186.30  169.16  10.1% 204.01  193.32  5.5% OCCUPANCY (%) 71.8% 70.7% 1.1  74.8% 73.8% 1.0  66.6% 65.3% 1.3    Total REVENUE 1,330,461  1,220,019  9.1% 832,727  749,391  11.1% 497,734  470,628  5.8% Total EXPENSES 985,929  928,622  6.2% 607,734  566,878  7.2% 378,195  361,744  4.5%       (1) Hotel Results exclude 54 hotels sold and 12 hotels without comparable results during 2005 & 2006 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Management Fees, Franchise Fees and Other Income For the Nine Months Ended September 30, 2006 UNAUDITED ($ millions)       Worldwide 2006  2005  Variance % Variance   Management Fees: Base Fees 169  105  64  61.0% Incentive Fees 91  54  37  68.5% Total Management Fees 260  159  101  63.5%   Franchise Fees 87  72  15  20.8%   Total Management & Franchise Fees 347  231  116  50.2%   Other Management & Franchise Revenues (1) 56  27  29  107.4%   Total Management & Franchise Revenues 403  258  145  56.2%   Other (2) 85  91  (6) (6.6)%   Management Fees, Franchise Fees and Other Income 488  349  139  39.8%     (1) Other Management & Franchise Fees primarily includes the amortization of deferred gains of approximately $42 million in 2006 and $9 million in 2005 resulting from the sales of hotels subject to long-term management contracts and termination fees.   (2) Other primarily includes revenues from Bliss and other miscellaneous revenue. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership & Residential Revenues and Expenses For the Nine Months Ended September 30, 2006 UNAUDITED ($ millions)       2006  2005  % Variance   Originated Sales Revenues (1) -- Vacation Ownership Sales 563  467  20.6% Other Sales and Services Revenues (2) 104  83  25.3% Deferred Revenues -- Percentage of Completion (70) 2  n/m  Deferred Revenues -- Other (3) (2) 2  n/m  Vacation Ownership Sales and Services Revenues 595  554  7.4% Residential Sales and Services Revenues 88  143  (38.5%) Total Vacation Ownership & Residential Sales and Services Revenues 683  697  (2.0%)   Originated Sales Expenses (4) -- Vacation Ownership Sales 362  301  (20.3%) Other Expenses (5) 118  91  (29.7%) Deferred Expenses -- Percentage of Completion (33) 1  n/m  Deferred Expenses -- Other 19  1  n/m  Vacation Ownership Expenses 466  394  (18.3%) Residential Expenses 66  109  39.4% Total Vacation Ownership & Residential Expenses 532  503  (5.8%)     (1) Timeshare sales revenue originated at each sales location before deferrals of revenue for U.S. GAAP reporting purposes (2) Includes resort income, interest income, gain on sale of notes receivable, and miscellaneous other revenues (3) Includes deferral of revenue for contracts still in rescission period, contracts that do not yet meet the requirements of SFAS No. 66 or SFAS No. 152 and, in 2006, provision for loan loss (4) Timeshare cost of sales and sales & marketing expenses before deferrals of sales expenses for U.S. GAAP reporting purposes (5) Includes resort, general and administrative, and other miscellaneous expenses   Note: Deferred revenue is calculated based on the Percentage of Completion ("POC") of the project. Deferred expenses, also based on POC, include product costs and direct sales and marketing costs only. Indirect sales and marketing costs are no longer deferred per SFAS 152 as of January 1, 2006.   STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Debt Portfolio Summary As of September 30, 2006 UNAUDITED   Debt Interest Terms Balance (in millions) % of Portfolio Interest Rate Avg Maturity (in years)   Floating Rate Debt:   Senior credit facility Revolving credit facility Various + .525% $ 872  28% 5.83% 4.4  872  28% 5.83% 4.4    Mortgages and other Various 134  4% 6.08% 1.7    Interest rate swaps LIBOR + 4.23% 300  10% 9.60%   Total Floating 1,306  42% 6.72% 4.0    Fixed Rate Debt:   Sheraton Holding public debt 449  15% 7.38% 9.1    Senior notes (1) 1,483  48% 6.70% 3.2    Mortgages and other 136  5% 7.46% 8.5    Interest rate swaps (300) -(10%) 7.88%   Total Fixed 1,768  58% 6.80% 4.8    Total Debt $ 3,074  100% 6.76% 4.6        (1) Balance consists of outstanding public debt of $1.497 billion and a $8 million fair value adjustment related to the unamortized gain on fixed to floating interest rate swaps terminated in September 2002 and March 2004 and a ($22) million fair value adjustment related to current fixed to floating interest rate swaps. Maturities <1 year $ 729  2-3 years 92  4-5 years 918  >5 years 1,335  $ 3,074        STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Hotels without Comparable Results & Other Selected Items As of September 30, 2006 UNAUDITED ($ millions) Properties without comparable results in 2006:   Property -------- Location -------- W New Orleans - French Quarter New Orleans, LA W New Orleans New Orleans, LA St. Regis Aspen Aspen, CO Sheraton Bal Harbour Beach Resort Bal Harbour, FL St. Regis New York New York, NY Caesars Paradise Stream Mount Pocono, PA St. Regis Hotel, San Francisco San Francisco, CA Westin St. John Resort & Villas St. John, Virgin Islands The Westin Resort & Spa, Cancun Cancun, Mexico Sheraton Diana Majestic Hotel Milan, Italy Sheraton Fiji Nadi, Fiji Westin Royal Denarau Nadi, Fiji   Properties sold or closed in 2006 and 2005:   Property -------- Location -------- 33 Hotels Sold to Host Hotels & Resorts Various Sheraton Denver Tech Center Englewood, CO Deerfield Beach Hilton Ft. Lauderdale, FL Raphael Chicago, IL Sheraton Chapel Hill Chapel Hill, NC St. Regis Washington, DC Washington, DC Sheraton Russell Hotel New York, NY Westin Philadelphia Philadelphia, PA Westin Princeton at Forrestal Village Princeton, NJ Sheraton Ft. Lauderdale Airport Hotel Dania, FL Westin Hotel Long Beach Long Beach, CA Sheraton Suites San Diego San Diego, CA Sheraton Framingham Hotel Framingham, MA Westin Embassy Row, Washington D.C. Washington, DC Westin Atlanta North at Perimeter Atlanta, GA Sheraton Suites Key West Key West, FL Sheraton Colony Square Atlanta, GA Sheraton Colonial Hotel & Golf Club Lynnfield, MA Sheraton Universal Hotel Universal City, CA Hotel Danieli Venice, Italy Sheraton Lisboa Hotel & Towers Lisbon, Portugal Sheraton Cancun Resort & Towers Cancun, Mexico Selected Balance Sheet and Cash Flow Items:   Cash and cash equivalents (including restricted cash of $322 million) $ 637  Debt $ 3,074        Revenues and Expenses Associated with Assets Sold or Closed in 2005 and 2006 or Expected to be Sold in the Fourth Quarter of 2006 (1):     Q1 Q2 Q3 Q4 Full Year Hotels Sold in 2005: 2005  Revenues $ 36  $ 41  $ 28  $ 18  $ 123  Expenses (excluding depreciation) $ 29  $ 27  $ 20  $ 14  $ 90    Hotels Sold in the First Nine Months of 2006: 2006  Revenues $ 294  $ 68  $ 14  $ -  $ 376  Expenses (excluding depreciation) $ 225  $ 52  $ 11  $ -  $ 288    2005  Revenues $ 286  $ 351  $ 316  $ 339  $ 1,292  Expenses (excluding depreciation) $ 223  $ 239  $ 227  $ 239  $ 928    Hotels Classified as Held for Sale at September 30, 2006: 2006  Revenues $ 1  $ 1  $ 1  $ -  $ 3  Expenses (excluding depreciation) $ 1  $ 1  $ 1  $ -  $ 3    2005  Revenues $ 1  $ 1  $ 1  $ 1  $ 4  Expenses (excluding depreciation) $ 1  $ 1  $ 1  $ 1  $ 4    (1) Results consist of 11 hotels sold in 2005, 43 hotels sold in 2006 and 2 hotels which are classifed as held for sale at September 30, 2006. These amounts are included in the revenues and expenses from owned, leased and consolidated joint venture hotels in 2006 and 2005. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Capital Expenditures For the Three and Nine Months Ended September 30, 2006 UNAUDITED ($ millions)     Q3 YTD Capital Expenditures: Owned, Leased and Consolidated Joint Venture Hotels 47  186  Corporate/IT 10  32  Subtotal 57  218    Vacation Ownership Capital Expenditures: Capital expenditures (includes land acquisitions) 19  50  Net capital expenditures for inventory (1) 24  85  Subtotal 43  135    Development Capital 19  109    Total Capital Expenditures 119  462    (1) Represents gross inventory capital expenditures of $88 and $229 in the three and nine months ended September 30, 2006, respectively, less cost of sales of $64 and $144 in the three and nine months ended September 30, 2006, respectively. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 2006 Divisional Hotel Inventory Summary by Ownership by Brand As of September 30, 2006     NAD EAME LAD ASIA Total Owned Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Sheraton 15  6,562  8  1,711  5  2,713  2  831  30  11,817  Westin 8  4,030  5  1,068  3  901  1  273  17  6,272  Four Points 6  1,153  -  -  -  -  1  630  7  1,783  W 10  3,178  -  -  -  -  -  -  10  3,178  Luxury Collection 1  654  7  828  1  181  -  -  9  1,663  St. Regis 3  668  1  161  -  -  -  -  4  829  Other 10  2,482  -  -  -  -  -  -  10  2,482  Total Owned 53  18,727  21  3,768  9  3,795  4  1,734  87  28,024    Managed & UJV Sheraton 55  28,541  76  22,516  14  2,749  47  16,103  192  69,909  Westin 46  25,328  14  3,709  -  -  11  4,383  71  33,420  Four Points 1  475  6  899  3  428  2  614  12  2,416  W 8  2,269  -  -  1  237  2  330  11  2,836  Luxury Collection 6  1,427  9  1,545  8  298  -  -  23  3,270  St. Regis 5  728  1  95  -  -  2  591  8  1,414  Le Meridien 5  1,058  69  16,348  3  839  24  5,832  101  24,077  Other 4  3,305  1  165  -  -  -  -  5  3,470  Total Managed & UJV 130  63,131  176  45,277  29  4,551  88  27,853  423  140,812    Franchised Sheraton 122  37,895  26  6,663  4  1,294  18  6,719  170  52,571  Westin 29  10,311  3  1,131  3  598  5  1,226  40  13,266  Four Points 84  14,610  11  1,539  9  1,384  2  235  106  17,768  Luxury Collection 1  249  14  1,746  -  -  -  -  15  1,995  Le Meridien 4  1,342  11  3,793  -  -  5  2,772  20  7,907  Total Franchised   240    64,407    65    14,872    16    3,276    30    10,952    351    93,507  Systemwide Sheraton 192  72,998  110  30,890  23  6,756  67  23,653  392  134,297  Westin 83  39,669  22  5,908  6  1,499  17  5,882  128  52,958  Four Points 91  16,238  17  2,438  12  1,812  5  1,479  125  21,967  W 18  5,447  -  -  1  237  2  330  21  6,014  Luxury Collection 8  2,330  30  4,119  9  479  -  -  47  6,928  St. Regis 8  1,396  2  256  -  -  2  591  12  2,243  Le Meridien 9  2,400  80  20,141  3  839  29  8,604  121  31,984  Other 14  5,787  1  165  -  -  -  -  15  5,952  Total Systemwide 423  146,265  262  63,917  54  11,622  122  40,539  861  262,343                                            STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership Inventory Pipeline As of September 30, 2006 UNAUDITED                                 # Resorts # of Units (1) Brand Total (2) In Operations In Active Sales Completed (3) Pre-sales/ Development (4) Future Capacity (5),(6) Total at Buildout                 Sheraton 7  6  6  2,596  135  1,683  4,414  Westin 9  4  6  657  591  636  1,884  St. Regis 2  1  2  25  22  -  47  Unbranded 3    3    -    124    -    1    125  Total SVO, Inc. 21    14    14    3,402    748    2,320    6,470    Unconsolidated Joint Ventures (UJV's) 2    1    1    198    -    36    234  Total including UJV's   23    15    15    3,600    748    2,356    6,704                                Total Intervals Including UJV's (7)               187,200    38,896    122,512    348,608        (1) Lockoff units are considered as one unit for this analysis. (2) Includes resorts in operation, active sales, and announced new resorts, Sheraton Kauai and St. Regis Punta Mita (UJV) (3) Completed units include those units that have a certificate of occupancy. (4) Units in Pre-sales/Development are in various stages of development (including the permitting stage), most of which are currently being offered for sale to customers. (5) Based on owned land and average density in existing marketplaces (6) Future units indicated above include planned timeshare units on land owned by the Company or applicable UJV that have received all major governmental land use approvals for the development of timeshare. 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. (7) Assumes 52 intervals per unit.