Starwood’s quarterly profit quadruples

Starwood’s profit in the second quarter has more than quadrupled, boosted by a one-time tax benefit stemming from its sale of 33 hotels to Host Hotels & Resorts.

Net income rose to $680 million, or $3.01 per share, from $145 million, or 65 cents per share, a year earlier, including the Host deal.

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.

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—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.”
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