Starwood Hotels & Resorts Announces New Corporate Structure

Starwood Hotels and Resorts Worldwide, Inc. and Starwood Hotels and Resorts, whose shares are paired and trade together as a unit (NYSE: HOT), announced today that their respective Board of Directors and Board of Trustees have unanimously approved the combination of the two companies into a single integrated business enterprise. Starwood said this action, which would likely have been taken at some point in the future, was accelerated as a result of the anti-grandfathered paired share REIT provisions of the IRS Restructuring Bill, which severely restricted the ability of paired share REIT`s to grow. The combination will end Starwood`s ``grandfathered paired share REIT`` structure and will effectively create a C-Corporation.
The changes that the Starwood Boards approved include:

* A new corporate structure for Starwood whereby the REIT will become a
  subsidiary of the Corporation
* Adoption of a new dividend policy
* Authorization of up to $1 billion share repurchase of Starwood shares
  from time to time

Starwood said the new corporate structure will maintain Starwood`s historical commitment to the complete alignment of ownership, management and shareholder interests; permit Starwood to continue to own and operate and brand newly acquired hotels; enhance its operating and financial flexibility; reduce Starwood`s historical dependence on the equity markets to fund growth; improve its credit statistics, and position the company for possible inclusion in the Standard & Poor`s 500 listing, a position ITT enjoyed as a smaller company.

The new corporate structure will be achieved through a tax-free merger as a result of which the REIT will become a subsidiary of the Corporation. In the merger, the existing shares of the REIT will be converted (on a one-for-one basis) into newly created non-voting Class B Shares of the REIT, which will entitle the holders to the dividend described below.

Barry S. Sternlicht, Starwood`s Chairman and Chief Executive said, ``I believe this restructuring is the right one for the company and our shareholders and one that we would have effected eventually. We have greatly simplified our structure to provide us operating and financial flexibility, and to appeal to the broadest possible shareholder base. We will be a single integrated enterprise with one set of shareholders, one management team and one focused vision. The months of legislative concerns have created uncertainties about our business, which we believe have negatively impacted our share price. That period is over.


``Starwood has always been a growth company—indeed the fastest growing lodging and gaming company in the world. Our growth has been driven not by our structure, but by the quality of our acquisitions and the very high investment returns achieved. We believe we are in the first chapter of internal growth and in our quest to mine the full value of this company`s extraordinary resources, not only its asset base, but its powerful brands, and technological strength. The level of dividend distribution required as a REIT, placed HOT at a competitive disadvantage to its peers, and would likely have required raising additional equity. Our future growth plans, in existing and related businesses included, non-REIT qualified businesses such as timeshare and foreign investment. We will now have significant incremental capital to pursue these initiatives as well as to reinvest in our asset base. In addition to achieving very high rates of return on invested capital, we also believe our stock represents an extraordinary value. Therefore, the Boards have approved and we have received financing commitments for up to $1 billion of share repurchase. The share repurchase program may also be used to redeem outstanding forward equity sales agreements. With 125,000 employees operating in 70 countries, HOT`s structure allows us to continue as a dynamic company,`` Mr. Sternlicht concluded.

Richard Nanula, President and Chief Executive Officer of the Corporation, said, ``We have a terrific story to tell. We are focused, return-driven managers. While our operating units are performing extremely well, our portfolio has tremendous growth potential that we are just beginning to exploit. We are executing a number of growth initiatives in each of our businesses that should meet or exceed our investment criteria. Our new ability to reinvest our profits gives substantial incremental firepower to make these investments which we believe will drive strong EBITDA growth.``

Starwood also said that its Boards have established a new annual dividend policy of $0.60 per share, increasing at 15% per year subject to certain conditions. The new dividend policy, which provides for a higher dividend rate than Starwood`s C-Corp peers, will be implemented beginning with the fourth quarter 1998 dividend. The third quarter 1998 dividend is expected to be paid at the current quarterly level of $0.52 per paired share. Under Starwood`s new corporate structure, its dividend will continue to be paid by the REIT.

The restructuring will facilitate the implementation of the Company`s long-term capitalization strategy. Starwood intends to refinance $2.5 billion of its debt by year-end subject to market conditions. The Company believes implementation of the new corporate structure and execution of its financing plan will position it to meet its long-term investment grade credit rating goals and take advantage of today`s historically low interest rates.

In connection with the combination, Starwood will take a non-recurring special charge totaling approximately $1.2 billion, substantially all of which represents deferred tax liabilities resulting from the combination as required by SFAS 109.

Consistent with its structure change, Starwood will also realign its management structure. Barry Sternlicht, who is Chairman and Chief Executive Officer of the Trust will become Chairman and Chief Executive Officer of the Corporation. Richard Nanula, who is President and Chief Executive Officer of the Corporation, will become President and Chief Operating Officer. The combination, which is subject to customary conditions including among others, shareholder, regulatory and third party consents and approvals, is expected to be consummated in January, 1999.

Starwood Hotels & Resorts Worldwide, Inc. through its ITT Sheraton, Westin and Caesars subsidiaries, is one of the leading hotel and gaming operating companies in the world. Starwood Hotels & Resorts is the largest real estate investment trust in the United States. Shares of Starwood Hotels & Resorts Worldwide, Inc. are paired and trade together with shares of Starwood Hotels & Resorts.

(Note: Statements in this press release that are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Starwood believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Starwood expectations include completion of pending acquisitions, continued availability of acquisitions, continued availability of debt and equity financing on favorable terms, changes in tax and other laws, foreign exchange fluctuations, performance of hotel operations, financial performance, real estate conditions, market valuations of its stock, execution of hotel renovation programs, changes in local, national or foreign economic conditions and other risks detailed from time to time in the Company`s SEC reports, including quarterly reports on Form 1O-Q, current reports on Form 8-K and annual reports on Form 10-K.)