Starwood Reports Strong Third Quarter 2007 Results

Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported strong third quarter 2007 financial results. Third Quarter 2007 Highlights Excluding special items, EPS from continuing operations was $0.68, unchanged from the third quarter of 2006. Including special items, EPS from continuing operations was $0.61 compared to $0.71 in the third quarter of 2006. Excluding special items, income from continuing operations was $143 million compared to $148 million in the same period of 2006. Net income, including special items, was $129 million compared to $155 million in the third quarter of 2006. Total Company Adjusted EBITDA was $348 million compared to $328 million in 2006. During the third quarter, the Company repurchased 9.2 million shares at a cost of $544 million. Worldwide System-wide REVPAR for Same-Store Hotels increased 9.5% compared to the third quarter of 2006. System-wide REVPAR for Same-Store Hotels in North America increased 6.1%. Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 8.7%. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 6.4%. Margins at Starwood branded Same-Store Owned Hotels Worldwide improved 72 basis points as compared to the third quarter of 2006. Margins at Starwood branded Same-Store Owned Hotels in North America declined 65 basis points as compared to third quarter of 2006 due to the negative impact of renovations occurring at several of these hotels. Management and franchise revenues increased 16.7% when compared to 2006. Reported revenues from vacation ownership and residential sales were flat when compared to 2006. The Company signed 38 hotel management and franchise contracts in the quarter representing approximately 9,000 rooms. Starwood Hotels & Resorts Worldwide, Inc. ("Starwood” or the "Company”) today reported EPS from continuing operations for the third quarter of 2007 of $0.61 compared to $0.71 in the third quarter of 2006. Excluding special items, EPS from continuing operations was $0.68 for the third quarter of 2007, unchanged from the third quarter of 2006. Special items in 2007 net to a charge of $0.07 per share and primarily relate to losses on asset impairments. Special items in 2006 net to a benefit of $0.03 per share primarily due to one-time income tax benefits realized in connection with the sale of a portfolio of hotels offset in part by losses on asset dispositions. Excluding special items, the effective income tax rate in the third quarter of 2007 was 33.0% compared to 21.2% in the same period of 2006 due to non-recurring capital loss benefits generated in 2006 from the disposition of certain qualifying joint venture interests. Income from continuing operations was $129 million in the third quarter of 2007 compared to $155 million in 2006. Excluding special items, which net to a $14 million charge in 2007 and a $7 million credit in 2006, income from continuing operations was $143 million for the third quarter of 2007 compared to $148 million in 2006. Net income was $129 million and EPS was $0.61 in the third quarter of 2007 compared to net income of $155 million and EPS of $0.71 in the third quarter of 2006. Frits van Paasschen, CEO, said, "Starwood reported yet another strong quarter driven by our strong brands, our large presence in the upper upscale and luxury segments, and our international platform, where system-wide REVPAR increased 13.9%. Our pipeline grew to almost 115,000 rooms in the quarter, creating a terrific opportunity for Starwood to continue to grow at above-industry growth rates. Despite the projected 2008 decline in our vacation ownership business, we expect 2008 to be another great year for the Company, as our core hotel business continues to enjoy strong fundamentals. We also repurchased $544 million of our stock in the quarter, a record amount for Starwood.” Operating Results Third Quarter Ended September 30, 2007 Management and Franchise Revenues Worldwide System-wide REVPAR for Same-Store Hotels increased 9.5% compared to the third quarter of 2006, including 15.9% in Latin America, 14.6% in Asia Pacific, 13.5% in Europe, 13.3% in Africa & the Middle East and 6.1% in North America. Worldwide System-wide REVPAR increases for Same-Store Hotels by brand were: Le Méridien 16.0%, St. Regis/Luxury Collection 12.6%, Four Points by Sheraton 10.6%, Sheraton 9.2%, W Hotels 8.6% and Westin 5.9%. Management fees, franchise fees and other income were $214 million, up $32 million, or 17.6%, from the third quarter of 2006. Management fees grew 13.1% to $112 million and franchise fees grew 25.8% to $39 million. Base management fees increased 7.7% and incentive fees increased 23.5%. Approximately 50% of the Company’s management and franchise fees are generated in markets outside of North America. During the third quarter of 2007, the Company signed 38 hotel management and franchise contracts representing approximately 9,000 rooms, of which 36 were new builds and 2 were conversions from other brands. At September 30, 2007, the Company had approximately 480 hotels in the active pipeline representing almost 115,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, approximately 70% are in the upper upscale/luxury segment, half are outside of North America, and 60% represent management contracts. During the third quarter of 2007, 13 new hotels and resorts (representing approximately 3,500 rooms) entered the system, including the Westin Lombard Yorktown Center (Lombard, Illinois, 500 rooms), Sheraton Zhoushan Hotel (Zhoushan, China, 420 rooms), and the Westin Camporeal Hotel and Residences (Turcifal, Portugal, 311 rooms). Five properties (representing approximately 1,500 rooms) were removed from the system during the quarter. The Company expects to open approximately 75 hotels (representing approximately 20,000 rooms) in 2007 and is targeting signing approximately 200 hotel management and franchise contracts in 2007. Owned, Leased and Consolidated Joint Venture Hotels Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 8.7%. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 6.4%. Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 5.9% excluding the impact of foreign exchange, and as reported, in US dollars, branded Same-Store Owned Hotel REVPAR increased 12.6%. Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 8.8% while costs and expenses increased 7.7% when compared to 2006. Margins at these hotels increased 72 basis points. Revenues at Starwood branded Same-Store Owned Hotels in North America increased 5.8% while costs and expenses increased 6.8% when compared to 2006. Margins at these hotels decreased 65 basis points due to the negative impact of renovations occurring at several of these hotels. Revenues at owned, leased and consolidated joint venture hotels were $605 million when compared to $594 million in 2006. Revenues and operating income were impacted by the sale or closure of 11 hotels since the beginning of the third quarter of 2006. These hotels had no revenues or expenses in 2007 as compared to $33 million of revenues and $28 million of expenses (before depreciation) in the same quarter of 2006. Vacation Ownership Total vacation ownership reported revenues increased 1.2% to $252 million when compared to 2006. Reported revenues are significantly impacted by the timing of the recognition of deferred revenues under percentage of completion accounting for projects under construction. During the third quarter of 2007, the Company was actively selling vacation ownership interests at 16 resorts and is also in the predevelopment phase of new fractional or vacation ownership resorts in Arizona, California, Colorado, Hawaii and Mexico. Originated contract sales of vacation ownership intervals decreased 1.1% primarily due to lower sales of the Westin Kierland Villas in Scottsdale, Arizona as well as the St. Regis Aspen Residence Club in Aspen, Colorado, both of which sold out in late 2006. The average price per vacation ownership unit sold increased 1.7% to approximately $25,400 while the number of contracts signed decreased 2.3% when compared to 2006. In the third quarter vacation ownership sales and profits fell below expectations in Hawaii due to a decline in close rates in September. This decline in close rates was primarily caused by limited available inventory in Maui (as the next phase at the Ka’anapali Ocean Resort has been delayed) and could continue into the fourth quarter and next year. As a result, reported results for the vacation ownership business are expected to be lower than the Company’s prior expectations by approximately $30 million for the full year 2007. Sales trends remain strong and unchanged in the East, Orlando and Cancun. In addition, due to unsettled conditions in the asset-backed securities markets and given the Company’s strong liquidity, the Company has decided to postpone the annual securitization of the notes receivable generated by its vacation ownership business until market conditions improve. As a result, fourth quarter guidance no longer includes the previously anticipated $25 million gain on sale of the Company’s notes receivable. Residential During the third quarter of 2007, the Company’s residential revenues were $2 million as compared to $6 million in the prior year as our existing residential inventory is substantially sold out. The St. Regis Museum Tower in San Francisco sold out in the first half of 2006 and the St. Regis New York has only a few units remaining in inventory. Selling, General, Administrative and Other Selling, general, administrative and other expenses was $116 million compared to $115 million in the third quarter of 2006. Asset Sales During the third quarter of 2007, the Company entered into purchase and sale agreements for the sale of two wholly-owned hotels and recorded impairment losses totaling $21 million in connection with these sales. These sales, along with the sale of two additional hotels, are expected to be completed in the fourth quarter of 2007 for total cash proceeds of over $50 million. The Company expects to complete the remainder of the previously announced asset sales in early 2008. Capital Gross capital spending during the quarter included approximately $54 million in renovations of hotel assets including The Phoenician in Scottsdale, AZ, the W Los Angeles in Westwood, CA and the W San Francisco in San Francisco, CA and in construction capital at the new aloft and Element hotels under construction in Lexington, MA and the new aloft hotel in Philadelphia, PA. Investment spending on gross vacation ownership interest ("VOI”) inventory was $111 million, which was offset by cost of sales of $55 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 Westin Lagunamar Resort in Cancun, and the Westin St. John Resort and Villas in the Virgin Islands. Share Repurchases During the third quarter of 2007, the Company repurchased 9.2 million shares at a total cost of approximately $544 million. In the nine months ended September 30, 2007, the Company has repurchased approximately 19.2 million shares at a total cost of approximately $1.224 billion. At September 30, 2007, approximately $156 million remained available under the Company’s previously approved share repurchase authorization. Starwood had approximately 201 million shares outstanding (including partnership units) at September 30, 2007. Balance Sheet At September 30, 2007, the Company had total debt of $3.162 billion and cash and cash equivalents (including $227 million of restricted cash) of $408 million, or net debt of $2.754 billion, compared to net debt of $2.465 billion at the end of the second quarter of 2007. The increase in net debt at September 30, 2007 is primarily due to the share repurchases discussed above. In September 2007, the Company completed a $400 million senior debt offering. This debt has a fixed interest rate of 6.25% and matures in 2013. The proceeds from this debt offering were used to pay down the Company’s revolving credit facility. At September 30, 2007, debt was approximately 46% fixed rate and 54% floating rate and its weighted average maturity was 4.5 years with a weighted average interest rate of 6.83%. The Company had cash (including total restricted cash) and availability under domestic and international revolving credit facilities of approximately $2.196 billion. Availability under domestic and international revolving credit facilities, not including cash and cash equivalents, was $1.788 billion. Results for the Nine Months Ended September 30, 2007 EPS from continuing operations decreased to $1.84 compared to $4.06 in 2006. Excluding special items, EPS from continuing operations was $1.98 compared to $1.82 in 2006. Excluding special items, income from continuing operations was $425 million compared to $408 million in 2006. Special items in 2007 net to a charge of $28 million or $0.14 per share primarily due to the accelerated depreciation of fixed assets at the Sheraton Bal Harbor. Special items in 2006 net to a $504 million benefit, or $2.24 per share primarily due to significant one-time income tax benefits realized in connection with the sale of a portfolio of 33 hotels. Net income was $396 million and EPS was $1.84 compared to $840 million and $3.74, respectively, in 2006. Total Company Adjusted EBITDA, which was impacted by the sale of 49 hotels since the beginning of 2006, was $995 million compared to $926 million in 2006. Outlook The Company’s guidance for 2007 assumes the following changes since the last time we provided estimates: The Company has lowered its expectations for vacation ownership operating income by $25 million in the fourth quarter. In addition, the Company has postponed the securitization of vacation ownership notes receivable until market conditions improve in the asset-backed securities market, which removes the previously anticipated $25 million gain from the fourth quarter. For the three months ending December 31, 2007: Adjusted EBITDA would be expected to be approximately $340 million assuming: -- REVPAR growth at Same-Store Company Operated Hotels worldwide of 9% to 11% -- REVPAR growth at branded Same-store Owned Hotels in North America of 8% to 10% and EBITDA growth of 13% to 15% with margin improvement of approximately 150 to 200 basis points. -- Growth from management and franchise revenues of 13% to 15%. -- A decrease in operating income from our vacation ownership and residential business of approximately $50 million. Income from continuing operations, excluding special items, would be expected to be approximately $134 million reflecting an effective tax rate of approximately 33%. EPS would be expected to be approximately $0.66. For the full year 2007: Adjusting for the items noted above, Adjusted EBITDA is expected to be approximately $1.335 billion, assuming: -- REVPAR growth at Same-Store Company Operated Hotels worldwide of 9% to 11% -- REVPAR growth at branded Same-Store Owned Hotels in North America of 7% to 8% and EBITDA growth of 10% to 12% with margin improvement of approximately 50 to 100 basis points -- Growth from management and franchise revenues of 18% to 20% -- Operating income from our vacation ownership and residential business will be roughly flat to prior year Full year income from continuing operations, before special items, is expected to be approximately $559 million reflecting an effective tax rate of approximately 31%. Full year EPS before special items is expected to be approximately $2.63. Full year capital expenditures (excluding timeshare inventory) would be approximately $650 million, including $300 million for maintenance, renovation and technology and $350 million for other growth initiatives, including the Bal Harbour project. Additionally, net capital expenditures for timeshare inventory would be approximately $150 million. Preliminary guidance for the full year 2008: The Company expects 2008 Adjusted EBITDA to be between $1.300 billion and $1.340 billion. This represents strong growth in the Company’s core hotel business, offset by the decline in expected results at the Company’s Vacation Ownership business. The Company expects 2008 EPS to be between $2.47 and $2.60. -- REVPAR growth at Same-Store Company Operated Hotels worldwide of 6% to 8% -- REVPAR growth at branded Same-Store Owned Hotels worldwide of 6% to 8% and EBITDA growth of 8% to 10% with margin improvement of approximately 50 to 100 basis points -- Growth from management and franchise revenues of 13% to 15% -- Operating income from our vacation ownership and residential business will be down $30 to $50 million from prior year (including gains on sale of vacation ownership notes receivable) The EPS outlook is based on 2008 depreciation and amortization expense of approximately $350 million, interest expense of approximately $200 million, a tax rate of 33% and fully diluted shares outstanding of approximately 203 million. Reconciliation to reflect the full year effect of certain assets sold or closed and non-recurring items   (in millions)   2007 Adjusted EBITDA guidance (1) $ 1,335   Adjustments to estimate the full year impact of 13 owned hotels sold or expected to be sold during 2007 or early 2008   Less: Revenues from hotels sold or expected to sell in 2007 or early 2008 (94 )   Add: Expenses from hotels sold or expected to sell in 2007 or early 2008 76   Add: Expected fees from sold hotels encumbered by management or franchise contracts as if managed or franchised from January 1, 2007 1   Adjustment for other income related to the Company’s carried interest in the Westin Boston Waterfront Hotel which was sold in 2007 (18 )   Adjustment for earnings from unconsolidated joint ventures associated with the sale of seven hotels (29 )   Adjustments for the Sheraton Bal Harbour which has been closed for redevelopment   Less: Revenues from the Sheraton Bal Harbour (38 )   Add: Expenses from the Sheraton Bal Harbour   30     Estimated 2007 Adjusted EBITDA to reflect the full-year effect of assets sold or closed and non-recurring items (2007 Revised EBITDA Baseline) $ 1,263     (1) See page 14 for the non-GAAP to GAAP reconciliation of EBITDA guidance. Special Items The Company recorded net charges of $14 million (after-tax) for special items in the third quarter of 2007 compared to $7 million of net credits (after-tax) in the same period of 2006. Special items in the third quarter of 2007 primarily relate to losses on asset impairments. 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, 2007   2006 2007   2006   $ 143 $ 148 Income from continuing operations before special items $ 425 $ 408 $ 0.68 $ 0.68 EPS before special items $ 1.98 $ 1.82   Special Items (1) 1 Restructuring and other special (charges) credits, net (a) (48) (11) — — Debt defeasance costs (b) — (37) — — Debt extinguishment costs (c) — (7)   (23)   (18) (Loss) gain on asset dispositions and impairments, net (d)   (20)   1 (24) (17) Total special items – pre-tax (68) (54) 10 5 Income tax benefit for special items (e) 37 21 — 18 Income tax benefits related to the transaction with Host (f) 3 514   —   1 Reserves and credits associated with tax matters (g)   —   23   (14)   7 Total special items – after-tax   (28)   504   $ 129 $ 155 Income from continuing operations $ 397 $ 912 $ 0.61 $ 0.71 EPS including special items $ 1.84 $ 4.06     (a) During the three months ended September 30, 2007, the charge primarily relates to additional costs associated with the Sheraton Bal Harbour which is being demolished and converted into a St. Regis Hotel with residences and fractional units. The charge for the nine months ended September 30, 2007 primarily relates to accelerated depreciation of fixed assets at the Sheraton Bal Harbour, partially offset by a $2 million refund of insurance premiums related to a retired executive. During the nine months ended September 30, 2006, primarily relates to transition costs in connection with the Le Méridien acquisition.       (b) During the nine months ended September 30, 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 nine months ended September 30, 2006 the Company incurred expenses 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, 2007, primarily reflects impairment charges related to two hotels which are expected to be sold in the fourth quarter of 2007. The loss for the nine months ended September 30, 2007 also includes an $18 million loss on the sale of four hotels offset by a $15 million gain on the sale of assets in which the Company held minority interests and insurance proceeds of $6 million related to owned hotels damaged by hurricanes and floods in earlier years. For the three months ended September 30, 2006, primarily reflects a $36 million loss on the sale of two hotels, offset by a $13 million gain on the sale of Starwood’s interest in a joint venture and insurance proceeds of $6 million related to owned hotels damaged by hurricanes in prior years. The gain for the nine months ended September 30, 2006 also includes impairment charges of $17 million related to a hotel which was later sold and the Sheraton hotel in Cancun which was damaged by a hurricane, offset in part by $6 million in insurance proceeds received by the Westin Cancun as reimbursement for property damage caused by the same hurricane and by a $28 million gain primarily related to asset sales.   (e) In 2006 and 2007, amounts represent taxes on special items at the Company’s incremental tax rate and the favorable impact of capital loss utilization.     (f) Primarily relates to a deferred tax asset recognized on the deferred gain and other tax benefits realized in connection with the Host transaction.     (g) Income tax benefit in the three and 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. 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 at (913) 981-5507. The conference call will be available through simultaneous web cast 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 1:30 p.m. (EST) today through Thursday, November 1, 2007 at 12:00 midnight (EST) on both the Company’s website and via telephone replay at (719) 457-0820 (access code 1883048). 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. All references to "close rates” refer to the percentage of tours converted to actual sales of vacation ownership intervals. 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 condo hotels, hotels sold to date and hotels 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). References to Company Operated Hotel metrics (e.g. REVPAR) reflect metrics for the Company’s owned and managed hotels. References to System-Wide metrics (e.g. REVPAR) reflect metrics for the Company’s owned, managed and franchised hotels. 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 900 properties in more than 100 countries and 155,000 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®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® by Sheraton, 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 (including residential) and the hotel and vacation ownership businesses, operating risks associated with the hotel, vacation ownership and residential 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 the introduction of new brand concepts 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 also 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. There can also be no assurance that agreements will be entered into for the hotels in the Company’s pipeline and, if entered into, the timing of any agreement and the opening of the related hotel. Although we believe the expectations reflected in 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,   2007     2006   % Variance   2007     2006   % Variance   Revenues $ 605 $ 594 1.9 Owned, leased and consolidated joint venture hotels $ 1,798 $ 2,090 (14.0) 254 255 (0.4) Vacation ownership and residential sales and services 760 683 11.3 214 182 17.6 Management fees, franchise fees and other income 602 488 23.4   467   430 8.6 Other revenues from managed and franchised properties (a)   1,383   1,146 20.7 1,540 1,461 5.4 4,543 4,407 3.1 Costs and Expenses 448 443 (1.1) Owned, leased and consolidated joint venture hotels 1,345 1,575 14.6 183 183 — Vacation ownership and residential 563 532 (5.8) 116 115 (0.9) Selling, general, administrative and other 362 342 (5.8) 1 (1) n/m Restructuring and other special charges (credits), net 48 11 n/m 72 70 (2.9) Depreciation 206 210 1.9 7 11 36.4 Amortization 20 21 4.8   467   430 (8.6) Other expenses from managed and franchised properties (a)   1,383   1,146 (20.7) 1,294 1,251 (3.4) 3,927 3,837 (2.3) 246 210 17.1 Operating income 616 570 8.1 8 8 — Equity earnings and gains and losses from unconsolidated ventures, net 54 46 17.4 (40) (28) (42.9) Interest expense, net of interest income of $2, $17, $12 and $26 (108) (175) 38.3   (23)   (18) (27.8) (Loss) gain on asset dispositions and impairments, net   (20)   1 n/m 191 172 11.0 Income from continuing operations before taxes and minority equity 542 442 22.6 (61) (17) n/m Income tax (expense) benefit (145) 470 n/m   (1)   — n/m Minority equity in net income   —   — — 129 155 (16.8) Income from continuing operations 397 912 (56.5) Discontinued Operations: — — — Net loss on dispositions ( (1) — n/m   —   — — Cumulative effect of accounting change   ( —   (72) 100.0 $ 129 $ 155 (16.8) Net income $ 396 $ 840 (52.9) Earnings (Loss) Per Share – Basic $ 0.63 $ 0.73 (13.7) Continuing operations $ 1.91 $ 4.26 (55.2) — — — Discontinued operations — — —   —   — — Cumulative effect of accounting change   —   (0.33) 100.0 $ 0.63 $ 0.73 (13.7) Net income $ 1.91 $ 3.93 (51.4) Earnings (Loss) Per Share – Diluted $ 0.61 $ 0.71 (14.1) Continuing operations $ 1.84 $ 4.06 (54.7) — — — Discontinued operations — — —   —   — — Cumulative effect of accounting change   —   (0.32) 100.0 $ 0.61 $ 0.71 (14.1) Net income $ 1.84 $ 3.74 (50.8)     203   212 Weighted average number of Shares   207   214   210   220 Weighted average number of Shares assuming dilution   215   224   (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, 2007   December 31, 2006   (unaudited) Assets Current assets: Cash and cash equivalents $ 181 $ 183 Restricted cash 220 329 Accounts receivable, net of allowance for doubtful accounts of $52 and $49 569 593 Inventories 684 566 Prepaid expenses and other 148 139 Total current assets 1,802 1,810 Investments 428 436 Plant, property and equipment, net 3,823 3,831 Assets held for sale (a) 27 2 Goodwill and intangible assets, net 2,302 2,302 Deferred tax assets 584 518 Other assets (b) 486 381 $ 9,452 $ 9,280 Liabilities and Stockholders’ Equity Current liabilities: Short-term borrowings and current maturities of long-term debt (c) $ 11 $ 805 Accounts payable 182 179 Accrued expenses 1,038 955 Accrued salaries, wages and benefits 365 383 Accrued taxes and other 146 139 Total current liabilities 1,742 2,461 Long-term debt (c) 3,151 1,827 Deferred tax liabilities 32 31 Other liabilities 1,899 1,928 6,824 6,247 Minority interest 26 25 Commitments and contingencies Stockholders’ equity: Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares; outstanding 201,300,953 and 213,484,439 shares at September 30, 2007 and December 31, 2006, respectively 2 2 Additional paid-in capital 1,391 2,286 Accumulated other comprehensive loss (170) (228) Retained earnings 1,379 948 Total stockholders’ equity 2,602 3,008 $ 9,452 $ 9,280   (a) As of September 30, 2007, includes two hotels expected to be sold in the fourth quarter of 2007. As of December 31, 2006, reflects land that is held for sale.   (b) Includes restricted cash of $7 million at September 30, 2007 and December 31, 2006.   (c) Excludes Starwood’s share of unconsolidated joint venture debt aggregating approximately $573 million and $484 million at September 30, 2007 and December 31, 2006, respectively. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Non-GAAP to GAAP Reconciliations – Historical Data (in millions)     Three Months Ended September 30, Nine Months Ended September 30, 2007   2006   % Variance     2007     2006   % Variance   Reconciliation of Net Income to EBITDA and Adjusted EBITDA $ 129 $ 155 (16.8) Net income $ 396 $ 840 (52.9) 47 50 (6.0) Interest expense(a) 134 216 (38.0) 61 17 n/m Income tax expense (benefit)(b) 146 (470) n/m 79 77 2.6 Depreciation(c) 228 233 (2.1) 8 12 (33.3) Amortization (d)   23   25 (8.0) 324 311 4.2 EBITDA 927 844 9.8 23 18 27.8 (Gain) loss on asset dispositions and impairments, net 20 (1) n/m 1 (1) n/m Restructuring and other special charges (credits), net 48 11 n/m — — — Cumulative effect of accounting change   —   72 (100.0) $ 348 $ 328 6.1 Adjusted EBITDA $ 995 $ 926 7.5   (a) Includes $5 million and $5 million of interest expense related to unconsolidated joint ventures for the three months ended September 30, 2007 and 2006, respectively, and $14 million and $15 million for the nine months ended September 30, 2007 and 2006, respectively.   (b) Includes $1 million and $0 of tax expense recorded in discontinued operations the nine months ended September 30, 2007 and 2006, respectively.   (c) Includes $7 million and $7 million of Starwood’s share of depreciation expense of unconsolidated joint ventures for the three months ended September 30, 2007 and 2006, respectively, and $22 million and $23 million for the nine months ended September 30, 2007 and 2006, respectively.   (d) Includes $1 million and $1 million of Starwood’s share of amortization expense of unconsolidated joint ventures for the three months ended September 30, 2007 and 2006, respectively, and $3 million and $4 million for the nine months ended September 30, 2007 and 2006, respectively. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Non-GAAP to GAAP Reconciliations – Future Performance (In millions)   Three Months Ended December 31, 2007 Year Ended December 31, 2007     $ 134 Net income $ 531 51 Interest expense 186 66 Income tax expense 211   89   Depreciation and amortization   339 340 EBITDA 1,267 — Loss on asset disposition and impairments, net 20   —   Restructuring and other special charges, net   48 $ 340   Adjusted EBITDA $ 1,335 Three Months Ended December 31, 2007 Year Ended December 31, 2007     $ 134   Income from continuing operations $ 531 $ 0.66   EPS $ 2.51   Special Items — Restructuring and other special charges, net 48   —   Loss on asset dispositions and impairments, net   20 — Total special items – pre-tax 68 — Income tax benefit on special items (37)   —   Income tax benefits related to the transaction with Host   (3)   —   Total special items – after-tax   28   $ 134   Income from continuing operations excluding special items $ 559 $ 0.66   EPS excluding special items $ 2.63 Three Months Ended December 31, 2006 Year Ended December 31, 2006     $ 203 Net income $ 1,043 47 Interest expense 263 38 Income tax expense (benefit) (432)   84   Depreciation and amortization   342 372 EBITDA 1,216 4 Loss on asset disposition and impairments, net 3 9 Restructuring and other special charges, net 20   (2)   Cumulative effect of accounting change   70 $ 383   Adjusted EBITDA $ 1,309   Year Ended December 31, 2008 Low   High Net income $ 501 $ 528 Interest expense 200 200 Income tax expense 247 260 Depreciation and amortization   352   352 EBITDA $ 1,300 $ 1,340 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, 2007 2006 % Variance   Same-Store Owned Hotels(1) Worldwide   2007   2006 % Variance   Revenue $ 546 $ 506 7.9 Same-Store Owned Hotels $ 1,585 $ 1,470 7.8 — 33 (100.0) Hotels Sold or Closed in 2007 and 2006 (50 hotels) 40 454 (91.2) 53 50 6.0 Hotels Without Comparable Results (8 hotels) 166 160 3.8 6 5 20.0 Other ancillary hotel operations   7   6 16.7 $ 605 $ 594 1.9 Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 1,798 $ 2,090 (14.0)   Costs and Expenses $ 400 $ 372 (7.5) Same-Store Owned Hotels $ 1,178 $ 1,102 (7.0) — 28 100.0 Hotels Sold or Closed in 2007 and 2006 (50 hotels) 29 345 91.6 46 41 (12.2) Hotels Without Comparable Results (8 hotels) 134 124 (8.1) 2 2 — Other ancillary hotel operations   4   4 — $ 448 $ 443 (1.1) Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 1,345 $ 1,575 14.6     Three Months Ended September 30, Nine Months Ended September 30, 2007 2006 % Variance   Same-Store Owned Hotels North America     2007   2006 % Variance   Revenue $ 341 $ 325 4.9 Same-Store Owned Hotels $ 1,012 $ 963 5.1 — 31 (100.0) Hotels Sold or Closed in 2007 and 2006 (41 hotels) 40 382 (89.5) 40 37 8.1 Hotels Without Comparable Results (5 hotels)   128   127 0.8 $ 381 $ 393 (3.1) Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 1,180 $ 1,472 (19.8)   Costs and Expenses $ 255 $ 239 (6.7) Same-Store Owned Hotels $ 756 $ 717 (5.6) — 28 100.0 Hotels Sold or Closed in 2007 and 2006 (41 hotels) 29 294 90.2 35 33 (6.1) Hotels Without Comparable Results (5 hotels)   106   100 (6.0) $ 290 $ 300 3.3 Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 891 $ 1,111 19.8   Three Months Ended September 30, Nine Months Ended September 30, 2007 2006 % Variance   Same-Store Owned Hotels International   2007   2006 % Variance     Revenue $ 205 $ 181 13.3 Same-Store Owned Hotels $ 573 $ 507 13.0 — 2 (100.0) Hotels Sold or Closed in 2007 and 2006 (9 hotels) — 72 (100.0) 13 13 — Hotels Without Comparable Results (3 hotels) 38 33 15.2 6 5 20.0 Other ancillary hotel operations   7   6 16.7 $ 224 $ 201 11.4 Total Owned, Leased and Consolidated Joint Venture Hotels Revenue $ 618 $ 618 —   Costs and Expenses $ 145 $ 133 (9.0) Same-Store Owned Hotels $ 422 $ 385 (9.6) — — — Hotels Sold or Closed in 2007 and 2006 (9 hotels) — 51 100.0 11 8 (37.5) Hotels Without Comparable Results (3 hotels) 28 24 (16.7) 2 2 — Other ancillary hotel operations   4   4 — $ 158 $ 143 (10.5) Total Owned, Leased and Consolidated Joint Venture Hotels Costs and Expenses $ 454 $ 464 2.2   (1) Same-Store Owned Hotel Results exclude 50 hotels sold or closed in 2007 and 2006 and 8 hotels without comparable results. Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Three Months Ended September 30, 2007 UNAUDITED                   System Wide (1) - Worldwide System Wide (1) - North America System Wide (1) - International 2007 2006 Var. 2007 2006 Var. 2007 2006 Var.     TOTAL HOTELS REVPAR ($) 125.01 114.13 9.5% 122.01 114.95 6.1% 128.82 113.08 13.9% ADR ($) 172.53 159.12 8.4% 163.58 154.47 5.9% 184.67 165.56 11.5% OCCUPANCY (%) 72.5% 71.7% 0.8 74.6% 74.4% 0.2 69.8% 68.3% 1.5     SHERATON REVPAR ($) 107.80 98.74 9.2% 109.86 103.62 6.0% 105.25 92.72 13.5% ADR ($) 149.99 139.74 7.3% 147.45 139.90 5.4% 153.39 139.50 10.0% OCCUPANCY (%) 71.9% 70.7% 1.2 74.5% 74.1% 0.4 68.6% 66.5% 2.1     WESTIN REVPAR ($) 135.61 128.02 5.9% 130.00 124.09 4.8% 153.03 140.16 9.2% ADR ($) 185.56 173.82 6.8% 176.45 166.39 6.0% 214.78 198.03 8.5% OCCUPANCY (%) 73.1% 73.7% -0.6 73.7% 74.6% -0.9 71.2% 70.8% 0.4     ST. REGIS/LUXURY COLLECTION REVPAR ($) 275.09 244.33 12.6% 211.92 193.44 9.6% 307.97 270.97 13.7% ADR ($) 403.04 352.95 14.2% 306.33 279.19 9.7% 454.44 391.61 16.0% OCCUPANCY (%) 68.3% 69.2% -0.9 69.2% 69.3% -0.1 67.8% 69.2% -1.4     LE MERIDIEN REVPAR ($) 135.85 117.09 16.0% 231.63 207.71 11.5% 128.66 110.29 16.7% ADR ($) 187.07 163.58 14.4% 292.83 275.03 6.5% 178.36 154.72 15.3% OCCUPANCY (%) 72.6% 71.6% 1.0 79.1% 75.5% 3.6 72.1% 71.3% 0.8     W REVPAR ($) 232.14 213.77 8.6% 238.07 222.01 7.2% 172.40 130.84 31.8% ADR ($) 296.04 271.26 9.1% 296.94 273.25 8.7% 284.04 241.20 17.8% OCCUPANCY (%) 78.4% 78.8% -0.4 80.2% 81.2% -1.0 60.7% 54.2% 6.5     FOUR POINTS REVPAR ($) 80.98 73.20 10.6% 80.49 74.47 8.1% 82.37 69.63 18.3% ADR ($) 108.62 100.85 7.7% 105.71 100.07 5.6% 117.56 103.28 13.8% OCCUPANCY (%) 74.6% 72.6% 2.0 76.1% 74.4% 1.7 70.1% 67.4% 2.7     OTHER REVPAR ($) 129.64 123.06 5.3% 129.64 123.06 5.3% ADR ($) 173.62 165.51 4.9% 173.62 165.51 4.9% OCCUPANCY (%) 74.7% 74.4% 0.3 74.7% 74.4% 0.3       (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, 2007 UNAUDITED             System Wide (1) Company Operated (2) 2007 2006 Var. 2007 2006 Var.     TOTAL WORLDWIDE REVPAR ($) 125.01 114.13 9.5% 140.06 126.85 10.4% ADR ($) 172.53 159.12 8.4% 190.05 175.08 8.6% OCCUPANCY (%) 72.5% 71.7% 0.8 73.7% 72.5% 1.2     NORTH AMERICA REVPAR ($) 122.01 114.95 6.1% 147.10 138.54 6.2% ADR ($) 163.58 154.47 5.9% 191.33 180.92 5.8% OCCUPANCY (%) 74.6% 74.4% 0.2 76.9% 76.6% 0.3     EUROPE REVPAR ($) 179.73 158.30 13.5% 201.12 176.36 14.0% ADR ($) 248.09 221.82 11.8% 270.30 242.16 11.6% OCCUPANCY (%) 72.4% 71.4% 1.0 74.4% 72.8% 1.6     AFRICA & MIDDLE EAST REVPAR ($) 101.05 89.18 13.3% 102.25 90.21 13.3% ADR ($) 146.66 131.41 11.6% 147.19 131.69 11.8% OCCUPANCY (%) 68.9% 67.9% 1.0 69.5% 68.5% 1.0     ASIA PACIFIC REVPAR ($) 107.77 94.00 14.6% 105.15 89.64 17.3% ADR ($) 153.81 137.26 12.1% 147.85 130.74 13.1% OCCUPANCY (%) 70.1% 68.5% 1.6 71.1% 68.6% 2.5     LATIN AMERICA REVPAR ($) 73.16 63.13 15.9% 78.64 66.19 18.8% ADR ($) 120.22 109.26 10.0% 130.30 119.82 8.7% OCCUPANCY (%) 60.9% 57.8% 3.1 60.3% 55.2% 5.1       (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 Three Months Ended September 30, 2007 UNAUDITED                       WORLDWIDE NORTH AMERICA INTERNATIONAL 2007 2006 Var. 2007 2006 Var. 2007 2006 Var.   72 Hotels 41 Hotels 31 Hotels TOTAL HOTELS REVPAR ($) 159.50 147.05 8.5% 156.85 147.54 6.3% 164.55 146.10 12.6% ADR ($) 212.64 197.49 7.7% 200.69 187.77 6.9% 238.43 219.34 8.7% OCCUPANCY (%) 75.0% 74.5% 0.5 78.2% 78.6% -0.4 69.0% 66.6% 2.4   Total REVENUE 546,474 506,218 8.0% 340,952 325,021 4.9% 205,522 181,197 13.4% Total EXPENSES 400,323 372,048 7.6% 254,884 238,938 6.7% 145,439 133,110 9.3%         63 Hotels 32 Hotels 31 Hotels BRANDED HOTELS REVPAR ($) 162.64 149.57 8.7% 161.47 151.70 6.4% 164.55 146.10 12.6% ADR ($) 216.74 200.85 7.9% 205.06 191.32 7.2% 238.43 219.34 8.7% OCCUPANCY (%) 75.0% 74.5% 0.5 78.7% 79.3% -0.6 69.0% 66.6% 2.4   Total REVENUE 505,365 464,470 8.8% 299,843 283,273 5.8% 205,522 181,197 13.4% Total EXPENSES 368,550 342,060 7.7% 223,111 208,950 6.8% 145,439 133,110 9.3%       (1) Hotel Results exclude 11 hotels sold and 8 hotels without comparable results during 2006 & 2007 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Management Fees, Franchise Fees and Other Income For the Three Months Ended September 30, 2007 UNAUDITED ($ millions)             Worldwide 2007 2006 Variance % Variance   Management Fees: Base Fees 70 65 5 7.7% Incentive Fees 42 34 8 23.5% Total Management Fees 112 99 13 13.1%   Franchise Fees 39 31 8 25.8%   Total Management & Franchise Fees 151 130 21 16.2%   Other Management & Franchise Revenues (1) 31 26 5 19.2%   Total Management & Franchise Revenues 182 156 26 16.7%   Other (2) 32 26 6 23.1%   Management Fees, Franchise Fees and Other Income 214 182 32 17.6%     (1) Other Management & Franchise Revenues primarily includes the amortization of deferred gains of approximately $20 million in 2007 and $19 million in 2006 resulting from the sales of hotels subject to long-term management contracts and termination fees.   (2) Other includes revenues from the Company's Bliss spa and product business and other miscellaneous revenue. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership & Residential Revenues and Expenses For the Three Months Ended September 30, 2007 UNAUDITED ($ millions)           2007 2006 % Variance   Originated Sales Revenues (1) -- Vacation Ownership Sales 183 185 (1.1%) Other Sales and Services Revenues (2) 43 34 26.5% Deferred Revenues -- Percentage of Completion 24 20 n/m Deferred Revenues -- Other (3) 2 10 n/m Vacation Ownership Sales and Services Revenues 252 249 1.2% Residential Sales and Services Revenues 2 6 (66.7%) Total Vacation Ownership & Residential Sales and Services Revenues 254 255 (0.4%)   Originated Sales Expenses (4) -- Vacation Ownership Sales 113 113 0.0% Other Expenses (5) 50 39 (28.2%) Deferred Expenses -- Percentage of Completion 10 14 n/m Deferred Expenses -- Other 8 12 n/m Vacation Ownership Expenses 181 178 (1.7%) Residential Expenses 2 5 60.0% Total Vacation Ownership & Residential Expenses 183 183 0.0%     (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 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 not deferred per SFAS No. 152.   n/m = not meaningful Starwood Hotels & Resorts Worldwide, Inc. Worldwide Hotel Results - Same Store For the Nine Months Ended September 30, 2007 UNAUDITED                   System Wide (1) - Worldwide System Wide (1) - North America System Wide (1) - International 2007 2006 Var. 2007 2006 Var. 2007 2006 Var.     TOTAL HOTELS REVPAR ($) 121.35 111.11 9.2% 120.31 113.90 5.6% 122.67 107.57 14.0% ADR ($) 171.31 158.43 8.1% 164.98 156.43 5.5% 179.90 161.19 11.6% OCCUPANCY (%) 70.8% 70.1% 0.7 72.9% 72.8% 0.1 68.2% 66.7% 1.5     SHERATON REVPAR ($) 105.43 97.04 8.6% 106.70 101.02 5.6% 103.88 92.13 12.8% ADR ($) 150.79 140.48 7.3% 147.65 140.21 5.3% 154.96 140.84 10.0% OCCUPANCY (%) 69.9% 69.1% 0.8 72.3% 72.1% 0.2 67.0% 65.4% 1.6     WESTIN REVPAR ($) 138.30 129.95 6.4% 136.13 129.44 5.2% 145.36 131.61 10.4% ADR ($) 188.89 177.66 6.3% 182.50 173.26 5.3% 211.43 193.31 9.4% OCCUPANCY (%) 73.2% 73.1% 0.1 74.6% 74.7% -0.1 68.7% 68.1% 0.6     ST. REGIS/LUXURY COLLECTION REVPAR ($) 236.21 212.02 11.4% 213.96 206.54 3.6% 248.14 214.95 15.4% ADR ($) 350.87 309.53 13.4% 309.06 289.99 6.6% 374.29 320.64 16.7% OCCUPANCY (%) 67.3% 68.5% -1.2 69.2% 71.2% -2.0 66.3% 67.0% -0.7     LE MERIDIEN REVPAR ($) 134.03 114.54 17.0% 228.67 198.65 15.1% 128.03 109.21 17.2% ADR ($) 188.06 165.45 13.7% 300.07 271.96 10.3% 180.43 158.31 14.0% OCCUPANCY (%) 71.3% 69.2% 2.1 76.2% 73.0% 3.2 71.0% 69.0% 2.0     W REVPAR ($) 222.62 205.34 8.4% 229.34 213.38 7.5% 158.39 128.56 23.2% ADR ($) 291.62 270.01 8.0% 292.70 272.22 7.5% 277.41 239.28 15.9% OCCUPANCY (%) 76.3% 76.0% 0.3 78.4% 78.4% 0.0 57.1% 53.7% 3.4     FOUR POINTS REVPAR ($) 76.30 70.07 8.9% 74.40 69.96 6.3% 81.84 70.38 16.3% ADR ($) 107.09 99.91 7.2% 103.51 98.67 4.9% 117.93 103.69 13.7% OCCUPANCY (%) 71.2% 70.1% 1.1 71.9% 70.9% 1.0 69.4% 67.9% 1.5     OTHER REVPAR ($) 105.51 107.86 -2.2% 105.51 107.86 -2.2% ADR ($) 163.50 159.60 2.4% 163.50 159.60 2.4% OCCUPANCY (%) 64.5% 67.6% -3.1 64.5% 67.6% -3.1       (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, 2007 UNAUDITED             System Wide (1) Company Operated (2) 2007 2006 Var. 2007 2006 Var.     TOTAL WORLDWIDE REVPAR ($) 121.35 111.11 9.2% 136.22 123.68 10.1% ADR ($) 171.31 158.43 8.1% 189.32 174.99 8.2% OCCUPANCY (%) 70.8% 70.1% 0.7 72.0% 70.7% 1.3     NORTH AMERICA REVPAR ($) 120.31 113.90 5.6% 144.92 137.29 5.6% ADR ($) 164.98 156.43 5.5% 193.11 183.53 5.2% OCCUPANCY (%) 72.9% 72.8% 0.1 75.0% 74.8% 0.2     EUROPE REVPAR ($) 154.75 135.80 14.0% 174.13 151.86 14.7% ADR ($) 225.48 200.12 12.7% 246.73 218.63 12.9% OCCUPANCY (%) 68.6% 67.9% 0.7 70.6% 69.5% 1.1     AFRICA & MIDDLE EAST REVPAR ($) 115.73 100.06 15.7% 117.10 101.03 15.9% ADR ($) 163.59 147.65 10.8% 164.48 147.91 11.2% OCCUPANCY (%) 70.7% 67.8% 2.9 71.2% 68.3% 2.9     ASIA PACIFIC REVPAR ($) 105.71 92.46 14.3% 101.11 86.28 17.2% ADR ($) 155.36 139.43 11.4% 148.43 132.56 12.0% OCCUPANCY (%) 68.0% 66.3% 1.7 68.1% 65.1% 3.0     LATIN AMERICA REVPAR ($) 81.68 74.32 9.9% 88.55 79.43 11.5% ADR ($) 130.47 118.99 9.6% 142.55 131.26 8.6% OCCUPANCY (%) 62.6% 62.5% 0.1 62.1% 60.5% 1.6       (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, 2007 UNAUDITED                       WORLDWIDE NORTH AMERICA INTERNATIONAL 2007 2006 Var. 2007 2006 Var. 2007 2006 Var.   72 Hotels 41 Hotels 31 Hotels TOTAL HOTELS REVPAR ($) 152.57 140.43 8.6% 150.61 142.31 5.8% 156.33 136.82 14.3% ADR ($) 211.16 196.18 7.6% 202.95 192.06 5.7% 228.32 204.97 11.4% OCCUPANCY (%) 72.3% 71.6% 0.7 74.2% 74.1% 0.1 68.5% 66.7% 1.8   Total REVENUE 1,585,095 1,470,375 7.8% 1,012,006 963,375 5.0% 573,089 507,000 13.0% Total EXPENSES 1,177,996 1,102,301 6.9% 756,431 716,569 5.6% 421,565 385,732 9.3%         63 Hotels 32 Hotels 31 Hotels BRANDED HOTELS REVPAR ($) 157.55 143.87 9.5% 158.28 148.16 6.8% 156.33 136.82 14.3% ADR ($) 215.62 199.81 7.9% 208.66 197.02 5.9% 228.32 204.97 11.4% OCCUPANCY (%) 73.1% 72.0% 1.1 75.9% 75.2% 0.7 68.5% 66.7% 1.8   Total REVENUE 1,478,865 1,358,798 8.8% 905,776 851,798 6.3% 573,089 507,000 13.0% Total EXPENSES 1,085,839 1,013,401 7.1% 664,274 627,669 5.8% 421,565 385,732 9.3%       (1) Hotel Results exclude 50 hotels sold and 8 hotels without comparable results during 2006 & 2007 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Management Fees, Franchise Fees and Other Income For the Nine Months Ended September 30, 2007 UNAUDITED ($ millions)             Worldwide 2007 2006 Variance % Variance   Management Fees: Base Fees 204 169 35 20.7% Incentive Fees 105 91 14 15.4% Total Management Fees 309 260 49 18.8%   Franchise Fees 109 87 22 25.3%   Total Management & Franchise Fees 418 347 71 20.5%   Other Management & Franchise Revenues (1) 76 56 20 35.7%   Total Management & Franchise Revenues 494 403 91 22.6%   Other (2) 108 85 23 27.1%   Management Fees, Franchise Fees and Other Income 602 488 114 23.4%     (1) Other Management & Franchise Fees primarily includes the amortization of deferred gains of approximately $60 million in 2007 and $42 million in 2006 resulting from the sales of hotels subject to long-term management contracts and termination fees.     (2) In 2007, Other includes $18 million of income earned from the Company's carried interests in the Westin Boston Waterfront Hotel which was earned when the hotel was sold by its owners in January 2007. The remaining amount includes revenues from the Company's Bliss spa and product business and other miscellaneous revenue. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership & Residential Revenues and Expenses For the Nine Months Ended September 30, 2007 UNAUDITED ($ millions)           2007 2006 % Variance   Originated Sales Revenues (1) -- Vacation Ownership Sales 549 563 (2.5%) Other Sales and Services Revenues (2) 134 104 28.8% Deferred Revenues -- Percentage of Completion 59 (70) n/m Deferred Revenues -- Other (3) 6 (2) n/m Vacation Ownership Sales and Services Revenues 748 595 25.7% Residential Sales and Services Revenues 12 88 (86.4%) Total Vacation Ownership & Residential Sales and Services Revenues 760 683 11.3%   Originated Sales Expenses (4) -- Vacation Ownership Sales 348 362 3.9% Other Expenses (5) 153 118 (29.7%) Deferred Expenses -- Percentage of Completion 28 (33) n/m Deferred Expenses -- Other 24 19 n/m Vacation Ownership Expenses 553 466 (18.7%) Residential Expenses 10 66 84.8% Total Vacation Ownership & Residential Expenses 563 532 (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 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 not deferred per SFAS No. 152.   n/m = not meaningful Properties without comparable results in 2007:   Property Location W New Orleans - French Quarter New Orleans, LA W New Orleans New Orleans, LA St. Regis New York New York, NY Sheraton Steamboat Resort & Conference Center Steamboat Springs, CO Westin St. John Resort & Villas St. John, Virgin Islands The Westin Resort & Spa, Cancun Cancun, Mexico Sheraton Fiji Resort Nadi, Fiji Westin Denarau Island Resort & Spa Nadi, Fiji   Properties sold or closed in 2007 and 2006: Property Location 33 Hotels Sold to Host Hotels & Resorts Various 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 Sheraton Cancun Resort & Towers Cancun, Mexico Sheraton Inn Lexington Lexington, MA Sheraton Omaha Hotel Omaha, NE Westin Fort Lauderdale Ft. Lauderdale, FL Days Inn City Center Portland, OR Sheraton Nashua Hotel Nashua, NH Four Points by Sheraton Denver Cherry Creek Denver, CO Sheraton Bal Harbour Beach Resort Bal Harbour, FL Selected Balance Sheet and Cash Flow Items:           Cash and cash equivalents (including restricted cash of $227 million) $ 408 Debt $ 3,162       Revenues and Expenses Associated with Assets Sold or Closed in 2006 and 2007 or Expected to be Sold in the Fourth Quarter of 2007 (1):   Q1   Q2   Q3   Q4   Full Year Hotels Sold or Closed in 2006: 2006 Revenues $ 295 $ 71   $ 16 $ 2 $ 384 Expenses (excluding depreciation) $ 227 $ 53 $ 12 $ 1 $ 293   Hotels Sold or Closed in 2007: 2007 Revenues $ 26 $ 14 $ - $ - $ 40 Expenses (excluding depreciation) $ 17 $ 12 $ - $ - $ 29   2006 Revenues $ 31 $ 24 $ 17 $ 23 $ 95 Expenses (excluding depreciation) $ 19 $ 18 $ 16 $ 17 $ 70   Hotels Classified as Held for Sale at September 30, 2007: 2007 Revenues $ 3 $ 5 $ 5 $ - $ 13 Expenses (excluding depreciation) $ 3 $ 4 $ 4 $ - $ 11   2006 Revenues $ 3 $ 5 $ 5 $ 4 $ 17 Expenses (excluding depreciation) $ 3 $ 4 $ 4 $ 4 $ 15   (1) Results consist of 45 hotels sold or closed in 2006, 5 hotels sold or closed in 2007 and 2 hotels which are classified as held for sale at September 30, 2007. These amounts are included in the revenues and expenses from owned, leased and consolidated joint venture hotels in 2007 and 2006. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Capital Expenditures For the Three and Nine Months Ended September 30, 2007 UNAUDITED ($ millions)   Q3 YTD Capital Expenditures: Owned, Leased and Consolidated Joint Venture Hotels 54 137 Corporate/IT 23 48 Subtotal 77 185   Vacation Ownership Capital Expenditures: Capital expenditures (includes land acquisitions) 23 61 Net capital expenditures for inventory (1) 56 105 Subtotal 79 166   Development Capital 9 139   Total Capital Expenditures 165 490   (1) Represents gross inventory capital expenditures of $111 and $278 in the three and nine months ended September 30, 2007, respectively, less cost of sales of $55 and $173 in the three and nine months ended September 30, 2007, respectively. Starwood Hotels & Resorts Worldwide, Inc. 2007 Divisional Hotel Inventory Summary by Ownership by Brand September 30, 2007                       NAD EAME LAD ASIA Total Owned Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Sheraton 12 5,632 8 1,724 5 2,713 2 821 27 10,890 Westin 7 3,741 5 1,068 3 901 1 273 16 5,983 Four Points 5 943 - - - - 1 630 6 1,573 W 9 3,178 - - - - - - 9 3,178 Luxury Collection 1 647 7 828 1 181 - - 9 1,656 St. Regis 3 668 1 161 - - - - 4 829 Other 9 2,308 - - - - - - 9 2,308 Total Owned 46 17,117 21 3,781 9 3,795 4 1,724 80 26,417 Managed & UJV Sheraton 46 28,237 74 22,087 14 2,749 52 18,122 186 71,195 Westin 49 26,920 15 4,023 - - 16 6,077 80 37,020 Four Points 1 475 6 899 3 428 4 1,150 14 2,952 W 8 2,269 - - 1 237 2 330 11 2,836 Luxury Collection 8 1,929 9 1,470 7 250 - - 24 3,649 St. Regis 6 892 1 95 - - 2 601 9 1,588 Le Meridien 4 763 69 16,616 1 130 23 5,915 97 23,424 Other 1 105 1 - - - - - 2 105 Total Managed & UJV 123 61,590 175 45,190 26 3,794 99 32,195 423 142,769 Franchised Sheraton 142 43,046 28 7,085 5 1,655 15 6,147 190 57,933 Westin 39 13,786 4 1,506 3 598 5 1,196 51 17,086 Four Points 85 14,506 12 1,671 9 1,384 2 235 108 17,796 Luxury Collection 1 249 16 1,975 - - 7 2,022 24 4,246 Le Meridien 4 1,343 11 3,890 1 213 4 2,392 20 7,838 Total Franchised   271   72,930   71   16,127   18   3,850   33   11,992   393   104,899   Systemwide Sheraton 200 76,915 110 30,896 24 7,117 69 25,090 403 140,018 Westin 95 44,447 24 6,597 6 1,499 22 7,546 147 60,089 Four Points 91 15,924 18 2,570 12 1,812 7 2,015 128 22,321 W 17 5,447 - - 1 237 2 330 20 6,014 Luxury Collection 10 2,825 32 4,273 8 431 7 2,022 57 9,551 St. Regis 9 1,560 2 256 - - 2 601 13 2,417 Le Meridien 8 2,106 80 20,506 2 343 27 8,307 117 31,262 Other 10 2,413 1 - - - - - 11 2,413 Total Systemwide 440 151,637 267 65,098 53 11,439 136 45,911 896 274,085                                           STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Vacation Ownership Inventory Pipeline As of September 30, 2007 UNAUDITED                                               # Resorts   # of Units (1) Total(2) In Operations In Active Sales Completed(3) Pre-sales/ Development(4) Future Capacity(5),(6) Total at Buildout Brand                 Sheraton 8 6 6 2,711 357 1,424 4,492 Westin 12 4 6 825 497 1,164 2,486 St. Regis 2 2 2 51 12 - 63 The Luxury Collection 1 - 1 - 6 6 12 Unbranded   3   3   -   124   -   1   125 Total SVO, Inc.   26   15   15   3,711   872   2,595   7,178   Unconsolidated Joint Ventures (UJV's)   2   1   1   198   -   40   238 Total including UJV's   28   16   16   3,909   872   2,635   7,416                               Total Intervals Including UJV's (7)               203,268   45,344   137,020   385,632     (1) Lockoff units are considered as one unit for this analysis.   (2) Includes resorts in operation and active sales.   (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.