WHITE PLAINS, N.Y., Oct. 25, 2001- Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported results for the third quarter of 2001.

Third Quarter Financial Results

The terrorist attacks on September 11, 2001 had a significant impact on the Company�s third quarter results as lodging demand declined to unprecedented levels, in the most important month of the quarter, across the United States and internationally.

REVPAR for Same-Store Owned Hotels in North America decreased 19.4% and 8.2% internationally when compared to 2000.

Total Company EBITDA was $288 million compared to $406 million in 2000.

Total Company EBITDA margin was approximately 30%.

EPS was $0.14 compared to $0.50 in 2000.

Occupancy rates at Same-Store Owned Hotels in North America for the period between September 15, 2001 and September 30, 2001 decreased approximately 32 percentage points to 48% and REVPAR decreased approximately 49% when compared to the same period in 2000.  From October 1, 2001 to October 21, 2001, occupancy rates at these hotels rebounded to approximately 66%, down 13 percentage points from the same period of 2000 resulting in a REVPAR decline of approximately 27%.  The most recent week�s occupancy level at these hotels was approximately 68%.

Third Quarter Ended September 30, 2001

EPS was $0.14 in the third quarter of 2001 compared to $0.50 in the corresponding period in 2000, reflecting the dramatic reduction in travel following the events of September 11 and including a $4 million restructuring and other special charge.  Total revenues were down 12% to $965 million compared to the same period in 2000, resulting from the softening United States economy and the unprecedented decline in industry-wide demand following the September 11 attacks.  Historically, the last three weeks of September have been the strongest period in the third quarter.  Operating income for the third quarter of 2001 was $135 million compared to $268 million in the same period of 2000 and income from continuing operations was $30 million in the third quarter of 2001 compared to $103 million in the same period of 2000 due to the significant decline in hotel operating results and increased depreciation expense, offset in part by initial cost constraint measures, reduced interest expense resulting from a reduction in interest rates and the completion of certain financing transactions, and a reduction in the Company�s effective tax rate.  Operating income for the third quarter of 2001 includes a $4 million restructuring and other special charge primarily related to severance and other costs incurred as part of the Company�s immediate cost constraint efforts after September 11.

Nine Months Ended September 30, 2001

For the nine months ended September 30, 2001, total revenues were $3.1 billion compared to $3.2 billion in the same period in 2000 and EPS was $0.99 compared to EPS of $1.32 in the corresponding period in 2000.  Income from continuing operations was $205 million in the nine months ended September 30, 2001 compared to $270 million in the same period of 2000.

Comments from the CEO

Barry S. Sternlicht, Chairman and CEO said, �The events of September 11th stunned and horrified the entire world.  They also changed the travel industry and exacerbated already weak business travel trends.  We are tremendously proud of the extraordinary efforts of our 7,000 associates in our 22 New York and Washington, DC area hotels who worked tirelessly to aid the relief efforts.�

�No-one was prepared for September 11th and its impact on the travel industry or our business.  Immediately after September 11th, we aggressively focused on our operating cost structure, at headquarters, divisional and field levels, and reduced our capital spending where possible.  The impact of these measures was not felt in the third quarter.  Yet, the core strengths of our enterprise are intact.  We own an extraordinary global asset base with important brands that are now trading at historic discounts to any estimated asset value.  Year-to-date, all of our brands posted meaningful increases in guest satisfaction scores and overall market share gains and the nation�s #1 frequent guest program, Starwood Preferred Guest, is gaining increasing strength.  We continued our rollout of our revenue management programs, our global Six Sigma initiatives and broadband installation in partnership with Cisco.  We remain a growth company.  Throughout the year, we have added meaningful new resorts and hotels to enhance our global distribution including the Westin Dublin, Westin Diplomat Resort & Spa, Westin Stonebriar Resort, St.  Regis Monarch Beach Resort, Sheraton St. Louis, W Lakeshore, W Midland and soon, the W Times Square.  The Company bears an enormous depreciation expense which exceeds maintenance capital by approximately $300 million per year.  This is a reflection of the method in which this Company was created.  During these difficult times, we believe a more appropriate measure of relative value is cash EPS and EBITDA as well as asset value.�

Concluding, Mr. Sternlicht said, �The travel industry and Starwood are being tested like never before.  Operating trends continue to improve, (reaching 70% on certain days recently) albeit at reduced rates of improvement.  It is extraordinarily difficult to predict future demand trends.  Looking forward, positives such as lower wage inflation, lower energy costs, lower interest expense, and significant cutbacks in future hotel supply are somewhat offset by likely higher healthcare and insurance costs.  Nonetheless, we have sufficient liquidity, the creativity and commitment of our management team and great assets to weather this period and to emerge a stronger company focused on growth and rapidly increasing shareholder value.�

Operating Results

At the Company�s Comparable Owned Hotels worldwide, revenues for the third quarter of 2001 decreased $147 million to $765 million from $912 million in 2000 and EBITDA decreased $89 million to $216 million from $305 million in 2000.  EBITDA at the Company�s Comparable Owned Hotels internationally decreased 6.8% to $82 million in the third quarter of 2001 when compared to the same period in 2000 (a 3.9% decrease excluding the unfavorable effects of foreign exchange).  Operating results at Comparable Owned Hotels in North America declined in the third quarter of 2001 when compared to 2000, reflecting the impact of lower revenue per available room (�REVPAR�) primarily attributable to the September 11 attacks.  Prior to the attacks, REVPAR at Same-Store Owned Hotels in North America for the period beginning July 1, 2001 and ending September 10, 2001 decreased 9.8% when compared to the same period in 2000.  Although prior forecasts projected sell-out demand for the weeks following September 11, the Company immediately developed operating plans commensurate with the reduced demand levels.  In the days and weeks following September 11, the Company implemented contingency plans at all owned and managed hotels in North America and internationally.  Since the attacks, Company-wide staffing levels have been reduced by approximately 10,000 full-time equivalent employees across all levels of the organization.

For the third quarter of 2001, REVPAR at Same-Store Owned Hotels worldwide decreased 16.5% when compared to the same period in 2000 as a result of a decline in occupancy rates of 930 basis points to 65.5% and a decline in average daily rate (�ADR�) of 4.7% from the prior year.  REVPAR at Same-Store Owned Hotels in North America decreased 19.4% to $93.69 when compared to the same period in 2000 as a result of a decrease in occupancy rates to 66.3% from 77.3% in the prior year, while ADR decreased 6.1% to $141.23.  The decrease in ADR was primarily attributable to the mix of customers rather than discounted room rates.  The Company�s results in North America were negatively impacted by the significant drop in industry-wide lodging demand, resulting primarily from the September 11 attacks, particularly impacting New York, where the Company has seven owned hotels with approximately 3,900 rooms.  Internationally, Same-Store Owned Hotel REVPAR decreased 8.2%.

EBITDA margins at Comparable Owned Hotels worldwide decreased 520 basis points to 28.2% in the third quarter of 2001 when compared to the same period in 2000.  In North America, EBITDA margins at Comparable Owned Hotels decreased 750 basis points to 24.9% in the third quarter of 2001 when compared to the same period in 2000.  Internationally, EBITDA margins at Comparable Owned Hotels decreased slightly to 35.8% in the third quarter of 2001 when compared to 36.1% in the same period of 2000.

During the third quarter of 2001, the Company added 16 management and franchise contracts with approximately 3,800 rooms.  During the nine months ended September 30, 2001, the Company added 42 management and franchise contracts with approximately 8,300 rooms.
The Company is currently selling vacation ownership interest (�VOI�) inventory at nine resorts and engaged in pre-opening sales at three others.  Three new build projects are currently underway including Sheraton�s Mountain Vista in Avon, Colorado; Westin Mission Hills Resort Villas in Rancho Mirage, California; and Westin Ka�anapali Ocean Resort Villas in Maui, Hawaii.  Due to the events of September 11 and subsequent decrease in travel, Starwood Vacation Ownership, Inc. experienced a decrease in tour flow at those resorts considered to be fly-to markets.  Sales at destinations traditionally considered regional drive-to markets, including Myrtle Beach and Palm Springs, were less affected.

Dispositions

The Company continues to review its portfolio for disposition candidates, including its CIGA portfolio.  However, in light of the current environment, the timing of these sales has likely been delayed to 2002.

Capital

During the third quarter of 2001, the Company invested approximately $136 million for capital, primarily at owned hotel assets and VOI construction.  Most of this investment spend included the repositioning of the Midland Hotel to the W Chicago-City Center (390 rooms), which is now open, conversion of the Days Inn Chicago to the W Chicago-Lakeshore (556 rooms), which partially opened in October 2001, development of the W New York-Times Square (509 rooms, opening late fourth quarter) as well as the development of The St. Regis Museum Tower in San Francisco (269 rooms and 102 condominiums).

Financing

On September 30, 2001, the Company had total debt of $5.507 billion and cash and cash equivalents of $204 million.

At the end of the third quarter of 2001, the Company�s debt was approximately 65% fixed rate and 35% floating rate and its weighted average maturity was 4.7 years.  As of September 30, 2001, the Company had cash and availability under its domestic and international revolving credit facilities of approximately $800 million and the Company�s debt had a weighted average interest rate of 5.67%.  The Company has had discussions with its primary lenders and expects to amend its bank facilities to provide for covenant relief as may be necessary.  The Company continues to monitor the bond market and, in light of the 2003 maturities of existing bank facilities, expects to access the bond markets in 2002.

Share Repurchase

During the third quarter, the Company repurchased 1,995,800 shares at a total cost of approximately $54 million.  At September 30, 2001, Starwood had approximately 201 million shares outstanding (including partnership units and exchangeable preferred shares).

Dividend
In October 2001, Starwood Hotels & Resorts paid a third quarter dividend of $0.20 per share, representing a 16% increase over the prior year quarterly dividend.

Future Performance

All comments in the following paragraphs and certain comments in this release above are deemed to be forward-looking statements.  These statements reflect expectations of the Company�s performance given its current base of assets and its current understanding of external economic and political environments.  Actual results may differ materially.

Given the current uncertain travel environment and a generally weak economic environment around the world, it is impossible to predict results with any degree of precision.

As a result of the Company�s cost reduction efforts, the Company will record significant severance charges in the fourth quarter of 2001.  In addition, the Company is evaluating the carrying value of certain assets for potential non-cash impairment charges in the fourth quarter of 2001.  Such restructuring and other special charges could aggregate $75 million to $150 million.
Fourth quarter 2001 Worldwide Same-Store REVPAR is now expected to decline approximately 25%-30% from the same period in 2000 resulting in EBITDA of approximately $200-225 million and due to the large fixed non-cash charge for depreciation, a likely small EPS loss, before restructuring and special charges.

Assuming an economic recovery in the second half of 2002 resulting in REVPAR flat to down slightly from 2001 or declining approximately 15% from 2000 levels, the Company would expect EBITDA of approximately $1.25-$1.3 billion and EPS of approximately $1.00-$1.20, including $0.24 per share from the new accounting rules pertaining to goodwill and intangible assets.

The Company is targeting capital expenditures in 2002 of $200-$250 million, including maintenance capital expenditures.  Further, the Company is evaluating the timing and level of its dividend.
 
 

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with more than 725 properties in 80 countries and 120,000 employees at its owned and managed properties.  

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.