Hotel Online Special Report
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Starwood Reports 9.2% Increase in 
Same Hotel REVPAR for Owned Properties 
Worldwide For 2nd Qtr 1998
Gaming Results
Integration Of Operations Proceeding As Planned
Renovations And Repositionings
 
WHITE PLAINS, N.Y., July 29, 1998 - Starwood Hotels Resorts (the "Trust") and Starwood Hotels Resorts Worldwide, Inc. (the Corporation) (together "Starwood" or the "Company") (NYSE: HOT), the world's largest hotel and gaming company which operates the Sheraton, Westin, St. Regis, Luxury Collection, Ciga and Caesars brands, today announced record combined financial results for the second quarter ended June 30, 1998.

Pro Forma Results

For the second quarter of 1998, combined pro forma FFO was approximately $259 million or $1.21 per diluted paired share on combined pro forma revenues of $2.3 billion compared to combined FFO of approximately $52 million or $0.86 per diluted paired share on combined revenues of approximately $244 million for the corresponding period in 1997 as reported on an actual basis by Starwood.  The pro forma results for the second quarter of 1998 reflect the February 23, 1998 merger (the "ITT Merger") of the Company with ITT Corporation ("ITT") as if the ITT Merger had occurred on January 1, 1998 and assumes the sale of a number of previously announced non-core businesses with total gross proceeds of approximately $3.4 billion, of which approximately $2.7 billion has been realized.

For the first half of 1998, combined pro forma FFO was $405 million, or $1.91 per diluted paired share on revenues of $4.4 billion, an increase of 30% over combined pro forma FFO of $1.47 per paired share for the first six months of 1997 as actually reported by Starwood. Hotel Group Results.

On a same-store-sales basis, results for the second quarter of 1998 at the Company's owned and leased hotels worldwide with comparable results, reflect an increase in revenues of 7% to $751 million from $700 million in 1997, an increase in EBITDA margins to 34.3% from 31.0%, and an increase in EBITDA of 19% to $257 million from $217 million in 1997. For the quarter, REVPAR for these owned hotels increased 9.2% to $107. The increase in REVPAR was due to the increase in ADR of 7.8% to $144 and a 1 point increase in occupancy to 74%.

Pro forma EBITDA contribution from managed and franchised hotels and other hotel income increased to $73 million for the second quarter from $43 million in the prior period primarily due to increased management, franchise and other fees and reduced operating costs.

"Starwood is a unique company uniquely positioned at this point in the cycle," said Barry Sternlicht, Chairman CEO of Starwood Hotels Resorts. "Our businesses performed very well during the quarter. Our substantial REVPAR growth is a tribute to the upscale, urban and geographic distribution of our owned hotel asset base, and the global nature of our income stream. Indeed, approximately 2/3 of all hotel related EBITDA is generated domestically and the balance internationally. With the U.S. continuing to excel, our significant strength in Europe and Latin America, where same store EBITDA grew 30% and 33% respectively in the quarter, offset weakness in Asia. Domestically, our 60 owned hotels in New England, MidAtlantic and Pacific regions, markets with particularly high barriers to entry, generate about 60% of our domestic lodging EBITDA," he continued. "Margin expansion and REVPAR growth, achieved without the full benefit of three hotels in New York and one in Boston, perhaps the nation's two strongest markets, offset the disruptions caused by 11 flag changes, and a 7% point lower hold year over year in Baccarat. In addition, the Company's interest in Ciga has appreciated approximately $400 million since the beginning of the year and our interest in ESI has risen more than $80 million since our secondary offering in May," Mr. Sternlicht said.

"While we have made tremendous progress on the integration of Sheraton, Westin and Caesars into our company, there is still much work to be done," said Richard Nanula, president and chief executive. "We expect to achieve additional benefits from the mergers during the second half of the year and beyond. We are only just beginning to work as a unified force and are more convinced than ever that the benefits of cross-selling, improved marketing and the implementation of numerous efficiency measures will produce significant benefits. Our hotel capital expenditures program will soon accelerate to properly position our assets and ensure market
leading REVPAR growth into the near future."

As of June 30, 1998 the Company's portfolio of owned, managed and franchised hotels totaled approximately 650 hotels in 70 countries with over 210,000 rooms. During the quarter, the Company signed 19 new third party management and franchise agreements for its various brands bringing the total for the first half to 49 with 20 additional agreements expected in the third quarter. Moreover, management contracts were previously executed relating to an additional 6 full service Westins which are currently under construction and expected to be opened by the end of 1999.

Gaming Results

The Gaming group recorded revenues of $296 million in the second quarter of 1998, up 10% from the prior year's quarter, and a 14% increase in EBITDA to $80 million for the period, reflecting improved results in Las Vegas and Atlantic City.

Gaming accounts for approximately 25% of the Company's total pro forma EBITDA from ongoing operations in 1998 with about 8% of Company EBITDA derived from each of Caesars Palace Las Vegas and Caesars Atlantic City. EBITDA at Caesars Atlantic City was $39 million in the second quarter of 1998 up 30% over the same period in  1997. The impact of an additional 620 rooms resulted in gains in all revenue categories bringing total revenues up 15% to $113 million in the second quarter of 1998 when compared to $98 million in the second quarter of 1997. The 30,000 square foot casino expansion and replacement of slot inventory was completed in early June and a Grand Opening was held on June 27. Caesars Atlantic City now boasts 3,600 slots and 125 tables contained in 117,000 square feet of casino space versus previous inventory of 2,300 slots and 100 tables and 82,000 square feet of casino space in the second quarter of 1997.

At Caesars Palace, an additional 1,130 rooms and 110,000 square feet of meeting space were in service in the second quarter of 1998 versus the same quarter in 1997. The new rooms, which have significantly improved the asset's competitive position, were immediately absorbed and REVPAR increased 16%. An increase in the number of slots and increased traffic resulted in a 19% increase in slot win. Baccarat volume decreased 14% and table game volume excluding baccarat increased 12% resulting in a 7% increase in table win. EBITDA at Caesars Palace increased by approximately 8% to $29 million for the second quarter of 1998.

"We are very pleased with the results of our Gaming Group which overcame a decline in baccarat play from the Asian markets, to post strong results," said Richard Nanula. "The reception to our significant expansions of both Caesars Palace and Caesars Atlantic City has been excellent." "We are evaluating promising new business opportunities to continue to expand the Caesars brand around the world."

The Company's other Gaming facilities at Caesars Tahoe, Caesars Windsor, the Sheraton Halifax, Sheraton Sydney, and Sheraton Tunica reported an increase in EBITDA of approximately 20% to $17 million on $61 million of revenues in the second quarter of 1998 when compared to the second quarter of 1997. In February, Caesars obtained approval from the Army Corps of Engineers and expects to begin Caesars Indiana Riverboat operations in November. With 90,000 square feet of casino space, the Riverboat will be the largest in the country and is expected to be the only competitor in the Louisville market for the foreseeable future. In March, Caesars was awarded a preliminary gaming license in Johannesburg, South Africa and expects to begin operations of a temporary casino in the fourth quarter. During the second quarter, Caesars held the opening of the new Caesars Club Casino in Manila.

Integration Of Operations Proceeding As Planned

During the quarter, the Company continued to implement its new management structure which includes certain key executives from each of ITT, Westin, Starwood, and Caesars.

As a result of the reorganization, operational improvements are now in the implementation phase. Cross selling and marketing programs, including the redemption of frequent stay points between all of the company's brands, are proceeding on track and significant progress is being made in the areas of cost efficiencies including insurance and employee benefits, among others.

The integration of the two frequent guest programs is expected to be completed during the first quarter of 1999. The Company has selected Sheraton's Reservatron IV System for its combined operations and is well along the way and will be completed during the first quarter. In addition, the new consolidated headquarters located in Westchester County, New York is now fully operational and all remaining New York City operations have been shut down. In addition, the Company has significantly consolidated space in its Seattle, Atlanta and Boston locations, eliminating the redundancies across the 3 Companies.

Acquisitions and Dispositions

The Company continues to analyze numerous acquisition opportunities particularly single assets and small portfolios primarily in offshore markets. The Company also believes there are attractive acquisition opportunities in Asia.

On May 13, 1998 the Company completed the acquisition of the 242 room Danbury, Connecticut Hilton for $20 million. In addition, the company signed 19 new management/franchise agreements bringing the total to 48 for the first half of 1998. The Company has agreed to acquire a domestic, managed resort hotel for $135 million with closing expected soon.

On June 10 the company completed the public offering of 13.05 million shares of ITT Educational Services, Inc. ("ESI") for gross proceeds of approximately $315 million reducing Starwood's ownership in ESI to 9.5 million shares or 35%, currently valued at approximately $300 million.

In April, the Company exercised its put options with respect to half of its interest in Madison Square Garden, which generated proceeds of $94 million and as previously announced on May 1, the Company completed the sale of eight hotel properties for $245 million as well as the sale of its Gulfstream V corporate aircraft for $39 million. In addition, during the quarter the Company sold the Bay Valley Hotel and Resort in Bay City, Michigan for approximately $5 million and its remaining interest in the King 8 Hotel and Casino in Las Vegas, Nevada for $3 million.

The Desert Inn, including 32 acres of adjacent land on the strip in Las Vegas, continues to be marketed for sale.

Financing

Total debt for the Company on June 30 was approximately $8.1 billion.  The company plans to refinance its $2.5 billion Increasing Rate Notes with fixed rate debt in the near future and during the quarter the company entered into forward swap agreements to fix the rate relating to $1.5 billion of this debt.

During the quarter, the Company declared a regular dividend of 52 cents per paired share. In the second quarter, the Company also repurchased approximately 2 million paired shares at an aggregate cost of approximately $100 million.

Renovations And Repositionings

During the second quarter, the Company invested approximately $200 million in capital improvements, split equally between gaming and hotels bringing the total for the first 6 months of 1998 to approximately $400 million. Approximately one quarter of the gaming capital expenditure was invested in the Harrison County River Boat.

In addition to the ongoing construction of its 426-room Seattle "W" property, the 423-room San Francisco "W" property, and the expansion of the Midland Hotel In Chicago. During the quarter, renovations were completed on the Plaza Hotel and Conference Center in Tucson, AZ; the Four Points Hotel Philadelphia Airport; and the 400 room South Tower of the Sheraton Boston Hotel and Towers and ongoing construction on the 720-room Doral Inn to be renamed the W New York. The Company is working on major renovations on the following properties:

  • Doral Court (199 rooms), 
  • Doral Tuscany (121 rooms), in New York, 
  • Marque of Atlanta, 
  • the Sheraton Stamford (480 rooms) in Connecticut, 
  • the Sheraton Manhattan (650 rooms) in New York 
  • and Phase II of the Sheraton Boston Hotel and Towers (781 rooms).
During the Second Quarter, the Company has converted another 11 owned hotels to the Westin, Sheraton and Four Points Hotel brands bringing the total for the first half of 1998 to 22.

"While we obviously have numerous challenges ahead of us, integrating our assets and positioning our global brands, these challenges reflect long term opportunities not reflected in current earnings. Indeed, we have made significant investments in a number of projects opening later this year or in 1999 which include the Harrison County Riverboat, our three 'W's' in New York totaling more than 1,000 rooms, our two 400 room plus new builds, the Manila and South African gaming projects and our employee benefit, insurance, purchasing and other savings which, when implemented as planned, should result in well in excess of $125 million in year over year
EBITDA growth before any general REVPAR improvement in our assets. We are also excited about the future of our timeshare business and have available sites at the Phoenician, Bal Harbor, Harbour Island, Mission Hills and other resort assets, domestically and internationally," Mr. Sternlicht said.

"Starwood is a unique company with incomparable assets and growth prospects on a global basis. We are building our team for the future focusing on the long term and our extraordinary internal growth prospects, growth we expect to come from both the top line, as we cross-sell and focus marketing efforts and build our frequent stay program, and the bottom line as we drive operating costs lower taking advantage of our purchasing scale, best practices and our ability to cluster operate our urban luxury properties,"

Mr. Sternlicht continued. "We own great brands and have great assets, in some of the best places in the world, and in some of the strongest markets, and we have assembled an outstanding management team to run them. The power of our brands will become even more evident as we complete the integration process," Mr. Sternlicht concluded. 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 which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Starwood Hotels 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 Hotels expectations include completion of pending acquisitions, continued availability of acquisitions, continued availability of debt and equity on favorable terms, legislative proposals to limit expansion of paired- share real estate investment trusts, 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 or national economic conditions and other risks detailed from time to time in the Company's SEC reports, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K.)
 

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Contact:
Jim Gallagher, Media, 914-640-8194, 
or Dan Gibson, Investors, 914-640-8175, both of 
Starwood
Hotels Resorts Worldwide, Inc. 
http://www.starwoodlodging.com
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Also See:
Starwood Hotels, which operates ITT Sheraton, Westin and Caesars subsidiaries, Announces
Management / March 1998 
Starwood Hotels Resorts Announces Record 1998 First Quarter Results / May 1998 
Starwood Hotels & Resorts Worldwide, Inc. Announces the Launch of 'W' Hotels / April 1998 

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