WHITE PLAINS, N.Y.--July 28, 2011--Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) today reported second quarter 2011 financial results.

“We continue to see strong demand across both business and leisure travelers. This demand fueled growth across each of our nine distinct and compelling brands. Our efforts to hold the line on costs enabled us to beat EBITDA and EPS expectations in the quarter.”

Second Quarter 2011 Highlights

• Excluding special items, EPS from continuing operations was $0.50, an increase of 43% compared to 2010. Including special items, EPS from continuing operations was $0.77.
• Adjusted EBITDA was $262 million.
• Excluding special items, income from continuing operations was $97 million. Including special items, income from continuing operations was $150 million.
• Worldwide System-wide REVPAR for Same-Store Hotels increased 11.8% (8.2% in constant dollars) compared to 2010. System-wide REVPAR for Same-Store Hotels in North America increased 9.5% (8.7% in constant dollars).
• Management fees, franchise fees and other income increased 13.6% compared to 2010.
• Worldwide Same-Store company-operated gross operating profit margins increased approximately 90 basis points compared to 2010. Gross operating profits were negatively impacted by events in the Middle East, North Africa and Japan.
• Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 18.5% (12.5% in constant dollars) compared to 2010. REVPAR for Starwood branded Same-Store Owned Hotels in North America increased 10.8% (8.7% in constant dollars).
• Margins at Starwood branded Same-Store Owned Hotels Worldwide increased approximately 225 basis points compared to 2010.
• Earnings from our vacation ownership and residential business were flat compared to 2010.
• During the quarter, the Company completed the sales of two wholly-owned hotels and one consolidated joint venture hotel for cash proceeds of approximately $281 million and the assumption of approximately $57 million of debt by the buyer.
• During the quarter, the Company signed 22 hotel management and franchise contracts representing approximately 5,900 rooms and opened 13 hotels and resorts with approximately 2,900 rooms.

Second Quarter 2011 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the second quarter of 2011 of $0.77 per share compared to $0.42 in the second quarter of 2010. Excluding special items, EPS from continuing operations was $0.50 for the second quarter of 2011 compared to $0.35 in the second quarter of 2010. Special items in the second quarter of 2011, which totaled $53 million (after-tax), primarily relate to a tax benefit associated with the sale of two wholly-owned hotels. Excluding special items, the effective income tax rate in the second quarter of 2011 was 25.4%, compared to 16.1% in the second quarter of 2010.

Income from continuing operations was $150 million in the second quarter of 2011 compared to $79 million in the second quarter of 2010. Excluding special items, income from continuing operations was $97 million in the second quarter of 2011 compared to $67 million in the second quarter of 2010.

Net income was $131 million and $0.68 per share in the second quarter of 2011 compared to $114 million and $0.61 per share in the second quarter of 2010. Net income in the second quarter of 2011 includes an $18 million after-tax loss in discontinued operations from the sale of a consolidated joint venture hotel and net income in the second quarter of 2010 included a $36 million after-tax gain in discontinued operations from the sale of a wholly-owned hotel.

Frits van Paasschen, CEO said, “We continue to see strong demand across both business and leisure travelers. This demand fueled growth across each of our nine distinct and compelling brands. Our efforts to hold the line on costs enabled us to beat EBITDA and EPS expectations in the quarter."

“Our senior leadership team relocated to China for the month of June as part of an effort to get closer to this growing market. Being there has reinforced our view that China and other rapidly growing markets represent a once-in-a-lifetime growth opportunity for us. Our asset light business model and global brands are well-positioned to benefit from this phenomenon."

Six Months Ended June 30, 2011 Earnings Summary

Income from continuing operations was $179 million in the six months ended June 30, 2011 compared to $109 million in the same period in 2010. Excluding special items, income from continuing operations was $155 million in the six months ended June 30, 2011 compared to $91 million in the same period in 2010.

Net income was $159 million and $0.82 per share in the six months ended June 30, 2011 compared to $144 million and $0.77 per share in the same period in 2010.

Adjusted EBITDA was $470 million in the six months ended June 30, 2011 compared to $405 million in the same period in 2010.

Second Quarter 2011 Operating Results

Management and Franchise Revenues

Worldwide System-wide REVPAR for Same-Store Hotels increased 11.8% (8.2%in constant dollars) compared to the second quarter of 2010. International System-wide REVPAR for Same-Store Hotels increased 14.8% (7.4% in constant dollars).

Worldwide System-wide REVPAR for Same-Store changes by region:

Increases in REVPAR for Worldwide System-wide Same-Store hotels by brand:

Excluding North Africa and Japan, REVPAR increases in constant dollars were 7.5% for Sheraton and 9.4% for Le Méridien.

Worldwide Same-Store company-operated gross operating profit margins increased approximately 90 basis points compared to 2010. International gross operating profit margins for Same-Store company-operated properties were flat, negatively impacted by political unrest in the Middle East and North Africa, as well as the earthquake in Japan. North American Same-Store company-operated gross operating profit margins increased approximately 170 basis points, driven by REVPAR increases and cost controls.

Management fees, franchise fees and other income were $201 million, up $24 million, or 13.6% from the second quarter of 2010. Management fees increased 11.0% to $111 million and franchise fees increased 19.5% to $49 million. Excluding North Africa and Japan, management fees increased 16.1%.

During the second quarter of 2011, the Company signed 22 hotel management and franchise contracts, representing approximately 5,900 rooms, of which 20 are new builds and two are conversions from other brands. At June 30, 2011, the Company had over 350 hotels in the active pipeline representing almost 90,000 rooms.

During the second quarter of 2011, 13 new hotels and resorts (representing approximately 2,900 rooms) entered the system, including the W St. Petersburg (Russia, 137 rooms), St. Regis Bangkok (Thailand, 116 rooms), Sheraton Bangalore (India, 230 rooms), The Westin Playa Conchal (Costa Rica, 406 rooms) and The Chatwal, a Luxury Collection Hotel (New York, 83 rooms). Six properties (representing approximately 1,700 rooms) were removed from the system during the quarter, including the 941 room Boston Park Plaza, where we sold our interest in the quarter.

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 18.5% (12.5% in constant dollars) in the second quarter of 2011 when compared to 2010. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 10.8% (8.7% in constant dollars). Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 27.9% (17.2% in constant dollars).

Revenues at Starwood branded Same-Store Owned Hotels in North America increased 9.3% while costs and expenses increased 5.9% when compared to 2010. Margins at these hotels increased approximately 255 basis points.

Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 15.0% (9.3% in constant dollars) while costs and expenses increased 11.7% (6.5% in constant dollars) when compared to 2010. Margins at these hotels increased approximately 225 basis points.

Revenues at owned, leased and consolidated joint venture hotels were $478 million, compared to $437 million in 2010. Expenses at owned, leased and consolidated joint venture hotels were $381 million compared to $347 million in 2010. Second quarter results were impacted by the effect of the earthquake at the new leased St. Regis Osaka, five renovations and three asset sales.

Vacation Ownership

Total vacation ownership revenues increased 9.9% to $144 million compared to 2010. Originated contract sales of vacation ownership intervals increased 8.1% primarily due to improved sales performance from existing owner channels and increased tour flow from new buyer preview packages. The number of contracts signed increased 5.3% when compared to 2010 and the average price per vacation ownership unit sold increased 2.0% to approximately $14,800, driven by inventory mix.

Selling, General, Administrative and Other

Selling, general, administrative and other expenses decreased 4.3% to $88 million compared to $92 million in 2010. Selling, general, administrative and other expenses declined relative to 2010 due to lower accruals for incentive compensation and lower legal expenses, offset by a weaker dollar.

Capital

Gross capital spending during the quarter included approximately $51 million of maintenance capital and $32 million of development capital. Net investment spending on vacation ownership interest (“VOI”) and residential inventory was $31 million, primarily related to the St. Regis Bal Harbour project.

Asset Sales

During the quarter, the Company completed the sales of two wholly-owned hotels, the Westin Gaslamp (San Diego) and W City Center (Chicago), for cash proceeds of approximately $237 million. These hotels were sold subject to long-term management contracts. Additionally during the quarter, the Company sold a consolidated joint venture hotel, the Boston Park Plaza, for cash proceeds of approximately $44 million and the buyer assumed $57 million of debt that was previously on our balance sheet. The Company recognized an after-tax loss in discontinued operations of $18 million as a result of the sale.

Balance Sheet

At June 30, 2011, the Company had gross debt of $2.800 billion, excluding $422 million of debt associated with securitized vacation ownership notes receivable. Additionally, the Company had cash and cash equivalents of $1.060 billion (including $61 million of restricted cash), and net debt of $1.740 billion, compared to net debt of $2.121 billion as of March 31, 2011. Net debt at June 30, 2011 including debt and restricted cash ($18 million) associated with securitized vacation ownership notes receivables was $2.144 billion.

At June 30, 2011, debt was approximately 77% fixed rate and 23% floating rate and its weighted average maturity was 3.74 years with a weighted average interest rate of 6.79% excluding the securitized debt. The Company had cash (including current restricted cash) and availability under the domestic and international revolving credit facility of approximately $2.546 billion.

Outlook

For the three months ended September 30, 2011:

• Adjusted EBITDA is expected to be approximately $225 million to $235 million, including asset sales completed to date, which reduce EBITDA by approximately $8 million, and assuming:

• REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 500 basis points higher in dollars at current exchange rates).
• REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 8% to 10% in constant dollars (approximately 700 basis points higher in dollars at current exchange rates).
• Management fees, franchise fees and other income increase of approximately 13% to 15%.
• Earnings from our vacation ownership and residential business are flat.

• Depreciation and amortization is expected to be approximately $76 million.
• Interest expense is expected to be approximately $55 million.
• Income from continuing operations is expected to be approximately $70 million to $78 million, reflecting an effective tax rate of approximately 25%.
• Assuming all of the above, EPS before special items is expected to be approximately $0.36 to $0.40.

For the Full Year 2011:

Macro-economic and geo-political environments remain uncertain. We believe that several scenarios are possible. With low supply growth in developed markets and high demand growth in emerging markets, rate improvement will be the key driver of 2011 results. Based on trends to date, our outlook assumes a normal lodging recovery in 2011, negatively impacted by Japan, North Africa and Mexico; and asset sales completed year to date:

• Adjusted EBITDA is expected to be approximately $975 million to $1 billion, assuming:

• REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 300 basis points higher in dollars at current exchange rates).
• REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 8% to 10% in constant dollars (approximately 400 basis points higher in dollars at current exchange rates).
• Asset sales completed to date reduce EBITDA for the year by approximately $20 million.
• Margin increases at Branded Same-Store Owned Hotels Worldwide of 150 to 200 basis points.
• Management fees, franchise fees and other income increase of approximately 11% to 13% and were negatively impacted by approximately 200 basis points by Japan and North Africa.
• Earnings from our vacation ownership and residential business of approximately $130 million to $140 million.
• Selling, general and administrative expenses increase 4% to 5%.

• Depreciation and amortization is expected to be approximately $310 million.
• Interest expense is expected to be approximately $230 million and cash taxes will be approximately $80 million.
• Full year effective tax rate is expected to be approximately 25%.
• Assuming all of the above, EPS before special items is expected to be approximately $1.67 to $1.77.
• Full year capital expenditure (excluding vacation ownership and residential inventory) is expected to be approximately $300 million for maintenance, renovation and technology. In addition, in-flight investment projects and prior commitments for joint ventures and other investments are expected to total approximately $150 million. Vacation ownership (excluding Bal Harbour) is expected to generate approximately $165 million in positive cash flow.
• The Company currently expects closings on Bal Harbour residential units to commence in late fourth quarter 2011. The Company’s current outlook does not include any revenue recognition or cash flows associated with these potential closings. The Company does, however, expect there to be revenue recognition and cash flows from closings in the fourth quarter of 2011 and the Company will provide updates as the year progresses. Bal Harbour capital expenditure for 2011 is expected to be approximately $150 million.

Special Items

The Company’s special items netted to a benefit of $2 million ($53 million after-tax) in the second quarter of 2011 compared to a benefit of $21 million ($12 million after-tax) in the same period of 2010.

The following represents a reconciliation of income from continuing operations before special items to income from continuing operations including special items (in millions, except per share data):

(a) During the three and six months ended June 30, 2010, the Company recorded restructuring credits associated with the reversal of previous restructuring reserves no longer deemed necessary.

(b) During the three months ended June 30, 2011, the net gain primarily relates to the sale of non-core assets. During the six months ended June 30, 2011, the net loss primarily relates to an impairment of a minority investment in a joint venture hotel located in Japan.

During the three and six months ended June 30, 2010, the net gain primarily relates to a $14 million gain from property insurance proceeds related to an owned hotel damaged by a tornado and a $5 million gain that resulted from the step acquisition of a controlling interest in a previously unconsolidated joint venture.

(c) During the three months ended June 30, 2010, the expense primarily relates to tax expense at the statutory rate for restructuring credits and gains on asset dispositions. During the six months ended June 30, 2010, the expense primarily relates to tax expense at the statutory rate for restructuring credits and gains on asset dispositions, partially offset by the adjustment of deferred tax assets associated with prior year impairment charges due to a change in a foreign tax rate.

(d) During the three and six months ended June 30, 2011, the benefit relates primarily to the sale of two wholly-owned hotels with high tax bases as a result of a previous transaction.

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 second quarter financial results at 10:30 a.m. (EDT) today at (706) 758-8744. The conference call will be available through a 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. (EDT) today through August 4, 2011 at 12:00 midnight (EDT) on both the Company’s website and via telephone replay at (706) 645-9291 (pass code #23166636).

Definitions

All references to EPS, unless otherwise noted, reflect earnings per diluted share from continuing operations attributable to Starwood’s common shareholders. All references to continuing operations, discontinued operations and net income reflect amounts attributable to Starwood’s common shareholders (i.e. excluding amounts attributable to noncontrolling interests). All references to “net capital expenditures” mean gross capital expenditures for timeshare and fractional inventory net of cost of sales. 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 restructuring, goodwill impairment 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. 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 natural disasters). 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 revenues in constant dollars represent revenues, excluding the impact of the movement of foreign exchange rates. The Company calculates revenues in constant dollars by calculating revenues for the current year using the prior year’s exchange rates. The Company uses this revenue measure to better understand the underlying results and trends of the business, excluding the impact of movements in foreign exchange rates.

All references to contract sales or originated sales reflect vacation ownership sales before revenue adjustments for percentage of completion accounting methodology. All references to earnings from vacation ownership and residential represents operating income before depreciation expense.

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.

Starwood Hotels & Resorts Worldwide, Inc. is one of the leading hotel and leisure companies in the world with 1,058 properties in nearly 100 countries and 145,000 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, including reconciliations of non-GAAP financial measures to GAAP financial measures, please visit www.starwoodhotels.com or contact Investor Relations at (914) 640-8165.

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, natural disasters, business and financing conditions (including the condition of credit markets in the U.S. and internationally), 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.

(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.

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(a) Includes restricted cash of $1 million and $10 million at June 30, 2011 and December 31, 2010, respectively.

(b) Excludes Starwood’s share of unconsolidated joint venture debt aggregating approximately $431 million and $434 million at June 30, 2011 and December 31, 2010, respectively.

(a) Includes $2 million and $5 million of Starwood’s share of interest expense of unconsolidated joint ventures for the three months ended June 30, 2011 and 2010, respectively, and $6 million and $8 million for the six months ended June 30, 2011 and 2010, respectively.

(b) Includes $1 million and $(34) million of tax expense (benefit) recorded in discontinued operations for the three months ended June 30, 2011 and 2010, respectively, and $2 million and $(34) million for the six months ended June 30, 2011 and 2010, respectively.

(c) Includes $7 million and $9 million of Starwood’s share of depreciation expense of unconsolidated joint ventures for the three months ended June 30, 2011 and 2010, respectively, and $15 million and $17 million for the six months ended June 30, 2011 and 2010, respectively.

(d) Includes $2 million and $1 million of Starwood’s share of amortization expense of unconsolidated joint ventures for the three months ended June 30, 2011 and 2010, respectively, and $3 million and $2 million for the six months ended June 30, 2011 and 2010, respectively.

(a) The full year amounts include $2 million of tax expense recorded in discontinued operations.

(a) Same-Store Owned Hotel Results exclude five hotels sold and 11 hotels without comparable results.

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