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

Third Quarter 2011 Highlights

• Excluding special items, EPS from continuing operations was $0.60, including a benefit of approximately $0.18 primarily from the favorable settlement of an IRS audit. Including special items, which primarily relate to a gain on an asset exchange transaction, EPS from continuing operations was $0.85.
• Adjusted EBITDA was $241 million, up approximately 18% compared to 2010.
• Excluding special items, income from continuing operations was $118 million, including a tax benefit of $35 million primarily from the favorable settlement of an IRS audit. Including special items, income from continuing operations was $165 million, including $47 million primarily related to a gain on an asset exchange transaction.
• Worldwide System-wide REVPAR for Same-Store Hotels increased 11.6% (7.4% in constant dollars) compared to 2010. System-wide REVPAR for Same-Store Hotels in North America increased 8.8% (7.8% in constant dollars).
• Management fees, franchise fees and other income increased 16.8% compared to 2010.
• Worldwide Same-Store company-operated gross operating profit margins increased approximately 140 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 16.2% (9.2% in constant dollars) compared to 2010.
• Margins at Starwood branded Same-Store Owned Hotels Worldwide increased approximately 265 basis points compared to 2010.
• Earnings from our vacation ownership and residential business was approximately flat compared to 2010.
• During the quarter, the Company signed 24 hotel management and franchise contracts representing approximately 6,300 rooms and opened 19 hotels and resorts with approximately 4,900 rooms.

Third Quarter 2011 Earnings Summary

Starwood Hotels & Resorts Worldwide, Inc. (“Starwood” or the “Company”) today reported EPS from continuing operations for the third quarter of 2011 of $0.85 compared to a loss of $0.03 per share in the third quarter of 2010. Excluding special items, EPS from continuing operations was $0.60 for the third quarter of 2011 compared to $0.25 in the third quarter of 2010. These results for the third quarter of 2011 benefitted from an overall tax benefit primarily as a result of the favorable settlement of an IRS audit. This favorable IRS settlement reduced income tax expense by approximately $35 million in the quarter and contributed approximately $0.18 to EPS. As a result of the favorable IRS settlement, the effective income tax rate in the third quarter of 2011, excluding special items, was a benefit of 4.8%, compared to an expense of 23.0% in the third quarter of 2010. Special items in the third quarter of 2011 totaled approximately $47 million (after-tax) primarily related to a gain on an asset exchange transaction. Special items in the third quarter of 2010, which totaled a $52 million charge (after-tax), primarily related to a loss on the sale of one hotel.

Income from continuing operations was $165 million in the third quarter of 2011 compared to a loss of $5 million in the third quarter of 2010. Excluding special items, income from continuing operations was $118 million in the third quarter of 2011 compared to $47 million in the third quarter of 2010.

Net income was $163 million and $0.84 per share in the third quarter of 2011 compared to a loss of $6 million and $0.03 per share in the third quarter of 2010.

Frits van Paasschen, CEO said, “Our brands showed strong top-line results around the world, driving managed and franchised fees up 17% in the 3rd quarter. Our Company-operated hotels translated higher REVPAR into margin increases of 140 basis points. We are also pleased with our continued footprint growth. Over the past four years, we have opened almost 320 new hotels, bringing our total to 1,071. We expect to continue growing faster than the market, both in terms of REVPAR and footprint, thanks to our brand momentum and exposure to rapidly growing markets."

“It is still too early to have a clear view into 2012. There are, to be sure, many clouds over the global economy. But three facts give us cautious confidence. First, in developed markets, occupancies are now at 2007 levels and at a point where rates historically have always risen. And yet, few new hotels are being built. Second, many emerging markets are continuing to see strong growth. Even if economic activity were to cool down, we see unmet demand for hotels. Third, our efforts to gain share have enabled our brands to outgrow the marketplace for more than eight quarters in a row.”

“In an uncertain world, investors should also note that our balance sheet is in great shape, with net debt below $1.7 billion. In the coming weeks, our St. Regis Bal Harbour project will start generating cash as we begin closing on previously sold residential units. We expect more cash in 2012 as we complete this project."

Nine Months Ended September 30, 2011 Earnings Summary

Income from continuing operations was $344 million in the nine months ended September 30, 2011 compared to $104 million in the same period in 2010. Excluding special items, income from continuing operations was $273 million in the nine months ended September 30, 2011 compared to $138 million in the same period in 2010. These results for the nine months ended September 30, 2011 benefitted by approximately $35 million from a significantly lower effective income tax rate as a result of the favorable settlement of an IRS audit.

Net income was $322 million and $1.66 per share in the nine months ended September 30, 2011 compared to $138 million and $0.73 per share in the same period in 2010.

Adjusted EBITDA was $711 million in the nine months ended September 30, 2011 compared to $610 million in the same period in 2010, an increase of approximately 17%.

Third Quarter 2011 Operating Results

Management and Franchise Revenues

Worldwide System-wide REVPAR for Same-Store Hotels increased 11.6% (7.4%in constant dollars) compared to the third quarter of 2010. International System-wide REVPAR for Same-Store Hotels increased 15.2% (6.8% 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 8.4% for Sheraton and 6.4% for Le Méridien.

Worldwide Same-Store company-operated gross operating profit margins increased approximately 140 basis points compared to 2010. International gross operating profit margins for Same-Store company-operated properties increased 60 basis points, negatively impacted by political unrest in the Middle East and North Africa. North American Same-Store company-operated gross operating profit margins increased approximately 200 basis points, driven by REVPAR increases and cost controls.

Management fees, franchise fees and other income were $202 million, up $29 million, or 16.8% from the third quarter of 2010. Management fees increased 21.3% to $114 million and franchise fees increased 11.6% to $48 million. Management fees benefited by approximately 300 basis points due to the conversion of 19 European hotels from franchise contracts to management contracts during the quarter. Excluding North Africa and Japan, management fees increased 25.8%.

During the third quarter of 2011, the Company signed 24 hotel management and franchise contracts, representing approximately 6,300 rooms, of which 15 are new builds and 9 are conversions from other brands. At September 30, 2011, the Company had over 350 hotels in the active pipeline representing almost 90,000 rooms.

During the third quarter of 2011, 19 new hotels and resorts (representing approximately 4,900 rooms) entered the system, including the Sheraton Chongqing (China, 401 rooms), Aloft Coimbatore (India, 170 rooms), Westin Guadalajara (Mexico, 221 rooms), Sheraton Baku (Azerbaijan, 207 rooms) and Sheraton Stamford (Connecticut, 379 rooms). Six properties (representing approximately 1,800 rooms) were removed from the system during the quarter.

Owned, Leased and Consolidated Joint Venture Hotels

Worldwide REVPAR for Starwood branded Same-Store Owned Hotels increased 16.2% (9.2% in constant dollars) in the third quarter of 2011 when compared to 2010. REVPAR at Starwood branded Same-Store Owned Hotels in North America increased 8.1%. Internationally, Starwood branded Same-Store Owned Hotel REVPAR increased 25.4% (13.3% in constant dollars).

Revenues at Starwood branded Same-Store Owned Hotels in North America increased 7.1% while costs and expenses increased 5.1% when compared to 2010. Margins at these hotels increased approximately 160 basis points.

Revenues at Starwood branded Same-Store Owned Hotels Worldwide increased 14.6% (7.6% in constant dollars) while costs and expenses increased 10.7% (4.5% in constant dollars) when compared to 2010. Margins at these hotels increased approximately 265 basis points.

Revenues at owned, leased and consolidated joint venture hotels were $441 million, compared to $427 million in 2010. Expenses at owned, leased and consolidated joint venture hotels were $361 million compared to $352 million in 2010. Third quarter results were impacted by six renovations and four asset sales.

Vacation Ownership

Total vacation ownership revenues increased 7.0% to $138 million compared to 2010. Originated contract sales of vacation ownership intervals increased 3.8% primarily due to increased tour flow from new buyers and improved sales performance from existing owner channels. The number of contracts signed increased 8.2% when compared to 2010 and the average price per vacation ownership unit sold decreased 2.7% to approximately $14,000, driven by inventory mix.

Selling, General, Administrative and Other

Selling, general, administrative and other expenses decreased 2.2% to $88 million compared to $90 million in 2010. Selling, general, administrative and other expenses declined relative to 2010 due to lower accruals for incentive compensation and lower legal expenses.

Capital

Gross capital spending during the quarter included approximately $79 million of maintenance capital and $77 million of development capital. Net investment spending on vacation ownership interest (“VOI”) and residential inventory was $30 million, primarily related to the St. Regis Bal Harbour project.

Asset Exchange Transaction

On September 30, 2011, the Company executed a transaction with its former partner in a joint venture that owned three luxury hotels in Austria. In connection with the transaction, the Company acquired two of the hotels, Hotel Imperial (Vienna) and Hotel Goldener Hirsch (Salzburg), in exchange for its interest in the third hotel, Hotel Bristol (Vienna), and a cash payment, by the Company, of approximately $27 million. The Company entered into a long-term management contract for the Hotel Bristol. The Company recorded a pretax gain of approximately $48 million and a deferred gain of approximately $30 million in connection with this transaction.

Balance Sheet

At September 30, 2011, the Company had gross debt of $2.797 billion, excluding $388 million of debt associated with securitized vacation ownership notes receivable. Additionally, the Company had cash and cash equivalents of $1.122 billion (including $135 million of restricted cash), and net debt of $1.675 billion, compared to net debt of $1.740 billion as of June 30, 2011. Net debt at September 30, 2011 including debt and restricted cash ($17 million) associated with securitized vacation ownership notes receivables was $2.046 billion.

At September 30, 2011, debt was approximately 77% fixed rate and 23% floating rate and its weighted average maturity was 3.5 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 $2.625 billion.

During the quarter, the Company received an IRS refund of approximately $40 million.

Outlook

For the Full Year 2011:

• Adjusted EBITDA is expected to be approximately $980 million to $990 million, assuming:

• REVPAR increases at Same-Store Company Operated Hotels Worldwide of 7% to 9% in constant dollars (approximately 200 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 300 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%, negatively impacted by approximately 200 basis points by Japan and North Africa.
• Earnings from our vacation ownership and residential business of approximately $140 million to $145 million.
• Selling, general and administrative expenses increase 3% to 4%.

• Depreciation and amortization is expected to be approximately $302 million.
• Interest expense is expected to be approximately $225 million and cash taxes will be approximately $65 million.

• Full year effective tax rate is expected to be approximately 25%, which excludes a $35 million tax benefit from the settlement of an IRS audit previously discussed.
• Assuming all of the above, EPS before special items is expected to be approximately $1.75 to $1.79, which excludes a tax benefit of approximately $0.18 from an IRS settlement previously discussed.
• Full year capital expenditure (excluding vacation ownership and residential inventory) is expected to be approximately $250 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 $200 million. Vacation ownership (excluding Bal Harbour) is expected to generate approximately $200 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 Outlook excludes 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. We expect incremental earnings from Bal Harbour to be approximately $10 million which represents $0.03 of incremental EPS. Bal Harbour capital expenditure for 2011 is expected to be approximately $150 million and cash from closings is expected to be approximately $30 million.

For the three months ended December 31, 2011:

• Adjusted EBITDA is expected to be approximately $270 million to $280 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 6% to 8% in constant dollars and at current exchange rates.
• REVPAR increases at Branded Same-Store Owned Hotels Worldwide of 6% to 8% in constant dollars and at current exchange rates.
• Management fees, franchise fees and other income increase of approximately 7% to 9%, negatively impacted by approximately 200 basis points by Japan and North Africa.
• Earnings from our vacation ownership and residential business are flat to up $5 million.

• Depreciation and amortization is expected to be approximately $76 million.
• Interest expense is expected to be approximately $56 million.
• Income from continuing operations is expected to be approximately $103 million to $111 million, reflecting an effective tax rate of approximately 25%.
• Assuming all of the above, EPS before special items is expected to be approximately $0.53 to $0.57.
• In addition, Bal Harbour residential unit closings could add $10 million of earnings and $0.03 of incremental EPS.

For the Full Year 2012:

In Developed markets, the macroeconomic environment remains uncertain with high unemployment and high public/private debt. While there are increasing concerns about slower, “new” normal demand growth, the lodging supply situation is very favorable. In Emerging markets, macroeconomic growth has been strong, driving high secular growth in both lodging demand and supply. We remain of the view that several scenarios could play out.

• Assuming REVPAR increases at Same-Store Company Operated Hotels Worldwide of 4% to 8% in constant dollars:
  • Adjusted EBITDA would be approximately $1.030 billion to $1.120 billion, which corresponds to an EPS range of approximately $1.96 to $2.25.
    • This includes a $20 million year over year decrease due to renovations, asset sales and foreign exchange shifts, but does not include any earnings from Bal Harbour residential unit closings.
• A 1% change in REVPAR impacts Company-wide EBITDA by approximately $15 million, and a 1% change in the US dollar versus a basket of foreign currencies impacts Company-wide EBITDA by approximately $5 million.

Special Items

The Company’s special items netted to a benefit of $45 million ($47 million after-tax) in the third quarter of 2011 compared to a charge of $55 million ($52 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) Diluted shares for the three months ended September 30, 2010 were 190 million.

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

(c) During the three months ended September 30, 2011, the net gain primarily relates to the asset exchange transaction described in this press release. During the nine months ended September 30, 2011, the gain from the asset exchange transaction was partially offset by the impairment of a minority investment in a joint venture hotel located in Japan.

During the three months ended September 30, 2010, the net loss primarily reflects a loss on the sale of one hotel. During the nine months ended September 30, 2010, the charges above were partially offset by $14 million 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.

(d) During the three months ended September 30, 2011, the benefit relates primarily to a tax benefit on the asset exchange transaction described above, and the utilization of capital loss carry forwards, partially offset by tax expense as the result of a settlement of an IRS audit. During the nine months ended September 30, 2011, in addition to the activity in the third quarter, the tax benefit primarily relates to the sale of two wholly-owned hotels with high tax bases as a result of a previous transaction.

During the three months ended September 30, 2010, the benefit primarily relates to a tax benefit on the sale of one hotel. During the nine months ended September 30, 2010, the net expense primarily relates to tax expenses at the statutory rate for restructuring credits and losses partially offset by the adjustment of deferred taxes associated with prior year impairment charges due to the change in a foreign tax rate.

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. (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 November 3, 2011 at 12:00 midnight (EDT) on both the Company’s website and via telephone replay at (855) 859-2056 (pass code #16728664).

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 1,071 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.

n/m = not meaningful

(a) Includes restricted cash of $2 million and $10 million at September 30, 2011 and December 31, 2010, respectively.

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

(a) Includes $11 million and $5 million of Starwood’s share of interest expense of unconsolidated joint ventures for the three months ended September 30, 2011 and 2010, respectively, and $17 million and $13 million for the nine months ended September 30, 2011 and 2010, respectively.

(b) Includes $2 million and $0 million of tax expense (benefit) recorded in discontinued operations net gain (loss) on dispositions for the three months ended September 30, 2011 and 2010, respectively, and $4 million and $(34) million for the nine months ended September 30, 2011 and 2010, respectively. Also includes $(1) million and $1 million of tax (benefit) expense recorded in discontinued operations for the three months ended September 30, 2011 and 2010, respectively, and $(1) million and $1 million for the nine months ended September 30, 2011 and 2010, respectively.

(c) Includes $8 million and $9 million of Starwood’s share of depreciation expense of unconsolidated joint ventures for the three months ended September 30, 2011 and 2010, respectively, and $23 million and $26 million for the nine months ended September 30, 2011 and 2010, respectively.

(d) Includes $0 million of Starwood’s share of amortization expense of unconsolidated joint ventures for the three months ended September 30, 2011 and 2010, and $3 million and $2 million for the nine months ended September 30, 2011 and 2010, respectively.

(a) The full year amounts include $3 million of tax expense recorded in discontinued operations and a $35 million tax benefit ($0.18/share) from an IRS settlement previously discussed.

(a) Same-Store Owned Hotel Results exclude 4 hotels sold and 11 hotels without comparable results for the three months ended and 5 hotels sold and 12 hotels without comparable results for the nine months ended. Due to the timing of sale of the Hotel Bristol, it was included in same-store for both the three and nine months ended.

n/m = not meaningful