Hotel Online Special Report
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Starwood Reports Third Quarter ADR Increase of 7% 
With Occupancy Rates Remaining Constant
 
WHITE PLAINS, N.Y., Oct. 28, 1998 -  Third Quarter Combined Financial Highlights:
 
75% increase to $1.40 in combined pro forma funds from operations (FFO)  per diluted paired share.
7% increase in same store REVPAR for owned hotels worldwide; 14% increase in Europe; 8% increase in Latin America; 6% increase in North America.
Total pro forma EBITDA of $427 million.
14% increase in same store EBITDA for owned hotels worldwide.
Same store EBITDA margin for owned hotels worldwide increased from 29.4% to 31.5%.
47% increase in EBITDA at ongoing Gaming Group; Caesars Palace Las Vegas EBITDA doubled.

 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, through its subsidiaries, operates the Sheraton, Westin, St. Regis, Luxury Collection, Ciga, W and Caesars brands, today announced combined financial results for the third quarter ended September 30, 1998.

Pro Forma Results

For the third quarter of 1998, combined pro forma FFO was approximately $295 million or $1.40 per diluted paired share on combined pro forma revenues of approximately $2.3 billion compared to combined FFO of approximately $49 million or $0.80 per diluted paired share on combined revenues of approximately $237 million for the corresponding period in 1997 as reported on an actual basis by Starwood.  The pro forma results for the third quarter of 1998 reflect the February 23, 1998 merger (the "ITT Merger") of the Company with ITT Corporation ("ITT"), including cost savings expected to be realized from the implementation of changes to benefit plans contemplated at the time of the ITT Merger, in each case as if the ITT Merger had occurred on January 1, 1998.  Pro forma results also assume the disposition 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 nine months of 1998, combined pro forma FFO was approximately $700 million, or $3.30 per diluted paired share on combined pro forma revenues of approximately $6.6 billion, an increase of 45% over combined pro forma FFO of $2.27 per paired share for the first nine months of 1997 as actually reported by Starwood. "Starwood's unique hotel assets continue to provide the foundation for our success," said Barry S. Sternlicht, chairman and chief executive of Starwood Hotels Resorts. "We are pleased with our progress to date and our team's extraordinary efforts to integrate our operations," Mr. Sternlicht said. "We expect to continue to build corporate momentum and the benefits of our global scale in marketing, purchasing and technology will allow us to achieve REVPAR growth above industry averages while simultaneously reducing our cost of operations. Our REVPAR performance reflects, for the third quarter, the global diversification of our operations and the emphasis in our owned asset base on luxury and upscale full-service hotels. Results in Europe and Latin America remained strong while our North American operations which were negatively impacted in the last two weeks in September improved significantly in October and the month should be our best of the year," the chairman continued. "We are focused on the opportunity to mine our existing asset base where several hotels are still materially
underperforming and margins can be improved.

"The operating strategies we have put in place are beginning to take hold and bear fruit," said Richard D. Nanula, president and chief executive of the Corporation. "The operating units turned in strong performances for the quarter in the face of some significant challenges," Mr. Nanula said. "Our integration program is continuing at a very aggressive pace and we are beginning to achieve the kind of benefits we anticipated when Starwood merged with ITT. Call centers have been consolidated and our reservation centers integration is proceeding on target. The company will launch its new frequent guest program with shared benefits across all the brands in February."

Hotel Group Results

On a same-store-sales basis, results for the third quarter of 1998 at the Company's owned and leased hotels worldwide, reflect an increase in revenues of 7% to $718 million from $672 million in 1997, an increase in EBITDA margins to 31.5% from 29.4%, and an increase in EBITDA of 14% to $226 million from $198 million in 1997.  For the quarter, REVPAR for these owned hotels
increased 7% to $102.  The increase in REVPAR was due to the increase in ADR of 7% to $140 with occupancy rates remaining virtually constant when compared to last year.

As of September 30, 1998 the Company's portfolio of owned, managed and franchised hotels totaled approximately 650 hotels in 70 countries with over 213,000 rooms. During the quarter, the Company added 16 hotels (4,600 rooms) to its system, including two Westin branded hotels, nine Sheraton hotels, and five Four Points. During the first nine months of 1998, the Company added 68 hotels (18,000 rooms) to its system including 6 Westin branded hotels, 38 Sheraton hotels, and 24 Four Points.

Gaming Results

The Gaming group recorded record revenues and EBITDA from ongoing operations in the third quarter reflecting significantly improved results in Las Vegas and Atlantic City.  Revenues increased 28% to approximately $364 million in the third quarter of 1998, up 28% from the prior year's quarter, and EBITDA increased 47% to $105 million.

EBITDA at Caesars Palace increased by approximately 105% to $43 million for the third quarter of 1998. At Caesars Palace, an additional 1,130 rooms and 110,000 square feet of meeting space were in service in the third 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 7%. Average daily rate (ADR) rose 10% to $127 on occupancy of 95%. Total occupied room nights at Caesars Palace during the quarter increased by 73% to 207,000 from 120,000 in the year ago quarter. Slot marketing programs and increased traffic resulted in a 16% increase in slot win. Baccarat volume decreased 13% and table game volume, excluding baccarat, increased 6%, resulting in a 6% increase in table win. The Company is continuing to pursue the expansion of its highly successful retail space, the Forum shops, with phases 3 and 4 in the planning stage. EBITDA at Caesars Atlantic City was $40 million in the third quarter of 1998 up 29% over the same period in 1997.

The impact of an additional 620 rooms and an additional 30,000 sq. ft of casino space resulted in gains in all revenue categories bringing total revenues to $137 million in the third quarter of 1998 up 27% from $108 million in the third quarter of 1997. Average daily rate (ADR) rose 3% to $102 on occupancy of 96%. Total occupied room nights at Caesars Atlantic City during the quarter more than doubled to 99,000 from 46,000 in the third quarter of 1997. Caesars Atlantic City now boasts 3,600 slots and 125 table games contained in 120,000 square feet of casino space versus previous inventory of 2,700 slots and 100 table games in 82,000 square feet of casino space for the third quarter of 1997. During the quarter, Baccarat volume decreased 11% and table game volume, excluding baccarat, increased 23% resulting in a 45% increase in table win. Total slot volume reached $946 million, 19% better than last year's third quarter.

Caesars expects to begin operating Caesars Indiana riverboat in mid November. With 90,000 square feet of casino space the riverboat, the Glory of Rome, will be the largest in the country. It is expected to be the only operator in the Louisville market for the foreseeable future. The complex will include a 170,000 sq. ft pavilion and a 500-room hotel expected to open in the year 2000. In addition, Caesars expects to open the temporary casino at the Caesars-Guateng casino hotel, a joint venture in which Starwood has a 25% investment, in Johannesburg, South Africa by year-end. When completed, the Caesars-Guateng property will have 75,000 sq. feet of casino space, 400,000 sq. feet of restaurant, retail and other entertainment space and a 200-room hotel expected to open in 2000. The Company's other on-going Gaming facilities at Caesars Tahoe, Casino Windsor, the Sheraton Halifax, Sheraton Sydney, Sheraton Tunica, Caesars Club Manila, which opened at the end of the second quarter, and Caesars casino at Dover Downs in Delaware, reported an increase in EBITDA of approximately 16% to $22 million on $89 million of revenues in the third quarter of 1998.

Acquisitions and Dispositions

During the third quarter the Company continued to proceed along its preannounced plan to dispose of non strategic businesses.  The company is exploring options to monetize its remaining 35% interest in ESI and is continuing its efforts to sell the Desert Inn in Las Vegas.  It is also pursuing the sale of its full service aviation facility in Allentown, PA, its Tramor site in Atlantic City, and its golf and conference center in Bolton, MA as well as other miscellaneous facilities acquired in the ITT Merger.  The Company, in its normal course of business, continues to evaluate selective sales of other non-strategic hotel assets.

In August, the Company acquired in partnership with an unaffiliated investment group, the 760-room Westin Maui on Ka'anapali Beach for $132 million, or $174,000 per room.

Financing

At September 30, 1998 the Company had total debt of approximately $8.4 billion and cash of approximately $260 million.  During the quarter, the Company put a new 5-year $1 billion borrowing facility in place to facilitate share repurchases and enhance its financial flexibility.  At the end of the quarter, the Company had almost $1 billion of borrowing capacity under its lines. Starwood believes that its available credit line and proceeds from asset sales will provide adequate capital to meet its needs for the foreseeable future.  In addition, the Company's pending conversion to a C-corporation will permit it to retain significant capital.

The Company plans to the refinance $2.5 billion of Increasing Rate Notes as soon as market conditions permit. The Increasing Rate Notes currently bear interest at Libor plus 275 basis points (currently 8.1%), have a maximum interest rate of Libor and 375 basis points, and mature in February 2003. The company is exploring various secured mortgage alternatives to a public bond issuance. As previously announced, Starwood received a BB rating from Standard Poors reflecting, among other things, the Company's increased debt capacity. Starwood's goal is to improve its debt ratings to investment grade by improving its coverage and leverage ratios through debt reductions and refinancings. During the quarter, the Company declared a regular dividend of $0.52 per paired share.

As previously announced, in September Starwood terminated its forward equity swap agreement with Union Bank of Switzerland (UBS) for approximately $130 million. Earlier this week, the Company terminated its only other forward equity swap agreement with affiliates of Merrill Lynch, Lehman Brothers and NationsBank, which was scheduled to expire in February 1999 for approximately $255 million. During the third quarter the company repurchased approximately 7 million paired shares for about $231 million. As a result of the termination of these forward equity swaps and share repurchases, outstanding paired shares were effectively reduced by approximately 17 million paired shares. As of October 27, Starwood has approximately 196 million paired shares and units outstanding.

Restructuring and Other Non-Recurring Charges

The Company recorded in the third quarter approximately $310 million of the previously announced $1.2 billion charge relating to the proposed restructuring and other non-recurring expenses.  Substantially all of the remainder of the charge, consisting primarily of a deferred tax liability required to be recorded as a result of the restructuring, is expected to be recorded in the first quarter of 1999 upon completion of the Company's anticipated conversion to a C-Corporation, pending shareholder approval.

The third quarter charge consists primarily of approximately $115 million to write down to fair value certain historical ITT assets, approximately $125 million of non-recurring expenses relating to the ITT Merger, principally severance, relocation and retention costs, and approximately $70 million of other non-recurring costs, including $40 million of costs to settle certain interest rate hedging transactions. As a result of the "reverse purchase" accounting required in connection with the ITT Merger, Starwood is required to expense, rather than make balance sheet adjustments for, write downs of ITT's assets (resulting from certain economic conditions) and certain costs relating to the ITT Merger.

Renovations and Repositionings

During the third quarter, the Company invested approximately $200 million in capital improvements, bringing the total for the first nine months of 1998 to approximately $660 million.  Capital improvements were split equally between gaming and hotels.

The rebuilding of the former Doral Inn in New York City was largely completed during the quarter and the property will be relaunched as the W New York on December 1. The Phase 1 renovation of the South Tower of the Sheraton Boston was finished and reopened in the quarter.

The Company is proceeding with the construction of the new W hotels in San Francisco and Seattle. These properties are scheduled to open in May 1999. During the period the Marque hotel in Atlanta (to be renamed the W Atlanta North), the Westin Stamford in Connecticut, the Sheraton Manhattan, the Plaza hotel in Tucson, the Radisson Gainesville, the Doral Court and Doral Tuscany, also underwent significant renovations. During the third quarter, the Company converted another 10 owned hotels to the Westin, Sheraton and Four Points brands bringing the total for the first nine months of 1998 to 27. The Company is pleased that it could absorb the disruption in demand inevitable in brand reflagging.

Conclusion

"Despite the difficult economic climate, our businesses performed well in the quarter.  We are excited by our company's vast strength.  While we are a real estate company, we are also a branded consumer products enterprise. We'll have more than 65 million customer visits this year.  We want to sell hotel rooms but we can also sell a vast array of other services.  We have endured a number of challenges this year, including adverse foreign currency translations, delays in refinancing in IRN's due to structural challenges, and timing variances in new hotel openings like the W New York and our Indiana Riverboat.  In 1999, these facilities, as well as our Johannesburg casino, our two new hotels in Seattle and San Francisco will be open, and coupled with the integration of our marketing functions, we expect a strong 1999," Mr. Sternlicht concluded.

(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 divestitures, 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 and casino renovation and expansion programs, changes in local, national, or international 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
Web site: http://www.starwoodlodging.com
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Also See:
Starwood Acquires Westin Maui On Ka'anapali Beach, Hawaii / Aug 1998 
Starwood Unveils a Comprehensive and Friendly Travel Agent Area on the WWW / June 1998
Starwood Hotels, which operates ITT Sheraton, Westin and Caesars Announces Management Structure and Relocation of Corporate Headquarters /  March 1998

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