Starwood Hotels & Resorts Worldwide, Inc. reported net income of $79 million, or 43 cents per share, in the fourth quarter of 2008, a decline of 46 percent from net income of $146 million, or 47 cents per share, in the fourth quarter of 2007. The loss from continuing operations for the fourth quarter of 2008 was 25 cents per share, compared to earnings of 74 cents per share in the fourth quarter of 2007. Excluding special items, which net to a charge of $133 million in 2008 and $11 million in 2007, earnings per share from continuing operations was 49 cents for the fourth quarter of 2008, compared to 79 cents for the fourth quarter of 2007. Special items in the fourth quarter of 2008 totaled $133 million of net charges (74 cents per share) primarily related to $30 million of severance costs, $79 million of impairment charges from discontinued vacation ownership projects, and $86 million of impairment charges primarily at five owned hotels in North America. The loss from continuing operations was $45 million in the fourth quarter of 2008 compared to income of $146 million in 2007. Excluding special items, income from continuing operations was $88 million for the fourth quarter of 2008 compared to $157 million in 2007 -- a drop of 44 percent.

The 2008 results include a gain of $124 million (net of taxes) in discontinued operations, resulting from the sale of three hotels which were sold unencumbered by management or franchise agreements. “In the past year, we have made significant progress in reducing our costs, which enabled us to deliver better than expected quarterly results despite worse than expected revPAR,” said CEO Frits van Paasschen. “Cost reductions completed so far should yield a $100 million reduction in our SG&A on a run-rate basis. Our extensive cost cutting efforts at the property level will help offset some of the margin erosion that results from declining revPAR. We also scaled back our capital spending in all areas for 2009. While the outlook for 2009 remains challenging, we are prepared for the worst and confident that we will emerge from this downturn stronger than ever. We have experienced operating teams in the field, some of the strongest brands in the lodging industry, and a pipeline that will drive our global fee growth.”

Worldwide system-wide revPAR for same-store hotels decreased 12.1 percent (9.1 percent using constant dollars) compared to the fourth quarter of 2007. International system-wide revPAR for same-store hotels decreased 10.8 percent (6.1 percent using constant dollars). System-wide revPAR increased 8.6 percent in Africa and the Middle East. System-wide revPAR decreases for the other regions were 3.3 percent in Latin America, 13.2 percent in North America, 14.4 percent in Asia Pacific, and 17.8 percent in Europe. Worldwide System-wide revPAR decreases by brand were Sheraton, 9.6 percent; Westin, 11.4 percent; Le Méridien, 11.5 percent; Four Points by Sheraton, 11.5 percent; W Hotels, 21.1 percent; and St. Regis/Luxury Collection, 23.3 percent. Management fees, franchise fees and other income was $215 million, down $20 million, or 8.5 percent, from the fourth quarter of 2007. Management fees decreased 5.6 percent to $119 million and franchise fees decreased 12.2 percent to $36 million.

Approximately 57 percent of the company’s management and franchise fees are generated in markets outside the United States. During the fourth quarter of 2008, the company signed 31 hotel management and franchise contracts representing approximately 6,100 rooms of which 27 are new builds and four are conversions from other brands. As of Dec. 31, 2008, the company had over 425 hotels in the active pipeline representing approximately 100,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, 64 percent are in the upper upscale and luxury segments and 62 percent are in international locations. During the fourth quarter of 2008, 21 new hotels and resorts, representing approximately 4,200 rooms, entered the system, including the Westin Book Cadillac (Detroit, Mich., 453 rooms), St. Regis Punta Mita (Nayarit, Mexico, 120 rooms), Aloft Beijing (Beijing, China, 186 rooms), and the Le Méridien Bangkok (Bangkok, Thailand, 282 rooms). Fifteen properties, representing approximately 2,700 rooms, were removed from the system during the quarter.

Worldwide revPAR for Starwood-branded same-store owned hotels decreased 19.6 percent. revPAR at Starwood branded same-store owned hotels in North America decreased 18.6 percent. Internationally, Starwood branded same-store owned hotel revPAR decreased 21.3 percent (down 9.1 percent using constant dollars). Revenues at Starwood branded same-store owned hotels in North America decreased 17.4 percent, while costs and expenses decreased 10.3 percent when compared to 2007. Margins at these hotels decreased 596 basis points. Revenues at Starwood branded same-store owned hotels worldwide decreased 18.6 percent (down 16.3 percent in constant dollars), while costs and expenses decreased 13.1 percent when compared to 2007. Margins at these hotels decreased 479 basis points. Approximately 47 percent of Starwood’s owned hotel earnings (before depreciation) are generated from outside the United States. Revenues at owned, leased and consolidated joint venture hotels were $504 million, compared to $631 million in 2007.

Total vacation ownership reported revenues decreased 48.3 percent to $134 million compared to 2007. Originated contract sales of vacation ownership intervals decreased 43.2 percent primarily due to an overall decline in demand and the sellout of the company’s Westin Ka’anapali Ocean Resort North in Maui. The average price per vacation ownership unit sold decreased 31.1 percent to approximately $17,000, driven by a higher sales mix of lower-priced inventory, including a higher percentage of lower-priced biennial inventory in Hawaii. The number of contracts signed decreased 17.2 percent when compared to 2007. As a result of the current economic climate and business conditions, the company has undertaken a comprehensive review of its vacation ownership business.

The company has significantly scaled back its overhead to match reduced revenue expectations. This included closing five sales centers and terminating over 500 employees during the fourth quarter. In 2008 and early 2009, the company closed nine sales centers and three call centers and terminated approximately 900 employees. Additionally, the company has reset capital plans for this business. No new projects are being initiated and the company has decided to discontinue further development of some projects that were in their early stages. As a result, development costs and land values at certain projects have been written down to their fair value, resulting in an impairment charge during the fourth quarter of 2008 of approximately $72 million.

Earnings per share (EPS) from continuing operations decreased to $1.37 compared to $2.57 in 2007. Excluding special items, EPS from continuing operations was $2.19 compared to $2.76 in 2007. Excluding special items, income from continuing operations was $406 million compared to $582 million in 2007. Net income was $329 million and EPS was $1.77 compared to $542 million and $2.57, respectively, in 2007. Total company adjusted EBITDA, which was impacted by the sale or closure of 19 hotels since the beginning of 2007, was $1.157 billion compared to $1.356 billion in 2007. For more information, visit www.starwoodhotels.com.

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