Weak Vacation Ownership Sales
Hurt Starwood's Earnings

Starwood Hotels & Resorts Worldwide Inc. posted a 28% drop in fourth-quarter net income as strong hotel results were offset by declining vacation ownership and residential business, loss of earnings from hotels sold and a higher tax rate.

The company also projected first-quarter and full-year earnings below expectations.

Starwood, which operates hotels under the W Hotels, Westin, St. Regis and Sheraton brands, reported net income of $146 million, or 74 cents a share, down from $203 million, or 93 cents a share, a year earlier.

The latest quarter's results include $11 million, or five cents a share, in net charges related to restructuring, demolition of Sheraton Bal Harbour and losses on the sale of four hotels. Prior-year results included a one-cent net gain.

Revenue rose 2.4% to $1.61 billion.

The White Plains, N.Y., company expected earnings excluding items of about $134 million, or 66 cents a share. The mean estimates of analysts polled by Thomson Financial were for earnings of 67 cents a share on $1.53 billion in revenue.

Revenue per available room in same-store hotels -- or hotels owned for at least a year -- rose 13%, largely driven by strong margins internationally. The company had expected revenue per available room in same-store hotels world-wide to grow 9% to 11%. Margins for same-store hotels in North America increased 7.8%.

Total vacation-ownership reported revenues slumped 17% to $259 million, on the timing of deferred revenues for projects currently under construction. Timeshare sales dropped 8% amid lower closing rates in Hawaii, while the average sales price fell 9.5% to about $24,000 on higher volume of lower-priced units. Signed contracts rose 1.7%.

Excluding items, Starwood's effective income-tax rate jumped to 28.5% from 21.4%.

During the quarter, Starwood signed 61 hotels and franchise contracts with about 13,000 rooms. The company added 16 new hotels and resorts, representing about 3,800 rooms, though 15 properties, representing 3,400 rooms, were cut.

The company lowered its projection for 2008 earnings excluding items to $2.32 to $2.57 a share, with revenue per available room in same-store hotels world-wide forecast to grow 4% to 7%. Previously, the company had forecast 2008 earnings of $2.47 to $2.60 a share, with revenue per available room in same-store hotels world-wide rising 6% to 8%.

Starwood said it expects to open about 80 to 100 hotels with 20,000 rooms in 2008.

For the first quarter, Starwood expects earnings excluding items of 22 cents to 26 cents a share, and revenue per available room in same-store hotels world-wide forecast to grow 7% to 9%. Analysts' mean estimate was for earnings of 39 cents a share.

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