Starwood 2006 Annual Report Download - page 3

Dear Fellow Shareholders,
I am pleased to announce that 2006 was an exceptional year at our company
by all measures, but before I go into specics, I want to begin by thanking each
and every one of the 145,000 Associates at our owned and managed hotels, as
well as those of our franchisees, who come together to bring our brands to life
for our guests. Their work is critical to the success of the company and our
network. Only through their hard work, dedication and commitment to service
excellence are we able to consistently deliver superior guest experiences that
‘wow’ our customers.
As you know, on March 31, 2007, Steven J. Heyer, resigned as Chief Executive
Ofcer and as a Director, and I was appointed Chief Executive Ofcer on an
interim basis. The Board of Directors appreciates the good work Mr. Heyer
has done to execute Starwood’s strategy and position it for the future.
However, issues with regard to Mr. Heyer’s management style led the Board
to lose condence in his leadership. The management change is solely related to
issues of Mr. Heyer’s management style and is in no way related to Starwood’s
strategy, nancial performance or nancial reporting. Starwood has a deep and
talented management team and employee base. The senior management team is
comprised of the best in the industry and is highly regarded both internally and
externally. There will be no changes in strategic direction as a result of
Mr. Heyer’s departure.
Now, looking at Starwood’s results, 2006 was a great year and we are looking
for great things in 2007. Some of the key nancial highlights from 2006 are:
• We delivered worldwide system-wide RevPAR growth of 9.9%.
• We drove exceptional results across our owned hotel portfolio, with
worldwide branded RevPAR up 10.5% for the full year and margins increasing
220 basis points.
• Our vacation ownership business grew originated sales 19.2% with industry-
leading margins of almost 30%.
• We signed 156 hotel contracts representing almost 37,000 rooms.
• We successfully acquired and integrated Le Méridien, and are pleased to report
that we are performing well above our acquisition assumptions. We also rolled
out two new brands this year to the development community, aloft and Element.
Each of these brands adds depth and value to the Starwood portfolio, further
increasing our growth potential.
• We completed the sale of 50 non-strategic assets and generated proceeds of
$4.7 billion while retaining valuable long-term management contracts.
• We returned over $4.3 billion to shareholders, including $2.8 billion related
to the Host transaction, $1.3 billion in share repurchases and $276 million
in dividends.
Our footprint expansion efforts in recent years are paying superior dividends,
as evidenced by January 2007 Smith Travel data that shows Starwood holding
the #1 position in upper upscale and luxury development, with 39% of the hotels
and rooms in the pipeline today. This represents superb growth on an absolute
basis and substantial market share gains. We have successfully refocused our
company’s efforts on strengthening our lead in the upper upscale and luxury
segments by differentiating our brands with both the development community
and consumers. We have also improved our relationships with developers to help
them better understand how our brands can drive higher returns for their
projects. While owning hotels will continue to be an important part of our
strategy, over time the growth of our fee business will outpace our owned hotels.
With over 50% of our fees generated in markets outside of the U.S. and almost
40% of our owned hotels in international markets, we believe Starwood is well
positioned to enjoy secular growth, regardless of where we are in the lodging
cycle. We feel condent about our business prospects and we remain on track
to deliver on the three-year growth plans we have previously outlined for 2007
and beyond.
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