Updated from 9:05 a.m. EDT

Starwood Hotels & Resorts ( HOT) reported a narrower third-quarter profit as its income-tax bill swelled, but the hotelier still beat Wall Street's estimates.

At the same time, the White Plains, N.Y., company said it expects to undertake a plan to sell up to $4 billion worth of properties, many of which it would continue to manage.

Starwood, the owner of the W, St. Regis, Sheraton and Westin brands, reported net income of $39 million, or 17 cents a share, in the latest quarter, down from $107 million, or 50 cents a share, a year before.

Even though its profit shrank, Starwood's results were better than expected thanks to continued strong lodging demand, which boosted room rates and revenue.

During the latest quarter, Starwood had special items totaling $91 million, primarily tax expenses from repatriated foreign earnings and the 1998 disposition of ITT World Directories.

Excluding those items, which is how Wall Street gauges the company, Starwood's third-quarter EPS was 58 cents, up from 40 cents a year earlier. On average, Wall Street analysts forecast a profit of 52 cents, according to Thomson First Call.

Starwood shares jumped higher at the open, but quickly reversed course into negative territory. Lately, they were trading down $1.90, or 3.2%, to $57.12.

With lodging demand remaining sturdy, Starwood said revenue per available room, a key industry metric also known as revpar, rose 13.2% year over year at North American hotels the company owned last year. That increase was solidly ahead of the company's guidance for a 10% to 12% gain and was driven by a 10.1% increase in average daily rates.

At worldwide properties owned for at least a year, revpar grew 11.9%, and rates increased 8.5%.

Increasing room rates tend to boost margins, and Starwood said margins at same-store North American hotels improved by about 2.8 percentage points from a year before.

"Our third-quarter performance was outstanding," said Steven Heyer, the company's CEO. "Our operators remain committed to industry-leading top-line growth, while at the same time driving industry-leading margin expansion through productivity initiatives."

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