Starwood 2003 Annual Report Download - page 109

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Other Management-Related Investments. Mr. Sternlicht has a 38% indirect interest in an entity (the
""Innisbrook Entity'') that owns the common area facilities and certain undeveloped land (but not the hotel)
at the Innisbrook Resort. In May 1997, the Innisbrook Entity entered into a management agreement for the
Innisbrook Resort with Westin, which was then a privately held company partly owned by Starwood Capital
and Goldman, Sachs & Co. When the Company acquired Westin in January 1998, it acquired Westin's rights
and obligations under the management and other related agreements. Under these agreements, the hotel
manager was obligated to loan up to $12.5 million to the owner in the event certain performance levels were
not achieved. Management fees earned under these agreements were $512,000, $584,000 and $716,000 in
2003, 2002 and 2001, respectively. The operations of the Innisbrook Entity have not generated suÇcient cash
Öow to service its outstanding debt and current obligations. The Innisbrook Entity, its primary lender and the
Company are currently in discussions regarding the terms and timing of payments owed to the lender and the
Company. The discussions relate to the payment of outstanding obligations of the Innisbrook Entity including
approximately $11 million owed to the Company. Based on available information and the establishment of
applicable reserves, the Company does not believe any resolution of this matter will have a material impact on
the Ñnancial position, results of operation or cash Öows of the Company. The Company believes that the
outstanding issues will be settled during the Ñrst half of 2004. Any settlement of this matter would be subject
to the approval of the Governance Committee.
In July 2002, the Company acquired a 49% interest in the Westin Savannah Harbor Resort and Spa in
connection with the restructuring of the indebtedness of that property. An unrelated party holds an additional
49% interest in the property. The remaining 2% is held by Troon. Troon invested in the project on a pari-passu
basis and manages the golf course at the Westin Savannah. The unrelated third party negotiated the terms of
the golf management agreement with Troon and approved the terms of its equity interest, and therefore, the
Company believes the arrangements are on an arms-length basis.
Aircraft Lease. In February 1998, the Company leased a Gulfstream III Aircraft (""GIII'') from Star
Flight LLC, an aÇliate of Starwood Capital. The term of the lease was one year and automatically renews for
one-year terms until either party terminates the lease upon 90 days' written notice. The rent for the aircraft,
which was set at approximately 90% of fair market value at the time (based on two estimates from unrelated
third parties), is (i) a monthly payment of 1.25% of the lessor's total costs relating to the aircraft
(approximately $123,000 at the beginning of the lease with this amount increasing as additional costs are
incurred by the lessor), plus (ii) $300 for each hour that the aircraft is in use. Payments to Star Flight LLC
were $1,865,000, $2,052,000 and $1,682,000 in 2003, 2002 and 2001, respectively. Starwood Capital has used
the GIII as well as the Gulfstream IV Aircraft (""GIV'') operated by the Company. For use of the GIII, Star
Flight LLC relieves the Company of lease payments for the days the plane is used and reimburses the
Company for costs of operating the aircraft. Lease relief and reimbursed operating costs were approximately
$52,000, $161,000 and $95,000 for Ñscal 2003, 2002 and 2001, respectively. For use of the GIV, Starwood
Capital pays a charter rate that the Company believes is no less favorable than that which the Company could
receive from an unaÇliated third party.
Other
The Company has on occasion made loans to employees, including executive oÇcers, principally in
connection with home purchases upon relocation. As of December 31, 2003, approximately $7 million in loans
to approximately 25 employees was outstanding of which approximately $5 million were non-interest bearing
home loans. Home loans are generally due Ñve years from the date of issuance or upon termination of
employment and are secured by a second mortgage on the employee's home. Executive oÇcers receiving
home loans in connection with relocation were Robert F. Cotter, President and Chief Operating OÇcer, in
June 2001 (original balance of $600,000), David K. Norton, Executive Vice President of Human Resources,
in July 2000 (original balance of $500,000), Theodore W. Darnall, President, Real Estate Group, in 1996 and
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