Starwood 2003 Annual Report Download - page 53

Company entered into a Master Agreement with Troon covering the United States and Canada whereby the
Company has agreed to have Troon manage all golf courses in the United States and Canada that are owned
by the Company and to use reasonable eÅorts to have Troon manage golf courses at resorts that the Company
manages and franchises. The Company believes that the terms of the Troon agreement are at or better than
market terms. Mr. Sternlicht did not participate in the negotiations or the approval of the Troon Master
Agreement. During 2003, Troon managed 18 golf courses at resorts owned or managed by the Company. The
Company paid Troon a total of $948,000 for management fees and payments for other services in 2003 for nine
golf courses at resorts owned or managed by the Company. During 2002 and 2001, the Company paid
$813,000 and $432,000, respectively, for management fees and payments for other services for the eight and
two golf courses at resorts owned or managed by the Company, respectively.
An entity in which Mr. Sternlicht has a 38% interest owned the common area of the Sheraton Tamarron
Resort, which the Company managed until December 2001. The Company had outstanding receivables of
approximately $314,000 at December 31, 2003, which arose as a result of the termination of the Tamarron
management agreement. These receivables were paid in full in January 2004. The Company believes that the
terms of the Tamarron agreement were at or better than market terms.
In addition, a subsidiary of Starwood Capital is a general partner of a limited partnership which owns
approximately 45% in an entity that manages over 40 health clubs, including one health club and spa space in
a hotel owned by the Company. The Company paid approximately $84,000 annually to the management
company for such management services in 2003, 2002 and 2001. The Company believes that the terms of the
management agreement were at or better than market terms. The management agreement terminated on
September 30, 2003 and the management company has been managing the health club and spa on a month-
to-month agreement. The Company and the management company have verbally agreed to continue this
arrangement until the Company closes the health club and spa for conversion to a Bliss spa.
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 payments 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
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