Starwood 2004 Annual Report Download - page 109

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
was less than the Company's minimum threshold and the acquisition of the assets was not consistent with the
Company's strategic priorities. To date, Starwood Capital has not acquired the hotels.
In November 2004, the Company declined the opportunity to purchase an equity interest in a Starwood
branded hotel in Asia through a joint venture consisting of Starwood Capital and a third party. The hotel is
subject to a long term management contract with the Company that was entered into with independent third
parties and that will remain in place. The Governance Committee determined that the Company would not be
interested in acquiring the hotel based on management's recommendation because the expected after tax
return on investment as determined by management based on its experience in the industry was less than the
Company's minimum threshold because of the existing long term management contract and because the
acquisition was not consistent with the Company's strategic priorities.
In February 2005, the Company agreed to waive the Starwood Capital Noncompete and the application
of the Corporate Opportunity Policy with respect to a portfolio of seven hotels and a minority interest in an
eighth hotel, each of which is subject to a long term management agreement with the Company. Under the
terms of the waiver, aÇliates of Starwood Capital will acquire the portfolio subject to the existing
management agreements in favor of the Company. Starwood Capital has agreed that, following its planned
restructuring of the ownership of the portfolio, the new management agreements will be revised to reÖect the
Company's current form of management arrangement while preserving their current favorable economic
terms. Starwood Capital has also agreed to grant the Company a right of Ñrst oÅer for an appropriate
management, franchise, and/or services agreement with respect to any time share, residential or similar
development opportunity at certain of the properties, to fully comply with all applicable brand standards and to
certain restrictions on Mr. Sternlicht's involvement with the operation of the properties. The Company
declined the opportunity to acquire the properties based on management's recommendation, because the
expected after tax return on investment as determined by management based on its experience in the industry
was less than the Company's minimum threshold because of the existence of the favorable long-term
management agreements and because the acquisition was not consistent with the Company's strategic
priorities.
Beginning in the fourth quarter of 2004, Starwood Capital entered into discussions regarding a transaction
with the Company and a third party which would involve, among other things, Starwood Capital acquiring an
interest in hotels together with a third party, with the Company managing such properties. In the Ñrst quarter
of 2005, the Company agreed to reimburse Starwood Capital for certain of its third party due diligence
expenses in connection with its consideration of the transaction if a transaction is not consummated. A
transaction involving Starwood Capital, if any, would be subject to the review and approval of the Governance
Committee.
In October 2004, in connection with a potential acquisition that the Company was considering jointly
with Starwood Capital, Starwood Capital agreed to reimburse the Company for certain due diligence reviews
conducted on their behalf by Starwood for which the Company billed them approximately $25,800.
Portfolio Investments. An aÇliate of Starwood Capital holds an approximately 31% co-controlling
interest in Troon Golf (""Troon''), one of the largest third-party golf course management companies that
currently manages over 120 high-end golf courses. Mr. Sternlicht's indirect interest in Troon held through
such aÇliate is approximately 12%. In January 2002, after extensive review of alternatives and with the
approval of the Governance Committee, the Company entered into a Master Agreement with Troon covering
the United States and Canada whereby it 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 it manages or 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 2004, Troon managed 17 golf courses at resorts owned
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