Starwood 2004 Annual Report Download - page 110

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
or managed by the Company. The Company paid Troon a total of $1,440,000 for management fees and
payments for other services in 2004 for nine golf courses at resorts owned or managed by it. During 2003 and
2002, the Company paid $948,000 and $813,000 for management fees and payments for other services for the
nine and eight golf courses at resorts owned or managed by it, respectively.
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 and 2002, and $42,000 in 2004. 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 since managed the health club and spa
on a month-to-month agreement. The Company and the management company continued this arrangement
until the Company closed the health club and spa in June 2004 for conversion to a Bliss spa.
An entity in which Mr. Sternlicht has an indirect interest held 259 limited partnership units in Westin
Hotels Limited Partnership (the owner of the Westin Michigan Avenue Hotel.) The units were acquired in
1995 and 1996, prior to the Company's acquisition of Westin. The entity tendered all of its units to the
Company in connection with the Company's tender oÅer. The Company purchased all shares tendered to it
and the entity received approximately $190,000 for its units.
Other Management-Related Investments. Innisbrook. Mr. Sternlicht has a 38% indirect interest in an
entity (the ""Innisbrook Entity'') that owned 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 $636,000,
$512,000 and $584,000 in 2004, 2003 and 2002, respectively. The operations of the Innisbrook Entity did not
and continues not to generate suÇcient cash Öow to service its outstanding debt and current obligations for
much of the past several years.
The Company reached an agreement in 2004 with the Innisbrook Entity and its primary lender regarding
certain outstanding obligations of the Innisbrook Entity, including approximately $11 million (consisting
principally of loans made by the Company as hotel manager under the $12.5 million obligation) payable to it
upon certain events. Pursuant to the agreement, the Innisbrook Entity conveyed the Innisbrook Resort to the
lender (in lieu of foreclosure) and the Company was paid approximately $465,000 for outstanding receivables.
Under the terms of the agreement, the Company entered into a new management agreement for the
Innisbrook Resort with the lender providing for (i) an increased base management fee percentage,
(ii) management of the Innisbrook Resort's golf facilities (which the Company subcontracted to Troon, the
manager of the facilities prior to the new agreement) (iii) the right to receive a termination fee of up to
$5.9 million (declining to $5.5 million over three years) upon certain events and (iv) the right to be repaid
certain capital expenditures made by the Company if the management agreement is terminated prior to
January 1, 2006. As part of the agreement, each of the parties released substantially all of their claims against
the others (including the Company's right to receive payment of approximately $10.26 million loaned by it to
the Innisbrook Entity upon the occurrence of certain events). Under the new agreement, aÇliates of the
Innisbrook Entity also loaned the lender $2 million to provide working capital for the Innisbrook Resort. The
resolution of the matter did not have a material impact on the Company's Ñnancial position, results of
operations or cash Öows and was approved by the Governance Committee based on the recommendation of
management and outside legal advisors.
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