Starwood 2004 Annual Report Download - page 53

on its experience in the industry was less than our minimum threshold and the acquisition of the assets was not
consistent with our strategic priorities. To date, Starwood Capital has not acquired the hotels.
In November 2004, we 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 us that was entered into with independent third parties and that will
remain in place. The Governance Committee determined that we 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 our minimum threshold
because of the existing long term management contract and because the acquisition of the assets was not
consistent with our strategic priorities.
In February 2005, we 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 us. Under the terms of the waiver,
aÇliates of Starwood Capital will acquire the portfolio subject to the existing management agreements in favor
of us. Starwood Capital has agreed that, following its planned restructuring of the ownership of the portfolio,
the new management agreements will be revised to reÖect our current form of management arrangement while
preserving their current favorable economic terms. Starwood Capital has also agreed to grant us 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. We 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 our minimum threshold because of the existence of the favorable long-term
management agreements and because the acquisition was not consistent with our strategic priorities.
Beginning in the fourth quarter of 2004, Starwood Capital entered into discussions regarding a transaction
with us and a third party which would involve, among other things, Starwood Capital acquiring an interest in
hotels together with a third party, with us managing such properties. In the Ñrst quarter of 2005, we 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 we were considering jointly with
Starwood Capital, Starwood Capital agreed to reimburse us for certain due diligence reviews conducted on its
behalf by Starwood for which we 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, we entered into a Master Agreement with Troon covering the United
States and Canada whereby we have agreed to have Troon manage all golf courses in the United States and
Canada that are owned by us and to use reasonable eÅorts to have Troon manage golf courses at resorts that
we manage or franchise. We believe 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 or managed by us. We 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 us. During 2003 and 2002, we 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 us, 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 us. We paid approximately $84,000 annually to the management company for such
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