Starwood 2005 Annual Report Download - page 16

technologies can be expected to require reÑnements and there is the risk that advanced new technologies will
be introduced. There can be no assurance that as various systems and technologies become outdated or new
technology is required we will be able to replace or introduce them as quickly as our competition or within
budgeted costs and timeframes for such technology. Further, there can be no assurance that we will achieve
the beneÑts that may have been anticipated from any new technology or system.
Our Businesses Are Capital Intensive. For our owned, managed and franchised properties to remain
attractive and competitive, the property owners and we have to spend money periodically to keep the
properties well maintained, modernized and refurbished. This creates an ongoing need for cash and, to the
extent the property owners and we cannot fund expenditures from cash generated by operations, funds must be
borrowed or otherwise obtained. In addition, to continue growing our vacation ownership business and
residential projects, we need to spend money to develop new units. Accordingly, our Ñnancial results may be
sensitive to the cost and availability of funds and the carrying cost of VOI and residential inventory.
Real Estate Investments Are Subject to Numerous Risks. We are subject to the risks that generally
relate to investments in real property because we own and lease hotels and resorts. The investment returns
available from equity investments in real estate depend in large part on the amount of income earned and
capital appreciation generated by the related properties, and the expenses incurred. In addition, a variety of
other factors aÅect income from properties and real estate values, including governmental regulations, real
estate, insurance, zoning, tax and eminent domain laws, interest rate levels and the availability of Ñnancing.
For example, new or existing real estate zoning or tax laws can make it more expensive and/or time-
consuming to develop real property or expand, modify or renovate hotels. When interest rates increase, the
cost of acquiring, developing, expanding or renovating real property increases and real property values may
decrease as the number of potential buyers decreases. Similarly, as Ñnancing becomes less available, it
becomes more diÇcult both to acquire and to sell real property. Finally, under eminent domain laws,
governments can take real property. Sometimes this taking is for less compensation than the owner believes
the property is worth. Any of these factors could have a material adverse impact on our results of operations or
Ñnancial condition. In addition, equity real estate investments are diÇcult to sell quickly and we may not be
able to adjust our portfolio of owned properties quickly in response to economic or other conditions. If our
properties do not generate revenue suÇcient to meet operating expenses, including debt service and capital
expenditures, our income will be adversely aÅected.
Hotel and Resort Development Is Subject to Timing, Budgeting and Other Risks. We intend to develop
hotel and resort properties, including VOIs and residential components of hotel properties, as suitable
opportunities arise, taking into consideration the general economic climate. New project development has a
number of risks, including risks associated with:
¬construction delays or cost overruns that may increase project costs;
¬receipt of zoning, occupancy and other required governmental permits and authorizations;
¬development costs incurred for projects that are not pursued to completion;
¬so-called acts of God such as earthquakes, hurricanes, Öoods or Ñres that could adversely impact a
project;
¬defects in design or construction that may result in additional costs to remedy or require all or a portion
of a property to be closed during the period required to rectify the situation;
¬ability to raise capital; and
¬governmental restrictions on the nature or size of a project or timing of completion.
We cannot assure you that any development project will be completed on time or within budget.
Environmental Regulations. Environmental laws, ordinances and regulations of various federal, state,
local and foreign governments regulate our properties and could make us liable for the costs of removing or
cleaning up hazardous or toxic substances on, under, or in property we currently own or operate or that we
previously owned or operated. These laws could impose liability without regard to whether we knew of, or were
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