Starwood 2006 Annual Report Download - page 22

business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our
policies or objectives. Consequently, actions by a co-venturer might subject hotels and resorts owned by the joint
venture to additional risk. Further, we may be unable to take action without the approval of our joint venture
partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our
consent. Additionally, should a joint venture partner become bankrupt, we could become liable for our partner’s
share of joint venture liabilities.
Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default
We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for a
one-week period (or in the case of fractional ownership interests, generally for three or more weeks) on either an
annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide
financing to purchasers of VOIs. These activities are all subject to extensive regulation by the federal government
and the states in which vacation ownership resorts are located and in which VOIs are marketed and sold including
regulation of our telemarketing activities under state and federal “Do Not Call” laws. In addition, the laws of most
states in which we sell VOIs grant the purchaser the right to rescind the purchase contract at any time within a
statutory rescission period. Although we believe that we are in material compliance with all applicable federal,
state, local and foreign laws and regulations to which vacation ownership marketing, sales and operations are
currently subject, changes in these requirements or a determination by a regulatory authority that we were not in
compliance, could adversely affect us. In particular, increased regulations of telemarketing activities could
adversely impact the marketing of our VOIs.
We bear the risk of defaults under purchaser mortgages on VOIs. If a VOI purchaser defaults on the mortgage
during the early part of the loan amortization period, we will not have recovered the marketing, selling (other than
commissions in certain events), and general and administrative costs associated with such VOI, and such costs will
be incurred again in connection with the resale of the repossessed VOI. Accordingly, there is no assurance that the
sales price will be fully or partially recovered from a defaulting purchaser or, in the event of such defaults, that our
allowance for losses will be adequate.
Recent Privacy Initiatives
We collect information relating to our guests for various business purposes, including marketing and
promotional purposes. The collection and use of personal data are governed by privacy laws and regulations
enacted in the United States and other jurisdictions around the world. Privacy regulations continue to evolve and on
occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may
increase our operating costs and/or adversely impact our ability to market our products, properties and services to
our guests. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non-
compliance by third parties engaged by us) may result in fines or restrictions on our use or transfer of data.
Ability to Manage Growth
Our future success and our ability to manage future growth depend in large part upon the efforts of our senior
management and our ability to attract and retain key officers and other highly qualified personnel. Competition for
such personnel is intense. Since January 2004, we have experienced significant changes in our senior management,
including executive officers (See Item 10. “Directors, Executive Officers and Corporate Governance” of this
Annual Report). There can be no assurance that we will continue to be successful in attracting and retaining
qualified personnel. Accordingly, there can be no assurance that our senior management will be able to successfully
execute and implement our growth and operating strategies. In addition, we recently announced a strategy of
reducing our investment in owned real estate and increasing our focus on the management and franchise business,
and there can be no assurance that our new strategy will be successful.
Tax Risks
Failure of the Trust to Qualify as a REIT Would Increase Our Tax Liability. Qualifying as a real estate
investment trust (a “REIT”) requires compliance with highly technical and complex tax provisions that courts and
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