Starwood 2008 Annual Report Download - page 81

Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That Our
Vacation Ownership Business Generates. Our vacation ownership business provides financing to purchasers of
our vacation ownership and fractional units, and we attempt to sell interests in those loans in the securities markets.
Increased volatility in the credit markets will likely continue to impact the timing and volume of the timeshare loans
that we are able to sell. Market conditions over the past year and further volatility and deterioration during the last
few months may delay or even prevent 2009 sales until the markets stabilize, or prevent us from selling our vacation
ownership notes entirely. Although we expect to realize the economic value of our vacation ownership note
portfolio even if future note sales are temporarily or indefinitely delayed, such delays could reduce or postpone
future gains and could result in either increased borrowings to provide capital to replace anticipated proceeds from
such sales or reduced spending in order to maintain our leverage and return targets.
Risks Relating to So-Called Acts of God, Terrorist Activity and War
Our financial and operating performance may be adversely affected by so-called acts of God, such as natural
disasters, in locations where we own and/or operate significant properties and areas of the world from which we
draw a large number of customers. Similarly, wars (including the potential for war), terrorist activity (including
threats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty have caused
in the past, and may cause in the future, our results to differ materially from anticipated results.
Some Potential Losses are Not Covered by Insurance
We carry insurance coverage for general liability, property, business interruption and other risks with respect to
our owned and leased properties and we make available insurance programs for owners of properties we manage.
These policies offer coverage terms and conditions that we believe are usual and customary for our industry.
Generally, our “all-risk” property policies provide that coverage is available on a per occurrence basis and that, for
each occurrence, there is a limit as well as various sub-limits on the amount of insurance proceeds we will receive in
excess of applicable deductibles. In addition, there may be overall limits under the policies. Sub-limits exist for
certain types of claims such as service interruption, debris removal, expediting costs or landscaping replacement,
and the dollar amounts of these sub-limits are significantly lower than the dollar amounts of the overall coverage
limit. Our property policies also provide that for the coverage of critical earthquake (California and Mexico),
hurricane and flood, all of the claims from each of our properties resulting from a particular insurable event must be
combined together for purposes of evaluating whether the annual aggregate limits and sub-limits contained in our
policies have been exceeded and any such claims will also be combined with the claims of owners of managed
hotels that participate in our insurance program for the same purpose. Therefore, if insurable events occur that affect
more than one of our owned hotels and/or managed hotels owned by third parties that participate in our insurance
program, the claims from each affected hotel will be added together to determine whether the per occurrence limit,
annual aggregate limit or sub-limits, depending on the type of claim, have been reached and if the limits or
sub-limits are exceeded each affected hotel will only receive a proportional share of the amount of insurance
proceeds provided for under the policy. In addition, under those circumstances, claims by third party owners will
reduce the coverage available for our owned and leased properties.
In addition, there are also other risks including but not limited to war, certain forms of terrorism such as
nuclear, biological or chemical terrorism, political risks, some environmental hazards and/or acts of God that may
be deemed to fall completely outside the general coverage limits of our policies or may be uninsurable or may be too
expensive to justify insuring against.
We may also encounter challenges with an insurance provider regarding whether it will pay a particular claim
that we believe to be covered under our policy. Should an uninsured loss or a loss in excess of insured limits occur,
we could lose all or a portion of the capital we have invested in a hotel or resort, as well as the anticipated future
revenue from the hotel or resort. In that event, we might nevertheless remain obligated for any mortgage debt or
other financial obligations related to the property.
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