Starwood 2010 Annual Report Download - page 83

(a) Includes vacation ownership properties of which 14 are stand-alone, eight are mixed-use and one is an
unconsolidated joint venture totaling rooms of 7,000.
Hotel Business
Managed and Franchised Hotels. Hotel and resort properties in the United States are often owned by
entities that do not manage hotels or own a brand name. Hotel owners typically enter into management contracts
with hotel management companies to operate their hotels. When a management company does not offer a brand
affiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing,
centralized reservations and other centralized administrative functions, particularly in the sales and marketing area.
Management believes that companies, such as Starwood, that offer both hotel management services and well-
established worldwide brand names appeal to hotel owners by providing the full range of management, marketing
and reservation services. In 2010, we opened 70 managed and franchised hotels with approximately 15,000 rooms
and 22 managed and franchised hotels with approximately 7,000 rooms left the system.
Managed Hotels. We manage hotels worldwide, usually under a long-term agreement with the hotel owner
(including entities in which we have a minority equity interest). Our responsibilities under hotel management
contracts typically include hiring, training and supervising the managers and employees that operate these facilities.
For additional fees, we provide centralized reservation services and coordinate national advertising and certain
marketing and promotional services. We prepare and implement annual budgets for the hotels we manage and are
responsible for allocating property-owner funds for periodic maintenance and repair of buildings and furnishings. In
addition to our owned and leased hotels, at December 31, 2010, we managed 463 hotels with approximately 159,200
rooms worldwide. During the year ended December 31, 2010, we generated management fees by geographic area as
follows:
United States ............................................................ 33.1%
Asia Pacific ............................................................. 26.2%
Middle East and Africa . ................................................... 17.4%
Europe ................................................................ 15.6%
Americas (Latin America, Caribbean & Canada).................................. 7.7%
Total .................................................................. 100.0%
Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profits as
well as fees for other services, including centralized reservations, sales and marketing, public relations and national
and international media advertising. In our experience, owners seek hotel managers that can provide attractively
priced base, incentive and marketing fees combined with demonstrated sales and marketing expertise and
operations-focused management designed to enhance profitability. Some of our management contracts permit
the hotel owner to terminate the agreement when the hotel is sold or otherwise transferred to a third party, as well as
if we fail to meet established performance criteria. In addition, many hotel owners seek equity, debt or other
investments from us to help finance hotel renovations or conversions to a Starwood brand so as to align the interests
of the owner and Starwood. Our ability or willingness to make such investments may determine, in part, whether we
will be offered, will accept or will retain a particular management contract. During the year ended December 31,
2010, we opened 39 managed hotels with approximately 9,000 rooms, and 15 managed hotels with approximately
5,000 rooms left our system. In addition, during 2010, we signed management agreements for 61 hotels with
approximately 15,000 rooms, a small portion of which opened in 2010 and the majority of which will open in the
future.
Brand Franchising and Licensing. We franchise our Sheraton, Westin, Four Points by Sheraton, Luxury
Collection, Le Méridien, Aloft and Element brand names and generally derive licensing and other fees from
franchisees based on a fixed percentage of the franchised hotel’s room revenue, as well as fees for other services,
including centralized reservations, sales and marketing, public relations and national and international media
advertising. In addition, a franchisee may also purchase hotel supplies, including brand-specific products, from
certain Starwood-approved vendors. We approve certain plans for, and the location of, franchised hotels and review
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