Starwood 2012 Annual Report Download - page 112

Our Businesses Are Capital Intensive and the Failure to Make Necessary Investments Could Adversely
Affect the Quality and Reputation of Our Brands. 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. Third-party property
owners may be unable to access capital or unwilling to spend available capital when necessary, even if required
by the terms of our management or franchise agreements. To the extent that property owners and we cannot fund
expenditures from cash generated by operations, funds must be borrowed or otherwise obtained. Failure to make
the investments necessary to maintain or improve such properties, act in accordance with applicable brand
standards or project a consistent brand image could adversely affect the quality and reputation of our brands.
Moreover, third party owners or franchisees may be unwilling or unable to incur the cost of complying with
brand standards for new and existing brands as such brands may evolve from time to time. If the reputation or
perceived quality of our brands declines, our market share, reputation, business, financial condition or results of
operations could be affected.
Any Failure to Protect our Trademarks Could Have a Negative Impact on the Value of Our Brand
Names and Adversely Affect Our Business. We believe our trademarks are an important component of our
business. We rely on trademark laws to protect our proprietary rights. The success of our business depends in
part upon our continued ability to use our trademarks to increase brand awareness and further develop our brand
in both domestic and international markets. From time to time, we apply to have certain trademarks registered
and there is no guarantee that such trademark registrations will be granted. Further, monitoring the unauthorized
use of our intellectual property is difficult. Litigation has been and may continue to be necessary to enforce our
intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of
this type could result in substantial costs and diversion of resources, may result in counterclaims or other claims
against us and could significantly harm our results of operations. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the United States. We cannot assure you
that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be
adequate to prevent imitation of our trademarks by others. The unauthorized reproduction of our trademarks
could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which
could adversely affect our business.
Our Dependence on Hotel and Resort Development Exposes Us to Timing, Budgeting and Other Risks.
We intend to participate in the development of hotel and resort properties and residential components of hotel
properties, as suitable opportunities arise, taking into consideration the general economic climate. In addition, the
owners and developers of new-build properties that we have entered into management or franchise agreements
with are subject to these same risks which may impact the amount and timing of fees we had expected to collect
from those properties. 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, floods or fires 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, including sites held for development of vacation
ownership resorts, will in fact be developed, and, if developed, the time period or the budget of such
development may be greater than initially contemplated and the actual number of units or rooms constructed may
be less than initially contemplated.
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