Starwood 2007 Annual Report Download - page 76

quickly as our competition or within budgeted costs and timeframes for such technology. Further, there can be no
assurance that we will achieve the benefits 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 financial 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 affect income
from properties and real estate values, including governmental regulations, insurance, zoning, tax and eminent
domain laws, interest rate levels and the availability of financing. 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 financing
becomes less available, it becomes more difficult 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 financial condition. In addition, equity real estate investments are difficult 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 sufficient to meet operating expenses, including debt service and capital expenditures, our
income will be adversely affected.
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. 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.
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 responsible for, the
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