Starwood 2012 Annual Report Download - page 111

the hotel owner or franchisee, the failure to meet certain financial or performance criteria and in certain cases,
upon a sale of the property. Our ability to meet these financial and performance criteria is subject to, among other
things, the risks common to hotel industries described above. Factors outside of our control, such as the current
European sovereign debt crisis, could also have a significant negative impact on the financial condition and
viability of our hotel property owners. Additionally, the nature of responsibilities under these management and
franchise arrangements may give rise to disagreements with the property owners, making it difficult to maintain
positive relationships with current and potential hotel owners and franchisees. Consequently, our operating
results would be adversely affected if we could not maintain existing management, franchise or representation
agreements or obtain new agreements on as favorable terms as the existing agreements.
We and Our Third Party Licensees May Not Be Able to Sell Residential Properties Using Our Brands for
a Profit or at Anticipated Prices. We utilize our brands in connection with the residential portions of certain
properties that we develop and license our brands to third parties to use in a similar manner for a fee. Residential
properties using our brands could become less attractive due to changes in mortgage rates and the availability of
mortgage financing generally, market absorption or oversupply in a particular market. As a result, we and our
third party licensees may not be able to sell these residences for a profit or at the prices that we or they have
anticipated.
The Recent Recession in the Lodging Industry and the Global Economy Generally Has Impacted and
May Continue to Impact Our Financial Results and Growth.The recent economic recession and economic
uncertainty in the United States, Europe and much of the rest of the world has had a negative impact on the hotel
and vacation ownership and residential industries. Substantial increases in air and ground travel costs and
decreases in airline capacity have reduced demand for our hotel rooms and interval and fractional timeshare
products. Accordingly, our financial results have been impacted by the economic recession and both our future
financial results and growth could be further harmed if recovery from the economic recession slows. In certain
cases, we have entered into third party hotel management contracts which contain performance guarantees
specifying that certain operating metrics will be achieved. As a result of the impact of the economic downturn on
the lodging industry (and despite the stabilization in lodging that began in 2010), we may not meet the requisite
performance levels, and we may be forced to loan or contribute monies to fund the shortfall of performance
levels or terminate the management contract. For a more detailed description of our performance guarantees, see
Note 25 of the consolidated financial statements.
Moreover, many businesses, particularly financial institutions and pharmaceutical companies, face
restrictions on the ability to travel and hold conferences or events at resorts and luxury hotels. These restrictions
as well as negative publicity associated with such companies holding large conference and corporate events has
resulted in reduced corporate bookings that could impact our financial results in the future.
Our Revenues, Profits, or Market Share Could Be Harmed If We Are Unable to Compete Effectively. The
hotel, vacation ownership and residential industries are highly competitive. Our properties compete for customers
with other hotel and resort properties, ranging from national and international hotel brands to independent, local
and regional hotel operators, and, with respect to our vacation ownership resorts and residential projects, with
owners reselling their VOIs, including fractional ownership, or apartments. We compete based on a number of
factors, including quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness
of locations, availability of a global distribution system, price, and the ability to earn and redeem loyalty program
points. Some of our competitors may have substantially greater marketing and financial resources than we do,
and if we are unable to successfully compete in these areas, our operating results could be adversely affected.
Moreover, our present growth strategy for development of additional lodging facilities entails entering into and
maintaining various management agreements, franchise agreements, and leases with property owners. We compete
with other hotel companies for this business primarily on the basis of fees, contract terms, brand recognition, and
reputation. In connection with entering into these agreements, we may be required to make investments in, or
guarantee the obligations of, third parties or guarantee minimum income to third parties. The terms of our
management agreements, franchise agreements, and leases for each of our lodging facilities are influenced by
contract terms offered by our competitors, among other things. We cannot assure you that any of our current
arrangements will continue or that we will be able to enter into future collaborations, renew agreements, or enter
into new agreements in the future on terms that are as favorable to us as those that exist today.
12