Business Strategy

Our primary business objective is to maximize earnings and cash flow by increasing the profitability of our existing portfolio; selectively acquiring interests in additional assets; increasing the number of our hotel management contracts and franchise agreements; acquiring and developing vacation ownership resorts and selling VOIs; and maximizing the value of our owned real estate properties, including selectively disposing of non-core hotels and trophy assets that may be sold at significant premiums. We plan to meet these objectives by leveraging our global assets, broad customer base and other resources and by taking advantage of our scale to reduce costs. The uncertainty relating to political and economic environments around the world and their consequent impact on travel in their respective regions and the rest of the world, make financial planning and implementation of our strategy more challenging.

Growth Opportunities

Management has identified several growth opportunities with a goal of enhancing our operating performance and profitability, including:

• Continuing to expand our role as a third-party manager of hotels and resorts. This allows us to expand the presence of its lodging brands and gain additional cash flow generally with modest capital commitment


• Franchising the Sheraton, Westin, Four Points by Sheraton and Luxury Collection brands to selected third-party operators and licensing the Westin, W and St. Regis brand names to selected third parties in connection with luxury residential condominiums, thereby expanding our market presence, enhancing the exposure of its hotel brands and providing additional income through franchise and license fees


• Expanding our internet presence and sales capabilities to increase revenue and improve customer service


• Continuing to grow our frequent guest program, thereby increasing occupancy rates while providing our customers with benefits based upon loyalty to our hotels and vacation ownership resorts;


• Enhancing our marketing efforts by integrating our proprietary customer databases, so as to sell additional products and services to existing customers, improve occupancy rates and create additional marketing opportunities;


• Optimizing our use of our real estate assets to improve ancillary revenue, such as condominium sales and restaurant, beverage and parking revenue from our hotels and resorts;


• Continuing to build the W hotel brand to appeal to upscale business travelers and other customers seeking full-service hotels in major markets by, among other things, placing Bliss Spa® and Bliss branded amenities in W hotels and expanding the W brand to resorts in non-urban areas


• Innovations such as the Heavenly Bed® and Heavenly Bath®, the Sheraton Sweet Sleeper® Bed, the Sheraton Service Promise(SM), and the Four Points by Sheraton Four Comfort Bed(SM)


• Renovating, upgrading and expanding our branded hotels to further its strategy of strengthening brand identity


• Developing additional vacation ownership resorts and leveraging our hotel real estate assets where possible through VOI construction and residential or condominium sales


• Leveraging the Bliss product line and distribution channels


• Increasing operating efficiencies through increased use of technology

We intend to explore opportunities to expand and diversify our hotel portfolio through internal development, minority investments and selective acquisitions of properties domestically and internationally that meet some or all of the following criteria:



• Luxury and upscale hotels and resorts in major metropolitan areas and business centers


• Major tourist hotels, destination resorts or conference centers that have favorable demographic trends and are located in markets with significant barriers to entry or with major room demand generators such as office or retail complexes, airports, tourist attractions or universities


• Undervalued hotels whose performance can be increased by re-branding to one of our hotel brands, the introduction of better and more efficient management techniques and practices and/or the injection of capital for renovating, expanding or repositioning the property


• Hotels or brands which would enable us to provide a wider range of amenities and services to customers


• Portfolios of hotels or hotel companies that exhibit some or all of the criteria listed above, where the purchase of several hotels in one transaction enables us to obtain favorable pricing or obtain attractive assets that would otherwise not be available or realize cost reductions on operating the hotels by incorporating them into the Starwood system



We may also selectively choose to develop and construct desirable hotels and resorts to help us meet our strategic goals, such as the ongoing development of the St. Regis Museum Tower Hotel in San Francisco, California which is expected to have approximately 260 rooms and 102 condominiums.

Furthermore, we have developed plans for flexible new-build Sheraton and Westin prototypes, with the intent of expanding these brands into tertiary markets.

Competition

The hotel industry is highly competitive. Competition is generally based on quality and consistency of room, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price, the ability to earn and redeem loyalty program points and other factors. Management believes that we compete favorably in these areas. Our properties compete with other hotels and resorts, including facilities owned by local interests and facilities owned by national and international chains, in their geographic markets. Our principal competitors include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands.

We encounter strong competition as a hotel, resort and vacation ownership operator and developer. While some of our competitors are private management firms, several are large national and international chains that own and operate their own hotels, as well as manage hotels for third-party owners and develop and sell VOIs, under a variety of brands that compete directly with our brands. In addition, hotel management contracts are typically long-term arrangements, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.