Note 19.

Planned Reverse Morris Trust Transaction

On February 10, 2015, we announced plans to spin-off our vacation ownership business to stockholders as a separate publically traded company, Vistana.

On October 27, 2015, we entered into definitive agreements with ILG, a wholly-owned subsidiary of ILG (ILG Merger Sub) and Vistana through a Reverse Morris Trust transaction, pursuant to which, subject to the terms and conditions thereof, (a) we and certain of our subsidiaries will engage in a series of transactions in which certain assets and liabilities, including five hotels to be converted to vacation ownership properties, will be (i) sold directly to one or more subsidiaries of ILG or (ii) otherwise conveyed pursuant to an internal restructuring to Vistana and entities that will become Vistana subsidiaries, in order to separate our vacation ownership business from our other businesses, (b) immediately after such separation, via spin-off we will distribute the shares of Vistana common stock to our stockholders on a pro rata basis and (c) immediately after such distribution, Vistana will merge with ILG Merger Sub. The holders of SLC Operating Limited Partnership units, which are entitled to the distribution, will also receive shares of Vistana common stock. On April 20, 2016, the stockholders of ILG approved the proposal necessary for the acquisition of Vistana. When the foregoing transactions are completed, Vistana will be a wholly-owned subsidiary of ILG, our stockholders will own approximately 55% of the outstanding shares of ILG on a fully-diluted basis and the existing shareholders of ILG will own approximately 45% of ILG on a fully-diluted basis. Upon the closing of the transactions, ILG’s board of directors will consist of 13 directors, comprising nine current ILG directors and four of our director appointees.

On April 29, 2016, we and ILG announced a brief delay in the planned closing of ILG’s acquisition of Vistana, while both companies work to avoid unnecessary tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), as discussed in ILG’s and our Current Reports on Form 8-K, which were filed with the U.S. Securities and Exchange Commission on April 19, 2016. The companies are working to finalize the procedures to identify which shareholders are properly subject to this withholding. The acquisition was previously expected to close on April 30, 2016, and is now expected to close in May, subject to satisfaction or waiver of customary closing conditions.

In connection with the transactions, we expect to record a significant non-cash pre-tax impairment charge in the second quarter of 2016 resulting from the difference between the carrying value of our investment in the vacation ownership business and the fair value of the consideration received at the transaction date, which is primarily based on the value of ILG common stock that will be received by our stockholders and unitholders. As this transaction represented a material strategic shift in our business, the revenues and expenses of Vistana, including the impairment charge, and the costs associated with the transactions will be reclassified to discontinued operations.

Both the distribution of the shares of Vistana common stock and merger of Vistana with ILG Merger Sub are expected to generally qualify as transactions that are tax-free for U.S. federal income tax purposes to our U.S. stockholders. The sale of certain assets and liabilities related to the Vistana vacation ownership business and the distribution of Vistana common shares could be taxable to us, including as a result of events subsequent to the Reverse Morris Trust transaction. These events could include, but are not limited to, consummation of the proposed Marriott merger. An estimate of the range of the potential tax liability, if any, that may result if the Reverse Morris Trust transaction is taxable to us is not practicable at this time. This potential tax liability, if any, could also be mitigated by payments from ILG under the Tax Matters Agreement, entered into by and among Starwood, Vistana and ILG in connection with the transactions, in certain circumstances.