<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 000-21583
Candlewood Hotel Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 48-1188025
(State of Incorporation) (I.R.S. Employer Identification No.)
8621 E. 21st Street North, Suite 200
Wichita, Kansas 67206
(Address of principal executive offices)
(316) 631-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Class Outstanding at May 14, 1999
---------------------------- ---------------------------
Common Stock, $.01 par value 9,025,000 shares
</TABLE>
1
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CANDLEWOOD HOTEL COMPANY, INC.
FORM 10 - Q
FOR THE QUARTER ENDED
MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the three
months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANDLEWOOD HOTEL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value, stated value and share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- ------------
<S> <C> <C>
ASSETS
Investment in hotels completed and under construction:
Hotels completed $ 176,667 $ 150,401
Hotels under construction 43,973 67,447
Other costs 24,412 16,591
--------- ---------
245,052 234,439
Accumulated depreciation and amortization (3,188) (1,907)
--------- ---------
Net investment in hotels 241,864 232,532
Cash and cash equivalents (including $456 and $521 of
restricted cash, respectively) 18,151 23,155
Deposits 26,334 23,847
Accounts and other receivables 4,895 3,566
Other assets 10,653 10,258
--------- ---------
Total assets $ 301,897 $ 293,358
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and notes payable $ 139,243 $ 114,742
Accounts payable and other accrued expenses 25,466 40,277
Deferred gain on sale of hotels 19,758 16,771
Other liabilities 1,343 1,449
--------- ---------
Total liabilities 185,810 173,239
Redeemable, convertible, cumulative preferred stock ("Series A"),
$1,000 stated value, 65,000 shares authorized and outstanding,
net of offering costs 61,339 61,339
Redeemable, convertible, cumulative preferred stock ("Series B"),
$1,000 stated value, 42,000 shares authorized and outstanding,
net of offering costs 39,398 39,398
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 9,025,000 issued and outstanding 90 90
Additional paid-in capital 35,270 35,270
Accumulated deficit (20,010) (15,978)
--------- ---------
Total stockholders' equity 15,350 19,382
--------- ---------
Total liabilities and stockholders' equity $ 301,897 $ 293,358
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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CANDLEWOOD HOTEL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
REVENUES:
Hotel operations $ 21,267 $ 6,917
Other income 207 174
----------- -----------
Total hotel operating revenues 21,474 7,091
Proceeds from sales of hotels, net of deferred gain of
$3,405 and $7,126, respectively 23,196 48,922
Deferred gain recognition on sales of hotels 181 40
----------- -----------
Total revenues 44,851 56,053
----------- -----------
OPERATING COSTS AND EXPENSES:
Hotel operating expenses 13,060 4,409
Corporate operating expenses 1,240 808
Rent expense on leased hotels 6,136 1,422
Hotel opening costs 585 --
Depreciation and amortization 1,489 347
----------- -----------
Total operating costs and expenses 22,510 6,986
Cost of hotels sold 23,196 48,922
----------- -----------
(855) 145
Interest income 282 362
Interest expense (1,480) (38)
----------- -----------
Income (loss) before preferred dividends (2,053) 469
Preferred stock dividends (1,979) (1,202)
----------- -----------
Net loss available to common stockholders $ (4,032) $ (733)
=========== ===========
Net loss per share of common stock - basic and diluted $ (0.45) $ (0.08)
=========== ===========
Weighted average shares outstanding - basic and diluted 9,025,000 9,025,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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CANDLEWOOD HOTEL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,053) $ 469
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,489 347
Deferred gain recognition on sales of hotels (181) (40)
Change in:
Hotels completed and under construction - held for sale 20,776 39,395
Deposits (2,487) (605)
Accounts receivable (1,785) (996)
Opening costs 718 (122)
Other assets 369 (241)
Accounts payable and other accrued expenses (5,575) 1,796
Deferred gain on sale of hotels 3,168 1,066
Other liabilities (38) 131
-------- --------
Net cash provided by operating activities 14,401 41,200
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for hotels completed and under
construction (33,321) (56,318)
Payments for site acquisition costs (8,539) (258)
Purchase of intangible assets -- (4)
-------- --------
Net cash used in investing activities (41,860) (56,580)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgages and notes payable 27,682 30,221
Payments on mortgages and notes payable (3,181) (31,913)
Preferred stock dividends (1,979) --
Other liabilities (67) (101)
Expenditures for private placement -- (122)
-------- --------
Net cash provided by financing activities 22,455 (1,915)
-------- --------
Net decrease in cash and cash equivalents (5,004) (17,295)
Cash and cash equivalents at beginning of period 23,155 35,355
-------- --------
Cash and cash equivalents at end of period $ 18,151 $ 18,060
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CANDLEWOOD HOTEL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
A. Organization and Basis of Presentation
The Company's current business of owning, operating, managing,
developing and franchising extended-stay hotels originated in November 1995,
with the formation of Candlewood Hotel Company, L.L.C., a Delaware limited
liability company ("Candlewood LLC"). The Company was incorporated in the State
of Delaware in August 1996, and in November 1996, the Company succeeded to the
business of Candlewood LLC and completed an initial public offering of its
common stock (collectively, the "Reorganization").
The accompanying unaudited consolidated financial statements of
Candlewood Hotel Company, Inc. (the "Company") have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission for
reporting on Form 10-Q. The statements include the accounts of Candlewood Hotel
Company, Inc. and its subsidiaries, including Candlewood LLC, which was the
entity through which business was conducted until completion of the
Reorganization, and various wholly-owned LLCs which own or lease certain hotels.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been omitted. The
accompanying unaudited financial statements contain all adjustments (consisting
of only normal recurring adjustments and including eliminations of all
significant intercompany transactions and accounts) which the Company believes
are necessary for the fair presentation of the Company's financial position and
results of operations. The condensed consolidated balance sheet data at December
31, 1998 was derived from the Company's audited financial statements. These
interim financial statements should be read in conjunction with the Company's
1998 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
B. Investment in Hotels Completed and Under Construction
Hotels Completed
Hotels completed are stated at cost and include the related furniture,
fixtures and equipment. Once the hotels are completed, depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
ranging from three to forty years. Maintenance and repairs are charged to
operations as incurred.
Hotels under Construction
Hotels under construction represents costs incurred in the acquisition
and development of hotels. Such costs include land acquisition costs,
construction costs, capitalized interest and construction overhead. Upon
completion, the costs of construction, including any capitalized costs, are
transferred to hotels completed and, except for hotels held for sale,
depreciated over the asset's useful life.
Other Costs
Other costs consist of acquisition costs. Acquisition costs are costs
related to the acquisition of property sites. These costs are added to the costs
of the hotels under construction when the site is acquired and construction at
the hotel begins. Costs associated with a particular site are expensed to
operations when the Company determines it will no longer pursue the site.
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C. Cash Equivalents
The Company considers all highly liquid assets with a maturity of three
months or less when purchased to be cash equivalents.
D. Restricted Cash
Restricted cash represents cash that, under the terms of certain letters
of credit, has been set aside for pending land acquisitions. These funds are
applied as payments upon the closing of escrow of related acquisitions.
E. Revenue Recognition
Room revenue and other revenues are recognized when earned. Recognition
of franchise fee revenue is deferred until all material services or conditions
relating to the respective franchise have been substantially performed or
satisfied by the Company. Such revenue when recognized is included in other
income.
The Company's sales of hotels are accompanied by a leaseback of the
facilities under operating lease arrangements. Such sales are recognized when
the title passes to the buyer, generally upon the receipt of proceeds. Related
profit is deferred due to required support obligations under the operating lease
agreements until operations meet stipulated levels. At such time, the deferred
gain is recognized in earnings over the remaining lease term.
F. Income Taxes
The Company is taxed as a corporation as defined in subchapter "C" under
the Internal Revenue Code for federal and state income tax purposes and accounts
for any temporary differences under the asset and liability method.
G. Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131") which was effective for fiscal years beginning after December
15, 1997. SFAS No. 131 superseded Statement of Financial Accounting Standards
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports beginning in the second year of implementation. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect the results of operations or financial position of the Company.
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The Company has two reportable segments, the operation of hotels and the
sale of hotels. Information related to the Company's reportable segments is as
follows:
<TABLE>
<CAPTION>
Three Months ended March 31, 1999
------------------------------------------------------------------------------------------------
(In thousands) Operation of Sale of
Hotels Hotels Total
------------ -------- --------
<S> <C> <C> <C>
Revenues from external customers $ 21,474 $ 23,196 $ 44,670
Interest expense 1,480 -- 1,480
Depreciation expense 1,365 -- 1,365
Segment profit 913 181 1,094
Hotels assets:
Hotels completed and under construction 220,640 -- 220,640
Accounts receivable 2,017 2,840 4,857
</TABLE>
<TABLE>
<CAPTION>
Three Months ended March 31, 1998
------------------------------------------------------------------------------------------------
(In thousands) Operation of Sale of
Hotels Hotels Total
------------ -------- --------
<S> <C> <C> <C>
Revenues from external customers $ 7,091 $ 48,922 $ 56,013
Interest expense 38 -- 38
Depreciation expense 290 -- 290
Segment profit 970 40 1,010
Hotels assets:
Hotels completed and under construction 144,955 5,258 150,213
Accounts receivable 732 4,818 5,550
</TABLE>
The difference between segment profit and net income is corporate
expenses not specific to the Company's reportable segments.
H. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from such estimates.
I. Reclassifications
Certain reclassifications of prior period amounts have been made to
conform to the current period presentation. Such reclassifications have no
effect on the operations or equity as originally presented.
Note 2: Mortgages and Notes Payable
As of March 31, 1999, the Company had entered into separate building
loan agreements with GMAC Commercial Mortgage Corporation for 29 of the
Company's hotels. Each agreement was entered into by a separate wholly-owned
subsidiary of the Company which owns the related property and hotel; however,
each loan is cross-defaulted. The terms of the building loan agreements provide
for advances, generally on a monthly basis, based on construction costs incurred
to date. Interest on the loans is payable monthly, in arrears, beginning on the
first day of the first full calendar month after the date of each agreement.
Interest payments are calculated at a variable rate per annum, adjusted monthly,
at rates ranging from LIBOR plus 3.40% to 4.25% (8.36% to 9.21% as of March 31,
8
<PAGE> 9
1999). Based on the individual note, principal payments commence either 12
months following the related hotel opening or 18 months from the related loan
closing. Depending on the terms of the individual notes, principal payments are
calculated based on a 25-year amortization schedule using either a 10% fixed
interest rate or the prevailing interest rate as defined in the note. Each note
matures on the first day of the first full calendar month after the fourth
anniversary of loan closing and provides for two 12-month extension periods.
Amounts borrowed under the building loan agreements are secured by the
respective hotels, the land on which they are constructed and certain funds
deposited in demand deposit accounts assigned to GMAC and are guaranteed by the
Company and certain other of the Company's wholly-owned subsidiary LLCs. Certain
amounts borrowed under the building loan agreements are further partially
guaranteed by Doubletree Corporation, a wholly-owned subsidiary of Promus Hotel
Corporation. At March 31, 1999, $120.3 million was outstanding under these 29
building loan agreements.
The Company has entered into a promissory note with NationsBank of
Texas, N.A. ("NationsBank") relating to the Company's Overland Park, Kansas
hotel. The agreement was entered into by a wholly-owned subsidiary of the
Company which owns the related property and hotel. Interest on the loan is
payable monthly at a variable rate per annum equal to LIBOR plus 2.75% (7.83% as
of March 31, 1999). Principal amortization payments based on a 25-year term
began in September 1998, and will continue until February 2000, at which time
the note matures. The loan may be extended for one year if certain conditions
are met and upon payment of a specified extension fee. During the one-year
extension period, the Company will be required to continue to make interest
payments and principal amortization payments based on a 25-year term. Amounts
borrowed under the loan are secured by the hotel and the land on which the hotel
is constructed, certain funds deposited in demand deposit accounts assigned to
NationsBank, as well as a guarantee by the Company and certain other of the
Company's wholly-owned subsidiary LLCs. At March 31, 1999, $3.9 million was
outstanding under the note.
The Company had $15.0 million in unsecured indebtedness outstanding as
of March 31, 1999, with Doubletree Corporation ("Doubletree"), evidenced by two
promissory notes. Interest is payable quarterly at rates ranging from 10.0% to
15.0%, with principal of $12.5 million and $2.5 million payable at maturity in
November 2001, and July 2002, respectively.
Note 3: Redeemable, Convertible Preferred Stock
General
The Company has authorized "blank check" preferred stock in the amount
of 5,000,000 shares at $.01 par value per share. The stock may be issued with
such voting powers and such designations, preferences, privileges and other
special rights as designated by the Board of Directors. At the date of issuance
of any of the preferred stock, the Company determines whether the stock is
redeemable and the appropriate classification of the stock on the balance sheet.
At March 31, 1999, as more fully described below, the Company had 65,000 and
42,000 shares, respectively, of Series A and Series B redeemable preferred stock
issued and outstanding.
Series A Preferred Stock Offering
In October 1997, the Company completed a $65.0 million private placement
of 65,000 shares of Series A Redeemable, Convertible, Cumulative Preferred Stock
(the "Series A Preferred Stock") at an offering price of $1,000 per share
("Stated Value"). The net proceeds to the Company were approximately $61.3
million, after deducting commissions and expenses of $3.7 million.
The Preferred Stock accumulates dividends at a rate of 7.5% of the
Stated Value, per annum, payable in cash initially on August 31, 1998 and
thereafter, quarterly, including up to the date of conversion, when and if
declared by the board of directors.
Series A Preferred Stockholders have the right to convert, at any time
at their option into shares of common stock at the conversion price of $9.50 per
share. Subsequent to August 31, 1999, the Preferred Stock will be redeemable in
cash, in whole or part, at the option of the Company at 200% of the Stated
Value. At August 31, 2004, the Preferred Stock will be redeemed under a
mandatory redemption clause, at the Stated Value plus unpaid dividends.
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Certain of the Preferred Stockholders have voting rights related to the
nomination and election of directors as defined in a stockholders agreement.
Each Preferred Stockholder will vote together with the Common Stockholders as a
single class, on an as-converted basis, on all matters to be approved by the
Common Stockholders. For certain actions, approval of two-thirds of the shares
owned by Preferred Stockholders, as a single class, is required.
Series B Preferred Stock Offering
On August 3, 1998, the Company completed the private placement of $42.0
million of its Series B Redeemable, Convertible, Cumulative Preferred Stock (the
"Series B Preferred Stock") and warrants to purchase its common stock. In total,
42,000 shares of Series B Preferred Stock were issued at an offering price of
$1,000 per share ("Stated Value"). Preferred Stockholders were also issued, at
no additional cost, warrants to purchase 336,000 shares of common stock at
$12.00 per share. These warrants expire on July 13, 2005. The net proceeds to
the Company were approximately $39.4 million, after deducting commissions and
expenses of $2.6 million.
The Series B Preferred Stock accumulates dividends at a rate of 7.5% of
the Stated Value, per annum, payable in cash initially on August 31, 1998 and
thereafter, quarterly, including up to the date of conversion, when and if
declared by the board of directors.
Series B Preferred Stockholders have the right to convert, at any time
at their option into shares of common stock at the conversion price of $9.50 per
share. Subsequent to September 30, 1999, the Series B Preferred Stock will be
redeemable in cash, in whole or part, at the option of the Company at 200% of
the Stated Value. At September 30, 2004, the Series B Preferred Stock will be
redeemed under a mandatory redemption clause, at the Stated Value plus unpaid
dividends.
Certain of the Preferred Stockholders have voting rights related to the
nomination and election of directors as defined in a stockholders agreement.
Each Preferred Stockholder will vote together with the Common Stockholders as a
single class, on an as-converted basis, on all matters to be approved by the
Common Stockholders. For certain actions, approval of two-thirds of the shares
owned by Preferred Stockholders, as a single class, is required.
Note 4: Sale-Leaseback
In November, 1997, the Company entered into an agreement with an
affiliate of Hospitality Properties Trust ("HPT"), to sell 15 hotels for a total
purchase price of $100.0 million, and to lease the hotels back from the buyer
under a noncancelable operating lease. The Company completed the sale and
leaseback of five hotels in December 1997, nine hotels in the first quarter of
1998, and one hotel in the second quarter of 1998. In December 1998, the Company
agreed to sell two additional hotels to HPT under the terms of the 1997
transaction. These hotels were sold in January 1999.
In May 1998, the Company entered into a second agreement with HPT to
sell and leaseback 17 hotels for a total purchase price of $142.4 million, as
amended. The Company completed the sale and leaseback of four hotels in the
second quarter of 1998, six hotels in the third quarter of 1998, and six hotels
in the fourth quarter of 1998. The remaining hotel was sold in January 1999.
Terms of the sales are all cash at the close of escrow for hotels sold.
The lease term for the noncancelable operating leases is approximately 14 years
for the 17 hotels in the first transaction and 13 years for the 17 hotels in the
second transaction with all leases expiring on December 31, 2011. The leases
call for monthly lease payments and require the Company to place a security
deposit with HPT for each property equal to one year's lease payments. The
security deposit will be released to the Company at the end of the lease term.
The agreements also provide for the Company to guarantee the payment of
rent until defined operating cash flows exceed the annual lease payments by 150%
for 12 consecutive months. In connection with this obligation, the Company was
required to place a 5% deposit with HPT, upon the initial closing of each
transaction, the deposit will be refunded to the Company when cash flows from
operations exceed required lease payments by
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140% of defined cash flows from operations. The deposit is charged to cost of
sales as the hotels are sold. Upon attainment of the required coverage ratios,
the portion of the deposit refunded to the Company will be recognized in income
beginning in the period such funds, if any, are received.
As of March 31, 1999, the Company had completed the sale of all 34
hotels, three of which were sold in the first quarter of 1999. The cumulative
sales price for the three hotels sold in the first quarter of 1999 was $26.6
million with a total deferred gain on the sale of the hotels of $3.4 million.
The cumulative sales price for the 34 hotels sold to HPT was $260.9 million with
a total gain on the sales of the hotels of $20.5 million, of which $19.8 million
is deferred as of March 31, 1999. Such gain has been deferred and will be
recognized in income as noted in the Company's accounting policies (Note 1). The
Company recognized $181,000 of deferred gain in income in the first quarter of
1999. Sale proceeds, net of the deferred gain and related cost of the Hotels
sold are presented on the statement of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes thereto.
GENERAL
Candlewood owns, operates, manages, develops and franchises hotels
serving mid-market extended-stay business travelers. Our overall results of
operations and financial position are significantly influenced by our
development activity. The following table sets forth our hotel development at
March 31, 1999 and March 31, 1998:
<TABLE>
<CAPTION>
Number of Hotels
March 31,
----------------------------------------
Increase /
1999 1998 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Open Hotels
Company - Operated 58 23 35
Franchised 10 5 5
------ ------ ------
Total 68 28 40
Under Construction
Company - Owned 7 30 (23)
Franchised 1 5 (4)
------ ------ ------
Total 8 35 (27)
Under Contract
Company - Owned 13 38 (25)
</TABLE>
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We opened six hotels in the first quarter of 1999 in the following areas:
Company-Operated:
- Dallas, Texas (Greenville)
- Chicago, Illinois (Schaumburg)
- Chicago, Illinois (Warrenville)
- Atlanta, Georgia
- St. Louis, Missouri
Franchised:
- Salina, Kansas
At the end of 1998, we had a total of 53 company-operated hotels and
nine franchised hotels located in 26 different states. At March 31, 1999, we had
a total of 58 company-operated hotels and 10 franchised hotels in operation
located in 28 different states. At the end of the first quarter of 1999, we had
a total of seven company-owned hotels and one franchised hotel under
construction. In addition, our portfolio included six properties that we had
acquired previous to or during the first quarter. We are currently working to
secure financing for construction of these projects. We are also performing
market-feasibility due diligence with respect to seven potential development
sites. The contracts into which we enter for the purchase of potential hotel
sites provide for numerous investigations and other due diligence, including
environmental studies and title reports, prior to the closing of the sale. We
have the right to terminate each contract if we are not satisfied with the
results of the investigations and due diligence. We are unable to assure that we
will acquire properties or complete the development and construction of hotels
or that any such development or construction will be completed on time or within
budget. In addition, if we abandon a contract, we may write-off certain costs
that would otherwise be capitalized.
In two separate sale-leaseback transactions, we have sold and leased
back certain of our hotels from HPT, a real estate investment trust. The
provisions of the transactions allow us to operate, as lessee, over a defined
lease term, hotels that we developed or will develop. The transactions were
closed in stages, beginning in 1997 and ending in early 1999. Five hotels were
sold in 1997 with an additional 26 hotels sold during 1998. The remaining three
hotels were sold and leased back in January 1999. The results from operations
for 1999 and 1998 reflect the transactions. As a result of the sale-leaseback
transactions, we have recorded rent expense on the hotels leased back from HPT.
As the hotels are leased and not owned, the financial statements do not reflect
any depreciation and amortization or interest expense for these hotels after the
date of sale. The proceeds from the sale of the hotels is recorded net of the
deferred gain on sale. Under generally accepted accounting principles, the gain
must be deferred and not recognized into earnings until certain operating
performance levels are achieved.
The following table sets forth our operating property portfolio as of
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Number of Hotels Number of Rooms
March 31, March 31,
1999 1998 Increase 1999 1998 Increase
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Company Operated:
Company Owned 24 9 15 2,790 999 1,791
Leased 34 14 20 3,891 1,470 2,421
----------------------------------------------------------------------------
Total 58 23 35 6,681 2,469 4,212
Franchised 10 5 5 1,119 595 524
----------------------------------------------------------------------------
Total System 68 28 40 7,800 3,064 4,736
</TABLE>
Our results are dependent upon our revenue per available room (RevPAR)
which is a factor of occupancy and room rate. Accordingly, we intend to remain
focused on occupancy levels at each of our hotels until such time the occupancy
levels reach stabilization. Due to our rapid expansion, the overall occupancy
rate has been negatively impacted by the lower occupancy typically experienced
during the pre-stabilization period for newly
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opened facilities. This negative impact on occupancy is expected to diminish as
the ratio of new property openings during a period to total properties in
operation at the end of the period decreases. Once our hotels' occupancy levels
have stabilized, we review the nightly pricing rates of our hotels. We believe
that this practice is a prevailing standard in the lodging industry.
RESULTS OF OPERATIONS
Comparison of fiscal quarters ended March 31, 1999 and 1998
Hotel Operations
Hotel Operations Revenue
Hotel operations revenue, which includes room revenue and other revenue
(e.g. guest telephone, vending, pay per view movie rental), totaled $21.3
million for the quarter ended March 31, 1999, compared to $6.9 million for the
quarter ended March 31, 1998. The increase in revenue reflects the increase in
the number of hotels in operation during the first quarter of 1999. The
following table sets forth our operating statistics for the three months ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------- ------
1999 1998 Change
------ ------ ------
<S> <C> <C> <C>
Occupancy 60.1% 60.0% 0.1%
Average Daily Rate $59.26 $53.83 $ 5.43
Revenue per available room $35.60 $32.30 $ 3.30
</TABLE>
Average occupancy rate, which is determined by dividing the number of
guestrooms occupied on a daily basis by the total number of guestrooms available
for the period, was 60.1% for the quarter ended March 31, 1999, compared to 60%
for the quarter ended March 31, 1998. Although our occupancy for the two
quarters is comparable, we noted two distinct factors that contributed to the
1999 occupancy rate. First, occupancy rate continues to be positively impacted
by the increasing occupancy of hotels that had completed or were near completion
of their ramp-up phase. Second, occupancy at certain of our more established
properties was negatively impacted in the first quarter as a result of our
efforts to increase rates at those properties. It is our practice to review
individual markets on a periodic basis to assess the impact of competition on
local supply and demand and establish rates that provide optimal occupancy.
The average daily room rate for the quarter ended March 31, 1999 was
$59.26, compared to $53.83 for the same quarter in 1998. Average daily room
rates are determined by dividing room revenue by the number of guestrooms
occupied on a daily basis for the applicable period. The increase in average
daily rate was largely due to increases in rates charged at previously opened
properties and higher introductory rates for new hotel openings. Other factors
which influence average daily room rates include (i) stays of less than one
week, which are charged at a higher nightly rate, (ii) higher rates for our
one-bedroom suites, and (iii) higher rates in certain hotel locations. Revenue
per available room, calculated as the average occupancy rate multiplied by the
average daily rate, was $35.60 for the quarter ended March 31, 1999 compared to
$32.30 for the quarter ended March 31, 1998. Future occupancy and room rates may
be impacted by a number of factors, including the number and geographic location
of new hotels, as well as the season in which such hotels open, competition,
market acceptance of our hotels and general economic conditions. We cannot
predict whether current occupancy and room rates can be maintained.
13
<PAGE> 14
We consider a property to have completed its initial ramp-up phase
somewhere between six and twelve months following hotel opening. The initial
ramp-up phase is dependent on the supply demand characteristics of individual
markets. The following table sets forth the performance of hotels open greater
than six months as of January 1, 1999 and 1998:
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
1999 1998 Change
------ ------ ------
<S> <C> <C> <C>
Number of hotels 33 5 28
Average age (in months) 12.5 10.2 2.3
Occupancy 66.9% 66.1% 0.8%
Average Daily Rate $60.78 $50.98 $ 9.80
Revenue per available room $40.67 $33.70 $ 6.97
</TABLE>
Hotel Operating Expenses
Hotel operating expenses for the quarter ended March 31, 1999 totaled
$13.1 million, compared to $4.4 million for 1998. Hotel operating expenses
consist of all expenses directly applicable to the operation of the hotels. The
largest portion of hotel operating expenses was made up of salaries, wages and
fringe benefits. The balance of hotel operating expenses was comprised of normal
operating items, such as utilities, property taxes, insurance, supplies,
promotional materials, maintenance items and similar expenses. The increase in
hotel operating expenses is largely due to the increased number of hotels in
operation during the first quarter of 1999. In addition, the variable nature of
many of the expenses factors into the overall increase in hotel operating
expenses. For example, labor, utilities, and cleaning supply costs increase as
occupancy at the hotel increases.
Rent Expense on Leased Hotels
We incurred rent expense of $6.1 million for the 34 hotels leased as of
March 31, 1999. We recorded $1.4 million of rent expense in 1998 for the 14
hotels leased as of March 31, 1998. The increase in rent expense reflects the
sale and leaseback of 20 additional hotels since March 31, 1998.
Hotel Opening Costs
Opening costs are costs incurred prior to the opening of a hotel and
include costs related to hiring and training of hotel personnel, such as travel,
compensation and relocation. During the fourth quarter of 1998, we elected early
adoption of Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5). SOP 98-5 requires opening costs to be expensed as
incurred. Prior to adoption of SOP 98-5, we capitalized and amortized opening
costs using the straight-line method over a period of twelve months.
Amortization expense on opening costs for 1998 is included in depreciation and
amortization on the statement of operations. Opening costs for the quarter ended
March 31, 1999, totaled $585,000. There were no hotel opening costs for the
quarter ended March 31, 1998, however, we did record $131,000 of amortization
expense in the period for opening costs which had been capitalized. These costs
were written off in full in December 1998.
Hotel Depreciation and Amortization
Depreciation and amortization expense applicable to hotel operations
(e.g. building, furniture, fixtures and equipment) for the quarter ended March
31, 1999, totaled $1.4 million, compared to $290,000 for the quarter ended March
31, 1998. Depreciation and amortization expense for 1998 included amortization
of capitalized opening costs prior to the adoption of SOP 98-5. The increase in
depreciation and amortization expense in the first quarter of 1999 compared to
1998 was a result of the increase in the number of company-owned hotels in
operation. In accordance with generally accepted accounting principles, the
Company does not depreciate assets held for sale. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
respective assets, ranging from three to forty years.
14
<PAGE> 15
Corporate Operations
Other Income
Other income for the quarter ended March 31, 1999 totaled $207,000,
compared to $174,000 for 1998. Other income consists primarily of franchise fees
and royalty fees from franchise hotels, management fees received from managed
hotels and equity income from a joint venture hotel in Rockford, Illinois. At
March 31, 1999, we had 10 franchised hotels in operation, compared to five
hotels at March 31, 1998. Additionally, in March a second managed hotel, the
Hotel at Old Town, opened in Wichita, Kansas. The growth in other income in
1999, compared to 1998 reflects an increase in royalty, franchise fee and
management fee income.
In addition, during the first quarter of 1999 we sold three additional
hotels as part of the sale-leaseback transaction. The total sales price for
these hotels was $26.6 million. A deferred gain of $3.4 million was recorded on
the sales. For the quarter ended March 31, 1999, we recognized $181,000 of gain
on hotels sold compared to $40,000 in 1998.
Corporate Operating Expenses
Corporate operating expenses for the first quarter of 1999 totaled $1.2
million compared to $808,000 for 1998 and included all expenses not directly
related to the development or operations of specific hotels. The largest portion
of corporate operating expenses consisted of salaries, wages and fringe
benefits. The balance of other corporate operating expenses was comprised of
normal operating costs, such as office space lease, travel, utilities,
advertising, professional fees and similar expenses. The increase over the prior
period is principally attributable to the salaries, wages, fringe benefits and
travel for additional employees required to support the increased number of
hotels in operation.
Corporate Depreciation and Amortization
Depreciation and amortization applicable to corporate operations for the
quarter ended March 31, 1999 totaled $124,000, compared to $57,000 for 1998 and
related to the furniture, equipment and intangible assets at the corporate
office. The increase in depreciation and amortization reflects the increase in
furniture, fixtures and equipment as the corporate office support staff expanded
to meet our growth needs. Depreciation expense is calculated using the
straight-line method over the estimated useful lives of the respective assets,
ranging from three to twenty years. Amortization expense for intangible assets
(e.g. operating rights, trademarks) is computed using the straight-line method
over the life of the corresponding asset.
Interest Income and Expense
We earned $282,000 of interest income during the first quarter of 1999.
This income resulted primarily from short-term investment of excess funds
received from the sale-leaseback transaction and the Series B Preferred Stock
offering. For the quarter ended March 31, 1998, we earned $362,000 of interest
income related to the temporary investment of excess funds that stemmed from the
Series A Preferred Stock offering and proceeds from the sale-leaseback
transaction.
We had interest expense, net of capitalized interest, of $1.5 million
for the quarter ended March 31, 1999, compared to $38,000 for 1998. The increase
in interest expense was the result of the slowdown in our development activity
during the first quarter of 1999. We began construction of fewer projects in the
first quarter of 1999 thereby limiting the amount of interest that could be
capitalized.
15
<PAGE> 16
Sales of Hotels
In two separate sale-leaseback transactions, we have sold and leased back 34
hotels from HPT with a cumulative sales price of $260.9 million. The
transactions were completed in several phases from December 1997 to January
1999. In accordance with generally accepted accounting principles, a deferred
gain of $20.5 million was recorded on the sales of which $750,000 has been
recognized in income during 1998 and 1999. The following table sets forth the
activity for the three months ended March 31, 1999 and March 31, 1998 (in
thousands, except number of hotels):
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1999 1998
-------- ----------
<S> <C> <C>
Number of hotels sold - quarter 3 9
Number of hotels sold - total 34 14
Proceeds from sales of hotels, net of
deferred gain $23,196 $48,922
Rent expense on leased hotels $ 6,136 $ 1,422
Gain recognized into earnings $ 181 $ 40
</TABLE>
Liquidity and Capital Resources
We had cash and cash equivalents of $18.2 million at March 31, 1999
compared with $18.1 million at March 31, 1998. Net cash provided by operating
activities totaled $14.4 million in the first quarter of 1999 compared to $41.2
million in 1998. The primary sources of cash in the first quarter of 1999 were
the reduction of $20.8 million in the amount of hotels held for sale, an
increase of $3.2 million in deferred gain on sale of hotels and $1.5 million of
non-cash depreciation and amortization expense. Uses of cash consisted of $2.0
million in net loss from operations, a decrease of $5.6 million in accounts
payable and accrued expenses and a $2.5 million increase in the amount of
deposits relating to the sale-leaseback of certain of our hotels. The primary
source of cash for the quarter ended March 31, 1998 related to the $39.4 million
reduction in the amount of hotels held for sale pursuant to the sale-leaseback
transaction.
Net cash used in investing activities for the quarter ended March 31,
1999 totaled $41.9 million, compared to $56.6 million for the quarter ended
March 31, 1998. Our expenditures for property and equipment in connection with
the completed hotels, the construction of new hotels, acquisition costs for
properties under contract, and the costs of hotels sold accounted for the
majority of the cash used. For the quarter ended March 31, 1999, we expended
approximately $33.3 million on construction, compared to $56.3 million for the
quarter ended March 31, 1998.
For the three months ended March 31, 1999, net cash provided by
financing activities was $22.5 million and included $27.7 million in proceeds
from mortgages and notes payable. For the quarter ended March 31, 1998, net cash
used in financing activities was $1.9 million as the amount of payments on
mortgages and notes payable exceeded the amount of proceeds received from the
notes. These payments related to the payoff of note balances for certain of our
hotels pursuant to the sale-leaseback transaction.
At March 31, 1999, we had seven hotels under construction with a total
estimated cost of approximately $63.8 million. Our total equity requirement for
these properties is $18.1 million, all of which had been funded as of March 31,
1999. At March 31, 1999, we had secured financing on six hotels in the amount of
$40.8 million and were processing loans with a third-party lender with respect
to the remaining property which, if approved, would provide an estimated $4.9
million of additional financing.
In addition to hotels under construction, we had 13 properties under
contract at March 31, 1999. Included in this list are the six properties we had
acquired but not yet placed under construction. The total project cost for these
13 properties is estimated at $161.9 million. As of March 31, 1999, we had
incurred costs of approximately
16
<PAGE> 17
$23.3 million on these projects. These costs include land acquisition costs,
deposits and fees for surveys, legal services, environmental studies, and
architectural drawings.
We believe that a combination of our cash and cash equivalents, cash
from operations, borrowed funds from third-party lenders (if approved on an
individual basis) and construction loan guarantees from Doubletree will be
sufficient to provide capital for development of projects currently under
construction and operations through 1999. Substantial capital resources in
addition to those discussed above will be necessary for us to continue to
develop the properties under contract. In addition, from time to time we will
consider strategic acquisitions as a means of growth, which would similarly
require additional capital. We are actively considering and/or pursuing a number
of financing alternatives, including credit facilities, the issuance of debt and
joint ventures. We are unable to assure that we will be able to obtain financing
on a timely basis, on acceptable terms, or at all. Failure to obtain such
financing could result in the delay or abandonment of some or all of our
development and expansion plans, losses of deposits or other committed capital,
and could have a material adverse effect on our business and results of
operations.
We have not paid dividends on our Common Stock. We currently do not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Dividend payments on the Series A and Series B Preferred Stock are paid
quarterly and in preference to the Common Stock. These payments are
approximately $2.0 million per quarter. After payment of dividends on the Series
A and Series B Preferred Stock, we intend to retain any future earnings for
reinvestment in the development and expansion of our business.
In response to current capital market conditions we have adopted a
conservative hotel development strategy. As a result of this conservative
strategy, in March 1999 we announced a layoff of certain corporate office
personnel. This action was taken to make necessary adjustments to our resources
dedicated to hotel development.
In May 1999 we continued our efforts to expand our national franchise
sales program by hiring a Vice President of Franchise Sales. We anticipate that
this change will result in a more targeted approach to our franchise development
and provide a basis for us to launch an aggressive franchise sales effort.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in similar normal business activities.
We have established a plan to resolve the Year 2000 issue. The plan
consists of four phases: assessment, remediation, testing, and implementation.
A. Assessment - We have completed our assessment of all systems, both
information technology and non-information technology, that could be
significantly affected by the Year 2000 issue. The results of the
assessment of our systems are as follows:
1) Our core financial systems - All hardware and software were
replaced in 1998 as part of the successful implementation of a
new accounting system. The new system has been certified to be
fully compliant with the Year 2000 issue by the vendor.
2) Other corporate office systems, including the local area network,
phone systems, E-mail, imaging systems, word processing,
spreadsheets, and scheduling software have all been evaluated and
tested and found to be in compliance.
3) Hotel property management system - Our initial assessment found
our property management system not to be Year 2000 compliant.
National Guest Systems has written an upgrade to the IS4 software
to make it Year 2000 compliant. This upgrade was installed in the
17
<PAGE> 18
hotels in January of 1999. National Guest Systems has represented
to us that the software is now fully compliant. We will perform
further testing on this software in phase two of our plan
4) Other hotel systems purchased from third-party vendors - These
systems include the elevators, voice mail, energy management and
HVAC system, phone switches, room key systems, fire and security
systems, and any other equipment or systems that have an
"embedded" chip that records the date. We have requested and
obtained written verification from all of our major vendors that
their product is Year 2000 compliant. Furthermore, the plans
given to our contractors specify that all systems are Year 2000
compliant.
B. Remediation - As previously mentioned, our assessment indicated that
only one of our systems was not Year 2000 compliant. This is our
property management software purchased from National Guest Systems.
National Guest Systems has since modified the software, adding a
four-digit year instead of the two-digit previously used. This
modification has been installed in our hotels and is currently in use.
National Guest Systems has represented to us that the software is now
fully Year 2000 compliant. No other issues have been detected in any of
our systems.
C. Testing - The testing phase of our plan involves actually using the
software with dates into the next year and testing the results. We have
begun this testing on personal computers in our corporate office and
will expand our tests to the field systems, including the property
management system, during the second quarter of 1999. As of March 31,
1999, this process was 50% complete. We anticipate completion by
September 30, 1999. We anticipate that this will allow sufficient time
to remedy any problems that we identify.
D. Implementation - The final phase of our plan is scheduled for completion
during the fourth quarter of 1999. We anticipate that all systems will
be modified, tested and in place by that date.
To date the only costs we have incurred as a result of the Year 2000
issue have been the internal costs of labor to perform the assessment and
testing of our systems. We do not anticipate incurring any other costs as a
result of the Year 2000 issue. We estimate that the total amount of internal
labor incurred by us to assess, remedy and test the systems will be less than
$100,000.
We have contingency plans for certain critical applications and are
working on such plans for others. These contingency plans involve, among other
actions, data backup and retrieval, manual workarounds and adjustments to
staffing strategies.
Failure to address the Year 2000 issue by third-party vendors that we
rely upon could have a material adverse effect on our business and results of
operations. Examples of third-party vendors include utility providers,
elevators, phone service providers, banks and data processing providers.
Disruptions in the operation of airlines and central reservation systems, as
well as a general disruption in the national or regional economy would also have
an adverse impact on our business and results of operations. We are unable to
estimate the likelihood or impact of these events.
Impact of New Accounting Standards
There have not been any new accounting standards or pronouncements
issued that would have an impact on our business and results of operations.
18
<PAGE> 19
Quantitative and Qualitative Disclosure of Market Risk
Our earnings are affected by changes in interest rates as a portion of
our outstanding indebtedness is at variable rates based on LIBOR. If interest
rates change by .01 percent, the market value of our mortgages and notes
payable, based on the outstanding balance at March 31, 1999 would change by
approximately $13,900. Additionally, we have market risk on our short-term
investments, which are considered cash equivalents, due to changes in interest
rates. If interest rates increase by .01 percent, the market value of our
short-term investments, based on the outstanding balance at March 31, 1999,
would change by approximately $1,200.
19
<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Form
10-Q as well as some of our statements in periodic press releases and some oral
statements of our officials during presentations about the company are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include statements
that are predictive in nature, which depend upon or refer to future events or
conditions, which include words such as "believes," "anticipates," "estimates,"
"expects" or similar expressions. In addition, any statements concerning future
financial performance, ongoing business strategies or prospects, and possible
future actions, which may be provided by our management, are also
forward-looking statements. Forward-looking statements are based on current
expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about our company, economic and market factors
and the industry in which we do business, among other things. These statements
are not guaranties of future performance and we have no specific intention to
update these statements.
Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. The
principal important risk factors that could cause our actual performance and
future events and actions to differ materially from such forward-looking
statements, include, but are not limited to, adverse changes in national or
local economic conditions, competition from other lodging properties, changes in
real property tax rates, changes in the availability, cost and terms of
financing, the impact of present or future environmental legislation, the
ongoing need for capital improvements, changes in operating expenses, adverse
changes in governmental rules and fiscal policies, civil unrest, acts of God,
including earthquakes and other natural disasters (which may result in uninsured
losses), acts of war, and adverse changes in zoning laws. Certain of these
factors are discussed in more detail elsewhere in this Form 10-Q and the
Company's other filings with the Securities and Exchange Commission.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The list of exhibits contained in the accompanying Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANDLEWOOD HOTEL COMPANY, INC.
Date: May 14, 1999 By: /s/ Jack P. DeBoer
------------ ----------------------------------------
Jack P. DeBoer, Chairman
and Chief Executive Officer
Date: May 14, 1999 By: /s/ Warren D. Fix
------------ ----------------------------------------
Warren D. Fix, Executive Vice President
and Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Candlewood Hotel Company,
Inc. (1)
3.2 Amended and Restated Bylaws of Candlewood Hotel Company, Inc. (11)
3.3 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof of Series A
Cumulative Convertible Preferred Stock of Candlewood Hotel Company,
Inc. (3)
3.4 Certificate of Amendment of Certificate of Designations of Series A
Preferred Stock. (10)
3.5 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof of Series B
Cumulative Convertible Preferred Stock of Candlewood Hotel Company,
Inc. (10)
4.1 Specimen Certificate of Common Stock. (1)
4.2 Form of Warrant. (9)
4.3 Amended and Restated Stockholders Agreement dated as of July 10,
1998. (10)
10.1 Form of Indemnification Agreement for Executive Officers and
Directors. (5)
10.2 Indemnification Agreement Schedule. (11)
10.3 1996 Equity Participation Plan and Form of Stock Option
Agreements. (5)
10.4 First Amendment to the 1996 Equity Participation Plan effective as
of May 18, 1998. (11)
10.5 Employment Agreement between Candlewood Hotel Company, Inc. and Jack
P. DeBoer dated as of September 1, 1996. (1)
10.6 Credit Facility Agreement between Candlewood Hotel Company, Inc. and
Doubletree Corporation dated as of November 11, 1996. (2)
10.7 Subordinated Promissory Note from Candlewood Hotel Company, Inc. to
Doubletree Corporation dated as of November 11, 1996. (2)
10.8 Employment Agreement between Candlewood Hotel Company, Inc. and
James Roos dated as of June 2, 1997. (4)
10.9 Series A Cumulative Convertible Preferred Stock Purchase Agreement
dated as of August 27, 1997. (3)
10.10 Amended and Restated Registration Rights Agreement dated as of
July 10, 1998. (10)
10.11 Purchase and Sale Agreement, dated as of November 19, 1997, by and
among Candlewood Hotel Company, Inc. and certain of its affiliates,
as sellers, and HPT, as purchaser. (6)
10.12 First Amendment to Purchase and Sale Agreement and Agreement to
Lease and Fourth Amendment to Lease Agreement and Incidental
Documents, dated as of January 7, 1999, by and among Candlewood
Hotel Company, Inc., Candlewood Leasing No. 1, Inc., HPT and HPT CW,
and seventeen entities which are parties thereto. (11)
10.13 Agreement to Lease, dated as of November 19, 1997, by and between
Candlewood Hotel Company, Inc. and HPT. (6)
10.14 Lease Agreement, dated as of December 24, 1997, by and between
HPTCW, as landlord, and Candlewood Leasing No. 1, Inc., as
tenant. (6)
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
10.15 Guaranty Agreement, dated as of December 24, 1997, by Candlewood
Hotel Company, Inc. for the benefit of HPTCW and HPT. (6)
10.16 Stock Pledge Agreement, dated as of December 24, 1997, by Candlewood
Hotel Company, Inc. for the benefit of HPTCW. (6)
10.17 Purchase and Sale Agreement, dated as of May 14, 1998, by and among
Candlewood Hotel Company, Inc. and certain of its affiliates, as
sellers, and HPT, as purchaser. (7)
10.18 First Amendment to Purchase and Sale Agreement, Agreement to Lease,
Lease Agreement and Incidental Documents, dated as of June 18, 1998,
by and among Candlewood Hotel Company, Inc., Candlewood Leasing No.
2, Inc., HPT and HPT CW II. (11)
10.19 Second Amendment to Purchase and Sale Agreement, Agreement to Lease,
Lease Agreement and Incidental Documents, dated as of July 31, 1998,
by and among Candlewood Hotel Company, Inc., Candlewood Leasing No.
2, Inc., HPT and HPT CW II. (9)
10.20 Third Amendment to Purchase and Sale Agreement and Agreement to
Lease and Sixth Amendment to Lease Agreement and Incidental
Documents, dated as of December 23, 1998, by and among Candlewood
Hotel Company, Inc., Candlewood Leasing No. 2, Inc., HPT, HPT CW II
and seventeen entities which are parties thereto. (11
10.21 Agreement to Lease, dated as of May 14, 1998, by and between
Candlewood Hotel Company, Inc. and HPT. (7)
10.22 Lease Agreement, dated as of May 21, 1998, by and between HPTCW, as
landlord, and Candlewood Leasing No. 2, Inc., as tenant. (7)
10.23 Guaranty Agreement, dated as of May 14, 1998, by Candlewood Hotel
Company, Inc. for the benefit of HPTCW and HPT. (7)
10.24 Stock Pledge Agreement, dated as of May 27, 1998, by Candlewood
Hotel Company, Inc. for the benefit of HPTCW. (7)
10.25 Securities Purchase Agreement dated as of June 30, 1998. (10)
10.26 Lease Agreement dated April 30, 1998 by and between Candlewood Hotel
Company, Inc. and Vantage Point Properties, Inc. (11)
11.1 Statement re Computation of Per Share Earnings -- not applicable.
27.1 Financial Data Schedule.
</TABLE>
- -----------
(1) Incorporated by reference pursuant to Rule 12b-32 from Candlewood Hotel
Company, Inc.'s Registration Statement on Form S-1 (Registration No.
333-12021).
(2) Incorporated by reference from Candlewood Hotel Company, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(3) Incorporated by reference from Candlewood Hotel Company, Inc.'s Current
Report on Form 8-K filed on October 8, 1997.
(4) Incorporated by reference from Candlewood Hotel Company, Inc.'s Quarterly
Report on Form 10-Q for the period ended June 30, 1997.
(5) Incorporated by reference from Candlewood Hotel Company, Inc.'s Quarterly
Report on Form 10-Q for the period ended September 30, 1997.
(6) Incorporated by reference from Candlewood Hotel Company, Inc.'s Current
Report on Form 8-K filed January 7, 1998.
(7) Incorporated by reference from Candlewood Hotel Company, Inc.'s Current
Report on Form 8-K filed June 9, 1998.
(8) Incorporated by reference from Candlewood Hotel Company, Inc.'s Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997 filed
July 30, 1998.
(9) Incorporated by reference from Candlewood Hotel Company, Inc.'s Current
Report on Form 8-K/A filed August 6, 1998.
(10) Incorporated by reference from Candlewood Hotel Company, Inc.'s Current
Report on Form 8-K/A filed August 10, 1998.
(11) Incorporated by reference from Candlewood Hotel Company, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and statements of operations and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,151,000
<SECURITIES> 0
<RECEIVABLES> 4,895,000
<ALLOWANCES> (144,000)
<INVENTORY> 0
<CURRENT-ASSETS> 23,046,000
<PP&E> 245,052,000
<DEPRECIATION> (3,188,000)
<TOTAL-ASSETS> 301,897,000
<CURRENT-LIABILITIES> 25,466,000
<BONDS> 139,243,000
100,737,000
0
<COMMON> 90,000
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<TOTAL-REVENUES> 45,133,000
<CGS> 23,196,000
<TOTAL-COSTS> 22,510,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,480,000
<INCOME-PRETAX> (2,053,000)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,053,000)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
